Last Saturday, July 28, the Tribune printed an article titled ?June home sales grow in SLO County as median price rises, data show.? Citing a DataQuick report, the article says that June home sales in San Luis Obispo County rose 7.8 percent year-over-year. The median price of the homes sold rose 10.8 percent from the June 2011.
On the same day, local real estate statistics guru Keith Byrd replied that chatter over increasing home prices is overstated and that in some cases, prices have dropped further.
So? what is really going on with the local real estate market?
In this article, we will discuss real estate, the climate of the market, and the future of home prices, including why a building boom could be arriving very soon and whether this could be the source of a new bubble.
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Context behind the home price statistics
The data reported by the Tribune fits with the national home price picture we have been seeing. Recent reports by the S&P?Case-Shiller Index, the National Association of Realtors, and FHFA all point to momentum for long-term home price appreciation. In a recent article, we pointed to evidence that single-family home prices had stabilized, and that investor?purchases of distressed properties (in cash) have caused fluctuation in home price data.
However, the median sales price statistic provides no further context with which to understand the market, and is prone to fluctuations and inaccuracies.
Keith Byrd, creator of the website SLO County Homes, a comprehensive resource for local market statistics, MLS listings, and real estate commentary, wrote a succinct blog post about the shortcomings of the DataQuick report.
Byrd wrote that ?prices haven?t risen that much? and attributed the misleading data to the fact that DataQuick ?doesn?t track the sold homes by non-foreclosures, REOs and Short Sales,? which he calls the ?foreclosure mix.?
The increase in sales price is due to fewer ?distressed properties? (foreclosures and short sales) on the market. Real estate valuations are partly based on valuations of similar properties, and when distressed properties flood the market, low prices reinforce each other and the market spirals downward.
Investors and bargain hunters have snapped up the low-priced units, and the current share of foreclosures on the market has dropped.
Meanwhile the median price of REO sales, reacting to low supply and high demand, rose $14,000 to $291,000. The median price for non-foreclosure sales actually decreased about $5,000 from 2011 to $420,000. Again, all figures provided by SLO County Homes.
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Real world examples: when statistics don?t show enough
We collect this kind of data in order to have a better understanding about the housing market, but as Dan Podesto, owner of Central Coast Lending, points out, statistics have their weaknesses.
?The median price trend does not necessarily determine the price trend of a particular home or area,? he said. ?Much of the median trend is about timing and sample size.?
When statistics fail, the best place to look is at real-world evidence.
Podesto goes on, ?I recall a loan funded by our branch this month where the appraised value of the home several months ago was $275,000. We just recently obtained a new appraisal at $340,000? a $65,000 increase in a matter of months.
What kind of statistic can explain this jump? This is where statistics stop and analysis begins. We will have to jump over to Part 2 of this feature to get the take of Central Coast Lending owner Jason Grote and Patterson Realty owner Wes Burk. Go HERE to learn more about the current real estate market, why it is acting the way it is, and where it will go in the near future.
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