Naples Property Management

Updates on property mangement topics for the Naples, Marco Island, Bonita Springs MSA's.

Case Shiller: Here Are The 15 Housing Markets That Will Fall The Most By 2012

Reprinted with permission of Michael Lissack lissack@lissack.com (239) 254-9648

It seems the media does not take the time to explain what Case-Shiller is and how it is to be understood.

Lets start at the beginning:

The Case-Shiller Index (NOT THE FORECAST) looks at single family houses (and only single family houses) which have sold multiple times in the data base and tries to establish “like to like” pairings. The Index ignores condos and all other forms of non-single-family housing. It uses 2000 as its base year. The Index (NOT THE FORECAST) is HISTORICAL only.

Further it looks at the median transaction number. Medians are the point where 50% of the data is higher and 50% is lower. The Case-Shiller Index correctly notes that the median transaction value has dropped.

What the index does not tell you is how prices are distributed around that median, what effect including condominiums would have on the index, and the bias involved in looking only at “repeat transactions.” For example, if a newly constructed house was sold by its original purchaser (and we have many such sales in Naples) that sale is EXCLUDED from the data base because the original purchase from the builder was never included. Only when that home sells again (to its third owner) will the data be included. Thus over the past few years the vast majority of the sales included in the Case Shiller index are older homes in Golden Gates Estates and on Marco with a sprinkling of homes in Naples proper. Since Golden Gate saw the wildest swings in prices, the excess of data drawn from that area versus say North Naples (where the bulk of the post 2000 construction has been) results in an excess downward weight on the Index.

The Index is NOT the FORECAST. The Forecast looks at the trends in the Index value and then adjusts for the ratio of median prices to median reported incomes. It then further adjusts for unemployment and demographics. Again the Forecast is not about anything other than medians. What the decline in the forecast median tells us is NOT that values will collapse but rather that builders will perceive a demand for homes in the $100k to $250k segment and will build those homes. The greater the number of such homes built and sold the lower the median price (since the median is where 50% of the sales are above and 50% are below).

This version of the Forecast is dead on target. Numerous builders (DR Horton, Lennar, Pulte, GL Homes, WCI) have announced projects in the $100k to $250k price range. The builders see what the forecasters see – increased demand at the low end.

The “doom and gloom” “market collapse” is thus pure nonsense. In reality what the forecast means is that the low end will bloom.

The forecast says NOTHING about individual home values.

But that would not be a sexy media story.
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as my broker wrote to all of us
 
Let's look at some data... The Naples inventory in March of 2007 was 12,440 properties. It is now down to 7,010 properties. That is a huge reduction in inventory. We all know that property values are a function of supply and demand. The supply has seen a huge reduction. Ok, what about the demand? For the first 10 days of August 2010, Downing-Frye agents turned in 53 pending sales. For the first ten days of August 2011, Downing-Frye agents have turned in 104 pending sales contracts. That's a 96% increase in pending sales for the first ten days of August for Downing-Frye!!!! Now, let's look at the closings. Downing-Frye agents have participated in 2,064 closed transactional sides for the first seven months of 2011. If you throw out the two " bubble years ", I believe that this is the first time we have ever participated in 2,000 closings in the first seven months of the year.

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From the definition of the Forecast

http://www.economy.com/csi

Key Features

The model identifies long-term influences on house prices, such as income trends and demographics, and cyclical factors such as unemployment and changes in mortgage rates.
Analysis and forecasts are based on a fully specified supply-and-demand model.

Forecasts for baseline and alternative econoconditions.mic scenarios. Forecasts house prices under stressed economic

In addition to the baseline forecast (the most likely economic scenario), Moody's Analytics forecasts the CSIs under alternative economic scenarios. Understanding the future path of house prices in relation to economic stresses such as oil price shocks, financial market distress, dollar devaluation, and others is critical to successful strategic planning and risk management.

The county house price forecasts are driven by county data on median household income, the unemployment rate, mortgage interest rates, population growth, and metro area or state house price trends. Moody's Analytics currently forecasts the aggregate index for 367 counties, updated monthly.

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The doom and gloom has been in the "forecast" since last November (see attached)
 
I hope the above helps address your concerns (and yes I do have a doctorate and 20 years in finance so am not just a "know nothing")
 
As always please call Ruth Anne or I with any questions 

Michael Lissack

2338 Immokalee Rd #292 Naples FL 341101445
phone (239) 254-9648
Fax: (239) 254-9649
Cell: (239) 404-5079
www.lissack.com, www.mynaplesagent.com
www.isce.edu, www.emergence.org

Michael conducts his real estate activities through Michael R. Lissack PLLC if you desire no more future mailings please send an email to lissack@lissack.com make sure to include the email address you want excluded

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