Housing Data: Crybabies and Deceivers

With a name of a publication like my blog, if there are any biases by the writer (which surely there are), you probably have a good idea what they are. Not so with outfits like MarketWatch where columnists can write whatever they want while keeping their true motives unknown to readers.

Either that, or they just don't understand the data.

Such was the case in Thursday's report by Chris Pummer about how recently reported home price declines of unprecedented magnitude should not be trusted.

Writers should be careful when prying into data reporting, especially when they side with Lawrence Yun and the National Association of Realtors.

Chris writes:

Commonly cited measures of U.S. home prices are overstating the degree to which the vast majority of Americans' home values have declined in the last year, producers of two of the most widely tracked indexes acknowledged this week.

Yes, all statistics are flawed - some more so than others. Get used to it.

More importantly, where did that "vast majority of Americans' home values" line come from? That's not what the NAR or S&P said about their home price indexes.

There are two arguments here, both of which are valid, neither of which makes the condition of the nation's housing market demonstrably better than reported in the mainstream media.

First is the "misleading median" that tends to be pulled up or down depending upon the mix of high-priced and low-priced homes being sold:

"If there are a lot more homes sold on the low end and fewer on the high end, the median price is bound to drop dramatically," NAR Chief Economist Lawrence Yun said. "In normal times, a median price would reflect typical homeowner equity changes, but these are not normal times. The jumbo (mortgage) market is frozen and the buying activity is more concentrated in lower-value homes."

Yes, that's true - the only problem is, this works both ways and unless Chris was one of the very few writers who complained last year around this time, then he should pipe down.

Early in 2007, when the subprime problems were gathering steam and lenders were cutting back on making loans to shady borrowers, the sales mix shifted to the high end as jumbo loans were still considered to be "safe". This pushed the "median" higher than it would otherwise have been.

Once the credit crunch hit in August and jumbo lenders started to make up for lost time, realizing that they too might not get paid back after home prices started to fall, a sharp pullback in jumbo loans has skewed prices downward.

If you didn't complain about the first, you can't complain about the second.

The next arguments for home price declines being overstated involve the limited coverage of the Case-Shiller Home Price Index (yes, this is true - that's why they call it a 20-city index - it only covers 20 big cities) and one of the loopiest bits of reasoning I've read lately.

The S&P/Case-Shiller index, which Tuesday posted a 12.7% decline for February, is skewed for two reasons of its own -- it tracks just 20 major markets, many among the hardest hit, and its "repeat sales" survey by design pulls in individual homes both bought and sold in the last few years. Many of those are now being dumped by distressed homeowners and investors who bought at peak market prices and face higher mortgage-rate adjustments.

In other words, ignore how prices got to such lofty levels while the housing bubble was inflating and remember that a home hasn't declined in value until it is sold.

It's only the distressed properties that are being sold at much lower prices - forget about the impact that these prices have on determining the value of other homes. As soon as this multi-year wave of foreclosures passes, things will be back to normal.

How dumb!

But Chris' biggest mistake when complaining about other statistics being misleading (and the real motivation for going off on this rant this morning) comes when he cites NAR data to counter what is being reported in the media:

The glaring discrepancy in this case is that 17 of the 20 metro areas posted record annual declines, and yet 78% of the 330 metropolitan regions that NAR tracks reported price increases in the latest period -- and that despite the acknowledged downward bias in current price readings.

The most recent Metropolitan Median Price data from the NAR which included data through the fourth quarter of last year is available for anyone to see at the NAR website - while overall prices declined during the fourth quarter, 49 percent of the metroplitan areas showed price increases. Housing hotspots such as Yakima, Washington and Bismark, North Dakota top the list of areas with price increases.

Talk about misleading statistics!

The data cited in the MarketWatch story - 78% of metro areas showed increases - is actually from the third quarter report, data that was used liberally by the NAR to refute misleading reports of home price declines up until the fourth quarter report came out.

This most recent data is up to seven months old and the data cited in the MarketWatch report is an astounding 10 months old, going all the way back to July of 2007 before the credit crisis began.

