Matrix Blog

Statistics, Metrics & Data

Hope, Less Reality: New Home Sales As Phantom of the Housing Market

January 8, 2007 | 10:26 am | |

Before we get all excited and hope for some sort of near term national housing rebound, please take a look at Daniel Gross’ A Phantom Rebound in the Housing Market [NYT]. His MoneyBlog is a daily read for me.

Housing market hopefuls were uplifted by the Commerce Department’s 3.4% increase in purchases of new one-family homes. In fact, I grew annoyed because new home sale stats are very misleading and to place hopes on a housing rebound based such a flawed statistic, is a waste of energy.

The FOMC piled on to the optimism by saying:

“Sales of new and existing homes showed tentative signs of stabilizing, although at levels well below their mid-2005 peaks,” the Federal Reserve’s Open Market Committee said at its December meeting.

Dan’s article points out something that makes the Commerce Department look even more statistically challenged.

If a contract to buy a home, signed in November, is canceled in December, the Census Bureau does not subtract the failed transaction from the number of sales, or add the house back to its inventory total. In the last year, as the housing market has cooled, the volume of cancellations has risen to epidemic proportions.

In fact NAHB estimated that in November 2006, cancellations constituted 38 percent of gross sales, compared with 26 percent in November 2005 and about 18 percent in the first half of 2005. This means that 150k to 200k homes are being counted that never got built.

In their nearly always pessimistic outlook, but very insightful market commentary by Commstock Partners this week Don’t Believe the Hype on Housing, they define the generally inferred housing bottom as a

…a triumph of hope over reality.  Almost everything we see indicates that housing is still in a decline that has further to go.

  • Builders continue to report steep declines in new orders
  • Housing prices do not include non-price incentives and concellations
  • Underwrtiting standards are tightening (I have to laugh about that – if they increased 5-fold, standards would be much more lax than 5-10 years ago.
  • State and federal guidances have been issued about non-traditional mortgages
  • Subprime lenders are going bust.

It seems that as far as new home sales go, demand may be less than it seems. Of course before we write off the housing rebound completely, new home sales only accounted for 14.4% of all housing sales (annualized) in November.


Tags: , , , ,


Home Prices: To Tell The Truth, The Whole Truth And Nothing But the Truth (Sort Of)

December 7, 2006 | 8:15 am | |

Priceless…

I got the idea for this post after trading emails with David Leonhardt of the New York Times the other day as he worked in his interesting Economix column: The Hidden Truth About Home Prices [NYT] and the companion article More on Housing Prices [NYT]

Its very difficult for most consumers, government officials, academia and real estate professionals to get a real world gauge on how a real estate market is actually doing. Tried and true methods all seem to have some sort of flaw and when a market is in transtion, the changes become even more pronounced. And then throw in the source of the information, with the presence of spin, makes the effort even more daunting. Those covering the market, whether it be Big Media and the blogosphere tend to gravitate towards whatever is released that day.

There are two schools of thought on housing stats:

  • Price indexes– These are generally based on repeat sales of the same property over time or an aggregate analysis of housing prices, with some adjusted for seasonal changes and/or inflation.
  • Housing prices – These results are based on an aggregate summary of the sales that transferred during the period and can be skewed by the mix.

You’ve got producers of indexes telling you that prices are less meaningful, yet users of the indexes often view them as a “black box” and don’t grasp how the information was calculated (do we hear “seasonally adjusted?”) Indexes tend to be created for macro markets because the data set needs to be large. Cycnicism has been a detriment to reliance on indexes.

Those that rely on housing prices tout that they are the real thing yet most resources for housing prices tend to be non-economist types, trade groups and real estate firms, because they tend to be easier to generate and report than an index. There are a growing number of market studies put out in the public domain by local real estate brokers and agents (and of course, appraisers) to try to bridge the gap between the national stats and local markets. However these reports are often limited by the size of the data, limited understanding of what the data really means and are clouded by their intentions.

There are generally four sources of housing stat interpretation:

  • Government – namely Commerce/Census/OFHEO
  • Economists – Chicago Mercantile Exchange (Shiller) and other “Starconomists” like Roubini, Zandi (Moody’s) and others.
  • Real estate brokerage trade groups and firms – The National Association of Realtors (NAR) is the primary source of information on national housing and local brokerage firms. Regional MLS systems and brokerage firms are the other primary provider.
  • Online services like Zillow.com, RealtyTrac, ZipRealty release housing stats but generally don’t provide historical trends to include for perspective.
  • Real estate appraisers, consultants and analysts I would fall into this category as well as other housing stats from other markets presented on Matrix. We tend to relay on actual housing prices and interpret them without the trade group or incentivized spin, but its not without its faults either. The data is generally influenced by mix of housing stock that sells so its important that this group bridges the gap between the results and actual conditions.

