Distressed Sellers Index: October Update

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Posted by The Tim on October 25th, 2007 at 11:20 AM · 41 Comments

It’s been about a month since I introduced the Distressed Sellers Index, so I thought it would be a good time to check in with another update.

Here’s the latest graph:

Click to enlarge

As you can see, since our last update the DSI has jumped nearly 20 points up into the 70-80 range, where it has been holding somewhat steady. The latest reading came in at 77.

Again, I’d like to remind you that the DSI is non-scientific, and is provided merely as a curiosity. A value of 77 has no particular “meaning” other than the general theory that higher index values means more distressed sellers in the Seattle area. I’m not attempting to make any claims regarding predictive or even descriptive qualities of this index. We’ll need more than a few months’ worth of data before we can begin to form any such hypotheses.

Continuing with the excellent suggestion from the previous DSI post, here is the current DSI for select additional cities as of today:

Boston: 83
Las Vegas: 148
Sacramento: 153
Miami: 137
San Diego: 206
Los Angeles: 138
Phoenix: 201

Categories: Uncategorized
Tags: Distressed Sellers Index, Statistics

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41 responses so far ↓

1 rose-colored-ghoulaid // Oct 25, 2007 at 11:46 am

Out of curiosity, what do scores actually correlate to? I would have guessed percentage of sellers who are distressed, but that would make scores over 100 UNPOSSIBLE(intentional misspelling)!

Or is more of a ratio of distressed sellers to sellers not under distress? I.E. 1 distressed seller to every other seller gives a score of 1/2, and therefore 201 for Phoenix means for every 2 out of every three sellers is distressed?

I realize distressed is difficult to quantify, but assuming we are in agreement about the term, can you share how the numbers are defined.

Thanks.
2 biliruben // Oct 25, 2007 at 12:33 pm

What part of “proprietary” do you not understand, RCGhoul! ;)

Patents pending. Patents pending.

I assume he just searches the blurbs, looks at the % distressed, and multiplies by 100 to get nice round numbers, but we may never know!
3 Sandy // Oct 25, 2007 at 12:55 pm

Was there discussion of the methodology last time this was posted? How is it determined if someone is distressed or not?
4 Dave0 // Oct 25, 2007 at 1:42 pm

I’m guessing he searches a site like estately for certain keywords that would indicate being “distressed” such as “must sell” or similar. He’s probably keeping the specific words secret in that it might affect the results if the word gets out and people start avoiding those words
5 The Tim // Oct 25, 2007 at 1:44 pm

Sandy, yes there was a discussion last time. It went a little something like this:

The Peoples: What is this index? How is it calculated?
The Tim: It’s proprietary and not scientific. It’s my secret and for the time being I’m keeping it that way.
The Peoples: That’s not fair. You are a jerk.
The Tim: I’m a bitter jerk, and proud of it.

Ok well I may be improvising a bit, but you get the point. ;^)
6 [troll] // Oct 25, 2007 at 2:08 pm

Th Tm - prdct hms wll b gvn wy fr f chrg wthn bt 1000 yrs. Prv m wrng.
7 rose-colored-ghoulaid // Oct 25, 2007 at 2:24 pm

“What part of “proprietary” do you not understand, RCGhoul! ;)”

Gah! I don’t have a dictionary and though I have a flawless memory, I was taught only words of length 10 (like dictionary) and less. If only I’d gone to 13th grade!?!?!

Enough about semantics. Please tell me biliruben.
8 MacAttack // Oct 25, 2007 at 4:14 pm

Apparently SF Bay Area transplants are stuck. Sales were down 77 percent in September from Sept. 06.

darn.
9 Angie // Oct 25, 2007 at 5:51 pm

My guess is that Tim is visiting a sample of home sellers in each city and measuring physiological indicators of distress. Elevated heart rate, high blood pressure, or extraordinarily sweaty palms are indication of distress.

Maybe 1000 people per market, so he can get a really good statistical sample.

That’s my guess and I’m sticking to it.
10 rose-colored-ghoulaid // Oct 25, 2007 at 7:04 pm

Look Tim. We put up with a lot from you: running this site, constant news updates, coalescing multiple sources of information into charts, and even sarcasm (without declaring in advance so we don’t get confused).

