Sep 30, 2010

Do Housing Fundamentals Really Matter?

If you're like me, you spend countless hours pouring through data trying to make sense of the underlying economic fundamentals to understand what's happening today and what the data means for tomorrow.  In short, we're always looking for the trend to clue us into what we hope to be sound investment decisions.

Needless to say, rolling out of bed and waiving your finger in the air to determine which way the wind is blowing is not going to be a consistently successful approach.  However, at a certain point, we can outsmart ourselves by basing our decisions solely on what the underlying fundamentals are telling us.

How many home buyers are basing their decisions on the latest S&P/Case-Shiller housing price index?  Gee, let's hold off on making this purchase since the S&P/Case-Shiller index is a lagging housing indicator.  Looks like Diesel consumption picked up for the month of .....  More QE2 is coming in Q4?  Temporary Census Bureau jobs are beginning to clear the system and will have less of an impact on the employment picture moving forward.  You get the point.

Spending time to get a grasp on the fundamentals definitely helps to give clarity to our decisions, but what good are our decisions if the overwhelming majority isn't using the same data and is making decisions based on a completely different perspective?  Isn't this different perspective just as important (if not more important) to understand and to take into consideration?

Courtesy of Jim the Realtor, check out the video below regarding an auction of a lot in Southern California.  Jim notes that the data points to a certain number regarding the sale of the lot, but the actual final sales price defies the data.  In fact, pushing forward, the sale (if it goes through) will greatly skew the data / comps for the next potential buyer in the same neighborhood.

Human nature and the countless intangibles drove this sale while the data floated out the window ... If you think this is an isolated incident or this only happens in high-end micro housing markets, think again!

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