I’m a big believer in the philosophy of “Under promise and over deliver.” Many times with personal finance books, however, the title of the book looks promising, but a quick flip through the pages returns a big disappointment. I had a similar experience with CNNMoney.com this week. Last Wednesday, a business article was published on CNNMoney.com with the following title: “Home Prices: More Pain to Come–Expected drop in home prices nearly double estimate of two months ago; recovery more than a year away.”
Holy cow, I thought, that can’t be good. So I did what CNN undoubtedly wanted all of us to do when in concocted that title, I clicked on the link. But when I read the article, and more importantly, the article’s source, I got a very different impression. Here’s the deal.
Two months ago, the National Association of Realtors estimated that the median price of existing homes sales would fall in 2007 by 0.7 percent as compared to a year earlier. Now, NAR estimates the decline will be 1.3 percent. Ok, so the estimate did “nearly double,” although the change was an increase of only 0.6%. In other words, for a $200,000 home, the decline in value, on average, increased from $1,400 to $2,600. True, it nearly doubled, but the numbers don’t sound nearly as bad as the title of the article suggests.
Near the end of the article, an analyst from Wachovia is noted as saying the forecast may overstate the decline, although you’d find no hint of that in the article’s title. But here is the real kicker, the article makes no mention of the fact that, as noted in NAR’s report, median existing home prices may actually rise in 2007! Well how can that be if NAR is predicting a 1.3 percent decline, you ask? Good question . Let’s go to the source.
The first sentence in NAR’s report reads a bit differently than the CNN report suggests:
WASHINGTON, June 06, 2007 -
Home sales are projected to move in a relatively narrow range with a gradual upturn becoming more pronounced by the end of the year, according to the latest forecast (PDF 136k) by the National Association of Realtors.
The NAR report does predict a 1.7 percent decline, although it explains that the decline is due to home sales shifting from “high-cost areas to moderately priced markets.” Here’s the full quote:
We continue to experience a temporary distortion in comparing median existing-home prices, Yun said. Because the sales volume has shifted from many high-cost areas to moderately priced markets, we’re not getting a true apples-to-apples comparison. When you look at other measures, such as this week’s price index from Freddie Mac which is based on repeat sales, overall home prices are rising slowly.
In other words, homes within the same neighborhood, on average, are slowly rising. The market as a whole, however, is declining as more sales are occurring in less expensive neighborhoods.
So who’s got it right? CNNMoney, National Association of Realtors, or Freddie Mac?