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Home Prices Improving. Maybe.

Posted by: Maya Roney on August 15, 2007

Home prices are still seeing double-digit increases in 97 of 149 U.S. markets, according to the National Association of Realtors. But don’t get too excited, for even these numbers may be flaky. Let me explain.

I just finished writing a story about the healthiest housing markets in the U.S. based on the NAR data on second-quarter metropolitan area home prices that came out this morning. As if a 1.5% year-over-year national median price decline weren’t bad enough, I now have some guy telling me that even in places like Salt Lake City, where prices have zoomed up over 20% in the past year, the market may be softer than it feels.

Why? “The mix of home sales is in favor of higher-priced homes,” said Bill Hampel, chief economist for the Credit Union National Association, in a phone conversation this afternoon. “It is the lower-priced homes that are not selling right now, and that raises the median home price.”

The NAR uses median home price for homes that have been sold, where half the homes sold above and half sold below that median. With the significant reduction in subprime lending lately, Hampel believes lower-income buyers simply aren’t showing up. This, he says, explains why existing home sales were below what they were one year ago in all but six states.

Sellers may also be inflating median home prices by stubbornly resisting price cuts. “Those prices are really sticky downwards,” said Hampel. “If they discover that they are going to have to take a significant price cut, they just take it off the market.”

Ah well, it was fun while it lasted.

Reader Comments


August 16, 2007 1:28 PM

I wish they would mention median price per sf and then we would know.

P. Jackson

August 16, 2007 2:39 PM

Maya - Thanks for bringing attention to this. I blogged on a different but related problem with the NAR's price proclamation yesterday -- a lack of formal analysis, something any economist should have seen right off the bat.

I've blogged about this yesterday here yesterday and have written to the NAR about it. I have a response from their public relations lead that I'll be posting later today.


August 16, 2007 3:39 PM

In response to Lord, even median price/SF wouldn't tell you a lot in all markets. In my area (as in most) location is as big a factor as size in many asking prices. There are a few 700 square foot cottages in central areas whose price outstrips 1400 square foot houses in more outlying areas of the city. That said, any single metric has only limited value.

While the tightening of subprime options is bound to impact demand somewhat, as will investor anxiety for those who were buying for speculative purposes, it strikes me as odd that we don't spend more time looking at how the price (especially in a market where prices are still rising relative to income like my own) in and of itself impacts demand.

In my city (tho not unique to here) the median house sale price is estimated to be 5.8 times the median household income. Even "low-income" housing condominiums (in less desirable parts of town with 500-800 square feet) are pushing up to where they are three times (or more) the local median household income.

While creative financing can help stretch the "affordability" of a home, when a middle income (median) household has to stretch to afford even the bottom end of the market, the market has a problem.

Pro-construction forces have countered over the past decade that it's a supply-side problem (which can be solved if we just build more!), but I don't think the data here supports that theory. There's not a shortage of homes standing vacant and the binge in local construction actually went hand-in-hand with significant INcreases in prices across the board. Likewise, as the article notes prices in many places are resisting any downward push and if it won't sell it just pulls off the market. So perhaps in that sense there is a supply problem- or rather a 'supplier' problem.

Real Estate India

August 20, 2007 7:46 AM

The mix of home sales is definitely in favour of higher priced homes but rightly said that this is increasing the median and as posted by pg the the house sale price is estimated at 5.8 times the median household income... sellers sure would inflate the median for their benefit... but truly this is happening all over the world be it Singapore or India or Malaysia

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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