Local, National and Internet:

  • National housing stats are reported religiously by nearly all national media outlets yet don’t have a link to local markets. What happens in a neighborhood may or may not comparable to national markets and if the results are consistent, its really coincidence. NAR has touted national housing stats as an argument for real estate as a good investment but it doesn’t reflect local volatility.
  • Local housing markets tend to have smaller data sets and are more affected by the mix of what sells. They can have a powerful affect on local moods but are often written by marketing departments as public relations pieces for trade groups and firms with a vested interest in the results and how it affects the bottom line.
  • Internet is an important delivery mechanism for real estate stats, but are often less thought out than traditional sources because many producers of this information don’t have direct real estate experience, but rather have online experience from other industries. This isn’t necessarily a bad thing, because bad habits and bias may not be developed but often, inappropriate uses of month over month stats exagerate certain market conditions.

Pitfalls and/or spins betrays most sources:

  • New home sales – Government stat quality is suspect and not necessarily unbiased. You just have to take a look at the widely quoted housing stats like New Home Sales from the US Commerce Department [pdf]. You just have to read an excerpt from the October release to see what I mean: This is 3.2 percent (±11.2%)* below the revised September rate of 1,037,000, and is 25.4 percent (±10.0%) below the October 2005 estimate of 1,346,000.
  • Median sales price (National Association of Realtors) – There is an emphasis on the national numbers in their series of reports on new and existing home sales. They do break up the country into quadrants, but all real estate is local. They have such an opportunity to gain the public trust but usually provide hard spin to the results and are very inconsistent in the commentary from month to month.
  • Sales price index (OFHEO) – The median sales price includes refinance data and excludes sales with non-conforming loans (mortgages greater than $400,000).
  • Housing price index (Chicago Mercantile Exchange) – Robert Shiller’s repeat sale index lags the market by about 4 months and is targeted towards investors, not consumers. Trading volume is growing but is still too small to really provide a sense of market direction.

Since all politics real estate is local, but reporting of larger data sets is easier but less relevant, its very difficult for the consumer of real estate market information to know what, in fact, the truth is.

At the end of the day, real estate truth is open to interpretation.


Tags: , , , , , , ,


300 Million Of Us, 12000 DJIA, Yet Why Are We So Darn Unhappy?

October 18, 2006 | 4:39 pm |

Records are abound lately:

Yesterday at 7:46am EST, the U.S. POPClock Projection reached 300,000,000 as the estimated US population.

  • One birth every…………………………………. 7 seconds
  • One death every……………………………….. 13 seconds
  • One international migrant (net) every………. 31 seconds
  • Net gain of one person every………………… 11 seconds

(in fact 12 new borns just now started screaming)

200,000,000 was passed in 1967 – population doubled in 39 years. I find it amazing that the population was 76,000,000 in 1900 – seems huge to me for that period of time.

Hospitals were having fun with the 300M stat [Chicago Trib] as well.

The idea of a growing population seems to be favorable, especially with growing immigration and their influence on the demand for housing. Harvard’s Joint Center for Housing Studies released their seminal The State of the Nation’s Housing 2006 [JCHS] early this year which projected favorable demand for housing over the next 10 years.

Over the longer term, household growth is expected to accelerate from about 12.6 million over the past ten years to 14.6 million over the next ten. When combined with projected income gains and a rising tide of wealth, strengthening demand should lift housing production and investment to new highs.

In combination with the 300,00,000 number, Forbes did a study on The Average American: 1967 And Today [Forbes] referring to Mr. & Mrs. Median. The Median’s can’t be seen as average can they?

Mr. and Mrs. Median’s $46,326 in annual income is 32% more than their mid-’60s counterparts, even when adjusted for inflation, and 13% more than those at the median in the economic boom year of 1985. And thanks to ballooning real estate values, average household net worth has increased even faster. The typical American household has a net worth of $465,970, up 83% from 1965, 60% from 1985 and 35% from 1995.

Here’s a great summary of the Forbes article stats in Big Picture by Barry Ritholtz who also comments below.

Although we have more, apparently we are not very happy about it. We suffer from Permanent Income Theory.

Milton Friedman dubbed “Permanent Income Theory,” which assumes that people measure where they are relative to where they expected to be a few years ago. They don’t care a bit what the average income was four decades ago.

