Let's take a brief look at some of the pros and cons of each index. (If I leave anything out, please mention it in the comments.)The big advantage of MRIS is that, unlike Zillow, it is a measure of actual sales. By comparison, Zillow is measuring its own appraisals. If those appraisals are wrong, then Zillow's index is wrong. If you look at enough properties in Zillow, it becomes quite apparent that a sizeable minority of its Zestimates are screwy, making huge price changes in short periods of time. Furthermore, many homeowners edit their home information on Zillow to inflate the size of their home, often listing the lot size as the home size.
However, Zillow's use of appraisals also gives it an advantage over MRIS. Specifically, Zillow is closer to being a constant-quality index than MRIS. A significant amount of the drop in MRIS's measured prices may come from the fact that far more smaller homes have been going into foreclosure than bigger homes. That means more smaller homes are selling, which suggests that some (much?) of the price decline on the MRIS graph is due to the changing mix of homes for sale. MRIS may be overestimating the decline in overall housing value in Prince William County (and the entire D.C. area).
A second strike against Zillow comes from the fact that its Zestimates today are based on comparisons with houses that have sold in the recent past. This probably makes Zillow a trailing indicator, while MRIS is probably much more up-to-date.
In the end, I'd say that MRIS probably overestimates the decline, while Zillow probably underestimates it. Zillow's measured decline in home prices is simply not enough to be compatible with the S&P/Case-Shiller Index. I'm not ready to claim that Prince William County's home prices are back to inflation-adjusted pre-bubble levels, but I hope they are. Prince William County should reach pre-bubble levels before other Washington, D.C. metro area jurisdictions, though.
Thoughts?
Posts
How to deal with vacant homes in your neighborhood
ReplyDeleteMarch 14, 2009 - 8:02pm
WASHINGTON-- You pay your mortgage on time but your neighbor didn't.
Now there is a vacant foreclosed home on your block.
WTOP looks at Prince William County Neighborhood Services and what it is doing to help homeowners confront this growing problem in their neighborhoods.
Since 2007, Prince William County has had almost 11 to 12,000 foreclosures. About 4,000 of those homes have been cited for a lack of upkeep
Michelle Casciato, Chief of Prince William County Neighborhood Services Division, is helping to lead the fight against decaying properties in communities.
She says her department has done everything from handing out warnings to actually going out and cleaning up properties and then sending owners the bill.
If you find yourself in a neighborhood with many foreclosures you should try to reach out to anybody linked to the property including the new owners-whether it is a bank, an investor or even a real estate agent.
"If there is a realtor's sign out front go ahead and give them a call and tell them that there is an issue with that property," she says. "If there isn't a realtor's sign go ahead let the local authorities know."
If that doesn't work then Casciato says her agency can step in with legal and even financial action, while also fixing the problem.
"The county will step in to have staff or contractors abate the violation on the property and go ahead and bill you back," Casciato said.
You should not try to fix the property yourself. In Virginia, you are not protected if you get hurt fixing someone else's vacant home.
You can go here to check out a list of agencies that can help you if there are vacant homes in your neighborhood.
(Copyright 2009 by WTOP. All rights reserved.)
Good stuff James - my guess is like yours. The mix of homes in PWC has changed, driving the MRIS median downward. Higher priced homes still have a ways to go.
ReplyDeleteGlad to see you arent ignoring the issue.
The Permabear will not discuss things that do not fit into their world view (i.e. houses will come down to X, no ifs ands or buts)
The contrarian will not ignore things and note this may play out in ways we dont truly understand yet, the contrarian will discuss all the issues, both bullish and bearish. Glad to see you are a true contrarian.
Oh - and since I take pride in being a contrarian, let me amend my statement
ReplyDelete"higher priced homes still have a ways to go"
It should be, higher priced homes likely have a ways to go, but I for one will be watching, just in case they do not fall as much as I think they will.
and if you factor in the fact that back in 1999 mortgage rates were 7-8% and today they are closer to 5%, homes are probably cheaper in PWC today than in 1999
ReplyDeleteum, the lower interest rates mean your payments are less. A home price is "cheaper" only if the price is less than it used to be.
