Carpe Diem

More on the surge in October home sales

Following up on this CD post from last week on the surge in October home sales, here are ten more local real estate reports on booming home sales last month:

1. Southern California home sales rose sharply in October by 25.2% above a year ago, while median prices increased 16.7% compared to the same month last year, and the share of foreclosure sales fell to their lowest level since October 2007.

2. Memphis area home sales increased 36.1% in October compared to last year, average home prices rose 1% and total sales volume increased 38%.

3. Metro Detroit home sales increased 17% in October, while the median sales price increased by 28%.

4. Home sales in Northern Virginia rose 23% in October and the median sales price increased 7.6%.

5. Baltimore-area home sales jumped 22% in October, while the median sales price increased 5% and the average time on the market fell by 21%, all versus a year ago.

6. Milwaukee metro area home sales surged 32.8% in October from a year ago.

7. Minneapolis-St. Paul home sales and median sales prices both increased by 15% in October compared to the same month last year.

8. New homes sold in the Sacramento region last month were the most for any October since 2007.

9. Albuquerque area home sales rose 19% in October.

10. Tampa Bay home sales increased 35% in October and the median price rose 9%.

MP: For all of those who think the U.S. economy’s in a recession, or on the edge of a recession, you better tell the real estate market, because an economic slowdown sure isn’t being reflected in the housing market data for October sales.

Update: Pending home sales in Massachusetts jumped 36% in October, the second biggest year-over-year increase in history, and the 11th straight month of double-digit increases.

23 thoughts on “More on the surge in October home sales

  1. We’re also seeing a dramatic increase in oil and Natural Gas production across the country, and as the LNG terminal is completed in 2015, we will also see a major uptick in the national and global economies.

  2. There has been a slow decline in U.S. living standards over the past few years.

    The decline will soon accelerate quickly.

    We’ll buy fewer and smaller goods (including houses and autos), compared to a few years ago.

  3. question:

    might the impending 10 point hike in capital gains taxes be driving home sales by pulling them forward into 2012?

    we are certainly seeing this in many other asset classes, especially businesses.

    sure, if it’s your primary residence and you are using the money to buy a new home, that is not a concern, but if you own more than one home it becomes a very big deal.

    i’m not really sure how to assess the impact there, but it might be a question worth following up on.

    i guess the january numbers will tell us a great deal there.

  4. further, there is a double counting with weighting and quality adjustments.

    if you are going to say that people shift from rib eye to flank steak due to price rises then you also have to account for the fact that flank steak is lower quality.

    how do we know that? because it is lower priced and people preferred rib eye when they could afford it.

    thus, it would seem that these weighting shifts in the consumption basket ought to be offset by quality adjustments. but they are not.

    this is a deep, fundamental flaw in the current CPI calculation that, through selective application of its own precepts, significantly understates inflation.

    you can make an argument for weighting shifts (though it is often a bad one as it assumes all demand shifts are supply side driven as opposed to prices rising due to MORE demand and consumption of somehting that becomes popular) and you can make an argument for hedonic quality adjustments (though they are totally arbitrary and subjective), but i can imagine no valid argument if you are going to impose both weighting and quality adjustments for not applying a negative quality adjustment to a weighting shift to a lower quality product.

  5. Isn’t it normal to see median prices rise during a recovery = because the supply of low-priced homes gets exhausted and more homes in higher price ranges start selling — which helps to pull up the area’s overall median price?

    • moe-

      i think there is quite a bit to that.

      the indexes like case shiller that control for size, neighborhood, amenities, etc and compare like to like are showing price gains, but nothing like the median figures from the NAR.

      the gains look to be in the 2% range, not some of the double digit stuff coming from the regional and NAR data.

      that makes me suspect that the median data is mostly being driven by mix shift.

      anecdoally, i have seen a real surge in offerings for high end second homes.

      i suspect this has to do with the impending tax hike and owners seeking to sell before it goes into effect.

      a lot of real prestige properties in miami and park city are for sale all of a sudden.

  6. Some people confused changing tastes and preferences with inflation.

    Americans can afford rib-eye steaks. They may prefer to buy Starbucks coffee, Ben & Jerry’s ice cream, protein drinks, etc. instead.

    U.S. living standards improved dramatically over the 1982-07 economic boom, which can be measured by the increase in housing per square feet, the quantity, quality, and size of autos, the explosion of shopping malls, etc..

    • If the economy recovered, U.S. per capita real income would be over $5,000 a year higher, and the still unfolding global train wreck would’ve been avoided.

      The Fed would be completing a tightening cycle, of the money supply, and federal budget deficits would be shrinking rapidly.

