Wednesday, March 18, 2009

JP's February market analysis

Here is JP's market analysis for February:

As a reminder, my approach when looking at the Portland RMLS numbers is primarily mathematical, but I also use economics and finance. Based on both macro and micro economics, I continue to remain negative on the residential real estate market. As always, I am sure there is the one lucky piece of property that is a winner--just like at the Roulette table, if you bet on the right little square, you’re a winner, but there are a lot of losers, and you had better be prepared for undesirable consequences.

While I remain negative on the housing market, it is strictly from a financial or economic perspective. I am not suggesting that a buying a home is a poor decision, but every home purchaser should understand the risks involved. Additionally, does it really matter that your home value is going down when you enjoy living there? This depends on your personal circumstance...

Now onward to the market analysis:

I will once again start with potentially positive indicators, which remain few and quite weak. New listings are down from February 2008 (YoY) and January 2009 (MoM). While this is probably an indicator of the high level of existing inventory as well as the realization that listing in this market might not produce desirable results, fewer new listings will help keep inventory from growing. The number of closed sales is up, but with only 732 closed sales January 2009 was a low point. Both average sale price and median sale price are down from 2008, but the average sale price and median price both increased slightly from January 2009 to February 2009. I wonder just how statistically significant the month over month increase is, and PDX is still about $50k from the peak values.

One major issue in this market is liquidity. There are various measures where this is represented. Inventory in months has been over 12 for the last four months.
Note that the average selling price in February 2009 is less than the average selling price as reported for February 2006. Also note that the total market volume has been falling each February. The total market volume for February 2009 is less than half February 2007, just two years ago. REALTORs who have remained in the industry for more than two years have experienced, on average, a pay cut of over 50%. Alternatively, if 50% of the REALTORs in 2007 exited the industry, then on average the remaining REALTORs would still be taking a pay cut.

The inventory in months for January 2009 and February 2009 are 19.2 and 16.6, respectively. I am sure there is going to be a question as to why when the raw inventory number increased slightly did the inventory in months fall by over two months. The answer is in the relative changes in inventory and number of closed sales. Both inventory and closed sales count went up, but the closed sales count increased by a far greater percentage than the inventory count. This results in a drop in the inventory in months, and is what happened in 2008 between January and February.

At only 1,276 the forward looking pending sales number suggests fewer closed sales in March 2009 than March 2008. Given the current trends, it would surprise me if there were more than 1,100 closed sales in March 2009.
One final observation is the difference between the average selling price and the median selling price. For February 2009 the difference is $39,500. In December 2007, the difference peaked at $75,500. The average difference is a little over $50,000 with a standard deviation of less than $7k. Both the average selling price and median selling price have been trending lower, but the average selling price is trending lower at a faster pace. This suggests that higher priced homes are not selling well (note: this is not paired sales data, so the actual direction of the market is unknown from this alone, but Case-Shiller paired sales data suggest that market values are going down).

I generally stick to basic techniques, but there are many more tests that could be performed, both basic and advanced.

As always, I welcome your questions and comments.