Bloomberg View’s “Bubble to Bust to Recovery.”
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.
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?
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.
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
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.
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).
I was speaking at the New York Real Estate Bar Camp recently and asked the audience what to call the state of housing market right now, since I objected to the use of the word “recovery” and “a period of better stats without underlying fundamentals” wasn’t catchy. Philip Faranda came up (more like shouted out) a brilliant suggestion. We’re in a “Pre-Covery!” I loved it and it stuck.
I thought about the new word when I read a great Robert Shiller piece in the New York Times this weekend called: A New Housing Boom? Don’t Count on It.
Shiller questions the substance of the happy housing news we’ve all been reading about:
It’s hard to pin down, because nothing drastically different occurred in the economy from March to September. Yes, there was economic improvement: the unemployment rate, for example, dropped to 7.8 percent from 8.2 percent. But that extended a trend in place since 2009. There was also a decline in foreclosure activity, but for the most part that is also a continuing trend, as reported by RealtyTrac.
What’s missing from all the metrics being tracked and discussed is sharply falling inventory - that’s what is driving prices higher even though little else has changed.
The reason for falling inventory? Sellers, when they sell, become buyers (or renters) and with >40% of mortgage holders having low or negative equity, they don’t qualify for the trade up. We have been so focused on negative equity that we’ve paid short shrift to the impact of low equity.
Not only don’t many sellers qualify – they simply aren’t under duress i.e. they haven’t lost their job, don’t need to move, etc. so what will they do when they realize they don’t qualify?
They expect/hope hope the market improves eventually.
This has created yet another form of “shadow inventory.”
Although I certainly agree that the long term trend of mortgage rates doesn’t really correlate with housing prices since rates have been falling for years, weak employment and personal income are not justifying the last 6 months of housing market improvement.
I see falling mortgage rates as simply keeping demand steady (but rates can’t fall much further) and falling inventory is either pressing prices higher or to stabilization depending on the market.
Here is a simplistic generic but typical scenario in most of the markets I follow over a 2 year window:
In this scenario the rise in sales is NOT working off inventory – the math doesn’t work so something else is in play – low or negative equity is choking off new listings entering the market against steady demand caused by falling rates.
Since low inventory is not a local market phenomenon but is happening in nearly every housing market I can think of (sales rising modestly and listing inventory falling sharply) it makes this a credit phenomenon. I like to say “housing is local but credit is national.”
To make this discussion really crazy we could even say that tight credit conditions are actually prompting the pre-recovery something that on the surface is very counterintuitive. But in reality, tight credit is choking off supply and low rates are keeping demand constant. Then prices rise.
Well the frequently maligned but most influential housing metric was published yesterday, the S&P/Case Shiller Home Price Indices and the 20 City index rose 4.3% year-over-year. The only two “regions” to see declines were Chicago and New York.
Baseball Correlation? Chicago and New York are the only 2 cities who also have 2 Major League Baseball teams. No, Los Angeles doesn’t have two MLB teams…the Los Angeles Angels of Anaheim are clearly trying to have it both ways.
But I digress…
With all the talk about “recovery” (aka happy housing news) these days it just dawned on me that since 2000, the Case Shiller HPI only began to show significant seasonality since mid-2009. No one has really talked about this and I’m not sure what it means, but it just jumped out at me today.
Pre-peak housing prices fueled by falling lending standards and the seasons were largely crushed by the locomotive known as the housing boom. Therefore the seasonally adjusted and non-seasonally adjusted price trends were virtually the same during the market’s ascent. I distinctly remember real estate agents commenting during this period that the seasons were going away and housing market patterns were changing permanently.
Post-peak housing prices After the plunge subsided in mid-2009, the market began to ebb and flow with peaks in the spring/summer and troughs in the fall/winter.
Note to self
The next time CSI prices begins to smooth into nothingness, perhaps it’s a housing boom, baby.
Where we’ve been
Knight Frank’s Global House Price Index is published quarterly and tracks the performance of mainstream national housing markets around the world. They use Case Shiller results for the US market.
Europe at bottom:
With the Eurozone now in its second recession in three years buyer confidence is at an all-time low and it is no coincidence that all the bottom 12 rankings are occupied by European countries this quarter.
The top performers:
But it’s not all bad news. Six markets recorded double-digit annual price growth in the year to September; Brazil, Hong Kong, Turkey, Russia, Colombia and Austria.
Where we’re going
I help provide their Manhattan and Miami insights and they liked the way I characterize the state of luxury housing as a “safe-haven” and the “new international currency.” Here are the top line observations in their Q4 12 Prime Global Forecast:
• In 2013, we expect prime residential prices across the 14 cities included in our
forecast to rise by 2.5% on average, with Moscow, Miami and Dubai being the
• A sharp slowdown in the global economy is the highest risk for the world’s prime residential markets closely followed by government cooling measures.
• However, the current economic uncertainty is also considered a key driver of demand in prime cities as HNWIs seek the shelter of ‘safe-haven’ investments.
• Supply, or the lack of it, will be a key determinant of price performance in cities such as New York, Moscow and Miami in 2013.
• We envisage that government-imposed regulatory measures will keep a lid on price growth in Asia in 2013 but the west-east shift in the economic balance of power suggests more promising prospects in the medium term.