Changing Sales Mix Blurs Housing Price Changes

2010 Housing Market:
More Toyotas (er, Chevy's), fewer BMW's

Confused by the cacophony of statistics purporting to describe today's housing market?

The root of the problem is that the statistics are really capturing two things: 1) the change in housing prices; and 2) the changing mix of homes that are being sold.

(The exception to the foregoing is the Case-Shiller index, which purports to isolate factor #1, changing prices, by only looking at "matched" sales pairs -- that is, the same house. However, Case-Shiller is susceptible to other weaknesses, at least in my opinion.)

Chevy's vs. BMW's

To illustrate the problem, imagine if auto sales were measured the same way as home sales.

In a recession, people buy more, uh . . . Chevy's; in good times, more BMW's and Lexuses.

That doesn't mean auto prices fall dramatically in a recession -- it means that economy cars are more popular.

Similarly, when bank-owned foreclosures dominate the housing market -- like in 2009 -- the "average" and "median" home selling prices fall, too.

That doesn't necessarily mean that home prices have dropped dramatically.

Rather, it means that smaller, less expensive homes are . . . smaller and less expensive.

Real Estate & the Media

Is the Media Right About the 2010 Housing Outlook?

Before tackling how well the media understands the state of the housing market, a threshold question: Does the media's take on the housing market matter?

I think it does, because purchasing a home depends so much on one's expectations about the future.

When people are optimistic, a big ticket decision like buying a home is easier; pessimistic, more difficult.

At the margins, at least, the tenor of the news does influence people's attitudes, expectations, etc.

Which begs the question, how accurate is the media's take on the housing market?

Going to Extremes

It's more anecdotal than scientific, but I think it's correct to say that there's a consensus amongst Realtors -- at least the ones I know -- that the media seldom "gets" the tenor of the housing market exactly right.

A year ago, the media overdid the "doom and gloom."

Today?

If anything, it's overplaying the "recovery" theme.

In the trenches, the housing market still looks shaky, especially in the upper brackets.

To pick just one example locally, there apparently is now a 40 month-plus supply of $1 million dollar homes for sale in Eden Prairie.

Given that 6-8 months of supply is considered balanced . . . that's a lot of inventory.

Westin Galleria's "Edina Effect"

Edina's '08 Price Rise: Less Than Meets the Eye?

Edina was the only community with more than 200 home sales last year that posted an increase in home sale prices. In 2008, the median sale price of Edina homes sold through the Regional Multiple Listing Service was $388,250, up 3 percent from 2007. Throughout the metro area, the median sale price fell 13.3 percent.

--"Edina: Suburban Star"; Star Tribune (1/23/09)

Edina is a wonderful community, full of well-built homes, great neighborhoods, and outstanding schools. Home prices there have doubtless held up better than other parts of the Twin Cities in what is the worst housing bear market in decades.

However, it's stellar 2008 performance is skewed -- upwards -- by the presence of a single, high-end development: the Westin Galleria.

According to the Multiple Listing Service, 26 units in the Westin Galleria sold in 2008 for an average sales price of $1.063 million; the least expensive was $400,000 -- still above the median Edina home's sale price.

Without the Westin's upward pull, it appears that the median Edina sales price last year actually fell about 2%-3%. That's still exceptionally strong -- just not quite as strong as appears at first blush.