Can't Always Believe What You Hear in the News About the Housing Market, Here's Why...

The Cromford Report does a wonderful job explaining why you can't always believe what your hear. Please read the posting from them below. This is a great reason why it's always a wise idea to talk to a realtor who is familiar with your area if you are thinking about moving. An educated realtor (especially one who subscribes and reviews the Cromford Report) will be able to give you a good understanding of where your housing market is actually heading.

Fitch Ratings has published a report that states that the Phoenix metro area housing market is 16% overvalued. Fitch uses a complex pricing model (called the Sustainable Home Price Model) that incorporates many different economic variables. Over the last 5 years Fitch's track record for predicting house price movement has been poor, so there is little reason to give this report much credibility. It is predicting that home prices in 2015 will increase in line with inflation. This is not an unreasonable forecast in our opinion. However, we would regard Phoenix home prices as fairly valued at the moment, based on our supply-demand model. There is little credible evidence that Phoenix home prices are significantly overvalued and we see no reason they would move significantly up or down based on current market forces.

Out of interest, we give some specific examples of how far the Fitch projections have deviated from reality:

In 2011 Fitch predicted that national home prices would decline by 13% between 2Q 2011 and 2Q 2012. Instead they rose by 1% according to the Case-Shiller national index.

In 2013 Fitch called for a home price correction and stated that national home prices were 10% overvalued and would fall 2% during the year. During 2013 home prices increased 11% instead, according to Case-Shiller.

Last year Fitch stated that San Francisco Bay Area homes were overvalued by 30% and subject to potential correction. San Francisco prices have increased by 8% over the past year, yet according to the latest Fitch report they are now overvalued by only 13%. So although they went up they are now less subject to potential correction, apparently.

In 2014 Fitch stated that interest rates would rise during 2014. Like almost all other interest rate projections, they were completely wrong about that.

Fitch has been consistently much more negative than the real world for the past 5 years and failed to predict the significant increase in home prices that we have experienced both nationally and locally.

We believe that models for home prices should be judged by how well they have performed in the past in accurately forecasting home price movements, not by how famous their parent company might be. Fitch, Moody's and S&P all have little to be proud of when it comes to their home price forecasting techniques. None of them have been even close to accurate over the last 10 years.