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Nationwide Housing Prices Decline:

One of the more idiotic* things I kept seeing in the MSM last year is quotations from various "experts" that while it's possible that certain "frothy" housing markets will see a correction, home prices never decline (in nominal terms) year over year nationwide, and thus will not do so in the future. This was said with great certainty, as if past performance (though conveniently the "past performance" guideposts started after the Great Depression) is a guarantee of future results, even though the nationwide housing bubble of the past several years is absolutely unprecedented in American history.

Guess what? According to data from the National Association of Realtors [Excel file], the median price for a used home sold last June was $229,000; for March 2006 it was $218,000. The mean price for a used home sold last June was $275,000; for March 2006 it was $266,000. True, this isn't a year over year decline yet, but with inventories reaching record levels in formerly "hot" markets around the country (and up 39% nationwide, year over year), speculators heading for the exits (e.g., the D.C. area), and interest rates rising, it's hard to see where a sudden price spurt is going to come from.

I still remember reading in 1999 that "long-term" investors should hold their NASDAQ stocks, because while a small correction is possible, long-term holders can expect to achieve price appreciation, just at a lower rate than in the past. I was skeptical, but I heard the same message so many times from so many places that it affected my investment decisions, obviously for the worse. And that's when I learned never to listen to the conventional wisdom in the MSM about financial matters.

* Why idiotic? (a) there's no inherent economic reason why home price can't/won't fall nationwide; (b) they did in the U.S. in the 1930s; (c) they did regionally between 1989 and 1995; (d) they recently did, sharply, in Japan; and (e) the nationwide runup in prices is unprecedented, rendering past behavior of the market less useful in predicting future returns.

Medis:
Not that I think a year-over-year fall is impossible, but I think those numbers aren't seasonally adjusted, and I believe June is historically the month with the greatest seasonal adjustment.

So, I do think it is a bit premature to make this call.
4.25.2006 5:57pm
DavidBernstein (mail):
Is there such a thing as seasonally adjusted PRICES? On what basis would you adjust them? Do people buy higher-priced homes in June than in March? (And note August prices were basically the same as June's). Why?
4.25.2006 5:59pm
Just wondering:
Why look only at used homes? There's probably a significant sample bias there since one would expect that used homes are the least desirable and thus demand would fall off for them first.

Second, I'm not sure how much water the NASDAQ analogy holds. The market in homes is significantly less liquid than in securities, so it's unlikely to overheat as badly. Further, people derive utility from their homes by living in them; the investment provides significant and constant dividends in that sense, making the analogy to securities even less compelling.

All in all, I'm not convinced the logic is "idiotic."
4.25.2006 6:01pm
DavidBernstein (mail):
In markets where the overall price of a house has doubled or tripled, the value of the underlying land may have gone up 5-10X. E.g., a house for $200,000 in 1999 may have been $150 house, $50 land. If the same house sold in 2005, the value might have been $150 house, $350 land. That's not at all unlike what happened to many NASDAQ stocks, thought if land prices fall by 40%, the owner can still sell for $360, the house itself shouldn't decline in value, which cushions the downside (and restricts the upside somewhat).

Also, anecdotal evidence suggests that new home prices are falling faster than used, because the homebuilders have no emotional stake in the matter, and their prices are less sticky. However, some of the decline in new home prices is being masked by "incentives" (free cars, free cruises, upgraded appliances, etc) to avoid pissing offer recent buyers in the same development.
4.25.2006 6:08pm
Home Seller:
David,

As someone who is about to put their home on the market in DC (moving away), I really do wish that you would stop talking down the market. I do expect that I won't be able to get as much this summer as I would have last year, but your constant yammering on this issue is not going to help.
4.25.2006 6:09pm
DavidBernstein (mail):
H.S., I think you'd be better off contacting the Washington Post ombundsman! The linked-to piece that ran last week was the first real departure from real estate happy-talk the paper has had.
4.25.2006 6:14pm
gab (mail):
What is this "MSM" about which you speak?

Here's a quote from Alan Greenspan that appeared in the notorious MSM quite some time ago, "The housing boom will inevitably simmer down, ... As part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease."

