Southern California Home Prices Rise? Beware of 'Misleading Medians'

The danger of "misleading medians" was demonstrated in the latest Dataquickreport on May real estate sales for Southern California.

While DataQuick and most media outlets seem to have addressed this issue promptly in their reporting - how an increase in sales at the high end can push the median price up while home prices continue to fall - it's easy to imagine what surviving real estate sales agents might tell fence-sitting buyers in an effort to compel them to action.

"Oh no, home prices are rising again", said the realtor as they approached the first of their six stops during an afternoon of house hunting. "They just reported it this morning in the newspaper".

The Los Angeles Times described the situation well in this report:

Southern California home prices rise slightly in May
Southern California's median home price rose slightly in May for the first time in nearly two years. But the increase was more reflective of a change in the types of homes sold than an end to falling values, a real estate research firm reported Wednesday.

Hopefully, prospective buyers will read more than just the headline.

There was a clear uptick in median home prices in Orange and Ventura Counties - the two most expensive areas in Southern California. It will be most interesting to see what the S&P Case-Shiller Home Price Index says about the Los Angeles area housing market when they release new data at the end of the month.Foreclosures accounted for just 50.2 percent of all sales in May, down from 53.6 percent in April, marking the eighth straight month where distressed sales made up more than half of all resales and sales volume continued to improve, particularly for higher prices homes.

On a year-over-year basis, there is clear improvement in all areas, but annual double-digit price declines were clearly unsustainable. Since Marshall "almost all if not all of those gains are here to stay" Prentice is now retired, new DataQuick President John Walsh provides the commentary:

We appear to be in the early stages of the market gradually tilting back toward a more normal balance of sales across the home price spectrum. As more sellers get realistic, more buyers get off the fence and more lenders offer reasonable terms for high-end purchase financing, we’ll see a more normal share of sales in the more established, higher-cost areas that have been nearly comatose.

Let’s not forget we’re into the traditional home buying season right now meaning more people are purchasing for all of the normal reasons, such as a new job or to get settled before school starts. Many are concerned with finding the right home in the right area, not just the most deeply discounted home.

Don't be surprised if a further increase in sales of more expensive homes pushes the median sales price up significantly in the months ahead.

Comments

[Tim Plaehn:]

The market definitely needs more interest and sales in the higher priced homes. A normal spread across all price ranges is a sign of stable market. Recent months have had a flood of buying at the low end and have driven the median down. Reversal of this trend only makes sense.

Jun 19 08:18 AM

[Lincolnpark:]

Isn't it also likely that the steep declines in the median prices reflected a major drop off in sales of higher priced homes due both to the scarcity and cost of jumbo mortgages and the lack of trade-up buyers? If so, then the downward movement in prices was overstated.

Jun 19 08:33 AM

[TeresaE:]

Having lived through this part of the "recession" in Michigan a few years ago, this is what I know.

As company closings mounted, and job losses became a continuous stream, the price of housing was still trending upward.

Why?

Because the brand spanking new McMansions were selling like hot cakes.

But the started end of housing was plunging, and this was WITH subprime and liar loans.

Unless their are JOBS to put cash in the pockets of your customers (a rising tide floats all boats), these higher end home owners are risking a lot of money (future foreclosures) that the "green shoots" are real.

This trend can't last. The underlying economy is just way too broken right now.

Jun 19 09:18 AM

[TeresaE:]

Wow, my morning brain hasn't kicked in yet and death by spell check once again.

I said, "But the started end of housing was plunging," should be STARTER homes end.

And, I misused the their/there.

What a maroon. Sorry!

Jun 19 09:20 AM

[nathanredondo:]

Ah yes....The "rising home prices in Southern California" headlines that are now on the cover of every newspaper down here! I suppose every falling market needs a dead cat bounce!

"As more sellers get realistic, more buyers get off the fence and more lenders offer reasonable terms for high-end purchase financing, we’ll see a more normal share of sales in the more established, higher-cost areas that have been nearly comatose."

