As we have already stated, the July 26 chat session ended with some questions that we didn’t have time to answer or where we needed to check the data before we could answer them completely. Over the next few days we will provide answers to as many of these as possible.
Question: “Can you please talk about the revisions to the WDC index? The headline says that the index was up 2.4% to 184.90, yet last month the index # was 186.76. The April index (last month’s release) now seems to have been revised to 177.84. This is not a “tweak”.” Agreed. We have been publishing these indices for five years, and this month’s revisions were the largest we have seen across many of the markets – particularly Detroit, New York, Tampa and Washington DC. In all cases it was due to reporting lags. If you look at our sales pairs data (we post it at www.homeprice.standardandpoors.com every month), you can see how large these revisions were in these markets. For example, with April’s report (released on June 28th) Washington’s cumulative sales pair count for January – April 2011 was 10,857; with May’s report (released on July 26th) it was 13,526 over the same four months. More than 2,600 (or 25%) more sales pairs were reported in for those months, which became part of the revisions. As noted in the question, this revision was more than just a tweak. There was a substantial amount of new data, which changed the historic results more than we have seen in the past.
Question: “Aren’t the low-tiers affected the most by foreclosures given the excesses of the sub-prime financing era? In other words, high tiers less involved in sub-prime financing so they aren’t impacted as much while there continues to be large-scale dumping of inventory onto the market from sub-prime lenders and vehicles?” I posted an analysis of some of the markets yesterday. See here. In many of the cities, the low-tiered markets suffered badly compared to the high-tiered markets. In some, they are still suffering. However, the extent does vary depending on location.
Question: “New Home Sales: 312k Why build new houses when you can buy existing ones at below the replacement cost or cost to build a new one, even before the cost of the land.? Of course, if you already lost money buying the land, we economists call that ‘moot’, i.e., a ‘sunk costs’ for we investors.” That is exactly part of the crisis in confidence that is occurring in the housing market right now. To some extent, all homes – new, existing, in foreclosure, auction sales, REOs, etc. – can basically be considered substitutable. While no two homes are exactly alike, as real and perceived values continue to fall the tradeoff between the aesthetics of one versus another diminishes, and total costs will become more important. Now that it has become clear that home values do not go up forever, homeowners will take this into account in addition to all other things they consider in a home purchase – job stability, location, size, credit worthiness, mortgage payments, etc.
Click here to view the July 26th Live Chat post with more Q&As.