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Archive for January, 2007

An Economic Migration Study (For The Birds?)

January 31, 2007 | 9:55 am |

Every year, United Van Lines generates a press release about their annual migration study. Its a fun read, but hardly scientific. The report measures inbound and outbound traffic in each state. In other words, how many of their clients are moving into or out of a particular state. They infer validity of their statistics by saying:

As the nation’s largest mover, United holds more than 30 percent of the market, which is nearly double the market share of the second largest carrier.

However, for this report to be truly valid, I think we need to understand the demographics of their client base so we better understand why people are doing what they are doing. When a press release says something like has been shown to accurately reflect without proof, then I am always wary and usually with good reason.

As I said before, its still fun to look at, so lets throw caution to the wind and go with it.

United Van Lines 2006 Migration Study

Raw stats for study [pdf]

The parameters are:

  • “high inbound” (55% or more of moves going into a state)
  • “high outbound” (55% or more of moves coming out of a state)
  • “balanced” (50-54% inbound or outbound)

No real surprises, in terms of what we would expect to see. Midwest is losing people and parts of the west/southwest/south regions are gaining people.

(Note: to United Van Lines: Michigan is considered Midwest, not Central Northeast and New York is considered Mid-Atlantic, not Central Northeast).

Outbound leaders
The midwest is struggling with weakening economic conditions from serious problems with the auto industry.

  • Michigan leads the pack with 66% outbound traffic.
  • New York is second with 59.5% outbound traffic. Upstate New York is still struggling economically and largely missed the housing boom like the New York City region did.

Inbound leaders
* North Carolina was the inbound leader at 64%
* Oregon (I have been told that its safest state to live in case of a nuclear war. hint: prevailng winds) at 62.5%.

From The Garden State: The Otteau Report: December 2006

January 31, 2007 | 12:02 am |

[This monthly market report is provided by Jeffrey Otteau of the Otteau Appraisal Group who also authors a series of widely followed quarterly market reports on the New Jersey real estate market. This information is collected from various sources including Boards of Realtors and Multiple Listing Systems in New Jersey.]

I have known Jeff for many years and consider him one of the leaders in the real estate appraisal profession. He has taught me a lot about quantitative real estate market analysis. -Jonathan Miller


In the most positive sign for the New Jersey housing market in more than a year, contract-sales activity in December moved into positive territory for the 1st time since August 2005. In December, contract-sales activity ran 2% higher than December 2005 providing solid evidence that home buyers are beginning to reenter the housing market in response to lower home prices and continued low mortgage interest rates. The December performance follows lesser improvements in year-on-year home sales in October and November, and marks the first time in 16 months that the housing market experienced a higher volume of monthly sales activity than the prior year.

A more sobering view however comes from Unsold Inventory which actually increased in December by 1% or about 800 homes. While this increase is not significant from a statistical perspective, it does send a clear message that greater increases in home sale activity will be needed to reduce current inventory levels and restore balance to the housing market. At the December sales pace, Unsold Inventory represents a 10.6 month supply which far exceeds the balance point at which home prices will rise. By comparison, there was a 7.8 month supply one year ago. Therefore, while recent market improvements may signal the end of the housing decline, it should not yet be interpreted as a return to higher prices. Also keep in mind that these improvements have been fueled primarily by lower home prices suggesting that Right-Pricing! remains the key to successful home marketing.

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4Q 06 Westchester County, NY: From Sing Sing to Chappaqua

January 31, 2007 | 12:01 am | |

[The Westchester-Putnam Multiple Listing Service, Inc. provides a quarterly analysis of the real estate market. Considered a suburb of New York City, Westchester County, NY along with Fairfield County, CT, Northern New Jersey and Long Island are an important part of the New York City real estate market. A Matrix reader suggested I provide a summary each time the report is released by the MLS.]

