Monday, February 12, 2007

Prices Down in Most Areas of Orange County II

As a reminder, and to tee-up today’s post, I want to review the metrics we’ve been looking in prior posts. They are listed below, along with percentage of ZIPs where the metrics showed decline:

· $ Price Change from 2006 (55.4% Down),
· $ Price Change from Dec 2006 (59.0% Down)
· $ Price Change Year on Year (48.2% Down)
· $ Price Blended Average (51.8% Down)

Given that the majority of ZIPs showed three of these metrics down, we concluded that pricing declines were wide-spread and that, along with county-level price declines, there was an implied lack of firmess in OC housing prices.

For the next few days, we are going to continue our analysis of the scope of price declines in some ZIP codes a bit further, but this time we're also going to begin to peel the onion back a little and get a glimpse of the preponderance of negative performance of our metrics (those listed above) by ZIP code.

We’re going to start by looking at is at the count and percentage of metrics down in each ZIP code. Here’s the summary of our measures:

· Number of ZIP codes with NO metrics down: 20.5%
· Number of ZIP codes with at least one of our metrics down: 79.5%
· Number of ZIP codes with two of our four metrics down: 56.6%
· Number of ZIP codes with three of our four metrics down: 45.8%
· Number of ZIP codes with all four metrics down: 32.5%

Just to be clear, let's have an example. If a ZIP showed decline in the "$ Price Change from 2006" mertic and the "$ Price Change from Dec 2006" metric but the other two metrics were up, we would say that it had two metrics down. And, in terms of the measures, we would we include our hyptothetical ZIP code in the measure "Number of ZIP codes with two of our four metrics down."

Let’s start with our first measure, "Number of ZIP codes with NO metrics down." It shows that only roughly 1 in 5 ZIPs had no decline in any metric. That means that whether we were looking at the prior month, prior year or the same month in the prior year, prices held firm—strong performers across the board and at least for the study period: our “uberzips.” But again, only 20.5% of the ZIPs had this level of strong pricing performance and, in my opinion, implied pricing strength.

(As a side note, these same ZIPs, maybe not surprisingly, enjoyed very strong absolute and relative price appreciation for the period of study as well. It would seem that strength begets strength, but more about that in another blog.)

Our second measure shows that a far greater number of ZIPs, 79.5%, showed a decline in at least one metric (for future reference "potential problem ZIPs").

What this means exactly, I don’t know, but I’d guess that this metric may very likely be a high-level pricing firmness and volatility indicator that likely drops, maybe considerably, when a market is experiencing both positive and consistent price increases and rises with declines in prices and increased volatility. But like I said, I don’t know; I think it needs more research. But whatever we end up deciding it means, I think that, at its current level, it likely doesn’t say anything positive about the firmness of prices of real estate in OC.

My last thought for today has to do with the proportions of our first two metrics. While I don’t believe we fully understand the implications of these metrics yet, I find it fascinating that there are four times as many ZIPs with at least one price metric down than there are ZIPs with no price metrics down. Over the long haul, if the data proves out that having a single metric down implies even a little pricing softness, this proportion could prove very, very interesting. In the mean time, I suggest that a 4:1 ratio also says nothing positive about home prices here in OC.

Later this week, we’ll continue to look at more of the data, moving our way down from our "uberzips “ and "potential problem ZIPs" we covered today and into darker reaches of OC price performance.


Anonymous said...

What's a metric?

HB Bear said...

What's a metric? Good question.

A metric is a specific measurement in our case are:

$ Price Change from 2006
$ Price Change from Dec 2006
$ Price Change Year on Year
$ Price Blended Average

So in this particular post we are talking about percentage of ZIP codes where a particular number of the above metrics went down.

I hope that helps.

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