By RYAN TAYLOR

The National Association of Realtors announced yesterday that the median home price in the US fell by 12% from a year earlier. Not surprisingly, the fall in prices was driven by the ever increasing number of foreclosure sales which accounted for 45 percent of all transactions.

The pressure on prices is only increasing as job losses mount around the country. The US lost 2.6 million jobs in 2008 and has lost more than 600,000 already in 2009.

While we may sound like a broken record, we continue to believe that buying a house right now is a risky proposition. Unless Washington comes up with a plan where they make housing payments for unemployed workers (not terribly far fetched given the announcement yesterday to subsidize mortgage payments), the housing market will decline because job losses equal a decline in home prices.

The reality is that the pent-up demand often cited by homebuilders and Realtors is fading due the increased uncertainty in the broader economy. A trend being seen in previously strong markets throughout California is that potential buyers are holding back to due to uncertainty about their jobs. Even those with steady jobs are content to wait — houses will almost certainly be cheaper next month, and the month after — why buy now?

Furthermore, most of the homes on the market today are listed at prices that reflect an environment where demand remains strong. By in large, it’s not strong. Sellers will be forced to recognize this and slash prices — but this takes time.

Of course, the government will be working around the clock to speed up the demand process and you can trust that Cirios Real Estate will keep you informed on the latest developments in the market.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Is it a buyer’s market?

Ask most real-estate professionals the above question, and the response will almost certainly be an emphatic “Yes!”

After all, they quickly explain, inventory levels are at all-time highs, sellers are desperate to get out from under their rapidly depreciating homes, and mortgage rates are at historic lows. What more could buyers ask for?

How about not losing their shirts, for starters.

The traditional definition of a buyer’s market is one where supply outstrips demand, pushing down prices: Buyers have the upper hand. As the bull market begins to wane, however, buyers lose their enthusiasm and become concerned about price. The market cools down and buyers shy away, forcing sellers to make concessions and lower prices. This, in turn, creates an environment where buyers can shop around, be picky, and patiently waiting for their dream house to come on the market.

As demand returns, sellers start upping their list prices, refusing to pay for closing costs and holding out for a better offer. Buyers, fearful they might miss out on the next boom, bid up asking prices and ask for fewer concessions. Now that sellers have the upper hand, the market favors sellers as prices move upward. Such is the cyclical nature of real estate.

This story has played out for decades as real estate plodded along, homebuilders like DR Horton (DHI), KB Homes (KBH) and Toll Brothers (TOL) supplied the market with new construction and home prices marched steadily upward, outpacing inflation by the narrowest of margins. A little more than 10 years ago, however, that relationship started to come unglued.

The recent housing bubble turned the prevailing view of real estate on its head. Homes, long viewed as the most stable of all assets, became a speculative tool for even the most unsophisticated investor. The mania, fueled by lax monetary policy and Wall Street alchemy, helped contributed to the financial crisis currently gripping our country. As property values have careened back to earth, real estate assets of all kinds have become toxic.

Nevertheless, the National Association of Realtors (or NAR) and its dedicated minions have tirelessly peddled their lies that ours is a buyer’s market. Let’s take a quick jaunt back in time to some recent headlines and where that traditional assessment of a buyer’s market got us:

Las Vegas: It’s Definitely a Buyer’s Market
USA Today: July 5, 2006
“Real estate looks like one of the biggest gambles in Las Vegas.”

How true. Property values in Vegas have fallen 33% since summer 2006. Not to be outdone by their peers at USA Today, ABC ran this piece just weeks later:

Take Advantage of Real Estate’s Buyer’s Market
ABC News: July 31, 2006

“The National Association of Realtors said that the number of homes for sale has reached new heights, which is good news for buyers. After years of a seller’s market, it’s finally a buyer’s paradise in Phoenix, AZ.”

Anyone who bought in that “buyer’s paradise” in Phoenix has seen their home’s value fall by more than 30%.

The point isn’t to criticize realtors for arguing it’s a buyer’s market: After all, one should expect nothing less from a group whose entire existence is based on convincing buyers it’s a great time to buy – irrespective of the truth. Just ask Gary Keller, whose new book, Shift: How Top Real Estate Agents Tackle Tough Times, advises agents to “find every way possible to overcome the media-driven real-estate malaise.”

The traditional definition of a buyer’s market needs a bit of a makeover. A more sensible definition is a market where buyers have ample opportunity to make good investments. To be sure, a home is more than just an investment; it’s a place to raise one’s family, to grow old, to spend time with loved ones. However, as far too many American families have learned in the past three years, homes can become a debilitating burden if bought at the wrong price.