Appropriately, the piece concludes with more wisdom from Lawrence Yun, who really does seem to be choosing his words much more carefully than his predecessor:

"The only way to tell what your own home is really worth is to look at local-market conditions, do Internet research and utilize professionals (such as licensed appraisers) to help determine the value of your home."

Nothing is selling. They're dropping the prices of bank-owned properties faster than they were a couple months ago and the banks can't seem to keep up with the mounting number of properties that they are collecting from buyers who either can't or don't want to pay their mortgage anymore.

There are a huge number of sellers out there with prices that are far removed from what they could reasonably expect to get today, no thanks to the claptrap coming from people like Chris Pummer.

Comments

[Rhett]

Good article and to the point and problem: Elevated housing prices.
In our Florida retirement commmunity, the posted sales prices are usually what the sellers EXPECTED them to be worth when they bought 2-3 years ago. Dumb. THe listed houses are losing thousands of dollars per week while the unrealistic prices keep prospective buyers away. It seems that buyers are smarter than sellers.

[jimocarroll]

Not to be pedantic, but the MEAN, and not the median, is the measure of central tendency that is more susceptible to extreme values on either end of the distribution. If the distribution is negatively skewed (distorted by values outlying on the low side) then the mean is less than the median; the opposite obtains if the outliers are on the high side.

The median is less susceptible to extreme values, describing that value which has half of the values less than and half greater than it is.

[mlambert890]

Whats the point of the endless wave of articles like this really? And, to be honest, if there are so many "unrealistic sellers" then what does that tell you? Maybe we're not in the Great Depression yet then, eh?

I had been selling but, guess what? I decided to pull the property and rent it instead. WHY would I absorb a valuation hit for the commercial banking industry?

I mean net this out... What is the point of these articles? That real estate is now past the point of recovery, will only continue to sink, and is effectively dead? Yeah ok. Thats why my EU friends are snapping up the prime stuff in NYC and FL.

It sounds to me that the overly pessimistic articles are every bit as self serving as the NAR articles. You say that b/c this is "seekingalpha" your "bias" is well known.

No it isnt. You could be writing predictions of "doom" because it is a GREAT way to get clicks today. You could be caught up in the "world is over" cycle and, at this point are preaching. You may be frustrated that a property YOU have been eyeing just stubbornly... wont... come down... enough... LOTS of people I know in NY are in this category. Ranting and raving about how "stupid people" dont realize that THE WORLD IS OVER. When I explore, their evidence is that the condo they've been obsessing over just WONT drop below $1M.

We do have some serious economic challenges, but the press is on a FEEDING FRENZY of doom. If you guys believe the future is so bleak, are you writing these articles from China after having disolved all of your domestic ties, investments and positions? Did you sell your home recently? I mean afterall, its in a valuation freefall that will NEVER stop no? Better unload now!

If someone has a job (MOST people still do you know, or in the frenzy, have we forgotten that), they dont NEED to sell most likely. Why wouldnt they let the foreclosure wave settle and, in the meantime, keep their property listed at what they want to get?

If we think that day will NEVER come and real estate has completely lost its ability to yield a return (funny - a tangible, precious and FINITE commodity being killed thanks to amoral misconduct between institutions trading a synthetic, abstract and essentially valueless paper instrument?) then we should be learning Chinese and packing. When I see that happening among the glib commentators, Ill worry about the long term outlook of US real estate.

[Rhett]

mlambert890, your slant is suspect, having just taken your own homne off the market. Sounds like it was also too overpriced to sell. You're just the type of homeowner I referred to as not facing the real world of inflated housing prices.

[Rhett]

mlambert890, has it occurred to you that your EU friends are buying vacation Florida property because the dollar is so cheap? Our inflated housing prices are not so inflated for them, but we Americans must buy with devalued dollars.

[ArnoldCountry]

mlambert890 said "Whats the point of the endless wave of articles like this really?" In my view, honesty. The public is being misled by severe disinformation about bottoms, recovery and the worst being behind us and this disinformation is coming from the same sources that got us into the trouble in the first place.

