With the real estate market in freefall, there are plenty of home-price indices available to measure the latest drop. Among them is the Residential Property Index (RPX), which was created by real estate analytics firm Radar Logic to support a derivatives trading market in real estate.
It takes a different approach from other indices, which focus on overall home prices. Radar Logic’s RPX index instead creates a composite square-foot price for each of the 25 markets it tracks, based on daily sales price data from public sources processed with a proprietary computer algorithm. According to Radar Logic, the company’s method reveals market responses to local and regional economic forces and provides a snapshot of general market trends. According to the latest version of RPX released June 2, the majority (23) of the 25 markets covered by the index experienced real estate price declines in March.
Here are a few highlights from that report.
California markets, not surprisingly, continue to get hammered: Los Angeles square-foot prices reported a 22.4 percent annual drop. The San Francisco metropolitan statistical area (MSA), which includes San Francisco, San Mateo, and Marin counties as well as the city of Oakland, showed a year-over-year square-foot price slide of 17.6 percent. Finally, with a 30.6 percent annual plunge, Sacramento stands out as the worst-hurting market on the Radar Logic index.
Miami square-foot prices have declined significantly (-21.3 percent). However, transaction counts in the Miami market are up sharply at 22.6 percent.
Phoenix continued to decline in March, with square-foot prices sinking 22.7 percent year-over-year.
Beyond those broad outlines, Radar Logic says that its approach may help researchers find the factors that drive market price and sales activity trends. For example, the firm’s analysts have been breaking out “motivated sales” (sales involving lender pressure or foreclosure) to help explain trend variations between markets.
The San Francisco metropolitan statistical area’s (MSA) boundaries, for example, obscure a sharp difference between San Francisco itself and the adjacent city of Oakland: while San Francisco prices dropped just 7.5 percent year-over-year, Oakland prices dropped a whopping 24.6 percent. The difference may be traceable in part to Oakland’s higher proportion of “motivated sales” — 35 percent of transactions in Oakland occurred under pressure, as opposed to just 8.7 percent in San Francisco.
In the Phoenix market, as in other MSAs, motivated sales are a much more significant factor in the lower end: 27 percent of sales in the lowest-priced quartile were classed as “motivated,” compared to just 14 percent of transactions in the top quartile.
Michael Feder, CEO of Radar Logic, noted on Bloomberg News in February that nationwide square-foot price drops are placing more and more homeowners in an upside-down loan-to-value position, which may increase the willingness of homeowners to abandon their homes to foreclosure.
Most relevant to builders, the recent boom in new home construction may have created zones with high concentrations of homeowners with that perspective, Feder observes, with “the first-time home buyer whose home is now underwater relative to his loan-to-value ratio having a different emotional effect.”
Added Feder: “My guess is if we could break the data down that specifically, we’d find some concentrations of these troubled home-price spots being in these new community developments where the houses sold at high prices, arguably with pretty high leverage ratios.”
For the full Radar Logic report for March, visit http://www.radarlogic.com/research/RPXMonthlyHousingMarketReportforMarch2008.pdf.
Ted Cushman is a contributing editor to BUILDER magazine.