About a week ago, doormaninNYcity started to follow me on twitter and I found the tweets quite fascinating. This anonymous feed of information reminds me of the old days (4 years ago) when Property Grunt and Brownstoner burst on the blogosphere scene – they were anonymously written sites that gave readers fantastic insights (still are).
A few days ago doormaninNYcity wrote this tweet:
An appraiser came for a resident when I buzzed the resident asked if he can wait 5 min he wasn’t ready, the appraiser said no & left.
Think about that for a second – for the appraiser to leave because he couldn’t wait 5 minutes must have meant he budgeted five minutes for the inspection and would be late for the next one. Depending on the size of the property, 30 minutes should be the bare minimum time spent in the property.
This has got to be one of those appraisal management company appraisers who have the real estate industry up in arms about the poor quality appraisals.
It was great to speak with Dr. Sam Chandan, President and Chief Economist of Real Estate Econometrics and an adjunct professor of real estate at the Wharton School of the University of Pennsylvania.
Well, it’s still morning in LA.
Real Deal Magazine publisher Amir Korangy and Editor Stuart Elliott finally get their due with a page 1, column 1 story in the LA Times yesterday. It covers their history and what its like to cover the New York housing market.
There was a market related quote in the article from one of the top New York City commercial real estate brokers, Bob Knakal, of Massey Knakal in Manhattan that got my attention. Here’s how he described the current commercial real estate market.
“It’s as if you had both your arms hacked off and you were bleeding all over the place,” Knakal says. “But then the bleeding stopped and you feel a little better. You still have your arms hacked off, but everything is relative.”
That’s brutal honesty – literally.
Had a nice conversation with Connell McShane and Jenna Lee about the false message being relayed through national housing reports and how this could actually damage housing further. On YouTube the clip is called “Housing Recovery is False.”
I was given enough time to get my point across. Always fun.
“Rounding the corner” versus “finding a bottom”
Update: Similar message given in clip U.S. House Prices Haven’t Bottomed Yet [WSJ].
Here is my latest handiwork for the Huffington Post.
The article is below in full if you don’t want to click on the link:
Current Wave of Housing Euphoria May Extend Downturn
Jonathan Miller 7-30-09
The spring housing market is behind us and we are now fully ensconced in summer, able to sit at the beach, sip our drink and watch the waves roll in.
Waves of housing statistics that is.
Seemingly everyone from the consumer to the POTUS has been waiting for a rogue wave that will finally bring some good news on housing. In fact most of us are aching from bad news overload and desperately want good news or at least a temporary reprieve from the bad.
Like the closing scene from the 1973 movie Papillion where Steve McQueen’s character–when trying to escape from the island–determined that every seventh wave was big enough to enable him to float past the rip currents that surrounded the island.
The monthly gauntlet of key housing market reports from the past week show a rising tide of better-than-we-have-heard-in-three-years-news on the state of US housing market.
Here’s a recap:
July 22, 2009 Federal Housing Finance Agency news release headline: “U.S. Monthly House Price Index Estimates 0.9 Percent Price Increase from April to May.” This report reflects sales with conforming mortgages through Fannie Mae and Freddie Mac at or below $417,000 plus the high priced housing markets such as the New York City area that have a $729,750 mortgage cap. Housing markets that rely on conforming mortgages are expected to recover first because the that mortgage market has been the target of recent federal stimulus and bailouts. However the month over month price increase of 0.9% touted in the report headline is the first such increase since February. Although 5 of the 9 regions show a month over month increase in prices only 1 of those 5 regions had an increase in the prior month. In other words, this trend is not very compelling.
July 23, 2009 National Association of Realtors Existing Home Sales report headline: “Existing-Home Sales Up Again” The number of re-sale increased 3.6% in June from May, the third month over month increase in activity. The number of sales was only 0.2% below the level of last year’s activity in the same month. This was largely due the 31% market share of foreclosures, assumed to be purchased by speculators plus the impact of the federal tax credit for first time buyers which expires at the end of November. However, this seasonally adjusted sales 3-peat was also seen at the end of 2006 and the beginning of 2007 before sales activity fell sharply. In other words, this trend is not very compelling.
