Marketbeat observes "one puzzle about yesterday’s existing-home-sales data from the National Association of Realtors is that, while the number of sales plummeted and inventories rose to a 13-year high, the median price nationally was up year-over-year.
I was just discussing this with someone over the weekend; I found two possible explanations for this: one nefarious and one less so.
The reported measure of Median home price sales is impacted by both the region where homes are selling, as well as the size/price of the house. While this mix should (more or less) average out over time, there will be periods where it might get skewed.
I suspect this is one of those times.
For example: Let’s assume the hottest areas that have seen the most price appreciation have cooled off dramatically. Much fewer homes are selling today in Miami and Las Vegas. Existing Home Sales in the North East dropped 12.5%, and plummeted 18 out West. However, the Midwest fell only 10%, and the South fell 7%. Backout the hot areas of these last 2 (Chicago and South Florida) and the cooler areas of the country where prices haven’t gotten ridiculous are likely still selling in decent, "non frothy" numbers.
Another factor: less starter homes and lower end housing sales. Given the home affordability index is at 15 year lows, and rental prices have moved significantly upwards, we are likely seeing a mix of homes skewed much more towards the upper than lower ends of the spectrum. As more people get priced out of the home ownership market, we will see less "starter" homes, and more higher end (but not neccessarily McMansions) Houses sold. This could have the effect of making median price changes appear steady.
So we may be seeing the hottest areas unit sales drop a lot, and the cooler areas maintain some semblance of normality; At the same time, a lot higher percentage of big houses are being sold than last year, it may make prices appear steady — but we know they really aren’t.
One of the more nefarious sources is that new homes are throwing in lots of seller’s concessions. I’ve seen ads for free cars, free landscaping, free mortgage payments, free granite counter tops, subsidized mortgages — even (literally) the kitchen sink. Any seller’s concession on a new or even an existing home makes the sale price appear far greater than it actually is, hence, skewing the data to the upside.
UPDATE August 25, 2006 9:24am
I wrote this last night, and cleaned it up and posted it earlier this morning — then on the train into work, I see this NYT story:
Home sales are falling rapidly, and the number of houses on the market is
surging. Yet each new economic report offering evidence of a housing slowdown
also shows that the national median home price has continued to rise over the
“We don’t have any house price indexes that get it right,” said Todd Sinai, an
associate professor of real estate at the Wharton School of the University of
That sounds about right. Once we look at the specifics, incentives seem to be rather aggressive:
"The typical incentive package from a home builder consists of upgrades to the
house — granite countertops instead of humdrum tiles, stainless-steel
refrigerators and stoves instead of plain white models and wood blinds instead
of plastic. At the extremes, some have thrown in $30,000 swimming pools.
Buyers who demand discounts often get them in the form of excused closing
costs or low interest rate loans made by builder-affiliated mortgage
On the west coast of Florida, builders are advertising incentives like
upgraded countertops, interest rate promotions and cash rebates totaling
$40,000, or 6.6 percent to 8 percent of the sales price, on homes that sell for
$500,000 to $600,000, said John Dew, a real estate agent in Naples."
The reality is that home prices have probably fallen 10% already . . .
Rents Are Rising Rapidly After Long Lull
NYTimes, August 19, 2006
Home Sour Home
WSJ, 1:43 p.m., August 24, 2006
Home for Sale, by Anxious Owner
VIKAS BAJAJ and DAVID LEONHARDT
NYTimes, August 25, 2006