Monday, November 06, 2006

Weak Signal: OC Poll Suggests Housing Price Drop of 7-9%

The Orange County Register recently conducted an informal survey of readers in an online poll regarding the fate of OC's home prices during the next calendar year.

Readers were asked to choose one response from a list of five that they felt best described their prediction for housing prices in Orange County for the period Jan 2007 to Dec 2007. Here's how the responses broke out:

•1.6% Up dramatically (gains of more than 10%)
•8.5% Up a bit (gains between 2% and 10%)
•11.2% Essentially flat (from down 2% to up 2%)
•33.5% Down a bit (losses between 2% and 10%)
•45.2% Down dramatically (losses greater than 10%)

Nearly 80% of those responding that housing prices would go down and nearly 90% responding that the market would be flat or down. Only slightly more than 10% felt the market would be up either a bit or up dramatically. Clearly, the overall sentiment of those taking the poll here is overwhelmingly negative.

But, what is the consensus of this crowd regarding of this crowd regarding housing prices in OC over the next twelve months? Well, and I hate to start out on the wrong foot here, but it's sort of hard to tell given the nature of this survey.

Normally, in order to derive the wisdom from a ranged-category poll, we need to compute the weighted average response for that survey. But, with this survey, things aren't that simple.

The first issue is that this survey has open-ended categories making it difficult to ascertain what a repsondent really voted for. Take someone who repsonded, 'Down dramatically (losses greater than 10%) '. Did that person believe that the market would go down 11% or 17% or did they think that housing prices are set to drop 25% or more? It's hard to say.

The second issue is that so many people (45.2%) responded for one of the open-ended categories: 'Down Dramatically.' So all of the sudden, we find that we have nearly half of the repsondents weighing in a category that is difficult to measure. Naturally, this exacerbates the first problem and makes estimating the common or consenus opinion that much more difficult.

The third issue is that this poll, because it's not randomized, but that's a bit beyond the scope of this post.

Having run the numbers several different ways, the math estimates that the crowd of OC Register poll takers collectively predict that housing prices in Orange County will drop between 7 and 9% next year. I realize, it's sort of a fuzzy range, but as we incoroporate more wisdom from more crowds going forward, the number is going to change, regardless.

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