Posted by Jonathan J. Miller -Thursday, May 10, 2012, 10:50 AM 1 Comment
A few days ago, a post by Felix Salmon at Reuters caught my eye: Chart of the day: Let’s go buy a house! Yesterday he asked me to send similar data for NYC and would run the same chart. I sent over 20 years worth of median sales price and median rental price (face) data for Manhattan and he punched one out: Rent vs buy, Manhattan edition laying the results on top of the US data.
He’s running a payment equivalent adjusting for inflation and he says:
Obviously the Manhattan data series, with fewer transactions, are much noisier than the national series. But broadly speaking, it costs you the same amount to buy a house today, in terms of your monthly mortgage payment, as it did at the end of 2004, when the median sales price was just over $600,000.
Here’s what I told him when admiring his chart handiwork:
We are def moving into a gray area where we are now seeing more and more Manhattan individual apts as cheaper to buy than rent in our appraisal practice – especially coops since they are cheaper than condos. Obviously the problem remains whether the buyer is credit worthy.
Since this analysis is in aggregate, there is not a “tipping” point where the line is crossed and everyone runs out and just starts buying apts (i.e. Justin Bieber tickets).
Posted by Jonathan J. Miller -Sunday, April 15, 2012, 8:09 PM Comments Off
I enjoyed Vivian Toy’s New York Times real estate cover story this weekend: Buyer Confidence: Portent or Blip? because it was full of optimism about the spring market. Who doesn’t like feel-good news? Admittedly I was a little rusty on what extactly “portent” meant:
something that foreshadows a coming event : omen, sign
I was the foil in the story:
Jonathan J. Miller, the president of the appraisal firm Miller Samuel, warned that buyer exuberance could be short-lived. With Wall Street bonuses much smaller than in years past, the surge in buying is not likely to last long, he said.
“Also, once we hit summer, we’re going to see a lot more distressed properties hitting the market,” he said. “Even though Manhattan is not a hotbed of foreclosure, the world around us will be, so there’ll be more negativity in the air.”
And I have a little theory on why there is a bit more buyer exuberance in the air that can be substantiated right at this moment:
1) The consumer was pummeled by a melee of bad economic news last fall causing them to press the pause button.
2) The Manhattan housing market was relatively quiet until mid-February despite the unusually warm winter.
3) The second half of the first quarter saw a release of pent-up demand.
4) Inventory has not seen much of a seasonal uptick this year (see chart at top of post)
We’re probably seeing some sort of temporary compression of market activity that feels like a boom. Demand kicked in late and those buyers are competing with those more in sync with seasonality. Mortgage rates remain crazy low and sellers have not been very confident about placing their homes on the market and getting their price. If we weren’t talking about Manhattan specifically, we’d also be worried about the rise in foreclosure activity now that the robo-signer servicer settlement between the 49 state attorneys general and the major mortgage servicers has been completed.
I am skeptical that current above average buyer confidence can be sustained past the spring market. Not being a wet blanket here, but I think it is way too early to break out the party plates. Everything tastes better in moderation.
Posted by Jonathan J. Miller -Thursday, April 5, 2012, 2:02 PM Comments Off
[click to open press release]
One of my issues with existing national price indices (I have many) has been that they reflect what happened after the fact. That in and of it self is not a bad thing at all. The problem concerns their use by the consumer and media. They rely on them and often have no idea of the severity of the trend lag (as much as 6 months). This lag is interpreted as the current market and then they proceed to mischaracterize or misunderstand what’s actually happening in housing right now.
Trulia Price and Rent Monitors – March 2012 Download
The Trulia Price and Rent Monitors rely on the latest asking price or rent rather than the original to better track the direction of the market. Prices on MOM, QOQ and YOY on based on a 3 month moving average. Here’s the nitty gritty. Love the “technical” and “non-technical” FAQ notes detailing how it works. Jed is very clear that this is not a way to “game” the existing indices like Case Shiller and predict them in advance of their release (aka accurately predict what a 4-6 month old index result will be tomorrow) which serves an entirely different purpose I suppose.
I thought it was particularly interesting that some speculative and depressed markets are showing the most upside swing – i.e. Detroit, Miami, Phoenix. CA still weak throughout. The NYC metro results are consistent with what we are seeing throughout the region, prices down 3.3% YOY and rents are up 6.2% YOY.
From the press release, the Trulia Price Monitor for March 2012 shows:
Asking prices up 1.4% quarter-over-quarter, seasonally adjusted. This is the first clear indication of a national home-price turnaround. Unadjusted for seasonality, prices were up 2.4%.
Asking prices up 0.9% in March and 0.6% in February, month-over-month, after bottoming in January 2012.
Strong year-on-year increases in asking prices throughout Florida, and year-on-year price declines throughout California.
The Trulia Rent Monitor for March 2012 shows:
Rents up 5.0% year-over-year.
