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Tags: Elliman Magazine
Bloomberg maintains 6 quarterly charts on their terminals covering the Manhattan luxury sales and rental results we compile. I periodically throw these charts on this Matrix Blog only because I find myself asking…how cool is that?
I added my chart on bidding wars below – falling as supply enters the market, causing resale prices to soften.
S&P CoreLogic used it’s National Non-Seasonally Adjusted Housing Price Index to declare that the housing market has recovered. Even the ironies of this public relations effort have ironies. I’ll explain.
First, look at this classic Case-Shiller chart. Notice how the arrows don’t connect to the lines they are associated? I’m being petty but it looks like the chart was updated and rushed out the door.
Incidentally, who controls the Case-Shiller Indices brand these days? It used to be “S&P/Case-Shiller Indices.” Here are a couple of variations found in the first paragraph of the press release:
but I digress
Since the financial crisis, I have spent a good deal of time explaining away the reliability of the Case Shiller Index.
To be clear, I greatly admire Robert Shiller, the Nobel Laureate and his pioneering work in economics. I’ve had the pleasure of speaking with him on a number of occasions both publicly and privately. He and I were on stage together at Lincoln Center back during the housing bubble for a Real Deal event.
During the bubble I was the public face of a short lived Wall Street start-up that collapsed when the bubble burst. Like Case-Shiller it was built to enable the hedging of the housing market to mitigate risk using a different methodology, avoiding the repeat-sales method used in CS. The firm had annoyed Shiller by constantly citing the issues with the CS index and we got far more traction from Wall Street with our index that was (literally) built by rocket scientists. It got to the point where he mentioned me and the startup by name at a conference in frustration.
After I disconnected with the startup before it imploded, I reached out and we made up. In fact he did my Housing Helix podcast (link broken but hope to bring it back online soon for historical reference) at my office back when I was doing a podcast series of interviews with key people in housing). Also we’ve run into each other on the street in Manhattan a number of times. In fact when he learned of my love of sea kayaking he gave me the latitude and longitude coordinates of his island vacation home in case I was nearby. You can see that I feel a little guilty criticizing the use of the index since he is one of the nicest and smartest people I’ve ever had the honor to meet.
But I don’t like the way S&P, Dow Jones and/or CoreLogic have positioned Case-Shiller as a consumer benchmark. And especially yesterday’s announcement as a marker for the recovery of the U.S. housing market. I feel this is a low brow attempt by these institutions to leverage publicity without much thought applied to what is actually being said. Here are some thoughts on why it is inappropriate to use this moment as a marker for the housing recovery.
“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.
Blitzer remains in the very awkward position of explain away the gap between the market 6 months ago and current condition as if there is no difference. He does this by using anecdotal commentary about metrics like supply that has nothing to do with the price index as well as making pithy remarks.
The Case-Shiller National Index is being touted for reaching the record set in the housing bubble a decade ago despite the record being set back then by artificial aka systemic mortgage fraud. However their 20 city index has been pushed as the key housing benchmark for more than a decade, not the national index. And they are using the non-seasonally adjusted national index to proclaim the record beaten despite their long time preference of presenting seasonally adjusted indices (the seasonally adjusted national index has not broken the housing bubble record yet).
The credit bubble got us to the 2006 peak, not anything fundamental.
In my thirty years of valuation experience, I have learned that sales transactions, not prices, should be the benchmark for a housing market’s health.
The 0% markets that reached the 2006 peak are super frothy – created by rapidly expanding economies and an inelastic housing supply. Income growth doesn’t always justify their price growth. Click on table below for the markets shaded in turquoise.
Some important background points on the Case Shiller Home Price Index (CS) – that most of its users are unaware of:
CS was never intended for consumer use! It was built for Wall Street to trade derivatives to hedge housing market risk much like hedging risk for weather, insurance, non-fat dry milk and cheddar cheese.
CS never caught on because housing is a slow and lumbering asset class, unlike a stock which has much more liquidity. The flaw during this bubble period was the way Wall Street and most real estate market participants considered housing as liquid as a stock and how financial engineering had enabled that liquidity.
As access to public housing data has become more ubiquitous, the index has been more easily gamed by companies like Zillow, who have been able to accurately predict the index results much sooner rendering the index as useless for hedging.