July 27, 2009 Commerce Department New Home Sale Index headline: “New Residential Sales in June 2009.” This is the report that got everyone excited because of the 11% increase in new home sales month over month and the largest such increase in 8 years. Floyd Norris of the New York Times points out that if you look at the actual number of sales in June, it was the second lowest month of sales on record since the metric was tracked in 1963. In other words, this trend is not very compelling.
July 28, 2009 S&P/Case-Shiller Index “Home Price Declines Continue to Abate.” The 20-City Composite has shown a lower annual rate of decline for 4 consecutive months and 13 of the 20 metro areas posted month over month increases but this is before seasonality is adjusted for. In other words, we expect prices to rise in the spring if they are going to rise at any point during the year. If seasonality is factored in, month over month gains evaporate. In the New York City region, the 20-city composite index doesn’t cover co-ops, condos, foreclosures and new development, more than half the sales activity. In other words, this trend is not very compelling especially after considering that along with the most recent month in the report, the index has declined year over year for 29 straight months.
In a stroke of irony, big media, which was on the receiving end of the real estate industry’s “blaming the media” ire for the past three years–as responsible for making the downturn worse–has taken the positive outlook and run with it. Nearly every major news outlet has begun to report each of these reports by cherry-picking and overweighting the positive elements results in a downright giddy tone. Over the past week, the general sentiment in news coverage is clearly moving towards the positive but mainly confined to the headlines.
As a reporter once told me (and I am paraphrasing) “Negative news only sells for so long – consumers eventually stop reading it as they become become numb to it.”
Perhaps this is best exemplified by yesterday’s kind of thin New York Times page 1 story on housing:
“3-Year Descent in Home Prices Appears At End.”
This was the headline that put me off a bit since the article itself wasn’t very committal to the notion that the housing market has bottomed. Perhaps this is why the web version of the article was titled with a more sedate headline that was more in sync with my view:
“Recovery Signs in Housing Market Stir Some Hope.”
Step back for a second and ask why would the housing market start to improve now to lead the economy?
If more people are losing their jobs and credit remains tight, how can we expect the number of sales and housing prices to over come this. Unemployment is still rising and is expected to continue rising through next year even though the recession could be over right now or close to it. Housing inventory is still high and the number of sales, exclusive of distressed asset sales is still low. Speculators may be on their way to becoming a force again in the market. Mortgage rates are expected to trend higher over the next few years with all the new debt taken on by the federal government. Credit is still very tight, and while there has been some discussion of loosening in mortgage underwriting, banks still aren’t enthusiastic about lending. There appears to be some easing on conforming mortgage underwriting but a chokehold remains on jumbo and new development financing.
Here’s the problem.
Sellers tend to “chase” the market when it is falling, unable to respond to the decline in values as quickly as the market does. If sellers take this positive news too seriously and don’t focus on the realities of their local markets, they may end up being over confident when negotiating a sale, losing the buyer and falling even further behind the market than they would have otherwise, eventually selling for less.
Luxury condo developers and especially the lenders behind them, many of whom are facing stalled projects, could experience a sense of renewed optimism from the recent depiction of the housing market, causing them to miss the market, eventually realizing a larger loss.
So let’s be clear. While I am hopeful that we will see a housing recovery at some point in the future, I’d rather it be real.
In the meantime, I’ll sit at the beach and count the waves.
This quarterly market report is provided by Dr. Kevin Gillen, an economist at the Real Estate Department of the Wharton School and Fellow of the University of Pennsylvania. He analyzes the Philadelphia real estate market using the city’s real estate database through Econsult, an economics consulting firm based in Philadelphia PA that provides statistical & econometric analysis in support of litigation as well as business and public policy decision-makers. His results are published in a research paper called Philadelphia House Price Indices each quarter as a public service to the Philadelphia real estate community. Here’s his methodology.
