Home Prices Are Not Defying Gravity
One reader called for a topic on prices. “Many people are puzzled by the phenomenon of falling sales numbers paired with increasing median prices. Two common explanations are that 1) buyers are purchasing fancier homes that have been discounted (’I bought this mansion at a $150K discount!’) and 2) the prices went so high last summer that even though they’re dropping now, they’re still higher than they were a year ago. Maybe someone else has a more elegant or compelling way of phrasing these explanations (or better yet, some solid data to confirm or refute these hypotheses).”
Another added, “At this point, primarily the stupid money is still buying in, and they’re paying the high prices asked for.”
A third suggested, “Check Irwin Kellner on CBS Marketwatch.com today.
“If the housing market is weakening, why are home prices still rising? To answer this question, let us return to those thrilling days of yesteryear, when we first learned math. It was then we discovered that figures may not lie, but liars do figure. You see, there are averages and there are averages. And when it comes to home prices, you need to know how they are calculated before you can conclude what’s happening to the price of the average home.”
“If more higher-priced homes are selling than lower-priced units, the median or geographic midpoint will move up accordingly. Like new cars and trucks, many new homes have list prices. These are the prices that get recorded when the house is sold, even if the seller has to sweeten the deal by offering such amenities as upgraded appliances, furniture, carpeting and the like. And there’s a lot of this discounting going on.”
“Another reason to question what is reported as average home prices is that new homes are getting bigger, so part of these higher prices simply reflect more materials and a bigger piece of land. The Census Bureau reports that the size of the average new home is now about 2400 square feet, a 15% increase since 1990.”
“Finally, logic would tell you that when interest rates rise, the more expensive homes, whose buyers are not as likely to be as affected by stiffer borrowing requirements as buyers of less expensive homes, will sell faster than lower-priced models.’
Prices would be rising with inflation, which is not visible with new LEI indicator adjustments.
I believe that’s exactly what’s happening. The US is losing middle class and the rich are getting richer. The middle class are not buying but the rich still are. So the rising medium home price does not mean the same homes are selling for more. My coworkers’ middle class homes in CA are not selling even with 10% off from last year’s peak, yet Ventura and SB’s medium prices are not dropping yet.
The US is losing middle class and the rich are getting richer.
just like in my country (Netherlands); the few % at the top are quickly getting much richer, the rest of the population is slowly getting poorer (or at least more in debt).
The middle class are not buying but the rich still are.
I don’t think this is correct in general. I have read that both in Europe and the US, the richest people have scaled down significantly on their RE investments in the last two years (as part of their total net worth).
But if it is true, things would get interesting if we get a real housing crash, because then for the first time in history the rich would suffer big losses as they would be holding the bag at the top.
The under-$400K buyer is squeezed out by rising interest rates, skewing the distribution of homes sold. This has weakened the bottom of the home buying chain. In a few months, the effect will move up, as move-up buyers can’t get their home sold in time to move up. I got this information from a realtor.
I’d have to agree.
Basic pyramid theroy….lose the bottom and the top comes down…
Was that Bob Casagrand in San Diego? He nailed this on the head in Realty Times.
Yes, I’ve been e-mailing w/ Bob Casagrand. He’s got the MLS data in an Excel spreadsheet, and he’s been analyzing it for several years. Fascinating stuff. He said the top in SD was 2004. It’s been flat since then, although median price is up due to distribution change. He said he wishes he could find out what happens to the pendings that fall out of escrow. The MLS doesn’t give the reason, but it’s a new trend he sees.
I would guess that part of the reason for escrow “outs” are due to appraisers tightening up their appraisals (finally).
Bob said that pending sales are disappearing, and his inspector told him that properties are falling out of escrow. He thinks it’s a combination of tightened appraisals (banks see foreclosures and late payments are up and are getting more cautious) and buyers not qualifying as rates increase. E-mail him and let him know how much you appreciate his data. He spends a lot of time on it, and if we all appreciate it, it’s a nice thing to let him know. I wish he would go public with it, to the newspapers, or come on a board like this. You can find him on realtytimes, and here’s a post I found about him on Professor Piggington’s website:
http://piggington.com/bob_casagrands_realty_report
A theory about pendings falling out of escrow:
The pendings were heavily indebted and the sale barely covers all the debt. (they have also waited too long to get an offer that covers the debt). Because they have waited so long the sellers have also been unable to maintain payments. During escrow the loan goes upside-down, and the banks pull the plug.