“If you expect a 3% rise in income and you get 2.5%, you’re disappointed,” says Ken Goldstein, an economist at the Conference Board, a private research group in New York.

And today, the Dow Jones Industrial Average exceeded 12,000 for the first time breaking the October Jinx of 1929, 1987, 1978, 1979, 1989 and 1997.

However, the new high-water mark also was achieved at a time when many economic reports have pointed to slower growth, and suggested to some analysts that a market correction might be more appropriate. For Barry Ritholtz, president of Ritholtz Capital Partners, the market has been on “a mission to get to 12,000 no matter what the data has been saying.” “But I think there is a disconnect between the market and economic reality,” when you bear in mind that earnings are at their cyclical peak and the economy is slowing.

A recap: There are a lot of us, we are making more money, the stock market is active yet we are unhappy. I must need to buy a new house.


Tags: , , , ,


[Getting Graphic] Cost Is The New Rent Vs Buy Decision

October 3, 2006 | 6:43 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for large graphic [NYT]

Housing costs (mortgage or rental) have risen sharply over the past five years according to new data by the Census Bureau and presented in the article by Janny Scott and Randal C. Archibald called Across Nation, Housing Costs Rise as Burden [NYT].

The data was collected through 2005 so it does not reflect further rising mortgage costs and rental costs in 2006.

Over the period, there was a large increase in homeowners paying more than 30% of their income on housing. They are not alone. There has been a surge in renters paying more than 30% of their income as well.

Why?

“People want to hang on and stay in the market,” said William H. Frey, a demographer at the Brookings Institution in Washington, “and they are willing to stretch themselves to find or to rent a house that is suitable.”

S. Lawrence Yun, an economist with the National Association of Realtors, said renters in desirable cities might be spending more of their income on housing in hopes of getting a toehold in places with good schools, better homes and a good quality of life. He said, “There is certainly a concern that people are devoting a large portion of their income to housing, and one of the reasons is due to the more limited housing supply.”

Its an interesting dilemma because conventional wisdom says that those priced out of the housing market during the boom, will simply rent and wait for the market to be more affordable, but at the same time rents are rising rapidly as many have the same idea. Here in New York, the rental market is currently doing what the sales market just got through doing.

The most pronounced increases in housing appear to be in urban areas, many of which have been revitalized in recent years but suburbs also showed significant gains in housing costs. In many metro areas, the surrounding suburbs have reached price parity making the move to the suburb one of lifestyle and not of cost savings.

Its possible that certain sales markets may benefit from a rental bounce back as home buyers become discouraged and decide to go to rentals only to suffer further dissappointment when they realize how much rents have gone up at the same time. Either way, its looking more expensive these days.

It certainly makes for the argument of Fed interest rate cuts in 2007 as the economy cools off.


Tags: , , , , ,


Affordability Impacted More By Pricing Than By Mortgage Rates

August 30, 2006 | 7:43 am |

In David Berson’s weekly commentary this week he discusses how housing affordability falls as rates and prices increase [Fannie Mae].

There is an inverse relationship between mortgage rates/housing prices and affordability. Rates and prices rise, affordability falls. Nothing new here. You have less disposable income to buy other things or you don’t make the qualifying ratios in order to obtain financing.

The NAR housing affordability index measures the share of the median-priced house (as defined as the median price of existing single-family homes sold in the monthly NAR home sales survey) a family earning the median income (as defined by the U.S. Bureau of the Census) can afford at the prevailing mortgage interest rate and using standard underwriting criteria. The prevailing interest rate is the effective rate on loans closed for existing homes from the Federal Housing Finance Board’s Mortgage Interest Rate Survey. The calculation also assumes an 80 percent loan-to-value ratio and a qualifying housing-to-income ratio of 25 percent.

These standards are a little outdated due to the 80% LTV and 25% ratio. There is a significant number of sales that relied on 90+% LTV’s and 33%+ H to I ratios. Ease of financing one of the triggers for the recent housing boom. Nevertheless, affordability was kept in check as prices increased because it was all about the monthly payment and not about the down payment.

What I find fascinating with the chart is the idea that affordability would be virtually the same today as this time 3 years ago had housing prices remained flat. If rates had remained constant, affordability would have dropped over the past 3 years.

In other words, the rise in housing prices is the bigger culprit in declining affordability, not the uptick mortgage rates.

Its an interesting concept because I am often asked what the mortgage rate threshold is before it causes a correction. I have been unable to come up with an answer I am comfortable with and perhaps this is why.