Or maybe it wasn't quoted in the MSM, as clearly they are too "idiotic" to print anything that doesn't serve the conspiracy of a bull market in housing.
4.25.2006 6:18pm
sedated:
real estate is extremely overvalued and is due for a nice 20-25% decline. This would make housing still expensive historically but is probally all the decline we will get. Too bad for the idiots who bought at the rediculous prices of the last few years and believe real estate agents hype and BS.
4.25.2006 6:20pm
jallgor (mail):
I hope David is wrong too since I happen to be "long" real estate, to borrow a term from the securities markets. I also think that's about the only thing we should be borrowing from those markets. I really don't understand the "land/house" example above and I certainly don't see how it is "not unlike what happened to many NASDAQ stock." Where's the analogy there? are we comparing the rapis price increase or is DB saying that NASDAQ stocks had 2 components to their value that is analogous to the house and land example. I am confused.

Home Seller, all I can say is that people get very worked up about investment predictions that go against their interests. Just go into any stock-related chatroom and you'll see pure venom being spewed between short and long investors. Since it sounds like you have no choice in selling anyway, my advice is to just hope David is wrong and wish for the best. Don't worry, he may be right by his mere "yammering" is not go to move the market.
4.25.2006 6:26pm
Owen Hutchins (mail):
This is talking about "mean" and "median" prices, but that doesn't say a thing about a particular house's price, or really the market itself overall.
4.25.2006 6:34pm
The NJ Annuitant (mail):
I have come to realize that nobody, absolutely nobody, knows what tomorrow will bring. I have had modest investment success by dollar cost averaging over a period of many years.
I think that buying shares of companies with good fundamentals, at reasonable prices ( there is always a debate over what is reasonable ) is the best you can do . I try to ignore the fad of the moment, If the fundamentals turn bad, get out.
4.25.2006 6:36pm
DavidBernstein (mail):
JG, to clarify, I've heard many people say that houses aren't like the NASDAQ, because prices have "only" doubled or tripled, not skyrocketed like NASDAQ stocks. But if you look at underlying land prices, they have in fact skyrocketed, and are thus more vulnerable to a correction than one might think if one focuses on the doubling or tripling of overall prices. But it's also true that investors "only" constitute 15-30% of recent homebuyers, as opposed to 100% of NASDAQ stock buyers, and that leaves the NASDAQ MUCH more vulnerable to rapid depreciation.
4.25.2006 6:36pm
jallgor (mail):
DB: What I really don't understand is why you would compare March 06 to June 05 when we have March 05 numbers in the chart. Year over year the numbers are up. Am I missing something or have you completely cherry picked this chart. Your post should read: "Guess what the 'idiotic' MSM seems to be correct again but I am interested to see what the numbers in June 06 will look like."
I am not saying that we aren't in for a bubble burst (I really hope not but I don't know) but I think your post is intellectually dishonest. And I'll had that it's the first time I have felt that way about one of your real estate posts (which I generally enjoy given the passion they provoke).
4.25.2006 6:38pm
jallgor (mail):
Sorry, that should say "And I'll add that . . .
4.25.2006 6:40pm
bt (mail):
What Home Seller has to remember is that all real estate is essentially a local market and that home prices are a function of demand (read: jobs) and supply as well as location, location, location. What happens in D.C. is not usually tied to what happens in Philly,etc,. What those local factors are in his case I don't know and that is what will determine the price, market time,etc for his property. What DB may be referring to is the speculation rampant in the real estate market say in parts of Florida over that last few years is similar to that which took place in the NASDAQ in 1999-2000. Real estate speculators are starting to pull out of many markets, softening demand.
4.25.2006 6:46pm
bt (mail):
Jallgor

It is perfectly legitimate to look at six month numbers as far as residential housing is concerned, banks do it all the time. Tends change quickly in housing markets. Year over year numbers are good but can be misleading. As an example (I do not know the actual numbers but am using this soley for explanation) Would you want to invest today in an area on the coast of Florida that one year ago was going for X and today is going for X minus 25%? I doubt it. Using year old numbers may lead you to do just that.
4.25.2006 6:56pm
Michael Kennedy (mail) (www):
The subject needs to be more closely defined. "Used" houses are often on bigger lots and have landscaping and other amenities that add value. Some older ones have smaller rooms and fewer amenities, especially in bath and kitchen design. Some states like California have limited available land and are unlikely to see long slides. We had a nasty slump in 1991-94 but prices are back up by 300%.