Comments?
This implies that there is a solid demographic consisting of people with lots of money, and are stupid. Explains infomercials I guess.
It’s called “aristocracy”.
the incentives the builders are offering equate to the buyers borrowing more and having more debts. Does the average buyer need all that upgrades and have hundreds of thousand more in debt? It would be better to buyer cheaer houses.
It’s really quite simple. If you overprice something, you may still get buyers, but you’ll get a surplus of properties for sale. GM could raise the price of an Escalade to $75k and a lot less would be sold, but they would still sell some. NFL players would buy an escalade even if it cost $100k.
If inventory is rising in a particular market, then the asking prices are too high. If inventory is decreasing, then asking prices are too low. A prime example of this is PHX where used home inventory is at 40,000 and new home inventory is prolly another 30,000. The sellers are asking way too much and nothing is getting sold. Sure there’s always going to be *some* transactions and the only sales that are happening are those buyers that are late to the party and willing to pay way too much.
Your view is consistent with mine; see my version below.
GS
The other problem with rising prices leading to ever-increasing inventory is the inevitable decrease in prices that will be needed to clear the market. The reason this becomes problematic down the road is that falling prices affect buyers’ subjective beliefs about the prospect for future capital gains (losses) — I would be willing to pay far less for a home if I thought its value would drop 20% next year rather than gain 20%. The result is a self-fulfilling prophesy effect, as the evaporation of the speculative premium implies a drop in demand, and the price declines are amplified by the resulting feedback.
Foobeca’s got it: “If you overprice something, you may still get buyers, but you’ll get a surplus of properties for sale.”
That is a great one-sentence abstract of my very first post to this blog last December:
One point that has not received enough attention regarding the housing market: Many observers have noted that despite rising inventories and slow sales in many parts of the country, prices continue to rise. This has generated feelings ranging from befuddlement to unwarranted euphoria on the part of buyers, agents and homeowners. One agent said: “If there were a bursting of a real estate bubble, there would be a decrease in home prices” and: “Prices are continuing to rise, so that’s a good thing”.
Many observers seem to view house prices as analogs of stock prices. That is, just as stock prices reflect the consensus opinion about the prospects for a particular security (a consensus which may or may not be justified), so home prices reflect the consensus opinion of participants in the residential real estate market. When the residential real estate market is at an inflection point (as I believe it is now) this view is erroneous. It is erroneous because, as even David Lereah admitted, “Sellers are stubborn” when it comes to adjusting their price downward.
To illustrate the problem with “sticky prices”, consider Apple Computer stock (AAPL) as a hypothetical. Say AAPL’s price is $75/ share but the company has just announced that its’ quarterly earnings are below consensus. What would happen to the market for AAPL on NASDAQ?
1) INVENTORY levels (sell orders) would spike.
2) SALES volume (completed trades) would spike.
3) PRICES would quickly adjust to reflect the lower consensus about the prospects for AAPL.
It is notable that it can be very difficult to predict where the consensus opinion will finally settle. Sometimes the market yawns (AAPL down $1 to $74); sometimes it cuts with a vengeance (AAPL down $25 to $50).
But say NASDAQ decrees that for the next 90 days no trades in AAPL will be permitted at a price less than $75/share (this models the “stubborn homeowner”). If traders are stuck with NADSDAQ what would happen?
1) INVENTORY levels (sell orders) would spike–many investors would want to dump the stock given the bad news .
2) SALES volume (completed trades) would dry up since given the bad news few investors would buy AAPL at or above the artificially imposed price floor of $75.
But “few” does not mean “no one”. A few people would say “I know AAPL missed their earnings target but I still think it is a good company so I am willing to pay $75/share”. And yet a few others who have no idea that AAPL missed their earnings target (or even know what an earnings statement is) would say “I love my iPod. Everyone loves the iPod. With a product like iPod how could AAPL do anything but keep going up? I’ll pay $80 or $85 a share. Better to buy now before it goes up even more.”
