Home-price gains called ‘anomaly’

August 5th, 2010, posted by Jon Lansner, Lasner on Real Estate Blog

Lots of debate about the quality of the median price as a marker of housing’s health. Investment adviser Clyde Kendzierski of Long Beach argues that math quirks — not economics — are making the homebuying patterns look better than reality …

One clear weak point is the housing market, which crammed two years of sales into six months (in response to tax credits). Even those recent gains in median home prices grossly overstate the reality. Home prices are up from a year ago, but the gains in median prices is a statistical anomaly, driven primarily by the shift in the sales mix.

In early 2009, home loans were only available up to $417,000, which meant almost no homes sold for over $500,000. The return of jumbo mortgages has dramatically increased the sales of higher priced homes while the inventory of lower prices homes evaporated in response to the homebuyer tax credit.

The current combination of low mortgage rates and reasonable prices relative to incomes remains favorable for home prices, but it will take years to work off the inventory of foreclosed properties that resulted from the excess building of the past decade. Put together the outlook for home prices remains neutral.

We decided to check in with a major purveyor of median-styled data, Andy LePage of DataQuick, for his thoughts …

We’ve been stressing all along that the change in the mix of homes selling has impacted the median sale price (e.g. recently there have been fewer low-cost inland foreclosures selling and more high-end coastal homes). Of course that’s going to help tug up the regional median sale price. That is one of the reasons for a rising regional and county median, but not the only reason.

When you slice and dice the stats different ways (by price segments, by neighborhoods, etc.) it’s clear that prices are up off bottom a bit in the vast majority of areas.

The rise off bottom and year-over-year  gains tend to be highest in the lower-cost communities, given a combination of price appreciation and an improvement in the quality of the typical home re-selling (less likely to be a run-down foreclosure this year). The price gains tend to be lowest (or absent) in the high-end areas. At least, that’s what I find for SoCal and California overall.

I have been saying for a long time that we would hit a point where the regional medians would rise in part because the high end would start selling again. That’s what’s happened over the last year, and I think one of the main reasons high-end sales have increased is that high-end sellers have become more realistic and dropped asking prices. There’s more distress in the high end, more motivated sellers. In the low end, the foreclosure inventory has been dwindling and the competition has been stiff between first-time buyers and investors.

I’m not so sure about this characterization of the trend over the last 18 months with regard to jumbo loans (sticking to the old definition of a jumbo; a lean greater than $417,000) . It does indeed look like jumbo loans have gotten at least a little bit easier to obtain over the past 18 months, but it’s not as if there weren’t any buyers getting them in early ’09 … But it’s difficult to know how much of the increase in jumbo loan use is the result of lenders easing up vs. buyers simply finding more worthwhile high-end deals out there.”

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