I know I speak for every vertebrate in the world when I say “I only put up with all that so I can steal your proprietary ideas, use them to develop a computer program which predicts to six-sigma accuracy future real estate prices for up to 10 years in advance, use this tool to become exceptionally wealthy, buy all the real estate in North America, lease some of it to the US military in exchange for their services, use their services to force everyone else off my land, and then destroy my software before the NSA or NRA gain access to it (destroying the average American’s impoverished lifestyle of drifting in the sea or a lake since I own all the land).”

Can you in good faith keep your analysis proprietary when faced with the overwhelming good it would do (for me) if placed in my hands? Maybe, but that’s not really the question. The real question is should you even have to be asked this question in the first place, and the answer to that is a clear and unadulterated, NO.

I think I’ve proven a point.
11 The Tim // Oct 25, 2007 at 10:08 pm

Oh man. You guys crack me up.
12 Angie // Oct 25, 2007 at 10:51 pm

It occurred to me on the way home tonight that maybe Tim’s deriving those values by sacrificing a pink pony from each market and consulting its entrails.

Sort of an old-school approach, but hey, if it works…
13 laxtosnoco // Oct 25, 2007 at 11:05 pm

Rose-colored-ghoulaid is way off. There’s only one reason I’m here and that is to get my regular dose of the Losh. You can keep your proprietary algorithms. Why would I need them: the end is nigh!
14 rose-colored-ghoulaid // Oct 25, 2007 at 11:28 pm

I know. Seriously, do you know of any other sites I could get my Losh fix?

I … … … REALLY … … … NEED IT!
15 rose-colored-ghoulaid // Oct 25, 2007 at 11:38 pm

Angie,

If Tim really is sacrificing pink ponies, it would prove all the theories on the Seattle PI blog that SeattleBubble is single handedly ruining real estate futures.

I haven’t really done the math on this, but that doesn’t stop Cramer and it won’t stop me. Historically, a region needs a RPPP (residencies per pink pony) of about 20,000 during normal market conditions, and assume that in 2006 the Seattle we had 15,000 RPPP. It becomes real clear (at least to me) that Tim is dealing the death blow to pink ponies faster than they can procreate. I would guess Tim has single handedly slaughtered as many as 100 pink ponies year to date, and his rate appears to be accelerating.

Ye Gads, Tim! You’re a madman! I just can’t believe your plan is actually working. Mwa HaHa. Mwahahahahahahaha.
16 Ira Sacharoff // Oct 26, 2007 at 5:35 am

…and if you buy this house before midnight tonight, you will receive as a bonus to you, the buyer, absolutely free freshly harvested pink pony entrails!
17 Perplexed // Oct 26, 2007 at 9:03 am

Can you add our neighbor to the south, Portland?
18 The Tim // Oct 26, 2007 at 9:19 am

10.26.2007
Portland, OR: 90
I’ll add it to the post next update.
19 Steve Tytler // Oct 26, 2007 at 9:31 am

I find your number crunching to be interesting, but DO NOT think that you can predict future real estate prices by statistical analysis. WSU’s real estate research department has been trying to do that for at least 15 years and they have yet to come up with a formula that reliably predicts future real estate prices.

Some of you have mocked my predictions which are based on my real life experience buying and selling real estate over the past 25 years.

But I’m more accurate in my predictions that the number crunchers because assessing real estate markets is as much art as science.

Chart watching only tells part to the story.

I have noticed that most of the people on this site know a lot more about math and statistical analysis than I do, but I know a lot more about real estate.

Real estate markets cannot be reduced to simple math equations.

Sorry guys.
20 notabull // Oct 26, 2007 at 9:57 am

“I have noticed that most of the people on this site know a lot more about math and statistical analysis than I do, but I know a lot more about real estate.”

The problem, Steve, is that the general public has been misinformed by real estate professionals, economists, and so on, for the past few years. We’ve heard:

-Real estate prices will never go down without job losses, recession, etc (WRONG)
-Real estate will slow down and return to more normal rates of appreciation (WRONG)
-Subprime mortgage problems will not bleed into the rest of the credit economy (WRONG)
-Home sales have bottomed (WRONG)

I was in San Diego while prices were still going up, then leveling off. I heard all the local newspapers, economists, experts, real estate professionals saying all the wrong statements I highlighted above. 95% of the predictions were wrong. The same statements were said in every other town where prices ultimately started to decline. Nationally, the NAR and national economists were wrong too.

