With headlines like, “Home Sales Continue to Plunge” and “Foreclosure Mess Will Last for Years,” it is easy to get discouraged about today’s housing market. While no one is claiming that all is well, there may be a glimmer of hope amid the mess. Some of the reports seem to be a bit exaggerated, or at least out-of-context. Is it possible that things may not be quite as bad as they seem?
All the “doom and gloom” articles seem to be citing the same two reports as their main sources. What seems to make the situation so believable is that both reports, Existing Home Sales Report and Pending Home Sales Report, come from the well-respected National Association of Realtors (NAR). To really understand the implications of these reports, however, you must read them in context. Both reports look at different sets of data:
- A year-over-year comparison of transactions (Y-O-Y)
- A month-over-month comparison of transactions (M-O-M)
If you just look at the Y-O-Y statistics on their own, there is definitely reason to worry; they are frightening. However, when viewed in context, the numbers begin to make more sense. Right about this time last, we were nearing the end of the Homebuyer Tax Credit, one of the greatest buyer tax incentives in American history. People were doing everything they could to close the deal on their home before the tax credit expired. Because of this, many of the sales that would have undoubtedly taken place later in the year were bumped up to the early months of 2010. This created an unnatural spike in home sales, which dropped dramatically after the tax credit expired in April. At the risk of sounding cliche, to compare the first four months of 2011 to the first four of 2010 would be like comparing apples and oranges.
Rather than comparing this year’s sales to last year’s, the better comparison would be from month-to-month. After the sales dropped from April to May of last year, they slowly began to rebuild and have continued to increase. This gives us a better snapshot of today’s market since it is taken in context rather than being compared to last year’s tax credit-induced sales. The graph below shows pending home sales over the last year. The steady increase following the early drop is clearly seen. Another encouraging fact is that Rochester was not hit by the housing crisis nearly as hard as other cities across the country. Rochester home prices never bubbled during the boom, but have enjoyed slow, steady growth throughout the bust. Low foreclosure rates, relatively affordable housing and reasonably well-paying jobs have contributed to Rochester being named “The #4 Best Recovering Housing Market.”
What does this all mean? You have to remember that headlines are meant to be shocking, and the truth is often not as exciting as it sounds on the front page. If you live in Rochester, and take some time to extract the real information from the headlines, you might just find that things aren’t quite as bad as they may seem.