The luxury real estate story starts at 20:58 into the broadcast:
The luxury real estate story starts at 20:58 into the broadcast:
Since we have another cold snap in our midst, I thought I talk about cold weather and housing trends.
Back in early January, the US experienced what has now become a household phrase – “The Polar Vortex” and extreme weather has morphed its way into recent housing reports as plausible explanations for a slow down in some of the results.
Buyer perspective: Imagine a couple looking to buy their first home and decide they will begin looking right after the New Year. The dreaded Polar Vortex hits and it is too uncomfortable to run around looking at houses in freezing temperatures, so they postpone until the weather warms up in a month or 2.
Seller perspective: Imagine a homeowner who decides to put their home on the market and they experience searing pain from the cold by simply going to the grocery store. They can’t imagine a buyer coming to look at their home in the severe weather and don’t want their home to sit, so they postpone until the weather warms up in a month or 2.
In both scenarios, I would venture to guess that no one would say:
WOW, this weather is severe. I’ve rethought my (buying or selling) decision and will cancel the idea for a few years because the weather is too cold right now.
WOW, this weather is severe. Staying warm in my home right now made me realize that I rushed to make my decision and will no longer (buy or sell) for a long time.
Consumers can better relate to the weather than macro economic theory so throw it into the title of a news article:
NBC News: Spring Thaw May Not Heat up This Housing Market
Bloomberg News: Cooling U.S. Home Sales Only Partly Due to Weather: Economy
Fox Business: Housing Freeze: It’s Not Just The Weather
If we isolate the housing market to new construction (which represent about 15% of sales historically) then it gets a lot more plausible – ie permits, starts etc. can be more affected by the weather on a pragmatic basis.
But that has little or no impact to the vast majority of housing consumers.
Here’s one way to visualize the potential impact of weather to retail sales activity (translation: slow down, spring back) in Business Insider.
Context, people, context.
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.
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.
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.
Mary Thompson of CNBC did a nice job capturing the state of the Manhattan housing market using the release of our Douglas Elliman Manhattan Sales Report for 1Q 13. I spoke to her and also ran over to 30 Rock and provided some commentary to producer Stephanie Dhue on camera. The differing results between our report and a competitor were handled perfectly.
The average co-op maintenance in Manhattan was $1.68 per month in 4Q12. I got a call from Robert Frank at CNBC who was researching maintenance charges for their new reality show – tonight’s show features a $95M co-op listing overlooking Central Park with a large terrace and a $60,000 per month maintenance charge. At nearly 8,000 square feet, that’s $7.50 per square foot per month or 4.5x the Manhattan average co-op maintenance per square foot.
It remains to be seen whether the market supports the price but whatever the price paid or whoever the buyer is, rest assured they will pay all cash and probably won’t live in it full time.
I really enjoyed this “Charlie Rose”-like interview by late night TV host Conan O’Brien and statistician Nate Silver on his “Serious Jibber-Jabber” series. I recently bought Nate’s book “The Signal and the Noise: Why Most Predictions Fail but Some Don’t” and it’s next on my reading list (actually I bought 2 copies because I forgot I had pre-ordered on Amazon for Kindle and ordered again from Apple iBooks, Doh!).
What I found intriguing about the discussion is how much effort it takes to filter out the noise and get the to meat of the issue as well as getting outside of your self-made insulated bubble to be able to make an informed decision – aka neutrality.
Real estate, like politics, is a spin laden industry whose health is very difficult to gauge if you rely on people and institutions who have a vested interest in the outcome. i.e. Wall Street, rating agencies, government, banks, real estate agents etc.
Some interesting points made:
The current “happy housing news” that is all the rage seems to draw a parallel with the pundits who got the election outcome all wrong yet all were experienced in politics. The housing herd is disconnecting from what the data is showing.
Last week I was quoted in a few articles pontificating about the use of the word recovery that I felt was a misleading characterization of the state of housing:
Business Insider (Jill Krasny): JONATHAN MILLER: Don’t Buy The Hype About A Housing Recovery
“We keep throwing the ‘recovery’ word around, but the big numbers are coming from sources being created from the tight market,” he told Business Insider. “Tight credit is causing rents to rise; falling mortgage rates are pushing people to buy.
International Business Times (Roland Li): Good News On The US Housing Market? Not Quite
“The use of the word ‘recovery’ is really inappropriate,” said Jonathan Miller, president and CEO of New York-based appraisal firm Miller Samuel. Inc. “We’re just stabilizing.”
In retrospect, I think some reading this may have interpreted me as being bearish on housing. Well I’m not, I just don’t think use of the word “recovery” is being used properly. Housing will likely slip a bit before it truly improves and I think “improvement” means real stability. “Recovery” means:
an improvement in the economy marking the end of a recession or decline.
In other words, I interpret the word “recovery” as getting better or at least not getting worse. While housing is showing gains in sales and price, it’s too soon for all the hyperbole.
Perhaps many view the word “recovery” as a process such as this great post by Diana Olick at CNBC that covers all the housing bases. I can agree with it being some sort of “process.” However I think the word when used by people in the business of real estate is different than when used by the consumer. I feel strongly that the use of the word implies to the consumer that the housing market will soon return to the heady days of yore (my recent fave saying) and that’s not what is happening.
No, not in the same way we saw one formed in the middle of the last decade.
In other words, Miami’s boom is not a broad-based market recovery driven by local families needing a home. It’s being fueled by a tiny top slice of super-rich overseas buyer looking for the latest hot investment.
They’re not buying their first home, or even their second or third. They’re investing in a stock with an ocean view.
25% of foreign investment of US real estate in Florida, most of it is in Miami.
“Most patient” capital
The Huffington Post approached me to write blog posts about the housing market periodically. I post weekly or as inspired, not necessarily in that order.
It would be great if you could it within your heart to become a fan (actually select a “become a fan“) and make comments on my HuffPost musings if inspired.
Here’s my first foray into this bit of extracurricular activity called:
In late August of last year, Jim Cramer, a la CNBC Mad Money, predicted the housing market bottom would be reached by the third quarter of 2009. A week later, the prediction was fine-tuned in his widely read magazine article, selecting June 30, 2009 as the official day the housing market would find a bottom…[continue reading]
The Joint Center for Housing Studies just released their annual The State of the Nation’s Housing for 2009.
The report is quite extensive and topics include Housing Markets, Demographic Drivers, Homeownership, Rental Housing and Housing Challenges.
Nicolas P. Retsinas Director for the Joint Center for Housing Studies of Harvard University will be appearing on The Housing Helix Podcast in the near future to discuss the release. I’m a fan of his research and had the pleasure to share a split screen with him on CNBC a few years ago.
From their quarterly peaks during the housing boom to the last quarter of 2008, real home equity was down 41 percent, existing median home prices 27 percent (and at least 40 percent in 26 metropolitan areas), new home sales 70 percent, and existing home sales 33 percent. Homeowners also pulled back on home improvement projects, with spending off 13 percent in real terms in 2008 and even larger declines expected in 2009. The cutbacks in home building and remodeling shaved a full percentage point off economic growth in 2007 and nearly another point in 2008.
Here’s a sampling of some of the charts in the report – especially the one below – loan volume is half the levels of 2003 and there is virtually no non-prime lending. That leaves a lot of people without mortgage options, that are facing payment stress.