Matrix Blog

Housing Indices

[Leverage] Calculating Your Home Investment Return Realistically

March 16, 2014 | 9:00 am | Infographics |

leverageinfographic
[click to expand]

I think many, if not most people calculate the return on their home as an investment as this CNN/Money calculator does. After seeing this, I whipped up a theoretical infographic illustrating how the use of leverage in a home purchase factors in to your return. It’s super simplistic, not factoring in opportunity cost, use and enjoyment, tax deductions, improvements and other factors because I wanted to show the power of leverage.

Forget about price indices like Case Shiller or similar. I can’t tell you how many times I have seen a home price index paired up against a stock price index as a way to determine which investment is better. Apples and oranges.

Measure your ROI using what you invested (down payment) and what your home equity expanded (or contracted) to.

The CNN/Money rate of return calculator is really only a measurement of home price appreciation compared to the same period for stocks and bonds as an opportunity cost – comparing different asset types side by side – yet that’s not how the majority of homebuyers interact with their home as an investment.

It’s most often about leverage.

UPDATE
An appraisal colleague and friend of mine pointed out that in my original version, I incorrectly used the word “profit” within the infographic rather than what I was actually talking about: “equity” ie return on investment (ROI) – how much the original down payment gained over time. The numbers all remained unchanged.

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Housing Starts Drop: Whether the Weather or New Trend?

February 20, 2014 | 12:21 pm | Videos |

Yesterday I did a quick interview for CNBC at 30 Rock (right next to the new Tonight Show/Jimmy Fallon set which was all abuzz). We were talking about housing starts before they were released. While predicting this stuff is a fool’s errand, I think the bigger question was whether the recent weakening of housing metrics was a new trend or a pause caused by the harsh weather creating havoc across the US.

NAHBconf2-14

The NAHB homebuilder sentiment index (1 family) posted its largest one month drop in history – severe weather, cost of labor, materials and land with given as reasons but those really aren’t new issues other than the severe weather.

While weather played a role and probably amounts to more of a short term blip, I think the larger concern is the outlook over the next 6 months with reduced affordability (higher rates but still historically low) and the bottoming of existing home inventory in 2013 providing additional listing competition in some markets.

December housing starts
• 999k annualized and seasonally adjusted rate in December, declining 9.8% but exceeding forecasts. More weakness in multi-family starts than 1-family • +18.3% 2013 over 2012

Why I thought January Housing Starts would fall (luckily I was right with the announcement of a record 16% drop) • Same factors in place as last month: Weather, Labor and Material Costs and Land Costs. • Record m-o-m drop in NAFB confidence – looking out over the coming months – suggests a larger impact by weather. • Mortgage rates slipped from last month but still nearly a point higher than a year ago, expectation of flat or edging higher in 2014. • Implementation of Dodd-Frank Qualified Mortgage (QM) may also drag viewing traffic. • Permits already fell over last 2 months which suggests lower starts (contracts versus closed sales analogy).

Actual January housing starts release after my interview
880K annualized rate in January, dropping 16% from December 2013. • January 2014 y-o-y dropped 2%. • Permits fell for 3rd consecutive month, down 5.4% from prior month (seasonally adjusted).

STILL – the question REALLY is whether the recent construction slowdown is the beginning of a trend or a temporary set back that will clear over the next few months as the weather improves and the economy shows some improvement. Right now it feels more like the market is losing momentum and the weather is only making it worse.

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[Video] Talking Housing on CNBC TV’s Street Signs 9-25-13

September 25, 2013 | 7:29 pm | trdlogo | Videos |

I’m not quite ready to use the word “haunted” in my housing language, but I had a nice chat with Brian Sullivan and Mandy Drury of CNBC TV’s ‘Street Signs’ – 30 Rock is always quick walk from my office to do the remote. Although my firm’s name was announced backwards on air (It’s really “Miller Samuel” I swear), I think my logic was forward (sorry).

Fun. Plus Mandy gives The Real Deal Magazine a shout out.

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[Video] Talking Housing on Bloomberg TV’s Surveillance 9-24-13

September 24, 2013 | 12:10 pm | bloomberglogo | Videos |

Always fun (and refreshing) to talk housing with Tom Keene, Sara Eisen and Scarlet Fu on Bloomberg TV’s Surveillance. I always watch or listen to the show on their apps as part of my morning routine. Got to meet and hear great insights from Jim O’Neill, Bloomberg View columnist and former chairman of Goldman Sachs Asset Management as well.

Did I tell you I am still the mayor of the Bloomberg Cafeteria on Foursquare?

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[Video] Talking Housing, Case Shiller, on Bloomberg TV’s Surveillance 8-28-13

August 28, 2013 | 11:13 am | bloomberglogo | Videos |

I had a nice discussion with Tom Keene, Sara Eisen and Alix Steel, along with guest host Byron Wien, vice chairman of Blackstone Group LP’s advisory services on the state of US housing and the latest Case Shiller numbers.

More importantly, I’m still the mayor of Bloomberg TV’s Green Room on Foursquare.

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NAR July 2013 US Existing Home Sales Unexpectedly Rise 6.5% M-O-M

August 21, 2013 | 12:08 pm |


Source: NAR

After slipping in June, NAR’s Existing Home Sales for July jumped 6.5% unexpectedly from the prior month. Last month the results showed an slight decline (and were adjusted downward for this release) and the thinking was that the market is starting to cool off with the introduction of rising rates to the market in May. The bulk of May contracts probably closed in July, the likely basis of this most recent release. However it looks like the market continued to see a rise in demand in June, following the May bump in rates as people looked to get in the market before rates rose further.

