2007 Not as Rosy as NWMLS Claims

The TV and radio news stations are all blathering yesterday and today about the 2007 year in review report put out by the NWMLS. Most of the reporting is similar to what you can see at the Seattle Times, where they printed a short, unattributed blurb that basically parrots the positive spin put out by the NWMLS. For all I know it’s a direct quote of some press release. They also published a colorful pdf of their own to drive the upbeat message home.

With all the dismal national news about home sales, wasn’t 2007 supposed to be the year the local real-estate market died?

Well, surprise. Although home sales indeed were down 14.5 percent in King County and the number of for-sale homes was up almost 9 percent, prices more than held their own.

Compared with 2006, the county’s single-family home prices climbed 7.1 percent last year, according to the Northwest Multiple Listing Service’s annual report released Tuesday. King County’s condominium prices appreciated 12.4 percent.

Over at the P-I Aubrey Cohen has a more skeptical take on the release, with his story titled Two sides to ’07 housing market:

Overall, home prices posted healthy gains — 5.5 percent for houses and 10.3 percent for condominiums in Seattle and 7 percent for houses and 12 percent for condos in King County, according to data the Northwest Multiple Listing Service released Tuesday.

Look closer, and there’s one market from January through July, when steady year-over-year increases in home inventory and declining sales didn’t keep the median King County house price from posting double-digit increases.

Then came August, when skittish lenders tightened mortgage standards, making it harder to get a loan, and investors pulled out of the mortgage market, driving up rates on jumbo loans — those above the $417,000 threshold for mortgage giants Fannie Mae and Freddie Mac. The Seattle area’s high home prices make for a lot of jumbo loans.

Of course, none of the press write-ups bother to link to the actual NWMLS report (pdf), but are instead content to repeat out-of-context quotes such as the one about prices rising seven percent.

Anyone who has actually been paying attention to the market knows that something is fishy about that 7.1% figure. To figure out what’s behind that number, take a look at page 19 of the report. Basically, they arrive at that figure by comparing the median price for all sales in 2007 with the same figure for 2006. In a market that is consistently and steadily headed in a single direction, that kind of comparison would make sense. However, in today’s volatile market, such a statistic is totally meaningless.

Allow me to attempt to demonstrate the specific problem with comparing entire-year median prices between 2006 and 2007 graphically.

2006 vs 2007: Sales
Click to enlarge

During the first half of 2007, closed sales were down from the same period in 2006, but “only” by about six percent. From July to August, the slowdown accelerated to over a twenty-two percent decline in closed sales versus 2006. The net result is that the entire-year median for 2007 is more heavily weighted toward the first six months than the 2006 entire-year median.

2006 vs 2007: Prices
Click to enlarge

The sales imbalance wouldn’t really be an issue, except that in the first half of 2007, while sales were only slightly down, prices were up from 2006 an average of ten percent. Then, in the second half of the year while sales plummeted, prices were up only four percent (on average), and as we all know, finished the year negative. So when the price drops finally began in earnest, the declining volume of sales caused these lower prices to effect the entire-year median less and less each month.

People occasionally accuse Seattle Bubble of “skewing the data” to fit a preconceived notion of market declines. Obviously I am biased, but it looks to me like that is exactly what the NWMLS is doing by touting this entire-year median number as if it provides an accurate reflection of the 2007 market.

(NWMLS, 2007 Review, 01.2008)
(Aubrey Cohen, Seattle P-I, 01.23.2008)
(Seattle Times, 01.23.2008)

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

29 comments:

  1. 1
    Alan says:

    There is an old saying, “Never ascribe to malice, that which can be explained by incompetence.”

    Some people find charts and numbers confusing. I can’t really hold it against them too much. I mean, it isn’t like they are working as certified public accountants or anything.

    Of course, that doesn’t mean I want to give any weight to what they have to say. In fact, by association it makes me want to give less weight to anything in the entire P-I. If I ran the paper, I would probably fire them for damaging perceived value.

  2. 2
    frede says:

    wow, considering sales slipped after august, not only is the median going to be taken from pre-august period, it’s going to be abnormally weighted that way, since a larger-than-normal proportion of sales were before August. So the post-August picture will barely dent the number.
    Jan-Aug is already more than half the year.
    sales always pick up in warm months and slow in cold months.
    sales tanked after August.

    figure that 75% of sales for the year (a conservative estimate?) was before the August bust, and those sales’ prices were higher than those after.

    what will be interesting will be to see how the REIC cooks the books for 08.

