Blanche Evans, editor of Realty Times says:
Stop listening to the media. Go buy a home.
Her logic?
Why buy a house now? You’ve been getting bad information. Here’s why.
The financial press is worried that they might have gone too far — paralyzing the nation into recession by piling on housing. So they’re finally beginning to question the indexes where they get their data, and whether the news is really as bad as it seems. Slowly but surely, headlines are changing from ‘Don’t Buy A Home Now’ to ‘Is It Time To Buy?’
We said it here first on Realty Times — that consumers aren’t getting the full story. Indexes [sic] can be misleading because of the locations, prices, types of housing, and rates of increase they track.
Actually, I think we at Doom were criticizing the indices [In particular those of the National Association of Realtors] before Realty Times was- they didn’t seem to object to the flaws during the boom markets. They are correct however, that the indexes are not without their limitations. Evans states:
Finally, one brave journalist is writing that Case-Shiller is flawed.
In his story "Home-price data has its flaws,"Chris Plummer of MarketWatch slammed both Shiller’s Index and the Associated Press for being "Grim Reapers."
For the first time, S&P Index Committee Chairman David Blitzer "acknowledged his organization’s overall and metro-market readings paint an incomplete picture."
No kidding. The Index covers only 20 markets, heavily weighted to the most volatile metros in the nation.
That Case-Shiller looks at 20 markets is not a news flash to those of us who actually look at the data every month. The Case-Shiller folks have never made claims to the contrary. It would be virtually impossible to track every sale, every month- so sampling is necessary. [The Marketwatch article also criticizes the National Association of Realtor's numbers too, but Evans fails to mention that.]
Evans uses this fact to try and discredit Case-Shiller findings:
"The glaring discrepancy in this case is that 17 of the 20 metro areas posted record annual declines, and yet 78 percent of the 330 metropolitan regions that the NAR tracks reported price increases … ."
Case-Shiller uses a different methodology than the NAR. According to Standard and Poors:
The S&P/Case-Shiller Metro Area Home Price Indices use the “repeat sales method” of index calculation – an approach that is widely recognized as the premier methodology for indexing housing prices – which uses data on properties that have sold at least twice, in order to capture the true appreciated value of each specific sales unit.
The NAR however, tracks median price- which even their chief economist criticizes:
The NAR reported last week that U.S median home prices fell 7.7% in March from a year ago. The decline resulted largely from a market anomaly — a steep decline in costlier home sales due to tighter lending standards and high jumbo-mortgage rates, coupled with a foreclosure-driven spike in cheaper homes."If there are a lot more homes sold on the low end and fewer on the high end, the median price is bound to drop dramatically," NAR Chief Economist Lawrence Yun said. "In normal times, a median price would reflect typical homeowner equity changes, but these are not normal times. The jumbo (mortgage) market is frozen and the buying activity is more concentrated in lower-value homes."
Consequently, Case-Shiller vs. the NAR’s figures is hardly an "apples to apples" comparison. In addition, in many markets tracked by the NAR, a shortage of new buyers and fewer sales can skew the median upward. It is possible for prices in general to be falling, and yet have the median rise. The fact that the results are different does not in fact mean that the NAR’s results are better.
Evans laments:
When Shiller says home prices are going to fall 30 percent, not one reporter who covered the story asked this simple follow-up question: "Bob, during the worst part of the Great Depression, one in four people were out of work. Our unemployment rate is a little over 5 percent. So what’s going to drive home prices that low?"
It is not surprising that no reporter asked her question- it’s rather silly. Massive unemployment is not the only possible cause of declining home prices. Builders dumped excess supply on the market, prices are out of line with historic fundamentals, lending is tight and the economy is performing poorly. All of these factors can and are hurting home prices- even in a climate where unemployment is still relatively stable.
The indexes aren’t perfect, and often don’t accurately reflect what is actually happening in different communities. However, the trends we are seeing in the indexes are the trends that we are seeing in the "real world"- home sales are declining and prices are falling. Anyone who decides to completely ignore these trends and buys without taking the market decline into consideration is risking making a poor investment.
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What’s the difference between a metro area and a metropolitan region?
“Stop listening to the Media. Go buy a home.”
Um. Ok.
I’m not saying no one should buy a home right now, but it’s sentimints like this that got us into the mess we’re in now. I’ve been really concerned about falling market prices that I’ve actually witnessed first hand. This is a market that calls for extreme buyer cynicism. But now that Mrs. Evans has given me such wise council, I’ll go ahead and ignore the market trends and just dive right in.