Rent increases in nearly all large metros, especially metros with faster job growth.
Note: I have been on the Trulia Industry Advisory Board since its inception in 2006.
Why US Housing Indices Make Terrible Investment Benchmarks [Matrix]
Asking Prices on the Rise as Housing Recovery Expands [Trulia]
Trulia Price and Rent Monitors – March 2012 [Trulia]
To understand the effects of long-term trends or one-time events on the market, housing wonks like to “seasonally adjust” data. That means we strip out the regular seasonal patterns in order to highlight trends or events. This is useful for deciding whether the market is really in recovery or assessing the impact of a housing policy.
He came up with some terrific visuals and identifies some interesting points. One of the most powerful to me was the fact that seasonal sales activity fluctuates a lot more than inventory.
Rising sales and build-up of inventory make for a spring housing market cocktail.
I’m surprised the term hasn’t found its way into the dictionary yet, although Wikipedia has a comprehensive write up. I saw the Richard Meier designed buildings at 173-176 Perry Street (and later the sister building 165 Charles Street) in Manhattan as the first luxury development that fit my definition of the Starchitect phenomenon. It came online and sold quickly to west coast types who were awash in the aura of Meier’s phenomenal Getty museum achievement.
My take on the Starchitect phenomenon:
“The city is better for the starchitect phenomenon,” said Jonathan J. Miller, the president of the appraisal firm Miller Samuel, “because it enhanced the mystique of New York’s residential housing market. But during the frenzy, those buildings were marketed as if they had inherent greater value, and the jury is still out on that.”
I saw the evolution of events during the boom as going something like this:
Prices began to rise rapidly
New development surged
Land assemblage costs spiked
Developers looked for ways to differentiate (think pet spas)
High costs drove development skew to high end
Starchitects introduced to “create” value in emerging more affordable locations
Starchitect branding became the baseline for all new development
Branding morphed into designers and decorators
Housing market corrected
Starchitect buildings generally struggled as much as non-Starchitect developments
Being an appraiser, and thinking about values, I always looked at the Starchitect phenomenon as a way to artificially increase the net present value of the development – make it more front end loaded – i.e. create more buzz during the compressed marketing period pulling future upside to the developer rather than the buyer. Over time it all comes out in the wash and the branding power fades.
I see these projects as commanding higher prices than non-Starchitect developments built around the same period, but am skeptical they have a stronger staying power or more future upside.
Of course the Starchitect phenomenon moved on to commercial and global stages. I’d have to say that it was terrific for the NYC housing stock [Thank You Amanda Burden!] and will always have its place in the new development space. However the new development phenomenon that required nearly every building to have Starchitect branding was a one-off. It was over-emphasized and over-relied on, fed by an era of easy credit.
Its A Good Time To Be A Famous Architect, Even If You Are Not That Famous [Matrix]
“There is a greater disconnect between the very top of the market and everything else than I have ever seen in my 25 years in the business,” said Jonathan J. Miller, the president of the appraisal firm Miller Samuel.
I sliced up the Manhattan apartment market in 20 (5%) equal segments for 1991, 2001 and 2011 by median sales price and compared the top 5% with the bottom 5% after adjusting for inflation.
And guess what? The spread between the top 5% and the bottom 5% is getting wider, a lot wider:
10 years (2001-2011) +12.5%
10 years (1991-2011) +66.2%
20 years (1991-2011) +87%
The data shows that the gap expanded more significantly during the Dotcom-related housing boom of the late 1990s and then continued in the aughts (00’s) with the credit boom. In many metro area markets and affluent suburban towns across the US, this same phenomena can be seen.
An advertisement for Powerball “Yeah, That Kind of Rich” on a phone booth (now that’s a weird contradiction) that I photographed (to the right) says it all. At least we can all aspire to own a Porsche Panamera – by itself in left lane – love that car!).
After the collapse of Lehman in 2008 and the collapse of the secondary mortgage market for jumbo (non-conforming) loans, there was great concern over the health of the high end of the market. Less access to financing or more difficult mortgage underwriting for jumbo mortgages became the norm because jumbo lenders had to hold these loans in their own portfolio instead of offloading them to investors representing the Icelandic banking system or Wisconsin school districts.
And there should have been concern. The credit crunch has adversely impacted the high end luxury market.
However I am not talking about the high end or luxury market in this analysis. I am speaking to the market that is above it.
I am really talking about the “super” or “luxe” or “ultra” (or insert your own hyperbole) high end market and the top few percentage points of markets they represent. Trophy properties are in demand right now. The buyers are paying cash and demand is high.
Meanwhile the balance of the housing market is mundane, sliding or stabilizing, grappling with bad lending decisions during a period where everyone lost their rationale mind.
Right now is an exciting time to be “trophy-hunting”, housing-wise.