Courtesy of WestchesterTowns

Westchester County (remember Chappaqua, where President Clinton purchased?) is known for its higher end housing stock that serves as one of the primary markets to families that sell in the city and move to the suburbs. The second home market in New York has also benefited from empty-nesters who have sold their properties in Westchester and have moved to the city.

On the flip side, the county is also known for its high real estate taxes, its maximum security state prison, Sing Sing, and a nuclear power plant, Indian Point.

In reviewing the charts, I was struck by how high current sales levels actually are, how pricing appeared to drift sideways with some weakness during the year and how sharply inventory dropped, even though it is still higher than last year.


Here are excerpts from the report

Westchester’s multi-year run-up to record-high residential real estate sales and prices in 2005 abruptly halted in 2006. Realtors participating in the Westchester-Putnam Multiple Listing Service reported 9,167 closed sales in Westchester in 2006, a decrease of 13% from 2005. In Putnam County, the 1,001 sales for the year constituted a 23% decrease from 2005.

The signals of possible contraction in the local real estate market were evidenced in the seasonally adjusted data from as early as the third quarter of 2005. Nevertheless, the speed and depth of the contraction as it actually occurred early in the first quarter of 2006 caught the market by surprise, and the downturn persisted through the year.

The 2006 sales volume reset the market to levels last experienced in 2002 and 2003. Those were actually good years for real estate on an historical basis. However, Westchester’s overall backsliding of 13% in sales volume would have been greater were it not for the relatively moderate slowdown in the condominium and cooperative sectors in comparison to single family houses. Whereas house sales dropped nearly 17% from 2005 to 2006, condo sales decreased by less than 1%, and co-ops by only 9%.

Westchester’s year-end inventory of 5,774 units in all categories was 21% higher than at the end of 2005, and that percentage applied fairly uniformly among the major property types. In Putnam County there were 943 units available at the end of the year, a 15% increase from 2005.

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[In The Media] BBC World Business Report Clip for 1-26-07

January 30, 2007 | 12:10 am | Public |

Here is a clip of my appearance on BBC World Business Report last Thursday evening. I often listen to the BBC to get a foreign perspective on US news.

Kate Noble did a piece on whether the national housing market was reaching some sort of turning point which I answered as best as I could but caveated the heck out of. She does a good job laying out the story.


The Draw Of The Flaw Theory, Is Flawed

January 30, 2007 | 12:05 am |

I came across an interesting article this weekend called The Draw of the Flaw [WaPo]. With a tag line of Railroad Tracks, Power Lines, Even Septic Tanks Can Be the Beginning of a Bargain.

A Diamond in the rough story, if you will.

The concept is this.

Many purchasers trying to buy into a housing market will accept obvious flaws because the discount associated with that amenity helps make the property more affordable.

The higher the perceived risk for health reasons, such as transmission lines, or for other defects that limit the number of buyers attracted to the property, the larger the discount.

In other words, if a problem is curable (appraiser speak for fixable) in the long run, the lower the discount. For example, a long commute will likely involve a larger discount than something that is more likely to be cured during ownership (like a massive capital improvement project in front of your property that may take five years to complete). You can’t shorten the commute but eventually that project will get done.

That is a logical approach and for purchasers who can live with inconvenience and it can make sense to some to put up with it by being rewarded with a lower purchase price.

Here’s a two reasons why the lower price invites higher risk and may ultimately backfire on the buyer:

The impact of property defects can change over time – The fact that you can live with the defect doesn’t mean you will find an eager buyer when you go to re-sell the property. Perhaps something that is considered an inconvenience today, may have a more negative impact on value when at re-sale because the value or penalty of amenities changed. Consider this. As a market weakens, inventory rises and the greater competition places defective properties at a disadvantage.

The “beta” of cost savings of the defect can fluctuate over time – I use the word “beta” in the context of a stock. This can be illustrated with location. In a tight, rapidly rising housing market, the spread in value between a location with a further commute and a close-in commute tends to contract, yet it expands during a weakening market condition. In fact, that is why newly developing market areas see higher appreciation during housing booms. But as the market retreats, these area can see bigger drops.