ReplyDeleteThis concept has direct correlation with the term "underwater"...in that your lower interest rate in no way protects you from ending up underwater, should you need to sell
Anon 1:11, People don't buy a home with the intention to sell. Flippers do however. So, from the prospective of a potential homebuyer, Anon 11:57 is absolutely correct. What really matters is what you pay out every month ... not "the price" since you won't see that again till you're doing your taxes one year many years down the road and needing to know your basis for your gain calculation ... and at that point, you'll be wishing it had been higher so as to minimize your gain. What you say though is absolutely correct for someone looking to make a profit off of a house ... i.e., a flipper. And therein lies the problem. The real estate industry (and tv shows) have put many folks into the mindset of flippers. They know how to buy investment properties (or at least 'would' if they 'could'), but they don't know how to buy a home.
ReplyDeleteThe published Case-Shiller index covers the entire DC area, so it's not a perfect predictor of just Prince William County. Nevertheless, the latest Case-Shiller index for the DC area is at 176.34, which is comparable to April 2004. It's nearly a 5-year reset in house prices.
ReplyDeleteIf you chart the Case-Shiller data, you're going to see something that closely resembles the Zillow chart. Personally, I'm inclined to agree with the Case-Shiller data, even though it covers a broader area than just Prince William County.
If you'd like to read more about the accuracy of Zillow, see my own site - estimike.com.
"People don't buy a home with the intention to sell. Flippers do however."
ReplyDeleteLance, I dont plan on living in DC longer than the next 10-15 years. Should I buy? Or should I wait 5 years for prices to bottom a bit before I "flip it" 5-10 years after?
Anon, with that long a time span you definitely should buy. Of course you should buy within your means and buy where you want to live (i.e., town, neighborhood, etc.). If you can't both buy within your means and where you will be satisfied living, then perhaps buying is not the right option for you. What you definitely shouldn't do is 'wait 5 years for prices to bottom' since (a) you don't know if prices will continue to go down in the areas you're looking at, and (b) even if they do, that short term 'loss' will be long washed out by the time you go to sell 10 - 15 years from now. When you do that, you go into 'flipper mode' and overlook the reason you are looking to buy a home in the first place ... which shouldn't be to make a buck but rather a place to call your home.
ReplyDeleteDC case shiller is set to 100 as of january 2000. as of december 2008 it was at 176.
ReplyDeleteadjusting for todays lower mortgage coupons, your monthly payment today is equivalent to about a 140 to 150 value in january 2000. apply a modest 2% inflation rate since 2000 and you have an adjusted case shiller of about 167-179 back in january 2000. pretty similar as todays value of 176.
seems to me like you could buy and be just fine, especially 10 to 15 years from now.
i am guessing you could rent the same house you might buy for a comparable monthly amount (adjusted for tax benefits and property tax, etc).
waiting might not be a bad idea, but i wouldnt bother waiting 5 years for some sort of absolute bottom, you may also have higher mortgage rates then.
eventually you have to move on with your life and not worry about it so much. if you can afford the monthly payment, and its where you want to live. and if we do get a large amount of inflation in our economy from all the stimulus we are doing now, you will be glad you owned
sorry. should have done my math slower. and i also went back to look at the effective CPI inflation from jan 2000 to dec 2008.
ReplyDeleteadjusted for both coupon and inflation - DC case shiller in january 2000 is about 165, vs 176 in december 2008.
"Anon Said...
ReplyDeletesorry. should have done my math slower. and i also went back to look at the effective CPI inflation from jan 2000 to dec 2008.
adjusted for both coupon and inflation - DC case shiller in january 2000 is about 165, vs 176 in december 2008."
165 HMMM very similar to what the futures market is predicting for the start of the bottom in DC
http://www.recharts.com/cme.html
Only 7% more to go!!!
176 was back in december,...i imagine its already there.
ReplyDeletei wouldnt be surprised if it overshoots to the downside, but i wouldnt dwell on it if i was a home buyer, i would just buy if its affordable and move on with my life. lifes too short to worry about it. if it was 2005, 2006, 2007, or 2008 i wouldnt say that. but at these prices and mortgage rates its not a crazy buy
cool site you linked to, thx
More advice from lance, and shockingly, he thinks it is time to buy.