That brings us to:
3) PRICES-rising moderately– up from $75 to the $80 range, notably on low sales volume.
Does $80 reflect the consensus view on the prospects for AAPL? No. The $80 price reflects the views of a small and less-than-representative sample.
This is exactly where we are in the U.S. residential real estate market. Months’ inventory is climbing, mortgage applications are down, mortgage fraud investigations are on the rise, public homebuilder insiders are selling, pre-construction purchasers are finding it is cheaper to forfeit their deposit than to complete the transaction at a loss, increasing numbers of condo projects are foundering, and concrete anecdotes abound regarding the contracting real estate market. How much of this information is impounded in median sale prices reported by the NAR? Very little.
It can be extremely misleading simply to look at prices as absolute without considering the mechanism by which those prices adjust. Until personal or financial considerations soften homeowners’ artificial price “cap” we won’t have an accurate picture of how much pressure home prices are under. It shouldn’t be long.
There is one piece of data on the MLS which is helpful: sales price/list price. That ratio used to be 98-99%. It’s been going down: 95% in Jan 06, 93% in Feb 06. My realtor said only homes priced 5% below comps are selling. A price cut on the median home of $20K she said. Without the cut, the home is not selling.
Interesting analogy to the Apple stock.
I don’t know if its possible (or legal) but that sales price/list price number should be posted here on a running monthly basis so we can track it over a period of time (kind of like what some people here post with inventory numbers). It is the single biggest piece of info that indicates the speed at which the market is tanking out.
List price/sale price ratios are misleading. Many mls databases do not reflect the original list price just the last listed price. There may have been 3 or 4 price reductions prior to the last listed price which determines the ratio. Also if a listing expires and is relisted at a lower price the ratio becomes unreliable also. The only reliable info I can determine is price per sq. ft within a specific neighborhood on similar size lots compared to prior qtr, year or even monthly.
“Does $80 reflect the consensus view on the prospects for AAPL? No. The $80 price reflects the views of a small and less-than-representative sample.”
The parallel between AAPL and housing prices goes even further. Like the big HBs, the long-term view of AAPL’s stock price chart shows the greatest all-time blowout is currently unfolding…
http://tinyurl.com/s8k5b
“If inventory is rising in a particular market, then the asking prices are too high. If inventory is decreasing, then asking prices are too low. A prime example of this is PHX where used home inventory is at 40,000 and new home inventory is prolly another 30,000. The sellers are asking way too much and nothing is getting sold. ”
Actually, I am surprised at how many homes are being sold here in the East Valley. As far as I can tell, the number of sold homes has dropped from a year ago, but not as much as you would think. I don’t know if it is because people are starting to drop prices and accept lower offers but still higher than a year ago or if the high inventory level is simply because a lot of people are trying to get their house on the market right now before prices drop or what.
I think there is a very simple explanation that people are overlooking. Lots of baby boomers feeling this is the PEAK market over at least the next few years are selling! Prices rise and fall by percentages, if you own a larger home you are most likely to sell now…. 20% of $2Million is 400,000. Many move up buyers stupidly taking their equity and leveraging themselves for the expensive homes. We have seen more home in the $2Million and up market put on the market this year than any other!
There is a very simple explanation for the concurrently falling rate of sales and increasing median. Sellers still are pricing in gains over last year’s comps, but buyers are facing the budget constraints of higher interest rates and tighter lending scrutiny. Consequently, there is a dwindling pool of buyers willing to pay the final blowout prices of this bubble. My guess is that you would find evidence for something similar in the tech stocks just before the crash, as fewer and fewer fools were willing to pay the astronomical prices during the death throws of the dot com bubble…
I agree GS. Here in Palm Beach County sales prices are still up YOY from January 05 to January 06 due to last summer’s final run-up in prices. These are the numbers that are reported, however, the median price peaked (probably) last November at $421K and is now at $393K as of January 2006. That is a 6% decrease in 2 months and the first time the median PBC home has been under $400K since July 2005. I suspect by July 2006 we will see our first YOY decline in median price here in PBC. I wonder how they can spin that into a positive? After the “Spring Rally” flops reality will really sit in down here. The state of Florida is a sea of contruction cranes and for sale signs. It is about to get very ugly here. I’ll enjoy the show from $959/month apartment.
