A Statistical Mystery: Misleading home prices

It’s usually hard to find the right buyer. But sometimes the first challenge is to convince the seller that their house hasn’t turned into a gold mine during the housing boom of the last five years.

Report after report has shown double-digit price increases nationally and locally. Buyers have reportedly offered as much as $100,000 more than list prices during bidding wars in some coastal communities such as San Diego and Miami.

While it hasn’t been quite that drastic locally, on the surface it would seem that now’s the time to sell and reap a huge reward after prices have skyrocketed.

But market statistics and the news coverage they generate can be misleading.

The National Association of Realtors reported in February that a record 72 metropolitan areas experienced double-digit existing single-family home-price increases in the fourth quarter of 2005 compared to the fourth quarter of 2004. Nationally, according to NAR, the median home price jumped from $187,500 to $213,000 in the fourth quarter of 2005, a 13.6 percent increase.

The median price in the Midwest increased 11 percent to $167,600 and the median price in Springfield increased 10.7 percent from $109,100 to $120,800, according to NAR.

Based on the numbers, every homeowner in Springfield has reason to celebrate. But that’s not so, said Clem, president of the Greater Springfield Board of Realtors.

“When (real estate agents) come in and (sellers keep) hearing all these numbers that (homes have) gone up in value so much, they’re real disappointed when their numbers are not coming out that way,” she said.

The ingredients

There are several reasons that home-price statistics can be misleading.

First, not all homes listed on the market are factored into the median price – only sale prices for homes sold during a certain period.

Because of that, different houses are factored into the median price during month-to-month, quarter-to-quarter or year-to-year comparisons.

Walter Molony, spokesman for the National Association of Realtors, also said it’s pointless to compare growth numbers from one month to the next because of seasonal buying patterns.

Families with children tend to buy expensive homes between school years. Singles and childless couples tend to buy cheaper homes throughout the year. Thus median home prices are usually higher in spring and summer.

Individual homes don’t depreciate in the fall, but fewer pricey homes are sold, thus driving the median price downward.

“If you’re looking at month-to-month, you’re not doing apples-to-apples,” Molony said.

He also said interest rates affect high-end homebuyers more than regular folks. Because interest rates have been historically low during the last several years, more pricey homes have been sold, pushing the median price upward.

Also, free upgrades such as expensive new appliances that are thrown into a deal to entice a buyer can’t be factored into median home price statistics.

“It’s just real skewed because of how they do the numbers,” Clem said.

Jack Rhoads, a Murney Associates Realtors agent with 27 years of experience, doesn’t buy into statistics, and he noted that that his clients don’t pay attention to them anyway. Instead, he said, his clients only observe prices in their own neighborhood.

“They’re interested in their own little individual house,” he said.

Take these numbers, for what they’re worth:

NAR’s Molony said a housing shortage was responsible for many of the nation’s price spikes. He said homes have been selling for 99 percent of their list prices nationally, while Clem said Springfield-area homes have been selling for 95 percent of their list prices.

Molony said the close list-to-sell price ratio is evidence of shallow supply.

Supply may be finding equilibrium with demand, as the housing market seems to be easing back toward historic levels this year.

Some markets may even experience price corrections that result in a median price reduction. For example, Fiserv Lending Solutions projected Merced, Calif., to experience a 3.4 percent reduction in median home price after that market experienced 37.1 percent growth last year.

Springfield doesn’t appear to be in danger, though. The same group projected Springfield to experience a 6.7 percent increase in 2006.

Preliminary first-quarter 2006 figures from NAR show the national median existing single-family home price grew at 9.5 percent from the first quarter of 2005. The national median price, based on first-quarter data, stands at $218,700.

Median price growth may continue to trend downward – single-digit percentage growth versus double-digit percentage growth – as the median price increased 7.4 percent from March-to-March. National median home prices historically increase 6.7 percent annually.

The Midwest experienced a 6.9 percent increase in the first quarter, with median price now at $162,300. Final first-quarter NAR statistics will be released May 15.

A popular profession

Clem said Springfield’s market seems to be softening a bit, but the statistics are still positive. Members of the Greater Springfield Board of Realtors sold 2,596 homes in the first quarter, a 4.7 percent increase from a year ago.

Real estate has been so lucrative the past few years that people are joining the agent ranks left and right. There were 2,517 agents in the Greater Springfield Board of Realtors in April, up from 2,059 in April 2005. [[In-content Ad]]