“Are we in another bubble, or will prices come down again?” The question always comes up. I hear it from perspective buyers, possible sellers, tenants, and owners I meet socially. There is no absolute answer. My best answer based on all the data I can accumulate. This is the data site I started playing with about two years ago.
There is no perfect data. The data sources used by most real estate agents are either based on median sales prices for an area or on repeat sales of specific houses.
The first errs when there is a trend in an area toward larger and smaller housing stock (Such as when an area has a new development of many larger houses where small ones were, the median will suddenly go up.) The Case-Shiller Index is more accurate, because it looks at repeat sales of specific houses. However, it does not account for improvements to the house.
My favorite index also has its flaws. FNC studies repeat sales, like Case-Shiller. It improved on their methodology by collecting local data to account for home improvement. However, its flaw is that it does not study the effect of distressed properties on the overall market.
Today, I look at a relatively data source from Federal Home Loan Mortgage Corporation (FHLMC), generally called “Freddie Mac.” Along with Fannie Mae, Freddie Mac is a government-sponsored entity that buys loans from mortgage lenders, packages them together and sells them to outside investors to make sure they have funds to continue buying loans. This increases the flexibility and liquidity of the mortgage market. Freddie Mac was smack in the middle of the mortgage meltdown in 2008.
This data has been developed so that Freddie can attempt to keep a better eye on the marketplace. Freddie Mac’s data is called MIMI (Multi-Indicator Market Index.) Cute, we have another person name! Mimi. The index is looking at major economic indicators and using weighted measures to figure out if the local economy can sustain the real estate changes that are occurring.
Because Mimi gets her information from mortgage applications, the purchase and sale information is abundant and accurate. The data weighs that against rate of mortgage delinquency (foreclosure and pre-foreclosure), local employment rate, and what percentage of income borrowers are using to pay for housing.
Smart idea: so, what’s missing? MIMI does not track cash sales or jumbo mortgages because Freddie Mac does not handle those purchase moneys. As I said before, nothing is perfect.
When I look at MIMI, I immediately go to Boston. The first time I looked at this indicator was in April 2014. At that time, Boston was weak. Now, Boston is right in the middle where it should be. That means the Mimi thinks our local economy is supporting our housing market.
I will be curious to see if that figure begins to slip again, as layoffs at some places (Biogen and State Street) are offset by additions (like GE.) I also wonder if MIMI would still find our market sustainable if she was looking at non-conforming loans — which include jumbo mortgages — and cash sales.
If you like getting knee-deep in data, I hope I just made your day.