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Membership is very close to falling below the 1M threshold (1,005,838) for the first time since 2003.

The rise and fall of NAR membership with the S&P/Case Shiller Home Price Index is a logical trend in a commission driven profession with a low barrier to entry – although one would think membership would correlate better with number of sales rather than prices (Case Shiller or CSI is a price index i.e., not based on sales).

The public strongly and incorrectly relates the health of housing with prices rather than sales. Sales activity leads price direction by about a year and membership lags prices so the membership correlation to price probably reflects the time it takes people to jump into the profession when things seem to improve – the chart suggests 1-2 years. You can see the membership lag prices during the boom, at peak and when the market crashed.

In the period like now where the market is transitioning from bad to good, the sharp agents have the opportunity to do very well with less competition from those who were only in it for the quick buck.

The appraisal profession likely shows a similar pattern but perhaps would be more closely aligned with refi applications. On my “to do” list.

Tags: Case-Shiller, NAR, National Association of Realtors

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Inspired by my analysis of yesterday’s WSJ article, I thought I’d explore the effectiveness of low mortgage rates in getting the housing market going. I matched year-to-date sales volume where a mortgage was used and mortgage rates broken out by conforming and jumbo mortgage volume.

Mortgage volume has been falling (off an artificial high I might add) since 2005, while rates have continued to fall to new record lows, yet transaction volume has not recovered. I contend that low rates can now do no more to help housing than they already have.

Even the NAR has run out of reasons and is now focusing on bad appraisals as holding the market back (I agree appraisal quality post Dodd-Frank is terrible and is impacting the market to a limited extent – and I secretly wish appraiser held that much sway over the market).

I’m no bear, but the uptick Case Shiller’s report today (remembering that Case Shiller reflects the housing market 5-7 months ago) still shows slowing momentum and all 2012 year-over-year comparisons in the various national reports are skewed higher from an anemic 2011.

Five years of falling mortgage rates have only served to provide stability in volume. The monetary and fiscal conversation ought to be on ways to incentivize banks to ease credit – falling rates only makes them more risk averse.

Of course a significant drop in unemployment would likely solve the tight credit problem fairly quickly.

Tags: Conforming Mortgage, Jumbo Mortgage, FNC, Case-Shiller, WSJ, NAR, National Association of Realtors

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[click to read article]

Over the summer Camilla Papale, Douglas Elliman’s CMO asked me if I would present something about the state of luxury real estate for their Elliman Magazine (and iPad app!). The finished result contained 3 parts:

• I wrote a brief piece about the influx of international demand as high end consumers were seeking a safe haven from the world’s economic problems. I called the piece: “LUXURY REAL ESTATE AS THE WORLD’S NEW CURRENCY” This post’s title was my working title which I also liked.
• Plus I did a little research on housing prices across the globe using Knight Frank’s resources and
• I moderated a discussion on the subject with Dottie Herman, President & CEO of Douglas Elliman, Patrick Dring, Head of International Residential at Knight Frank, and Liam Bailey, Head of Residential Research at Knight Frank. They all provided great insights to the subject.

Here’s the full piece in Elliman Magazine . I’ve inserted a portion of the presentation below in 2 parts:

LUXURY REAL ESTATE AS THE WORLD’S NEW CURRENCY

Since the beginning of the global credit crunch in 2008, luxury real estate has morphed into a new world currency that provides investors with both a tangible asset and a cachet that cannot be found within the financial markets. It’s as if these emboldened investors zoomed out of their local Google Earth view to discover the wider global perspective on luxury real estate.

HOW DID WE GET HERE? The US dollar has weakened in the years following the collapse of Lehman Brothers in the onset of the global credit crisis. The S&P downgrade of US debt in August 2011 from its benchmark AAA rating brought a flood of investors into US financial securities. That meant that our currency allowed us to buy less abroad, and the strength of other currencies provided international buyers with large discounts when purchasing property in US dollars. But it went further than that.

THE RISE OF LUXURY REAL ESTATE AS A “SAFE HAVEN.” The volatility of global financial markets and the resulting political fallout shook investor confidence, which in turn spurred a rise in foreign buyers seeking a safe haven to protect their assets. A wave of international buyers from Europe, South America, and Asia entered the US housing market, helping set record prices and revive luxury markets including New York, The Hamptons, and Miami.

SUPPLY-DRIVEN DEMAND. The luxury real estate market has become defined by the supply of available properties. While demand has remained constant and elevated, inventory has become a critical variable, particularly at the very top of the market, where surging international demand for one-of-a-kind properties has surpassed the limited supply. The resultant record-breaking sales of “trophy” properties have enticed more owners of luxury homes to make them available for sale.

