The problem of the shifting market

[mEDITate-OR:

confuse yourself..., completely

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First, a "comment":

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First, is that there has been a very large drop in REO listings, but there also is a very large number of unlisted REOs - about a years supply, it looks like.

The supply of REO can, and will, be, replenished for quite a while yet.

So, the number of REO sales must, and did, decline.

But, there is evidence that the listing prices were about US$ 20K under market for all cash sales. The Lenders were buying "cash".

For example, BKofA was recently told that they had to build up their "capital position" - that takes cash.

Second, when the REO sales dropped, that removed the bottom 10 to 20% of the lowest priced homes.

What then happens statistically is that the "average" of the remaining homes sold must, and did, go up. 

But, that does NOT mean that home prices are now going up.

What it means is the cheapest homes are not being sold anymore.

That is very different.

Third, "short sales" have gone up about as much as foreclosures have gone down.

Might sound good, but what that really means is that the home owner/seller took a little less of a hit than if they walked away; and the bank/lender took a little less of a hit than they would if they foreclosed.

So, while the prices for "short sales" might LOOK like they are going up, they also might not be, in fact.

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Second, some "statistical theory" behind that.

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Assume that there are only three homes that sell in one month, worth 1, 2 and 3

Assume that the next month only two home sell.

If the one that does not sell is 3, then

total sales are down by 50%

and the average sales price is down by 25%

If the one that does not sell is 2

then total sales are down by 1/3rd

but the average sales price is unchanged.

If the one that does not sell is 1

then total sales are only down by 16.6%

but the average sales price is now UP by 25%

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Today, we know that foreclosures are down by 1/2

and that the average sale prices of them are about US$ 100K

and we know that the number of sales is about the same.

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So, using our example, the 3 sales are now of homes worth 2, 3 and 3

Therefore, what is happening in the market is:

total sales are still 3 homes = no change

but they are now worth 8 and are UP by 1/3rd

but the average sales price is no longer 2, but is now up by 2.

and has increased by 16.6%

What we can now declare, with impunity, that:

home prices in Phoenix are now UP by 16.6%

and that total home sales are UP by an astounding 1/3rd.

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And, how do we KNOW that...
in the biblical sense, of course...

bcuz the numbers never lie, and that is what they are telling U.S.

The bottome line, however, is that IF the sales prices are in fact "repeat sales"

all those numbers tell U.S. absolutely nothing
about whether prices are heading up

or are falling further down

Bcuz, that is measured by looking at when the home last sold.

Homes that sold last in ought-no-6 probably dropped in value by over 50%

But, a home that last sold in only the last year...

might have gone up or down - slightly

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The simple blunt Truth, to be "Frank" with you...

is that no body knows "No think!"

Sorry, about

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