Economist's Commentary: August 14, 2008
Local Market Variations
By Lawrence Yun, Chief Economist
NAR publishes monthly housing statistics at an aggregate level. Once per quarter we breakdown the data to delve into local market conditions. There were indeed sharp variations among markets in the second quarter this year. Home prices fell steeply by more than 30 percent over the year in Sacramento, Ft. Myers, and Riverside. Home prices rose in several affordable markets - such as Binghamton, Amarillo, and Des Moines - that did not experience the outsized price increases during the housing boom years. Far more markets experienced price declines compared to price increases in the latest quarter.
There were large variations in home sales as well. After accounting for seasonal conditions, home sales rose in states where prices have fallen. Sales rose significantly in the "distressed" markets of California, Nevada, Arizona, and Florida. Sales fell in Texas, Washington, Oregon, and Carolina - where, interestingly, the job markets are doing fine. Mortgage tightening conditions evidently more than offset any positive impact from job creations in these markets. Concern over prices is also likely to be holding back buyers.
Though no data at the neighborhood level is presented in here, there are tremendously differing conditions depending upon a neighborhood's exposure to subprime loans. Home prices are faring much better in neighborhoods with few subprime loans, while neighborhoods with a high prevalence of subprime loans and the related rise in foreclosures have resulted in major declines in home prices. Therefore, some places in Sacramento could be experiencing price declines of nearly 50 percent while other places in Sacramento may be experiencing price cuts of less than 10 percent.
It is also worth noting that NAR measurement of home price is a simple median price of those homes that have gone through transactions during the quarter. Additionally, the price is not seasonally adjusted. Therefore, a comparison is made from 4 quarters ago to assure relatively similar mix of homes. That is, the second quarter prices are higher than in the first quarter in most markets, but it would be wrong to imply that home prices rose since second quarter prices are generally higher in this quarter every year. Also, because of simply picking the middle price of those transacted homes, it is possible that price measures could be pushed lower due to an increased level of foreclosed home sales in the current environment (which are selling at deeply-discounted prices). NAR picks up only those homes transacted through the multiple listing services and so any home transactions that occur outside the MLS, such as for-sale-by-owner or some auctions sales, would not be picked up in NAR data.
We are in the aftermath of a housing market boom that lasted from 2003 to 2005, where some markets had outsized price gains and some barely kept pace with general inflation. We are also in the aftermath of subprime lending mistakes and the resulting impact of fast rising foreclosures in those impacted neighborhoods. There will be continuing large market variations for the upcoming quarters.
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This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >
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