Thursday, November 27, 2008

Ubergeek Post Update - Price Changes and Months of Inventory in GVREB

Here is a quick update on the work mohican and I did in the spring around refining mohican's work tracking price changes and months of inventory. Remember that the best fit was to track half-over-half (i.e. 6 months over 6 months) price changes to a three month moving average of months of inventory (total active listings at the end of the month divided by the sales in that month).

Here is mohican's famous scatter plot for half-over-half versus 3 month moving average MOI:



Remarkably the correlation is disturbingly accurate into the downturn. Looking forward we can see how well the model has "predicted" the next month's price movements.



By happenstance we can see the model was consistently predicting larger price drops than actually occurred, except last month when it was bang on. In any case, the model predicts the November benchmark to be 14.1% below that of May of this year, or about $611,000. Likely a bit aggressive, but there it is. I am expecting the November benchmark to come in around $650,000 with what looks like a long way to go in the southern direction.

Thanks Jesse for the update.

I wanted to weigh in here on this model because at the time when we put it together we didn't know how well it would help us predict price drops. It apparently worked exceptionally well and put us ahead of the curve when looking at the size of the potential price drops. I see no reason to expect a change now. More price drops to come.

4 comments:

Montery said...

Thanks Jessie and Mohican! This is fascinating stuff! Is it possible to run a few what-if scenarios to give us an idea what the scope of future price drops would be based on slowing/flat MOI, steadily increasing MOI and finally MOI shrinkage over say, 4, 8 and 12 months?

That way we can revisit the data and observe how our hypothesis matches reality. If it's bang on, there might be an academic paper in there somewhere. Maybe even an honourary Economics degree?! :)

van_coffee said...

Jesse / Mohican -

Thanks again for the fantastic work.

This is a very good summary analysis.

It's remarkable to me how "firm" the absolute number of re-sale inventory units has been coming into the winter months (total number of units in GV has not declined that much as compared to the last few years).

Coming into the spring, when new residential completing product is hitting the market, it will be fascinating to see what happens with re-sale inventory.

I personally believe we will hit 30,000 re-sale units in GV by June 2009 and the market will be an absolute blood bath.

Happy Times :)

VC

jesse said...

Note in San Diego and Phoenix there was a tendency towards muted price drops at high MOI. mohican had this trendline on his QOQ and MOM graphs and I would expect to eventually see the same in these data.

Note I did some variance analysis and the linear fit is shall we say a bit of a stretch.

van_coffee I am amazed at the high inventory through the end of November. 30K seems like a lot of listings but who knows. In any case inventory just treading water compared to this year will further crush prices. We all knew how this tragedy would end back in '05.

Wompeter said...

Yes, thanks again for the work guys! I love seeing updates on this chart :)