Lets start with the real estate industry. Where were they at advising their clients that these hybrid mortgage products were bad for them? Nowhere! All they cared about was getting their commission. Where were they when they were purposely pocketing offers and delaying presenting them to sellers and starting a feeding frenzy to maximize the number of buyers and even higher prices in violation of their fiduciary duties? Again, all too happy to abuse buyers to fuel the market because they made more.

And the mortgage lenders... hybrid mortgage products that so misled the public about their ability to afford their "dream home".

Truth be said, we are in a housing nightmare and the last thing we need is a lot more BS about how good it is to buy right now. Is it gloom and doom, heck no. This market has more to decline and then there will be some great deals and the american dream will be back for many families.

Reality bites and today is not the day to buy.

[Tim Plaehn]

Applause for the comment above! The U.S. has a natural growth rate for new housing as the population grows. (I read California has 400,000 new families per year) The over building of 2002-2006 will get absorbed and more "normal" market conditions will return.

I am starting to think the many commenters who seem to gloat in further negative real estate numbers have never owned a home and will probably never be in the position to. I have not seen a better buyer's market in 30 years.

[dapperdan19]

Hi Tim,
Re statistics of the housing market, just an idea regarding the creation of a statistic that may compliment the Case-Shiller index. How about a diffusion index using the MSAs comparing the percentage of MSAs deemed to be in "declining markets" and subject to the 5% LTV haircut by Fannie Mae and Freddie Mac versus the total of MSAs. This seems to be an objective measure of the severity of the total number of declining markets. If the NAR people are pooh-poohing the Case-Shiller data, maybe this would be a broader look at the problem.

[dapperdan19]

It's interesting to see people speculating about the future of housing, whether it be from the NAR, the press, whomever. What I find interesting is that there is virtually never anything mentioned about underwriting standards. It road to a more normal housing market seems pretty clear to me at least.

Step 1 - Underwriting standards need to stop getting tighter. That has not happened yet. Fannie Mae's underwriting engine has a built-in feedback loop (an econometric model for underwriting scoring). At this point, there is really no getting around the fact that this model is scheduled to continue to tighten through the 3rd quarter of this year. Also, adding fuel to this part of the argument, is the fact that first time homebuyer programs through Fannie Mae and Freddie Mac (My Community and Home Possible) are no longer going to allow 100% LTV financing. The two factors above will continue to be a negative overhang on the real estate market. Hopefully, by the 4th quarter of this year, financing standards will stop tightening, and will simply remain tight - at least they will have stabilized.

Step 2: Roughly coincident with the stabilizing of the conforming markets, mentioned above, we will see the falling off of the bulk of the ARM Resets, just looking at the charts of ARM Resets, this should occur in December of 2008.

Step 3: Unfortunately, steps 1 and 2 merely set the financial preconditions for recovery. There is a time lag between establishing those preconditions and when recovery actually takes place. During this time lag is when, in my opinion, two events will take place. 1) the new homeowners (from say 2005, 2006, 2007) who have been doing there best to hang in there and ride out the storm, barely making their payments, working two and three jobs to make ends-meets, at this point those that just can't take anymore will throw in the towel. This is the classic capitulation stage. It will occur, and will probably occur during the first six months of 2009.

Step 4: Recovery. With the financial decks finally cleared, we'll see a bottom in the real estate market formed in the 2nd half of 2009. Given the seasonal nature of real estate, my guess would be the bottom will be formed between September 2009 and March 2010.

[lodgegoat]

California may have 400,000 new residents, but how many of them can afford 600,000 dollar houses? If they are coming from most other parts of the nation they are going to have serious sticker shock

[WAKEUP]

It's hell, when something basic changes as radically as the housing market is changing, now, isn't it? But life goes on. Americans will get used to renting, and then they'll remember that there are other things in life besides hanging over the back fence, arguing with your neighbor about whose house has appreciated most, this year.