For example, suppose you buy a fund (property) with a beta of 1.5. You can expect that this fund (property) will beat its benchmark (overall real estate market) by 50% on the way up, and do 50% worse on the way down.

So the cost savings of a property defect achieved in a tight housing market may catch some new owners by surprise if their particular market weakens when they go to re-sell. Thats the flaw with the logic of this approach to “save” money.

3Q 06 Market Report From Paris, France Appartements de Charme et de Prestige

January 30, 2007 | 12:01 am |

[Karl- Heinz Schabmüller M.B.A., a real estate broker in Paris, France regularly writes articles and market reports about the city’s housing market based on market figures released by the Paris Notary Chamber. I have not met Mr. Schabmüller, but have traded emails since he is a fan of Matrix]

The recap of the current results and Mr. Schabmüller’s interpretation are found below:

Paris, France real estate market – 3rd quarter 2006

In its press conference of 17 January 2007, the Notary Chamber has released official data about the Paris real estate market during the 3rd quarter 2006.

  • The average square meter price in Paris now stands at 5 675 €/ USD 7,380.62

  • According to the report, the sale’s volume shrank by 3.3% in comparison to the 3rd quarter 2005. Altogether 9,888 old and unoccupied apartments were sold in the city, the average square meter price increased by 9.9% and stands at 5 675 €/ USD 7,380.62.

  • Once again, the 6th arrondissement (Saint Germain- des- Prés) in the very heart of the city remains the most expensive (8 527€/m² – USD/ m² 11,089.8). It is now followed by the 4th (southern Marais and the “Saint Louis island” – 7 708 €/m² – USD/m² 10,024.6) and the 7th (“Eiffel tower”, “Invalides”,”musée d’Orsay” – 7 633 €/m² – USD/ m² 9,927.10). The least expensive are the 19th arrondissement (4 498 €/m² – USD/m² 5849.87) and the 20th (4 720€/m² – USD/m² 6,138.60), which are both located in the north- east of the city.

  • Apart from the notary’s official data, however, I want to point out that square meter prices for a property in fairly good quality in the centre range between 7,000€/ USD 9,103.85 and 10,000€/ USD 13,005.5, prestigious real estate is higher.
    (exchange rate amounts are not guaranteed)

I assume that his 2006 recap on Paris real estate market will be available in April 2007.

Paris Market 2005 recap
KHS Paris Real Estate website
KHS Paris Real Estate blog


Windy City Update: Chicagoland MarketPulse December 2006 Plus Year End Review

January 29, 2007 | 12:03 am |

[This monthly market report is provided by Chip Wagner and Robert Headrick of the Headrick-Wagner Appraisal Group in their December eNewsletter. I have had the pleasure of knowing them for most of my appraisal career. They are both very active in appraisal industry matters having held a large number of leadership positions. Their firm has been covering the Chicagoland market since 1970 and as a result, they both have a wealth of insight. Their focus is on relocation, litigation and lending appraisals as well as slayers of appraisal myths. Chip and Bob also author a series of market reports on the Chicagoland real estate market They tell me they are also working on a big revamp of their web site as well.] -Jonathan Miller


For the third consecutive month, the Months Supply of Inventory has decreased. Again, it is premature to assume our market has changed as the less-motivated sellers remove their homes from the market during the holidays.

Although there are nearly 3,000 fewer homes listed from last month, almost 8,500 fewer homes on the market from the previous quarter, it is still nearly 11,600 more homes than the same period one year ago. Furthermore, we have not yet seen an increase in the homes under contract or a reverse in the downward trend in the pending and sales volume.

The year end reports are attached o this e-mail and they remain inconclusive as where we are going in the future. The year over year indication continues to show the market today is weaker than it was one year ago. After what we observed in 2006, this is no surprise. The fact that we are seeing positive indications from the previous quarter is welcome.

