Median price stat masks Orange County price decline

Orange County, Calif. broker Vincent Bindi tells Inman News that inventory in his market has hit a peak since his firm, Keller-Williams Realty, began tracking the numbers in the summer of 2002. Bindi reports there are 4,597 homes on the market, compared to 500 in 2004.

With more than 9 months of inventory on tap, he says, southern Orange County "may see a bit more erosion in pricing, before things get better."

Bindi crunches numbers in Excel to back up his contention that prices peaked last May and have dropped 10 percent since then -- despite the latest Dataquick report that median home prices are down just .15 percent year-over-year (which is statistically no price drop at all).

Bindi says a slowdown in sales of homes in the sub-400K price range (which, keep in mind, is on the lower end of the scale in affluent Orange County) skews median home price and masks price declines. Bindi unmasks it by looking at price per square foot, which reveals that prices have already fallen to early 2005 levels (click on chart for full size).

Click on "Continue reading" to read Bindi's full report and see his Excel charts on inventory, sales pending, and prices.

(Click on  any chart for full size)

Bindi writes:

"Since we began gathering this data in July of 2002, we are now at a point of the largest number of homes listed on the market for sale at 4,597. As an interesting comparison, south orange county had just 500 homes on the market for sale in February of 2004. Also, at that time (February 2004) there were about 1,500 homes sold in escrow, whereas today there are only 763 homes sold in escrow."

"Of additional note, there have been some new recent articles quoting a recent Dataquick report, that the Median Price of homes in Orange County has only dropped by $1,000 from April of this year compared to April of last year, which represents just about a 0.15% drop in prices, which essentially is no drop in prices at all. That calculation may be true, but if you have been active in selling real estate in this market, you know this not to be true, so how can this be ?. Well the enclosed graphs will illustrate why."

"Dataquick (bases their) estimates on Median home prices which is the price in the middle in which half the homes sold for a higher price, and the other half sold for a lower price. This calculation compares small low priced entry level homes, with larger multi-million dollar ocean view estates, and everything in between. If you look at the attached graphs, you will notice that for several years, the sub $400K market was always the hottest market with the lowest months of inventory. But in the past 5 months or so, this has not been the case, and now the sub $400K is one of the softest markets with one of the highest months of inventory (currently at 9.8 months).

"What this tells us is there are now more buyers purchasing larger and higher priced homes as compared to lower priced entry level homes. This phenomenon then skews the Median Price (and Average Price) calculation to the higher end of the price spectrum. According to our calculations which looks at price per square foot for specific product types, prices have actually dropped about 10% nominally since the peak in pricing in May of last year… and if the softness in the market continues ( 9 + months of inventory ), we may see a bit more erosion in pricing, before things get better."

All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.