THE RISE OF THE “TROPHY PROPERTY.” The trophy property has become a new market category that does not follow the rules and dynamics of the overall marketplace. One stratospheric price record is being set after another, and it is not only the list prices that are defining these record sales; the rarity of location, expanse of the views, quality of amenities, and the sheer size of these unique homes have all played an important part in attracting the interest of foreign buyers.

WHERE DO WE GO FROM HERE? Driven by the global credit crunch and political instability, the two factors that are expected to remain unchanged for the next several years, the US luxury housing market is expected to remain a “safe haven” for foreign investors for quite some time.

A CONVERSATION ABOUT THE COMMERCE OF GLOBAL LUXURY REAL ESTATE

I sat down with Dottie Herman and our friends across the pond, Patrick Dring, Head of International Residential, and Liam Bailey, Head of Residential Research at Knight Frank, to chat about the state of real estate in the prime markets across the globe and the rise of a foreign investment phenomenon.

JONATHAN MILLER: Douglas Elliman has a broad coverage area that includes some of the most affluent housing markets in the US. Are you seeing any short-term issues that may influence luxury investor decisions over the coming year?

DOTTIE HERMAN: At the end of this year, we may see a repeat of the consumer behavior we saw at the end of 2010 when US capital gains tax rates were expected to rise. Ultimately, the rates did not increase, but many consumers in the luxury market took preventative action before the potential tax increase and raced to close their sales by the end of 2010. Despite the ups and downs in the quarters that followed, the luxury housing market was not adversely impacted in the long-term.

JM: Paddy, according to Knight Frank’s Global Briefing blog, housing prices in central London are up sharply, but the pace of growth appears to be slowing, perhaps because of the new stamp duty (a tax on properties priced at £2M–the equivalent of $3.15M–or more). What does this mean for the luxury market?

PADDY DRING: In short, the £5M ($7.85M) market is up year-on-year. The new stamp duty on property sales above £2M seems to be having an impact only on the band just above the new £2M threshold. Foreign demand remains high and, notably, we have sold to over 62 different nationalities within the last 12 months. They are less affected by the changes in stamp duty, since the rates in London are still in line with many other European countries.

JM: Dottie, your firm has sold a large number of luxury properties this year, despite a lukewarm economy and tight credit conditions. Record sales and listing prices are becoming nearly commonplace and a significant portion of this demand for luxury real estate is coming from abroad. Do you see this developing into a long-term trend?

DH: It’s certainly been a year of records and I do think we are embarking on a period where luxury real estate has the potential to outperform the rest of the housing market. Several of the markets that we cover, Manhattan and Miami in particular, have been firmly established as highly sought-after international destinations. As much as we fret about how slowly our economy is recovering, the US has proven itself as a “safe haven” for many international investors who are concerned about the turmoil of the world economy and political stability. Luxury investors from much of Europe, Russia, Asia and South America have been buying here at the highest pace we have seen since the credit crunch began.

JM: Liam, the US is seeing a higher-than-normal influx of real estate demand from foreign investors who seem to be focusing on the upper end of the housing market. These investors are well represented from Europe, Asia and South America. Are you seeing the same phenomenon when it comes to luxury properties in the UK? What are the primary regions where this demand is coming from?

LIAM BAILEY: The focus of demand continues on London and its easily accessible suburbs. London is facing even higher global demand than New York, with the top end strongly led by Russia, Europe, Canada, and the Middle East, and demand in the new development investment market very much led by Asia.

JM: In the US, access to financing is a key challenge to domestic purchasers, including luxury investors. What are some of the key challenges facing your clients who are looking to purchase real estate outside of their own countries?

PD & LB: Financing remains a consideration for many, although mortgages are more available in many of the markets than people are led to believe. Of course, the property needs to be quality and in a core location and have a more conservative loan-to-value ratio, however, many of our clients purchase in cash, so they are more affected by market sentiment and, of course, liquidity if they need to sell unexpectedly in the future. Factors affecting market sentiment include the usual considerations, such as exchange rate, a stable political base, as well as a sound legal system that guarantees clarity of title and tax considerations. The latter of course is affecting not only the cost of acquisition (stamp duty), but also, in some countries, the cost of holding (wealth tax) and ultimately selling (capital gains tax). Access, infrastructure, and climate (if lifestyle-driven) all remain key, as do low crime rates as people become more aware of their privacy and personal safety.

