It’s hard to know what to believe anymore. You see all the “For Sale” signs, you hear about rising interest rates, and rising inventory- but then you read that the median price continues to go up. If the market is really going down, how can that be?
Housingdoom has it’s own “Deepthroat”- a local realtor who is our insider in the real estate industry. Here’s his response when asked about median prices:
It’s seems the only argument still standing for the “soft landing ” crowd is the rising median prices. Most other arguments have been crushed by the overwhelming amount of empirical data (inventory levels, sales, etc).
How many times have you heard, ” We’re doing just fine. In fact, our median price just went up $5,000. It’s slowing down other places, but not here.” On face value they are right, median prices do suggest that pricing has leveled out, or is perhaps increasing slightly. To the home seller this is quite reassuring.
Nothing however, could be farther from the truth. For the uninitiated, here’s a quick primer:
The median price simply states that there are an equal number of sales above a given price as below. Median does NOT equal average price. In addition, median price does NOT account for the following:
– The variance at which data points are above or below the median. (In other words, it won’t tell you if a $300,000 house is in between a range of $275,000 and $350,000; or between $100,000 and $500,000.)
– The actual size of the home.
– The quality or condition of the home.
– Amenities in the home.
These factors are of utmost importance in determining a home’s value, but the median price model ignores them!
When looking at the median, you need to break it down and isolate some of the variables. A good example is a breakdown done by Ron Wilczek, a Gilbert area realtor. Here’s what Ron’s data looks like:
JULY ’06 – 2,527 Homes for sale; 320 sold (12.7%); 7.9 months inventory
avg. 2,137 sf – (Median) price $366,497 – on market 82 days – price per-sq ft $172
JUNE ’06 – 2,310 Homes for sale; 390 sold (16.9%); 5.9 months inventory
avg. 2,085 sf – (Median) price $364,317 – on market 76 days – price per-sq ft $175
MAY ’06 – 2,269 Homes for sale; 346 sold (15.2%); 6.6 months inventory
avg. 2,070 sf – (Median) price $367,224 – on market 73 days – price per-sq ft $177
April ’06 – 285 sold – avg. 2,033 sf – (Median) price $360,552 – on market 67 days – price per-sq ft $177
March ’06 – 348 sold – avg. 2,043 sf – (Median) price $364,464 – on market 64 days – price per-sq ft $178
February ’06 – 246 sold – avg. 2,035 sf – (Median) price $359,514 – on market 65 days – price per-sq ft $177
Note that as the median price went up, the price per square foot actually went down. How can this be? As you can also see from the table- the size of those homes being sold every month increased– hence the rising price of the median.
After reading Ron’s data, “soft landing” advocates may concede the fact that home “values” may not be going up as the median price indicates- but figure that at least values aren’t headed down. Wrong.- Dead wrong!
Let’s take the next logical step and determine exactly what people are buying. There are about 30 subdivisions I track in the newer areas of the SE valley. However, I have several in particular that I track very closely (daily). I watch for inventory levels, the number of homes under contract, selling prices, price reductions, days on market, etc.. I also track the “Solds” to see what amenities are included now at a specific price.
Although the selling price may be the same as last year (price/SF), the homes selling now include MANY high $$ upgrades. Almost all of the homes sold now have most of these options- premium lots, pools/spas, upgraded appliances, upgraded flooring, etc. Bottom line- today you’ll pay the same cost/SF but you’ll get 50-70k in upgrades you had to “pay” for last year. This should not come as a surprise to anyone, as the days of investors buying anything with four walls are gone. The only people buying homes now actually want to live in them. (strange concept) People purchasing homes for their own use are much more likely to put additional upgrades in a home than an investor would. This is a trend being repeated in developments all across the Southeast Valley.
Median prices stable. (For now)=True,
Cost/SF somewhat stable. (For now)=True
Value of my home going down. =True Who’s lying?? Well…….everybody… and….nobody. It just depends on which side of the fence you are on. Builders, Realtors, mortgage companies, etc. gladly point to the somewhat stable and meaningless median price. Informed buyers however, prefer to dig a bit deeper.The median prices will fall in the coming months- how long and how far is still open for debate. Unlike the stock market, where a company’s performance is almost instantaneously reflected in its stock price, the real estate market can take months -even years to adjust.
The median prices will fall in the coming months- how long and how far is still open for debate. Unlike the stock market, where a company’s performance is almost instantaneously reflected in its stock price,One of the vehicles that helped the market run up quickly though, may be the same thing that drives it down quickly- a good old fashioned Bidding War. This year though, it’s the SELLERS doing the bidding. Sellers are sometimes dropping prices almost daily just to keep up with their neighbors- trying to hook the ever more elusive Phoenix home buyer.
(Housingdoom would like to thank our local realtor for his insight. Debi AKA Twist)