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A few years ago, I was thinking about running another set of our market numbers for the NYC metro area as seasonally adjusted since that was prevalent in housing indexes such as NAR, Case Shiller, New Home Sales. However, when I spoke to several economists on how to set out to actually do this, I found there was no real standard and methodologies used were rarely disclosed. I opted not to pursue a conversion.

NAR takes their monthly numbers, annualize them and then adjust for seasonality. Seems like stacking Jenga wood blocks. The smaller the base piece, the more volatile the blocks are at the top of the stack.

It felt like the reliability of the data could be diluted as a result. One of the things that happened in the NYC metro market in 2009 – seasonality ran amok post-financial crisis. Contract peak moved forward 90 days for the first time in the 25 years I’ve been tracking the market, from May-June to August-September which will then screw up year over year comparisons.

Apparently that was the feeling of S&P/Case Shiller because the wild swings in housing markets of the past several years skewed seasonality and was confusing the message.

Announcement: S&P/Case-Shiller Home Price Indices and Seasonal Adjustment

I applaud them for making a change which will result in a greater clarity of their trend analysis. Remember, the CSI index wasn’t designed for its popular use as the standard for tracking the US housing market. It was designed to be an index for investors to trade housing related financial instruments. Investors (and consumers) always need greater clarity and its great that they took action.

In some recent reports the two series have given conflicting signals, with the seasonally-adjusted series rising month-over-month and the unadjusted series declining. After reviewing the data, the S&P/Case-Shiller Home Price Index Committee believes that, for the present, the unadjusted series is a more reliable indicator and, thus, reports should focus on the year-over-year changes where seasonal shifts are not a factor. Additionally, if monthly changes are considered, the unadjusted series should be used.

Raw is better. I’m sure there are great applications of seasonality, but let’s keep the black box out of the housing market analysis.

Tags: Case-Shiller, Seasonality, Seasonal Adjustment

Comments Off on [Seasonality Adjustments] are Confusing and Perhaps, Misleading

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RealtyTrac just released its monthly report covering January foreclosure activity.

• 10% decrease in overall activity from the December surge
• 15 percent above the level reported in January 2009

“January foreclosure numbers are exhibiting a pattern very similar to a year ago: a double-digit percentage jump in December foreclosure activity followed by a 10 percent drop in January,” said James J. Saccacio, chief executive officer of RealtyTrac “If history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works.”

The Sand States remain true to form (Nevada, Arizona, California, Florida)

• Nevada’s foreclosure rate remained highest among the states for the 37th straight month. One in every 95 Nevada housing units received a foreclosure filing during the month — more than four times the national average.

  • Arizona’s foreclosure rate to second highest among the states in January. One in every 129 Arizona housing units received a foreclosure filing during the month.
  • Foreclosure activity decreased by double-digit percentages from the previous month in both California and Florida, and the two states registered nearly identical foreclosure rates — one in every 187 housing units receiving a foreclosure filing.

• Six states account for nearly 60 percent of national total

• Phoenix only top 10 metro area to post monthly foreclosure increase

In other words, the foreclosure rush in December to file by end of year, then subsequent lull in January do not suggest that the foreclosure problem is improving if seasonality has anything to say about it.

Tags: FDIC, Seasonal Adjustment

Comments Off on [RealtyTrac] 10% Drop In Foreclosures, Surge Expected Over Next Few Months

The National Association of Realtors released their October 2009 Existing Home Sale Report and the news was positive and kind of weird.

Driven by the first-time buyer tax credit, existing-home sales showed another big gain in October with a strong uptrend established over the past seven months, while inventories continue to decline.

It looks like the uptick in sales last month has been eliminated with the downward revision this month.

Existing-home sales

Existing-home sales – including single-family, townhomes, condominiums and co-ops – surged 10.1 percent to a seasonally adjusted annual rate1 of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94 million-unit level in October 2008. Sales activity is at the highest pace since February 2007 when it hit 6.55 million.