So, while your predictions may turn out to be right, you’re unfortunately affiliated with a group of people that are getting less and less accurate by the minute. So you are therefore not able to say “I’m a professional, trust my judgement” because that angle has been used up by too many who said the same thing and turned out to be wrong.

It’s nothing personal. Like I said, your predictions might turn out to be perfect…
21 The Tim // Oct 26, 2007 at 10:26 am

Thanks for your comment Steve, although I’m a bit confused why you chose to make it to this post. You said “DO NOT think that you can predict future real estate prices by statistical analysis,” but there’s no predicting going on in this post at all. In fact, I explicitly said “I’m not attempting to make any claims regarding predictive or even descriptive qualities of this index.”
22 TJ_98370 // Oct 26, 2007 at 10:29 am

Mr. Tytler,

I can appreciate the fact that you have been in real estate for 25 years and that you’ve learned a thing or two thru experience. However, the real estate industry has a credibility problem, especially with the regulars of this blog. A repeated thread of content on this blog is that statements made by real estate professionals mostly appear self-serving, which should be expected as sales are the industry’s bread and butter. In other words, irregardless of what the truth may be, it is extremely rare for a person in the real estate industry to make a statement that could possibly negatively influence sales. On the other hand, the “number crunching” and graphs put up by the likes of The Tim and DJO I know to be sincere attempts at defining market events and possibly prediction. Their attempts are not perfect, but the info they provide is not tainted by conflict of interest issues.
23 Alan // Oct 26, 2007 at 11:53 am

The great thing about reality is that it doesn’t matter what we think or what Mr. Tytler thinks. Something will happen. I don’t care if Mr. Tytler agrees with us. If I’m right I will buy a house. If he is right then I will move to another state. The end.

If Mr. Tytler has theories on how prices will be supported then I think I speak for everyone here when I say they will be welcomed with great applause if they hold up.

My brother has been investing privately in real estate as his full time job for around twenty years. He says it is all supply and demand and that based on MOS it looks like prices are going to fall here. He doesn’t know how much though, but thinks it is a mistake to buy as long as MOS is going up. Whose opinion is more correct based just on experience? He is in the process of retiring in his mid-40’s so his past predictions have largely been correct.
24 rose-colored-ghoulaid // Oct 26, 2007 at 12:30 pm

Coming from a guy who understands science, the phrase “more art than science” doesn’t really mean much. The human brain is capable of incredible things, but anything it can reliably calculate so can a computer with the proper input.

Let’s examine common counter examples to my claim with proof why they aren’t counter examples at all.

1) Complex systems : claim - weather is so complex computers will never be able to predict it accurately. Neither can brains. We all probably know a guy who seems to know when it’s going to rain more reliably than the weatherman with his complex computers and statistical analysis. The problem is this guy may perform well in Seattle but poorly in San Fransisco. His knowledge is specialized. Further, it’s not very predictive. He can predict today, and maybe tomorrow, but not through next weekend. In general, long range weather prediction is inaccurate, but people are even worst.

2) Random systems : claim - computers are bad at prediction because they never seem to correctly anticipate results that involve randomness or lack of information. This is the case with markets and picking sporting event scores. This is an even worst argument against numeric analysis than the last. Housing futures have inherit randomness in them. If they didn’t, why wouldn’t someone smart and rich like Bill Gates always buy before prices went up and always sell when they went down. As this example shows, the capability to predict prices would make them less predictable. That’s because Bill Gates buying and selling will push prices up or down in advance of when they should go up or down. The very predictive power might break the model. The result is that the only way prices are predictable is if every buyer/seller behaves independently and does not deviate from their anticipated behavior. Does this make future price prediction an art? Definitively not, it just means that no model (that everybody knows) can be all that accurate.

