Matrix Blog

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At first glance, the headline on coverage of the annual State of the Nation’s Housing report issued today by Harvard’s Joint Center for Housing Studies:

U.S. Housing Recovery Dependent on Jobs, Harvard Report Says:

…and an Ivy League degree will get you a ham sandwich:

Ok thats way too harsh, but in reality, job creation is THE important point – since we lost sight of that during the credit/housing boom (when consumers didn’t need to have a job to get a mortgage). In other words, job creation will be needed to carry the torch from the federal tax credit stimulus. Job creation as an offset to the rising foreclosure problem is the key.

Even as the worst housing market correction in more than 60 years appeared to turn a corner in 2009, the fallout from sharply lower home prices and highunemployment continued. Byyear’s end, about one in sevenhomeowners owed more ontheir mortgages than their homeswere worth, seriously delinquentloans were at record highs, and foreclosures exceeded twomillion. Meanwhile, the share ofhouseholds spending more thanhalf their incomes on housing waspoised to reach new heights asincomes slid. The strength of job growth is now key to how quickly loan distress subsides and how fully housing markets recover.

Right now, feedback I’m being in various housing markets across the US suggests home sales are falling sharply in the post-stimulus housing world.

We’d better get back to work.

Tags: Harvard JCHS, Harvard

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Last January I moderated a distressed property panel at the Inman Real Estate conference in New York.  One of the panelists was Travis Waller, a sharp real estate agent from New Jersey who spoke with great clarity on his specialty, distressed real estate.  In this podcast we have a great conversation via Skype on what life will be like after the end of the federal tax credit for first time and existing home buyers, how banks are coming to grips with property disposition, differences between short sale and foreclosure transactions, marketing distressed property, to name a few.

It’s great insight from someone who deals with distressed property first hand.  Follow Travis on Twitter.

Check out the podcast.

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.

Tags: Re/Max, NAR, National Association of Realtors

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Tags: Re/Max, NAR, National Association of Realtors

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I’m making up for lost time, not having taken art classes in school…

In the New York City metro area, prices were generally stable – the story this spring was really all about transactions. In today’s New York Times, Vivian Toy’s piece: Spring Real Estate Market Roars In but Tiptoes Out Early describes the robust sales activity that occurred in the first three months of the year but peaked by mid-April, two months early. Sales continued to remain elevated through May and June, however. Does this mean that the market is poised to slip?

Who knows?

This article portrays what we observed in our practice and it was corroborated by StreetEasy‘s contract data. This could be explained by the federal tax credit expiration in much of the US housing market, but probably less so in Manhattan due to the high price point:

Housing sales activity rose across the country in March and April, in anticipation of the April 30 deadline for the $8,000 first-time buyers’ tax credit. But economists and brokers say the tax credit was probably a less powerful incentive in Manhattan, where the average sales price for an apartment is $1.4 million.

And price metrics are rising.

Seeing another sign that the market is on the mend, Pamela Liebman, the president of the Corcoran Group, said that the average price on signed contracts at Corcoran had climbed to $1.5 million in May, from $1.31 million in February.

However, it is important not to confuse this increase with rising prices. The high end market simply “woke up” in the beginning of the year and is skewing the overall numbers. We saw this happen to our 1Q 2010 market stats. Plus its a seasonal phenomenon to see the aggregate numbers rise in the spring.

But nationally, housing market indecision is on the rise.

Tags: Corcoran, StreetEasy, New York Times

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NAR released its PHSI today and there were no surprises. The expiration of the federal tax credit for first time buyers and existing home owners (signed contract by April 30, close by June 30) showed its impact on sales trends.

By the way, my above chart shows how ridiculous seasonal adjustments are – the non-seasonal adjusted line better reflects whats going on.

The pending sales data set is about 20% the size of existing homes and is comprised of existing single family and condo sales. Its dubbed a forward looking index but it really is a current looking index. The “meeting of the minds” between buyer and seller occurs just before contract signing. Its forward looking in the context of closing data but it is not forward looking on the condition of housing.