The number of sales was up 23.5% over the same period last year and up 10.1% from August. Both saw unusually sharp increases, caused by the expiration of the tax credit (and then renewal and expansion), falling mortgage rates, rising foreclosures (falling prices) and improved affordability.

If you remove the seasonality adjustment, the number of sales was up 20.8% over the same period last year and up 6.6% from August, still significant.

“It’s an impressive increase and shows a lot of pent-up demand for housing,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “Buyers have enough confidence to take the plunge. The housing market recovery will be a durable one.”

I’m not clear how the recovery is durable since it is solely dependent on artificially depressed mortgage rates, federal agency bailouts and tax credits.

Median existing home price

Prices continued to fall as there remained a large market share of foreclosures and lower priced properties and condos receive the most interest from buyers.

The national median existing-home price for all housing types was $173,100 in October, down 7.1 percent from October 2008. Distressed properties, which accounted for 30 percent of sales in October, continue to downwardly distort the median price because they usually sell at a discount relative to traditional homes in the same area.

Listing inventory continues to decline.

Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply2 at the current sales pace, down from an 8.0-month supply in September. Unsold inventory totals are 14.9 percent below a year ago.

Whats kind of weird about all of this good news, is that prices are falling,low end sales activity surged, market share of foreclosure sales remains high and high end housing market segments are the weak.

The NAR press release seems to couch readers in their anticipated sharp decline in sales over the winter.

Tags: Seasonal Adjustment, Bailout Nation, NAR, National Association of Realtors

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The National Association of Realtors released its pending home sale index results from September and the results were good as expected:

The Pending Home Sales Index, a forward-looking* indicator based on contracts signed in September, rose 6.1 percent to 110.1 from a reading of 103.8 in August, and is 21.2 percent higher than September 2008 when it stood at 90.9. The gain from a year ago is the largest annual increase on record, and the index is at the highest level since December 2006 when it was 112.8.

*Note: only forward looking in the context of closed sales.

Yun describes the actual contract activity as less than August but if adjusted for seasonality and annualize, its way up. Extrapolating like this makes me uncomfortable – yes its better news, but not with a solid foundation. Especially the inference that this is a continuing trend.

The uptick in activity was explained as a last minute rush to take advantage of the first time buyer’s tax credit. While its beginning to look like the tax credit will be renewed with income limits expanded, I suspect sales would fall sharply if it wasn’t. Stimulus is designed to prime the pump but it doesn’t feel like prime yet, especially over the next month or two when Case Shiller goes negative.

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

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Here is my latest handiwork for the Huffington Post.

Current Wave of Housing Euphoria May Extend Downturn

The article is below in full if you don’t want to click on the link:

Current Wave of Housing Euphoria May Extend Downturn
Jonathan Miller 7-30-09


The spring housing market is behind us and we are now fully ensconced in summer, able to sit at the beach, sip our drink and watch the waves roll in.

Waves of housing statistics that is.

Seemingly everyone from the consumer to the POTUS has been waiting for a rogue wave that will finally bring some good news on housing. In fact most of us are aching from bad news overload and desperately want good news or at least a temporary reprieve from the bad.

Like the closing scene from the 1973 movie Papillion where Steve McQueen’s character–when trying to escape from the island–determined that every seventh wave was big enough to enable him to float past the rip currents that surrounded the island.

The monthly gauntlet of key housing market reports from the past week show a rising tide of better-than-we-have-heard-in-three-years-news on the state of US housing market.

Here’s a recap:

July 22, 2009 Federal Housing Finance Agency news release headline: “U.S. Monthly House Price Index Estimates 0.9 Percent Price Increase from April to May.” This report reflects sales with conforming mortgages through Fannie Mae and Freddie Mac at or below $417,000 plus the high priced housing markets such as the New York City area that have a $729,750 mortgage cap. Housing markets that rely on conforming mortgages are expected to recover first because the that mortgage market has been the target of recent federal stimulus and bailouts. However the month over month price increase of 0.9% touted in the report headline is the first such increase since February. Although 5 of the 9 regions show a month over month increase in prices only 1 of those 5 regions had an increase in the prior month. In other words, this trend is not very compelling.