In today’s market, there certainly exist attractive investment opportunities. But to label the market as a whole as one where buyers should be rushing out in search of the American Dream is borderline lunacy. Throughout much of the country, home prices are still too high: Real incomes don’t support prevailing property values, even after the historic declines we’ve already seen. Supply, despite remaining at record levels, is likely to remain so for the foreseeable future. Home prices are undergoing a much-needed correction, and will continue to do so until fundamental demand catches up with supply.

This isn’t to say every home on the market is overpriced, or that every buyer in the past 36 months has gotten a raw deal. There are deals to be had if one knows where and how to look – and, most importantly if the purchase makes good financial sense. To borrow a theme from Toddo, “financial staying power” should be at the forefront of any prospective buyer’s mind.

So ignore the hype, both good and bad. As often is the case, not until the most ardent bulls turn in their horns will the bears return to hibernation. So, as soon as realtors concede it may not be a buyer’s market after all, voila! A bottom we will have.

By AUSTIN NELSON

Have you ever wondered what the heck it means when you read that economic data is “seasonally adjusted?” How can non-seasonally adjusted data show one trend while seasonally adjusted data shows something completely different? Which dataset is the most reliable?

The in-depth answer to these questions requires a PhD in statistical analysis. For those of us who don’t know a kernel regression from a Henderson 13-term moving average filter, the short answer is that seasonal adjustment is a process by which consistent seasonal effects are removed from a time series of data. And yes, you can trust them. Well … sort of.

The effect of seasonal adjustment can be most easily explained through an example. Suppose you are looking at a series of data measuring gasoline consumption in the United States to identify trends related to the price of a gallon of gas. A logical hypothesis is that when gas gets more expensive, people drive less.

In examining this dataset, however, we would expect to see increased consumption in the summer months when everyone hits the road for their vacations. Gas prices often rise during the summer when that additional demand constricts supply, so if you were looking at data from a single year without considering seasonal effects, you might wrongly conclude that people actually consume more gasoline when prices rise.

In fact, much of the increase in fuel consumption during summer months has nothing to do with fuel prices, so the seasonal effects need to be removed from the series before any meaningful analysis of consumption versus price can be undertaken.

Looking at non-seasonally adjusted figures by themselves is a bit like saying pumpkin sales spike in October, without mentioning Halloween.

So how does one “remove” seasonal effects from a dataset? By examining several years of data, patterns in the movement of the data can be identified that happen over and over again in the same way each year. From these patterns, statisticians create (through a variety of near-magical statistical techniques) a “filter” that allows them to subtract the seasonal effects from the dataset of interest, theoretically leaving only non-seasonal effects, like that of price on gas consumption.

And VOILA! you have seasonally adjusted your data. The same techniques are applied all the time to financial and economic datasets, so much so that most people accept this “seasonal adjustment” without thinking twice about it.

Our advice is to think twice about it – especially with housing data.

One of the most common patterns in home buying is that sales tend to slow during the winter months. This makes sense, since moving in the winter sucks, and its easier to move kids from school district to school district over the summer. Now, housing economists — particularly our friends at the National Association of Realtors — are adept at spinning even the worst reports in a positive light.

Data released today showed abymsal existing home sales in November, which should come as no surprise to anyone who’s opened a newspaper in the past couple months. Nevertheless, the Realtors managed to find a silver lining.  Chief economist Lawrence Yun “[hopes] the home sales impact from the stock market crash turns out to be short-lived, as was the case in 1987 and 2001,”. If data don’t improve this winter, look for Yun and his crew to start blaming bad weather, snow and a whole host of things that make conditions look better than they are.

The lesson: Never accept data or data analysis at face value.

As my grandfather always said, there are lies, damn lies, and statistics. Unless you can understand how a particular piece of data is derived and can trust the collection and analysis methods that went into its creation, it is as informative as a two-year-old’s fingerpainting.

Seasonal adjustment is no different. Even though almost none of us can understand the mathematical techniques and statistical assumptions that go into the production of official economic figures, you can still look critically at datasets to determine whether they make sense.

In many cases, non-seasonally adjusted data is available along with seasonally adjusted data. Compare the two. Do the changes make sense?

For instance, if all of a sudden non-seasonally adjusted home sales are on par with activity over the summer, one could logically conclude the efforts to unfreeze the mortgage and credit markets may be working. If data bumps along about the same as last year, well, they better get a bigger bailout.