[Tom Lindmark]

I think this article accurately describes the difficulty of finding valid housing statistics. In Phoenix, we've begun to parse the MLS data a number of different ways after seeing numerous studies that just didn't square with the reality of the market. The effort has shown a number of trends that aren't particularly encouraging. For example, we found that during the past 6 months almost 45,000 homes were delisted-that is offered for sale and then taken off the market. This is almost as many homes as the current inventory of about 50,000 that you find on MLS and to us suggests there is a very large shadow market.

As for dapperdan's comment about ARM resets tapering off, I have to beg to differ. I've posted this link before- blog.metro-real-estate.com/?p=304 . It takes you to an article on my blog that has a very useful graph of the timeline for ARM resets. It's from Credit Suisse so I have confidence in it. Take a look. It won't provide a lot of comfort.

[sb-tiger]

The housing market problems are very simple and glaringly obvious. There is no need to look at Case-Shiller or NAR. It simply is Affordability. The income has not kept pace of home price increases in the last few years. (if incomes rose in proportion we would have astronomical inflation). Only way to beat the system was teaser rates and ARMs, with the HOPE that prices will keep rising and the home will somehow pay for itself – by refinancing or taking out home equity to pay mortgage. I simply don’t understand the math – more you borrow the higher your payments would be. People were actually upgrading too!!
All the demographic data – population increase etc is irrelevant. You may need and want to buy a house but if you can’t afford – you simply can’t buy. Unless of course you start getting some irrational exuberance help from the likes of Greenspan and of course Mozilo (CFC). Down payment to buy was lower than to rent. One important tid-bit of fact is 18% of subprime loans that originated in 2006 never made a single payment. There is all this talk about resets and buyers duped by complicated loan terms. If you can’t pay a teaser loan – what can you pay? This should tell how bad things were –the entire system colluded– realtors, mortgage brokers, banks, Wall Street (securitization), the rating agencies (they should be sued and banned), and security buyers all over the world. Buyers are getting blamed – but they were being enticed by free lunch, and they had nothing to lose. If you have no credit anyway – what do you lose? They were ‘asked to lie’ about their income – they did.
Home prices always had a close historical relationship with:
a) Inflation –but last few years despite inflation being low home prices zoomed. Why? There is no free lunch
b) Median income – median income did not grow (much at all) – but home prices zoomed. How do you pay?
c) Rents – rents and real estate have a close relationship. Rents maintained historical trends but home prices zoomed. Better to rent than buy!
All these distortions were made possible by speculators, and cheer leaders like Greenspan- dawn of a new era- “Financial innovation is changing everything, old rules no longer apply”. (He had similar things to say during the .com bubble – “productivity, new economy”)
Home prices are sticky by nature – it takes a long time to consummate a sale – appraisals and loans etc. Foreclosures take 6 months and more. Also the political meddling that is going on. Home prices will take a long time to correct – likely would (should) over-correct. The main reason would be risk aversion amongst buyers and banks – rightfully so, also lack of speculators. All the talk of bottom etc has no basis at all – long way to go – likely to ’02-‘03 levels.
Advice to would be buyers – patience.
Advice to sellers – bite the bullet - sell and get out, time will not be to your advantage.

[bill d]

jimocarroll hits it right on the nose. Mean, medium, average, peak, etc., don't really mean s**t.
The PRICE of housing doesn't mean anything unless you are buying or selling and there are so many variables the only one that means a rat's a** is what a comparable in your area is being SOLD for.

Remember - RE is a sales game bigger than used cars or the market.
"VALUES" increase - "PRICES" go up & down. Being a geezer/gummer I have probably bought/sold more houses than most - sometimes had to but never lost money, broke even a few times and did very well a couple of times. If you can take advantage of the cycle you have it made.
We all know it's not prices, inventory, etc., that have have caused the problem - it's the result of bottom feeding salesmen, greedy mortgage brokers and banks. Being a gullible buyer doesn't make you any less stupid. mlambert will figure it out one of these days.

