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U.S. Home Values Post First Annual Increase In Nearly Five Years

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  • William Matz | | 25 Jul 2012, 02:18 PM Agree 0
    I fear this assessment is dangerously optimistic. Foreclosures dropped significantly during the last 18-24 months, as servicers dealt with the fallout from "robosigning" and other misconduct. Now that the 49 state AG settlement was concluded, foreclosures (and hence REO inventory) is ramping up again.

    The effect of this slowdown has been to reduce sales at the lower end, were most of the foreclosures are. At the same time modestly improved availability of jumbo pricing has produced a smal increase at the upper end. By themselves those two factors would cause an increase in median prices, EVEN IF PRICES ARE FLAT OR DOWN!

    Whenever you hear a discussion of the direction of home prices and it includes "median", run away, as the speakers don't understand. The median price is simply the middle of any given market; it is only of value to real estate professionals, who need to know what is selling. The median house from one month or year to the next is never the same. So to say the median is rising or falling is a misnomer; it is comparing apples to oranges. Prices can fall while the median "rises" or vice versa.

    With that understanding, we are likely to see lower median prices in the next several months, as increasing foreclosures create more activity at the lower end of the marker. Thus the middle ("median") will be lower. But that will not tell us whether prices are going up or down. That requires a traditional appraisal or CMA approach that compares comparable homes to determine price direction. That requires much more research and so is rarely available.

    Bottom line: median prices are no indicator of market direction in the short term.
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