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Housing Trends & Cycles

[Manhattan Absorption] May 2014 – Swimming in high-end condos.

June 8, 2014 | 6:19 pm | Charts |

5-2014Manhattan [click to expand] Thoughts Not a significant change from a year ago. The absorption rate is generally a little faster than the year ago pace when you are talking about the sub-$3M market and a little slower from an already cooling rate above that threshold. Hi end condos – over $10M – are seeing a 32.3 month absorption rate which is extremely slow largely because of the new product entering the market.

Side by side Manhattan regional comparison:

May 2014 v 2013
5-201405-2013

[click images to expand]

I started this analysis in August 2009 so I am able to show side-by side year-over-year comparisons. The blue line showing the 10-year quarterly average travels up and down because of the change in scale caused by some of the significant volatility seen at the upper end of the market. The pink line represents the overall average rate of the most recently completed month for that market area.


Manhattan Market Absorption Charts [Miller Samuel]

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Pending Home Sales Fall Short of Year Ago Sales Surge

May 29, 2014 | 4:29 pm | Charts |

2014-april-phsi-05-29-2014
[click to expand]

The NAR released their Pending Home Sale Index today for April which aggregates signed contract data for the month. It is generally 2 months closer to the “meeting of the minds” between buyer and seller than their existing home sale report, that is based on closed sales (and 4 months faster than Case Shiller).

Pending Home Sales Index is not “forward looking”
In my chart above, and if you know me, I hate seasonal adjustments (SA) in housing data so this chart uses NAR’s reported numbers without adjustments. NAR always frames this release series as “forward looking” when it really is “less backward looking” because it is based on contracts, not closed sales. The end of May report reflects April contracts, half of which were probably signed in Late March. With a 2 month spread between contract and closing dates, this report is the most recent US housing market snapshot but nothing about it is actually “forward looking.”

With all the weather talk and mixed housing market messaging over the last month, this release brought us a broad range of interpretation, from “plunging” to “edging higher.”

Well, which is it? Or could it be both? Yes it can. We just need context.

According to Housingwire (uses SA numbers): Pending home sales plunge 9.2% in April So much for that post-winter, pent-up demand

Pending home sales for the month of April plummeted 9.2% compared to April 2013, the National Association of Realtors reported Thursday.

Contracts signed to buy existing homes increased 0.4% in April compared to March 2014, but that’s coming off three months of flat sales blamed on cold weather.

The expectation had been for at least a 2% gain month-over-month.

According to Diana Olick at CNBC (uses SA numbers), Pending home sales up just 0.4% in April, missing expectations

Warmer weather and higher expectations failed to cause a meaningful surge in home sales.

Signed contracts to buy existing homes increased just 0.4 percent in April, according to a monthly report from the National Association of Realtors (NAR). The expectation had been for at least a 2 percent gain sequentially.

The Realtors’ so-called pending home sales index is now 9.2 percent lower than April of 2013.

What’s going on?

If you look at the above chart you can see that last year’s pending home sales were surging up until May 2013, their highest level in 3 years (since the federal homeowner tax credit program as part of the stimulus). The surge in contracts in the first half of 2013 was born out of consumer fears that rates were going to rise. In addition, all the pent-up demand accumulated during the two year period preceding the US election and fiscal cliff deadline was released into the market. Many fence-sitters became decision-makers.

This winter’s harsh weather could have delayed buyers and we should be seeing this uptick in activity by now. We probably are seeing it but it no match for the year ago surge in activity but now the market is being characterized as weak or weakening. The problem with that description is it assumes that 2013 was a normal trend of an improving market. Well it wasn’t.

So yes, sales are down from the 2013 sales surge anomaly and the weather time-shifting buyers forward further into spring this year was no match for it. In fact, I suspect the next month will show the same type of “weakness” and the PHSI results probably can’t show real improvement at least until June.

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Pulling the Case-Shiller Index Back by 6 Months to Reflect Actual Buyer/Seller Behavior

May 27, 2014 | 10:45 pm | Charts |

matrixCSIshift-5-27-14
[click to expand]

The Case Shiller Index was released today and it continued to confuse consumers, pundits, economists etc…and for good reason. It’s 6 months late.

I wondered what would happen if their index result was pulled back by 6 months to see how it lined up with a couple of significant housing milestones (purple vertical lines). The most recent housing milestone was last year’s Bernanke speech that resulted in the spike in mortgage rates in May-June of 2013.

In the modified trend line (dotted blue) housing prices surge up until mortgage rates spike. This is clearly more logical than the actual index showing housing prices surging for six months after the mortgage rate spike.

In the earlier milestone in April 2010, the adjusted index (dotted blue line) immediately begins to slide after the April 2010 signed contract deadline passed to qualify for the federal homeowner tax credit as part of the stimulus plan. Yes, that’s exactly what happened on the front lines.

