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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Tue May 29, 2007 4:00 am Post subject: The California Housing Report: Details In the Data Show A Br |
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By: Jas_Jain
Headline: "C.A.R. [California Association of Realtors] reports sales decrease 27.8 percent in April, median price of a home in California at $597,640, up 6.2 percent from year ago." Then we also read, "Throughout the state inventory levels have increased to their highest levels in recent years..."
Price increase in the climate of declining sales and rising inventory? Something doesn't add up.
The report does provide some clue: "Although the median price of a home in California continues to rise, this reflects the fall-off in sales in the lower-priced markets of the state..." The phenomenon mentioned in the last sentence is noteworthy and the gain in the "medina price" reported for the state, as well as in some counties, masks the reality of broad-based price declines if one wanted to know what is happening to the price of the same home compared to last year or the past two years.
When it comes to any economic data series it is very important to keep in mind as to what is being measured and how. If ever there was truth in the adage - The Devil Is In the Details - what is happening to the home prices in California is a good substantiation of that. When things don't add up it pays to look carefully. And I have.
I will endeavor to show that there are three factors that result in overstatement of the median price of resale homes because the characteristics of the median priced home are not the same as the median priced home sold a year, or two years, ago:
1. The size of the homes being sold recently is larger compared to those sold last year.
2. The area mixture of the homes sold recently is significantly different from those of the year ago whether we look within the state or within the counties where the median price shows YoY gains. The rapidly increasing gap between the Haves and Have-nots in the US shows up very clearly in the latest California home sales data.
3. The modernization (or home improvements in layman's term) of the homes sold recently is significantly greater than that of year, or two years, ago.
I plan to support the first two with the hard data and for #3 one can rely on media reports and anecdotal evidence that suggest that sellers are making lot more improvements in order to sell homes today even in areas where sales are strong, e.g., Palo Alto, because the sellers want to increase their chances in a slow sales environment.
Let us begin with a cursory, under-the-hood, look at the prices in various counties as shown in Table 1.
Table 1: Analysis of Median Price Data From DataQuick (All Homes) For CA
COUNTY Peak
Price Peak Price
Month Price
Apr-07 Price Chg From
2005-06 PEAK Price Chg
YoY
Total = 32 % %
Alameda County $613,000 Jun-06 $591,000 3.6 2.3
Contra Costa County $600,000 Apr-07 $600,000 0.4 4.3
El Dorado County $526,750 Mar-06 $422,250 19.8 15.6
Fresno County $306,000 Jun-06 $280,000 8.5 6.9
Kern County $285,000 Sep-06 $265,000 7.0 3.1
Los Angeles County $540,000 Mar-07 $540,000 2.9 5.5
Madera County $325,000 Mar-06 $288,750 11.2 6.6
Marin County $925,000 Apr-07 $925,000 9.5 10.2
Merced County $380,000 Dec-05 $314,000 17.4 16.3
Monterey County $622,250 Feb-06 $581,500 6.5 4.2
Napa County $665,750 Sep-05 $559,000 16.0 7.5
Nevada County $501,000 Apr-06 $475,000 5.2 5.2
Orange County $643,000 Jul-06 $630,000 2.0 0.5
Placer County $515,500 Aug-05 $446,000 13.5 5.6
Riverside County $435,000 Dec-06 $410,000 5.7 1.0
Sacramento County $390,000 Nov-05 $345,000 11.5 6.8
San Benito County $620,000 Jul-05 $587,000 5.3 4.6
San Bernardino County $380,000 Nov-06 $370,000 2.6 2.8
San Diego County $525,000 Mar-06 $495,000 5.7 3.9
San Francisco County $790,000 Jun-06 $790,000 0.0 1.8
San Joaquin County $441,000 Jun-06 $397,000 10.0 9.0
San Luis Obispo County $581,000 Jun-06 $530,000 8.8 3.7
San Mateo County $804,000 Apr-07 $804,000 4.4 6.5
Santa Barbara County $605,000 Oct-06 $580,000 4.1 15.9
Santa Clara County $715,000 Apr-07 $715,000 2.9 5.6
Santa Cruz County $725,000 Oct-05 $679,500 6.3 2.8
Solano County $476,000 Jun-06 $428,000 10.1 7.0
Sonoma County $580,000 Sep-05 $515,000 11.2 9.1
Stanislaus County $392,000 Feb-06 $350,000 10.7 7.9
Tulare County $269,750 Dec-06 $252,000 6.6 4.0
Ventura County $620,000 Jun-06 $572,000 7.7 3.0
Yolo County $500,000 Jan-06 $420,250 16.0 0.7
Median 6.6 3.4
Average 6.7 2.4
Counties With Double-Digit Declines Since 05-06 Peak 11
Counties With Peak In 2005 7
Counties With Peak In 2006 20
Counties With Peak In 2007 5
As much as there is lot of red ink in Table 1 it does not tell the true story of the real price declines because it does not tell you what were the characteristics of the median-priced homes sold this year versus the median-priced homes sold last year in any of the counties. I will try to show that the price decline might be understated by 10-15% if one were to keep the characteristics constant, i.e., apples-to-apples comparison!
It is abundantly clear from the above table that YoY price gains, as well as new price peaks, are concentrated in LA County and four of the SF Bay Area counties, where a higher percentage of state's Haves (top 5% income households) live (shown in gold). What is happening in Santa Clara County, a proxy for Silicon Valley, tells the story of all the areas with YoY price gains very well and I happen to keep detailed data for the county so I will make my case by providing these details.
http://www.marketoracle.co.uk/Article1107.html |
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