JM: Since the beginning of the credit crunch, you’ve constantly stressed to your clients that the terms of a sale are just as important as the price of a sale, given the challenges of obtaining financing. How do international buyers fi t into this new world defined by tough lending standards?

DH: Despite mortgage lending in the US remaining tight, luxury markets in the areas we cover have improved quickly. I can only imagine how much stronger the US housing market would be if we saw credit ease to historically normal levels. International buyers tend to pay cash or obtain financing from their native countries, which has given them an advantage over many domestic purchasers. Combine the ability to pay in cash with both the weakness of the US dollar against many of their native currencies and a volatile global economy, and you can begin to understand why we are seeing a strong presence of international buyers in our markets. Like our friends at Knight Frank, these luxury investors are interested in our proven core markets that already have a large concentration of luxury properties. Overall, we continue to be excited about our market’s expanding presence in the global luxury housing market—there are many opportunities out there for this new international investor to explore.

Luxury Real Estate as the World’s New Currency [Miller Samuel (pdf)]
Luxury Real Estate as the World’s New Currency [Douglas Elliman]
Elliman iPad App [iTunes]

Tags: Europe, London, Dottie Herman, Liam Bailey, Paddy Dring, Elliman Magazine, Canada, Canadian Housing Market, Lehman

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[click to read about Daylight Savings Time]

We got an extra hour of sleep last night (in theory) as we left Daylight Savings Time.

I came across this post yesterday that got me thinking (more like chuckling), why doesn’t the National Association of Realtors rally public support for shifting the US from using Standard Time to go all Daylight Savings Time in order to promote more housing activity?

Afterall, who wants to get up early and view a purchase or rental property and isn’t housing significant part of the economy? Daylight in early hours benefits farming while daylight in later hours benefits housing activity. Agriculture is about 1% of GDP and housing is 17% to 18% of GDP.

From Wikipedia:

As modern societies operate on the basis of “standard time” rather than solar time, most people’s schedules are not governed by the movements of the earth in relation to the sun. For example, work, school and transport schedules will generally begin at exactly the same time at all times of the year regardless of the position of the sun…if “standard time” is applied year round, a significant portion of the longer sunlight hours will fall in the early morning while there may still be a significant period of darkness in the evening.

Admittedly this idea is way out there, and NAR would be unlikely to lobby this point anytime soon because they would look foolish.

I guess I just don’t like it getting dark at 5pm and I don’t even sell real estate.

Tags: NAHB, Realtor.com, NAR, National Association of Realtors

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Well, NAR released the August 2012 existing home sale numbers today. Yawn.

More importantly, it’s International Talk Like A Pirate Day and I’ve marked this day on my calendar for nearly as long as the 10-year run it’s had. Just mentioning the annual event to my kids makes them worry about me and yet be embarrassed for me at the the same time.

For more about this important holiday, you can get the story and go right to the founder’s web site.

And yes, home sales are up. [Pirate talk translator]

August Existing-Home Sales and Prices Rise [NAR]
On Talk Like A Pirate Day Jonathan Miller Tells It Like It Is [Curbed DC]
International Talk Like a Pirate Day [Wikipedia]
International Talk Like A Pirate Day [Original Site]
Google’s Pirate Themed Home Page [Google]

Tags: Existing Home Sales, Talk Like A Pirate Day, NAR, National Association of Realtors

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Last week the Florida’s state Realtor association announced they are developing a repeat sales index for tracking the state’s housing market. NAR is doing the same thing on a national level. My first thought was, huh?

The new Florida Realtors Real Estate Price Index will use data from the Florida Department of Revenue to chart home prices for the state and metro areas during the last 17 years.

Why create yet another housing index?

NAR has been sharply critical of the repeat sales methodology for years – and now to suddenly create one because it works better? Damaging logic and once again undermining NAR’s credibility and branding.

The motivation for the creation of a new index seems to be the popularity of the Case Shiller Home Price Index which has been a thorn in NAR’s side since it was introduced a number of years ago. Ironically, NAR enabled Case Shiller to thrive from NAR’s own inability to become a neutral trusted advisor of the exclusive housing data they publish. The culture at NAR Research enabled the two most recent chief economists Lereah and Yun to consistently interpret the numbers with an almost cartoonish glowing angle that has caused severe damage to the NAR brand.

In other words, Realtors and their associations have long ago missed the opportunity to be a reliable provider of real estate stats, but that’s really ok. After all, the association is a trade group and any stats they produce are, by definition, tainted even if they aren’t. Case in point: NAR just revised their Existing Home Sales stats after data provider CORElogic discovered there was a significant error and pressured them to do a revision. NAR had double counted about 2M sales since 2007.

