articles about “Home Prices”
Rebound, Not Bubble: Home Prices Still Undervalued
Although home price gains rival those of the last decade’s bubble, home prices today look undervalued by 7%. Prices are overvalued only in a few California and Texas metros.
Home prices today are rising nearly as fast as they did during the peak bubble years of 2005-2006. Since that bubble helped push us into the Great Recession, we should all be on high alert for the next housing bubble. To track whether home prices are in or nearing bubble territory, today we introduce Trulia’s Bubble Watch, which is based on the most recent price data from the Trulia Price Monitor and other data sources.
So are we in bubble territory? No. Bubble-phobes can rest easy. Even with recent sharp home price increases, prices are still low relative to fundamentals and are far below bubble levels.
Back to Basics: How to Spot a Bubble
To see a bubble, you first need to know what you’re looking for. A bubble in home prices (or in the price of any asset – like stocks or even tulips) is when prices soar above their fundamental value. Fundamental value is based on supply, demand, and realistic expectations about the future. We all learned in Economics 101 that prices move back toward an equilibrium determined by fundamentals of supply and demand. In a bubble, however, rising prices encourage speculation and fuel further demand – up until when the bubble suddenly bursts and people rush to sell, which causes prices to accelerate downward, sometimes well below their fundamental value. Bubbles are notoriously difficult to predict and hard to confirm until after they’ve burst: it’s impossible to be sure whether price gains are justified by fundamentals until, if and when, a bubble bursts. San Francisco home prices, for instance, are the highest in the country; is that “irrational exuberance” by speculative homebuyers, or are those prices justified by strong job growth, high incomes, great weather, and constraints on the local housing supply?
To answer that question, we assess whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. Incomes determine how much people can pay for housing, and price increases aren’t sustainable if they push prices too high relative to incomes. Rents reflect how much people value housing even if they won’t benefit from price appreciation (as renters don’t, but owners do); the price-to-rent ratio is like the price-earnings (P/E) ratio for stocks. Using data from multiple sources (see footnote), we create several measures of fundamental value and combine them in order to calculate how overvalued or undervalued home prices are relative to fundamentals.
Home Prices are Undervalued 7% Nationally and Regionally in 91 of the 100 Largest Metros
We estimate that national home prices are 7% undervalued in the second quarter of 2013 (2013 Q2). During last decade’s bubble, prices were as high as 39% overvalued in 2006 Q1, then during the bust, fell to 15% undervalued in 2011 Q4. Therefore, even with the recent price increases, home prices nationally remain undervalued relative to fundamentals and much lower than in the last bubble. That’s why today’s price gains are actually still a rebound, not a bubble. This chart shows how far prices are from bubble territory:
Take Me Next Door to the Ball Game
Neighborhoods near Major League Baseball stadiums cost more – especially if the team has a better shot at winning the 2013 World Series.
Baseball’s 2013 season begins Sunday night, when the Texas Rangers go to Houston to take on the Astros. Most other teams kick off the season on Monday. To mark the annual start of America’s national pastime, we looked at home prices in the neighborhoods near major-league stadiums.
If you want to live close enough to the ballpark to hear the crowd and see the lights from home–and of course, walk to the game–it’ll cost you. We examined asking home prices from the past year on Trulia in the neighborhoods within a mile or two of each stadium (excluding Toronto). It costs most to live near AT&T Park, home of the San Francisco Giants: $653 per square foot. Living near Atlanta’s Turner Field or Kansas City’s Kauffman Stadium costs only one tenth as much:
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Top 5 Most Expensive Baseball Stadium Neighborhoods |
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| # | Team | Stadium | Median price per SQFT | Stadium area price relative to metro price |
| 1 | San Francisco Giants | AT&T Park |
$653 |
1.3 |
| 2 | Boston Red Sox | Fenway Park |
$584 |
2.6 |
| 3 | San Diego Padres | PETCO Park |
$435 |
1.9 |
| 4 | Washington Nationals | Nationals Park |
$392 |
2.3 |
| 5 | Los Angeles Dodgers | Dodger Stadium |
$387 |
1.6 |
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Top 5 Least Expensive Baseball Stadium Neighborhoods |
||||
| # | Team | Stadium | Median price per SQFT | Stadium area price relative to metro price |
| 1 | Kansas City Royals | Kauffman Stadium |
$28 |
0.3 |
| 2 | Atlanta Braves | Turner Field |
$64 |
0.9 |
| 3 | Milwaukee Brewers | Miller Park |
$72 |
0.7 |
| 4 | Pittsburgh Pirates | PNC Park |
$85 |
0.9 |
| 5 | Texas Rangers | Rangers Ballpark |
$86 |
1.1 |
Note: median price per square foot in the neighborhood approximately one or two miles around the stadium. Final column is the ratio of stadium-area median price to metro median price. Values above 1 mean the stadium area is more expensive than the metro area overall.