To put these statistics in perspective, from the 3rd quarter in 2005 to the 4th quarter in 2005, there was a 8.6% decline in active listings. From the 3rd quarter in 2006 to the 4th quarter in 2006, there was a 17.5% decline in active listings. The recent drop in active listings is nearly double the previous year’s drop. This is the first positive that we have actually been able to measure statistically, that indicates 2007 could be a better year than 2006.


The Million Dollar question. Hopefully, in the coming months we will be able to see the decline in the Absorption Rates continue.

Buyers that were sitting on the fence, cautious as to making a move in the real estate market appear to be ready. Media reports on the housing sector are not “all negative” and we are seeing some positive reports coming out. Prospective buyers hoping to wait until the real estate markets bottom out may believe it has bottomed out and it is time to buy.

The economy is strong, unemployment is low and job growth is strong. Indications are that mortgage interest rates will continue to be favorable in 2007.

Early indications are suggesting that 2007 will be better than 2006 was. The market needs to begin eliminating some of the supply, and a better indication would be an increase in pendings which shows buyer activity. We continue to closely monitor the sales activity, and hopefully there will soon be clear indications that the real estate market has reversed its 2006 doldrums.

Until then, our opinion of 2007’s Chicagoland real estate market, like many other professionals is “cautiously optimistic.”

Here are some additional market reports:

Headrick-Wagner Chicagoland Report [pdf]
December Condo MarketPulse [pdf]
December Detached Housing MarketPulse [pdf]
Naperville Area Single Family Housing [pdf]

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[The Hall Monitor] Punishment Of Capital Platform

January 29, 2007 | 12:01 am |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. Today Todd nominates himself for presidence on a platform that punishes capital. …Jonathan Miller

The way I see it is this: if among the two dozen or so declared candidates, Tom Vilsack and Duncan Hunter can run for President (extra credit for anyone who can pick either of these guys out of a lineup), why not me?

I do today, therefore, with no consideration whatsoever given to the thoughts of my friends or family, declare my candidacy for President of the United States. Unlike my fellow candidates – who will focus on issues such as the war in Iraq, health care, education, global climate change, and immigration reform – my candidacy will be based on the single issue of “Capital” punishment, which is not to be confused with “Capital Punishment”.

“Capital” punishment is an issue I am introducing because I wish to improve the working conditions of oppressed and downtrodden real estate appraisers everywhere. And the beauty of “Capital” punishment is the fact that it will be meted out by appraisers, using their own wisdom and discretion, and not by spineless judges!

“Capital” punishment is nothing more than the addition of a few more adjustment categories to the Sales Comparison grid. And if the appraiser is put in a position where he or she must make adjustments in these new categories (which I will get into shortly), the result will be a lower appraised value, hence the term “Capital” punishment.

Feel free to add your own categories but mine would include the following:

Awning adjustment
This adjustment is dependent on the weather. If it’s raining when the appraiser shows up for the inspection and the house doesn’t have an overhanging roof, portico, or awning of some sort and the appraiser has to stand out in the rain while waiting for the owner to answer the door.

Shrubbery adjustment
This depends on several factors including the density of, and proximity to, the house. (In certain cases the appraiser may amend the statement of Limiting Conditions to include, “Due to the proximity of Holly, Barberry Hedges, and or Rosebushes to the subject dwelling, the actual square footage is anybody’s guess.”)

Excessive radius adjustment
Sometimes related to Shrubbery, but this is appropriate when the radius of the wall at a corner of the house precludes appraiser from anchoring the tape measure and walking it to the next corner without slippage. (can also be used if the radius at the corner is so sharp as to prevent the appraiser from unhooking the tape measure from 30 feet away and has to walk all the way back to free it)

Shape of house adjustment
This applies, in varying degrees, to any house that is not a perfect rectangle AND whose owner does not have a set of blue prints that you can borrow. (Of course, if the house was designed by Frank Gehry, even blue prints won’t help very much)

Dog minefield adjustment
Last, but certainly not least, is the Dog minefield adjustment and this one combines all the others, not to mention the size of the dog.