Note: Berson’s links lasts one week. After 9/6/06, go here and search for his 8/28/06 post.

Tags: ,


[Getting Graphic] Housing: The Auto Motown Doldrums May Mean Recession

August 24, 2006 | 7:03 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Source: NYT

Click here to expand

With all the buzz about the consumer’s 2/3 share of the economy and housing as the biggest purchase in many of our lives, we have tended to be housing-centric [pbs] in the search through the tea leaves.

Sometimes I think that we can be better informed by looking at other industries for the health of the economy as it relates to the housing market rather than the other way around.

And since I was just in Detroit to visit family, what better way to look at the housing market, than to look at the impact of the auto industry on the economy? Afterall, 1 in 6 jobs is linked to this sector.

Floyd Norris does that for us in his A Car-Sales Indicator Suggests a Recession Is Near or Already Here [NYT] using census data.

The accompanying chart shows the rate of change in sales by new-car dealers, comparing the most recent 12 months with the 12 months before that; it is adjusted for inflation. The rule — unveiled here for the first time — is that if the figure is down 2 percent or more, a recession is either under way or set to begin within a few months. The figure fell to a negative 2.4 percent when June sales figures were released last week by the Census Bureau.

There is, of course, no mystery now as to what the problems are for car dealers. They are pinched by the slumping real estate market because people can take less money out of home equity to buy cars. And soaring gasoline prices have made driving much more expensive and new-car payments more burdensome. In July, sales at gasoline stations accounted for 10 percent of all retail sales, the highest figure in decades.

We are starting to see warnings from large car dealerships. This one is from AutoNation [OCR].

The result? Its a double edged sword. An offset, or perhaps not enough of one. Recession means a weaker economy and falling borrowing costs, but it also means layoffs, lack of job growth and more consumer pessimism, which brings more complacency about housing.


Tags: , , ,


Sense of Direction: GDP Easing, Housing Cooling and The Rise Of Lawn Indicators

August 1, 2006 | 9:45 am | |

There are some signs that business is trying to pass along other costs to the consumer. Core inflation is up. With mortgage rates up since the first of the year, that leaves less room for a mortgage payment. And that is what has tempered demand – this is no new news to anyone, really. Yet there seems to be a sense of optimism that things will work out, without widespread carnage.

It would seem that the Fed has overestimated the willingness of business to take the baton from the consumer. Profits and cash are better but business is not spending with wanton abandon like consumers did.

Here’s a bunch of varying commentary concerning the housing market and overall economic conditions. Its fair to say that the pace of housing sales is declining and the economic conditions are slowing, the government keeps revising its initial housing stat releases downward, but beyond that, the devil is in the details.

In Caroline Baum’s opinion column this week Fed May Get What It Bargained for — and More [Bloomberg]. The Fed by instituting a 425 basis point increase to the federal funds rate since June 2004, is beginning to reap the rewards of its efforts. The economy is cooling. One of the primary reasons for the cooling has been the housing market, but also consumer spending on durables, investment in equipment and software.

That wasn’t the new or most important news last week, however. The Bureau of Economic Analysis also reported that real gross domestic product grew 2.5 percent in the second quarter, down from 5.6 percent in the first.

That surprised analysts who were expecting 3% annual growth.

In Fed’s the grand scheme of things, the burden of economic growth was supposed to pass from the consumer to business. But that does not appear to be happening.

However, despite a slowdown in GDP, core inflation (excluding food and energy) rose to an 11-year high in June [MW] which keeps the pressure on the Fed to keep raising rates.

While consensus seems to be 50/50 for the Fed to pause in August, I believe that its going to be one and done. I believe the fed overshoots by about 2 rate movements as it relates to housing. Possible rate reductions in 2007 are on the horizon. I wouldn’t get too excited since the damage has already been done to the housing market.

In Kenneth R. Harney’s The Nation’s Housing column this week Decoding Fed Speak On the Market’s Path [WaPo] he interviews David Berson, chief economist for Fannie Mae who also has his own column.

In reference to housing, Mr. Berson says:

One of the few immutable laws of economics is that “unsustainable trends eventually come to an end.” And the end of the trend is pretty much where we are right now in housing.

Ben S. Bernanke, chairman of the Federal Reserve, was more opaque. In congressional testimony last week, Bernanke said, “The downturn in the housing market so far appears to be orderly.”