From Mrs. Evans bio:
“Blanche has been named one of the “25 Most Influential People In Real Estate” by REALTOR Magazine, and has been twice recognized as a “notable.” In 2005, she was named “Top Reporter Covering the NAR” by Delahaye-Bacon’s.
Igor says Conflict of Interest?
Keith-
I think Evans advice to stop listening to the media and go buy a home is lousy advice in any market.
There are reasons to buy homes in good markets and bad ones- and that decision should be reached on extensive research. To just close one’s eyes and jump in is foolishness beyond belief.
twist -
I agree whole heartedly. But the assumption we tend to make is that buyers will be discerning, like us. The problem is that we are in the overwhelming minority.
I truly hope that most folks can see the spin.
Economists? Bearish.
Analysts? Bearish.
Builders? Bearish.
NAR,etc? Bulls are running, baby!!!
It’s an insult to our intelligence.
I wonder if Blanche had a chance to look at Fannie Mae’s earnings reports this morning?
Here are a few of the highlights:
* Chief Executive Officer Daniel Mudd said the market is suffering from “severe weakness”
* credit and derivative losses that rose fivefold to $8.9 billion
* cut the dividend for the second time in six months
* will raise ANOTHER $6 billion in capital as the worst housing slump since the Great Depression deepens
So, in summation, the single largest holder of mortgages in the world is in dire financial trouble due almost solely to the fact that house prices have dropped, and are dropping faster now than they have in the last year, and this is a good time to buy?
Does anyone else see an eery parallel to the tech bubble and the investment bank analysts that were yelling buy recommendations on Internet stocks to the public yet privately telling each other to avoid them? I sure do.
Hopefully Ms. Evans will wind up in the defendant’s chair a la Frank Quattrone.
Igor says tragedy but I prefer comedy.
http://www.youtube.com/watch?v=IDSJLdnm0sA&feature=related
I rent a home for one-half to one-third the cost of owning same home at current market prices, and it is losing value daily. Tucson median sales price is still 7 times median salary, and no one is buying. Maybe at 50 cents on the dollar it’s a good time to buy…otherwise…no.
@dogtownsurfer
She’s preaching “prices are down! buy!”
Of course, any smart person looks at the PRICE, not the change in price. 25% off something that’s marked up 100% isn’t a deal.
And actually, I agree with her. Stop listening to the media (ie, the NAR). If people had done that on the way UP, then maybe we wouldn’t have so far to fall.
It’s amazing how much effort people expend trying to justify the rise and fall of home prices, blaming everything except the one simple fact – they cost too much.
dog (# 5) -
Yeah, and FNM is up nearly 7 percent so far today. I’ve heard of buying on bad news, but that is ridiculous. There must be some pretty hairy bailout rumors afoot.
I agree with dogtownsurfer and Keith. Fannie, Ginnie and Freddie all need a good enema.
Per Linenoise – “25% off something that’s marked up 100% isn’t a deal.”
Indeed.
Here in Northern Virginia, our price run-up during the bubble was more like 150% – 200%!
25% ?!?!?
Heck, that’s just a teaser.
I love that name Speedy. Is Nogales the AZ side or SO side?
BTW, Tucsoncollapse I was on Realtrac on sunday looking at foreclosures in TUC and saw very few places spared the carnage outside of the foothills and near Saguaro NP East. Waht a mess. Almost looks as bad as the west valley in PHX.
It’s just shows you the political immaturity of Americans that they are incapable of talking about housing in other than simplistic, deceptive terms.
Housing is the focal point of a very complex political bargain. To weigh in and say, “moral hazard” or even “corruption,” tells you very little about the political role of housing.
The fact of nonrecourse mortgages, the fact of the housing mortgage interest deduction–these should tell you that a house is a complex political arrangement. It is a deal with many conditions. Pull one thread out, and watch the fabric collapse.
If something is going on to disturb the terms of the deal, it should tell you something very sophisticated about the political system overall. If you miss it, you’re missing what’s going on in American society.
Yes, Metro, it’s a mess. One speculator in my neighborhood just dumped about a dozen residential properties on the market. He’s still trying to get double what he paid in ’03 or ’04 without doing a lick of work on them. Crazy. A half-million for a structure assessed this year at $18k on a postage-stamp lot? Sheesh. Look for them on realtytrac in a month.