Condos are soft as are second homes. Central states with unlimited land available for development are much more susceptable to long declines. Phoenix is seeing a sharp decline in condo prices even though that is an entry level price range and should hold better. Many are probably second homes. The market is not one big one but lots of small micromarkets. You can't pack up a house and move it.
4.25.2006 7:04pm
Anon E. Moose:
Jallgor:

David's point about "seasonally adjusted prices" (comment 2) still stands. Why do you have to wait a full year to call a decline? Is the housing market so unstable that nine months is not enough to recognise a trend? Is a house in June is worth more dollars than a house in March just because of seasonal variations? I don't think so.

I wouldn't want to drive with you if you have to wait a year to believe you've driven off a cliff. Is 9 months not enough time to prove that a woman is pregnant? Or do you want to wait for the year-over-year comparison to declare that she's not, so nothing to worry about.
4.25.2006 7:08pm
AppSocRes (mail):
Here's a very simple test for whether the housing market is over-valued: Figure out the present value of all future costs connected with an "average" house (mortgage payments, insurance, taxes, utilities, maintenance and repairs,...) minus tax deductions for interest omn mortgage. Figure out the return you would get on this amount if you invested it in the market. If this return is more than the rent and associated expenses you would pay for an apartment that is comparable in terms of location, livability, .., then the price of housing is too high. By this criterion, the housing markets around DC are definitely a bubble.
4.25.2006 7:12pm
The Human Fund (mail):
I think Jallgor was critical about the original post because of this language in the first sentence:

One of the more idiotic things I kept seeing in the MSM last year is quotations from various "experts" that while it's possible that certain "frothy" housing markets will see a correction, home prices never decline (in nominal terms) year over year nationwide, and thus will not do so in the future.



(emphasis added).

The tenor of the post seems to be that home prices have declined year over year, when in fact they have not yet done so.
4.25.2006 7:18pm
Juan Notwithstanding the Volokh:
Why are you so obsessed with the housing market? I'm genuinely curious.

Also, in your glee at the supposed drop in prices, you neglected to mention that the median price for the "average" home doesn't really say anything about whether prices have gone down. It seems more likely to me that with higher interest rates, the same pool of buyers can afford houses that cost less. Since houses are available at all price ranges, the drop in purchase price doesn't really tell us whether actual prices of houses have gone down.

And as pointed out above, you appear to have seriously cherry picked here. Looking at the excel doc, why wouldn't you choose the March 05 &06 numbers, which are at the top and bottom of the file? You didn't even choose the 6 month number. Instead, you picked the month in which the most sales for 2005 were predicted.

With regard to the analogy to stocks, there is at least one important difference: companies are essentially a legal fiction, when they lose value, they eventually cease to exist. Land and houses don't, absent fire or other catastrophies.
4.25.2006 7:19pm
dbernstein (mail):
Human Fund, how can that be the "tenor of the post" when the post explicitly says "True, this isn't a year over year decline yet." Sheesh!
4.25.2006 7:19pm
A.S.:
Bernstein writes: One of the more idiotic things I kept seeing in the MSM last year is quotations from various "experts" that while it's possible that certain "frothy" housing markets will see a correction, home prices never decline (in nominal terms) year over year nationwide, and thus will not do so in the future.

That may be one of the more idiotic things you kept seeing in the MSM last year, but as jallgor points out, you certainly have NOT given any evidence that it is actually untrue.
4.25.2006 7:23pm
Medis:


As it says under "Sales Prices":

"There is a slight degree of seasonal variation in reporting selling prices. Sales prices generally experience the largest gains in the summer months, as favorable weather conditions create an ideal atmosphere for buying and selling a home. Demand for homes usually hits its seasonal peak in the third quarter, and strong price appreciation generally follows suit, and then declines moderately over the next three months. Despite the slight seasonal variances that exist in the price series, sales prices are not seasonally adjusted. The reason for this is that seasonal variances are extremely fickle and difficult to gauge."

Anecdotally, you can see this effect by looking at the original linked chart. For 2005, it shows a strong run up in prices from March to June, then a plateau from June through August, then a gradual decline down through December, continuing to March. As others have noted, home prices ended this cycle still up considerably over where they were in March of 2005.