Still, this month over month stuff is pretty ridiculous to place a lot of faith in. The year over year surge of 20.7% (non-seasonally adjusted) and 17.2% jump (seasonally adjusted) is much more telling of the long term market change.

Here are a few other charts to review. Inventory is much lower than a year ago while showing some gains in excess of seasonal trends. Median sales price growth is off the hook. 13.7% YoY growth is not sustainable with flat income, tight credit and high unemployment and underemployment. Thanks goodness for rising rates.


Source: NAR


Source: NAR

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Housing Can’t “Recover” Until Fundamentals Recover

August 20, 2013 | 1:58 pm | Videos |


Source: Yahoo! Finance

I had a nice conversation with Lauren Lyster today over at Yahoo!’ The Daily Ticker.

I find the bifurcation (yes Bernice, I actually used this word!) between those who see the housing market as recovered and those who don’t fascinating. A recovery is a process and we are in the middle of it – but it hasn’t reached it’s destination. As far as the <7% unemployment comment in their post headline goes…I see housing as normalizing when employment normalizes – not that 7% is a trigger for housing to suddenly recover below this threshold. Nuance, baby.

Why else would so many fret about rising mortgage rates? Nearly every comment on the video – 146 when I wrote this, referenced the weakness of the job market, under employed, lower wages.

I think rising rates are a good thing for housing, long term because they take some of the froth out of the market. Seriously – how can prices rising more than 12% YoY with flat income, high (but improving) unemployment and tight credit? One could even argue that a better rate spread with higher rates and bank business decision pressure to loosen standards as refi volume drops sharply will bring some easing to underwriting standards eventually.

Aside
If you want to get some clarity, watch this video earlier this morning over at The Daily Ticker on Why Investors Should Ignore Economists. No one makes a point more clear (or more bluntly) than my friend Barry Ritholtz.

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Talking Case Shiller on Bloomberg TV’s ‘Street Smart” with Betty Liu/Adam Johnson

May 29, 2013 | 11:57 am | bloomberglogo | Public |

Yesterday’s release of the Case Shiller Index prompted a flurry of coverage given the 20-cities’ highest YoY increase in 7-years. I did a three way split interview from a remote location in CT (see studio set up below). I was a guest along with Vincent Reinhart, chief US economist at Morgan Stanley and Stan Humphries, chief economist at Zillow Inc. Betty Liu and Adam Johnson kept the conversation going.

I especially liked Stan’s modification of the Case Shiller Index results which excluded foreclosures and his research on low and negative equity (my explanation for low inventory right now). The drop in foreclosure activity over the past year caused significant skew to the mix. According to Stan the index would show roughly a 5% increase YoY rather than an 10.9% increase. A huge difference and yet another reason why this index does more harm than good to our understanding of the housing market.

Vincent’s observation that seasonality is considered in Case Shiller is basically wrong – not technically wrong because the data is seasonally adjusted. However the methodology of a repeat sales index washes out seasonality. If you look at the Case Shiller chart, there hasn’t been “seasons” in housing since 1987. That’s simply not true. The Case Shiller Index does not reflect annual housing cycles.

Since Case Shiller Index lags the signing of contracts by 5-7 months, expect to see much higher YoY results this summer.

How the sausage is made

Bloomberg TV is always great to work with – they arranged for me to use a remote studio in CT through a third party. Here is what the studio looks like. Amazingly primitive but it works!

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Manhattan Diverged From NYC At US Housing Boom Peak

February 14, 2013 | 10:54 am | trdlogo | Charts |


[click to expand]

As the above chart illustrates, the aggregate median housing price in New York City, based on co-op, condo and 1-3 family property sales, with and without Manhattan sales go their separate ways circa mid-2006, at the Case-Shiller Home Price Index peak of the national housing market. This also makes the decline in the New York Case Shiller HPI all that more maddening (because it’s not Manhattan, or co-ops or condos or new development and includes Long Island, Fairfield, Westchester, Northern New Jersey and a county in Pennsylvania).

The market share for new development sales in Manhattan peaked in 2Q 06 at 57.9%. The 4Q12 market share was 12.5% but fear not, more new development is coming per The Real Deal.

During the boom through today, the shift in the mix towards Manhattan luxury property, largely from the combination of new development activity as well as vigorous Wall Street and international demand has expanded the difference between Manhattan and the rest of New York City. In other words, the gain in median sales price for NYC was caused by a shift in the mix toward higher end properties.

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Housing Data as Pop Culture

February 14, 2013 | 7:00 am | delogo | Charts |


[click to open article]

A recent post in CNN/Money featured Andy Warhol’s 1984 “U.S. Unemployment Rate. No Campbell Soup Cans but it feels strange to associate his art with economic data from the 1980s. It somehow works for me. One of the coolest property inspections I made was through “The Factory” years ago.

In 2007 the “Stand-up Economist” Yorman Bauman led the way with this much watched video on the difference between macro and micro economists. “Microeconomists are wrong about specific things while macroeconomists are wrong about things in general.” HI-larious.

And recently the TV game show “Teen Jeopardy” had 5 questions about the “Federal Reserve.”

Christie’s sales rep said:

“Economic data has become popular culture. While we used to think of it as being some kind of verified information only for people who are really knowledgeable about the economy, it’s popular culture now. You can talk to a taxi driver about it.”

I completely agree. Gangnam Style and GDP now go hand in hand.

We devour housing data ie the recently released Real Deal Data Book (I’ve got a lot of charts and tables in there!)

Throw in the heavy downloads of our report series for Douglas Elliman, NAR Research, CoreLogic, Case Shiller, RealtyTrac, etc. it’s clear to me that housing data is an obsession and embedded in popular culture (thank goodness).

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