Who's Telling the Truth? (a look at different home price indexes)

Written By:
Ingo Winzer, President

Local Market Monitor

 

Whose home price data should you believe? The National Association of Realtors says home prices in the past year were up 11 percent. Case-Shiller says the increase was 9 percent. The FHFA says 7 percent. And the FHFA purchase and refinance index, which we use, says 2 percent.

Each of these sources has weaknesses. The Realtors report the median price, which can change if a different mix of homes is sold. Case-Shiller mainly has data from large cities and uses county records that include foreclosure sales. The FHFA indexes exclude cash sales and non-conforming mortgages, and report older data.

If we want to know how much the value of the average home has changed, I think the FHFA purchase and refinance index is the best bet right now, because it includes a smaller percent of foreclosure sales, which have very little to do with the average home. The Realtors report that 25 percent of home sales in the first quarter involved foreclosures.

 During normal times, the four indexes line up pretty well, but these are not normal times. 

Understanding Real Estate - Art or Science?

Written By:

Ingo Winzer, President

Local Market Monitor

It's not science, although the vast amounts of calculation and statistics make it seem that it should be. Wall Street is brimming with math PhDs and how well did that work out?

 A science gives the same boring answer every time. Water always boils at 212 degrees F, and it doesn't matter if it's today or tomorrow.

 If the value of properties or mortgages could be calculated scientifically, there would never be any buying or selling because everybody would arrive at the same correct answer.

 It's precisely because real estate analysis is not a science that large amounts of money exchange hands. Opinions differ about current and future values, and we have recently seen how large the differences can be, trillions of dollars worth.

 To avoid the next debacle - or to capitalize on todays opportunities - don't look for evermore intricate calculations, look for some better art.

National Economic Outlook

Written By:

Ingo Winzer, President

Local Market Monitor

The economy continues to improve at the same moderate rate we've seen in recent months, with total jobs up 1.6 percent over last year. Jobs grew 0.7 percent in manufacturing, 1.7 percent in retail trade, 2.0 percent in health care, 3.1 percent at restaurants, and 3.4 percent in business services. The slow growth in manufacturing is a disappointment, but a reflection of the sorry state of the global economy, which currently doesn't need more airplanes or mining equipment.

 

Jobs in the government sector decreased 0.4 percent, 70,000 jobs at the federal level. This is small potatoes compared to the 2 million jobs gained overall, but the impact of lower government spending is much greater than the loss of government jobs. The gross domestic product, adjusted for inflation, grew at a 2.5 percent annual rate in the first quarter of this year, but would have grown at a 3.3 percent annual rate if government spending had just remained flat, never mind providing any stimulus. In the last quarter of 2012, lower government spending took 1.5 percent off GDP. If government continues a drag on the economy, we're looking at very modest grow in the next few years.