Of course, I'm not guaranteeing a similar run up in prices from March 2006 to June 2006. But it could happen, which is why I think it is premature to make this call.
4.25.2006 7:24pm
Medis:
Sorry, my link didn't show up. It should be:

http://www.realtor.org/Research.nsf/Pages/EHSMeth
4.25.2006 7:25pm
David Berke:
Minor point: Comparing March to June for home sales is generally unfair. For whatever reason, historically, Summer is the best time to sell a house - there are more people looking for houses, and therefore more home sales.

Like many others, I anticipate that sales will be lower, and prices will be lower. I'm simply not sure that David's exuberant certainty that the real estate market will crash horribly is justified.
4.25.2006 7:30pm
Sean Sirrine (mail) (www):
I TOO THINK IT IS STRANGE THAT YOU USED THE 6MONTH NUMBERS. AS SOMEONE WHO WORKS IN THE MARKET I WOULD BE SURPRISED NOT TO SEE PRICES GO UP OVER THE SUMMER. THAT IS THE TIME IN WHICH PEOPLE WANT TO BUY HOMES, THEREFORE INCREASING DEMAND. INCREASE DEMAND = INCREASE PRICES. DURING THE WINTER THAT DEMAND DECLINES CREATING A SLOW DOWN IN PRICES. NOTICE HOE VOLUME GOES UP DURING THE SUMMER MONTHS? MAYBE YOU SHOULD TAKE A LOOK AT WHAT REALTORS ARE SAYING:

Sales of previously owned homes edged up slightly in March but not enough to keep the inventory of unsold homes from hitting a record high as the once-booming housing market continued to flash signals of a slowdown.

The National Association of Realtors said Tuesday that sales of existing homes edged up a tiny 0.3 percent last month to a seasonally adjusted annual rate of 6.92 million units.

The March increase followed a bigger 5.1 percent jump in February with the two months representing the first advances since five consecutive monthly declines.

The median price of a new home rose to $218,000 last month, a gain of 7.4 percent from a year ago. That price increase was far slower than the double-digit gains turned in last year as the housing boom was peaking.

LINK
4.25.2006 7:30pm
A.S.:
I see Human Fund beat me to it. I think the problem with the post is that when the poster begins by calling something "idiotic", the reader usually expects to see something in the post addressing the alleged idiocy. But Bernsteins post didn't address year-over-year prices, so fails to explain why the statement is "idiotic".
4.25.2006 7:30pm
dbernstein (mail):
Just to be clear, it's not idiotic because it's happened, it's idiotic because it's a logical fallacy to say, "prices have not declined yoy for the last sixty years, so they won't (can't!) in the future."

Just by way of analogy, it would have been similarly fallacious to say in 2000 "The NASDAQ has never declined by 80% in the past, so it won't (can't!) in the future."
4.25.2006 7:32pm
The Human Fund (mail):
You're right, my first post in this thread was not very well worded. The tenor of the original post was not that home prices have declined year over year. Instead, it was that the media is "idiotic" for saying that home prices do not decline year over year.
4.25.2006 7:33pm
dbernstein (mail):
Addendum: Especially idiotic because (a) there's no inherent economic reason why home price can't/won't fall nationwide; (b) they did in the U.S. in the 1930s; (c) they did regionally between 1989 and 1995; (d) they recently did, sharply, in Japan; and (e) the nationwide runup in prices is unprecedented.
4.25.2006 7:34pm
JDNYU:
The word "idiotic" makes me think of people who make their investment decisions based on puff pieces in the media (mainstream or otherwise)... But that's neither here nor there.

I'm skeptical there are that many experts (or "experts", as the case may be) specifically commenting on nominal house prices. Experts (even "experts") usually are a lot more concerned with real values anyway. I join the call for empirical evidence of this.
4.25.2006 7:39pm
Medis:
Just to toss in my two cents on the "idiocy" issue, I think the first paragraph of David's original post was well-reasoned (although the fallacy he is criticizing is so common in so many areas that it might be a bit too harsh to call it "idiotic").