0 commentsFewer Holiday Markdowns On For-Sale Homes This Season
This January, fewer for-sale homes have had their prices reduced than one year ago. Markdowns are especially rare in Oakland, Las Vegas, and Miami, but price reductions abound in New England.
Now is the bargain real estate season: asking home prices typically hit their seasonal low point from November through January. This winter, however, markdowns are harder to find. Among all non-foreclosure homes for sale on Trulia, in early January, 33.6% of homes were priced lower than their original listing price. (For homes originally listed more than six months ago, we compared the current price to the price six months ago, not the original price.) One year ago, in early January 2012, 36.7% of homes for sale were marked down from their original listing price.
However, the national average of 33.6% hides huge local differences. In January 2013, the share of homes with price reductions ranges from just 15% in Oakland to 48% in Springfield, MA. Among markets with the fewest reductions today, Miami and Fort Lauderdale stand out as the two locales that also had relatively few reductions one year ago, in January 2012. In contrast, Las Vegas and the seven California markets that round out the top-10 list all have far fewer reductions today than a year ago: in these metros, markdowns have become much harder to find.
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Where Real Estate Discounts Are Harder to Find |
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| # | U.S. Metro | % homes with price reductions, Jan 2013 | % homes with price reductions, Jan 2012 | Change in % with price reductions, 2012-2013 |
| 1 | Oakland, CA |
15% |
31% |
-16% |
| 2 | Las Vegas, NV |
16% |
36% |
-20% |
| 3 | Miami, FL |
16% |
15% |
1% |
| 4 | San Jose, CA |
20% |
31% |
-11% |
| 5 | Sacramento, CA |
22% |
35% |
-14% |
| 6 | Los Angeles, CA |
23% |
38% |
-15% |
| 7 | Ventura County, CA |
23% |
38% |
-15% |
| 8 | Fort Lauderdale, FL |
23% |
23% |
-1% |
| 9 | Riverside- San Bernardino, CA |
23% |
35% |
-12% |
| 10 | Orange County, CA |
23% |
41% |
-18% |
| Among 100 largest metros. Based on all listings on the second Wednesday in January (January 9, 2013, and January 11, 2012). Changes might not equal the difference due to rounding. | ||||
Better Off Than 4 Years Ago? Voters Didn’t Care
Obama got less, not more, of the vote in 2012 relative to 2008 in metro areas where unemployment fell and home prices rose during his first term.
(After publishing this post, we got great feedback and decided to do a more technical and detailed follow-up, which is here — JDK.)
Why did Obama win? Throughout the campaign and in exit polls, voters said the economy was their #1 issue. But election data shows that voters did not reward the President in markets where the jobs and housing recoveries are strongest.
How Obama Fared In 2012 Versus 2008
To see how the local housing and jobs recoveries affected the election, let’s first compare Obama’s margin in 2008 with Obama’s margin in 2012, using county-level election results compiled by the U.S. Election Atlas. Nationally, the latest count shows that Obama won 50.6% of the popular vote in 2012 compared to 47.8% for Romney – a margin of 2.7% (the numbers don’t add up due to rounding). In 2008, Obama won 52.9% versus 45.7% for McCain – a margin of 7.3%. Nationally, therefore, Obama’s margin fell from 7.3% in 2008 to 2.7% in 2012 – a drop of 4.5 percentage points.
In general, in metro areas where voters favored Obama in 2008, they favored him again in 2012. (The correlation between Obama’s margin in 2008 and Obama’s margin in 2012 across metro areas was 0.99.) But Obama’s margin grew in some metros between 2008 and 2012 while falling in most metros. Comparing the presidential votes in 2008 and 2012 among the 100 largest metros, Obama’s margin increased most in Miami and New Orleans. His margin also increased in New York and the upstate metros of Syracuse and Albany.