Ha- tell this to the idiots who built the poorly constructed 6 to a lot McMansion townhomes right next to us and are still trying to unload the at 2 million. This will bode really well after Barry and Nancy's lending scheme drives interest rates on a Jumbo to 9%...
As someone who lives in an affluent zip code in southern california and has gotten to watch the real estate market flow with the speed of continental drift the last couple years, I can assure you, things are only going to get worst.

Jun 19 10:57 AM

[rm:]

[Oh no, home prices are rising again", said the realtor as they approached the first of their six stops during an afternoon of house hunting.]

Most realtors have mastered the art of "How to Lie with Statistics" without having ever read the book.

Most MLS's don't keep terribly good data, to begin with. The way they calculate average time on market is SEVERELY skewed, for example. So, most "conclusions" they reach "based on the "market data" are often overly optimistic.

Trusting a realtor's opinion on whether you should buy or not is similar to asking the mortgage broker whether or not you can afford the loan that you "qualify" for.

Do your own homework.

Or don't, and maybe Pappy Obama will come to your rescue, too.

Jun 19 12:09 PM

[Jeff:]

LincolnPark,

You are dead on...... Home prices would NOT have fallen as far and as hard as they have, IF high priced homes were selling at a normal pace. This aberration drove prices much lower than they would have gone. Now people want to claim foul when high priced houses start to sell again, push prices up? Can't have it both ways.

I know we all want to.

Jun 19 12:47 PM

[Jeff:]

nathan redondo

FYI, I just refied my jumbo with BofA for 4.78%, a 7 year 1 million interest only.
Things are getting better out there, look around.

Jun 19 12:51 PM

[Dave Wrixon:]

Maybe, but what happened last year is irrelevant to those who are trying to establish the validity of the Green Shoots Claims. If the proportion of high-priced homes selling is distorting the current price stats then that does not give much support to these claims. Further, is the the highest priced once are actually increasing or that some lower segment is actually continuing to fall, which could also drive the median higher?


On Jun 19 12:47 PM Jeff wrote:

> LincolnPark,
>
> You are dead on...... Home prices would NOT have fallen as far and
> as hard as they have, IF high priced homes were selling at a normal
> pace. This aberration drove prices much lower than they would have
> gone. Now people want to claim foul when high priced houses start
> to sell again, push prices up? Can't have it both ways.
>
> I know we all want to.

Jun 19 02:05 PM

[Dave Wrixon:]

Could foreclosures being be driving the median up?

Or could it simply be better availability of Jumbo Loans?

Jun 19 02:07 PM

[TinyTim:]

realtors grasping at straws
statistics don't lie- it's the statisticians

Jun 19 02:34 PM

[Sean in CA:]

Or worse.


On Jun 19 10:57 AM nathanredondo wrote:

> Ah yes....The "rising home prices in Southern California" headlines
> that are now on the cover of every newspaper down here! I suppose
> every falling market needs a dead cat bounce!
>
> "As more sellers get realistic, more buyers get off the fence and
> more lenders offer reasonable terms for high-end purchase financing,
> we’ll see a more normal share of sales in the more established, higher-cost
> areas that have been nearly comatose."
>
> Ha- tell this to the idiots who built the poorly constructed 6 to
> a lot McMansion townhomes right next to us and are still trying to
> unload the at 2 million. This will bode really well after Barry and
> Nancy's lending scheme drives interest rates on a Jumbo to 9%...
>
> As someone who lives in an affluent zip code in southern california
> and has gotten to watch the real estate market flow with the speed
> of continental drift the last couple years, I can assure you, things
> are only going to get worst.

