Revisiting my “bottom call” of February 7th. At the time, even those who potentially agreed with me, wanted more “proofs”.
But in the instant that I “called it”, it was more like watching the horse at Steel Pier diving into the ocean. You knew the horse was going to land UNDER the surface of the water, even while you were watching it in mid-air. Basically, the market was taking a high dive off of the beginnings of “spring bounce”. It was like standing on a train platform and watching a bunch of people jump in front of the train.
For those who don’t like to believe that the Housing Market Stimulus Package is going to improve the market, you may take some consolation in the fact that the same stimulus package contributed to “the bottom” call. The mere hope of thousands of dollars coming, created the instantaneous and abupt change in the marketplace that caused “the bottom” to happen. So you can both credit the Obama Administration for the “recovery” and also blame them for “the bottom”. That should satisfy just about everyone.
Here’s the final snapshot of what I believe is “bottom” and the forces that created it.
The green line is the percentage variance between asking and sold prices.
The shift down from 3.1% to 1% signalled the typical beginning of “spring bounce” in January of 2009. At the time of my bottom call, this percentage shifted from a low point of 1% to a high point of 5.5% almost overnight. You can see the historical data from just before peak to present, with some commentary in this post. The only other time the % variance of asking to sold prices exceeded this 5.5% mark was in February of 2008, BUT that was at a time of high asking prices
This brings us to the blue line. What you are seeing in December, which is often the lowest point for prices in an given year, is a median asking price of $451,000 (for this market segment) being pulled by a 4.2% variance down to a sold price of $432,000 and an adjusted median price per square foot down from $256 to $222. Then you see the normal seasonal ascent as asking prices increase (blue line) and the % variance decreases (green line).
Note the yellow dots. Even though asking prices stayed level from 1/1 to 2/1, the prices (yellow dot) increased because the % variance from asking price to sold price decreased (green line). Watching asking prices rising and dropping does not give you the same perspective of watching that in conjuction with:
One of the most startling indicators that “bottom” was “in the room” was the insane shift in % variance of homes sold in less than 30 days.
As you can see in the above link, the % sold in 30 days or less just prior to peak was 70%. So it would seem to follow that the extreme low of 13% at the time I called “the bottom” would be “just prior to” bottom. While we don’t yet have all of the sold data for the month of March, the shift upward from 13% to 23% and March to date at 33% is a big sign sign that February 7th or so was and is likely “the bottom”. I find it very hard to believe that number will ever get lower than the 13% it was when I made that “bottom call”.
In writing posts in preparation for this “snapshot of bottom” post, I did visit the volume of sales statistics. But to a large extent I have stopped relying on this data and consider it very old news. The drop from peak as shown in the graph in that link from 181 in June of 2007 to 86 in the short period to September of 2007 was a huge signal that prices would follow. But today I rely less on volume statistics as a sign of anything, because with squeezed equity positions you find more and more sales happening outside of the mls system. YOY volume is not only “old news” it is also mostly only relevant to agents vs. buyers and sellers of homes these days. Still I provide it for those who like all of the data.
Last but not least, let’s visit the plunge of sold prices in the chart below.
The chart above is where you get the fine tuned visual of watching prices take a nose dive off of Spring Bounce. Perhaps if you didn’t “get” my reference to the Diving Horse in the opening of this post, you can feel it now as you examine the variance in this graph from December of 2008 to March of 2009. You can almost see the horse slowly climbing up the ramp (from $432,000 to $469,000), and then you gasp out loud as the platform falls out from under the horse as he plummets head on into the ocean ($405,000). My post of February 7th was me “gasping out loud”.
How I chose the market sampling bears some explanation. In my bottom call as detailed by Aubrey Cohen in his article in the PI:
“DellaLoggia said… buyers are consistently calling the bottom at 20 percent under peak pricing” (not including houses that are not in foreclosure or being sold as part of an agreement to avoid foreclosure)…she’s focusing on the North Seattle and East Side areas where she works. She said distressed sales were going for about 37 percent below peak, and areas with a large share of distressed sales would see those dragging down prices across the board.”
So to determine price specific to a subject property, one you choose to buy or one you need to sell, you need to calculate what peak price would have been for that property. Then you need to calculate the % of distressed sales affecting value.
Since the drop in premium pricing for view property is dramatic in a down market (just as it is accelerated in a hot market), I excluded lake and mountain view property from this sampling. Since very large homes (mostly new or newer) are experiencing a different market influence which is not “at bottom”, I also capped the square footage in this sample to not more than 3,000 square feet.
Making those two initial adjustments, I used the zip codes of 98004, 98005, 98007, 98008, 98033, 98034 and 98052. This gives us both Downtown Bellevue and Finn Hill. It gives us close to Microsoft and North Juanita. It gives us an approximate mix of 10% distressed property to 90% not distressed property and it gives us a combined drop from peak to bottom of approximately 30%.
That 30% is a combination of the 20% and 37% quoted in Aubrey’s article, an extreme reaction by sellers to jump in front of the train with deeply discounted asking prices and the buyers going after that deeply discounted group with a sickle chopping 5.5% off those lowered asking prices.
I did a final adjustment in the red line of this post to equalize the slight variance in median square footage of the homes in the monthly samplings, to be sure the results weren’t skewed by minor sold home size differences from month to month. This is noted as AMPPSF - Adjusted Median Price Per Square Foot.
One thing I know for sure. It was a whole lot easier to write this original post, than it is to explain it.
RCG - The Bottom Call, RCG Sunday Night Stats – At Bottom , “Agent Predicts Housing Slump’s Demise” – Aubrey Cohen, Seattle PI, My thoughts on Aubrey’s article, Snapshot of Front Page “above the fold”