Home prices decline, but …

If you don’t read this news on my website, you will see it elsewhere:

September home prices fall faster than expected

This is a valid national story, but as always perspective is important.

The linked story reports that the Case-Shiller index of 20 major cities showed a decline of 0.8% from August to September, and that 18 of 20 cities experienced declines.  Separately I will post and discuss more about the Case-Shiller index, but a single month-to-month change in average prices can be misleading.  Not only does it ignore normal seasonal effects, but this year in particular it overlooks the “hangover” from two tax incentive programs that caused homebuyers to move sooner than they probably would have otherwise, creating an artificial “hole” in demand later in the year.  I was surprised to see that impact Austin more in September than it did in July and August, just after the last tax credit program expired.

The average home sale price in Austin/Central Texas fell 4.7% from August to September — a substantially larger decline than the Case-Shiller index average.  Then, the October average price was up 5.2%, more than making up for the decline in September.  Moreover, the September 2010 sale price was UP 4.2% from September 2009, and October was UP almost 11% from a year ago.  Considering the entire period from November 2009 through October 2010, average sale prices were UP in 9 of 12 months compared to the prior year.

The other important factor ignored by averages — those discussed above and those considered by the Case-Shiller index — is the mix of sales among various price ranges.  While the Austin metro area has remained relatively strong throughout this recession, we have NOT seen an 11% increase in the value of an “average” home over the past year.  What we have seen is a shift in buying activity toward higher priced homes.  That is most noticeable in the July-October period, since the tax credit program that ended June 30 had the most effect on homes closer to the median range of $150,000 to $200,000.  You’ll find a market price distribution chart at AustinMarketDashboard.com if you are interested in more details.

Always feel free to contact me if you have questions about the Austin/Central Texas real estate market or about comments you may read here or elsewhere.