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.


  1. Tom Brander December 13, 2012 at 11:28 am

    How many time do we need to discuss this. It is not low interest rates but un-employment (or employment if you will) that is more determinate. I defy you to show me any correlation with interest rates. My research shows very low correlation.

    But it does show High correlation with employment rates which in turn correlate much better with overall economic conditions..

    Show me the STATS of which you speak, but do not show!

  2. Jonathan Miller December 13, 2012 at 11:44 am

    Tom – you are so super macro that you are missing the point and the data – the “stats” are in the post.

    Low interest rates clearly have goosed the housing market in terms of sales and prices in the short term. You can see it on the ground if you are entrenched in the market.

    Employment is clearly improving and will help the housing market sustain – but housing prices were improving before employment began to improve hence it is not the exclusive reason as you like to suggest – just like it doesn’t explain the 2010 housing spike related to the tax credit in 2010 – people’s payments changed their behavior radically and it had nothing to do with employment at that time. And neither are interest rates some sort of exclusive reason for housing trend change for that matter.

    This post was based on my interaction with someone over interest rates, not employment, or for that matter, taxes, fiscal cliff, who will win the Superbowl or why lobster appears 4-5 times on every restaurant menu.

  3. Tom Brander December 13, 2012 at 11:51 am

    You are doing the same as you are accusing others of. Anecdotal evidence vs real stats. Run a regression over some period then you have something. Your statements have no more backing than the one you are criticizing.

    And Employment improving is what eventually causes housing to improve (as you imply), my studies indicate that the employment rate can predict housing about a year in advance, interest rates show no such correlation.

  4. Jonathan Miller December 13, 2012 at 12:16 pm

    Thanks for taking the time to post here.

    Of course falling employment improves housing and it is a housing fundamental – no rocket science there. But this is NOT the point being made in the post. Incidentally you never addressed my comment on the tax credit since that modified prices and sales sharply and was payment/affordability related – NOTHING to do with employment rising at that time. Interest rates, ie affordability have made an impact on consumer behavior over the last year as they have fallen – and credit has not eased. Its kept credit tight which drops inventory and gooses prices. It allows for a larger portion of a payment to go to principal which causes also prices to drift upward and we have a lower proportion of distressed in the mix which also has caused prices to rise. This was all happening BEFORE employment began to improve. Please drop in the link for the trend in employment you keep referring to – it sounds like it provides an explanation for all market nuances of the past year.

  5. Tom Brander December 13, 2012 at 4:27 pm

    Not trying to be argumentative, but while looking at projection methods I actually ran multi year regressions in several markets and found very low correlation to interest rate, being predictive of sales. I did however find strong correlations to beginning of year un-employment rates.
    Documented here: http://tbrander.wordpress.com/2012/04/04/sales-projections-for-alabama-real-estate-markets-2012/

    All data and calculations are in the referenced linked public spreadsheets, which also have the current year to date calculations and errors calculated. And NO housing did not begin to improve before employment it was the reverse.

    The housing credit affected the volume for a few months and was then followed by an equal number of months of under-performance, with very little net effect. Although at the time things were so dire that the credit did serve to shock the market back from continuing falling.

    Again what I have is real correlation not anecdotes. Your statements seem to me to reflect somewhat conventional thinking but poorly justified by formal analysis, with real correlation calculations?

    • Jonathan Miller December 13, 2012 at 5:54 pm

      Yes you’re being pretty argumentative and it’s frustrating because it’s a circular discussion – however you always provide an interesting perspective on the market and do great research. You’re providing the context as sales levels for Alabama in relationship to employment. You’re hanging your hat on employment as the only way to describe or explain housing patterns because you ran a regression and yet not explain behavior like the tax credit on consumer patterns which was clearly evident and NOT anecdotal. I’ll dig up some visuals on the points you bring up so we can flesh this out. Forget the fiscal cliff – this is a heck of a lot more interesting.

  6. Nyander Wheeler December 13, 2012 at 4:36 pm

    I read the story and it all makes sense to me why the interest rates are kept at a low and how it affects the real estate market etc. However what really brought me to the orginal Miller and Samuel website is, I am interested in knowing more about real estate appraising and what does this job entail. I am trying to find a career where all my interest can merge. Not too long ago I finished an architecture degree and know quite a bit about architecture, lets say I have a passion for the place we call home. So I saw the job title real estate appraiser, I did some research on it but I want to know more. Now here I am trying to figure out if I can meet with someone with the knowledge of this area…Sorry that this comment is off topic but I am hoping it was all worth it. Thank you.

  7. Tom Brander December 13, 2012 at 6:27 pm

    Really not meaning to be argumentative, just trying to get things to true math, kind of like a low rent Nate Silver 🙂

    What I’m showing/ contending is open and Statistically based over 5 years, and multiple markets. I don’t pretend it explains all but I do show how much it explains… Actually want to redo with more advanced stuff for this year to see how much I can improve it. But I can state that my early attempts at using interest rates in any fashion, reduce accuracy.

    And for the record i do think the “cliff” is a short term sideshow. Much as the tax credit was.

  8. Brad R. December 26, 2012 at 10:28 am


    I agree with you 100%. The Fed is directly responsible for the improvement in the housing market via low rates. When you combine the record low interest rates with lower home prices from 2008/09 credit meltdown buyers feel like they are getting a good deal. The real estate agents are always optimistic and look for the positive stat nuggets they can use to sell more homes because their livelihood depends on it. They prefer not to look at impending risk that could lower home prices in the future because that could delay the sale. The fact is the Fed is using Ponzi Financing for multiple reasons which has goosed the housing market to the upside. However this manipulation of the free market has a cause and effect result that will create a bust in the future in a certain segment of the financial markets that will have a negative consequence for home prices. This could be a bond bubble, dollar crash, sovereign debt defaults that all will effect the banks and the credit markets, which the last time I checked is the engine for the real estate market. The supply/demand picture is very distorted right now due to the invisible hand of the government.

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