  3. 3
    Affluent Bitter Renter says:

    Cohen did a decent job of deconstructing the NWMLS press release (albeit with the usual RE agent spin quotes).

  4. 4
    The Tim says:

    frede,

    Your guess is pretty close. About 74% of 2007 sales occurred January-August, vs 69% in 2006. On the flip side, September-December accounted for just 26% of total sales in 2007, vs. 31% in 2006. All of this data is available in the big Seattle Bubble spreadsheet, but if you’d like to take a look at just the data I used in this post (as well as the graphs), you can get them separately in this spreadsheet.

  5. 5
    patient says:

    This kind of “creative reporting” by the mls kind of reminds me of “creative financing”. Both are stupid, we all know the fallout of the creative financing. I also honestly think that statements of appreciation does more harm than good to the market at this point. As the sales numbers show the majority of buyers has picked up on the reality and are now waiting for a substantial decline before pulling the trigger. It’s not even annoying anymore instead kind of amusing.

  6. 6
    rose-colored-coolaid says:

    I find this marginally disappointing. Either way. If it’s intentional, then it’s just another final(?) nail in the coffin that the entire industry is so corrupt that only government oversight (groan) might solve the problem. If Alan’s suggestion that it is incompetence, then that’s even worst in my book. We hear all day about how rotten the school system is right now, but it’s the people already out there who can’t seem to figure out the basics. If the ‘experts’ don’t understand the fundamentals of statistics, then it’s no surprise the Jones’ couldn’t figure that NINJA loans are unaffordable.

    I think every possible explanation for this data is depressing.

  7. 7
    WestSideBilly says:

    In fact, by association it makes me want to give less weight to anything in the entire P-I. If I ran the paper, I would probably fire them for damaging perceived value.

    No doubt. Since I moved here, the P-I has fallen out of favor with me by publishing NAR’s spin articles. This “article” was on the front page this morning. Real estate listings obviously pay a lot of the bills, but until they start marking these types of articles as “paid advertisement” I’m losing faith in the credibility of anything else the publish.

  8. 8
    Angie says:

    Tim, thanks for posting those graphs. (For those who’ve wondered why I hang out here—it’s all about the math, baby. Love those numbers.)

    The second graph is practically a textbook illustration that *how* you present data influences the messages you send. The bars for the 2006 and 2007 medians are all sort of fluctuating in a narrow range and the changes don’t look too dramatic. The YOY percent change graph in the background looks like Amageddon.

    Both matter, in their own ways. It’s a mistake to focus on one while ignoring the other. Hence my comments recently that even though the YOY went to the negative in December, overall prices are still way out of “affordable” range.

  9. 9
    The Tim says:

    I think a few of you are a little confused. The P-I article by Aubrey Cohen was actually pretty good, and took a critical look at the data in a similar manner to this post. It was the Times that basically parroted the positive spin from the NWMLS, and has consistently done so as long as I have been following the market.

    It was also the Times that put the phrases “Real estate remained healthy” and “’07 home prices not so bad after all” smack on their front page. The P-I didn’t mention their story on the front page at all.

  10. 10
    Markor says:

    Anyone who has actually been paying attention to the market knows that something is fishy about that 7.1% figure.

    Esp. since a YOY median price decline was reported like three weeks ago.

  11. 11
    Matthew says:

    A tale of two markets indeed. The first market was taking place when financing was running rampant and everyone with a pulse could receive financing.

    The second market was after the credit crunch started to impact the market and lending tightened. But wait, I thought loose lending was what was driving housing?! I thought it was jobs, no more land, immigration and pink ponies!!!

    2008 aka the darkest year the U.S. has seen in decades, will be impossible to spin positive.

  12. 12
    Matthew says:

    Sorry that sentence should read: But wait, I thought loose lending was NOT what was driving housing?!

  13. 13
    Joel says:

    Angie,

    You’re intoning that The Tim purposely made the graphs look “bad”, but really I think he just made them in the most rational way. Each scale on the Y axes goes from just below the lowest number (or lowest possible number in the case of median price) to just above the highest number. If he really wanted things to look “bad” he could’ve set the median price scale to start at $450k and go to $600k which would make it look like prices were rocketing up (BUBBLE!) and then plummeting after August (BUBBLE POPPED, TOLD YA SO!). What could he have possibly done to make the YOY percentage graph not look “like Amageddon [sic]”? If he had increased the limits on the Y axis it would have sqished the graph down and left a ton of useless whitespace.