Consecutive M-O-M Gains

• Sales were up 6% from March to April and up 22% from April 09 to April 10. Last month
• Sales were up 7.9% from February to March and up 8.3% from March 09 to March 10.

Analysts have expressed fear the housing market will suffer with the end of the government subsidy. But the job market has been improving. The Labor Department is scheduled this week to release employment data for May, and economists surveyed by Dow Jones Newswires are expecting a gain of 515,000 non-farm payroll jobs.

The same thing happened last fall as the initial tax credit within the federal stimulus plan was set to expire on November 30 only to be renewed and expanded a few weeks later. No renewal this time.

Regionally things were not so consistent. Month over month gains in

• Northeast +29.5%
• Midwest +4.1%
• South -0.6%
• West +7.5%

Buyers they better close by June 30th. Not an automatic assumption in today’s mortgage environment.

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

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Last month NAR told us that this month would see another period of robust sales activity as buyers sought to beat the expiration of the first time buyers and existing hoimewoners tax credit on April 30th.

NAR was right about the jump in existing home sales this month.

Still, no real trend is apparent here.

The federal government provided a stimulus to buy homes to help jump start housing and the economy. Pure market forces didn’t deliver the buyers to the closing table this month on their own. What I love about sales stats over housing price stats is sales trends tend to lead price trends. So its a bit weird to say that prices are stabilizing when a key driver of demand was the tax credit – that fueled surge in sales which helped stabilize prices. Remove the stimulus and prices fall.

Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”

When sales drop over the next few months, it would be reasonable to expect sales prices to fall too as the artificial stimulus leaves the economy.

Here are this month’s metrics:

• existing-home sales increased 7.6 percent to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March
• existing-home sales are 22.8 percent higher than the 4.70 million-unit pace in April 2009.
• housing inventory rose 11.5 percent to 4.04 million existing homes available for sale, an 8.4-month supply up from an 8.1-month supply in March.
• inventory is 2.7 percent above a year ago, but remains 11.6 percent below the record of 4.58 million in July 2008.
• national median existing-home price was $173,100 in April, up 4.0 percent from April 2009.
• distressed homes accounted for 33 percent of sales last month, compared with 35 percent in March.

Tags: Lawrence Yun, NAR, National Association of Realtors

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I have been coming across what I believe to be somewhat weird rear view looks at the credit/housing bubble we just went through from some well respected voices. I’m thinking there is perhaps an academia disconnect from the front lines.

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Casey B. Mulligan is an economics professor at the University of Chicago writes “Was it really a bubble?“

According to the bubble theory, for a while the market was overcome with exuberance, meaning that people were paying much more for housing than changes in incomes, demographics, technology and other basic factors would suggest.

But why would the blue line need to be where it is? Housing prices are stickier on the downside and the slope should not form a bell curve as the drawing suggests. It should be a lesser slope and drawn out over several years, shouldn’t it? And wasn’t that the whole point of the stimulus plan in reference to the first time home buyers’ and existing homeowner’s tax credit? It stimulated sales activity and as a result, artificially pushed sales price levels sideways.

Take a look at my colleague at Westwood Capital, Dan Alpert’s chart showing the exuberance of housing prices. You can slice it and dice anyway you want but THAT’s a bubble.

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And one of my favorite economist/writers Edward Glaeser writes “What Caused the Great Housing Maelstrom?“

If the easy credit hypothesis is correct, then we can take comfort in the thought that we understand the great housing convulsion, and we can start pointing fingers at those institutions, like the Federal Reserve System, that play a role in determining interest rates.

He and his colleagues through their research seem to be saying that low interest rates and high lending approval rates don’t explain enough of the rise in housing prices.

In all due respect, I don’t know exactly how they proved their points empirically but this research seems to be a bit disconnected to what most of us observed on the ground during the boom itself.

For example, a five percent increase in loan-to-value ratios is associated with a 2.5 percent increase in prices, and loan-to-value ratios rose by less than five percent during the boom.

That seems like a very low ratio to me. As appraisers we could clearly see the pressure we were under to hit the number for the mortgage approval and that most people were placing 5%-10% down. I contend that credit was easier than anytime in modern history and that combined with interest rates kept on the floor from late 2001 to mid 2004 caused a frenzy of demand or as Professor Robert Shiller characterizes it as “Irrational Exuberance.”