CS lags the actual “meeting of the minds” between by buyers and sellers – when they agree on the price and general terms – by 5-7 months. The November report just released was based on the 3 month moving average of closed sales from July, August and September. If we say that contract to close period is an average of 60 days, then the contracts signed in this batch of data represent May, June and July. And the time between the “meeting of the minds” and the signed contracts can be a couple of weeks, so the results in yesterday’s lease of the Case-Shiller index represents the period around Memorial Day weekend as summer was getting started.
CS only represents single family homes (although they have an index for condos).
CS excludes new development.
There is little if any seasonality in the CS methodology (even though there is a seasonally adjusted version).
Geographic areas in the 10 and 20 city CS indices are incredibly broad. For example, the “New York” index includes New York City, Long Island, Hamptons, Fairfield County, Westchester County, a bunch of counties in northern NJ and a county in Pennsylvania. Yet this index is often represented as a proxy for the Manhattan housing market by national news outlets. Manhattan residential sales have about a 1% market share of single family homes.
In other words, the CS index is a great academic tool to trend single family home prices at a 30,000 foot view for research but not to measure the current state of your local market.
The New York Times created another super cool graphic in their new Calculator column, based on my idea. In the fall of 2015 I observed a massive surge of sales in Westchester County (north of NYC for those not familiar with our area). However median sales price was nearly flat during this period. This was phenomenon repeated in all of the counties that surround NYC – except for NJ since I don’t cover that market yet but anecdotally I believe the same phenomenon is occurring there. I believe this moment was the point where the affordability challenge became so severe that renters and move up buyers had to move out of the city.
Specifically, Brooklyn showed a surge in median sales price from 2009 with a modest growth in sales. Westchester reflected the opposite patterns of Brooklyn. Westchester county sales boomed over the same period while the growth in median sales price was much more tepid.
Below is the NYT graphic for the suburban sales boom article.
When compared to the rest of the U.S. housing market, Aspen Colorado is a really a niche luxury market with an overall median sales price of $1,407,500 in the second quarter of 2016. This was 27% higher than Manhattan in New York City – with a current condo reportedly under contract for around $250 million – whose market-wide median sales price was $1,108,500 in the same period.
I saw a Denver Post article in my twitter feed yesterday that had an SEO friendly headline: Aspen real estate in a first-ever sustained nosedive and a subtitle: Brokers struggling to explain sudden, precipitous drop in luxury real estate market.
Some noteworthy superlatives used in the article were:
If you use the article’s June year to date residential sales volume for the entire county, it is clear that 2015 was an outlier. However because most real estate brokers on commission tend to look at the market in the short run, there was an expectation that the sales trend from 2014 to 2015 would continue into 2016. Because of the uncertainty described in the article, Aspen buyers – who are by definition “luxury” buyers – are clearly pulling back (and in many U.S. luxury markets).
I author a market report that covers Aspen for Douglas Elliman’s market report series, which I began writing in 194. The year over year drop in Aspen 2Q16 sales was 52.5%. Here is the breakdown of sales at the high end:
Based on the behavior of the luxury market in high end enclaves like Manhattan, The Hamptons, Greenwich, Miami and Los Angeles that are also covered in our report series, the prevailing pattern for housing remains “soft at the top” and it looks like Aspen is no exception. The impact of the 2012 on Aspen sales didn’t seem as pronounced as this year if you believe that is a significant cause. However my theory is that the heavy luxury volume of the prior year (2015) may have poached demand from 2016, exacerbated by the 2016 election and other items of uncertainty like Brexit, the U.S. economy and the financial markets.
Fairfield County, CT is one of the more recent editions to our Elliman Report series. Greenwich, CT as a submarket has proven to be a market still strongly linked to the heady days before the collapse of Lehman Brothers in 2008 and the beginning of the financial crisis. There remain many owners of high end homes purchased a decade ago that remain value-anchored to those days of yore.
I took a look at the last 15 years of residential sales, measuring the amount of time that passed from a home’s prior renovation to sale. From the late 1990s to Lehman, there was a compression of time from renovation to eventual sale, reflective of the speculative conditions leading up to Lehman. Reno a home, then sell it. During those days, business cards passed out by doctors and lawyers at Greenwich cocktail parties were either “hedge fund manager” or “developer.” Not so much anymore.
Subsequent to Lehman, the late 1990s pattern that preceded the U.S. housing bubble returned by 2010 and has remained remarkably stable since.
If you’re a subscriber to the Bloomberg Terminals, as roughly 350,000 people are (paying $1,600+ per terminal per month), then you may already know there are a half dozen charts on the Manhattan luxury housing market. To be clear, these indices don’t suggest that housing price trends should be presented as a stock ticker.