  14. 14
    Garth says:

    If you head over to zillow it is pretty easy to see what is going on with the median.

    Just look at jumbo houses (over 417,000 + 20%) in any zip code and flip the recent sales month between 6, 3 and 1 month.

    With 100% financing gone and jumbos harder to get, the median price is even more useless than before.

  15. 15
    AndyMiami says:

    I am a bit concerned with the potential bail out of the monoline insurance companies (AMBAC, etc..) that was in the press today, which led to a 600 point up swing in the DOW today. Combined with very low home mortgage interest rates, the masses may believe that we had a quick downturn and now all is stabilized. I understand that qualifying for a mortgage is a new ballgame, were you actually have to show your tax returns; however, because Seattle was late in the run up, and just starting to decrease, we may see a pick up in prices over the next few months. Think of it as the dead cat bounce in the stock markets..I hope that I am wrong…

  16. 16
    Garth says:

    I don’t think the bounce today had much to do with dodd’s plan.

    Today was all Bernanke and his masterful use of the international market data for the MLK holiday.

  17. 17
    Garth says:

    Today being tuesday :)

  18. 18
    deejayoh says:

    Just look at jumbo houses (over 417,000 + 20%) in any zip code and flip the recent sales month between 6, 3 and 1 month.

    Garth – Interesting approach, but don’t think you can draw any conclusions

    1) viewing 6 months of sales should in any case show many more sales than the 3 month or one month view. 2 to 6 times as many, as a matter of fact…
    2) except the shorter periods reflect traditionally “slow” months, where the longer period includes the “hot” months of summer

    So I’d be amazed what you see this year wasn’t pretty close to the same you’d see any year, or for any price range this year.

  19. 19

    Garth,

    You have some pretty interesting info. Thanks for sharing the info about Zillow and the jumbo house situation!

  20. 20
    Kime says:

    I know I’m being nit picky, but effect can only be used as a verb when it means “to cause to come into being”. What you meant was “…to affect the entire-year median less and less each month.”

  21. 21
    Gary says:

    This is extemely frustrating when here is the news today http://biz.yahoo.com/ap/080124/economy.html
    Also, Mr Yun is quoted here as saying “Lawrence Yun, the Realtors’ chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.”
    What a comment eh?

  22. 22
    Everett_Tom says:

    Annnnnnd, a wall street journal article which specifically mentions that Seattle will most likely decline….

    http://online.wsj.com/article/SB120111917285710781.html?mod=googlenews_wsj

  23. 23
    Hollyrocket says:

    Why would anyone use “analysis” from salespeople? The MLS is a cooperative owned by real estate brokers.
    Their “data” is always skewed in favor of home ownership and as a result is a conflict of interest.
    Imagine if we used data from corporations, that we had no access to in order to validate, to give us a clear picture of the market?

    They would skew it every time.

  24. 24
    declinest says:

    inflation was 4.1% last year. some gain.

  25. 25
    NostraDamnUs says:

    Best time to buy is – now!

    NEWS ALERT
    from The Wall Street Journal

    Jan. 24, 2008

    Existing-home sales fell 2.2% to a 4.89 million annual rate in December, according to the National Association of Realtors. The median home price also declined to $208,400 in December, down 6% from $221,600 in December 2006. Inventories of homes fell 7.4% at the end of last month to 3.91 million available for sale, which represented a 9.6-month supply at the current sales pace. Sales of single-family existing homes fell by 13% in 2007, the biggest drop in 25 years.

    Earlier Thursday, the Labor Department said the number of U.S. workers filing new claims for unemployment benefits fell last week for a fourth-straight week, suggesting that a resilient labor market at the start of the year might keep the economy from sliding into recession.

  26. 26
    sf_boomerang says:

    Wait, I thought the best time to buy was LAST month. And the month before that. And the month before that…

  27. 27
    jon says:

    Another possible cause of the gyrations in the market may have been fraud:

    http://www.dailymail.co.uk/pages/live/articles/news/worldnews.html?in_article_id=510089&in_page_id=1811

  28. 28
    Helen Traven says:

    Hi everyone- I read about single family homes on here quite a bit, as expected, but I wonder if duplexes and triplexes are in the same boat. Are their prices more stable because the inventory is more limited and less subject to variations?

    Thanks for your insight. I find this site very informative.

  29. 29

    […] Except it wasn’t a surprise if you actually bothered to look at the 2007 data with a critical eye, as I pointed out in my post at the time: […]

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