Leading vs. Lagging Real Estate Indicators
The headline news about the housing market this week was the latest Case-Shiller numbers: nationally, housing prices are up over 12% the last year.
Meanwhile, closer to home (and in the trenches) . . . Twin Cities agents listing upper bracket homes (over $1.2 million) are bemoaning the lack of showings.
What gives?
Just one more example of how “the news” lags what good, active agents know to be true of the housing market at any given point in time.
Parsing Case-Shiller
So, while the public sees the “up 12%” headline, what it doesn’t realize is that Case-Shiller employs a “matched pair” methodology to calculate housing statistics.
While that approach has strengths, one of its weaknesses is that it can be skewed by a changing mix of traditional vs. lender-mediated sales.
Translation: at least some of that 12% bump has to do with fewer (lower-priced) foreclosures hitting the market the past year.
Weakness #2 in Case-Shiller: “sales” are a notoriously lagging housing statistic.
Forgetting that the just-announced 12% rise is based on April sales (Case-Shiller’s reported numbers lags the market by two months), sales necessarily focus on the end of the process.
Beginning vs. End of Pipeline
By contrast, new listings and showings track the beginning of the pipeline (assembly line, if you prefer).
At least locally, for upper bracket homes, the number of listings (inventory) is up, while showings are down.
That suggests fewer sales and softer prices — at least for sales of existing, upper bracket homes — 8 to 12 months from now.
When will Case-Shiller’s statistics confirm that shift?
Try, 10 to 14 months from now — or as late as Fall, 2014 (8 to 12 months plus Case-Shiller’s 2 month reporting lag).
Preference for New (Construction)?
Perhaps the more interesting (and challenging) question is, “why are listings of upper bracket Twin Cities homes up and showings down?”
The first half of that question is likely explained by rising prices and a (slowly) improving economy: prospective Sellers who’ve read about rising home prices are encouraged to test the waters.
Meanwhile, the drop in showings likely has two components: a seasonal, mid-Summer slow-down that’s typical for the Twin Cities, coupled with the recent back-up in interest rates.
However, Realtors I’ve talked to suspect another explanation for the dearth of showings once prices rise past seven figures: Buyers at that price point want — and can afford — new construction.
In fact, the brisk pace of new construction now evident in many prized Twin Cities neighborhoods (Edina’s South Harriet Park and Morningside neighborhoods, Linden Hills in Minneapolis) seems to confirm that preference.
