The Federal Reserve Board has come up with a new way to analyze pricing trends. They are emulating the Case-Shiller Index, but applying it to the list prices of properties marked pending to predict the eventual sales prices:
http://www.federalreserve.gov/pubs/feds/2014/201416/201416abs.html
Abstract: We construct a new “list-price index” that accurately reveals trends in house prices several months before existing sales price indices like Case-Shiller. Our index is based on the repeat-sales approach but for recent months uses listings data, which are available essentially in real time, instead of transactions data, which become available with signiffcant lags. Our index methodology is motivated by a simple model of the home-selling problem that shows how listings variables such as the list price and marketing time help predict the final sales price. In a sample of three large MSAs over the years 2008-2012, our index (i) accurately forecasts the Case-Shiller index several months in advance, (ii) outperforms forecasting models that do not use listings data, and (iii) outperforms the market’s expectation as inferred from prices on Case-Shiller future contracts.
An ideal price predictor would combine these two trends:
http://www.deptofnumbers.com/asking-prices/california/san-diego/
The lowest inventory seen was February, 2013, and no surprise that when combined with the lowest rates ever that the market reached full-frenzy mode.
They show now that San Diego inventory is about 13% higher than last February, and the list prices have been fairly flat for the last few months. Because sellers want more than the last guy, sales prices should keep increasing, at least at a moderate rate.
As an obsessed market watcher we’re at an interesting time in the graph. An inflection point perhaps, where more homes are coming to the market by elective sellers who have unrealistic expectations. This means more inventory but there’s really no downward pressure on prices.
I imagine there will come a moment when news of sales dropping, prices leveling, will cause fear and some will take the money and run while they can. Also an opportunity to buy for those that will risk it. The sellers operating from fear will inadvertently tilt the graph up again and it’ll be perceived as further appreciation.
Will we ever have downward pressure on prices again? Or just a Make-Me-Move market?
The homeowners with mortgages have the lowest rates they will ever see, and because they had to fully-qualify for their purchase or refinance, they can afford it.
I’ve talked about the Big Three groups that are most-motivated to sell (death, divorce, & job transfer), but will they be motivated enough in the future? Those who inherit could probably use a house in SD, one of the divorcees is going to want to keep the house, and job transferees might keep in case they come back.
The move-up-or-downers are challenged to find a deal worth doing, and if they tinker with the tax law (like owning 5 of 8 years) it could be the final straw for them.
There seems to be a sense that the FED can prop up asset prices forever. Hey its worked for 5 years so why wont it work going forward? I think we are going to test that theory here pretty soon.