July 23, 2009 National Association of Realtors Existing Home Sales report headline: “Existing-Home Sales Up Again” The number of re-sale increased 3.6% in June from May, the third month over month increase in activity. The number of sales was only 0.2% below the level of last year’s activity in the same month. This was largely due the 31% market share of foreclosures, assumed to be purchased by speculators plus the impact of the federal tax credit for first time buyers which expires at the end of November. However, this seasonally adjusted sales 3-peat was also seen at the end of 2006 and the beginning of 2007 before sales activity fell sharply. In other words, this trend is not very compelling.

July 27, 2009 Commerce Department New Home Sale Index headline: “New Residential Sales in June 2009.” This is the report that got everyone excited because of the 11% increase in new home sales month over month and the largest such increase in 8 years. Floyd Norris of the New York Times points out that if you look at the actual number of sales in June, it was the second lowest month of sales on record since the metric was tracked in 1963. In other words, this trend is not very compelling.

July 28, 2009 S&P/Case-Shiller Index “Home Price Declines Continue to Abate.” The 20-City Composite has shown a lower annual rate of decline for 4 consecutive months and 13 of the 20 metro areas posted month over month increases but this is before seasonality is adjusted for. In other words, we expect prices to rise in the spring if they are going to rise at any point during the year. If seasonality is factored in, month over month gains evaporate. In the New York City region, the 20-city composite index doesn’t cover co-ops, condos, foreclosures and new development, more than half the sales activity. In other words, this trend is not very compelling especially after considering that along with the most recent month in the report, the index has declined year over year for 29 straight months.

In a stroke of irony, big media, which was on the receiving end of the real estate industry’s “blaming the media” ire for the past three years–as responsible for making the downturn worse–has taken the positive outlook and run with it. Nearly every major news outlet has begun to report each of these reports by cherry-picking and overweighting the positive elements results in a downright giddy tone. Over the past week, the general sentiment in news coverage is clearly moving towards the positive but mainly confined to the headlines.

As a reporter once told me (and I am paraphrasing) “Negative news only sells for so long – consumers eventually stop reading it as they become become numb to it.”
Perhaps this is best exemplified by yesterday’s kind of thin New York Times page 1 story on housing:

“3-Year Descent in Home Prices Appears At End.”

This was the headline that put me off a bit since the article itself wasn’t very committal to the notion that the housing market has bottomed. Perhaps this is why the web version of the article was titled with a more sedate headline that was more in sync with my view:

“Recovery Signs in Housing Market Stir Some Hope.”

Step back for a second and ask why would the housing market start to improve now to lead the economy?

If more people are losing their jobs and credit remains tight, how can we expect the number of sales and housing prices to over come this. Unemployment is still rising and is expected to continue rising through next year even though the recession could be over right now or close to it. Housing inventory is still high and the number of sales, exclusive of distressed asset sales is still low. Speculators may be on their way to becoming a force again in the market. Mortgage rates are expected to trend higher over the next few years with all the new debt taken on by the federal government. Credit is still very tight, and while there has been some discussion of loosening in mortgage underwriting, banks still aren’t enthusiastic about lending. There appears to be some easing on conforming mortgage underwriting but a chokehold remains on jumbo and new development financing.

Here’s the problem.

Sellers tend to “chase” the market when it is falling, unable to respond to the decline in values as quickly as the market does. If sellers take this positive news too seriously and don’t focus on the realities of their local markets, they may end up being over confident when negotiating a sale, losing the buyer and falling even further behind the market than they would have otherwise, eventually selling for less.

