Matrix Blog

Statistics, Metrics & Data

Its Real Estate Groundhog Day And NAR Did Not See Its Shadow

November 7, 2005 | 8:37 am |

The National Association of Realtors did not see its shadow and believes spring will come early this year. [Groundhog.org]

There has been a tremdous amount coverage on the shift in gears of the real estate economy of late and I have read more articles on the housing market than I care to admit. Besides the Census Bureau, the NAR has been one of the primary sources of statistic and interpretation to the public on this market transition. While I can’t verify the stats they use, their description of the market has been generally accurate and largely absent of the grossly exagerated spin we would expect from a trade group with a built in bias. Of course there is plenty of spin, but hey, they are a trade group.

Here’s a typical article written from a NAR press release.

NAR Sees Soft Landing as Housing Bubble Transitions To Expansion [Mortgage News Daily]

However, on a local level, I find that the word is often not getting to the brokers on the front line. Realtors are under no obligation to predict the market. They are only obligated to present as much accurate information as they can for their clients so the client can make the decision that is right for them. Quite often, the arguments for a “strong” market is based on the fact that the prior period saw record prices. First of all, that would mean that the market, by definition, would never fall. And by the way, what does “strong” mean? A lot of sales? Rising prices? Not as sharp of a price drop as was expected?

Here’s a few articles that are based on good old-fashioned hard selling:

*Realtors: No sign of price bubble here [Orlando Sentinel]
*Bubble talk overblown, according to top Realtor [Contra Costa Times]
*Home prices — and competition — strong [Seattle PI]


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NAR Pending Home Sale Index Weakens, But Still Nearly At Record Levels

November 6, 2005 | 9:28 pm |

Since we are in a changing market, it is also important to look at price indicators that are closer to the point where the “meeting of the minds” occurs between buyers and sellers. As I indicated in a prior post on Matrix, the national housing stats for existing home sales (NAR) are based on closed sales and new home sales (Census) are based on contracts. The NAR also has an indicator based on contracts called the Pending Home Sales Index or PHSI [PDF]

PHSI

Source: NAR

Pending sales eased from last month but was at its second highest mark on record [RISMedia]

Whats really interesting about the stats is the difference between seasonally adjusted stats and the stats that were not seasonally adjusted. For example, the seasonally adjusted national numbers showed a 0.3% drop in contract prices while the unadjusted numbers showed a 12.7% drop. Quite a difference betweent the results. Annual changes were up 3.3% seasonally adjusted and up 2.7% unadjusted.

At the end of the day, these numbers tell us that contract prices, as a leading indicator, were slightly weaker nationwide compared to the prior month.


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New Home Sales and Existing Home Sales Are Way (30 to 60 Days) Apart

October 30, 2005 | 9:00 pm |

The US Census Bureau clarifies the difference between new home sales and existing home sales. “New home sales and existing home sales are released each month at about the same time. Many comparisons are made between the two series, but before doing any comparisons, one must be aware of some definition differences that affect the timing of the statistics. “

New Home Sales
“The Census Bureau collects new home sales based upon the following definition: “A sale of the new house occurs with the signing of a sales contract or the acceptance of a deposit.” The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction. “

Existing Home Sales
“Existing home sales data are provided by the National Association of Realtors®. According to them, “the majority of transactions are reported when the sales contract is closed.” Most transactions usually involve a mortgage which takes 30-60 days to close. Therefore an existing home sale (closing) most likely involves a sales contract that was signed a month or two prior. “

To Summarize
Given the difference, the indicated trends in New Home Sales would probably lead Existing Home Sales by 30 to 60 days, the length of time it takes for an existing home sale to close from point of contract.

However, New Home Sales are more volatile from the standpoint that it is a much smaller data set as they represent something like 10% the number of Existing Home Sales.

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Something Existing, Something New, Something Old, Something Skewed: New Home Sales Weaken

September 27, 2005 | 8:51 pm |

The US Census Bureau and the US Department of Housing and Urban Development released the New Residential Sales Report for August 2005 [PDF].

crane

Here are the highlights: [MarketWatch]
* The survey represents about 15% of all residential housing sales.
* Sales of new homes fell 9.9% from July 2005
* Sales of new homes increased 6.2% from August 2004

* Listing inventory increased 2.6% from July 2005
* Listing inventory increased 18.0% from August 2004

* A 4.7 month supply of housing at the present rate, up 14.6% from 4.1 months in July 2005
* A 4.7 month supply of housing at the present rate, up 9.3% from 4.3 months in August 2004

* Median sales price was $220,300, up 2.5% from $215,000 in July 2005
* Median sales price was $220,300, up 1% from $218,100 in August 2004

august05new

For more charts:
[Calculated Risk]

What does this all mean?

Well, the survey size is small relative to existing home sales but its based on contracts so its closer to actual market conditions right now. Did you know that this survey is not made based on actual sales data but rather it is based on sample surveys?

rates8-2005
The report indicates that the national housing market for August weakened with a drop in volume from last month, an expansion of inventory, yet still an increase in prices. Much of the drop was artibuted to the slow down in multi-family housing, namely condominiums and rentals [REJ]. The jump in mortgage rates in July may have been one of the catalysts for the slow down.


