The following was on the front page, just under the masthead of Sunday’s Arizona Republic:
Home Values rise despite slowdown
Despite falling prices by year’s end, leftover momentum from the Valley’s housing boom pushed 2006 values above the previous year’s values in almost every city.
Median price increases in Maricopa County ranged from 2% in Higley to 47% in Tonopah. Only Waddell and Youngtown experienced declines, according to The Republic’s latest Valley Home Values survey.
So what now? Analysts agree the market is in transition. Some believe the market has not yet hit bottom; others predict a turnaround.
“This is a good market,” analyst Jay Butler says. “It’s good vanilla ice cream. It’s not gourmet ice cream.” – Glen Creno
I’ve met Glen Creno and honestly believe him to be a good person. Also, I have no reason to believe that Jay Butler is anything but a decent man, as well. Unlike someone like Keith Brand or Mike Ferry who will knowingly spread lies and mis-information in order to achieve their goals – a social personality may err, but they aren’t doing it on purpose.
Using the median sales prices of an area (which almost all economists and others doing sales data analysis seem to want to do) may be quite useful in 
determining which city has the best (or worst) affordability. Median sales prices have no meaningful value if used to determine short-term movement of home prices. NONE. The median price of a home can go down and that does not mean that the actual selling price of any home in that area went down even one dollar! The median price can go up and it does not even begin to suggest that “the prices went up”. Everyone who thinks otherwise is wrong.
How do I know? I’m a member of Not MENSA. I know and use the MENSA pick up lines. I don’t have a PHD so I don’t have to take loads of statistics and churn out predictions for the valley or the nation. Based on a survey that NAR wrote about, I’m happy; I have a dream job. A real big part of my dream job is correctly figuring out the price that a home will actually sell for – at what price will the market readily absorb it.
I (not having a significant “formal” education) rely on something so simple I almost feel foolish writing about it in public. What I do to figure out what a home will sell for is first find out the supply – demand for that particular type of product. We do this on every listing, every time. A “balanced” real estate market would be an inventory that would last 3 – 4 months. A 90 – 100 day supply would produce gentle upward pressure on prices. At the end of February there were 46,878 homes for sale in Arizona Regional Multiple Listing Service (ARMLS). February MLS solds were 4,990 (10.64%). The unsold number was 41.888 properties (89.36%). In other words, less than one house in nine is actually selling. And every house that did sell was instantly replaced by a new listing. Currently in the Greater Phoenix Area eight out of nine listings DO NOT SELL. This being true, it wouldn’t require a PHD to figure out that it isn’t possible for absolute prices to have gone up! (they didn’t either) Some average prices went up.
If a builder built several hundred low-cost entry level homes in an area and sold them all, you would see the “median average” go down. If interest rates were to fall you would (almost overnight) see the “median average price” increase. The reverse is also true – if interest rates were to significantly rise you would see the median average price decline. The median average price is not, never has been, and never will be a good or reliable method of determining short-term price movement of residential real estate. Period. So, why do economists (and others making predictions) continue to use this idiotic method? It is an easy and wonderful substitute for LOOKING. As a Not-MENSA member I have to actually look in order to know. But I do have a dream job, so I am pretty happy most of the time. To me it is gourmet vanilla.
Chris says:
Interesting point. I was just talking about this on Friday with a few other agents. We were wondering why nothing in the $300k and down range was moving. But homes in the $400k and up range are moving very well, and one agent has been in bidding wars with his clients that are looking in the $700k-$800k range. Homes in the $1m and up range that are priced correctly are moving well too.
So it seems that while values have actualy slightly dropped, the overal market in my city has shifted to a higher price point. In 2005 their were simply no sub $300k lisitngs, today their are quite a few.(I havn’t counted in awhile, sorry no exact number.)
The market is shifting; a median sales price increase in my city would indicate this to me. But overall housing prices fell a bit last year, and seem flat so far this year.
March 12, 2007 — 10:36 am
Athol Kay says:
Another good post Russell. It’s what the house will actually sell for that’s the trick. Not the comes-with-a-unicorn price sellers and stats heads dream up.
March 12, 2007 — 5:41 pm
Jeff Brown says:
Russell – I knew I’d met you before. It was at the Not Mensa convention last summer in Death Valley!
Seriously, depending on who’s doing the numbers and with what agenda, we could find three supported conclusions on the Phoenix market – up, down, and no change.
This was the great lesson I learned back in 1980 when I went through some very rigorous training in real estate investment analysis. (over 200 hours) One of the instructors, a grizzled veteran, said that if all the statisticians were laid end to end…….it would be a great idea. 🙂
He said what you’re saying: Do the work yourself in real time with no ax to grind. Rely on your honest analysis.
March 12, 2007 — 9:23 pm