[condorspread]

Its always the exception the proves the rule w/ places like New York city. However the argument that Real Estate is localized and placed like Arizona, Nevada, and California are the ones dragging down certain indexs, that argument holds no water. Lending has dried up. I dont care if you live in Maine or California, the loans are just not there any more. So so so many ppl who once could buy now cant. The first time home buyer crowd has all but evaporated. Until the prices come way down (minimum 20% more) this real estate debacle is far from over

[bill d]

mlambert writes -
"I mean net this out... What is the point of these articles? That real estate is now past the point of recovery, will only continue to sink, and is effectively dead? Yeah ok. Thats why my EU friends are snapping up the prime stuff in NYC and FL."

Why don't some of your EU friends buy your property ?
I will assume that none of them are from Japan - seems to me I remember when they damn near owned NYC - do you remember how that worked out for them ? I'm sure THEY haven't forgot.
Trite but true - forget history and you are doomed to repeat it.

Of course if he thinks these articles are pointless (most of us don't) then he will probably never visit here again. (sobbing now)

[Mallarde]

mlambert, I am one of these prospective buyers scratching my head at sellers that base their list price at full-froth levels. I have stopped looking and renewed my lease for another year. I live on the beach in a huge condo. And my landlady is eating $2,000 per month in negative cash flow.

One woman in my building bought a house. Now she can't sell her condo and is having trouble making 2 large payments. She tries to convince me to buy a condo, somewhere, as if I do it I will prop up the market for her.

There has been a stare-down in places like L.A. between buyers and sellers. I think the sellers will have an increasingly hard time not blinking.

[dlaw]

Okay,

A) Go ahead and make fun of Yakima, Washington but...okay, just go ahead and make fun of it.

B) This "shady borrowers" meme has got to end.

In their study, the Wall Street Journal found that about half of sub-prime lenders could have qualified for a better rate. Add to that the fact that comission sheets at major mortgage brokers show that brokers were paid a significant premium if they could move borrowers into a higher-rate loan - INCLUDING by persuading them to take a no-doc or low-doc loan. That's why they paid good money to advertise no-doc loans.

And as people on this blog know - and should be explaining to the public at large - the after-market had no problem digesting the huge increase in packages of no-doc and low-doc loans. So it was a situation of profitability for individual mortgage brokers, the mortgage brokerage industry, banks, rating agencies, and bond insurers.

What did the "shady borrower" get? - the opportunity to pay fees and interest for no equity or a foreclosed house.

The people who extended these loans can read the contracts they wrote. They CHOSE to extend loans - in huge numbers - without getting even the most basic data and they chose to do so because it PAID - simple as that.

So can we get rid of this ridiculous narrative of "shady borrowers" suddenly descending on innocent financiers and somehow "forcing" them to write irresponsible loans for high profit? It's completely absurd.

Finally, something for the mavens on this blog: is it possible there was an advantage in packaging no-docs? My understanding is that US security laws are very particular about violations of promises of performance. While a rating on any single borrower or dent-issuer may not be a promise of performance, there should be no question (in my mind at least) that an investment-grade rating on a package of hundreds of loans makes a statistical promise of performance. Otherwise, it has no meaning at all. Any rational rating of a credit-enhancement structure starts with a statistical assertion about the baseline risk of the credits involved.

Now suppose you have a lot of bad loans, but you need to give a package of them a high rating. It seems to me that the more a packager/rating agency knows about these borrowers, the more of a promise of performance their rating becomes. It seems to me that if an issuer strongly suspects that the loans in a package are so bad (as with the famous WaMu Alt-A package) there is a strong chance the A-rated tranches will be wiped out and a good portion of the AAA tranches are more than likely under threat, that issuer needs to have some serious "plausible deniability". How can he get it? Total lack of information.

[gordon]

Most media, especially CNBC is now only PROPAGANDA. I have worked for homebuilders since 1980, Lennar my biggest account. There are close to 4 million homes for resale, including 1 mill bank-owned. That's 2 years to work it off before builders will build new. Lending standards make it impossible to even refi without full doc, mortgages won't be bundled and sold any time soon, if ever, and builders know it. Our zip code(92011) in North San Diego made the cover of the San Diego Union as " least drop in median value for 2007 ($930K) I told my wife "we made the front page, Honey, it's all downhill now, kiss of death..." For March '08 year over year it was $730K.