In Berson’s Weekly Commentary column [Fannie Mae] this week, he writes:

Even with the declines in housing activity, and our forecast of an 8 to 10 percent decrease in home sales, we are still projecting that 2006 will be the third strongest year on record for home sales. We expect waning investor demand to drive most of the decline in housing activity, but the fall will be cushioned by strong demographics.

Remember last month when the Census Bureau reported that new home sales increased by 4.6% in May that confused us all? That number was revised down to a 0.5% in the latest release. The lesson: _don’t rely on new home sales data when first released (if at all).

In Toddie Gutner’s Housing Prices Stronger Than You Think [BW] she cites an incredibly optimistic housing report that she deemed refreshing because everyone else is pessimistic. (However, refreshing needs to have some basis of logic. – love the comments to her post.)

For extreme pessimists, there is something for everyone this week. In Rick Ackerman’s “For Sale” Signs Will Trip Crash [Goldseek], he observes a silent crash in real estate. If you want to pull out all the stops and cram as much gloom and doom into one column, then this is the one.

Although prices have yet to sink, except in such formerly white-hot markets as Miami and Las Vegas, the mushrooming inventory of unsold homes nationally implies that a broad and precipitous decline is gathering strength. For the time being, though, we can expect a growing number of homes to sit on the market for longer and longer until either of two things happens: sellers lower their prices, or buyers raise their bids.

Actually, it won’t be a splat that causes sellers to panic, but rather a certain, unpredictable threshold at which “for sale” signs on neighbors’ lawns become sufficiently numerous to induce a cold sweat.


Tags: , ,


Surburbia Shows Its Muscle Even As Macro Trends Favor Urban

June 29, 2006 | 6:59 am |

On a global scale, modest North American urban growth is in sharp contrast to patterns seen in Asia with China expected to be 50% urbanized (city versus rural) by 2015.

The US coasts are expected to see the largest growth over the next 10 years. That comes as little surprise and consistent with the significantly higher housing appreciation rates seen in the west and the northeast over the past 10 years.

Here is an amazing interactive map [BBC] that shows the global population patterns from 1955 projected through 2015.

However, according to the census bureau, despite the macro trends for urban renewal, including new urbanism, the suburbs are actually flourishing as homeowners look for cheaper housing and better schools. The top five fastest growing cities were suburban (defined as having less than 200,000 in population).

New York remained the nation’s largest city, with 8.1 million people. The city has added 135,000 people since 2000, but it lost 21,500 from 2004 to 2005, more than any other city.

Detroit, with its struggling economy, has lost 65,000 people since 2000, the most of any city. Philadelphia, which has lost about 50,000 manufacturing jobs since 2000, has lost 54,000 people during the same period.

San Francisco, with the highest real estate prices in the country, has lost 37,000 people since 2000, according to the Census Bureau.


Tags: , ,


New Home Sales: To Good To Be True, Literally

June 27, 2006 | 7:18 am |

The New Home Sale stats were released yesterday and provided a “pick and choose” resource for how the housing market actually performed. Every month, the report provides a plethora of reasons why you shouldn’t rely on data that is adjusted, re-adjusted and shows a wide range of results.

Here’s what I mean, as shown in this text taken from the very top of the released New Residential Sales report [pdf]

Sales of new one-family houses in May 2006 were at a seasonally adjusted annual rate of 1,234,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.6 percent (±13.1%)* above the revised April rate of 1,180,000, but is 5.9 percent (±10.8%)* below the May 2005 estimate of 1,311,000.

In other words, the question is whether May 2006 New Home Sales were:

A. up 4.6% from April 2006, but down 5.9% from May 2005
B. up 17.7% from April 2006, but down 16.7% from May 2005
C. down 8.5% from April 2006, but up 4.9% from May 2005
D. down 8.5% from April 2006, but down 16.7% from May 2005
E. up 17.7% from April 2006, but up 4.9% from May 2005
F. somewhere in between
G. All of the above

The consensus of news coverage opted to use the nominal figures provided suggesting new home sale gains.

UPDATE: As a reader just pointed out, the confidence level for the monthly change in the Northeast of -7.9% had a confidence interval of 30.9%. The West was nearly as bad.

Thats crazy inaccurate. In other words, don’t use their month over month housing stats. Imagine doing month over month real estate stats in a local market with a much smaller data set?


Tags: ,


The Blip: Housing Starts Up, Building Permitting

June 21, 2006 | 12:01 am | |

The Commerce Department released their new-home construction stats which showed a 5% increase in May over April, but starts are still 3.8% below last year. Building permits were 8.5% below last year’s pace.