3) Creation of art : claim - only the human mind can create art. This claim puts the ‘more art than science’ spin on its head. But the truth is that art is very much in the eye of the beholder. I won’t go into this much, but if you are interested in a computer which does create art go here - http://www.kurzweilcyberart.com/. I will note however that a computer is driven entirely by science, so science creating art makes you question what ‘more art than science’ really means.
25 wreckingbull // Oct 26, 2007 at 1:03 pm

Didn’t the disaster of the dot-com bubble teach us a lesson about what can happen when a journalist also has a financial interest in what he or she covers?

I still am amazed at how this is overlooked today. Yet another reason we, the unwashed masses, are becoming more and more skeptical of the dead-tree rags and turning to our peers for information.

I’ll take Tim’s data over a ‘gut’ feeling any day. The problem with the ‘gut’ is that it needs to be fed.
26 Affluent Bitter Renter // Oct 26, 2007 at 1:08 pm

Give me one - one example (anywhere in the US) of a “real estate professional” who a year ago predicted the current RE downturn.
27 A // Oct 26, 2007 at 2:34 pm

Are you allowed to go and shout that your company is performing poorly and it’s going bankcrupt? It’s the same with the “real estate professionals”.

Microsoft doesn’t crash like some people envisioned eather. You could have actually made money on MS stocks and used them for buying the house at the bottom.

I’d like to hear more on predicting the bottom.
28 Quantum_Art // Oct 26, 2007 at 3:32 pm

Since art and math are being discussed, here is a line from Tytler’s article on Oct 7 - “For example, if you bought a house in 2005 and saw it increase in value by 20 percent during 2006 and then prices dropped 20 percent during 2007-08, you have not really lost money on your house.”

Artfully expressed? Yes.
Mathematically correct? No
29 rose-colored-ghoulaid // Oct 26, 2007 at 3:39 pm

Nobody who gave it any real thought believed M$FT would crash. In 2000, they held a monopoly in a field essential for most business operations in the western world, as well as trillions of dollars in cash to hold them through the hard times. Companies in that situation never just close the doors.

The prediction I’ve heard (and believe) follows this logic. The web has opened up a new platform which is OS agnostic. As less work is done via desktop applications and more is done via the web, Microsoft’s monopoly becomes obsolete. This means they must redesign their business, but like IBM before them, they are too large and not agile enough. Eventually they will fade to being a huge company with only average influence on business.

Basically, this is all coming true. The latest standards announced by Microsoft have been more or less decried and ignored. They make no profit from IE, which is losing market share at a steady rate. As people have realized they don’t really need MS for most tasks, alternative platforms have grown in popularity. This is visible in the recent increase in market share of Apple OS and Linux. At the same time, the desktop is also slowly dying as much computing moves to alternative platforms like cell phones. Microsoft has generally done poorly in alternative platforms, although Sony’s major debacle, the PS3, may have righted their fortunes in video game consoles (a growth market).

So will they end up like IBM? Maybe. They still have time to turn this thing around, but it will take some out of the box thinking. But there is one huge risk. At the time IBM was faltering, people didn’t actively hate them same way they do MS. IBM was controlling because they were so big and were the first influential computing corporation. But MS has actively attacked all rivals in ways frequently considered noncompetitive and just plain bad for consumers.

Are they shutting their doors soon? No way! But anyone who tells you MS is as influential today as in 2000 is just plain ignoring the facts.
30 Alan // Oct 26, 2007 at 4:09 pm

I don’t think it is possible to predict the bottom.
31 deejayoh // Oct 26, 2007 at 4:22 pm

C’mon guys!

It takes an artist to interpret this chart in the following way

If you looked at home prices on a graph, you would see a pattern that looks like a staircase: Up, flat, up, flat and so on. … I think we are now in the correction phase and the beginning of a flat market

open your minds. Lets see. you’ve got up. and up. ooh. 1990 - I see flat. then up, and up, and up, and up. another up.

whatever..
32 Sean // Oct 26, 2007 at 4:25 pm

As an artist, I have to take issue with anything relating art (e.g. The Sistine Chapel) and assessing real estate markets. More ‘art’ than science. Yeah. Michelangelo was just pissing in the wind when he painted that.
33 TJ_98370 // Oct 26, 2007 at 4:28 pm

1.20X - (.2)(1.20X) = .96X

By golly, you’re right Quantum Art!
34 Joel // Oct 26, 2007 at 4:29 pm

IBM was controlling because they were so big and were the first influential computing corporation. But MS has actively attacked all rivals in ways frequently considered noncompetitive and just plain bad for consumers.

