Sales momentum for single-family, re-sale homes in Santa Clara County dipped into negative territory in October for the first time since November 2008.

We calculate…

sales momentum by using a 12-month moving average to eliminate seasonality. By comparing this year’s 12-month moving average to last year’s, we get a percentage showing market momentum.

In the chart on my on-line site…

are two of the most important statistics determining market momentum. The blue shows momentum for home sales while the red line shows momentum for pending home sales.

Sales momentum peaked last July and has been trending down ever since. Pending sales, which normally track closed sales closely, have jumped out of the norm due to the large number of foreclosure and short sales in the past two years.

In a normal market…

pending sales close within 60 days. In today’s market, pending sales are taking much longer due to the high number of foreclosure and short sales, which require lender approval. This has pumped up the number of pending sales, which, in a normal market would indicate increasing sales in the coming two months. But, because a majority of pending sales are foreclosure or short sales, a greater potion of these sales never close.

Pricing momentum…

on the other hand, generally lags the buying and selling indicators provided by the sales momentum trend. In the chart below, the purple line shows the median price momentum indicator.

As you can see, when the sales momentum indicator changed to a sell signal in June 2005, prices didn’t peak until November, when they started a gradual decline. The median price indicator really started falling when it crossed the 0 axis in August 2008.

The sales momentum indicator turned up in December 2008 and the price indicator kept falling until sales momentum peaked in July 2009, when pricing momentum started picking up.

More statistics…

The median sales price for single-family, re-sale homes, after falling for the previous three months, turned upward in October by 1.8% from September. Year-over-year, the median price was up 7.4%. This is the thirteenth month in a row the median price has been higher than the year before.

Inventory turned downward, as is its wont this time of year, dropping 8.4% from September. Year-over-year, inventory was up for the fourth month in a row: 30.7%.

The sales price to list price ratio continued slipping last month, down 0.2 of a point to 99%. This is the sixth month in a row the ratio has dropped. Since January 2000, the median ratio has been 99.8%, which is incredibly high. A falling ratio also indicates that momentum is faltering.

Statistics: Tracking Momentum

As we mentioned last month, the Internet is strewn with statistics, some good, some bad, and some downright ugly. So, what are statistics for?

Statistics are for…

determining the best time to buy or sell real estate. If the statistics you are tracking do that, they’re good. If they don’t, they’re misleading, at best.

Tracking momentum…

is the best way to determine when to buy or sell real estate. The question becomes which statistics to track.

Robert Campbell, a San Diego based real estate investor, in his 2004 book “Timing the Real Estate Market”, lists five “vital signs” he tracks to time the market, in order from strongest to weakest:

1.  Existing home sales

2.  New home building permits

3.  Mortgage loan defaults

4.  Foreclosure sales, and

5.  Interest rates

He uses the same basic formula for all five: (current 12-month moving average—previous 12-month moving)/current 12-month moving average.

Finding the data…

means tapping into a variety of sources.

Sales data is the easiest to track. Local newspapers publish this data each month. If you want historical sales data, you can call us and we’ll provide it for you.

In California, new home building permits are tracked by the Construction Industry Research Board. The board charges for their data. (http://cirbdata.com)

There are a variety of sources for mortgage loan default and foreclosure sales data starting with the county recorder’s office. Other sources, for which you will have to pay are: http://dataquick.com, and http://foreclosureradar.com.

Interest rate data can be had at a number of different sites: http://hsh.com, http://bankrate.com, or http://federalreserve.gov. While Campbell tracks 1-year t-bills, monthly mortgage rates can also be used.

Next month, we will review the timing method Craig Hall uses in his 2003 book, “Timing the Real Estate Market: How to Buy Low and Sell High in Real Estate.”

This author identifies seven trends to track to determine when real estate cycles are about to turn.

Go to my on-line site SCVReport.com for the full report, plus a city-by-city breakdown.

HIGHLIGHTS for September 2010

- Prices up year-over-year for the twelfth month in a row.

- Pending sales lower than year before for the second month in a row.

- Sales fell 14.1% from the quarter before, and were down 19.5% year-over-year.

- Prices slipped in Jul-Sep 2010 with the median price dipping 0.1% from the previous quarter, up 12.4% compared to last year. The average price rose 1.7%, a yearly gain of 13.6%.

Statistics: The Good, The Bad, and The Ugly

Knowing how the market is trending is important in making astute decisions whether one is a buyer or a seller. For instance, if prices are trending upward, a buyer may decide to accelerate the purchase, while a potential seller may decide to delay.

With the proliferation of real estate statistics on the Internet, the “noise” level is increasing making it more difficult to know which statistics are important and which are irrelevant.

In this month’s report, we are going to start a primer on real estate statistics to help you separate the wheat from the chaff.

