Applying the same logic to the boom would mean we should have been removing any overly optimistic prices, or sales involving bidding wars, because their high pricing was not illustrative or indicative of the overall market. Why was nobody suggesting this at the time?
From the Philly Inquirer:
In the five-plus years since the housing bubble burst nationwide, home values have dropped precipitously, dragged down by record numbers of foreclosures.
In the hardest-hit areas of the country, prices have dropped 50 percent or more, and continue to decline, sales data show. Even in this region, with relatively fewer foreclosures, prices are down 15 percent since August 2007.
Remove sales of distressed properties from the mix, however, and the drop in home prices is much less precipitous, the data show.
In the city of Philadelphia, for example, median prices for single-family houses fell 3.2 percent in May from the same month of 2010, according to CoreLogic, which provides real estate data to businesses and government.
Subtract lower-price bank repossessions and short sales, and the year-over-year city decline was just 1.2 percent, the data show.
Short sales are those in which the lender accepts a sale price that is lower than the balance of the seller’s mortgage, usually as an alternative to foreclosure.
In some parts of the country, eliminating distressed sales turns price losses into gains. In the Washington, D.C., area, for example, CoreLogic says, a 1.5 percent decline became a 3.9 percent year-over-year increase.
Why factor in distressed sales at all? some in the housing industry have asked.
In a recent discussion of his company’s quarterly results, Robert I. Toll, executive chairman of the Horsham-based luxury-home builder Toll Bros., said: “We believe that averaging distressed and non-distressed sales data provides a misleading picture to the public regarding home-price direction.”
By contrast, Toll said in his statement, “we are experiencing flat to slightly increasing pricing in most markets.”
CoreLogic’s data bear out Toll’s contention. Nationally, May median home prices were down 7.4 percent from the same month in 2010. When distressed sales are removed, the decline is 0.4 percent, just about flat.
Excluding distressed transactions, which account for about one-third of all sales, would shut out a very large part of the current housing market, said Mark Zandi, chief economist at Moody’s Analytics in West Chester.
Such properties compete with other houses on the market, Zandi said, “and as long as they account for such a large share of home sales, they will weigh on all house prices.”
Zandi said it was “an encouraging sign” that non-distressed house prices were holding up so well.
“This suggests that once the distressed share begins to decline, house prices will rise, even if the share remains high.”