More MOI data vs. price direction

All data taken from MRIS database.

Two more graphs (20171 - Herndon/Oak Hill & 22124 Oakton) to add to the graphs below (Manassas & McLean). To make a long story short, I looked at the data every which way and there is no evidence of months of inventory predicting price direction.

Median home Prices (red line and left axis)

Months of Inventory (blue line and right axis)

Does Months of Inventory predict price direction?

A while back I went through the MRIS database and looked at months of inventory for several zip codes to see if they predicted prices changes. Going against conventional wisdom, I found no relationship. Here is one of the graphs (20111). Notice the broad range of MOI, so there is no problem of range restriction.

EDIT: added time series below

Spring sizzle or fizzle?

So, how did Spring 2009 turn out? First off, let me state that I'm reporting on the areas I've been following closely (see below). But, this spring seems to be marked by two interesting, and traditionally contradictory trends: (1) increased sales volume w/decreased days on market, and (2) decreasing prices.

Interestingly enough, I've seen quite a few houses sell within one week, if not the first day! This is quite a turn-around from the recent past, and might remind some of the days of bidding wars and such. But, this doesn't seem to lead to increasing prices. So, what's up?

My hunch is that affordability is driving sales volume. Affordability, in the case, is due to declining prices, unusually low mortgage rates, and maybe that $8k tax credit (although I'm not sure how many qualify). Anecdotedly, I've seen an unusual number of contracts fall through, only to come back on the market later.

Enough blabber, time for data.

Types of houses:

First let me define the types of houses I'm looking at and the geographic areas. Houses are 4+ bedrooms, single-family homes, no condos or townhouses, 2000+ sq ft (this is above ground, does not include basement), and a price range from $400k-$1.25 million. Data has been gathered from the Washington Post, Fairfax County database, RedFin, and Frankly MLS. All data confirmed against the Fairfax County database. Does not include seller subsidies.

Geographic Areas

"Franklin Farm" Perhaps misnamed in the graph, but this areas represents zip code 20171, and may overlap with a few other zip codes. This includes Franklin Farm, Oak Hill, parts of Herndon, and the western edge of Oakton.

"Oakton" This mostly includes 22124, and only includes homes that go to Oakton Highschool (sorry Reston and South Lakes!). This also includes the western part of Vienna near Hunter Mill and the eastern part of Herndon (20171) near Fox Mill.

Normalization Method

I control for 'quality' by comparing the prices to the 2006 tax assessment. Some can quibble with this, but on the macro level I can not think of a reason why this would interact with the mix of houses sold. Short sales and foreclosures included are included in the data, but not the 'sale' back to the bank. I exclude houses that are blatantly mis-assessed (i.e. a house with an addition that doubles the square footage, but is not reported). I also exclude tear-downs or houses that are badly in need of repair.

Sales Volume

First off, because both of these graphs are 3-month moving averages, and there is some latency in data reporting, so the last two data points should be ignored.

The tentative conclusion is that, although volumes have increased, we really only saw a spring bounce for Oak Hill and not Oakton. Volumes also seem to be down compared to last year.

Why didn't Oakton see the same bounce as Oak Hill? The two areas are very different. Oakton has large treed lots (.5 acre or more), and many of the houses back up to parkland. Oak Hill is suburban, with smaller lots of 1/5th to 1/4 acre size. Oakton is also a little closer to DC and metro stops. Typically, the same house will sell for much less in Oak Hill (25% discount? just a guess).

Prices

How did prices fair in both areas? In a nut shell, they are down, with Oak Hill declining at a quicker rate than Oakton (not surprising). All graphs can be clicked on to enlarge them in a separate window.

In Conclusion

Despite all of the incentives (cheap mortgage rates, etc.), this spring has been a bit of a fizzle. Price and affordability drives home sales. Keep in mind that the cheap mortage rates were not available for conforming jumbo (loans > $417k and < $7xx k), which undoubtedly hurt Oakton. Notice in this next graph that houses > $800k are selling for a greater discount (data from FranklyMLS, and includes seller subsidies):

[after 10pm, my writing goes to hell, so I hope this makes sense]

Recently, there have been quite a few questions about what Fairfax county assessments represent, and whether they drive the market or not. Fairfax county assessments are supposed to be based on sold prices. There are two important words here: "sold" and "supposed".

I'll tackle the last one first. When I mean "supposed", that implies that the assessor does not always get the comps right. For example, a house sold in 2008, and it was clear from the assessment that the comps had not been updated. The house was originally a 2000 sq/ft colonial with an attached 2 car garage. The garage was extended to 3 cars, and the second floor extended over the garage. There was also an addition to the ground floor behind the garage. All told, the square footage increased roughly 50%, yet the assessment was comparing it to identical models on the same street that had not been updated.

The second word was "sold". The assessment is based on the sale prices of comps, and these, naturally, have occurred in the past. The comps may or may not represent the value of the home today. If the market is flat, then they will align. If values are increasing, the assessment will be less, whereas if values are decreasing, the assessment will be more.

So, how far back do the assessments lag? The first graph below is data taken from 10 neighborhoods taken from the Oakton wedge (my name for the region). This area is bordered to the north by the Dulles Toll Road, to the south by 66, to the west by Fairfax County Parkway, and to the east by 123. So, this area encompasses parts of Vienna, Oakton, Reston, and Herndon (Oak Hill?).

All the homes are single-family homes, 4br with a basement and 2car garage. All are colonial style, and none are split-levels, split foyers, etc.

Because the neighborhoods are at different price points, all of the prices are normed by dividing them by the 2000 assessment. The pink line is the sales price and the blue line is the assessment. You can see that in 2000 they were selling for roughly 30% more than assessed. Interestingly, if you shift the pink line forward by 18 months (yellow line), it aligns with assessments almost perfectly, at least until 2007-2008, where things break down a bit. But nonetheless, it looks like assessments for a given year more often than not reflect sales prices from 18 months ago.

One caveat about the 2009 sales: only 3 of the 10 neighborhoods have had sales in 2009, so the 2009 price point my not be a very representative sample. But, it is certainly suggesting that houses in 2009 (they probably closed late 2008) are selling for less than the 2009 assessment.

[edit: found error in graph -- assessments changed slightly]