Foreclosures and the Local MarketsDecember 7, 2011
Market Analysis Must Be Granular to Be Relevant
By: Krista Franks 12/06/2011
Home price predictions have traditionally been fairly straightforward, relying heavily on employment and income levels, according to Michael Sklarz, president of Collateral Analytics. However, the last cycle has posed challenges for analysts, Sklarz said during a panel at the Five Star MPact Mortgage Conference and Expo in Dallas, Texas Tuesday.
For example, one of the leading market indicators throughout the housing crisis has been foreclosure sales, which rise and fall at the inverse of home prices.
Another indicator throughout the past few years has been the ratio of sales price to listing price.
However, despite the best indicators and the best analytic data, national predictors – even if accurate – may not be relevant on a local basis.
During the discussion, Alex Villacorta, director of research and analytics at Clear Capital, used Phoenix as an example to show how much variation exists from market to market, and ZIP code to ZIP code.
Currently, Clear Capital predicts prices in Phoenix will remain relatively flat, falling just 3 percent. However, the analytics company predicts one Phoenix ZIP code will see a 17 percent decline, while a neighboring ZIP code will see a 34 percent rise in prices.
Another indicator, according to Thomas J. Healy, president and CEO of Level 1 Loans, Inc., is the ratio of median real estate value to median income.
Prior to the crisis, some ZIP codes were at 8.9, while others were at 1.5, according to Healy, reiterating the importance of granular data as opposed to national or regional data.
A ratio of about 3 or 3.5 is sustainable, according to Healy, and most markets that experienced a sharp rise during the bubble are now falling back to these levels.
At his keynote presentation at MPact Tuesday morning, Doug Duncan, chief economist at Fannie Mae, said we are now at the “new normal.”
Healy agrees. “There will be no rebound,” he said during the panel discussion. “We’re pretty much where we should have been at the entire time,” had the crisis not occurred, he said.
(Note: The Five Star Institute is the parent company of DSNews.com and DS News magazine.)