ReplyDeleteJust like 2005, 2006, 2007, 2008.
Of course, it is always a good time to buy if you don't mind overpaying massively.
"If you can't both buy within your means and where you will be satisfied living, then perhaps buying is not the right option for you. What you definitely shouldn't do is 'wait 5 years for prices to bottom'"
ReplyDeleteI only make $110K a year. So I definitely cant afford something in an area I would like to live. So my budget is about $350K for a home. That leaves me with Areas like Gaithersburg and Germantown.....
The problem is that they seem to be dropping about $10K a month right now. If even the government says we wont have a recovery until 2010, that means we have another year/year and a half left of price declines....especially in sprawl areas like the ones I can afford.
I really dont want to pay $350K for a home that will only be worth $200K in a year and a half. I dont see it reaching back up to $350K again in 10 years.
So do you think I should just stay a renter?
Anon - a few guys on the NOVA bubble blog have made a pretty strong argument for why Maryland is trailing in its correction process - so far they look to be correct.
ReplyDeleteIf you were looking in exurban NOVA, id say its OK to go out shopping - but in exurban MD, its probably wise to stay on the sidelines for another 6 months or so.
i am not lance, and i have been a housing bear since 2002 in california (we had a bubble before the rest of the country did).
ReplyDeleteif you think you are still massively overpaying, i would love to hear your logic on how you conclude that. i am more of a data guy, it helps me understand things.
granted i am not from DC so i am only going on case shiller, but i have presented to you a rational why the case shiller index seems to suggest home affordability in DC area is back to year 2000 level. i dont know that its a great time to buy, but it certainly isnt a bad time to buy. was year 2000 still a bubble year (doesnt look like it from case shiller numbers)? are rents vs monthly mortgage payments (on comperable houses) still way out of whack?
I know people who worked in DC since the early 90s, and they all had to live way outside of DC because of costs in DC area. seems like it has always been an expensive area.
the reality is affordability has been greatly enhanced with mortgage rates at 5%. a 350k house is conservative for your 110k income unless you have some very massive bills. with 20% down, u would have a monthly payment of $1500 today. i dont know the area you are referencing in terms of this 350k house, so i cant say how unlikly it is to drop to 200k and give people an $850 monthly mortgage payment. but seems a stretch to me.
Anonymous said...
ReplyDeletegranted i am not from DC so i am only going on case shiller, but i have presented to you a rational why the case shiller index seems to suggest home affordability in DC area is back to year 2000 level.
Neither California nor the D.C. area are back to pre-bubble prices, even after adjusting for inflation.
Here's a graph of real D.C. prices
Here's a graph of real L.A. prices.
S.F. is back to real 2000 prices, but is still a lot higher than real 1997 prices.
yeah, i have seen those graphs, but i dont agree that real prices tell the whole story.
ReplyDeleteif i am a buyer, i care about my mortgage payments. and historically mortgage rates were much higher than you can get today. back in 2000, mortgage rates were about 8%, today they are 5%. that difference means you can afford 37% higher loan at a 5% rate and still have the same monthly mortgage payment.
thats why i termed it "affordability" above and not prices, which is what really matters to a buyer who plans on living in their home, and from that perspective all these locations are back to approx year 2000 levels of affordability when combined with inflation adjustments. this is why the fed is buying agency MBS, to keep borrower financing cheap.
You are making the mistake of looking at nominal mortgage rates, rather than inflation-adjusted mortgage rates.
ReplyDeleteThe reason we have lower mortgage rates is because we have lower expected inflation. This means a home bought when mortgage rates are 5% will likely appreciate at a slower rate than a home bought when mortgage rates are 8%. Also, inflation will likely eat away at the real value of your mortgage payments at a slower rate than when mortgage rates are 8%.
Expected inflation is currently about 1% over the next ten years. That means your real interest payments are expected to be about 4%, which is not cheap.
Lance said...
ReplyDelete"People don't buy a home with the intention to sell."