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Where Obama’s Margin Increased the Most |
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| # | U.S. Metro |
Change in Obama’s margin, 2012 vs 2008 |
Obama’s margin vs Romney, 2012 |
Obama’s margin vs McCain, 2008 |
| 1 | Miami, FL |
7.6 |
23.7 |
16.1 |
| 2 | New Orleans, LA |
6.1 |
-0.1 |
-6.2 |
| 3 | New York, NY-NJ |
2.4 |
48.3 |
45.9 |
| 4 | Baton Rouge, LA |
1.8 |
-12.4 |
-14.2 |
| 5 | Edison-New Brunswick, NJ |
1.5 |
3.1 |
1.6 |
| 6 | Syracuse, NY |
1.5 |
16.9 |
15.4 |
| 7 | San Jose, CA |
1.0 |
41.3 |
40.4 |
| 8 | Albany, NY |
0.9 |
15.5 |
14.6 |
| 9 | Fort Lauderdale, FL |
0.2 |
34.9 |
34.7 |
| 10 | Columbus, OH |
0.2 |
6.1 |
5.9 |
| Among 100 largest metros. | ||||
In the other direction, Obama did worse relative to his Republican challengers in 2012 than in 2008 in most metros – and more than 10 points worse in Salt Lake City, Indianapolis, and Lake County – Kenosha County (just north of Chicago).
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Where Obama’s Margin Decreased the Most |
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| # | U.S. Metro |
Change in Obama’s margin, 2012 vs 2008 |
Obama’s margin vs Romney, 2012 |
Obama’s margin vs McCain, 2008 |
| 1 | Salt Lake City, UT |
-19.5 |
-20.1 |
-0.6 |
| 2 | Indianapolis, IN |
-10.5 |
-8.0 |
2.5 |
| 3 | Lake County-Kenosha County, IL-WI |
-10.3 |
9.0 |
19.3 |
| 4 | St. Louis, MO-IL |
-9.4 |
6.6 |
16.0 |
| 5 | Grand Rapids, MI |
-8.5 |
-9.6 |
-1.1 |
| 6 | Kansas City, MO-KS |
-8.3 |
-3.1 |
5.2 |
| 7 | Omaha, NE-IA |
-8.3 |
-10.9 |
-2.6 |
| 8 | Austin, TX |
-7.0 |
7.1 |
14.1 |
| 9 | Ventura County, CA |
-6.9 |
5.3 |
12.2 |
| 10 | Allentown, PA-NJ |
-6.7 |
2.6 |
9.3 |
| Among 100 largest metros. | ||||
Your Home’s Lucky Number
Marketing psychology, tradition, and superstition can sneak into home prices. Here are the secrets to setting a “lucky” asking price for your home.
What tricks do sellers and their agents use when setting the price of a home? To find out, we looked at the asking prices of homes for sale on Trulia since October 2011, excluding foreclosures, to see whether certain numbers show up in home prices more than others. We found that some numbers are a lot more popular than others, and different lucky numbers turn up in home prices in different regions of country.
Of course, lucky numbers aren’t the only factor sellers and their agents use in setting asking prices. A seller who loves the number 54 isn’t going to price a home at $540,000 if it’s really worth $200,000. But they might work “54” somewhere into the price without straying too much from the home’s expected value, such as pricing at $200,540.
To find patterns, we looked for numbers that appeared anywhere in the asking price, and we paid special attention to the “last non-zero digit” in the price. For instance, in the above example, the last non-zero digit of $200,540 is 4, and the last non-zero digit is 9 in $149,999, $259,900, and $11,900,000. Nearly all home prices – 96% – end in 0, and the vast majority – 91% – end in 00. The last non-zero digit is the number that “costs” the least to set based on marketing psychology, tradition, or superstition because it won’t change the value of the home as much as digits further up in the price. It turns out that 9 is, by far, the most popular last non-zero digit in asking prices, so let’s start there.
The Power of 9
The number 9 shows up in a lot of everyday prices. A Ronco knife set costs $39.99, the featured product on Trader Joe’s website last week was roasted & mashed sweet potatoes for $2.49, and my 16-gig iPad mini is $329. Why do prices of goods so often end in 9? One theory is that people rarely have exact change when a price ends in 9, and in a traditional retail store the cashier needs to open the register to make change, and therefore can’t cheat the storeowner by pocketing the cash and not recording the sale. Of course, that’s irrelevant in a world of credit cards, debit cards, and online shopping, so another reason prices end in 9 is perception: those Ronco knives sound like a much better deal at $39.99 than at $40 because the price is in the $30 range, rather than in the $40 range.
Do home prices use the same psychology? Absolutely. Even though the vast majority of home prices end in 0, the most common last non-zero digit is 9: more than half – 53% – of home prices have 9 as their last non-zero digit. The next most common is 5, which is a nice halfway point between round numbers. No other digit comes close to 9 and 5.
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