Posted by Jonathan J. Miller -Wednesday, February 8, 2012, 2:41 PM 2 Comments
This research paper from the Boston Fed addresses the issue of “House Lock” – the idea that people who have negative equity on their homes are trapped and can not migrate to where the jobs are.
…These observations have raised concerns that the prolonged weakness in the U.S. housing market is keeping unemployment high by preventing homeowners who have negative equity from relocating to other states with better job markets. Having a negative equity position in their homes is likely to further deter homeowners from selling in an already weak housing market. Other options, such as engaging in a short sale or strategically defaulting on the loan, can be costly in terms of lost value or a damaged credit record. And in all likelihood, the number of underwater households is likely to persist as house prices continue to fall in many areas due to continually high levels of unemployment and foreclosure.
The report concludes that there is NOT a strong correlation between people stuck in their homes and the high unemployment rate.
home owners are already less transient than renters and account for only 20% of state-to-state migration.
negative equity reduces the probably of migration but does not impact unemployment rates.
Still it seems to me that Fed has become much more focused on housing as the way to fix the economy as of late. Of course, this is not official Fed policy speaking in this paper, but with what feels like an increase in housing related research (or I am super sensitive to this as of late), maybe it represents the “Id” of the Fed mindset. You can see it in the last sentence of the paper:
Instead, increased efforts to alleviate the housing sector’s drag on the economy— such as helping more homeowners to refinance or stemming the tide of foreclosures—may be more effective at stimulating aggregate demand and reducing the high rate of joblessness during the recovery.
Are American Homeowners Locked into Their Houses? The Impact of Housing Market Conditions on State-to-State Migration [Federal Reserve Bank of Boston]
Posted by Jonathan J. Miller -Saturday, January 28, 2012, 1:55 PM 1 Comment
In the Sunday New York Times there is an interesting real estate cover story: So You’re Priced Out. Now What? that compares core neighborhoods with competing, less expensive alternatives. I provided the data fodder for the piece. Not always perfect apples to apples comparisons because neighborhoods in the boroughs are generally not homogenous, but clearly there is some linkage.
In analyzing real estate trends, I tend to think in terms of competition:
House versus house
Buyer versus seller
Buyer versus buyer
Seller versus seller
Bank versus bank
Brokerage versus brokerage
Agent versus agent
School district versus school district
Location versus location, etc.
And on the location aspect of value, I certainly think about prices in one neighborhood versus another (i.e. Soho vs. Tribeca, Upper East Side vs. Upper West Side) all day long (it’s how I make my living) but I look at them on a correlative basis not a competing basis – how one poaches or syphons off buyers from another.
I’m not exactly sure what it all means but I’m rethinking it.
Posted by Jonathan J. Miller -Friday, January 27, 2012, 10:25 AM Comments Off
I got a call from the New York Times recently in response to a Redfin study looking at the best time to list a house. Their conclusion seemed to be different than my experience in the NYC metro area, Washington, DC, Baltimore and Miami, all housing markets I have analyzed extensively so I dug deeper. I was inspired by the challenge and looked to Long Island for answers.
I think it really came down to the way Redfin used “winter” in the study since I came up with March as the best time to list using the extensive data over at the MLSLI (16,664 signed contracts from 12/10 to 11/11).
The Redfin report concluded that when you list in the Winter, you have less competition. However, you also have a lot less buyers so that benefit would be an offset by lower demand. This point is illustrated by the fact that the highest number of listings actually enter the market in March which is the month that results in the fastest marketing time.
When I drilled down to the day of the week, I caveated to the reporter (and was pointed out by the brokers in the article) that I think it really depends on the date of the broker tour day (the day brokers view new listings that came on the market). When I lived in Chicago, my town tour day was on a Friday and in my hometown in Connecticut, our broker tour day is on Tuesday. I would bet that Friday is a more common day for broker tours (to view all new listings that entered the market that week) which makes the findings somewhat contrarian since I would think Thursday would have been the best day to list (it was a close third best) because the property has time to get distributed before the tour day.
Of course this doesn’t suggest that a seller who decides they want to sell their home and it happens to be June, must wait until the following March.
Whatever the reasons or issues that are raised, we looked at over 16,000 contracts in a one year period marketed through the MLS of Long Island, excluding the Hamptons/North Fork. I was only measuring the time to market a property, not whether the highest price was achieved. I’ve got metrics on that but I want to crunch the numbers over a longer period to get more comfortable with them. I plan to do this in other markets I cover with MLS data.
Listing on a Wednesday, on average, results in the fastest marketing time.
Conclusion to the question: “When is the best time to list your property?”
On a Wednesday
These are mutually exclusive results but based on the data resulted in the fastest marketing time – days on market from original listing date to contract date.
Had a fun interview with Tom and Sara this morning on the always MUST watch/listen Bloomberg Surveillance. We talked housing, rentals, vacancy and inventory. An added bonus was the addition of Adam Davidson – co-founder and co-host of Planet Money... Read More