I am counting on the support of my fellow appraisers as I begin my campaign. Let’s bring the issue of “Capital” punishment to the front burner once and for all. Let those offending homeowners know in no uncertain terms that we are not afraid to, if necessary, Kill the Deal.

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4Q 2006 Manhattan Market Overview Available For Download

January 29, 2007 | 12:01 am | | Public |

The PDF version of the 4Q 2006 Manhattan Market Overview [Miller Samuel] that I write for Prudential Douglas Elliman [PDE] is available for download. I have been writing these market reports for them since 1994. I neglected to post this on Matrix sooner.

In addition, you can see the methodology that went into the report including the neighborhood boundaries and the type of content we have available.

You can also build your own custom data tables using the aggregate report data (from 1Q 89 through 4Q 2006) and view a series of quarterly market charts, many related to the current market report.

_An excerpt_

…Buyers begin to stir as sellers price prop-erties closer to market levels For the past year and a half, the Manhattan market had been characterized by a surplus of listing inventory, with a large portion of it comprised of overpriced resale properties. An abundance of new development inventory has been the focal point of the excess inventory problem. A rift between buyers and sellers emerged as buyers became more demanding about price discounts, resulting in a lower level of sales activity and expanded days on market. Many would-be purchasers moved into the rental market, not because they could not afford to purchase but because there was concern over the near term outlook of the real estate market. However, listing inventory stabilized in the third quarter and dropped sharply in the current quarter as the expiration of over priced resale listings overtook the rise in new development inventory. Record Wall Street bonuses have provided more disposable income and helped keep unemployment levels low. This has helped fuel demand for housing, the effect compounded by four consecutive years of gains because bonus recipients may or may not purchase in the same year their bonus was awarded. Election changes in the federal government last November, more realistic pricing by sellers, a drop in inventory levels as overpriced listings expired, low local unemployment, solid fiscal condition of city government, weakening US dollar, stabilizing mortgage rates and lack of a price correction in six quarters in the post housing boom era have all helped influence buyers to reconsider their position and begin to enter the purchase market again…..

Download report: 4Q 2006 Manhattan Market Overview [pdf]


Condo Data Used To Forecast The Entire Housing Market Analyze Condos

January 26, 2007 | 1:34 pm |

Yesterday I found myself on CNBC Morning Call debating with Adam Koval, former stock analyst and founder of the San Francisco real estate site Socketsite whether analyzing the condo market as representative of the overall housing market was a better indicator. There was no real time to make our points because Natural Gas Inventories numbers were being released.

Adam is a sharp guy who came up with this theory that got coverage in CNN/Money and was picked up by CNBC.

His stock market background probably explains his reason for taking the investor/condo approach to analyzing the real estate market. He believes that it is all about the investors because they are not emotional and condos are more homogeneous so they can be more readily compared.

So investors and condos lead the way because its easier to measure appreciation?

I think there is a great need by investors, consumers, real estate professionals, the media and others to strip away all information on real estate markets until you get to the:

Magic Real Estate Market Indicator

You know, that one indicator that makes us feel warm and fuzzy inside knowing that we have the inside answer. Well, guess what? It doesn’t exist.

Investor Angle

The argument goes that investors research and interpret at the market clinically, without the emotional reactions that consumers and are simply looking for the return on investment (that makes so such sense or we would have never experienced market corrections in stock markets). Now imagine using the stock market indexes to estimate the value of your specific stock. i.e. the Dow Jones Industrial Average to price your Microsoft shares. It would make no sense.

Since I analyze a real estate market based in an international financial market hub (NYC) there is a great deal of efficiency because that is the orientation of many.

