Getting Granular: Finding Some Positives in the Monthy Real Estate Data Dump

by Alex Stenback on December 13, 2007

It’s that time of the month again – When all the local realtor orgs disgorge their housing stats from the previous month, and the media covers the numbers.

The data, as expected, paints a fairly bleak picture for our housing market:  YOY Sales down 19%, Median Price Down 5.1%, and 13 homes for every buyer.  The lone bright spot in the face of declining prices:  Affordability is up. 

But before you get all negative and write off the housing market entirely, consider this:  In the same way that national real estate metrics don’t necessarily give us an accurate rendering of our local market, the Twin Cities Metropolitan stats don’t necessarily tell us much about prices in individual cities, suburbs, and the neighborhoods within.  In other words, in order to really asses the health of your neighborhood, we need to get granular.

Which brings us to one of our favorite (and under appreciated) reports published by the MAAR, called The 100 125, which breaks down the pricing trends in 125 individual communites.  In some cases, a closer look at these numbers will surprise you. In a good way.

For instance, here’s a breakdown of average sales price in Minneapolis, by neighborhood:

Minneapolis_nov_2007_stats
Click to Biggify

As you can see, despite the overall decline, there are still pockets of decent appreciation, which is timely confirmation of the fact that despite the big-picture housing woes, you aren’t necessarily signing up for financial ruin if you buy in this market.  There are good deals out there, and real estate is appreciating in some areas (and people accuse us of being all doom and gloom around here.  They do!)

So readers, lets get granular.  Check out the report, hit the comments, and let us know how your ‘hood (or the hood you aspire to) is doing.

{ 6 comments… read them below or add one }

Nate December 13, 2007 at 3:48 pm

IMO these numbers are tricky to evaluate like this right now. Comparing 1 month vs another a year ago to look at appreciation doesn’t work, as too much can change in the data for the appreciation to be accurate.

Comparing year to year is much more valid, however we have to remember that this year the mortgage rules have changed significantly in the last 4 months give or take. So essentially the 2007 data is comprised of 7 months of the old mortgage rules (everyone gets money) and 4-5 months of much more restrictive lending. I appreciate everyone’s looking for data, but I tend to not trust the numbers at the moment, because we’re not comparing oranges to oranges.

Focusing on specific examples provides at least anecdotal evidence. I.E., foreclosed condo’s being offreed at significantly less than comparable properties, longer days on market, fewer sales and higher inventories.

Editor/Alex December 14, 2007 at 5:23 am

Sorry we threw you off here.

The YTD figs in the chart above are the ones we assume most smart readers will focus on. You are correct in pointing out that month-to-month figures taken on their own are mostly meaningless.

You raise a good point about the lending environment changing, but I am not sure it is telling you what you think it is. Some might argue that a YTD – YOY increase in average price DESPITE lending guidelines tightening is a sign of strength. Not sure we are ready to go there yet, but it is something we are closely watching, because we also expect lending to continue to tighten significantly in 2008.

But, within the bounds of this report, average prices, in some areas, have gone up, since the beginning of 2007, compared to the same period in 2006, an 11 month period. What that tells us about those markets is hard to know precisely – It might be that some areas actually are holding up well. It might also be that in a declining market, prices tend to be sticky on the way down, and some of the more desireable areas have yet to turn.

The simplest awnser: It might be that there was appreciation in some areas.

That does not necessarily mean it will continue going forward, but its tough to spin that as negative, or meaningless.

Final Note: Average is not the ideal measure, because of the “Bill Gates walks into a bar and everyone is a milionaire, on average” phenomenon. This might be because there are more homes selling at the higher end of the price spectrum, than the middle or low.

Obviously, this is a time period in which there has been unprecedented disruption and distortion in the real estate and lending space, so anything can happen.

Nate December 14, 2007 at 11:16 am

Not trying to argue, but let me propose an alternate explanation for the % gains in YTD numbers. I’m not saying you’re wrong, and it is possible certain areas may still be appreciating or at least depreciating more slowly in terms of real dollars. I also agree that the outer exurbs will probably be hurt worse for single family homes.

Mortgages made in the first 7 months, prior to changes, can do a lot to pull up average values for the whole year. In part because the 2007 mortgage vintages have been showing very high levels of defaults and fraud. Other stories that you have linked to have discussed this in more detail, but these type of fradulant equity extraction sales tend to significantly inflate average sale prices.

So if we have seen a decline in sales this calander year, but at the same time see an increase or even steady number of fraudulant sales. Then the fradulant sales are an increased percentage of the total sales. And since these sales tend to inflate the purchase price of the home, often by significant amounts, this could cause average sales prices to rise for 2007.

Since the mortgage changes, sales have been more concentrated in certain price ranges. More sales appear to be occuring in the low and high end of the markets. This could also push average numbers higher, depending on how the specific sales.

Interestingly, this fraud isn’t equally spread around, and also tends to focus in certain areas. For example north minneapolis or the downtown condo markets have defintely seen a lot of fraud continuing into this year.
So within this dataset, I expect certain areas are more altered.

There isn’t enough evidence at a granular level to prove any of this. I’m just pointing out some ideas on how these numbers can be altered by the uncertain conditions in the current market. Just trying to avoid the NAR approach of calling a turnaround each month, until eventually you have to be right, god knows that isn’t helping their credibility.

Editor/Alex December 14, 2007 at 11:33 am

Great stuff Nate. Am completely with you on the above. In particular the failings of the NAR to even attempt to be honest forecasters.

An interesting excercise would be to chart foreclosures against these areas. My guess is we find find a very high correlation between foreclosures, subprime lending, and declining values.

IMO, we are touching on THE big question as it relates to the health of our RE market, which is:

To what degree have fraudulent activities and inflated appraisals poisoned the well?

Is it so pervasive that underlying valuations in all markets have been altered? Or just a few? How much of the past appreciation was legitimate, or just steam driven by fraud?

Questions, questions.

Nate December 14, 2007 at 2:41 pm

“To what degree have fraudulent activities and inflated appraisals poisoned the well?”

Add to this list the availability of innovative mortgages with low teaser rates, that are much more restricted now. I think you begin to get a picture on what helped boost appreciation during this run up. The million dollar question being how much?

I think an analaysis of foreclosures would be interesting, but because foreclosures lag fraudulant purchases by at least 6 months, and often longer, it may still be too soon to find good data on this. And until the bank actually manages to resell the property can we really determine the market price for them?

Foreclosures appear to be the biggest single negative impact on home prices at the moment. I’ve seen bank owned condo’s discounted by as much as 30% in the MLS. When these start to sell, it’s another discussion on why they haven’t yet, it will ripple out through a theoretical tighter appraisal process, and quickly hit prices. I haven’t yet seen banks be this aggressive with single family homes, and in fact there has been a number of reports of how difficult the banks have been to work with. It’s going to be a cold winter, and these properties are just now starting to show up on bank’s financial end of year reports, so I’m curious to see if we’ll see a change in how they are handled.

John Hoff December 15, 2007 at 10:11 pm

Yeah, but, um…who exactly is going to sell their house in Uptown-Lakes (up almost 4 percent) and then move to North? (Down almost 49 percent)

When you consider the pattern of how people would like to sell high and buy low, moving to a nicer neighborhood, and then ask if that pattern is workable in this current market, and look at the numbers and the neighborhoods…the pattern seems to go against the common hope of trading up, of doing better instead of worse.

I’m sure there are exceptions…and, really, somebody please point out the exceptions to me! Because when I “go granular,” I think I see more doom and gloom!

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