The typical holding period for a house is seven years, so whether they intend to or not, most people do sell.
mortgage rates are low for a couple reasons, one is inflation expectations, but the other reason is the fed buying up the securities creating artificial demand. without the fed, agency rates would probably be more like 6% or more.
ReplyDeletebuyers dont care why their mortgage rates are lower, nor do they care about inflation adjusted mortgage rates.
buyers care about their monthly payments and if they can afford it (basically a buyers DTI, debt to income ratio), and how it compares to renting a comparable house. thats about all: income vs monthly payment vs the alternative (rent). as we saw in the recent bubble, these things can be put aside when greed blinds us when we see home prices increasing at crazy rates. when prices are decreasing its harder to put these things aside, since the alternative at some point is higher rent than to buy, creating strong motivation to buy (for owners or investors).
low mortgage rates is actually how we got into this mess in the first place...lower rates in the early 2000s, which boosted buying power (buy higher priced home for same monthly payment), then prices go up and greedy people pile in, everyones a flipper, everyone feels like they have to buy now before priced out forever, pushing prices higher. everyone feels richer and uses their home like an ATM, fueling the economy enabling more buyers to buy. so lenders develop more affordability (theres that word again) products such as, short term hybrid ARMs, interest only loans, 40 year mortgages, then eventually teaser rate neg am loans,.. each product boosting buying power and pushing prices higher and higher as the required monthly mortgage payment goes lower and lower.
difference with the feds plan is that the rates today are on fixed rate amortizing 30 year mortgages. payment never changes and is affordable the whole time (assuming ones income is still there).
Anonymous said...
ReplyDelete"mortgage rates are low for a couple reasons, one is inflation expectations, but the other reason is the fed buying up the securities creating artificial demand. without the fed, agency rates would probably be more like 6% or more."
You are correct. I simplified things too much. But my point still stands: it is real mortgage rates that matter, not nominal rates.
Anonymous said...
"buyers dont care why their mortgage rates are lower, nor do they care about inflation adjusted mortgage rates."
They may not care, but they are wrong to not care. They didn't care that they were buying at the peak of a bubble three years ago, and look how that turned out. Short-term thinking has a habit of coming back to bite you in the long run.
Anonymous said...
"low mortgage rates is actually how we got into this mess in the first place"
I completely agree.
"if you think you are still massively overpaying, i would love to hear your logic on how you conclude that."
ReplyDeleteBecause when I look at houses in the $650K range, in an area about a 30 minute drive in DC, and then look at the tax records for say 2002 and the home went for $105K...I come to that conclusion.
I mean yeah I make more than I did in 2002, but not 6 times my 2002 salary.
the good news for you and your readers is that it doesnt really matter what i think (and for the record i have been a housing bear in california since 2002).
ReplyDeleteif they or yourself feel like housing prices in DC area will still drop much more, then they/you can actually do something about it.
1) from the looks of the CME Shiller DC Housing Index futures, you can outright short housing prices in DC area at attractive prices (ie, bet money that it will). the index appears to be trading fairly flat going forward. (about 165 forwards)
or
2) buy a home, and if concerned about price drops, they can hedge their risk by shorting housing prices in DC area via the same Shiller DC Housing Index futures. That way if your home drops in value, you will make up the loss on your futures contract.
you actually couldnt do this at attractive levels a year or two ago, since the price of the forwards was so expensive it made a hedge/trade not very attractive. but that apears to have changed if you still think it has much more to go
best of luck
es
Anon 7:08
ReplyDeletefrom the looks of a 650k house that in 2002 sold for 105k, i might agree with you. but i dont know anything about that area, or if the 2002 sale was a true sale. look at zillow.com and see if the area you are talking about shows a 500% increase in prices for homes near the one you are talking about.
sounds like something odd is going on to go from 105k and still be at 650k today. thats a huge change even by california bubble standards.
good luck
And neither index jives with the Case-Schiller for Balto-Washington area.
ReplyDeleteOSR said...
ReplyDelete"And neither index jives with the Case-Schiller for Balto-Washington area."
The Case-Shiller Washington, DC index doesn't cover Baltimore.