The Flat House Price Myth
Robert Shiller just came out with his analysis of year over year housing prices for the first quarter, and according to whatever methodology they are using, announced that prices fell a modest 1.4%. Not to be outdone Fitch Ratings did a price-default analysis of subprimes that originated in the first quarter of 2006 and determined, drum roll please, that defaults are impacted by house prices. But then they went on to claim that prices were up 0.5% during that period. Final the Federal Housing Finance Board echos the Schiller numbers at down 1.4%.
What’s up with this? Some clues about the real story.
“Prices trended up because lower- priced homes are not selling as well, leaving their prices out of the mix. ‘At the lower end, we have subprime issues, foreclosures and unoccupied new housing’ competing with sales of existing homes, CAR chief economist Leslie Appleton-Young said.”
Q: Prices have dropped in the existing homes market by as much as a third from the peak in late 2005. I know Lennar has been a leader in discounting new home prices in certain developments but could you describe your pricing strategy and history during the current downturn. Has the average sale price decreased and if so by how much?”
“A: I believe this is one of the most misrepresented measurements on the market. You see all sorts of reports on average home sale prices, but there are so many factors to a home purchase. Sizes of the homes being sold, amenities of the communities, upgrades in the homes.” “With all that being said, prices have dropped since the peak.
Next comes clues about prices from actual “investors”:
The median price of an existing home sold in Lee County edged up in April, but experts say that’s not the whole story in a market flooded with inexpensive houses. Real estate broker Denny Grimes said the higher median doesn’t translate into a recovering market. ‘It only takes a couple of sales higher than the median to push it from $269,000 to $283,200,’ he said. ‘Prices in our market are still going down.’”
“One seller agreed that prices are far below what they were when the market reached its peak in December 2005 with a median price of $322,300.” “‘It’s a horrible market,’ said Keith Olson of Fort Myers Beach, an investor who lost $90,000 on one Cape Coral house he sold recently and expects to lose $70,000 when he closes on the sale of another one next month. “There’s no indication that higher prices are in the offing anytime soon, he said. ‘The next 90 days will be golden days for buyers.’”
A more in depth analysis of the median price myth is forthcoming from Jas Jain. He concludes regarding Santa Clara County, Calf.:
The contribution of home modernization to the increase in median sale price can’t be estimated from data because I know of no data that is available. My best guess is 2-5% compared to year ago. It is a safe conclusion that the changes in the homes being sold today versus a year ago account for 10-15% gain in the median price.
What’s disturbing about the trends pointed out in these reports is that Brazil Americans are suffering most of the consequences of the housing bear market so far, while plutocrats and the wealthier have been more insulated. Perhaps so, but others including well to do foreigners have been caught in the snare as well.
“Hundreds of British investors who pumped their money into Florida’s soaring housing market have been caught out in its spectacular collapse. They have been left with property they can’t sell, even for less than the original price, because of rising interest rates and a glut of condominiums for sale.”
“Miami lawyer James Ryan said he had 40 clients, including British investors, trying to get out of contracts even if it meant losing substantial deposits. One client abandoned a £170,000 deposit rather than complete on a £800,000 condominium now worth only £600,000.”
“Estate agents estimate at least 800 Britons have been caught out by the slump but the real figure could be four times that.” “Florida property consultant Jack McCabe said: ‘Out of staters and foreigners, especially the British, flocked here and pushed the market to the point where about 70 per cent of all sales were to investors who never intended to live in what they were buying.’”
Farmers intend to plant the largest acreage of corn since 1944, 90.5 million acres, 12.1 million acres more than in 2006. And here’s how they plan to do it. Wheat, barley, oats and alfalfa also will be displaced.
U.S. farmers plan to plant 67.1 million acres of soybeans, the lowest total since 1996 and a decrease of 8.4 million acres – or 11 percent – from 2006. Area planted to cotton is expected to total 12.1 million acres, down 20 percent from 2006 Area intended for rice is estimated at 2.64 million acres, down 7 percent from 2006 and down 22 percent from 2005. If realized, this would be the lowest planted acreage since 1987. Expected acreage of long grain rice, which represents 76 percent of total rice acres, is down 8 percent from last year.
From Mexico, there goes my margarita tab, and tortillas, and tomatoes, and, and :
MEXICO CITY, May 29 (Reuters) - Mexican farmers are setting ablaze fields of blue agave, the cactus-like plant used to make the fiery spirit tequila, and resowing the land with corn as soaring U.S. ethanol demand pushes up prices. The switch to corn will contribute to an expected scarcity of agave in coming years, with officials predicting that farmers will plant between 25 percent and 35 percent less agave this year to turn the land over to corn.
This swinging for the fences is going to be a nail biter, as much of this corn crop planting is going into energy intensive, and drier crop lands, where a little drought or bad weather can ruin whole crops. Already farmers are ominously reporting a shortage of diesal fuel needed for harvesting Kansas wheat.
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