[gordon]

Read this>Credit crunch continues to spread

May 4, 2008

WASHINGTON – Like a spreading infection, restrictions on credit are moving into new and more specialized niches of the mortgage market.

www.signonsandiego.com/uniontrib/2008050...

[Growin $$]

Not to start data argument,we'll be around this topic until end of '09 IHMO. However, the Economist article,one of Oct. issues I believe, said and showed first peak of resets around June/July of '08 - at which point 50% would have occurred - then next peak about same time in '09. Their comment was the quality of the second half was expected to be better, whatever that might have meant.Since it was never clear what the denominator was, I tried to calculate the denominator mechanism and then calculate the inventory in months. I could never, ever get housing inventory below 14 months, usually higher. Finally, be careful of citing new home demand statistics; the government numbers are based on some arcane formula based on births, deaths and %% knows what else but it is not based on anything relevant to prior purchasing rate, state of economy or availability. If they can pay the mortgage, there are a lot of people who might have sold and bought who are sitting tight; some good prices out there, not as good as they will be, but they can't buy without selling, and they can't sell.

[curious cat]

well. i can't understand it. i keep getting credit card offers and loan offers in the mail. i tear them up and recycle the paper, but it seems that they could save a lot of money by taking me off the list.

i have a new theory. it has something to do with space and time, maybe wakeup can help me with this one. could i be reading all these posts coming from the future? you guys out there in the west sound like the world is ending. things look pretty good here in the south. southern company's ceo was just in forbe's talking about the large number of people moving down here. he's thinking 40% of u.s. population will end up between texas and the east coast in a decade or so. maybe by then the housing problem and credit problem will be over in the rest of the country. sure is nice down here.

oh, sure, we have the most obese people in the nation, but that just means there's more of us to love. that just means we still have dairy queens and eat pie. so, if you want to open a big and tall or are just passing through until you can afford passage to south america,... welcome to the future.

[nukldrager]

Cash 101. Caveat emptor. Even though the game is extremely complex, when you boil it all down you are left with the fact that when one spends more than they earn, sooner or later, trouble ensues. Some people seem to get this and some don't. Can't really blame the big bad bankers who push little plastic cards, or untenable mortgages, knowing full well that they are making it easy for people to over extend themselves. They know they have a cash machine in the financially illiterate public. Shame on them? Sure. May they rot in hell? Why not. It is usury after all. But it's also cash 101 for a lot of us... if your outgo gets ahead of your income, your upkeep becomes your downfall.

[ASG]

Originally tried to post this May 04 03:03 PM ...


This "commentary" is pretty much what it complains about - crybabying ...

He complains about median price comments now and says these people should ignore the real world stats unless they also acknowledged the differences early on - who the heck cares?

Facts are facts .... the fact is the median price was higher earlier on due to the mix including more expensive homes, more jumbos, and the median now is being drawn down by the increasing numbers of
lower priced foreclosures.

This is an important point - one the author could have commented on more instead of focusing on/about the past. The important point is that the early run up in median prices coupled with the current lower median
due to skewing from lower priced homes has inflated the home price drop. True statistical analysis would throw out outliers. That isn't overall possible here, but what is possible is
what has been done - to start breaking out into price tiers to see more reliable numbers.

Bottom line - for majority of homes - the reported drops are not accurate - the reported overall drop in values is greater than the real world for most homes in most areas.

Second is the implication that current values reflect ongoing future values. This is equally silly. Certainly there is an overall drop in values. That said there is also a large share of current market that is distress
sales.

Lenders and as significantly builders, who are liquidating properties in a significantly constricted "down" market, are selling properties for grossly unrealistic values in many areas simply to get them off their books
as fast as possible. They do not reflect "market" sales - and even most buyers realize that.

