John Burns, the real estate consultant from Irvine, has harsh words about some of the housing data published in, among other places, newspapers and their websites. Basically, Burns says in a recent note to his clients that widely discussed data “stinks” …
If you read the newspapers, you would think prices are appreciating, whether it is the Case Shiller price index or median resale prices – the two price measures that used to be the most reliable measures. Just look at recent price trends for Southern California. According to CS, prices are up 6% in LA (includes Orange Co.) and 11% in San Diego since March of 2009. According to the median price, prices are up 12% in LA, 17% in Orange County, 12% in Riverside and 18% in San Diego since April of 2009. Neither is correct if you are talking about most homes in those markets. While we love the CS methodology, both CS and the median price are wildly impacted when the mix of what is transacting shifts dramatically from the norm.
What does he think?
We believe 2003 prices are a reasonable estimate for most home values today. Obviously, this is a very back-of-the-envelope analysis and our work with clients is more targeted toward the decisions they are trying to make. Any further price correction from here will likely either be due to rising mortgage rates, or an overcorrection (possible driven by Shadow Inventory), or because consumers took on so much other debt over the last 10 years that a 31% debt-to-income ratio is too high going forward (note that Borrowers who have received “permanent mods” have 30%+ of their income going to additional debt service on top of their primary mortgage!).
Hey, we can take a shot or two. Or three. What do you think?