[The National Association of Realtors tracked the national median sales price of a condo at $223,500 [REJ]](http://www.realestatejournal.com/buyse(ll/markettrends/20050819-dunham.html). From 2001 to 2004, condos appreciated 57% while single family houses appreciated 25%.
“The median price for a condominium surpassed that of a single-family home for the first time last year. And it appears that this year will be the 10th consecutive record-making year in terms of rising U.S. condo prices and the number of condo sales, with median condo price tags still above those for single-family homes, says Walter Molony, spokesman for the National Association of Realtors. In September, the U.S. median condo price of $213,600 was up 9% from September 2004.”
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.
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:
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]
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.
The National Association of Realtors released a survey that said that public opinion about Realtors set a record high for the third year in a row [RISMedia].
Those surveyed were asked about the effectiveness of their Realtors and 59% found them to be effective. The NAR has been touting this as part of their 8 year public awareness campaign.
Being a Realtor can be a tough job. Is it just me or is 59% on the low side? I am not clear why this figure is being touted so much.
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 RealtorsÂ®. 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. “
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.
In the sign of a trend that bigger isn’t always better, Cendant, the travel, hotels and real-estate services company will split into 4 separate companies [NYT]. The Cendant name will no longer exist. The breakup will fall along the lines of their four primary businesses [WSJ]:
*Real Estate: Brands include Corcoran, Century 21, Coldwell Banker
*Travel: Orbitz, Galileo and Cheap Tickets
*Hotels: Ramada, Howard Johnson and Days Inn
*Car-rental: Avis and Budget
While the break up will allow the company to be more nimble and responsive to market dynamics, the pace of aquisition may slow as potential targets are able to look more closely at their suitor. Don’t these sort of things seem to go in cycles?
Remember the strategies of AT&T, ITT, GM and others when conglomerates were the envy of all? The idea was to reduce share volatility by spreading out to different industries to hedge against dips.
The break up will allow each entity to more fully realize their potential, especially real estate, which has posted strong earnings but has been overshadowed by the other seemingly weaker divisions.
As a possible test for how overheated the real estate market is, Donald Trump the developer and tv star, is getting paid $1.5M for a speech [Marketwatch] to (I’ve heard) 48,000+ faithful called “One Weekend Can Make You A Millionaire!” at The Learning Annex.
He is one of the best real estate marketers of all time and is a household name. But really, how much useful information is anyone going to get with that size audience? Are many savy real estate investors going to attend this event? I suspect his appeal is mainly to new real estate investors who want some of his karma and to those who admire him for his international reputation and television star status. Whatever the reason, people are coming out in droves to see the event, its a real happening.
If lender takes back an investment property from an attendee of this event, they’ll say “you’re foreclosed”…
Property values has climbed 1,000% in the past 3 years. “A five-bedroom river-view house sold three years ago for $45,000. Two years ago it sold again, this time for $80,000. It sold a third time in August. The latest price tag? $300,000.”
Fixer-uppers, namely those that have bullet or bomb damage are among the most sought after properties now.
Despite the war and suffering, the economy is in better shape than before. One of the brokers indicated many of his customers made their money by looting after the fall of the old regime.
Unfortunately, a number of real estate agents have been murdered by insurgents. “Real estate is hardly the only business that carries a potential death sentence. Liquor stores and hair salons are targeted for being against Muslim law, restaurants for feeding policemen, and government offices for cooperating with the United States.”
Webmaster’s note: Its a mad, mad, mad world.
Greenspan’s conundrum has been the fact that [Financial Times] bond yields have remained low. We are expecting to see some upward movement as more inflationary data comes out over the next few months.
Two sides are presented as to why the bond market yields have remained low, which has extended the housing boom and has been counter to historical patterns:
Why is the bond market right? Investors are buying bond yields at low rates because they believe the economy will slip. A flat yield curve often pre-dates a recession. Also, the bond market is not concerned about growth right now, only inflation. With central banks keeping rates low as well as heated competition from Asia. Also, demographics may be keeping yields low. The 25-44 year old age group is shrinking so consumption growth should shrink as well keep rates low in the long term.
Why is the bond market wrong? A recession is not in the forecast and the equity (stock) markets are not worried about one. Also, there may be a global savings surplus – and we hear this a lot – there is so much capital out there, seeking out limited opportunities for investment. A potential revaluation in the Yuan, high US budget deficit and further inflationary economic data would cause yields to re-adjust to proper levels. There was an article today in the Wall Street Journal that suggests that global inflation may return.
The sharp rise in energy costs and economic damage caused by the 2 recent hurricanes has added to the pressure.
In other words, no one really knows what the long term outlook is for bond yields. Yet it is critical to the housing market since mortgage rates are usually tied to bond yields.
On the other hand, the NAR’s Home Sales Forecast is rising [RisMedia]
When the housing boom is described as an orgy by respected media outlets, then its time for concern.
Over the past twenty years, consumers have become largely dependent on the flexibility to withdraw from their home equity accounts to supplement disposable personal income. In 1980, consumer spending was 63% of gross domestic product and today it is 70%.
The wealth effect [Matrix] has diminished for the stock market and may happen with housing, depending on where the economy goes over the next year and how the housing market reacts over the next several quarters.
There is now additional risk to consumers. Higher mortgage and home equity rates, higher energy costs and weaker gains in wealth may create problems for consumers, and because of dependency on consumer spending habits, more problems for the overall economy may be on the way. No orgy here.
The alternative sounds less like an orgy and more like a rained-out family picnic. We may see what Great Britain saw two years ago as their housing market peaked. Interest rates were raised to stem inflation and consumer spending dropped, but no recession occurred.