      • i think you are missing the issue here peak.

        the issue has to do with BLS methodology on CPI.

        if an ipod gets more memory but stays the same price, they call that deflation due to a quality adjustment.

        if rib eyes get more expensive, they take them out of the consumption basket they use and replace them with flank steak.

        this has really happened. go look at the basket. all the better cuts of meat have been taken out because they went up in price.

        the assumption is that people switch to cheaper cuts and grades. you go from prime to select. you go from t bone to tri tip.

        but these are lesser quality items. you can tell because their prices are lower. people value them less.

        but then the BLS does not apply a quality adjustment to account for that. this causes them to understate inflation.

        if you are going to apply quality adjustments for this year’s ford f-150 being better than last years, what’s the argument for not applying negative quality adjustments when consumers are forced to switch to foods they like less?

        it’s selective application of the methodology not to do so.

  7. peak-

    that is not a measure of price level. price level is what things cost in the market today. inflation is the change in that level from a prior period.

    what you are describing is cost of living. that is not the same as price level.

  8. Morganovich, so, if my monthly housing payments remain at $1,000 a month for 30 years and inflation rises 2% each year, there’s no deflation?

        • Or, it could mean consumers who don’t have fixed monthly payments, e.g. a mortgage or car payment, have higher inflation rates, in an inflationary environment.

          • Peak

            You are conflating the price of a car or the cost of housing with the fact that you have borrowed money to purchase those things. Those prices are historical, and don’t change over time. The price of a fixed rate loan was fixed at the time you borrowed. Later changes in the value of the dollar don’t change the price you paid.

          • Ron, the point I was trying to make is the purchasing power of a new house is not solely determined by its price change.

            Also, if 75% of your income, for example, goes into fixed monthly payments for a house and a car, then your inflation rate (i.e. on the other 25% of purchases, if you spend all your income when inflation is rising) is lower.

          • Ron, the point I was trying to make is the purchasing power of a new house is not solely determined by its price change.

            Do you mean affordability? I think there are too many words there that don’t all belong together.

            Also, if 75% of your income, for example, goes into fixed monthly payments for a house and a car, then your inflation rate (i.e. on the other 25% of purchases, if you spend all your income when inflation is rising) is lower.

            You must mean my purchasing power is greater. Inflation is a measure of increasing money supply at a greater rate than the demand for money, resulting in higher prices. The real prices of things in terms of each other hasn’t necessarily changed, but dollars are worth less.

          • While I agree that each person perceives a different inflation rate, and that is the one that really matters to each of us, that isn’t the one that’s reported and widely discussed.

  9. Morganovich says: “if rib eyes get more expensive, they take them out of the consumption basket they use and replace them with flank steak…this causes them to understate inflation.”

    Common Misconceptions about the Consumer Price Index
    BLS

    “When the cost of food rises, does the CPI assume that consumers switch to less desired foods, such as substituting hamburger for steak?

    No. In January 1999, the BLS began using a geometric mean formula in the CPI that reflects the fact that consumers shift their purchases toward products that have fallen in relative price. Some critics charge that by reflecting consumer substitution the BLS is subtracting from the CPI a certain amount of inflation that consumers can “live with” by reducing their standard of living.

    This is incorrect: the CPI’s objective is to calculate the change in the amount consumers need to spend to maintain a constant level of satisfaction.

    The BLS is not assuming that consumers substitute hamburgers for steak. Substitution is only assumed to occur within basic CPI index categories, such as among types of ground beef in Chicago. Hamburger and steak are in different CPI item categories, so no substitution between them is built into the CPI-U or CPI-W.

    Furthermore, the CPI doesn’t implicitly assume that consumers always substitute toward the less desirable good. Within the beef steaks item category, for example, the assumption is that consumers on average would move up from flank steak to filet mignon if the price of flank steak rose by a greater amount (or fell by less) than filet mignon prices. If both types of beef steak rose in price by the same amount, the geometric mean would assume no substitution.

    In using the geometric mean the BLS is following a recognized best practice for statistical agencies. The formula is widely used by statistical agencies around the world.

    Critics often incorrectly assume that BLS only adjusts for quality increases, not for decreases, and that hedonic adjustments have a large downward impact on the CPI.

    On the contrary, BLS has used hedonic models in the CPI shelter and apparel components for roughly two decades, and on average hedonic adjustments usually increase the rate of change of those indexes.

    A recent article by BLS economists estimated that the hedonic models currently used in the CPI outside of the shelter and apparel areas have increased the annual rate of change of the All Items CPI, but by only about 0.005 percent per year.”

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