Kevin does a great job parsing out the market and it is a pleasure to share his results on Matrix â€”Jonathan Miller
Here’s some press coverage on the findings.
After seven consecutive quarters of declining house prices, the typical Philadelphia home actually rose in value by an average of 6.8% on a quality- and seasonally- adjusted basis this past spring, according to the latest analysis by Wharton and Econsult economist Kevin Gillen. This is a reversal from nearly two years of price declines. And, when added to previous price declines, Philadelphia house values are down cumulatively by 12% from the local marketâ€™s peak of two years ago.
UPDATE: Kevin released his Philadelphia Regional House Price Indices, 2009 Q2 which includes the Philly perimeter of outlying counties in Pennsylvannia, Delaware and New Jersey.
The Greater Philadelphia Regionâ€™s housing market exhibited some signs of stabilizing this past quarter, with both house sales and prices showing modest increases. (August 12, 2009)
The Federal Reserve just released the Beige Book which provides anecdotal commentary on the economy nationally and across the regions of its member banks.
Here’s real estate and mortgage excerpts from the overall report. The macro take away is the pace of economic decline has “begun to stabilize” or “moderated.”
Residential real estate markets stayed soft in most Districts, although many noted some signs of improvement.
Real Estate and Construction
Residential real estate markets in most Districts remained weak, but many reported signs of improvement. The Minneapolis and San Francisco Districts cited large increases in home sales compared with 2008 levels, and other Districts reported rising sales in some submarkets. Of the areas that continued to experience year–over–year sales declines, all except St Louis–where sales were down steeply– also reported that the pace of decline was moderating. In general, the low end of the market, especially entry-level homes, continued to perform relatively well; contacts in the New York, Kansas City, and Dallas Districts attributed this relative strength, at least in part, to the first–time homebuyer tax credit. Condo sales were still far below year–before levels according to the Boston and New York reports. In general, home prices continued to decline in most markets, although a number of Districts saw possible signs of stabilization. The Boston, Atlanta, and Chicago Districts mentioned that the increasing number of foreclosure sales was exerting downward pressure on home prices. Residential construction reportedly remains quite slow, with the Chicago, Cleveland, and Kansas City Districts noting that financing is difficult.
Banking and Finance
In most reporting Districts, overall lending activity was stable or weakened further for most loan categories. In contrast, Philadelphia reported a slight increase in business, consumer, and residential real estate lending. As businesses remained pessimistic and reluctant to borrow, demand for commercial and industrial loans continued to fall or stay weak in the New York, Richmond, St. Louis, Kansas City, Dallas, and San Francisco Districts. Consumer loan demand decreased in New York, St. Louis, Kansas City, and San Francisco, stabilized at a low level in Chicago and Dallas, and was steady to up in Cleveland.
Residential real estate lending decreased in New York, Richmond, and St. Louis. Dallas reported steady but low outstanding mortgage volumes, while Kansas City noted that the rise in mortgage loans slowed. Refinancing activity fell dramatically in Richmond, decreased in New York and Cleveland, and maintained its pace in Dallas. Bankers in the New York District indicated no change in delinquency rates in all loan categories except residential mortgages, while Cleveland, Atlanta, and San Francisco reported rising delinquencies on loans linked to real estate.
Banks continued to tighten credit standards in the New York, Philadelphia, Richmond, Chicago, Kansas City, Dallas, and San Francisco Districts; and some have stepped up the requirements for the commercial real estate category, in particular, due to concern over declining loan quality. Meanwhile, Cleveland and Atlanta reported that higher credit standards remained in place, with no change expected in the near term. Credit quality deteriorated in Philadelphia, Cleveland, Kansas City, and San Francisco, while loan quality exceeded expectations in Chicago and remained steady in Richmond.