This was a credit bubble and that housing was merely a way to keep score. Perhaps I am not following their logic but having lived through it and saw the lending environment first hand, its hard to imagine this whirlwind of the past 7 years was not a bubble of some kind.

Tags: Robert Shiller, Case-Shiller

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Last week S&P made the decision to de-emphasize seasonal adjustments given the chaos of the past several years. A good move towards better transparency.

The S&P/Case Shiller Index showed:

• 0.6% increase year over year, first in about 3 years – caused by the tax credit.
• 20-City Composite is down 32.6% since June/July 2006.
• Month over month decline in 19 of the 20 cities in the index.
• 0.9% decline from January to February 2010, 5th consecutive monthly decline.
• As of February 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003.

After 5 consecutive months of m-o-m declines, the Case Shiller Index is feeling the influence of rising foreclosures and a possible housing double dip, despite the stimulus in sales activity from the multiple federal tax programs.

Tags: Case-Shiller

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The Westchester-Putnam Multiple Listing Service, Inc. provides a quarterly analysis of the Westchester County real estate market, a suburb of New York City.

Although we perform appraisals in Westchester it’s been a while since I wrote about the market. I just did the keynote at Westchester Real Estate, Inc.’s annual award luncheon and got some great feedback from the brokers in attendance.

For perspective, and aside from the last two years, annualized sales levels in 2010 are below every year since 1993. In fact, the annualized sales level for 2010 is exaggerated since the first quarter benefitted from elevated sales activity caused by the federal tax credit which will not continue to skew sales higher in the second half of 2010.

Despite a 54% increase in sales activity in 1Q 2010 over the prior year quarter, sales listing inventory actually increased 3.9%. In other words, new listings entering the market outpaced the properties being sold off. With the gains in sales, we would expect a decline in inventory over the same period.

Here’s an excerpt from the WPAR report.

Real estate firms participating in the Westchester-Putnam Multiple Listing Service reported 1,313 closings of Westchester residential property transactions in the first three months of 2010, an increase of 54% from the same period a year ago. Putnam County closed transactions were up by 28%. The closings largely reflected marketing and contract activity that took place during the late autumn and closing months of 2009.

Although the year to year percentage increases in sales were high in all categories of housing tracked by the MLS, it must be noted that they were calculated against the very poor sales base of the opening months of 2009. At that time total sales were less than half those of the peaks posted in 2006 and 2007. The 2010 volume was closer to that posted at the start of 2008 when the real estate recession first took hold in our area. Seasonally adjusted1, Westchester’s 2010 first quarter sales were equivalent to an annual sales rate of 6,830 units; that approximate annual volume was last experienced in 1995 and 1996.

Download the Westchester and Putnam Counties 1Q 10 report [WPAR]

Tags: Seasonal Adjustment

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The 1Q 2010 Manhattan Market Overview , part of a report series that we have authored for Prudential Douglas Elliman since 1994, was released today. We had problems with our web site host all morning and couldnt get the reports loaded until early afternoon.

Other reports we prepare can be found here.

The 1Q 2010 data(coming later today) and a series of charts (acoming later today).

Press coverage can be found here once we get around to uploading it. In the meantime….

An excerpt

……There were approximately twice the number of sales in the first quarter of 2010 as the same period a year ago, however, this is the first quarter-over-quarter decline in the past year. The number of sales jumped 99.5% to 2,384 sales in the first quarter from 1,195 sales in the same period a year ago, but declined 3.6% from 2,473 sales in the prior quarter. The number of sales over the last three quarters has been consistent with the 2,301 quarterly average number of sales over the last decade. The first quarter of 2009 saw the lowest level of sales activity over the prior 15 years and was reflective of the nearly “frozen” market conditions after the Lehman Brothers bankruptcy in the autumn of 2008 and the onset of the credit crunch. The rise in the number of sales over the past year reflected a release of “pent-up” demand resulting in a decline in the number of apartments available for sale. Low mortgage rates, a surging stock market, tax credits, and a new affordability from a sharp decline in property values stimulated demand. There were 8,027 listings at the end of the first quarter, 23.1% below the 10,445 listings in the same period last year, but 17.2% higher than the prior quarter total of 6,851. This excludes, however, an estimated 6,500 units of new development “shadow inventory”. Although inventory is at its second highest level of the past decade, total inventory remains slightly above the ten year average of 7,117 listings…