Your rosy impression of IBM is misplaced. From what I read IBM was a lot worse than MS ever was. The person that coined the term FUD (fear, uncertainty and doubt) was referring to IBM’s anticompetitive tactics. So yeah, IBM wasn’t all that innocent.
35 Steve-o // Oct 26, 2007 at 6:14 pm

Deejayoh,
What’s that chart look like when you subtract out inflation? That may flatten out some of the ups somewhat (although I think inflation would have had to have been around 10% to make the later ups flatten out at all). Just curious.
36 Quantum_Art // Oct 26, 2007 at 6:53 pm

“Real estate markets cannot be reduced to simple math equations.”

Ooops… TJ98370, you are applying simple math equations. My ‘gut’ says that if for some reason you need to sell after 2 years, with your house now worth 0.96X, you will actually receive 0.9024X after paying 6% to the professionals who did the math for you. Well, you will be in a hole ~ $ 50,000 deep if your X was $500,000. I say, these equations are not worth the money.
37 deejayoh // Oct 26, 2007 at 7:14 pm

Deejayoh,
What’s that chart look like when you subtract out inflation? That may flatten out some of the ups somewhat (although I think inflation would have had to have been around 10% to make the later ups flatten out at all). Just curious.

not sure, but inflation since the mid-80’s has been pretty moderate, so I’d guess it looks pretty much the same
Peak inflation in the period of this chart was ~15% in the early 80’s vs ~6% in the early 90’s and b/t 2 and 4% most of the rest of the time
38 melonleftcoast // Oct 26, 2007 at 11:17 pm

Tim,

Thanks for including Boston!

:)melonleftcoast
39 Ira Sacharoff // Oct 27, 2007 at 12:30 pm

Affluent Bitter Renter:
I was in a Real Estate class last fall full of fellow RE professionals, and I predicted a downturn. I was the only person in the class who made this prediction, and I was labeled “Mr. Doom and Gloom.”
I’m not proud that I was right, but most real estate professionals can’t or won’t admit what’s right in front of their faces..
40 Affluent Bitter Renter // Oct 27, 2007 at 2:09 pm

“Affluent Bitter Renter:
I was in a Real Estate class last fall full of fellow RE professionals, and I predicted a downturn. I was the only person in the class who made this prediction, and I was labeled “Mr. Doom and Gloom.”
I’m not proud that I was right, but most real estate professionals can’t or won’t admit what’s right in front of their faces..”

After I posted the comment regarding the woeful prediction record of RE professionals, it occurred to me that it was a bit unfair to say none of them predicted the downturn - there were a handful of people who did so, none of whom got very much publicity.
41 Steve Tytler // Oct 29, 2007 at 9:58 pm

I was one who predicted this downturn a year ago in my real estate column. I also predicted that the real estate market was “peaking” two years ago. My predictions are in print so you can verify them yourself by searching Heraldnet.com or this blog, as I believe they were both referenced here in the past.

I have been saying prices would drop for a long time, I am NOT a “real estate professional” who has been promoting the market despite the facts.

I don’t know of ANY other real estate writer in this area who predicted the price decline before I did.

So my record speaks for itself.

I have said the prices will drop as much as 20% over the next year or so, and I stick by that.

The only place I disagree with some of you on this forum is that you think prices will drop MORE than 20%.

As for the guy who questioned my math in the column, of course I know that a 20% increase and 20% drop from $250,000 does not get you back to the same number, but I don’t want to confuse peole by getting into technicalities. My explanation is much easier the average person to understand.

It’s just like when the Mariners are “10 games over .500″ you math geeks know that is not technically correct, but everybody knows what it means.

Real estate is a classic supply and demand economy. The reason prices are falling is that supply exceeds demand. It will take a few years to work the excess supply out of the system at which time prices will start to rise again.

It really isn’t any more complicated than that.

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