Watch out for an “EVENT”…If something dramatic happens this thing could come unwound faster than a rubber band on a old golf ball..
An event is not necessary for the unwinding to proceed, but events are nonetheless sure to happen, as there will be feedback effects from the unraveling of the housing market into other parts of the macroeconomy. In retrospect, whatever else falls apart (e.g., the labor market) will be identified as the root cause for the housing market collapse.
If you are in the LA area you might want to listen to 97.1 FM from 10-12 today. The show “Open House” just started. These three guys are the biggest RE hooligans I have ever seen and for the last 2 years they have been encouraging people to buy RE at any cost and saying it is a no risk no lose prop. Suddenly today they have changed thier tune a little saying there may be a correction coming. So if you want to hear the biggest RE liars on the last wave tune in, these guys are a pisser.
Why not put a big goose egg (0) for each house that didn’t sell into that average. That might not be a useful number by itself but as a graph it would indicate the relative change in “DEMAND”.
There is actually a methodology possible for dealing with homes that don’t sell, but one would need honest statistics on the history of when homes were originally listed, how they were priced, and how long they sat on the market. Does anyone have such data? (If I were sufficiently motivated, I would collect it myself, but I am not…)
Speaking of median prices, has anyone seen any evidence of a “spring bounce” that we’ve been fearing?
It looks more like a spring flood, in the form of inventory, not higher prices…
I’m seeing a Spring bounce of sorts on the SF Peninsula. No frenzy, but it’s moving faster than before. People are insane.
Our household income is in the top 5% of CA, but even with 30% down it seems I can’t comfortably afford a nice home (1800sq ft+, updated) in a good school district on a 30 year fixed loan.
Second that bounce on the Peninsula among quality listings. But the cr*ppy listings and overpriced listings (i.e. priced for last spring) just sit.
yup, they sit, expire, disappear, reappear and sit some more…
Richer sellers are likely to be more willing and able to take a hit on their asking prices. This is because of two reasons. First, they are probably more likely to have equity in their homes. Second, their homes make up a smaller percentage of their assets.
In short, there continues to be buyers and sellers at the high end. However, at the middle to low end, there are sellers that “need to get” a certain price and buyers that simply cannot afford it.
But in areas where speculators bought $1m+ homes and drove prices through the roof, I don’t imagine there are hordes of rich fools waiting to get in line for big financial losses. You simply don’t remain wealthy for long if you are prone to such financial blunders…
The only thing that can stop this run away freight train will be the ‘intangibles’. Increased mortgage payments (both 1st and HELOC), increased minimum on credit cards,higher gas prices, increased insurance payments, higher water and utility bills, increased taxes, tighter lending policies, divorce, retirement income, summer heat, winter cold, hurricanes, floods, property location, etc.
Those buying the larger houses will suffer the higher maintenance costs (gas, water, lawn care, paint, carpeting update before selling). Those in my area buying the two story houses will find themselves unable to find older buyers who can’t climb steps and those that need a wheel chair. You don’t stop a run away freight overnight by it will happen and the unobservant will be blaming everyone but themselves. New neighborhoods can go downhill quite fast, faster then most people are aware of. High prices don’t mean quality neighbors just as someone driving a BMW or Mercedes doesn’t mean they are rich.
I would like to mention (as usual …) that in many EU countries, both average homeprices and inventory have been rising for some years now (with inventory at least double the number from a few years ago, and increase in prices relatively mild in most EU markets). Without speculating about what causes this, it is clear that it can continue for a long time.
In the posts above several good explanations for what is going on with the numbers are mentioned, and some of them should be easy to check.
If buyers are dropping out of the low end of the market because even the cheapest homes are now unaffordable to them, we should be able to see this in the statistics, e.g. sales numbers of sub $300K homes falling and sales numbers of + 1M homes (relatively) increasing. In my country statistics like these are available if you dig a little, are they available for the US?
