April 30, 2007
Why is the Median rising? If prices are falling, wouldn't the median be falling instead of rising?
There are so many reasons why the median will rise or fall and none of them have to do with prices that are attached to individual houses. I have discussed what median and average prices really mean and why you should ignore them, I even put together a simple example that anyone (even a child) can follow but I understand that some inquiring minds still want to know why the median is rising right now.
My theory of why the median is rising is as follows:
The median chart that you see in Newsday once a week that is updated quarterly is drawn for Nassau, Suffolk and Queens. This means that all houses (starter, trade-up and luxury) are all grouped together with no distinction between them. If sales are falling on starter houses and are rising on luxury houses, this would make the median rise because the midpoint of what is being spent on the houses would be moved up since low end sales are crimped off. Since there are more bigger priced sales in luxury houses, the average price will rise as well.
We already know that luxury house prices are falling; this usually means that they are still selling (although for less) which means that there are more bigger priced sales being generated. At the same time, there are fewer sales on starter houses; my guess is that since most people who bought these starter houses, did so with no money down. Many of them who are selling, bought at the height of the market which means they cannot cut their price low enough to generate a sale because they already owe more than the house is worth (they're underwater). Many of those who bought trade-up or luxury houses usually put a nice chunk down from the procedes of the sale on their former grossly overvalued property. These people can afford to cut their price and by alot too while still making a nice profit for themselves. Why are they cutting their prices? Because they are starting to realize that that is the only way that they can make a sale and they know prices will continue falling so they want to get out NOW! This same exact scenario is being played out in Hawaii but is more pronounced; their median prices for condos doubled from a year ago due to more sales of luxury properties and a much smaller data set.
While searching for news articles on the net, I came across this blog. I don’t really like to call it a blog because a blog is about unbiased opinions and facts; they didn’t allow my post because it doesn’t bode well with their lies. This is the post I put up:
Luxury house prices are falling.
When luxury prices fall, more of them are purchased than starter houses.
When you use a worthless tool like the median that groups all houses (starter, trade-up, luxury) together and there are more luxury houses sold (and with a price cut) than any other, the median rises, common sense.
The same goes for average prices; they increase because of more luxury sales; again, common sense.
Conclusion:
The median is rising while house prices continue to fall.
I don’t see any reason why they should take this post down, do you?
I then saw this on another “blog”, and I posted this; I was a little more aggressive this time:
This is one of the most stupid articles of propaganda I have read this year!
The median rising DOES NOT mean prices are rising! It really doesn't take a rocket scientist to figure this out either. I believe you start learning what median values are and how they are calculated in 3rd grade elementary school. The same goes for the average.
I could tell you right here why the median and average prices DO NOT mean prices are rising but I already did a much better job here: http://www.longislandbubble.com/numbersgame.html
Prices are falling and will continue to fall. The buyers in the lower price range are first time buyers that CANNOT get the kind of loan that enabled them to buy a starter house at the cost of a luxury house like they used to. Many first time buyers are cut out of the market, at the same time; sellers of the higher priced houses are cutting their prices and some of the buyers are buying them at the new lower price. see http://www.bloomberg.com/apps/news?pid=20601103&sid=arlXEcnn9XZ8&refer=news
This is offsetting the median making it rise, common sense. Since most of the sales are for higher priced houses (that were reduced), the average is also going to rise, also common sense.
If you’re looking to buy, you need to read this first: http://www.longislandbubble.com/sheeplesguide.html
As far as inventory levels, they are VERY high and are going much higher. Let us not forget about all those foreclosures from ARM's resetting; you know, the ones that Schumer wants to bail out using our tax dollars so that he can keep this extra inventory off the market; thus making it appear that inventory isn't as high as it really is and to try to prevent the inevitable panic that will soon come anyway.
see http://www.newsday.com/news/politics/wire/sns-ap-home-sales,0,2448172.story
I do understand why they are saying it, because most people don't understand what median and average prices really mean. Take advantage of other people’s lack of knowledge to help boost sales, very clever!
Again, there is no reason for them to take this down; but like I said, if it uncovers their lies, they won’t allow it on their precious “blogs” where fuzzy math is their specialty and propaganda is their purpose. What else would you expect from perma-bulls and realtors?
Want to know real numbers? Go by the Case/Shiller index which is accurate.