For the third straight month, at least 15 of the nation's 20 largest real estate markets showed relative monthly improvement in May 2008, according to the S&P/Case-Shiller Home Price Index. I use "relative monthly improvement" as another way of saying that markets are "less worse than they were" and that's good for the housing market (although you wouldn't know it by looking at the headlines).
Instead of pulling the positives out from the data, newspapers are highlighting the year-over-year, cliff-diving-like decline in prices. Now, it's not wrong to look at annual trends in home prices, it's just a little bit misleading. Remember: Active home buyers are probably seeing something completely different from what the papers are saying they should be seeing.
See, year-over-year comparisons are fine for identifying long-term trends, but as it relates to an active home buyer, annual data don't mean diddly. It's the short-term trend that matters.
The obvious example: If you've been shopping for a home over the last 3 months, you've probably noticed the market slowly slipping away from you, and moving into the sellers' favor. When you see "all the good homes" go under contract, or sellers regaining their negotiation power, it's your sign that the market is shifting.
In other words, if you're buying a home now, the real estate market of 12 months ago is irrelevant. What you're going to pay for a home is based on market activity today, not activity from 2007.
July 30, 2008, The Mortgage Report by Dan Green
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