I’m going to call this new methodology “time-shifting a housing index.” From an historical perspective, this is a much more useful and reliable trend line. For the near term, it places the CS HP 6 months behind the market without any relevance to current conditions. Then again, the S&P/Case Shiller Home Price Index was never meant to be a monthly housing indicator for consumers as it is currently used by the media. It was originally created to enable Wall Street to hedge housing but never caught on because of the long time lag and therefore the eventual ability of investors to accurately predict the results.


The top chart is fairly self-explanatory but here’s the math again:

  • May 2014 Report Publication Date
  • March 2014 Data (Jan, Feb, March Closings – February is midpoint)
  • January 2014 Contracts (Nov, Dec, Jan Contracts – December is midpoint)

Contracts Assumes 90 days between closing date and “meeting of minds” between buyer and seller i.e. 75 days from contract to close +15 days to signed contract from “meeting of minds.”

“Meeting of Minds” Moment when buyer and seller agree on basic price and terms, usually a few weeks before contract is actually signed i.e. May 2014 Case Shiller Report = December 2013. The optimal moment to measure housing.

Here’s a regular chart that has a longer timeline, with and without seasonal adjustments (you can see that seasonal adjustments are essentially meaningless.)

matrixCSI-5-27-14

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Thank Goodness The Pace of US Home Price Growth Will Cool

May 27, 2014 | 3:18 pm | Charts |

2014-april-ehs-infographic-05-27-2014
[Source: NAR, click to expand]

Last week we were given another dose of housing news – housing sales didn’t go negative for the first time in four months (m-o-m) as inventory continued to expand and prices kept rising. Even though mortgage rates are down to what they were shortly after the rate spike last spring, it’s not stimulating much of an increase in sales activity (translation: no correlation between housing prices and mortgage rates). I still refer to Nick Timiraos’ epic post of charts last month. Lower sales will continue to expand inventory and take the edge off of price growth.

Looking back over 2013 – the housing market wasn’t “recovering” – prices were rising from the perfect storm of tight credit, sentiment that things were getting better, surviving the fiscal cliff and threat of rising mortgage rates. The market was rebounding off a low point that had nothing to do with fundamentals. I still think we will see some improvement over the next several years but it will be nominal until the economy shows real improvement i.e. jobs, income and credit.

Removing all seasonal adjustments, here’s what the key NAR US Existing Home Sale metrics look like to me:

matrix5-23-2014

UPDATE Here’s a wonky explanation from the Federal Reserve Bank of San Francisco of the existing sale slow down in their Economic Letter.

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[Three Cents Worth #266 NY] Inventory Is Rising, Just Not Enough

May 27, 2014 | 2:01 pm | | Charts |

It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements.

Check out my 3CW column on @CurbedNY:

I took a look at Manhattan’s climb out of the depths of the inventory void, and things are changing, but at a glacial pace. On a monthly basis, inventory bottomed last August (but it boomed in the fourth quarter on a quarterly basis). Perhaps the only significant reason inventory has begun to rise is because housing prices are beginning to ramp up, and sales are below last year’s pace. Sellers with new found equity have begun to list their properties. However, rising inventory remains inadequate against demand and the imbalance between supply and demand remains significant—and forget about the new development boom, that’s not going to help the overall market. The above chart shows a long view of the monthly Manhattan co-op and condo peak and trough and provides context on how low current supply actually is….

[My post title was originally “Biggest Inventory Rise in Decade, Just Not Enough” but wasn’t used – the crack Curbed staff didn’t think it was catchy enough.]

3cwNY5-21-14a
3cwNY5-21-14b
[click to expand charts]


My latest Three Cents Worth column on Curbed: Inventory Is Rising, Just Not Enough [Curbed]

Three Cents Worth Archive Curbed NY
Three Cents Worth Archive Curbed DC
Three Cents Worth Archive Curbed Miami
Three Cents Worth Archive Curbed Hamptons

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Yahoo! Finance: Talking about “Why” we are seeing more $100m+ home sales

May 23, 2014 | 1:02 pm | TV, Videos |

I had a great conversation with Lauren Lyster on Yahoo! Finance, Daily Ticker on the super high end housing market. Incidentally, if she switched from TV Host/Reporter to real estate, she’d have the best name in the real estate brokerage business.

Here’s a recent list of high priced sales.

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[Manhattan Absorption] April 2014 – Market Pace At Top Eases As Remainder Accelerates

May 19, 2014 | 6:30 am | Charts |

4-2014Manhattan [click to expand]

Thoughts
You can see a slight slow down in the pace of the market at or above $5M while the remainder of the market continued to accelerate as evidenced by faster (lower) absorption rates. It makes sense since there is no new development entering the market to ease the supply shortage of the “lower 90%” of the market.