But I do think his second paragraph does not provide much support for his argument, in light of the problems with projecting March home prices to June. And since the data in the chart is actually still showing a year over year gain, it does seem a little odd to cite this chart as a counterexample to the proposition he discusses in the first paragraph.
4.25.2006 7:40pm
Clayton E. Cramer (mail) (www):
Housing prices are very regional. Yes, there might well be a decline in housing prices when viewed nationally, but that's rather like saying that Idaho has a very moderate temperature--when you average in the single digit winters and the three digit summers.

A lot of places had absurdly overpriced housing prices a few months ago: San Diego; perhaps DC; certainly some parts of the San Francisco Bay Area. On the other hand, housing here in Boise is continuing to rise. It isn't rising as breathtakingly as it was last summer, but it is still rising as people move out of California with their modest $900,000 equity. There's no guarantee that it will continue--but as they say in real estate, "location, location, location."

Clovis, New Mexico, at the heights of this housing boom, still had houses (not condos, but real houses) selling for less than $30,000. People were driving cars worth more than the places in which they lived.
4.25.2006 7:44pm
Trade Monkey (mail) (www):
One of the more idiotic things I kept seeing in the MSM last year is quotations from various "experts" that while it's possible that certain "frothy" housing markets will see a correction, home prices never decline (in nominal terms) year over year nationwide, and thus will not do so in the future.

This type of 'expert' white-washing is indicative of all bubbles.

The similarity of events, both qualitative and quantitative, of bubbles is staggering; it's almost as if they follow a script.
4.25.2006 7:46pm
dbernstein (mail):
Empirical evidence: Here's a quote from Business week that it took me about 2 minutes to find: Frank Nothaft, chief economist, Freddie Mac: "I don't foresee any national decline in home price values. Freddie Mac's analysis of single-family houses over the last half century hasn't shown a single year when the national average housing price has gone down."
4.25.2006 7:46pm
A.S.:
The 6:34 comment seems to me to provide a much better argument as to why the statement is idiotic than does the 9-month data.
4.25.2006 7:48pm
Medis:
Not to nitpick, but I don't see Nothaft "guaranteeing" anything in that quote. And the data he cites is certainly favorable evidence for his prediction, even if it is not conclusive.
4.25.2006 7:51pm
A.S.:
Freddie Mac's analysis of single-family houses over the last half century hasn't shown a single year when the national average housing price has gone down

I wonder when they say something like this, though, whether they are saying (a) that no particular month within a calendar year will show a year-over-year decline, or (b) the median sales price for the entire year will not declince. I'd bet they mean (b). For 2005, the median price was $219,600. I don't think is should be too hard to beat that number, given that the last three months (which, according to the info above, are the slow 3 months, with the lowest prices), are within $1,600 of that target.
4.25.2006 7:53pm
elliottg (mail):
Hold on! 1. We have years of empirical data that only is broken by an unprecedented economic hardship of the Depression and the modern equivalent in Japan. 2. Comparing regional market declines to national market declines is idiotic because we know that housing is an aggregation of micromarkets. 3. There are inherent economic reasons for housing to not decline. a) prices are sticky on the way down since people can pull their house if they don't like the price; look at the statistics of what percentage of listings close. b) building costs are going up. c) public policy favors owning over renting and not trading down when selling a house d) the elastic part of the housing curve is the new home market which can change very quickly (which is why housing starts is followed so closely).

I don't know whether David is right or wrong but his arrogance in believing he is right and that there are no good counter arguments is amazing.
4.25.2006 8:28pm
sedated:
Elliott G,

People can not pull their homes off the market when they are forced to sell because their IO mortgage payments jumped 50% and they have zero equity in the home. There will be some real fire sales in CA,FL and someother markets in 2007-2008.
4.25.2006 8:40pm
house guy:
I never heard anyone say that the market would not decline. I did hear lots of talk about how it would not collapse, but that's very different. I'm not sure if you count the Economist as part of the MSM, but they've been warning of a decline for years.
4.25.2006 8:47pm
Aebie:
I own a townhouse in a large DC-area development where there are literally hundreds of my model. The assessment and sales information is available online.

