Tuesday, September 16, 2008

Portland Market Dashboard - New Feature

This is something I've been thinking about for a number of months, and finally got around to putting together. It's a dashboard that shows which direction the Portland market is heading, based on a number of leading indicators. We use the same basic format at the company I work for to track the business (sales, inventory, revenue, units, etc)

There are a number of leading indicators that drive the increases or decreases in housing prices. They basically come down to supply and demand. Supply being the number of homes on the market, demand being the number of qualified, able buyers.

The top part of the chart shows the leading indicators, the bottom half shows the lagging indicators, or the results.

I will keep refining this and adding to it monthly and with it we should be able to predict when the market has hit bottom and is ready to rebound. I don't believe you can predict the bottom of the stock market, but I think we can predict the bottom of the housing market relatively easily. What will be harder to predict is how much prices lag the bottom, and when things actually pick up. We might bounce along the bottom for a looong time.

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BB said...

Ahhh the red yellow green dashboard! Lean manufacturing reporting at it's finest! Great idea/concept on that one.

My 2-cents:

You need a section for affordability. There's the affordability index, as well as price vs rent, as well as price vs median incomes. All 3 should be represented. Here's the scale:

Red=out of whack with long term and historical trends

Yellow=out of whack with long term and historical trends, but moving steadily in the correction direction.

Green=In line with long term and historical trends.

Remember, the ONLY reason the bubble in prices happened is because of easy money, fraudulent mortgage brokers, crooked appraisers, greedy real estate "pros", and stupid sheeple.

Median incomes have remained FLAT, while prices have gone through the roof. Something is going to give, and I'm guessing it won't be incomes any time soon!

Been reading the news lately!?!?

Lending fundamentals will swing back to reality. Loans won't be given to folks who can't afford them or are otherwise an unacceptable risk. Hell, the spread between 3-month LIBOR and 3-month T-bills DOUBLED overnight last night! Central Banks of nations are getting skittish and not sure who to trust. This financial situation is just getting warmed up!!! Hang on!!!

Once it's all over and done with, and we've had a few years of healthy equilibrium -home prices will regularly fall in line to reflect incomes. History, probability, and common sense tells anyone with half a cell left that that number should be between 2X and 4X median incomes.

Hopefully that happens in 2010 and not 2020. Time will tell though...

Those indicators need to be part of your dashboard to help know when we're at bottom.

Patient Renter said...

There are some more subtle variables that effect pricing as well. Supply and demand were fine at the peak of the bubble, but that didn't stop prices from reversing and heading South.

Dean Baker and Chris Thornberg would tell you the market turned simply because it was unaffordable. Homes were simply too expensive. So, affordability (according to traditional metrics) might be worth tracking.

Also, availability of credit/loans and lending standards have a direct effect on the market. This is much harder to boil down to a simple metric though.

Patient Renter said...

One more comment - Regarding predicting a market bottom, affordability has to be taken into account (as I mentioned above).

PDX Outsider said...

I agree with both of you, affordability is a great metric, as well as lending standards. The first is easier to capture than the second, but both obviously drive demand. I'll work to get those integrated.

2cents (1 cent w/inflation) said...

If I might take a slightly different perspective. Instead of leading & lagging indicators, are you not showing current and past market activity? More important though, to me, is what is your forecast for the future? If one of your 'leading' indicators change for the better, does that mean we're out of the current real estate situation?

I apologize for some of the sarcasm, as I'm sure you know the answers to the questions above. But like most real estate statistics today, yours are really just rehashing current and past performance of the market and not a forecasting tool.