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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:

After an insanely chaotic and active 2013, it’s probably time to think about how 2014 is shaping up inventory-wise. At the end of last year, I was of the opinion that listing inventory was at or near a bottom and we would see some increase in supply but not nearly enough to match demand. And so far that has been the story. In this week’s column, I took a look at the first eight weeks of each year going back to 2009. Inventory always rises at the beginning of the year as sellers anticipate the spring market and skip over the December doldrums. I’d go back further in time, but I only began tracking inventory on a weekly basis in addition to monthly right after Lehman collapsed (I had more time on my hands). This analysis looks at overall Manhattan inventory at all price points—clearly there are nuances not reflected, i.e. luxury listings at historical averages while the remainder at chronic lows, so relax…

[click to expand chart]

My latest Three Cents Worth column on Curbed: Inventory Rising At Fastest Pace in 4 Years [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

Tags: Three Cents Worth, Curbed NY, Listing Inventory, 3CW

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Jed Kolko does a nice job summarizing what the general housing market may look like in 2014 after the new home sales report came out today.

My big takeaway was that any housing market improvement will be more affected by local job and income growth rather than the “rebound effect.” This phenomena occurred in markets that were hit hardest by the downturn, yet saw the largest price increases.

I’ve added “rebound effect” to my 2014 phrase list, right after “polar vortex.”

Tags: Jed Kolko, Commerce Dept, New Home Sales, Census, Polar Vortex, Rebound Effect, Sarah Portlock, Jonathan House

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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.

or

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.

Tags: CNBC, Polar Vortex, NBC, Fox Business, Housing Recovery, Bloomberg News

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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.

Tags: CNBC, Commerce Dept, NAHB, Census, Housing Starts, NAFB, Home Builder Confidence Index

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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 get the feeling that many businesses (and the local economy) have been on some sort of “pause” during the past month, perhaps partially brought about by the weather. (Full disclosure: I’m the first to admit – I LOVE snow. I’ve even got a snowmaker at home.) Since the market is experiencing the tightest inventory levels in 14 years, I thought I’d compare seasonal inventory trends to seasonal snowfall trends…

[click to expand chart]

My latest Three Cents Worth column on Curbed: Snowy Weather Keeps The Listings Away [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

Tags: Three Cents Worth, Curbed NY, 3CW

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Had a great discussion with Mark Crumpton on his show “Bottom Line” about the slowing US housing market. You can see this in the quarterly results:

The median existing single-family home price increased in 73 percent of measured markets, with 119 out of 164 metropolitan statistical areas (MSAs) showing gains based on closings in the fourth quarter compared with the fourth quarter of 2012. Forty-two areas, 26 percent, had double-digit increases, two were unchanged and 43 recorded lower median prices.

The storyline of the last 2 years has been “Housing is Back!” yet prices were rising based on fed policy, not due to fundamentals like income, employment and access to credit. I have been labeled as a bit bearish on the “recovery” but I’m really not. I look at this slow down as a good thing for the long view on housing. We need to have sustainable housing growth (ie sales and prices) and 13.7% YoY price gains are in start contrast to economic fundamentals.

During our interview we were interrupted by the signing ceremony with President Obama for the new minimum wage act, so Bloomberg TV spliced the two parts together quite nicely. This is the second or third time one of my interviews has been interrupted by the President of the United States. Yes, I’m ok with that. 😉

Tags: Bloomberg Bottom Line, Mark Crumpton, NAR, National Association of Realtors

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Once a month a local real estate broker passes out monthly updates of our local Connecticut housing market at our commuter train station. He’s a nice affable guy and I get to hear him explain the market to people as we wait in the warm station. He said this to me after I took a look at his handout this morning,

“The statistics aren’t too shabby, eh?”

And I smiled and responded, “that’s the power of record low mortgage rates.” to which he gave me the “thumb’s up” gesture.

And he’s right, his MLS statistics show a very much improved housing market from a few years ago and nearly all of the improvement has been mortgage rate related.

His view of housing is not unlike most public economic prognosticators from Wall Street, NAR, NAHB and real estate brokerage firms, consumers and general in-the-media-all-the-time types.

However few, if any, prognosticators understand why or seem interested in understanding whether it is sustainable (aka forecasting a trend). Once a metric shows promise, it will rise forever, or something like that.

Here’s my town recap for November being presented as a report (with a wildly low 15 sale data set). All the percentages reflect November 2012 over November 2011:

• New Listings -40%
• Pending Sales +36.4%
• Homes sold +15.4%
• DOM +53%
• Average Sales Price +29.4%
• Average Dollar Volume +49.3%

Despite the low data set, the results are remarkably consistent with national trends. Now look at why these metrics actually changed:

• New Listings -40% [tight credit pressing inventory down because sellers can’t buy]
• Pending Sales +36.4% [record low (and continuing to fall) mortgage rates + high rents]
• Homes sold +15.4% [behind pendings because pace of sales accelerating as rates fall]
• DOM +53% [older stagnant inventory is getting sold off from lack of supply]
• Average Sales Price +29.4% [more high end sales are moving this year]
• Average Dollar Volume +49.3% [same as above]

If you pull the plug on low rates, the housing market (literally) plunges. No one is suggesting this is the scenario that will occur but the national housing market feels incredibly fragile to me.

But why should I (or anyone else) actually care whether we understand what’s actually going on? The stats show sales and price numbers are higher than last year – “bullet dodged” – that’s all we need to know – we did the math.