The tax assessments have increased significantly in the last four years, with sales prices quickly outstripping them. Except for this year. Most of the sales of the model of home I own have sold below--sometimes significantly below (10% or so, which is several tens of thousands of dollars)--the assessed price. Now perhaps the locality just got extra greedy with the assessments this year (I thought they were a bit ambitious), but the assessments did reflect the end of the year pricing more or less. This year, not at all. Granted not that many sales have been booked this year (slowdown anyone?), but prices have definitely fallen, both as measured against the assessed value and in absolute dollar terms from last year.
4.25.2006 8:48pm
broker? Hardly knew her (mail):
sedated,

It's not accurate to say that "IO" loans, meaning interest-only, go up in payment when rates go up. Many I/O loans have fixed payment periods for 3, 5 and (my personal favorite) 10 years. What the media and general public confuse are true "interest-only" loans and the so-called "pay-option" loans which have two troubling aspects.

First, one of the options on a pay-option loan is the minimum payment, which does not even cover the interest due. As a result, the interest not paid is added to the balance of the loan due, making it a negative amortization loan (you will owe more than what you borrowed at the end of the loan). Second, most of the interest-only loans are adjustible every month after the first few months of payments, so that those loan amounts do, in fact, keep increasing.

Banks have been pushing these pay-option loans so much to the public that they have become known as "interest-only" and have given plain vanilla I/O products a bad name.
4.25.2006 8:53pm
DK:
FYI, this discussion is lacking economic and mathematical sense. I'd like to inject some:

1. Most of the gain in housing prices over the last 60 years is due to inflation, i.e. it is an illusion caused by the money supply growing, and it doesn't really mean anything. The reason the Great Depression and Japan in the 90's saw extended drops in housing prices is that they both were deflations, i.e. the opposite of an inflation. These examples, therefore, tell us exactly nothing.

2. Likewise, the claim that housing prices have gone up year-over-year for 60 years is meaningless. Of course nominal prices keep going up, that's what inflation does. What matters are real (or inflation-adjusted) prices. THOSE prices show regular dips in housing prices -- i.e. there is a mix of booms and busts.

3. However, the dips do not always come after the booms. In fact, most booms are followed by price stagnation i.e. inflation-adjusted prices remain the same for several years.

4. As long as we have inflation, nominal house prices for the nation as a whole are more likely to go up than to go down. Yes, they can go down, but barring a Great Depression, inflation is going to keep pushing them back up.

5. Inflation is always good for borrowers. So yes, your house isn't always a great investment, but, a mortgage is always a great idea. As long as we have inflation, you will get it pay it back with money that is worth less than the money you borrowed. This is why people in the last 60 years have made lots of money owning houses -- a combination of inflation before 1980 reducing their real debt and falling interest rates after 1980 reducing their interest payments.

6. Yes, demand and supply for housing also make a difference. But in the country as a whole, demand for housing is clearly growing in the long term, for a simple reason: we have a growing population (also unlike Japan in the 90's). As long as we have illegal immigration and/or a higher birth rate than the Europeans and the Japanese, housing demand in the US will continue to grow. Maybe not every year, but on average over the decades it will grow.
4.25.2006 9:06pm
SenatorX (mail):
Wake up and look around people. The housing market is about to take a MAJOR nosedive. A lot of people will be affected. A lot of jobs that have depended on the housing bubble will be affected. Gas is up, inflation of household goods is up, insurance is up, home sales are down, mortgages are down, new home/condo inventory is UP and interest rates are UP. And will continue to go up. For those that think the Feds will stop the rate look to who is buying all those 10 year treasury notes. The foreign investors that's who.

The middle class on down is about to get squeezed hard and so many have those exotic mortgages with no money down. I just moved from Las Vegas and I know many people personally in that situation. All those costs going up mean more people foreclose and/or try to sell. That plus continuing new home construction means a snowball of surplus.

People like me who are looking to buy are not going to now. We will just rent and wait. If you are thinking of selling you better sell now and ask a lower price right off the bat.
4.25.2006 9:37pm
elliottg (mail):
David, if you want to make bets that the market's going to tank then there are apparently contracts available at a variety of places. I think DK's comments above are spot on except I think he is overly discounting the real gain in housing prices since the change in CPI in 1936 vs. now is about 15X and I expect that real prices have doubled or tripled over the same time period. I have no data to back this up, but I would guess that the percentage of income spent on housing has dropped considerably since then as well.