Also think about the source of the data. Does the source have a reason to overly stress or even inappropriately apply a seasonal adjustment to suit their needs? If so, you probably shouldn’t be trusting any data that comes from that source, seasonally adjusted or no. The data source should also have citations for the methods used to complete the adjustment. Even if you don’t know what the citation means, there are those that do and the information should be available to those experts to review.

All this being said, in most cases seasonal adjustment is a completely legitimate analytic technique. Government data has standardized techniques for seasonal adjustment that are well accepted and continually scrutinized. And while many take issue with the government’s collection techniques and even the way they count, say, unemployment, rarely are seasonal adjustments accused of being used to fudge official numbers. Most institutions that put out data reports on a regular basis are also very open about their techniques: These are the ones that can be trusted.

To conclude, with all the sources of data that are available in today’s information age it is becoming increasingly important to develop a healthy skepticism for any particular piece of information. Data is only as reliable as its source and its application.

The S&P/Case-Shiller home price index is out today, showing a continuation of the downtrend in property values. Data from August — two full months before the financial crisis spun out of control — shows weakness across the country:

• Prices fell in August for the 25th consecutive month
• Prices in 10 major markets plunged a record 17.7% year over year
• The biggest declines in August were seen in San Francisco (-3.5%), Phoenix (-2.9%) and Las Vegas (-2.4%)
• The biggest declines year over year were seen in Phoenix (-30.7%), Las Vegas (-30.6%) and Miami (-28.1%)
• No metro area showed a price gain in the last 12 months.
• The best performing metro areas in the last 12 months were Dallas (-2.7%), Charlotte (-2.8%) and Boston (-4.7%).

Data continues to show that home prices are not approaching a bottom. Also, since contracts signed in the past month for home sales will not show up in the data until early next year (1-2 months escrow, 2 months lag in reporting), it’s pretty safe to assume data will be bleak for the foreseeable future. Calls for stabilization, especially after yesterday’s “better than expected” new home sales figures are premature.

The continued drop in home prices is further evidence that when considering buying a home in this market, one must be prepared to live there for at least five years. Trying to pick the bottom is a dicey proposition for everyone but the most savvy, well-capitalized investiors.

Most anyone who has bought a home in the past few months (or even years) has likely lost money on his or her investment. Add in the effect of leverage, and losses will be quite severe if homeowners are forced to sell.

It’s important to understand that the Case-Shiller index is not released by Realtors or Homebuilders, spinning data to try and persuade people it’s time to buy, or that Congress needs to increase handouts to prospective buyers. The data is simply produced to evidence the prevailing trends, in whichever direction they may be headed.

Finally, keep in mind that data from the “San Francisco” metro area, for example, includes data from the entire Bay Area. This means Oakland, Brentwood, Vallejo and other hard-hit cities are lumped together with Palo Alto, Hillsborough and other cities that have held up rather well. Attempts to make generalizations about homeowners in a particular area based on this data is misguided at best.

Cirios Real Estate

Housingwire.com reports that pending home sales levels have fallen significantly since this time last year, according to data released by the National Association of Realtors (NAR). The NAR report on the same data is titled “Pending Home Sales Rise, Wider Gains Anticipated….”

So where’s the discrepancy? How can the exact same data tell one group that things are getting worse while another group sees it as an improvement? The answer is all in how you look at it. While the NAR points out that their pending sales index was up 5.3% in June relative to May, Housingwire.com thinks it’s more appropriate to compare apples to apples and compare June data to June data. This comparison shows a 12% decline from this time last year.

Who’s right? In this case, we strongly agree with Housingwire. Home sales always make a move up in the summer months, simply as a result of cyclical pressures on the market. By comparing May to June data, the NAR has successfully pointed out this fact. However, in claiming that this increase represents a reason to project overall improvement in the housing market, the NAR is grossly over-exaggerating the importance of that particular statistic. Such spin is commonplace for the NAR, which has been propagating the “buyer’s market” fallacy since the credit crunch began by whatever means available to it. (witness the NAR’s chief economist Lawrence Yun’s insistence the turnaround is just around the corner … since January 2006.)

In the uncertain waters of today’s real estate markets, it’s hard to know who to turn to for objective information and analysis. Many in the media will stake a claim to objectivity, but such claims are often exaggerated at best and ludicrous at worst.

In reality, objective information is not easily found and does not come cheap. In some cases, however, it is easy to see when a particular organization’s interests do not align in the least with anything remotely approaching objective analysis. This is clearly the case with the NAR, who’s analysis and reports should be avoided like the plague by anyone actually interested in the true state of the housing markets.