Another interactive way to look at the real estate economy

“Are we in another bubble, or will prices come down again?” The question always comes up. I hear it from perspective buyers, possible sellers, and 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 today.

crystal ball or market data?
Data is better than a crystal ball, but…

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 new data 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 Fannie Mae can attempt to keep a better eye on the marketplace. Freddie’s top economist publishes a report every month. What he said in March was basically, “The health of a real estate market is all about jobs.”

“In order to have solid home sales in 2014 we need to see continued improvement in the labor market. Demographic headwinds have accounted for about 40 percent of the decline in the employment-to-population ratio. The remaining 60 percent is due largely to cyclical factors. Manufacturing and construction are the two sectors that have been slowest to recover. With increased economic growth these two sectors should start to improve. With more jobs, wage growth should continue to accelerate giving American households much needed income to help sustain the emerging purchase market.”

Attributed to Frank Nothaft, Freddie Mac vice president and chief economist.

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 looked at MIMI, I immediately went to Boston. We are “weak.” That means the Mimi does not think our local economy is supporting our housing market. Remember that Mimi is not looking at cash sales and jumbo mortgage purchases. If you look down the page, you will see that Boston has been “weak” through the crisis (as has the country at large.) So this market, according to Mimi, is slightly un- sustainable. Yet, here it is, going up again!



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