"Palos Verdes Resident since 1947"

All Is Not What It Seems

Apologies to Gilbert & Sullivan.  Real estate price declines have been all over the news during the past few months, with stomach-churning numbers up to 41% decline fairly common. There is no doubt that, overall, prices have declined from their 2007 peaks, but there is an interesting phenomenon afoot below the surface that is fooling those coming up with these numbers:

The lower end of the market (under about $750,000) is currently hotter than a 1951 Crosley with 1951 Crosleya bad thermostat.  One big reason is the availability of interest rates around 5% 30-year fixed, unknown since the early 1960’s.  No one knows when these are going to end, so every buyer in sight is scrambling (or should be) to take advantage of the low rates.  As a result, the number of sales in North Torrance under $750,000  since 9/1/08, for example, is up 28% versus the same 6 months a year ago. Multiple offers are not uncommon.  With interest rates this low, this is what you’d expect, compared to last year when rates were in the 6%’s.

On the other hand, the market over $1.5 million is very slow, and gets slower the higher the price.  For example, the number of sales in Palos Verdes over $1.5 million during the same period is down 44% compared to the same period a year ago.  Interest rates are in the 7%’s and those loans are harder to get than they used to be (investors are wary these days, tho the rates are inching down).  Most people in that price range have really taken a hit on their portfolios, and there are relatively few distress sales (foreclosures and short sales) in this price range.  It also appears that fewer sellers in the upper price ranges have a pressing financial need to sell, and are therefore more hesitant to reduce thLee's Retreat From Gettysburgeir prices.

Whatever the cause, this imbalance in the number of sales has created a statistical anomaly that makes it look like prices are headed south faster than Lee after Gettysburg, and is fooling the cubicle-dwelling numbers crunchers.  The increased number of sales on the lower end, without the typical counterbalancing number of higher end sales (which there were during the same period a year ago), has dragged down both the average and median sale prices at a rate that far exceeds any actual price declines.  Yes, the median and average sale prices might statistically have declined dramatically, but it doesn’t mean that any given house (including yours) has experienced anything like that decline. 

I know the agents see this, but can’t the media find anyone who can explain it to them and the public? It’s just not helpful either to the real estate market, property owners, or the national mood in general to have this kind of misleading reporting so prevalent.

Leave a Reply