Download 1Q 2010 Manhattan Market Overview

Tags: Lehman

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I did a short interview on Bloomberg yesterday regarding their coverage of Knight Frank’s 2010 Wealth Report

The Bloomberg coverage was in reference to my contribution to the report via interview where they matched me up against their analyst Xavier Wong, Head of Research for Greater China and Hong Kong.

The prime New York market, where prices fell 12.5% in 2009, is gaining strength , but the recovery is tentative, says Leading New York property commentator Jonathan Miller

The frozen market in Manhattan in the first half of 2009 gave way to a much stronger second half of the year. By the summer, the market began to see a recovery in sales activity following an improvement in economic confidence prompted by a revival in the stock market.

While the market has undoubtedly improved compared with last year, we ought not to get too excited. The recovery of late 2009 was a short-term uptick, due in large part to a release in pent-up demand. My view is that the surge in demand is not the start of a rising housing market. While sales are up sharply, prices have moved “sideways.”

I have some lingering concerns for the New York market in 2010. The market has been aided by government stimulus measures – tax credits for first time buyers, in particular. This package will expire in mid-2010. While the US economy is growing, the high rate of unemployment – around 10% and somewhat higher locally – as well as a tight mortgage lending environment do not provide a firm basis for ongoing growth in house prices.

A real fear for 2010 is rising mortgage rates, currently at near record lows. The potential for growing foreclosures, which were not a problem in 2009, is another real factor.

One segment of the market that has seen a noticeable uptick has been international demand, where the weak dollar has prompted interest from Asia, Europe and South America. Demand from South Korea has also become more noticeable.

Looking outside New York, both Boston and Washington DC have also improved, with rising resale volumes in both markets. On Long Island, the Hamptons luxury second home market has surprised everyone with its resilience to date. As a discretionary market, there was general concern that this region would see large declines in prices and sales from the 2008 and early-2009 market turmoil. In fact, both sales and price trends have remained in line with the Manhattan market.

Watch the clip which summarizes the report [Bloomberg]
Open 2010 Wealth Report [Knight Frank]

Tags: China, Television, Europe

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Trulia released its Price Reduction Report for March 2010 and press release

The report suggests that sellers are being more realistic when pricing their homes. Over the past year, the rate of price decline began to ease and actually stabilize in certain housing markets. Prices stabilized, largely because sellers finally began to adapt to the new (lower priced) market.

I wouldn’t be surprised if this discount trend begin to expand again in the coming months as sellers enter the spring housing markets with more optimism after a higher level of activity at the end of last year. The tax credit continues to play a role in the higher level of demand. As Trulia builds history on this report, I’m interested on seeing what seasonal patterns there are.

Unemployment remains at very high levels and credit remains very tight. I don’t this see this trend suggesting a housing recovery – its more of a sign that we are leaving surreal market conditions of 2009.

a new all-time low for national home price reduction levels since the company started tracking in April 2009, with 19 percent of listings currently on the market in the United States as of March 1, 2010 experiencing at least one price cut. This represents a 10 percent decrease from the previous month and the first time price reduction levels have dropped below 20 percent. The total dollar amount slashed from home prices dropped to $21.6 billion and the average discount for price-reduced homes continues to hold at 11 percent off of the original listing price.

Of the 50 largest US cities…

Top 5 Cities (most price deductions)

Bottom 5 Cities (least price deductions)

US home sellers more realistic on prices -Trulia

The percentage of U.S. homeowners who cut the listing price on their houses fell in February to the lowest level in 10 months, as initial pricing became more realistic heading into the spring selling season, real estate web site Trulia.com said on Tuesday.

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