The first two principles of real estate statistics are:

Know the source of the raw data used, and
Understand the methodology used to crunch the raw data.

There are only two accurate sources of raw data, each of which has its pluses and minuses. The first is data from the county assessors’ offices. The main plus of this data, used by companies such as DataQuick and often cited by local newspapers, is that every transfer of real property is required by law to be recorded with the county assessor. This is the most accurate data available.

The minuses of county assessor data begins with the ability of buyers to ask the assessor not to reveal the sales price. This is usually done only with high-priced, or high-profile transactions and only affects a minute number of sales.

The other major minus of county assessors’ data is it ONLY contains sold properties.

The second most accurate data comes from the local Multiple Listing Services (MLS).

The drawback of this data is it contains only those sales in which a real estate agent is involved. Normally, this would account for 85-90% of all sales. In this market, with the high number of foreclosure auctions, which are not reported to local MLSs, the number of sales drops into the 70-80% range.

The real benefits of MLS data come in the type of data collected. The MLSs report on inventory, properties under contract to be sold, length of time it takes to sell, and the sales price to list price ratio.

This type of data is important for determining the direction of the market.

Bad, or inaccurate data, is rife on the Internet. Take Altos Research for instance. They scrape the Internet for properties for sale and build their reports around that. Nowhere on their site do they say their pricing graphs only reflect listing prices NOT sold prices. Here’s a quote from their FAQ: “Our system analyzes properties listed on the market for sale.”

Another major source of inaccurate data is Zillow. While they do have assessors’ data for sold properties, they also scrape the Internet for properties that are for sale and use an algorithm to determine market value. They have consistently over-valued my home by 25%.

Then there is Yahoo Real Estate where they don’t bother with an algorithm to determine market value, they just quote Zillow and eppraisal.com, which over-values my home by 60%.

In short, beware of the statistics you use. If the purveyor of statistics won’t say where they get their data, run for the hills! Focus on those statistics that come from reputable sources.

NEXT MONTH

This primer will continue with determining which statistics are useful for determining market trends and which are useless.

The three most fundamental statistics to track are:

Inventory on the market,
The spread, or the difference between the asking price and the sales price, and,
Time on the market.

We will discuss these and several more important statistics in the next installment.

Prices for single-family, re-sale homes were up in August, year-over-year, for the eleventh month in a row. The median price rose 13.7%, while the average price was up 15.4%, reflecting a higher share of $1,000,000+ home sales.

Sales of single-family, resale homes continued to slide and were lower than the year be- fore for the third straight month: -13.1%.

In a turn, pending sales were also lower than the year before for the first month since March 2008: -6.9%.

Inventory was higher than last year for the second month in a row: 18.4%.

The sales price to list price ratio for homes dropped below 100% for the first time since June 2009: 99.6%.

The median price for condos was up 5.3% year-over-year. This is the tenth month in a row the median price has been higher than the year before. After nine straight months of year- over-year gains, the average prices for condos dropped 1.7%.

Condo sales were up 0.4% compared to last August.

Pending sales were down from June, and were lower than the year before for the first time since March 2008: -11.2%.

Inventory for condos was higher than the year before for the third month in a row: 40.9%.

Sales of both single-family, re-sale homes and condos fell in July with the expiration of the Federal tax credit.

Home sales were off 15.6% compared to last July, while condo sales were down 18.8%.

The new state tax credit has pumped a little life into the high-end market. With more sales in that segment of the market, the average price for homes in July went over $800,000 for the first time since August 2008.

The high-end market has been helped by increasing access to jumbo and super-jumbo loans. Historically, and until July 2007, the spread or difference between conforming mortgage rates and jumbo rates moved within a narrow range of about 0.20%. At the trough of the market, the spread was 1.9%. Now, the spread is down to 0.5%, and the secondary market for jumbo loans is awakening.

The median price for homes was off 1.1% from June, but it was up 7.2% year-over-year. The average price was up 2.4% from June and up 12.3% compared to last July. This is the tenth month in a row prices have been higher than the year before.

The sales price to list price ratio for homes stayed over 100% for the thirteenth month in a row: 100.2%.

The median and average prices for condos were up 3.3% and 9.5% respectively year-over-year.

Pending sales were down from June, but were still higher than the year before. Pending home sales were up 44.2%, while pending condo sales rose 44.7%.

Inventory for homes rose 9.6% year-over-year. This is the first month since November 2008 inventory has been higher than the year before.
Speaking of inventory, Leslie Appleton-Young, chief economist for the California Association of REALTORS® (C.A.R.), said, at a recent Silicon Valley Association of REALTORS® (SILVAR) meeting in Palo Alto last month, in five to ten years California will experience a housing shortage.

She said household growth for the state is expected to be 200,000 a year. The CBIA reports only 13,000 permits pulled in the first six months of the year.