Also, if the current increase in average sales price is caused by a shift in the type of homes that are sold (low end of the market drying up, people are generally buying bigger homes, more speculation going on in the high end of the market?) there should be an obvious difference between average sales prices and transaction prices for individual homes.
I have read on this blog several times that some US government agency tracks sales prices for individual homes; although this is probably a lagging indicator and there are problems with ‘home improvement’ influence, it would be interesting to compare this with the average sales prices from the realtors.
In my country individueal sales prices are tracked as well but unfortunately there is no way to access them from the database
Most homeowners see their gains as rightfully theirs, and for many years now the gains have become an expectation and a right. After all everyone knows you price your house for X more than the lost one like it sold for. Unless sellers are sufficiently motivated (distressed) there is no reason to hurry things along. I believe this is happening a lot right now. Until now, anyone getting in over their heads was able to refinance out of it. This is not going to be possible anymore for buyers from the past couple of years, or those who refinanced out their gains to buy luxury items etc.
I think this applies most of all to the asking prices: there you can certainly see a strong disconnect from reality, in Europe even more than in the US. In my area there are many high end homes that have been on the market for years at ridiculous asking prices (usually 10x the price from 10-15 years ago). It is clear (even to most realtors) that most of these homes will never be sold, not even with a 30% discount.
But asking prices do not influence the median sales price, only the homes that sell (at market value, by definition) determine this price. Apparently the people that are buying are still willing to accept higher prices (maybe for bigger/better homes, but that is just a guess).
I’ve lived 25 years in The Netherlands and now almost 25 in the US.
I think there is no reason to believe the US RE market will go the way of Europe. The American psyche and society are radically different from Europe, especially when it comes to money. Here the highs are much higher and the lows much lower.
I predict the US will fall harder, faster and deeper.
hey penina - we posted the same thing at the same time.
(1, 2,3 JINX!!)
well … we are always told that everything is bigger (and better) overseas, but that sure does not go for price gains in the latest housing bubble …
But I do agree that things go faster in the US, because of less government interference, more speculation and other differences in society. And in general I think that is good, because the longer this bubble lingers on in Europe, the deeper the trouble ahead.
‘zachte heelmeesters maken stinkende wonden’.
Bigger yes, better….. sometimes.
Hey cereal, you and me both.
‘zachte heelmeesters maken stinkende wonden’.
Geen zachte heelmeesters hier in de VS, ze gaan er hier keihard tegenaan.
>‘zachte heelmeesters maken stinkende wonden’.
gentle heelmeesters make stinking wounds?
>Geen zachte heelmeesters hier in de VS, ze gaan er
>hier keihard tegenaan.
No gentle heelmeesters here in the US, them go there here rock-hard against?
Sheesh, bebelfish (http://babelfish.altavista.com) has a long way to go with translating Dutch…
LOL Dutch is my second language (since age 5) …
Weak/soft physicians make wounds stink
There are no weak/soft physicians here in the US - they are going to crack down hard here
i.e. moderate ‘treatment’ will prolong the bubble pain, but treatment here will be tough not moderate
(not my opinions, just my translation)
indeed, because EU politicians don’t want to take tough measures (or in fact make all kinds of measures to sooth the pain for the speculators in the housing market) the bubble troubles will be worse in Europe.
Another related difference between EU and US is the role of speculators in the housing market: they profit from opportunities (like free money in the housing market thanks to the FED) and by doing that will often speed up the corrections (make imbalances disappear).
In the US the speculators seems to be on their own now, in many EU countries they get full support from politics if things go wrong - so speculation does not work to correct imbalances in the housing market, it just makes them worse.
nhz, for whatever reason, americans seem to herd in and out of things more readily than europeons. maybe it’s cultural differences or we’re just more impulsive.
my take on this is when one of the high visibility markets short circuits (phoenix, or maybe phoenix, or possibly even phoenix) then every other homeowner in america will feel vulnerable. watch us herd like cattle to the auction.
i believe my friend that international markets will follow suit. didn’t ww1 begin as a simple assassination of 1 man?
yes, I agree - see remarks above.