Total housing starts rebounded from a 13-month low to increase 5.0 percent in May as builders worked down a backlog of unfilled orders under unusually good weather conditions. Issuance of new building permits fell by 2.1 percent, continuing the moderate downslide from the peak last September.

Download the press release [pdf]
View regional charts [macroblog].

There is some concern that too much good news will prompt the Fed to take stronger inflationary measures [WaPo] than it has in the past.

However, this news didn’t strike me as particularly good. Is it really inflationary to have housing starts rise as sales are slowing and inventory is rising? That doesn’t make a lot of sense to me.

I think the rise in new home construction is really blip and not the beginning of a trend [NYT].

Economists had expected the rate of construction on new homes to increase only marginally from April to May, according to a survey by Bloomberg News. So the latest figures were somewhat surprisingly strong.

“After three months of large single-digit declines, a rebound was to be expected,” Goldman Sachs economists wrote in a research report today. “The one we got was larger than expected, but certainly not enough to overturn the idea that housing is in a contraction.”

If the Fed interprets this to mean the economy is inflationary, then housing will suffer further with more rate increases. This rise really shows that more housing is being produced during a period of rising inventory and falling demand.

In other words, this isn’t a sign of anything positive.


Tags: , , ,


Reality Is Harder Than Reported: New Home Sales Down 20% to 40% From Last Year

June 16, 2006 | 12:01 am |

There has been a lot made out of the flaws in the Department of Labor’s statmill lately and here is another example of it, but this time its much more severe (hat tip to Lanser on Real Estate).

According to John Burns Real Estate Consulting, the recent stats are out of sync with reality. They show a spike in home sales when the construction industry shows a sharp drop. That also correlates with the recent series of reports from home builders [TheStreet.com] in recent weeks. Construction is down because demand is down.

the Census Bureau is reporting that new home sales are only down 6% from one year ago, which we know is incorrect. For accurate new home sales estimates, see the press releases of publicly traded home builders – all of whom are reporting sales (orders) that are down 20% – 40% from one year ago. The NAHB Housing Market Index, as well as almost every industry source we contact each month, supports the fact that sales are down 20%+ from one year ago in more than 70% of the markets we track (Texas, the Carolinas, Georgia and New Mexico are some of the major exceptions).

I hope the Fed sees through this as well when they make their next move (who am I kidding, they will be raising rates at the next FOMC meeting). I hope they are able to see the real estate economy the way it is, not the way it is reported.


Tags: , ,


Overpriced Housing Markets Get (You Guessed It) More Overpriced

June 14, 2006 | 12:01 am |

Yet another 1Q 2006 national housing market report. This time the report is from National City care of Global Insights. Unlike a lot of the PR corporate housing report vehicle studies that are out there, this one is pretty good. Global Insights has taken great care to explain their methodology [pdf] and the data that was used.

They take 2000 census data and grow the stats using the OFHEO study factoring out the refi data that pollutes it. Its a bit of a reach but overall it seems to be a reasonable methodology.

However, its still only a 1st quarter housing report but since it addresses affordability, its got a little more shelf life than some of the other housing studies that have been done.

Here is the summary (download the report as a pdf):

_Summary_
* Overvaluation became more pervasive during the first quarter of 2006.
* Seventy-one metro areas, accounting for 39 percent of all single family housing value, were deemed to be extremely over-valued at that time. That represents an increase from 64 markets, and 36 percent of all single family market value, during the fourth quarter.
* As recently as the first quarter of 2004, overvaluation was insignificant. At that time only 3 metro areas, accounting for just 1 percent of all single family house value, were deemed to be extremely overvalued.
* The coastal states of California and Florida continue to show the highest concentration of overvalued markets, accounting for 17 of the top 20.
* Quarter-to-Quarter price appreciation is slowing in most metro areas, and is nearly flat in San Diego and Boston.
* Property price appreciation remains strongest among the most over-valued metro areas, and visa-versa. Between the fourth quarter of 2005 and the first quarter of 2006, the correlation between valuation and appreciation was +0.36, suggesting that house prices are diverging, not converging, with respect to normal valuations.

The report covers 84% of all 1-family US houses and is pretty gloom and doom because 39% of the markets are overvalued. The economic impact, if these tea leaves are accurate, could be significant.

Here’s some of the coverage.

Housing bubble correction could be severe [USNWR]
‘Overpriced’ housing gets more overpriced [CNN/Money]
Study: More US housing markets are overvalued [BG]
More housing markets overvalued, study shows [MH]

Tags: , ,