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G’Data! Australians Unhappy With Their Housing Data, The US Doesn’t Seem To Be

September 24, 2005 | 8:28 am | |

In Australia, flawed housing data draws some concerns over their monetary policy thinking [The Australian]. The Reserve Bank of Australia (RBA is the US equivalent of the Federal Reserve Bank) has been increasingly vocal over the past few years over the quality of housing statistics. “Most of the available price information from real estate agents, banks, the various organisations that monitor house prices and the Australian Bureau of Statistics is flawed to some degree.”

Aside: the housing peak in Sydney was in 2003 and the market has fallen 7% in nominal terms over the past 18 months.

The concerns raised by the RBA are the timeliness of the information, changes in the mix of housing being sold (ie, large, small, etc.) and quality and size of the housing being constructed.

Same issues in the US

We have similar issues with the housing data available here. Census data is delayed. We rely on NAR for a large portion of the statistics but they are an industry trade group – by definition has a bias, and the data is generally lumped together not reflective of changes in housing mix.

The Federal Reserve does not appear to be displeased with the US data available to the public. Are they looking at something else?

Saw a great quote published in a recent issue of The Economist in an article on the accuracy of scientific research papers that may be appropriate when applied here:

Theodore Sturgeon, An American science-fiction writer, once observed that “95% of everything is crap”. John Ioannidis, a Greek epidemioligist, would not go that far. His benchmark is 50%.

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Rocking The Housing Boat With Too Much Median Income

September 4, 2005 | 10:03 am | |

WASHINGTON (MarketWatch) – For the second straight year, the income of the typical U.S. family was unchanged in 2004 after adjusting for inflation, the Census Bureau said Tuesday. [Note: Reg.].

“The median income masked widespread geographic and demographic differences:

The highest median incomes were in the Northeast at $47,994 and the West at $47,680; incomes in both regions was unchanged in 2004. The median income in the Midwest fell 2.8% to $44,657. The median income in the South was unchanged at $40,773.”

This was made more clear in New York, where the ratio of low to high median income by county was the largest gap on record. The disparity between the low (The Bronx) and high (Manhattan) median income was 52 times. The Bronx now has the lowest median income of any urban county in the country.

Shrinking Middle Class

However, the middle class is shrinking in New York City. Since the late 90’s, the upper tier of the real estate market has done well because much of the gains in personal income went to the top twenty percent…yet at the same time, the overall median income was flat.

We see statistics that show that the price of housing in many real estate markets is disproportionate to income. If you look in New York, for example, personal income growth has been seen at the top tier and, surprise, surprise that is where the new development has been targeted. Very limited new Manhattan development of middle class housing has occurred. The gains in new housing stock, when thrown into the mix, would tend to skew the overall median (yes, median) and average sales price numbers upward.

This all makes for the argument that it is not very reliable to lump all housing markets into one big bucket or compare overall housing stats to overall personal income stats since the specific market sectors are what tell the story. Otherwise, it paints a picture of rough seas and we better start bailing.


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Well, Maybe The Inflation Threat Is Not That Bad After All?

August 18, 2005 | 2:32 pm | |

Yesterday, the Bureau of Labor Statistics released the CPI figures for July and while core inflation was relatively flat, energy and housing saw large gains. The concern was that oil was threatening to fan the flames of inflation. The PPI Report

A day later that concern seemed a bit exagerated as…economists expressed little concern [Note: Subscription] that the higher prices producers are paying signal broad inflation.

Economists also pointed to Tuesday’s consumer-price report, which showed a modest 0.5% advance in July, with the core rate increasing a benign 0.1%.

In addition, the producer-price index for intermediate goods rose 1%, largely because of energy-cost pressures, and the core intermediate index fell 0.1%, the third consecutive monthly decline.

What is the Producer Price Index? In other words, CPI measure price changes to the buyer while PPI measures price changes to the seller.

Rising oil prices appear to be slowing economic growth and placing investor concerns of inflation at ease for now.

Economic stats seem to be more volatile than ever. For example, core cpi would have been even lower had it not been for the rise in auto prices, yet this does not correlate with recent record auto sales due to aggressive discounting. Economists have long complained about the reliability of auto sales and later revisions. Accounting for about one-sixth of US jobs, so the impact of these stats affects the reliability of the overall numbers significantly.

What does all this mean? Many believe the Fed has at least 3 more increases in it before the end of the year. This doesn’t seem to mean that mortgage rates are bound to increase.

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Supersized Housing With More Amenties

August 14, 2005 | 4:39 pm | |

According to the US Census, the average size of a house in the US is 2,349 square feet, up almost 300 square feet from 1990. We are seeing larger homes coming into neighborhoods called Faux Chateaus [Note: Subscription] or McMansions [Note: Paid Subscription].

Its not just the size thats increasing in new construction, more amenities are being added.

This trend tends to overshadow pricing in the housing market. Larger housing skews the overall market statistics, both median sales price and average sales price, so the rise in prices would be overstated.


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Addition Of New Housing Units Described As Evidence Of Population Growth

August 8, 2005 | 10:26 am | |

According to Crain’s New York Business, the city is filing suit against the Census Bureau [Note: Subscription] arguing that the addition of housing units was evidence that the population expanded since 2000, rather than contracted.

Its an interesting argument since the demand for housing has been particularly robust which can not solely be driven by low mortgage rates and changing demographics.

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