The Dichotomy of Misconception

Our knowledge, perceptions and biases are all a product of the information we digest. Modern media  provides a constant stream of data, usually packaged for mass consumption and always lacking in detail and refinement. Case in point is the obsession with the  S&P Case-Schiller Index. The national financial media regards Case-Schiller as gospel when reporting housing prices and market trends.

Unfortunately, trailing averages don’t fully convey market or component differentiations.

For example, in Multnomah County, Oregon (Portland), there is an ever widening gap between the average price of “equity” sales (occupied owned resale) versus the average price of REO sales (bank owned). The first graph below shows monthly price trends for both, and surprisingly to most, it indicates that equity sales in Multnomah County have seen strong price appreciation this summer.

Tracking the percent discount is another way of focusing on the dichotomy of pricing. The second graph shows the ever increasing discount, as banks offer incentives to move the growing number of REOs.

Historically, normal markets witness a discount of 15 to 25%, but as the graph indicates, the discount in June, was close to 43%. The amount discounted obviously depends on the supply of foreclosed homes , local market conditions and the urgency the bank feels in disposing of the property.

Is Multnomah County an extraordinary example? Not at all. This phenomena is being repeated to varying degrees everywhere. In some markets it is more pronounced, in some less so. However, the basic premise remains the same; real estate is market driven, right down to the neighborhood level,  the type of product being  sold, the motivation for selling and the location of the property. There are no national averages… 

- Article submitted by Patrick F. Stone, President & CEO, Williston Financial Group

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