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Making Sense of the Nonsensical

Remember that old saw about a rising tide lifting all boats? While that may be true in nautical terms, recent economic news seems to be disproving that maxim in the real world, to wit, the increasing disparity across the nation and in California between the ‘haves’ and the ‘have nots’. I’ll not make a political commentary on this other than to point out the obvious fact that the poor that keep getting poorer have a tendency to vote for people that perpetuate their poverty. Not sure why that is but it keeps more intelligent folks than myself employed trying to explain it.

From a housing perspective, it also keeps folks more intelligent that myself employed trying to explain what the numbers really mean – and that can be quite entertaining. For example, last month our local home sales numbers dropped 10% month-to-month and were down 4% year-to-year. Turns out they didn’t just drop here but fell by a similar amount across the state, which brought a legion of pundits out to explain why that happened and why we

shouldn’t be concerned.

Turns out there’s a simple explanation – there were 2 fewer business days in July. Darn holiday upset the whole apple cart. Never mind we have the same holiday every year, THIS year it was problematic. Then they ramble off on a tangent about ‘seasonally adjusted’ sales and ‘trending pending’ and a variety of other industry terms meant to obfuscate the obvious. SALES WERE DOWN! And my explanation last month that uncertainty was behind it makes as much sense as anything.

‘Seasonally adjusted’ statistics have always amused me. Either the house sold or it didn’t. If I’m trying to sell a house and it didn’t sell, I don’t care about the seasonally adjusted numbers – MY HOUSE DIDN’T SELL!  The fact is that more homes typically sell during the summer months and if I put my house on the market in September, my chances of selling are reduced. But no ‘seasonal adjustment’ moves my house from unsold to sold magically. Only the right price and a buyer can accomplish that.

Same with ‘pending sales’. I quote pending sales in my reports because pending sales portend closed sales next month. But after July’s drop, the pundits were quick to point out that pending sales ‘were still strong’ so we shouldn’t worry. Well, they’re strong in the sense that they’re about the same as July so they haven’t dropped a lot, but it’s still not stellar. It’s not like those two days we ‘lost’ in July resulted in a big gain in August.

Then there was the Wall Street Journal report that ‘New Home Sales Soared’ in July, “a sign of solid momentum” in the housing market. July sales of new homes rose 12.4% from the previous month in a segment of the market that accounts for less than 10% of housing sales. That’s about 1% if you’re doing the math. Hard to get that excited about a percent, isn’t it? Of course the article goes on in later paragraphs to state that ‘housing data is volatile from month to month and is subject to later revision’, like June numbers were revised downward by 10,000 units. And that 12.4% increase? Subject to a 12.7% margin of error, plus or minus. I kid you not. And these people make more money doing this than you and me put together (except for a couple of you).

Here’s the unpleasant reality – homeownership is in decline. A recent report showed homeownership across the country at just 63.7%, the lowest rate since before 1985. The rate in California has fallen from its 2006 peak of 60.7% to just 54.1% and Riverside has dropped from 66.6% in 2007 to 62.5% today. Riverside joined 57 other metropolitan areas out of 70 surveyed across the country to post declines. That’s not all bad. A lot of people who were pushed into homes by Barney Frank (“everyone should be a homeowner”) and lax lending standards a decade ago, should not have been homeowners. We’re searching for that ideal equilibrium right now.

Sadly, given all this, the WSJ points out that housing  ‘has been a bright spot in the economy this year’. Gives you some idea where the rest of the economy is. But don’t despair, especially if you own a home. Your equity will probably continue to increase at least for another year or two and interest rates are still at record lows – you can buy or refi at under 4%. If you haven’t taken advantage of that yet you better get busy. Our market may not be spectacular but it’s not bad. Sales are continuing at about the same pace as the last four years so if you ignore the pundits and prognosticators and don’t read any articles about housing except mine, you’ll be way less confused and lead a happier and more productive life.  Works for me.

Written by Gene Wunderlich, Sr. Staff Writer

Gene Wunderlich is the Government Affairs Director for Southwest Riverside County Association of Realtors. If you have questions on the market please contact me at GAD@srcar.org or to keep up with the latest legislative and real estate trends go to http://gadblog.srcar.org/.

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