Jun 20 01:32 AM

[Mad Hedge F...:]

Don't rush to snap up that beachfront bungalow. Iam more convinced than ever that real estate has another 25% to fall, and best case, it is dead money for another five to ten years. The New York Times produced some insightful data on inflation adjusted home prices for the last120 years, which baselines at a $100,000 for a single family home in 1890. Few people realize how superheated the recent real estate bubble really got. Past bubbles very consistently peaked at $125,000 in 1896, 1979, and 1989. This last one peaked at $205,000 in 2005, almost double the previous record highs. And while we have dropped 34% since then, to $135,000, we haven't even fallen tothe past all time highs yet. If you look at historical lows, my call for a further 25% slump looks positively bullish. We saw lows consistently around$66,000 in 1920, 1932, and 1942. Postwar lows came in at $105,000 in 1976,1983, and 1996. These figures suggest the best case low is down a further 28%,and the worst case is down another 51%. I think I'll go find something else to trade.

Jun 20 05:46 AM

[Moon Kil Woong:]

Rising home prices are meaningless without an increase in sales. Furthermore, home prices and numbers sold naturally increase during summer. Unless there will never be another winter and summer break never ends allowing people to never have to plan a move around it, it is very premature to call anything a residential mortgage recoverery.

The affects of higher rates hasn't even been added to the mix yet. If you want to buy a house buy it to increase your standard of living (and only if you can afford it), or get your kid into a better district. Don't bet your life savings (and your future income for 20-30 years) on a 2005-2008 real estate mania recovery.

Jun 20 06:23 AM

[Fighting Yoda:]

Live in Southern California and can confidently say - prices are not rising they are falling - based on list prices. 5/6 weeks ago in wake of the green shoot propaganda - the list prices started moving up, but homes did not sell and the list prices went down below the levels where they started moving up from.

Median price is a very deceptive measure of prices - in these volatile markets, especially since most of the sales are at low end - so volumes and low prices moving up can send the wrong signal. Case-Shiller looks at the average price - giving a better gauge.

Jun 20 08:51 AM

[cameroni:]

I agree seasonality is a big factor right now Clive and that needs to be kept in mind always. The papers are full of "damn lies" and statistics and are enough to brainwash a few more suckers into buying into the market before it really hits bottom.

We will see what happens this winter. In the meantime a lot of the vulture buyers will be getting a rude awakening if tenants in their rentals stop making payments, walk away or start crowding more people into smaller spaces.

Tax hikes are looming too, especially in California. What I am getting at here is that even the relatively low current property prices may still be too high. Unemployment is still on the rise and the aggregate joblessness is persistent and growing. What will tenants pay with when benefits run out? How will landlords collect then.

Empty homes don't produce revenue. As employment benefits run out we will see a whole new set of problems developing that will almost certainly result in higher densities of certain classes of homes as renters are squeezed to reduce accommodation costs. We will see more vacant residential properties too.

The issue of the unemployed not finding adequate work before benefits expire is on the rise and this will feed into rental price declines which will put further downward pressure on home prices.

No, the real bottom is not in yet. Even vulture buyers will start sharpening their pencils a little more as taxes rise, debt servicing costs increase and unemployed renters go into financial distress.

Jun 20 10:19 AM

[nova:]

In the last 20 years, spinning data became very popular in America. real estate, inflation, scientific data, etc.,

Totally useless drugs are promoted as new science breakthroughs. It is total disgrace when highly toxic and extremely expensive drugs are giving to dying patients further extending their suffering.

Conclusion
Do not trust the official statistics since it is just bogus.

Jun 26 11:08 PM

[User 444330:]

I have $190,00 cash, but yet I cannot compete against 30 to 40 offers on every house in that price range !

Jul 09 06:37 PM

[User 444330:]

On Jul 09 06:37 PM User 444330 wrote:

> I have $190K cash, but yet I cannot compete against 30 to 40 offers
> on every house in that price range ! The banks are turning every REO sale into a silent auction behind closed doors .REO agents are not communicating well with buyers agents and there is no way to verify if offers are indeed
valid. this entire REO mess is getting worse
with the banks in the drivers seat.

Jul 09 06:53 PM