Making sense: Market reports all over the place

There’s been a fair amount of coverage lately about market reports and how their findings stack up against projections. Nationally, most of the attention has focused on the Case-Shiller third quarter indices, which are calculated based on data of repeat sales of single-family homes culled from various markets. According to a post on ZeroHedge.com, all three Case-Shiller indices showed a decline, with one of them falling short of projections for the fourth consecutive month.

As some local realtors point out, however, this index is based on a small number of metropolitan areas that don’t share many similarities with our market. 

Point taken, although local reports don’t necessarily yield any more clarity.

According to the Charlottesville Area Association of Realtors’ third quarter report, the current “float down” in local inventory is indicative of a return to a balanced market, one that offers advantages to neither buyers nor sellers. Declining inventory– effected by fewer new listings, lower median sales prices, and historically low mortgage rates– indicates a return to stabilization, says CAAR. Since lower inventory means reduced competition, if the number of new listings and foreclosures remains steady, the weak selling prices currently found throughout our area should begin to strengthen as demand increases.

Not necessarily so, counters the Charlottesville Bubble Blog, where a recent post cites a Wall Street Journal article suggesting that declining inventory is more likely due to sellers (particularly those with negative equity) pulling their homes off the market than to a return to market health. Other factors– the time of year, the increasing appeal of renting rather than buying, and the number of homeowners quietly heading into foreclosure– may also contribute to the decrease in new listings.

Nest Realty also released its third quarter report, stating that sales in the greater Charlottesville area are holding steady with sales in both the Charlottesville and Albemarle markets showing increases despite the declining prices and increasing inventory in our area. 

Huh? Didn’t the CAAR report say that inventory was decreasing? 

It’s true, as CAAR reported, that active inventory is down compared to this time last year. And it’s also true, as both reports indicate, that sales of attached homes and condos are up slightly, which helps account for the fact that overall sales in the greater Charlottesville area have held steady. 

The difference in their assertions, as the Bubble Blog pointed out, lies in their interpretations of the data.

The CAAR report analyzes the market as a whole.  A calculation of months of inventory using the figures listed in their report clearly indicates a decrease. 

The Nest report, however, analyzes individual market sectors. Although sales of condos and attached units are up, inventory is also up over third quarter last year. And sales of single-family homes are down, which translates to less absorption and more months of inventory. 

So that answers one question, but here’s another:  why do both the Case-Shiller and Nest Realty reports place so much emphasis on single-family homes? 

According to Jim Duncan of Nest Realty, single-family homes represent the final evolution in the home-buying process and have traditionally comprised the bulk of the local housing inventory.  

“It wasn’t until a couple of years ago,” he points out, “that so many condos entered the market as a result of conversions.” 

But what about all those condo sales? Don't they mean anything?

Condos and attached units may appeal to first-time buyers or to those discouraged by the dearth of suitable, affordable detached houses, but most organizations analyzing market health use sales of single-family homes, not condos, as a benchmark for their analyses.

Confusing? Definitely!  As the Nest report says, signals continue to be mixed.