What is a repeat-sales index?

A repeat sales index measures the difference in price from sales that recently sold and their prior sale. New development is omitted because those units have never sold before – a huge characteristic of the Florida housing market. Of course if the property was gut renovated, doubled in size, torn down and rebuilt, a repeat sales index does not know this. A repeat sales index is also subject to the same skew in housing type that a hedonic (i.e. Existing Home Sales) index is and is therefore adjusted using varying formulaic methodologies.

A repeat sales index does not reflect true seasons in housing. Yes there is a nominal difference between their seasonally adjusted and non-seasonally adjusted trends, but it does not show the spring rush and winter doldrums as they actually occur. There seems to be a need by economists to show a steady line rather than a seasonal visual a consumer would better understand.

Whats wrong with the Case Shiller Index?

I’ve been quite critical of the Case Shiller Index since I began this blog in 2005 namely because:

• it is 5-7 months behind the market;
• it excludes co-ops, condos and new development.

I do admire Robert Shiller and Karl Case as pioneers in this field but the CS index was NEVER intended to be a consumer tool used to measure housing. It was meant to be the basis for allowing Wall Street to hedge the housing market. A logical goal indeed, but CS was conceived before it was feasible to “game it” i.e. many economists and analytics firms can now accurately project the results of the index in advance. Not a good thing for investors who want to bet on it which explains why such limited trading actually occurs.

There are a lot of housing indices these days. There are also many new data companies that can do analytics a lot better than Realtors can because they only do analytics for a living. Without neutral commentary, how do more housing indices by NAR or Florida’s association make the picture any clearer to the consumer (and Realtors)? Instead I think the Florida association should be focusing on ways to help their members be more successful.

Case Shiller Index [Standard & Poor’s]
Existing Home Sales [NAR]
Florida Association of Realtors [Home Page]

Tags: Robert Shiller, Florida Association of Realtors, Case-Shiller, NAR, National Association of Realtors

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Got to talk housing with my friend Dan Gross, the Global Business Editor at Newsweek & The Daily Beast on his BeastTV segment “The Number”:

THE NUMBER: 101.7 That’s the pending home sales index from the National Association of Realtors, up over 12% from a year ago. Dan Gross and The Matrix’s Jonathan Miller reveal why we should be cautiously optimistic.

Their offices are located in the IAC building in Manhattan which is one of my faves – looks like a meringue pie. Here’s my photo from the cab:

Tags: Television, BeastTV, Dan Gross, NAR, National Association of Realtors

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Tom Royce over at Real Estate Bloggers – who always has interesting things to check out – posted a video that will make you “squirm.”

How NOT to brand yourself as a professional.

Tags: Tom Royce, NAR, National Association of Realtors

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Today’s excellent Bloomberg News piece on Rent versus Buy: Manhattan Best For Homebuyers Since 2006 As Rents Jump uses our metrics, namely those found in this chart and info crunched from our preparation of The Elliman Report: Manhattan Rentals 1Q 12:

[click to expand]

We are not saying it is cheaper to buy than it is to rent. However with record low mortgage rates and record high rental rates, there are more people transitioning to rental than we have seen in a number of years.

• Manhattan Best For Homebuyers Since 2006 As Rents Jump [Bloomberg]
• Manhattan Rental Charts [Miller Samuel]
• The Elliman Report: Manhattan Rentals [Douglas Elliman]

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Getting to the point in Knoxville, TN.

Tags: Bill McSpadden

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NAR’s Existing Home Sales numbers continue to edge higher. In this chart I annualize the non-seasonally adjusted and seasonally adjusted results. Think there isn’t seasonality in housing sales?

Here’s a good summary by Peter Coy at Bloomberg Businessweek.

No doubt a big reason was the improvement in affordability. The interest rate on a 30-year fixed-rate mortgage has continued falling since the period covered by the NAR report, portending better times ahead. Freddie Mac (FMCC), the mortgage-buying giant, says the rate was 3.79 percent in the week ended May 17, the lowest since it began keeping records in 1971. The Realtors’s index of affordability hit a record high in the January-March quarter. It factors in sales prices of existing homes, mortgage rates, and household income, which is slowly strengthening as the labor market improves.

And here’s a trend on inventory and absorption (months supply). Inventory continues to slide (not seasonally adjusted).

• Existing Home Sales Rise—Affordability Helps [BloombergBusinessweek]
• Existing Home Sales [NAR]

Tags: Existing Home Sales, Absorption, Seasonal Adjustment, NAR, National Association of Realtors

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