Luxury condo developers and especially the lenders behind them, many of whom are facing stalled projects, could experience a sense of renewed optimism from the recent depiction of the housing market, causing them to miss the market, eventually realizing a larger loss.

So let’s be clear. While I am hopeful that we will see a housing recovery at some point in the future, I’d rather it be real.

In the meantime, I’ll sit at the beach and count the waves.

Tags: Case-Shiller, FHFA, Huffington Post, Commerce Dept, Census, Seasonal Adjustment, Bailout Nation, NAR, National Association of Realtors

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The 2Q 2009 Long Island Market Overview that I author for Prudential Douglas Elliman was released today.

Other reports we prepare can be found here.

The 2Q 2009 [data](https://www.millersamuel.com/data) and a series of updated [charts](https://www.millersamuel.com/charts/index.php?Node=1225671404FFPKy) are available.

Press coverage can be found here.

An excerpt

…The number of sales fell 32.7% to 3,956 from 5,874 in the same period last year, but increased 37.7% from the prior quarter total of 2,872. The jump in number of sales was consistent with seasonal trends as this period has averaged a 35.4% increase in the prior 5 years. Seasonality in this market statistic is much more pronounced than in New York City, where the trend has been historically more moderate. The number of properties for sale peaked in the second quarter of 2008 at 26,145 properties. Listing inventory has fallen 10.2% from the peak to 23,485 properties, in contrast to the decline in the number of sales over the same period. The monthly absorption rate — the number of months it would take to sell all existing inventory at the current pace of sales — was 17.8 months, up from 13.4 months in the same period last year. Many sellers are opting to list properties when they determine the market has improved…

Download 2Q 2009 Long Island Market Overview

UPDATE: Listen to the podcast

Tags: Absorption, Seasonal Adjustment

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The 2Q 2009 Manhattan Market Overview that I author for Prudential Douglas Elliman was released today.

Other reports we prepare can be found here.

The 2Q 2009 [data](https://www.millersamuel.com/data) and a series of updated [charts](https://www.millersamuel.com/charts/index.php?Node=1168392467huPCj) will be available today.

Press coverage can be found here.

An excerpt

…The Manhattan market, as measured by the median sales price of re-sale apartments, fell 25.6% as compared to the same period last year. The overall number of sales were 50.3% below the same period last year as a result of the tightening of credit, rising unemployment and a recessionary economy. There was an uptick in the number of sales late in the quarter due to both seasonality and a release of some pent-up demand from the limited sales activity at the beginning of the year. More sellers adjusted to the market price correction of the fall as evidenced by the decline in listing discount to 7.8% from 12.4% in the prior quarter. Buyers took advantage of mortgage rates at historic lows and price declines were less pronounced at the lower end of the market where credit terms are less restrictive. Market share of new development unit sales fell to 27% of all sales, their lowest level in 18 months and tend to lag market conditions by more than a year. As a result, the influence of new development sales activity in skewing the overall market data was less pronounced in the current quarter than in the prior several years…

Download 2Q 2009 Manhattan Market Overview

Tags: Seasonal Adjustment

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There was a front page above the fold story in the New York Times this morning talking about the Sacramento, California housing market and how it seemed to be stabilizing. California is the poster child for subprime lending and was the subject of a sobering 60 Minutes special with James Grant last year.

Prices there are down by more than 50% from peak but sales activity is rising.

Could this mean that the housing market is stabilizing?

The idea pushed in the story is FIFO (first in first out). Markets first to experience weakness may be the first to improve. I don’t see this is a viable explanation on what to anticipate in other markets. The reasons the south and west fell first is from rampant speculation, largely absent in the midwest and northeast.

Perhaps in that specific location. California has been experiencing heavy sales volume as prices come into alignment with the market.

So I wouldn’t hold your breath after the spring market ends. Seasonality means demand is higher now, buoyed by record low mortgage rates and a slew of foreclosures pressing prices to lower levels – making affordability within sight of many.

In addition, there may be a new wave of mortgages in the near future as a result of the Senate’s politicalization of the housing issue with bankruptcy actions.