Some of the US RE markets definitely look more explosive; I hope you are right that serious trouble will spread to Europe, but I’m not holding my breath …
nhz, you can find those stats at http://www.ofheo.gov/HPI.asp
Note that because they track only homes whose prices are under the limit for which FNMA and FRMC can handle the loan, their price index does not capture all the price action, expecially in the most bubble-intensive areas where most prices have soared above that limit. The web pages include a complete description of their methodology.
thanks jm, that’s the one I was talking about. Too bad they don’t track the expensive homes …
Any economist will tell you that the market is “sticky”; that is, it takes some time for the market to correct because the fundamental assumptions of the market do not match real-world performance. There is no perfect data and even if there was, people do not necessarily act on such data in a perfectly rational manner. For example, I drive past two lots in Fairfax, VA (approx 1 acre, total) which face the backside of a CVS. They have been listed for almost a year at $900,000.00. For the lots. No improvements. This past week, I drove past again, and the sellers, for reasons known only to themselves, have *raised* the asking price to $1 million. This appears to be extreme irrationality; if they have not sold for a year in prime market conditions at $900k, there is absolutely NO rational reason to think that they will sell in a softening market for $1m. Perhaps this is being done for some tax report or for asset valuation purposes for more borrowing. I don’t know. But apparently irrational actions like this are probably extremely common right now. If widespread, this will distort reports even if the reporting sources and data are otherwise correct.
BTW, there also seemed to be an inordinate number of open houses, balloons, signs, etc. around today. Anyone else notice this? I guess they’re getting the “jump” on the Spring listings.
the fact that properties that don’t sell are relisted after some time at a (much) higher price has been reported here several times. One of the reasons could be that the seller can now offer a (bigger) discount and still get the price they were looking for.
Another factor is that above a certain price (strongly dependent on location etc.) some people think that it must be something really special, or they property may attract a different audience.
In my area I have seen several examples of homes that were on the market for more than a year and that sold in 1-2 weeks after their price was raised strongly , in one case by nearly 100%. It is not easy to check actual sales prices, but as the usualy discount for expensive homes is here around 15-30% now, I think the seller still made a huge profit.
Also, if the realtor gets his/her share from the sales price (or extra sales price over a certain number) they have a better incentive to close the deal after a price increase.
I am watching take this house and sell it right now…an industrial building converted into loft is featured…it has been on market for 6 months with just one low ball offer. they have not indicated what the listing price is and how low the offer was…
they havve 2 days to get the ‘loft’ ready for open house..the freelance designer spent 2180 in accessories and material. They did not mention how much was the labor..which is bit strange…and at the end they said the ‘loft’ sold in 3 weeks after that open house.
they did not show the listing price, they did not mention what was the ‘low ball offer” was before this renovation and they did not mention how much the ‘loft’ finally sold for..so there is no way for a watcher to know if all these ‘renovation’ was worth it or just waste of time and money?
Ben, very thorough and well gathered/written summary article you developed on this topic. Thank you.
I’ve been considering the issue of whether the median price is being skewed higher by an increased ratio of sales of luxury houses to ordinary houses, and have started tracking the OC Register’s weekly report of sales and prices by ZIP code. Last week, although the median price was $2,000 higher than the previous week, there were 38 ZIP codes showing declines in price, and 36 showing increases. The biggest drops in volume (among ZIP codes with statistically-significant numbers of sales) happened in the lower-end markets of Santa Ana and Anaheim. More rarefied ZIP codes (Newport Beach, Laguna Beach, Villa Park) also generally declined in volume of sales (Newport Beach 92660 also saw a second consecutive drop in median sale price), but the drops were generally not as pronounced as those in the middle- and working-class neighborhoods. (If it’s appropriate to use those terms to describe neighborhoods of $550,000+ houses.)
The zip codes with price increases: is this due to the low end buyer squeezed out? It is due to more new (and higher-end) homes sold?
To get inside the numbers, you’ve got to talk w/ realtors! That’s what I’ve been doing.
The realtors, 3 of them, are telling me the market is slow, prices are being reduced, and only reduced homes are selling. To sell, you’ve got to be 5% minimum, below comps.
New homes throw in incentives, but keep the price up. Effectively, the incentive does lower the price but that isn’t in the numbers.
For everyone reading: how many Sold signs have you see this year?
