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Outlook of the Month

National stats can overlook micro trends
By Bernice Ross, Friday, August 22, 2008.
Inman News

More bad news from the latest Standard and Poor's/Case-Shiller 20 metro-area price index: Prices were down 15.8 percent on an annual basis in May. How meaningful are the national numbers to your business?

At Real Estate Connect, I had the pleasure of moderating four different foreclosure panels. The last panel had a spirited discussion about the foreclosure numbers and what they mean. When I asked Lauren Guzak, director of strategic relations for Dataquick, about the discrepancies in the national numbers and whom we should believe, her emphatic answer was "No one!" This may be an odd response for someone who is in the business of selling market data. The point that Guzak was making, however, is that the national numbers and even the state numbers may not synch with local market conditions. The question is: What numbers should you be tracking for your business?

While the national headlines trumpet price declines, there are other factors to consider when evaluating your local market conditions.

This site has an obvious bias -- it reports only on those cities that are having an increase in some aspect of their market statistics. Their approach is granular -- in other words, they're drilling down into what is happening in specific towns and even in specific neighborhoods.


The Case-Shiller home-price indices are based on a statistical formula that measures whether prices have declined or increased in a given metro area -- this formula is based on repeat sales of the same houses over time. Even if you are in one of the 20 MSAs (metropolitan statistical areas) covered in these price reports, the size of the area covered is large enough that the data may not be useful for a specific price range in a specific neighborhood. The same may be true for other national statistics, such as those reported by the National Association of Realtors and the Office of Federal Housing Enterprise Oversight.

Pricing data lags behind other key predictors

In the fall of 2004, I wrote three columns on what would happen in the next buyer's market. What gave me pause for concern was the decrease or disappearance of multiple offers, the increase in the number of days on market, and increasing rates of absorption. While those properties located in prime areas continued to experience strong sales and increasing prices, the other three variables indicated the beginning of a market slowdown. There is typically a transition period where there is stability when the market shifts from being a seller's market to a buyer's market. Prices stop increasing or decreasing and then stabilize.

As I look at the national numbers that report price deflation, many areas, including a number of areas in hard-hit California and Florida, are reporting decreases in inventory and days on market, and increases in unit sales. These indicators may be the first harbingers that the market is taking steps toward a recovery.

Here are the cities that Case-Shiller reports as having price declines that Happy Real Estate News reports as having an increase in at least one other indicator: Charlotte, N.C.; Los Angeles; Miami; Phoenix; Portland, Ore.; San Diego; San Francisco; and Seattle.

The company's data is constructed separately for separate cities -- some of the data is for June while other data is from July, for example -- and the data tracks month-to-month changes, while Case-Shiller offers month-to-month and annual price comparisons. Both companies are based on separate sets of data, too.

Unit sales are important because they indicate how quickly the inventory is being absorbed. According to Michi Olson, director of relocation for Alain Pinel Realtors, banks are now asking for absorption numbers when they sell REOs. In other words, they want to know how many months of inventory are on the market and how quickly the existing inventory will be sold. If there are six months or less of inventory, you may be in a seller's market with price appreciation. If there are seven or eight months of inventory, you may be in a flat or transitioning market with price stability. If there are nine or more months of inventory, you may be in a buyer's market with downward pressure on prices. When unit sales increase, the inventory decreases. This is can be one of the first signs that a market has reached the bottom or is beginning to stabilize.

Cities with declines in the number of days on the market, according to Happy Real Estate News, include: Atlanta; Charlotte, N.C.; Dallas; Los Angeles; Miami; Phoenix; Portland, Ore.; San Diego; San Francisco; and Seattle.

Days on market (DOM) is another good barometer for determining if the market is improving or getting worse. A decline in DOM can indicate an improving market. According to these numbers, some cities are experiencing a decline in DOM, which indicates that these markets may be improving even though prices may still be declining.

So which numbers should you believe? National numbers may not be as useful to buyers and sellers as local market statistics. Track your local rate of absorption, days on market, and the number of unit sales. What matters most is what is happening in the neighborhood where your clients are selling or purchasing.

Bernice Ross, national speaker and CEO of, is the author of "Waging War on Real Estate's Discounters" and "Who's the Best Person to Sell My House?" Both are available online. She can be reached at or visit he

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