Side by side Manhattan regional comparison:

April 2014 v 2013
4-201404-2013 [click images to expand]

I started this analysis in August 2009 so I am able to show side-by side year-over-year comparisons. The blue line showing the 10-year quarterly average travels up and down because of the change in scale caused by some of the significant volatility seen at the upper end of the market. The pink line represents the overall average 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 annual pace of sales activity. (The definition of absorption in our market report series reflects the quarterly pace – nearly the same)


Manhattan Market Absorption Charts [Miller Samuel]

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[Three Cents Worth #265 NY] Gap Between Starter, Luxury Markets Grows

May 14, 2014 | 1:48 pm | | Charts |

It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements.

Check out my 3CW column on @CurbedNY:

I thought I’d bring out another way to measure the market since we’re over-obsessed with “luxury.” The starter market needs more analysis since affordability is now a key topic of conversation across the U.S. right now. For the more than 20 years of releasing market reports, and in all the other markets we analyze, I have always defined “luxury” as the top 10 percent of sales in a given period. For the “starter” market, I inverted the analysis and defined it as the lowest 10 percent of all sales in a given period. I’ve parsed out the past three years of Manhattan apartment sales by quarter and measured the year-over-year change in average sales price for the luxury and starter markets. I selected “average” over “median” to suss out more volatility…

[My post title was originally “For Starters, Luxury Manhattan Is Further Away” but wasn’t used – the crack Curbed staff didn’t think it was catchy enough.]

3cwNY5-14-14
[click to expand chart]



My latest Three Cents Worth column on Curbed: Gap Between Starter, Luxury Markets Grows [Curbed]

Three Cents Worth Archive Curbed NY
Three Cents Worth Archive Curbed DC
Three Cents Worth Archive Curbed Miami
Three Cents Worth Archive Curbed Hamptons

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Zillow is Forecasting Future Property Values

May 14, 2014 | 10:42 am |

zillow-logo

“I may be cool, but you can’t change the future” –Beavis & Butthead.

Zillow has recently re-announced it is forecasting the value of each property out over the next year. It’s not a new tool for them, at least conceptually since the “What is a Zestimate Forecast?” page was last updated on October 3, 2012.

In a world with Big Data, it’s clearly inevitable to see an expansion of the capabilities of services from firms like Zillow and Trulia as their data set grows. Zillow’s Zestimate was a key web site feature at their launch (no listings!), but the company lit the real estate housing market industry on fire, establishing Zillow as a powerful brand that was here to stay, even if the Zestimate tool was problematic.

The challenges facing the Zillow Forecast tool

The Zestimates are still dependent on the quality of public record
Many markets (ie NYC), have quality-challenged public record. But as time passes, Zillow’s data set gets bigger and their logarithms get better and I have not doubt that the reliability will continue to improve.

If the Zestimate is wrong, the forecast will be wrong
Take a look at this chart on the highest price closed sale in Manhattan:

15cpwzestimatechart

This is perhaps Manhattan’s most famous “trophy” sale of the past several years, 15 Central Park West. The property sold for $88M but the Zestimate at the time of sale indicated the value was $72M. However today the value is $11.9M and the forecast estimated an 8.6% increase next year to $12.9M.

15cpwlandingpage

The Zestimate Forecast projects the current Zestimate out over the next year using a bunch of indicators

Zillow uses:
-mortgage interest rate (local, but not much different than national)
-property tax rate(local)
-construction costs(local)
-number of vacant homes(assumed local)
-percentage of loans that are subprime(assumed local)
-percentage of delinquent loans (assumed local)
-supply of homes for sale (local)
-change in household income (somewhat local, huge lag time)
-population growth (somewhat local, huge lag time)
-unemployment rate (somewhat local, lag time)

I feel that most of these indicators, when considered as a group, are important to consider won’t capture the nuance of next year’s view because they either lag or aren’t granular enough to be a key influence on value trends over a short period. I would think Zillow would add search patterns and other “Internety” things to leverage their proprietary data to help with accuracy. I’d also consider “new inventory”, not just total inventory (supply) to help catch the nuances of a tight time frame of forecasting.

The key national factor driving nearly all housing markets now – credit – is really hard to quantify.

Still, forecasts are the future (sorry) and kudos to Zillow for taking the first step, even though the results, like the early days of the Zestimate, are probably not very accurate.

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[Video] “Housing…will be a Necessary Casualty”

May 10, 2014 | 12:20 pm | |

Ian Shepherdson, chief economist at Pantheon Macroeconomics as a guest on Bloomberg Television points out some key issues relating to housing and the economy. It’s a great quick overview on how housing fits into the economic recovery equation. So much for a “soft handoff,” the idea of the housing moving from dependency on low mortgage rate to thriving on a stronger economy. The ideas being projected here are that the economy may improve without housing’s help.