It’s *always* a great time to buy! Even in the middle of The Great Depression!
http://tinyurl.com/5lhn77
Tucsoncollapse, are you noticing an abundance of properties that have gone up for sale, and, since that didn’t work, they’re now for rent? I’m seeing that around the central part of the city.
Methinks that these insta-landlords are going to learn some tough lessons about property management. That learning process will be followed by a massive dumping of rentals-that-didn’t-work. Which means that our local resale market should look quite interesting in the next six months to a year.
jryskmpr (# 12) -
OK, John, since you’re the smartest guy in the room, please shed a bit of light on today’s Fannie insanity. I’m inclined to say something like “his name is Mudd,” but obviously investors take the following smoke seriously. Well, the losses are about 400 percent higher in Q1 than expected, the dividend is being slashed, the stock is being diluted big-time and there’s no end in sight to the challenges — Buy! Buy! Buy!
“Fannie Mae ready to ‘feast’ on housing bust: CEO Dan Mudd shrugs off rising losses, saying lucrative new business will see the lender through the crunch.”, by Colin Barr, Fortune / CNN Money, May 6, 2008.
John-
It sounds like they will be feasting on arsenic:
It hardly looks like a reason to rally to me, but logic seems to have left the building.
“Stop listening to the media. Go buy a home.”
I have a question for Blanche Evans…What are you purchasing these days?…or…What is it that you trying to sell?
OK, John, since you’re the smartest guy in the room, please shed a bit of light on today’s Fannie insanity. I’m inclined to say something like “his name is Mudd,” but obviously investors take the following smoke seriously. Well, the losses are about 400 percent higher in Q1 than expected, the dividend is being slashed, the stock is being diluted big-time and there’s no end in sight to the challenges — Buy! Buy! Buy!
Once again, look at the politics. You are betting on a situation in which the battle over regime change is being fought on several battlefields. FM is one of them.
Is it about the scrutiny regime (money, corruption, lies about the real issues) or is it about the maintenance regime (housing as housing, housing first last and always)?
You tell me. As the song say, “Which side are you on?…”
FM is a bet that the Feds will intervene to rescue FM. THAT’S why FM sees “opportunity.” Of course it does! As long as the band plays on, it will go on repackaging the mortgages as securities! Why not?
Do you realize the fundamental shift in individually enforceable rights which would be entailed if FM was to change its nature as a securities producer? Are you ready for that change? What are your OWN political ideas in this VERY complex situation? No shooting from the lip, please? Actually THINK about EVERY complexity before you prescribe.
I warn you now that as everything unravels–that is, as about $800 trillion of bad bets unwind–the Federal Government will pull a Mellon out of its you-know-what and say “liquidate liquidate liquidate.” It will refuse to further kiss a patient with a deadly communicable disease.
That disease…is us.
Buy a home in today’s market? You’ve covered the facts well, Twist.
Let me repeat. I’d rather chew my own leg off, than buy a home today.
Just so you know.
And believe it or not, I still get that ‘buy or not buy’ question almost daily.
Lets say I move to Vegas, a heavily hit housing market.
I want to rent a 3 bed 2 bath single family home in a decent area. Rents go for around 1200-1300.
I can buy the same house for $190k-$210k. Factoring in Taxes, insurance, 1% for maintenance and renovation, time value of money, inflation etc. With a 4% annual rent increase annually, buying beats renting in 3-5 years. This varies according to the home appreciation rate, but even at zero percent appreciation, the breakeven is 5 years.
Also, although we have a bust, housing will still be required. People need to live somewhere. Over a long period of time, housing has generally met or exceeded inflation.
The following is a table of values, assuming 4% annual inflation/appreciation. There were homes that sold for approximately these prices when the neighborhood was new. The chart shows the appreciation if it was a constant appreciation.
1990 $180,000 $110,000
1995 $218,998 $133,832
2000 $266,444 $162,827
2005 $324,170 $198,104
2008 $364,647 $222,840
the larger one, at 2500 sf, 5 bed 3 bath with a 3 car garage and 8000 square foot lot, now sells for $340,000. The smaller one, 1500 sf, 2+ bed, 2 bath, 2 car garage, sells for $240k-250.
This isn’t to say all housing will always appreciate. Look at housing in Detroit where older, less desirable homes have stood empty for a long time as no one wants to buy them, even for free. No jobs, and decrepit housing destroyed the market. Or I recall boomtowns in that sprang up in Wyoming during the oil boom of the 1970s that have never recovered.
But if you are in a market like Los Angeles (not riverside necessarily), People will probably always want to live there, and there will be jobs.