Still we can all use some glimmer in our lives. I prefer it over green shoots.

Tags: Sub-Prime, Seasonal Adjustment

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Ok so we see an endless parade of housing stats (guilty as charged) and lately the news seems to be better, no?

The Federal Housing Finance Agency released their stats (covering conventional mortgage data – sub $729k mortgages) – They used a month over month headline:

U.S. Monthly House Price Index Estimates 1.7 Percent Price Increase From December to January

U.S. home prices rose 1.7 percent on a seasonally-adjusted basis from December to January, according to the Federal Housing Finance Agency’s monthly House Price Index. December’s previously reported 0.1 percent increase was revised to a 0.2 percent decline. For the 12 months ending in January, U.S. prices fell 6.3 percent. The U.S. index is 9.6 percent below its April 2007 peak.

Jan-Feb % change spiked last year and did the same this year, but somewhat higher. Here’s a look by Justin Fox at Curious Capital.

However, quarterly showed a large fall off in 4Q 08 so it will be interesting to see how Q1 09 shakes out.

The National Association of Realtors released their Existing Home Sale Report yesterday. They used a month over month headline:

Existing-Home Sales Rise In February

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 5.1 percent to a seasonally adjusted annual rate1 of 4.72 million units in February from a pace of 4.49 million units in January, but are 4.6 percent below the 4.95 million-unit level in February 2008. Seasonal adjustment factors are more volatile in winter months, but sales rates over the past few months show dampened sales activity.

In other words, existing home sales are lower than last year. However, Calculated Risk and Chris Martenson counters NAR spin showing that the 5.1% increase is pretty ho-hum.

New Home Sales stats are being released Wednesday and consensus is a pace of 300k down from 309k last month.

The S&P/Case Shiller Indices are being released in a week (March 31) but not turn is predicted.

Conclusion?
What does all of this mean? It means that there remains enormous spin from trade groups and government agencies. It means that consumers need to be skeptical of month over month gains because of seasonality.

Is there a possibility that housing is improving nationally? Not really but hope is a powerful thing that I try to consider month to month.

Tags: Case-Shiller, FHFA, Seasonal Adjustment, NAR, National Association of Realtors

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The research for this monthly market report is provided by Brad Rundbaken, of Diversified Resource Group, LLC, a real estate appraiser, consultant and investor with a stock brokerage background. He analyzes the Charleston real estate market using the Charleston-Trident MLS and inserts a lot of extra analysis on the national housing market. In fact, he crams it in there and he’s not afraid to share his opinions. Check out his web site: charlestonmarketreport.com

I got to speak with him after he was terminated by his former employer (an appraisal firm) after he started publishing his market stats in 2006. However, honesty pays and he tells me his consulting business is doing well.

…Jonathan Miller

View the 2008 report. There many pages of chart rant in the intro – the stats themselves are found midway if the tables below are too small too read.

Here are some of his observations pertaining to the overall Charleston market.

The two main trends for 2008 were that the average and median price declined for both the attached and detached homes. I discussed this quite a bit in 2007 and the overall price decline trend showed up in 08. This is a natural occurrence of the downturn in any economic cycle, especially a deflationary one like we are in right now. Price declines are not bad because this helps clean up the excess inventory in the market so it can return to a more affordable and equilibrium state. The fact that new housing starts and new building permits decline is healthy for any market with excess supply. We do not want inventory to continuously grow or we run the risk of future price declines and foreclosures. Even though months inventory for both attached and detached homes has increased in 2008 due to sales slowing from a brutal September and October stock market and the seasonality of the real estate market the current inventory has been declining in both housing segments since reaching highs during the summer months. Yes, there are a bunch of homes still sitting on the market but I hope the low interest rates and price declines will help. I will monitor this trend closely over the next few months.

Tags: Brad Rundbaken, Seasonal Adjustment

1 Comment

It’s 48 hours of market report nirvana!

