With all the talk about national housing rebounds lately, reality had to settle in with actual numbers. What’s interesting to me is how the takeaway from the results seem unclear.

NAR is spinning it that prices have hit bottom. I don’t agree but I would guess we are within 2-3 quarters from that point.

Is the glass half empty or is it half full? For much of the coverage on the NAR figures, the glass is not half empty, its simply empty.

* Home Prices Fall in More Than Half of Nation’s Biggest Markets [NYT]
* Existing Home Sales Sink Across Nation [Seeking Alpha]
Record home price slump [CNN/Money]
* Existing Home Sales Off in 40 States, Slide Nationwide [Reuters]
* Housing sales drop in 40 states [AP]

Well, I’d say its half empty. With 40 states posting losses in the 4th quarter as compared to the same period last year, it sure looks like the market is continuing to weaken nationwide. That’s logical since inventory levels, while showing signs of stability, are still way too high. Until levels are fully absorbed, I would think the NAR will keep reporting declining numbers for the next 2-3 quarters. Oversupply = more competition = weaker position by sellers to hold to their price.

On the other hand, its not all gloom and doom in every market, and I think this is the sort of impression that one walks away with when reading about this topic today.

CNN/Money presented a link to 149 major metro markets and guess what? The range of price changes ranged from -18% (Sarasota-Bradenton-Venice, FL) to 25.9% (Atlantic City, NJ). The big news angle here is that 71 markets went up and 73 went down, which is more than half of all metro markets. Didn’t everyone see this coming? Is this a new idea?

The drop in median home prices is -2.7% for the country is somewhere in the middle of the 149 metro market price change range. The cities on the positive side seems to show solid local economies with limited speculative markets. Those cities on the negative side are from markets with weak local economies and/or speculative markets. Logical.

In New York, the NAR stats for New York-Northern New Jersey-Long Island show a 2.3% increase and NY: Nassau-Suffolk showed 0.3% in median sales price over the same period (4q 2006 versus 4q 2005).

The Manhattan Market Overview [pdf] we prepared in 4Q 2006 showed a 5.1% increase in median sales price and our Long Island/Queens Market Overview [pdf] showed a -1% drop in median sales price over the same period (4Q 2006 versus 4Q 2005). In other words, real estate is local.

I am fairly confident the national numbers will continue to show similar weakness for the next several quarters and we are not at “housing bottom” nationally. That’s why I think the Fed Chair Bernanke’s comments about the economy actually suggest potential rate cuts and housing is one of the main reasons.

>he forecast calls for slightly slower growth in 2007 than the Fed predicted last summer, but still in line with officials’ estimates about the economy’s long-run potential growth rate. The lower growth estimate reflected the sharp downturn in the housing market last year, and an expectation that housing would continue to drag down overall growth in 2007.

With national housing and the auto industry weak, and a lot of speculation that the latest GDP figures are inflated, there is a growing argument that we could see the fed cut interest rates in the second half of 2007. This could help prime the housing pump to get the excess inventory off the books.

In fact, there a rising level discussion that interest rates will remain low for the next several years. Housing is one of the reasons. There’s a great article in last week’s issue of Businessweek.

UPDATE: Chart just added to the NY Times article:


  1. John K February 16, 2007 at 12:07 pm

    I think things are “half-full” here in Boston. I don’t know about our suburbs, but the downtown market seems much improved, over the past six to eight weeks. I’m not yet confident it’s a permanent change … we’ll see.

  2. Sandy Mattingly February 16, 2007 at 12:38 pm

    What’s the point of the national stats anyway?

    Any detailed conversation with a real buyer or a real seller is about “what’s the Manhattan market doing now?” and the scary “where is Manhattan market going next?” Same thing must be true everywhere because (cue the chorus) real estate is local.

    Then the burden becomes reconciling or differentiating the local market from the national stats. I don’t know that it is all that useful to even wonder why the national stats are tending (pick one) the same as or different from the local market. (The national economy is a different thing, but to say that the national economy drive the national housing stats does not mean the national economy drives the local market by reference to the national housing “market”.)

    NAR has been way too successful at being The Source for certain housing data. And because they have big numbers and a long history, their numbers mean something. Something really big, and macro that I have a lot of trouble grasping when someone asks me (for example) about how lofts in the West 30s sell compared to the traditional Manhattan loft neighborhoods of Soho and Tribeca.

    The use of the NAR stats in discussing local market conditions strikes me a bit like the joke about the guy who dropped his keys in the parking lot: he’s looking under the lamp-post because “that’s where the light is” rather than where he dropped them.

  3. poet1 February 17, 2007 at 7:05 am

    So if the price of oil skyrockets and we really need an interest rate rise to stem inflation; has that option been taken off the table by this highlyh leveraged, “low,low rate world” the Fed has created???

  4. Teresa Boardman February 17, 2007 at 9:35 pm

    Our prices here in the twin cities are slightly up from last year, in St. Paul there are several neighborhoods that saw 5% property value increases. The buyers read this kind of news and make low ball offers on homes. I think we will see some price decreases here just because of these reports about price decreases. Our local media does their best on slow news days to discourage buyers and sellers.

  5. skep-tic February 20, 2007 at 4:30 pm

    nat’l housing trends are relevant to the NY market because so much of the NY market is based on the financial industry.

    if you have tens of millions of homeowners across the country underwater on their mortgages (which increasingly appears to be the case), you have the recipe for disaster in the credit and derivatives markets.

    this is highly relevant as far as NY real estate is concerned

  6. Jonathan J. Miller February 20, 2007 at 4:40 pm

    I think housing derivatives specifically is a non-issue because of the lack of activity in general for now. But what about credit derivatives? Banking, lending, etc. How you see that as an issue? I am not sure I follow. And is this really a significant portion of the financial services sector in NY? I would guess its pretty small but I am anxious to understand.

  7. skep-tic February 21, 2007 at 9:25 pm

    “How you see that as an issue? I am not sure I follow. And is this really a significant portion of the financial services sector in NY?”

    derivatives, both in trading and issuance, are a massive part of the financial landscape w/r/t Wall St firms. no one really knows what would happen if there was a meltdown in this market, but it certainly presents at least a hint of systemic risk. (see, e.g., Long Term Capital Mgt).

    the question at this point is whether the subprime mess and the derivative instruments that attempt to insure it (and are failing) are just the tip of the iceberg, or whether they are contained in a little corner. time will tell

  8. Jonathan J. Miller February 22, 2007 at 12:16 am

    Thanks! Well, I see sub prime lending, especially the underwriting elements as having serious systematic risks due to lack accurate collateral assessments – this is pervasive across all types of lending, actually. Not sure if it will ever matter though in the long run.

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