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Altitude Sickness: No Such Thing As A Free Lunch

Headed out to San Francisco for the Inman Conference [1]. Ran into a colleague on the plane also going to the conference. According to Jet Blue, I am blogging at an altitude of 35,710 feet, at a relatively sane 532 miles per hour, but a personal record. Out with MapQuest [2]. In with Google Maps [3]. With a thinner atmosphere and faster speeds than my office desk, I anticipate a lot more typos and grammar mistakes.

Bad News for US Housing Market
Prices up? number of sales down? Thats the story as of late for the US housing market. With the stock market roller coaster over the past week, and fingers pointing at housing, the message is pretty clear. Its pretty darn confusing out there.

In Fannie Mae economist David Berson’s July 30th column: Home sales take it on the chin [4], again, he lays out the ugly housing details.

Good News for US Housing Market (unedited, unsure, unknown version)
* Median sales prices for existing homes increased 0.3% in June [5], compared to the prior year.
* Median prices for new home sales increased 2.2% in June [6], compared to June of last year.

However, its all about the mix. To all those who see the US housing market as reaching some sort of bottom, its a good idea to drill down a little further.

First of all, the tightening credit at lending institutions, espcially subprime products has restricted the number of sales of lower-priced housing.

Secondly, the upper end of the market seems to be outperforming the balance of the market [7] both in the number of sales and housing prices trends.

With a lower number of lower priced sales and more higher priced sales with rising prices are skewing the overall prices upward.

Berson provides some perspective to the low level of sales:

If sales over the second half of the year average what they did in June, then the total for the year would be very close to the 6.05 million units that would bring the magnitude of this downturn down to that of 1989-91. At this point, the odds of this occurring are pretty good.

Lessons learned
* US housing statistics have no reliable application whatsoever to local real estate markets. (ie: The NAR’s Metro Housing Study [pdf] [8] showed a wide range of falling and rising markets.)
* Don’t rely on market statistics at face value without understanding the methodology and data behind them. (aka run, don’t walk, from black box approaches to measuring market value.)

Milton Friedman, the noted economist, popularized the saying “There’s no such thing as a free lunch.” [9] The US housing market has a ways to go before it regains its footing in the aftermath of the era of nearly free credit, and more importantly, I didn’t get fed lunch on the airplane.