So, is it a good time to buy. Maybe. It probably is if you want to stay in your house for a while. Or if you own your house outright, then you can sell for 50 cents on the dollar, and buy for 50 cents on the dollar, meaning you only have to pay 1/2 of the upgrade price to get the swimming pool and extra garage. (this doesn’t work if you are upside down on your mortgage, or can’t get a new one to pay the difference).
Flawed Indexes, Flawed Logic. Might I add Flawed Economy, Flawed Country, Flawed Society, Flawed by any measure. So what’s it coming down to. Us vs. Them. Us being the vast commoners and Them of course the ones that pull the strings in their favor. No jrskmpr, the disease is not Us it’s Them. And what are we going to do about it? Nada. They be rich, powerful, and in control. We can gripe all we want on every blog in the universe and point out flaws. Do they care. Laughing all the way to their special bank accounts and protected investments. The rest of us will be screwed no matter what we do or how smart we think we are. See you all on the soup lines.
With a 4% annual rent increase annually, buying beats renting in 3-5 years.
Now factor in property taxes, full insurance (not just renter’s), HOA, maintenance and repairs, water and sewer fees.
And, in case you’re haven’t noticed, rental vacancies are up in Vegas and rents are stable or moving downward.
Blanche Evans (editor, Realty Times):
Stop listening to the media.
Realty Times website (“about us”):
Realty Times® is by far the leading Real Estate News site on the Internet
Soooo, don’t listen to you, Blanche?
somebody with two brain cells to rub together (that goes for posters on this blog as well as ms. blanchey), please look at the stratospheric inventory numbers, accelerating decline in home values, estimates of households with severe financial stress, future foreclosures, continuing economic deterioration, the fact that fully one-third of the economy in AZ is housing related, slowing in-migration to the state, excessively stringent credit conditions, gas prices, food prices, and then tell me now is a good time to buy.
pretty please somebody tell me now is a good time to buy.
Arizonaslim: yes. In fact, that one I mentioned has since been let. There are 45 residential properties for sale in my zip (barrio/armory park)…more or less the same 45 that were for sale six months ago. Either the sellers will have to rent, or they will have to lower prices.
NVMIke
“Now factor in property taxes, full insurance (not just renter’s), HOA, maintenance and repairs, water and sewer fees.”
I did. I even explicitly stated property taxes, insurance, maintenance and repairs. I left out water and sewer. Sewer is 200 a year. Water varies from 30 in the winter to 150 in the summer (I have a lot of grass). I left out HOA, as not everyone is in an HOA.
I also did not include the Income tax break, as not everyone itemized, and thus would not benefit.
Also apts aren’t necessarily immune from high fees, and if you rent a house, water is on you.
Mike, Rental vacancies are up, but so are rents. Our rent 4 years ago was 1000. A similar house now goes for 1300-1400. The apt complex next to us has raised rents twice in the past 2 years.
Right now vegas has approximately 8000 excess units. this accounts for 1.1% of housing stock in nevada. http://cber.unlv.edu/housing.html
Housing starts are down. Population is increasing.
Should citycenter bust, vegas is in for a hurting. The dollar hurts vegas, but the gaming company’s investment in Macau has lessened that some. Vegas will go strong until the water dries up. Whenever you think that will happen, we are up river from LA.
That being said, It isn’t the greatest time to buy a house. It could be good for some, depending on their situation, economic and otherwise.
If I owned my house free and clear, or close to it, and had good credit, now would be a great time to upgrade.
Oversimplifications make good headlines. Real estate is very much a local market and up to date local statistics would generally offer far more relevant information than looking at case-shiller data.
Milancole-
Sadly, up to date statistics are difficult to get in most areas. When they are reported in the paper, they are often twisted to the point that you can’t get decent information from them.
That said- I agree. You need to know your local market.
LOL! I had the same thought last year when that realtor made that editorial in the paper “if every agent sold just one house this month, we’d be rid of all the inventory yada yada yada…”
I thought well then, why not “If every agent just BOUGHT one house this month…” With the great return to boom times (he predicted) that would causes, they’d all be rich. They would all have a huge windfall in earning commissions from each other too. Bonus.
Dogtown,
The similarities are very eery. The tech bubble brought wealth to new people. New Money. The burst took it away. Thanks fed. Guess tech wasn’t in the cards for the Chosen few. Real estate 10 years later. New Money. 18 straight fed increases took it away. Very eery.