Tags: Pending Home Sale Index, NAHB, PHSI, NAR, National Association of Realtors, Math

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Got to join Tom Keene on his Bloomberg Surveillance Midday to talk housing – national and NYC metro, credit, distressed and donuts. I love the show structure, one of the few networks that provides a longer interview format for more substantive conversations in their programming.

Ironically I rode in on the train with Tom that morning:

Jonathan Miller on Housing Market [Bloomberg TV]

Tags: Tom Keene, Bloomberg Surveillance

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Years ago, there was a Dunkin’ Donuts commercial with the catch phrase “got time to make the donuts” which has remained one of my regular phrases.

For the past few months I’ve talked a lot about housing markets with “a hole in the middle” in my speaking engagements. I’ve been surprised at the volume of in-person feedback on “Donuts” just from my Bloomberg TV appearance with Deirde Bolton a few weeks ago including a senior bank executive at a board meeting I was presenting, a WSJ editor and reporter and others.

For lack of a better description, many housing markets, especially along the coastal US, are like a donut (NYC’s version is more of a bagel than a donut – thicker but not as sweet). Incidentally, I made donuts at the bakery in college so I’m obviously more than qualified to use this weak analogy.

The “hole in the middle” pattern is something I’ve been observing in the various housing markets I follow or dabble in – i.e. Manhattan, Westchester, Hamptons, Brooklyn, Miami, SF, DC, to name a few. I’m not defining it by a specific price but the middle is more like the segment just above the middle in these markets. It’s placement is specific to the price structure of each market.

It goes like this:

• Strength at the entry-level – due to record low mortgage rates and pricey rental market;
• Strength at the upper end – less dependent on irrational lending standards with limited places to invest, foreign buyers, wealthy domestic buyers; but
• Weakness (a hole) in the middle – relative to the top and the bottom.

The “donut housing economy” is holding back consumers from trading up in an orderly fashion. i.e. from the low to middle of the market, from middle to high (or the reverse).

By describing the middle as a “hole” I don’t see the middle as a stark barren wasteland (i.e. w/o sprinkles). I’m simply observing that it’s weaker relative to the top and bottom…for now.

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Guest Appraiser Columnist:
Jim MacCrate, MAI, CRE, ASA
MacCrate Associates
Appraisal & Valuation Issues Blog

Jim has worn many hats including a Director at PricewaterhouseCoopers in New York City and Chief Appraiser at European American Bank. He is a prolific writer on valuation issues and teaches a number of the real estate appraisal classes through the Appraisal Institute and New York University. I have had the pleasure of taking a number of courses taught by Jim.
…Jonathan Miller

Many so called real estate experts have been predicting the bottom to the real estate market will occur in late 2009 or early 2010. No one can predict with any degree of accuracy the future, much less the bottom of the real estate market in any metropolitan area. It is important for real estate professionals to remember that real estate markets vary by location. Some markets will do well while others are doing poorly. For example, the Detroit real estate market was depressed long before the recession was declared official by the federal government and the beginning of the decline in the New York real estate market. The real estate market in the New York metropolitan area has been driven low interest rates and by the growth of the financial, insurance, and real estate sectors of the economy which began in earnest in first quarter of 2004 as indicated in the following chart:

Total employment is now falling with the FIRE and construction sectors of economy taking a big hit in employment beginning with the collapse of Lehman Brothers. Real estate salespeople, brokers, and appraisers must stop listening to the noise from Washington, D.C., politicians, and others who have mislead us in the past. What we are witnessing, the economists and politicians have witnessed this before during the late 1920’s, the late 1950’s and early 1970’s. In order to properly value real estate, one must cut out all the outside noise and analyze carefully what the local real estate market data is telling you.

On a Macro Basis the Indicators are all Negative

The recent indicators reported by the government suggest that the economy is improving because the rate of unemployment is declining, consumer confidence is improving, the rate of decline in manufacturing is subsiding, etc. All of the above and other statistics still suggests that economy is not improving and real estate values will not begin to rebound until the economy turns over and employment begins to increase with an increasing payroll income and wealth. That is not bound to happen for awhile.

In the New York Metropolitan area, the leading indicators for increasing real property values are all declining, including the following:

• Population is stabilized or falling
• Number of households has stabilized or is declining
• Total employment is declining
• Total payroll/income is declining
• Consumer confidence is negative
• Businesses are still contracting including manufacturing, retail and the financial services sectors of the economy.

The results of the 2010 Census should be interesting nationwide. Listen to what the leading indicators are telling you about the macro market.

Now, on a Micro Basis

Real estate is fixed and immobile. The value of real property is driven by local indicators which impact the demand for real estate in a specific location. All the macro indicators referred to above are also negative in the New York Metropolitan area. In order to determine if the real estate market is rebounding versus stabilizing at a much lower level of activity and prices, the following factors should be analyzed carefully in addition to the factors that generate demand:

• Sale price trends
• Increase/decrease in the number of sales
• Increase/decrease in the number of listings for sale
• Increase/decrease in the number of days on market
• Increase/decrease in sales concessions
• Response to for sale or for lease advertisements
• Increase/decrease in the number of foreclosures
• Increase/decrease in the number of loan defaults.

These trends are extremely important to watch, but the trends will not reverse until consumer confidence is positive and total payroll/income, employment and the number of households is increasing. It must be remembered that real estate prices remained depressed for several years after the recessions of the 1970’s and 1980’s. Why should this time be any different, and, in fact, it is already worse in many markets.

Tags: Europe, James MacCrate, Commerce Dept, Census, Appraisal Institute, Straight from MacCrate, Lehman

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