This glut of distressed inventory - new and existing - is being liquidated - and as it is consumed we will move back to a more realistic market. There will be a relatively immediate median price spike as we move
out of liquidation mode to a more normal market with an adjusted more normal inventory. And then a more gradual return to normal market conditions and appreciation.
Housing is as affordable as in a long time. Interest rates are low and likely to remain so. New programs, like FHA and increased loan limits mean more people CAN own homes.
Right now they aren't buying - in large part because of the severe negativity and fear mongering in media.

Consumer confidence is currently low but positive news is gradually starting to outweigh negative. The credit/investment market is stabilizing.We see more and more medoa stories with glimmers of positive. Soon the media will reach the bandwagon tipping point - one of them in their silly rush to "be first" will make the decision we've hit the bottom and are turning corner and the rest of the media lemmings will then follow.

Sales have dropped far below the level of investor and speculator buyers - meaning a lot of real buyers have been putting off purchases sitting on the sidelines. They are real buyers who need homes - and when
the market confidence turns they will jump in to try and catch the bottom.

And then success will breed success - sales will breed sales.

And when that happens - when the distress starts moving out of the market - the investment bank side also moves out of distress and fire sales and having to " mark to market" and take all those billions in ridiculous
writedowns - which bore zero relation to any semblance of the real values of their portfolios/investments .... and when that dustress goes out of the investment/credit side those same investments will need to
experience "write ups" ... suddenly there will be tens, or more like hundreds, of billions in value added back to the balance sheets of these entities.

Which will generate even more positive news and momentum.

The simple fact is housing values were not grossly inflated in most markets - in reality it was a small number of areas across the US. The biggest decreases were in markets with biggest increases - and even
those markets still show, after big declines, significant overall gains.

The OFHEO data shows exactly this. It is a much more representative sample of values as its based on FNMA sales and appraisal data - AND it covers close to 300 markets not just 20 as with Case-Schiller. The OFHEO data shows overall home prices have barely declined over last year. And over last 5 years home prices across all markets are still up 40% when looking at entire country.

Certainly a small number of buyers who purchased in last few years are suffering with current conditions. But home ownership still remains an overall good value and investment.

Not to mention that in too many of these discussions the fact that a house has another value - it is also a home is too often forgotten.

It is easy to whine and complain - as this story seemed to be focused on.

It is much harder to look at, try to understand, and then write about the real facts - to try to offer comment that adds value or perspective to the discussion ....

[billddrummer]

To ASG,

Valid points, and the discussion here is as valuable as the original post. However, I disagree with your assertion that "home ownership still remains an overall good value and investment."

First of all, this investment is by definition illiquid. So when the investor needs cash quickly, the illiquidity of this investment prevents him/her from doing so. Now, in the past, people skirted the illiquidity issue by serial refinancing and second mortgage borrowing, but with values rising at or near inflation (check the MarketWatch report for cities where housing is rising faster than inflation--there are only a handful), stagnant or declining, the 'value' of this illiquid investment is suspect. One would hope that the value of an investment would at least outstrip prevailing inflation. Housing is not.

Second, carrying costs for housing are rising, even if values aren't. Stories about property taxes rising on declining values are commonplace. Insurance and maintenance costs are also rising, and until recently, faster than inflation. Luckily, the slowdown in the building industry has translated into competitive bidding for maintenance work, as small builders look for anything to keep their crews busy.

Third, and perhaps the most important, is value. In my experience over the past 25 years as a financial analyst, the vast majority of homeowners could derive better value from renting than purchasing a home, and investing the difference between rent and a mortgage payment rather than paying that difference to a mortgage lender. And the property they lived in would be roughly equivalent in comfort and convenience to the one they were 'purchasing.' In the past, people could expect to purchase move-up homes as their previous residence appreciated, providing the down for a larger home, and limiting their new mortgage. That's not happening now for millions of people.

But you are correct in one sense--we all have to live somewhere, and indoors is preferable to outdoors. If we look at homes as shelter instead of investments, the equation becomes "How much can I afford to pay in rent? Can I find a place to live (own or rent) that I'm comfortable with and fits my budget?"

That metric will become more and more important as the US moves through the housing reset.