“It is not quite as important as the fed seems to think.” “I sometimes say the fed is almost as obsessed with housing as the labor market.”

“I’m not convinced it is absolutely essential that housing keeps charging upwards in order for the rest of the economy to grow.”

“It’s a relatively small share of gdp now in terms of housing construction and even when you add in the retail stuff related to housing.”

“It is important to sentiment.”

“They were ready to dismiss it as something temporary and clearly the worries are more deeper.”

“Mortgage rates, if they rise further as the economy picks up, housing will be under further pressure.”

“It is a paradox that the stronger the rest of the economy gets and the more worried the market gets about the fed raising rates, the higher 10 year yields will go and mortgage rates and potentially the housing market will get weaker.”

“This is a three or four year process to get back to normal.”

Housing unfortunately will be a necessary casualty.

“My guess is that that’s the way the fed’s thinking evolves great if we see the economy strengthening brother that housing is weakening, i think they will have to live with that and stand up and say it’s a price we have to pay in order to get the rest of the economy moving.”

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The $100M+ US Home Sale Trifecta – Without NYC – 2014 Edition

May 6, 2014 | 5:23 pm | Milestones |

60furtherlaneGE

With the $147M sale in East Hampton, NY, it has been a busy couple of weeks for the .0000000000000000001% of the home buying public in the US. With the 3rd US home sale to close above $100M in 2014, it has left many thinking – why isn’t NYC in the fray?

After all, NYC arguably legitimized the US “trophy sale” frenzy a few years ago when Sandy Weill sold his penthouse at 15 Central Park West to a Russian oligarch for double what he paid for it. I’ve argued that this $88M sale was the launchpad for the new trophy market in NYC even though the transaction appears to be a divorce strategy. After that sale closed, the subsequent trifecta of trophy sales back then seems relatively affordable now.

As journalists tell me…three data points make a trend.

2014 US Sales over $100M
$147,000,000 Further Lane, East Hampton, NY
$120,000,000 Copper Beech Farm, Greenwich, CT
$102,000,000 The Fleur de Lys, Los Angles, CA

So is the era of US $100M+ sales a trend?

Yes, although it is probably more accurate to call it a “phenomenon” than a trend.

In NYC? Eventually.

To a few real estate brokers I engaged with on this topic, the idea that NYC would see the $100m threshold broken in 2014 seemed inevitable, only because of this 2014 US trifecta. It is the belief that we are experiencing a momentum swing over the $100m threshold because 3 sales by May, compared to a sale a year means a shift.

Meh. I view this phenomenon as “product-specific” and not “location-specific.” There is a randomness to the locations where these sales occur. However I do believe the probability is high that NYC will see such a sale in the not too distant future.

Then again, does it really matter? Do these $100M+ sales have anything to do with the remainder of the US housing market? No they don’t. But it’s fun to talk about.

The Manhattan $1M Average Sales Price Threshold broken in 2007
I remember when the Manhattan $1M average sales price threshold was broken in 2007, foreign media went gaga, struggling to find a deeper meaning to housing. There wasn’t. I always viewed it as simply a number on the spectrum.

Affordable Irony
Definitive proof that I have “hipster” tendencies – my never ending search for irony.

Yesterday’s announcement of the 3rd US $100m+ sale was one of record breaking irony: the announcement of NYC mayor’s 10-year plan to create 200k affordable housing units. The need for affordable housing – low and middle income – has always challenged NYC. The mayor’s affordable housing plan “moon shot” as the New York Times has described it came out on the same day as the $147M East Hampton sale story broke. Irony.

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NAR Pending Home Sales Had Biggest “February to March” Jump in 4 Years

April 28, 2014 | 4:52 pm | |

4-28-14PHSI
[click to expand]

After all the housing news drama of the past month, I thought it was interesting to see the negative streak broken. Still, sales are below year ago levels after what I described as a “release of pent-up demand” that was caused by the expiration of the “fiscal cliff” and the looming rise in mortgage rates last year.

Although home sales are expected to trend up over the course of the year and into 2015, this year began on a weak note and total sales are unlikely to match the 2013 level.

All the indices NAR publishes bother me because they include seasonal adjustments and those adjustments can be very severe. The chart above has no seasonal adjustments so you can see how much adjusting has to take place to smooth out the line. I thought I’d take a look at the month-over-month data that wasn’t seasonally adjusted to see if the same pattern occurred.

4-28-14PHSIfebtomarch

Yes, month-over-month pending sales rose the most since 2010 when the market was wildly skewed (higher) as a result of the First-Time Homebuyer Credit (federal first time buyer and homeowner tax credit).

February to March 2014 had the largest increase in contracts than the same period in each year since 2010.

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#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
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