I have seen 1 SOLD sign on the last 5 months in my area of San Diego, the part of town where I regularly drive. It’s very noticeable, that there are 1 - 2 new For Sale signs weekly, and nothing is selling.
same story I’m hearing here in the Netherlands for explaining a similar situation, but it could be marketing tactics from the realtors. They have to do far more work now for the same profit (compared to a few years ago) so they might change their sales pitch.
They say that new homes that come on the market at a ‘realistic price’ (whatever …) still sell quickly, but there are many homes that have been on the market for a long time, with unrealistic asking prices, that will never sell. According to the realtors, the huge inventory numbers don’t say anything about ‘trouble ahead’, it is just a result of ’stupid sellers’.
that only works if you know of some honest, competent, and experienced realtors.
Several sold signs in my neighborhood -single family detached. I have seen several sell within a week or two. Most recently, a house down the street sold in 2 days. Asking price was over 1 mil.
Another came on yesterday for about 10k more. I will be watching it. These prices show an increase over last year of 5 to 10%.
When we bought the house we just sold in 2001, the sellers did not want to drop the price at all, They had tried for a year to sell at 500k and lowered to 450K and they didn’t want to go down any more. We didn’t want to pay their asking price because it had been on the market at 450 for several months with no takers, so finally the sellers dropped 5K and the RE agents each took 5K from their pay and the selling price was listed at 445K, but we only paid 435K. This is not much, but shows another way the numbers get skewed when the market is not doing too well.
Did you get the assessor to buy your numbers when the tax bill came???
Check out this:
http://realtytimes.com/rtmcrcond/Nevada%7EReno%7Edianecohn
http://www.dianecohn.com/
Read both, and read between the lines. Ignore the prices will go up in 7 years stuff.
According to her the 500K- million market has a 12% absorption rate. $370K is average & affordable, but $500K is higher end? Am I the only one who thinks 370K is not affordable? Realizing it’s an average, not a median.
I didn’t realize prices had doubled since 2003. I knew they were up, 100% more than they should be. But in just over 2 years?! This thing is going to hurt bad!
I also posted this on another topic (not a home-owner or gold bug)
Reading the blog, commented a few times. Just a contrarian view, but based on my reading, but what if most nations around the world are printing money like the US (many to keep exporting to US at a loss) and RE prices are increasing around the world because currencies are tanking. That would explain the run-up in oil, gold, commodities. (the US gov CPI is a joke.) RE is a real asset (like gold), and although the Chinese own many MBS, their own currency is a joke, and even foreclosing on US properties at a 30% loss, that would still leave them with an real asset instead of a paper note that losses value 10-15 % a year. You will not read anywhere that our own Gov is making our currency worthless. Example: The Fed has now refused to publish the increase in money supply starting this month.
I think you are right, it is part of the explanation. Both Europe and the US had M3 money supply growth of 8-11% in the last 5-10 years (average in Europe slightly higher than in the US). Japan probably had even higher M3 growth.
If the FED steps up the printing presses next month, I’m sure that the ECB will do the same.
Historically, housing prices rise just a little faster than inflation. If you assume that real inflation (excluding unnecessary gadgets like electronics stuff etc.) is around the 8% of minimum M3 growth (and it sure is in Europe for all kinds of taxes, health care, insurance, energy, other mandatory services etc.) - then in many countries the increase in home prices is certainly not surprising.
Countries like Netherlands, UK, Spain and some US bubble states have had 15-20% yoy growth in home prices, but they are the exception to the rule.
You have to be very careful about generalizations about the “EU”. We have distinct markets with varying traditions, laws, etc. The
Dutch had an early bubble and part of it was that it emerged from extremely low prices in the early 1990s, especially that you consider that the country is overpopulated. Germany has been declining for decades from very high prices.
The UK as a whole is more like the US coastal markets with boom + bust. You could view it like the Boston to DC corridor with pockets of rural areas.
A country like Denmark saw reinvigorated bubble in 2004 after depreciation was declining because the government allowed interest free loans. In the expensive area where I grew up the majority of houses today are sold interest free. You would think that it might not be the case in the wealthiest neighborhoods…..