USA Today article on housing future contracts
4.25.2006 9:43pm
Scotty:
"And that's when I learned never to listen to the conventional wisdom in the MSM about financial matters."

You're such a maverick, Bernstein!
4.25.2006 9:48pm
Brett A. Thomas (mail) (www):
I don't have a substantial opinion on the broader question of market performance, but I did think I'd take a peek at the question of whether there's seasonal variability in the median prices, or not.

The NAR doesn't make it easy to pull this data together, but I found some stuff in Google's cache.

Here's monthly data from 01/04 - 01/05

Here's 05/04 to 05/05

And, the current page has

03/05 to 03/06

Between these, you can put together a comprehensive picture of prices from 01/04 to 03/06 to try to find out if prices fluctuate seasonally.

I realize this is hardly 30 years of data, but, from this run, it looks to me like:

The lowest annual median price is in February (169k in 02/04, 189k in 02/05 and 218k in 02/06, so far)
The highest annual median price is in June (191k and 229k).

Prices in general seem to peak in June, and then be flat and declining through February of the next year, and begin to rise again in March to the next peak.

Now, in defense of David's assessment, prices from June '04 to March '05 were up 6.28%, in the same period from '05 to '06, they're down 4.8%. This is also the only period in which the price compared to nine months previously has declined.

But, that said, June to February seems to be the worst period performance for the data we have. Given that June is the seasonal peak, June to June seems much fairer.

Also, I suspect, when you have people talking about year-to-year resale, they're talking about the yearly median number, which we don't have the data to even make a stab at for '06, yet. For '04 and '05, the median price in March was well below the yearly median price.

It looks to me as though there is a substantial seasonal fluctuation in home prices. But, it is interesting to note, from March to June, in '04 and '05 we saw substantial gains (13.02% and 21.16%, respectively). Those who think the housing market is in decline should now be predicting that we won't see gains between now and then, or may even see losses.

Should be interesting to see, but I'd say it's a bit early to crow about yearly numbers being down. There does seem to be a significant seasonal component, here, and it may just be that whatevever that seasonal variation is caused by has slipped an extra month out, this year. Be interesting to see what next month brings.

Here's the raw data:

01/04 $171,000
02/04 $169,000
03/04 $175,000
04/04 $179,000
05/04 $184,000
06/04 $191,000
07/04 $191,000
08/04 $190,000
09/04 $187,000
10/04 $187,000
11/04 $190,000
12/04 $191,000
01/05 $189,000
02/05 $189,000
03/05 $203,000
04/05 $214,000
05/05 $217,000
06/05 $229,000
07/05 $228,000
08/05 $229,000
09/05 $225,000
10/05 $229,000
11/05 $225,000
12/05 $222,000
01/06 $220,000
02/06 $218,000
03/06 $218,000
4.25.2006 10:01pm
justanotherguy (mail):
Of course many of us did not "invest" in real estate, we simply own the place where we live. Any investment we did was in upgrading our home, new kitchen, floors, other improvements, so we gain the benefit of them even if we do not sell.

What I am saying is that this is really an nice game, but unless we are planning on moving or will be forced to move, baring a "Japan 1990s scenario" we can live where we bought and enjoy the "play $" of our home's value. It will not become real until we have to or choose to sell. We all play in this game and see how much we have in our biggest asset...really big asset given the rapid price rise (I live in Northern VA.) However for most of us, we can wait out the volitility and keep adding additions, new carpet, and tile floorsetc. to our homes. Most of us did not take investment 100% mortgages with ARMs and are not dependent on finding renters...we already live here.

