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Posts Tagged ‘Seasonal Adjustment’

[Seasonal Sensibility] Isn’t It Supposed To Get Better In The Spring?

May 21, 2008 | 12:20 am |

Housing markets are seasonal, blah, blah, blah, blah, blah.

Its May so we would expect the housing activity would be higher than it would be say in January. The weather is warmer, the birds are chirping, Lawrence is saying things are great. So whats the problem?

You need to compare the current housing market with the same period in the preceding year or years.

Is June better than December in terms of sales activity and price trends? How about May versus January?

Using this logic, these articles seem a little light.

Yet in markets like Sacramento County, median sales price is down 40% since August 2005. As Andrew Leonard in his column writes:

A 40 percent drop. If those are the kinds of numbers required to goose the market back into action, the entire economy still has a lot of pain coming.

However, I like the decline from peak comparisons, so disregard my argument for using seasonality. I am either hot or cold on it, depending on the weather.


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Radar Love = Radar Logic Research

April 24, 2007 | 10:06 am | | Public |

Radar Logic Incorporated and my appraisal and consulting firm Miller Samuel Inc. have entered into a joint venture named Radar Logic Research, LLC.

Radar Logic Research Press Release [pdf]
Radar Logic White Paper Here’s more technical information.

Radar Logic Incorporated, through its partner Ventana Systems, Inc. a mathematics consulting and software firm, have leveraged methodologies commonly used in the sciences, and applied it to real estate. The objective was to make sense of the national residential housing market by creating a daily housing “spot” price to be used in the trading of real estate derivatives.

The Radar Logic Daily Index is a single, statistically accurate value representing the price per square foot paid in a defined metropolitan area on any given day. Data is gathered from public source records and then translated by our proprietary algorithms into an accurate reflection of the values paid in actual arms-length real estate transactions.

First, a little history…

The name Radar Logic references modern radar, and its ability to illuminate order out of chaos.

When I met with the CEO Michael Feder not too long ago and began to grasp what he and his team had accomplished, a light bulb went on in my head (despite the usual foggy conditions) and I wanted to be a part of this effort immediately. (more on that below) The Radar Logic approach solved the glaring problems found in national market statistics, such as moving averages and omission of data types. Up until now, this has prevented the financial markets from efficiently using residential real estate as a basis of trading instruments such as derivatives in a manner similar to the futures and options contracts available in more traditional commodities.

A derivative is a financial instrument used to trade or manage the asset upon which the instrument is based. It “derives” its value from something else (another asset or instrument). Derivatives are most often used to manage risk or to take positions on future market directions. Derivatives exist for a wide range of assets, such as commodities (gold, oil, corn), stocks and bonds, and on indices, such as the Dow Jones Index®. Until now, there have been few derivatives markets for residential real estate. Radar Logic Incorporated was founded for the purpose of enabling financial derivatives based on real estate.

The residential housing market is the largest asset class in the United States. To provide some perspective, the Federal Reserve indicates that the US housing market represents about $21 trillion in value. Commercial real estate, while a large asset class, is only about 20% of that amount. Yet because the residential real estate market is made up of 124 million units worth an average of around $240,000, it is fragmented and difficult to measure.

In addition, residential real estate as an asset class, is constantly changing. It is characterized by seasonality, new development, the surge of condos in metro areas and now, the rise in foreclosures. Its always changing. The Radar Logic methodology considers all verifiable transactions in a market to arrive at a value for the day that is not a moving average.

Its really exciting, and its groundbreaking stuff, to say the least. The beauty of this approach, is that there are no hidden filters, assumptions or calculations. In other words, the market is the market.

In addition to my duties at Miller Samuel and Miller Cicero, I have become Chairman of Radar Logic Research, LLC as well as Director of Research for Radar Logic Incorporated. I am still going to be active in the operation of Miller Samuel and produce the New York area market report series for Prudential Douglas Elliman that I created and have authored since 1994, with more markets to be added. Trust me, I have simply invented more time in a day. (More on that at another time, when there is more time in the day.)

Radar Logic Research will develop and publish research products providing market commentary and analysis related to real estate values across the United States later this year for institutions as well as enterprise-specific consulting services to real estate and financial organizations, including builders, developers, brokerages, commercial lenders, REITs, and investors such as pension funds, hedge funds and insurance companies. The initial plan is to offer these services to cover 25 major metro areas, roughly 2/3 of the value of the US housing market.

More on this to come!

Ok, back to work.

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Which End Is Down? The Problem With Foreclosure Stats

December 21, 2005 | 12:01 am | |

RealtyTrac, an online marketplace for foreclosure properties, this week released its November 2005 Monthly U.S. Foreclosure Market Report, which showed 71,606 properties nationwide entered some stage of foreclosure in November, a 12 percent decrease from the previous month.”

The report shows a November national foreclosure rate of one foreclosure for every 1,615 U.S. households.

Now what does this mean? In October, RealtyTrac says foreclosures spiked 19% to set a new record. Is there a lot of volatility in foreclosures nationwide?

The November stats are not available on their web site to the general public as of this posting so we can’t look at it more closely.

I think the problem with RealtyTrac’s press release philosophy is their propensity to release their headline figure as a month over month change – this month a 12% decrease instead of an annual change. Last month this indicator jumped 19%. The month over month change shows the most volatility. They should be presenting a yearly change when dealing with monthly figures. They are not considering seasonality by using this method but it definitely gets everyone’s attention. Case in point, last month Connecticut foreclosures increased 7,710.71%. Sounds pretty serious, but its actually pretty ridiculous.

Small stat universe + month to month volatility = misleading results.

In a previous post, I had similar concerns but for different reasons with the monthly stats released by foreclosuremass.com [Matrix]


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