Don’t be Fooled by Averages
A growing number of economists now believe that home prices have peaked in many US markets. According to First American’s Chief Economist Mark Fleming, home prices are in the beginning stages of correcting to demand. But in fact, US home prices in some of the most attractive markets have been slowing for more than a year.
One of the challenges facing professionals working in the residential finance market is that most measures of home prices track price changes at the city or zip code level. Weiss Analytics tracks price changes of 70+ million individual homes each month, allowing us to provide investors and lenders with in-depth market intelligence.
Let’s take some examples. First, let’s have a look at Newport Beach in Southern California, specifically 92662, typically one of the hottest and also most volatile markets in the US. Like much of the US, Newport Beach suffered a significant price decline after the 2008 financial crisis, but prices of houses in Newport actually started to drop earlier and nearly all houses were dropping by 2007.

Prices in Newport Beach began rebounding strongly by 2012 when much of the rest of the country was just starting to recover. However, by 2015 the number of homes rising in value had dropped off significantly while most of the country was still recovering strongly.

May 2012 April 2015
These change in home prices in Newport were largely missed by measures at the city or regional level. In fact, historically affluent areas such as Newport are often leading indicators of change in direction for home prices more generally.
Let’s look at another affluent area on the other side of the country in Greenwich CT. The particularly zip code is 06807, which includes Cos Cob, an area north of I-95 that is largely comprised of single family homes. While the average price in this area is well above the national average, price volatility is also higher.
Prices in Cos Cob were strong in the early 2000s, but by 2005 home prices in this desirable part of CT were already starting to weaken. Prices generally bottomed in 2010, much earlier than the rest of the country, and started to improve.

August 2002 July 2005 January 2010 October 2015
By 2015, however, the market in Cos Cob was turning, with bunches of homes falling in price. Today this market is essentially unchanged, with no price appreciation or declines visible, but inventory up nearly 50 percent from a year ago.
The point of these two examples is that real estate is and will remain a local market. The only way to understand what is happening in a given local market is to drill down through zip codes to the individual homes and see how they form groups by geography or are diverse across an area even among next door neighbors.
By seeing trends at the house level individuals, investors and lenders can avoid being fooled by averages and make better informed decisions.