In the mean time, the builders and investors who are the last entrants into this latest pyramid scheme...meaniing condos and building in excess of anticipated growth... well risk is always risk.
4.25.2006 11:45pm
Mark Scott Abeln (mail) (www):
A real estate agent friend of mine is seeing larger numbers of very questionable loans these days...she is certain that these lenders will never see a profit on many of these loans. Too many lenders don't have experience in the housing real estate market. She compares it to the Savings and Loan problems of the 1980s.
4.26.2006 12:20am
Anon44:
The interesting counterfactual is whether David Bernstein would have made money if he had bought several years ago when he and others first started railing about the impending doom of the housing market. Of course, that would depend upon where and what he would have bought, but many people are going to come out ahead even if the market dips. David's posts on this subject aren't simply descriptive; rather, they appear designed to persuade others (and himself? or perhaps even his wife, who he has mentioned before seems to be inclined to pursue home ownership) of the wisdom of his decision not to enter the market. I don't, however, think even he has the ego to think he could actually influence the market through this blog as some other commentators seem to imply.
4.26.2006 1:01am
Justin Kee (mail):
My wife and I are both buyer and seller in the north Chicago market right now. It will be interesting to see how the next couple of months pan out for us...
4.26.2006 1:09am
Skyler:
Part of the price of homes is derived from how much their value is expected to appreciate. If that expectation decreases, then their selling price will decrease as well. Houses are like about a thousand other economic goods in this regard.
4.26.2006 1:53am
Hans Gruber (www):
Not sure if anybody cares, but I thought a recent post over at Dean Baker's blog on the housing bubble might be of some interest.
4.26.2006 5:53am
Whatever:
Just to provide some evidence to support the seasonal adjustment point:

Here where winters are cold and miserable, nobody (relatively) buys houses in the winter. I bought last winter, because I had to, and found the selection poor and prices (mercifully) depressed. Half the agents up here either shut down for the winter, or move their operations to Florida. Everyone sells in the summer and everyone buys in the summer. I don't know how far this trend extends, and I expect that the slowdown in housing sales in Vermont in January has a statistically negligible effect on the national data, but it is, nonetheless, real.
4.26.2006 11:16am
Clayton E. Cramer (mail) (www):

Here where winters are cold and miserable, nobody (relatively) buys houses in the winter. I bought last winter, because I had to, and found the selection poor and prices (mercifully) depressed.
This is true in Boise as well. Ordinarily, demand for housing (and consequent increase in prices) starts here in April--but we have had several very wet and miserable weekends. My realtor says that the normal spring housing rush has been dampened by the wet weather. My builder tells me that a friend who is trying to FSBO his house had several disappointing weekends with only 2-3 families showing up for an open house. This last weekend (which was pretty nice), he had 16.

I had originally planned to put my current house on the market at the end of April, but I am holding back because there are several houses of similar size (2600-3000 square feet, 1/4 acre parcels) on the market within a mile of me at disappointing prices ($350,000 to $419,000). Some of these need to leave the market to reduce supply, and drive up prices.
4.26.2006 2:09pm
JDNYU:
MSM noting falling prices (just one example, of course):

"In Manhattan, the average sales price fell almost 13 percent in the third quarter from the second quarter, according to a widely followed report to be released today by Miller Samuel, an appraisal firm, and Prudential Douglas Elliman, a real estate firm. The amount of time it took to sell a home was also up 30.4 percent over the same period." NYTimes (10/4/05)

Yes, obviously some people are going to argue that it is very unlikely for prices to actually fall. But the suggestion that there is a 100% rosy perspective about housing prices in the media doesn't withstand scrutiny.
4.26.2006 2:48pm
Clayton E. Cramer (mail) (www):
Like many others, I listened too much to people like Abby Goldman Cohen (or is it Abby Cohen Goldman?) when she was talking about Dow 20,000. I know that housing prices are certainly capable of dropping, at least for periods of several years. It is certainly true that when all the conventional wisdom says, "This market can never drop!" it is the time to sell. But I see so much discussion of the riskiness of the housing market in the MSM that I don't think we are at that point. Last year, that was certainly the case. But generally, the MSM isn't speaking the "Skies the Limit!" nonsense with one voice anymore.

I will probably be buying another house shortly for my daughter and son-in-law, partly because I think the Boise market (especially in the size of house they need) is likely to continue appreciating modestly for the next several years. But my primary motivation is to provide a place for them to go to grad school. They would be throwing $600 a month down the renthole; that also turns to be close to the payment that I would be making on a small house or duplex for them. If the house appreciates, we both benefit. If it doesn't appreciate, I'm out the interest that I would have earned on the money that I will be putting into a down payment. If it depreciates--not terribly likely, but at least possible--I at least have provided a better housing situation for them for a couple of years.
4.26.2006 3:41pm
ChatRobot (www):
It would be very difficult for housing prices to rise even higher.
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4.28.2006 9:51pm