Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal and housing issues.
…Jonathan Miller

Much of the talk these days deals with the residential real estate market and the need for it to “find its bottom” before any kind of stability can take root in the broader economy. We all know, of course, that there is not “one” residential market and what’s happened most acutely thus far, in places like Florida, California and Arizona, over the last two years or so, is very different from what has transpired in other parts of the country. It seems fair to say, however, that prices are declining at varying rates everywhere, or almost everywhere. What we all want to know is how much further prices will fall.

Consider Westchester County, a wealthy New York City suburb. The Median Sale Price chart (for single family houses) shown here is based on statistics compiled by the Westchester County Board of Realtors from 1986 – 2008. The second chart, based on data compiled by H.S.H. Associates, tracks 30 year fixed rate mortgages over the same period.

The most glaring trend, and the one that appraisers in Westchester, and other places I’m sure, are grappling with, relates to the disconnect between the conventional wisdom about how far prices have fallen, and the fact that the median sale price in 2008 was $650,000, a decline of just 5.1% from the $685,000 seen at the height of the market IN 2007! What has declined, and declined precipitously, is the volume of sales, which is down by as much as 30%. But as to a “correction” based on these numbers I can only say – What Correction? To be fair, the fourth quarter showed a steeper decline as compared with the fourth quarter of 2007. But year over year, the numbers are not that bad not yet anyway.

The 2008 median price of $650,000 roughly equals the 2004 level of $645,000. But even if this market is destined to roll back just to its 2003 level, that would require a decline of 13.2% from its current level. And if 2002 represents the bottom then we have another 19.2% to go before reaching it, and a median price of $525,000.

As to mortgage interest rates, one would expect that lower rates would correspond with higher prices, which they do with a couple of notable exceptions. From 1991 through 1996 interest rates went down yet selling prices remained flat. However, from 1998 through 2000, both interest rates and selling prices spiked. Rates went from 7.09% to 8.43% at the same time as the median price increased from $320,000 to $407,000. Go figure.

So the question remains, where is the bottom of this market? After doing all the research necessary to write this, I still have no idea. But don’t hold your breath.

One Comment

  1. Edd Gillespie March 17, 2009 at 8:51 am

    “As to mortgage interest rates, one would expect that lower rates would correspond with higher prices…”

    I agree that is the intuitive conclusion, but several years ago there was a study produced by Harvard (I’ll try to find it and give you a little more information and trust it hasn’t been completely discredited)that found that interest rates are not correlated to real estate prices. At least in a broader market.

    Unemployment, the study concludes, is directly correlated to housing prices as are “housing bubbles.” Unemployment is getting to us here not so much in prices yet, but so far giving us slower sales in the MSA and rising rental vacancies and its leading indicator is the tightening underwriting standards, but we never had a “bubble.” Interestingly, on a national level unemployment seems to lead underwriting.

    I don’t know how to stick my Excel charts in here or I would let you see my graphic results.

    Maybe Westchester County is different.

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