Guess what?

1. Home prices are falling. [shocking]

2. And prices during the spring market didn’t fall as much as the winter. [informative]

This is all very new and helpful. [sarcasm]

Here’s a recap

• NAR’s existing home sales report was released yesterday. Interpretation not to be relied on based on past spin. Headlines don’t match content.

• the widely followed Case Shiller Index (bad news version) (good news version) who has not been able to kick start the trading of housing derivatives. Excludes, co-ops, condos, most foreclosures and new development.

• the GSE fueled OFHEO Home Price Index (good news version) (bad news version), issued by the agency that, ironically, was neutered by the GSEs during the housing boom for their mantra of creating “affordable housing.” Excludes new development and condos.

• the Commerce Department’s new housing start stats, which has some of the wildest and widest margin of error ever thought possible. This does not factor in cancellations, which in some markets have been as high as 100%.

Here’s a thought. Mortgages are more expensive and less accessible than two years ago. Until that changes, I wouldn’t expect real, measured improvement. Improvement will come eventually. Let’s deal with the situation at hand rather than all the focus of calling the turnaround correctly.

What especially drives me crazy has been the viewpoint that things are getting better based on rising activity and/or prices in the spring in certain markets. It’s called “seasonality.”

Tags: Case-Shiller, GSE, OFHEO, Seasonal Adjustment

Comments Off on [Bullish In Technicolor] Housing Prices Show More Weakness

In a lapse of judgement, poor writing or an irrational need to be contrarian, the normally solid publication Barrons (I subscribe) drops the ball on their cover story:

Bottom’s Up: This Real-Estate Rout May Be Short-Lived

If IndyMac, Fannie and Freddie didn’t steal the headlines over the weekend, I wonder if this article would ever made it to print.

The article suggests housing is moving toward recovery based on a review of recent data:

1. NAR exisitng homes have a 10.8 month supply in May versus a 11.2 month supply in April (ahem: Seasonality occurs in rising and falling market. Home sales rise in the spring.)

2. Case Shiller showed prices rose in 8 of 20 housing markets in April, and the pace of decline is slowing in many of the cities surveyed. (see no. 1)

3. Treasury Secretary Paulson recently said: “”we are well into the adjustment process.” (This is a political move to allay investors – other than that, what does this statement actually mean?)

4. David Blitzer, chairman of the S&P Index Committee indicated the media was only interested in the “…bad year-over-year number.” (blame the media observation – see no. 1.)

5. Pending Congressional bailout. FHA will reposition $300M in subprime mortgages. (For perspective, Fannie and Freddie have 5 trillion in outstanding mortgages, how does this save the market? It’s a drop in the bucket).

6. Fannie and Freddie may be taken over by the government is a good thing. (no it’s not)

7. A million unit drop in housing starts has signified the end of the last 3 housing corrections. (none of those period saw anything close to the speculation and poor lending practices seen the recent boom – no lessons learned by history here).

8. Affordability (via price/income) has improved with price declines. (The rationalization for increased affordability is pretty silly since underwriting standards are much tighter. In other words, if your credit score and salary didn’t change from last year, and your home dropped in value, your buying power is probably much lower. In other words, affordability did not increase despite the mechanical calculations to the contrary).

9. NAR reports 2% increase in co-op. condo and townhouses from April to May. (See no. 1)

10. NAR economist Lawrence Yun is actually relied on in this article. (He called the credit crunch temporary last August and the housing market would return to normal in the fall.)

11. Mortgage market weakness is front end loaded with foreclosures and defaults. (In theory the bad is behind us – for the life of me, I can’t understand the rationale. How does this mean housing is poised for a turn if the scope of the credit crunch is unprecedented?)

Good grief.

Tags: Case-Shiller, FHA, Lawrence Yun, Pending Home Sale Index, Sub-Prime, Seasonal Adjustment, PHSI, NAR, National Association of Realtors

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