This post first appeared in: Cirios Trends – Special Edition: East vs. West

In the past few weeks, the housing market has been turned on its head. Revelations of sloppy paperwork at some of the country’s biggest mortgage companies have led to investigations into whether lenders are handling the foreclosure process correctly.

Several banks, including JP Morgan Chase, Bank of America and Ally Bank (formerly GMAC), are alleged to have overlooked details in processing home repossessions and have halted foreclosure proceedings in some or all states. Attorney generals and aspiring politicians have leapt at the opportunity to appear tough on the same banks the government bailed out with billions of dollars.

Lest the entire housing industry grind to a halt, now the very policy makers who have been touting loan modification programs as the solution to our nation’s housing woes are on the airwaves defending the economic and social value of foreclosures.

And while the debate may appear to center around arcane, mind-numbing documentation and legal minutiae, as HousingWire’s Paul Jackson put it, “the results emerging here threaten our nation’s very system of private property rights — a fundamental aspect of our democracy.” Dramatic, but ultimately true.

Just today, 49 state attorney generals launched a coordinated probe into the country’s mortgage servicing industry. More than likely, in the weeks and months to come, the nation at large is going to find out more than it ever wanted to know about the soft underbelly of the business of collecting mortgage payments and processing defaults.

But this month’s Cirios Trends isn’t about foreclosures. It isn’t about robo-signers or notary publics. It’s about real estate. And more specifically, it’s about how to not only make good real estate investments but how to avoid bad ones.

In a segment we call “East vs. West,” we dive into the growing dichotomy in Bay Area real estate markets. In the East Bay, demand has slowed to a drip while inventory is rising. Lower prices are likely just months away. Meanwhile, in San Francisco and much of the Peninsula (the west), demand has slowed, but not to the extent it has across the Bay.

It’s almost like real estate markets are beginning to act on fundamentals. That is, markets are faring better where there are more jobs, higher demand and more favorable demographic trends for a strong real estate market. Markets far from job centers or with a weaker buyer base are slipping again, after depending on tax credits and government stimulus for robust demand over the past 18 months.

This shift doesn’t necessarily foretell an imminent bottom in home prices, but is a slow return to health for the region’s housing markets.

This month, we compare three real estate markets in the East Bay to similar markets on the Peninsula. The results may surprise you — and make you think twice about where to deploy your real estate dollars.

This post first appeared in: Cirios Trends – Special Edition: East vs. West

So, what to make of all this number crunching? First, let’s point out a few notable pieces of data from the chart below.

1) Hayward is the only city of the six where prices are actually down since 2000. This shows the extent of recent price declines in the area, where prices are down almost 60% from the peak. Notably, however, prices in Hayward have recovered more than 10% since their recent trough. This is consistent with other distressed markets where active investors, stimulus and limited inventory have pushed up prices in the past 18 months.

2) Millbrae and Piedmont have fared the best since 2000, which supports the concept that the job and income growth of the past decade has favored the upper and middle classes, rather than the lower classes.

3) While demographics drive long term home price trends, recent population booms in the East Bay (Hayward and San Ramon) may not have created sustainable demand for expensive homes.

4) Zip codes don’t always tell the whole story. Anyone who knows Hayward and Piedmont will tell you that crime rates noted above do not reflect reality, even in the slightest (note that for the home price analysis, we sliced Piedmont out from other neighborhoods in the same zip)

5) Markets that peak early often bottom early as well. Prices in Daly City hit their trough way back in 2008. And while they climbed steadily for the subsequent 12 months, in the past six they have been dipping again and could revisit recent lows.

The goal of this exercise wasn’t necessarily to say definitively that it’s better to buy in the Peninsula or the East Bay, Hayward or Daly City. Rather, there is a multitude of data points one can look at when evaluating real estate. But its understanding the stories behind the data, what’s driving the numbers that enables smart real estate investors to use data to help them make good decisions.

This post first appeared in the April edition of: Cirios Trends: In Search of Real Estate Opportunities.

For 12 months now, the Case Shiller Home Price Index – the most widely watched home price indicator – has been hinting that the housing market has at the very least stopped getting worse. In February’s Cirios Trends, we examined housing’s relationship to the stock market and how last April’s nadir coincided with lows in equities. (For more on home prices and stocks, flip to the charts in the back of this month’s issue for some interesting graphical analysis.)

But back to the data. This month we also received two more signs that the economy, at least on paper, is doing a bit better. First, last week’s employment report showed a meaningful jump in non-farm payrolls for the first time since the recession began. Second, that same Case Shiller Index registered a year-over-year change of nil, the first time prices didn’t slip from the previous year in more than four years.

And looking below at the state of office vacancies, despite hitting the highest level since the 1990s, the rate at which office space is going dark appears to be slowing.

So is that it, are we out of the woods? Not exactly.

Data is easily manipulated and subject to bias, even when its collectors have the best intentions. Let’s look at Case Shiller and dig into just what the data tell us.

Case Shiller looks at paired sales to determine home price changes. In other words, researchers compare sale prices of individual homes in a given month to the last time that house sold. Add in a bit of statistical wizardry and you have a pretty good metric for home price changes over time.

Case Shiller is also considered a value-weighted measure, as it weighs more expensive homes more heavily than cheaper ones. This makes some sense, since otherwise the relatively small number of high priced sales would get lost in the mix.

The implications of this is that an increase in the Case Shiller Home Price Index could either indicate true appreciation, or a shift in data where if more higher priced homes started selling, prices would look like they were rising when in fact, it was something else entirely.

Case in point: Livermore, CA – one of the cities we highlight in this month’s Talking Charts. By measuring price per square foot, which we use as a broad proxy of value, it appears that prices have flat lined for the past 12 months or so. Meanwhile, looking at median prices (a metric commonly used by the National Association of Realtors), prices are up 13.4% in the past 12 months. Quite a difference.

As we edge forward, keep in mind that there is more going on underneath the data than it appears. Always look at trends on as defined a level as possible. Look at cities not countries, zip codes not cities, neighborhoods not cities. Only by drilling deep into the data will it truly help you make better real estate decisions.