Paul Meisel

Why There's No Such Thing As a Housing Bubble

Interesting article -- for me the takeaway is this:

"With half of the homes remaining unsold and new properties being offered in the market, inventories quickly grew over and above the newly diminished absorption rate. Average “days-on-market” which had been measured in days or a few weeks, suddenly jumped over the “month” mark and has steadily grown to an average today of 3+months.

Seller’s expectations of holding out for a further appreciated price was no match for buyer’s inability to pay and prices had to begin to come down to “market-level.” But actual “asking (list) prices” continued to increase through the third quarter of 2006 (Q3-06) by nearly 20%. However, after price reductions and closing cost incentives, the actual net sales prices declined by about 24% from the increased list prices.

It was not until the current quarter (Q4-06) that average list prices began to decline to meet buyer’s affordability. From Q3-05 through Q3-06 we witnessed nearly half of the available properties were either withdrawn from the market, or converted into rental properties. This pattern has begun to ease the large inventories of competing homes and re-direct the trend toward balance of supply and demand."

However, I think a couple additional items need to be considered:
1) Real estate is a localized market. I assure you based on my own knowledge that conditions in Northern Ohio are considerably worse, and will take longer to recover.
2) The hangover of withdrawn properties will still exert downward pressure on the market for some time to come -- they will gradually re-emerge as the owners re-develop hope of a sale or change their expectations on price.

I am skeptical about macro-economic statistics generally, but they are significantly more difficult to apply in a market where the product has significant differentiation between competing products.