In Sunday’s Arizona Republic comes news that tabulating gross median home prices is not the best way to judge the housing market. Who knew? Oh, wait. That would be everyone except academics and reporters.
The fact is, most sub-markets in the Valley have had a slow leak in prices since December of 2005. High-end markets tended to do better, so the Republic has been wearing ASU-fitted rose-colored glasses through much of the down-turn. In any case, the paper is getting a new prescription:
Tracking the housing market by median home prices has become more controversial, particularly as homes have gotten bigger and skewed price comparisons in recent years.
Arizona State University has developed a new index to track the Valley’s housing market.
Researchers at ASU’s W.P. Carey School of Business have created a single-family housing price index based on repeat sales.
advertisementThe index tracks the sales price of the same house over and over, which is like the S&P/Case-Shiller index and similar to the Office of Federal Housing Enterprise Oversight’s House Price Index.
ASU real-estate Professor Karl Guntermann says median home prices aren’t always reliable because the housing market is different and “heterogeneous.” He put together the index with research associate Alex Horenstein.
Crocker Liu, director of the Center for Real Estate Theory and Practice at ASU’s business school, said one month the most expensive homes can sell in a neighborhood, and the next month a subdivision with less expensive homes dominates sales.
The median for the area would be down, but “it would mean nothing at all about true home-price appreciation,” he said.
“The problem with median home prices is like having your head in the freezer and your toes in the oven. You get an average body temperature, but it really doesn’t tell the whole story.”
Okayfine. But what the heck does this say?
The index, like median-home-price trends, shows that metropolitan Phoenix’s housing appreciation peaked around September 2005, although prices continued to climb after that but at a much slower rate.
Appreciation peaked, but prices continued to rise. We continued climbing for months after we got to the top? I don’t have the math skills necessary to parse a nonsensical sentence, I’m afraid.
And, sight unseen, I already don’t trust the new index. If they’re measuring sale-over-sale on particular homes, then the sample size is probably too small to be meaningful. Moreover, extraneous factors — stadium-related construction on the west side near the SR-101 or the completion of the SR-202 in the southeast valley — will affect prices in anomalous ways.
We have our own alternative, which is not to say that it is beyond criticism. We have been publishing the BloodhoundRealty.com Market Basket of Homes for nearly four years. We’re working from tightly-defined criteria for a fairly large sample of homes, so we’re getting what we hope is a clear idea of what is going on in the middle of the bell curve. The Market Basket won’t tell you much about luxury homes or stately historics, nor about slovenly hovels, but it does a decent job of tracking the kind of middle class homes that form the bulk of the Phoenix-area real estate market.
So what’s going on? In November, very few homes sold — the glass half-empty — but prices held steady and days on market declined — the glass half-full. Market Basket prices are down 19.3% from their peak in December of 2005, but they’re still up 47.3% from January of 2004.
When will the market turn? Ask me three months after it happens. We haven’t suffered nearly as much as was predicted, but that doesn’t mean the pain is over. But if you subscribe to the RSS feed for BloodhoundRealty.com, the Market Basket of Homes will provide you with a reliable indicator to how the market is performing.
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