Here’s a few reasons why the stock market/investor activity doesn’t correlate to the real estate market:

  • Stocks operate in highly efficient markets, trading in thousands of shares per day
  • Transaction costs are low
  • Investors can move in and out of a position in seconds
  • Investors in the housing boom were carpenters and nurses rather than institutions.

Condo Angle

That being said, lets now look at investors and condos.

Individual real estate investors are more likely to purchase condos rather than single family houses. They are usually looking at cash flow after rental or appreciation. This is how publications like The Economist do it. They look at the relationship of rents to housing prices, assuming that investors are a major force in the market. But what if they are not?

Here are some basic problems with condos as an indicator:

  • Condos are not only purchased by investors. They are purchased as a primary residences as well so they have the same irrational influences the single family housing market.
  • Investor buying patterns and motivations are different than someone purchasing for owner occupancy.
  • Investors represent a minority of home purchases (In the investor peak year of 2005, NAR reports 28% of purchases were by investors). How can 28% speak for 72%?
  • Condos are a different price point than houses in most markets and they are usually less. That is a different demographic with different motivations for purchases.
  • Condo developments generally have different locations than single family houses. They are often in urban settings or other higher density areas where individual houses would not be viable. They enable to maximize the value of sites that are in locations less marketable to single family houses such as adjacent to commuter train stations.
  • Data for condos shouldn’t be any more difficult to get than houses are if they are both considered real property.
  • Condos are not necessarily homogenous and easy to compare. I think argument also sees condos as mainly newly developed but they have been around for a long time. True, the value differences between units in the same line are less likely to vary much in value within a few years after development. But what about older condos? Do we exclude them as well? If we exclude them we have more narrowly defined the market and therefore, less usable for other markets.
  • Condo markets in the major metro areas that reported highly unusual investor activity such as Washington DC, Miami, Las Vegas and San Diego are not representative of the overall markets in their areas. For example, an investor that can’t make their payments because they can’t rent out their unit for as much as the mortgage payment are going to work harder to protect their primary residence.

In Adam’s defense, I think he was trying isolate appreciation in order to see how the market is doing.

In other words, a new condo will like not be upgraded within a few years after purchase. So the change in value over this period would be attributable to appreciation, not some sort of improvement made to the property.

  • Passive appreciation – appreciation that comes from changes in market conditions
  • Active appreciation – appreciation that comes from improvements to the property

Also it is unlikely that the size of the unit would change (unless combined with an adjacent unit), unlike a new addition added to a house. This is a valid concept, but as an indicator, it can only apply to the market being measured, because any other similarities are merely coincidence.


[Curbed] Three Cents Worth: Discount Compression Obsession

January 25, 2007 | 3:44 pm | | Columns |

Its Thursday, so its that time of the week to provide my Three Cents Worth as a post for Curbed. This I obsess about listing discounts, or lack thereof.

To view post: Three Cents Worth: Discount Compression Obsession

Previous posts can be found here.

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[In The Media] CNBC Morning Call Clip for 1-25-07

January 25, 2007 | 3:18 pm | Public |

Here is a clip of my appearance on today’s Morning Call show on CNBC.

The topic was brought about by Adam Koval, who runs, a web log that covers the San Francisco housing market. Adam’s theory is that the condo market is a good indicator of the health of the overall housing market. This was covered in a CNN/Money article by Les Christie called Condo prices reveal housing trends: Comparing condo prices may be the best way to gauge the direction of housing prices. and I was quoted as not agreeing at all with the premise.

The CNN/Money article interested CNBC and they invited us both to appear in conjunction with NAR’s housing stat release for December. Adam and I have traded emails and we are on each other’s blog roll but I never knew what he looked like until we went “split screen.”

He and I were interviewed on CNBC Morning Call by Mark Haines who was great as usual.

As is the way on television, there was not enough time for the topic but it was fun to do. I was itching to respond to the last question but we ran out of time. Since I don’t agree at all with Adam’s premise I’ll present my argument as a post tomorrow.

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