It’s a good thing too, since the thought of making real estate housing markets equate to stocks was inspired by, and then was crushed by, the housing boom-bubble-bust era 2003-2008.
Here’s why a stock ticker for real estate is a flawed (aka dumb) concept:
While a daily real estate index can be created with relative technical ease, it doesn’t mean it is a good idea. It infers a level of precision that doesn’t exist and an accuracy based on lagging data that is not understood by users.
Those who push the stock ticker idea either didn’t work through the last cycle in real estate, or they didn’t learn from the experience.
We update 3 charts on the Manhattan luxury sales market and 3 for the Manhattan luxury rental market. I have always defined “luxury” as the top 10% of transactions during a period.
Click on the gallery below to open each of the indices.
If this market report slash appraisal thing doesn’t work out, I’ll go into graphic design with a focus on charts.
The New York Post asked me to whip up a chart for them. They change the fonts to make it theirs but hey, it’s fun. Oh yeah, the article was about living rent-free in NYC (but there’s a catch). Jim Grant of Grant’s Interest Rate Observer wrote a cover piece in his widely followed twice monthly newsletter subscription called “Too close to the sun” about the super luxury housing peak using my insights and a chart.
Ok, admittedly there is no real point to this post. I’m trying to convince myself to get back in the blogging groove, in addition to my weekly Housing Note.
Thoughts The co-op and condo market absorption rates for the $10 million+ market have slowed over the past year while the pace of the sub-$3 million remains extremely brisk. The $3 million to $10 million shows limited change and some stabilization.
Side by side Manhattan regional comparison:
I started this analysis in August 2009 so I am able to show side-by side year-over-year comparisons. (I got tired of the red/gray look in 2014 so I changed it) The blue/red line shows the 10-year quarterly average for context. The pink/orange line represents the overall average absorption rate of the most recently completed month for that market area.
Definition Absorption defined for the purposes of this chart is: Number of months to sell all listing inventory at the current annualized pace of sales activity in our market report series.
Manhattan Market Absorption Charts [Miller Samuel]
It’s time to share my Three Cents Worth (3CW) on Curbed Ski. Whether I’m on the trail, on the lift or in the lodge, I’m always taking notes with my gloves off.
Check out my 3CW column on @Curbedski:
Over the last decade, sales of high end Aspen residential properties have followed a logical flow, consistent with the overall U.S. housing market. Activity peaking in 2006; extinguished with the Lehman Brothers collapse in 2008; weakness in 2011; showing elevated levels over the past year; all tell the national real estate story. And recently…
Three Cents Worth Archive Curbed NY
Three Cents Worth Archive Curbed DC
Three Cents Worth Archive Curbed Miami
Three Cents Worth Archive Curbed Hamptons
Three Cents Worth Archive Curbed LA
Three Cents Worth Archive Curbed Ski
I have a long history of dissing the relevance of the S&P/Case Shiller Index because of the 6 month lag and the slew of anecdotal link-the-dot official commentary associated with it that literally has nothing to do with the numbers generated (gasping for air). However I feel compelled to look at it periodically because it is part of the media’s monthly market report gauntlet.
The S&P/Case-Shiller Home Price Indices were published today so I thought I’d create a trifecta of ways to look at the same data.
Top Chart – This is the famous year-over-year % change view which I believe is the best way to look at the market and the scariest. They use the seasonally adjusted index and the non-seasonally adjusted index (so did I) but there is virtually no difference. Most news coverage of the index usually link to the press release which embeds this type of chart that uses all the broad indices: 10-city, 20-city and National. The 20-City has long been the primary index that was touted but the references in the media are shifting to the national index and that’s probably a good thing.
Middle Chart – This is the month over month version using the same data. Clearly the seasonal adjustment smooths out the line. However the non-seasonally adjusted versions shows a significant impact from the seasonal nature of real estate – in fact this chart shows that seasonal patterns are becoming more extreme since the financial crisis began. Originally the index was virtually all about the month over month results even though the featured chart was year-over-year. They have since moved year-over-year to the front of the press release and has already influenced the way the index is presented in the media which is good to see.
Bottom Chart – This is the only chart that uses the actual index numbers rather than percentages. It’s a sleepy pattern that seems to wash out seasonality a bit and shows the market in a less intimidating way. Ironically, the actual index trend is visually less interesting. Seems ironic.