Orlando Real Estate

Don't Believe What You Read

May 15th, 2011 8:46 AM by David W. Welch

The Orlando Sentinel published an article the other day that has had me in a fit. The headline "Orlando worst housing market in US" is a load of crap if you want my opinion. Every Realtor I have spoken with has had an issue with this article, but nobody seems to know what to do about it. I know the local association has contacted the Sentinel, but what is that really going to do? That is why I decided to dig a little deeper into this. First and foremost where did these numbers come from? A median price of $155,000 in the fourth quarter of 2010 is not even close to reality. Before I start on where they came up with this number, a drop from $155,000 to $110,050 is 29% not 19% - that is just basic math. Are they predicting a 19% drop, or a drop to $110,050?

Now, back to the $155,000. You see, I measured the median sales price from the fourth quarter of 2010 at $105,000. Of course, silly me, I used actual home sales for the four county area (Orange, Seminole, Osceola and Lake), and calculated the median sales price. Fiserv gets their data from the Case-Shiller Index and the Federal Home Finance Agency. Case-Shiller's methodology is fantastic for measuring what has happened in the past by using actual same home sales over time. They only look at single family homes that have changed owners at least once. This may be helpful in analyzing past trends, but not so helpful in predicting future market changes. The Federal Home Finance Agency (FHFA) uses a combination of sales activity and re-financing activity. This could explain both the high median and the predicted drop by Fiserv. With interest rates at all time lows for some time now, most people who were going to refinance probably have. Homes wih equity to refince are likely to be in a higher price range, pulling the median value up. Refinaning activity has already begun to drop in the first quarter of 2011, so the effect of the higher valued refinances will drop. This will cause a drop in the median value statistic calculated by FHFA.

This does not mean values will actually drop, but the value statistic will go down as a result of fewer refinances. Now you know why I started by saying this headline is a load of crap. Case-Shiller is great at looking at the past, but not very good in my opinion at predicting market transitions. The FHFA median value statistic may be of some use in a "normal" market, but is not a true indicator of market values under the current conditions. Think about it, if nobody refinances their home the FHFA median would drop to $105,000 - the actual median sales price. So, with refinancing activity declining the Fiserv value statistic will drop. Will it drop by 19% or will it drop to $110,050? Who knows? Who cares? The fact is our actual median sales price was about $105,000 last year, and it still is. We are not going to see a 19% or 29% drop in prices this year. As far as the question of demand for purchases of foreclosures mentioned in the article, ask anyone who has tried to buy one. More often than not there are numerous offers on these properties.

David Welch Real Estate Optimist, Orlando Real EstateAny Home-Any Phone

Posted in:General
Posted by David W. Welch on May 15th, 2011 8:46 AM


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