Posted by Jonathan J. Miller -Monday, January 9, 2012, 9:58 AM Comments Off
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I’ve been outspoken about the misuse of seasonal adjustments in housing statistics. While they are not all bad and are favored by economists for their ability to smooth out a year’s worth of information so one can see where greater than normal changes stand out, there cause more harm than good when it comes to understanding housing.
The basic problem with seasonally adjusting the numbers are as follows:
there is no standardized methodology or period for making the adjustments
the adjustments are rarely disclosed
they often adjust already adjusted numbers (i.e. annualizing NAR existing home sales)
the reader often doesn’t understand what it is
while it may be useful for analysis, the results often contradict current conditions
and most importantly…
the adjustments become skewed shortly after a significant market change.
While seasonally adjusted data can be extremely helpful, they should be used with care. In particular, the statistical methods used for seasonal adjustment may generate misleading results when applied to data with structural breaks, where the underlying properties of the data change significantly during the period studied.
Case in point is the National Association of Realtor’s Pending Home Sales Index that has basically been a mess for the past 18 months after the expiration of the federal home buyer’s tax credit. The disparity between the indices. The NAR press releases sharply contradict the feeling on the street with agents, buyers and sellers, marginalizing the meaning of the report results.
Cash Assets of Foreign Banks: An Example of Seasonal Adjustment Gone Awry [FRB NY]
Posted by Jonathan J. Miller -Tuesday, November 22, 2011, 1:46 PM Comments Off
I must say I was skeptical about the new debate format but was pleasantly surprised and really enjoyedthe event. I also liked the creativity of the intro video – swingin’ around that camera.
At some point TRD pulled me aside to talk on camera, but only after web editor Lauren Elkies talked Lincoln Center security into letting TRD film outside the venue. You’d think it was #occupylincolncenter
Incidentally, The Real Deal had me on standby as they tried hard to get Lawrence Yun, chief economist of NAR to debate me (I’d love to!) but he is too protected by his trade group. He never seems to appear in public in a forum where it is understood that his views would be challenged/debated. This gatekeeper mentality is a vestige of the past. Still, he’s a smart guy who I am sure would have something to contribute. NAR has access to wonderful information – they just need to work on the “building a sense of trust” part – something not conveyed through their press release linguistics.
Posted by Jonathan J. Miller -Tuesday, November 8, 2011, 10:35 AM 2 Comments
Appraisers, like real estate agents, refer to listing photos to get a sense of the condition of a property. The listing agent’s job is to obtain the highest price the market will bear for their client (that can be closed).
Presentation of the property in its best light is key. I once had a post on my site before it was hacked a few years ago that showed a large blood stain on the living room floor of a foreclosure where I believe a former occupant was murdered.
Herb De Cordova, a top broker with Prudential Douglas Elliman in Queens, NY sent me a before and after listing photo he found that needs no further explanation. Wow.
Posted by Jonathan J. Miller -Monday, October 10, 2011, 3:41 PM Comments Off
Well it has been a full year of the grand experiment but all good things must come to an end, or as said in my favorite movie The Matrix: “everything that has a beginning, must have an end.”
When an appraiser stops analyzing a market, does it make a sound? –Henry David Thoreau [interpreted and adjusted]
In looking back at the year, I am most proud of creating a pending home sales index (for DC and Baltimore metro) helping leverage their rich data set.
In fact, I’d have to say that as a result of this index, MRIS/RBI provides the most timely market metric for residential real estate in the country. That’s why I was prompted to write this post – they released their first edition of the PHSI post-Jonathan Miller for Baltimore and DC. I’m not sure what they plan to do with the report going forward but I had nothing to do with the current version which is loosely based on the template I created. The report still has the same great raw data.
I really developed some great relationships and friendships in the region and plan to continue to follow the market. I still find it amazing that pundits for region continue to be national reporting service representatives like Case Shiller and CoreLogic – compared to NYC metro where the coverage is at a much higher density but from a local level. I’m guessing Washington politics is simply more important to news outlets than real estate coverage.
Here are some quotes from some of the media well wishers that I interacted with.
Although I got the heads up that this was on it’s way, it still comes as a jolt! Your analysis and insight will truly be missed down here. Of course, we will stay in touch and please let me know how we can help….
Thank you so much for your very acute insights over the last year! ….I wish you well in all your future ventures! And I’m certainly keeping your contact info.
Sorry to hear that, though I’m glad you’ll still be watching the market.
It’s been a great run and I deeply cherished and appreciated the experience working with MRIS/RBI. I learned a lot and felt great about the insight I provided. Although I grew up in the region and have a good feel for it, I have long since lost my DMV accent. I have to say that MRIS and RBI have some of the smartest people I’ve ever met and have the cleanest data I’ve ever seen for any housing market in the country. I wish both organizations and the individuals I have met all the best.
Posted by Jonathan J. Miller -Monday, August 22, 2011, 9:14 AM 1 Comment
actual AMC (car) factory
AMC Factory For a year and a half, our firm tangled with the bureaucracy of Landsafe, the poster child for the appraisal management company (AMC) industry. While not all AMC’s are bad, their relationship to the mortgage process is fundamentally flawed. The estimation of market value of mortgage collateral to enable lenders to make informed decisions has been commoditized to the point where most mortgage appraisals are generally not worth the paper they are written on. This series is from an appraiser’s perspective, about a profession left to die by the side of the road.
Incidentally, some may view this series as providing cheap shots since it is always easy to pick out unflattering examples of misconduct in a large industry. You bet it is. After what good appraisers have observed over the past several years, the AMC industry deserves nothing more than that.
River Views Less Valuable Because of “Smelly Fish Boats”
Here’s one broker’s experience:
…client in [Manhattan] (urban market) could not buy the 10th Floor river-view apartment he wanted because his bank assigned an appraiser from Suffolk County, Long Island, (suburban market several hours away) who appraised it at less than the recent sale price of a 3rd Floor apartment in the same line, which had no river-view, and the client was short $20,000 cash which he did not have; the appraiser explained that where he comes from residences near enough to the shore to have a water-view, always have lower value perhaps because of the smelly fishboats. The bank would not do another appraisal because of the belief that all appraisers in a state are equally able to appraise any property in that state, no exceptions. So the client had to move into another rental apartment.
Local market knowledge is the primary qualification to hire a specific appraiser for an assignment. Merely having a license in the same state as the subject property to be appraised does not make someone competent.
A continuing refrain among real estate agents is that the appraiser came from another market, often 3-5 hours away. Not something that was the status quo in prior years.
Still, Chris Thornberg of Beacon Economics says there is a little hyperbole when people say the economy can’t recover without the housing market. That’s because much of what we normally think of the housing market doesn’t produce a lot of economic value. “Realtors have perpetuated the fraud that selling homes back and forth between people is good for the economy,” says Thornberg. “I’m not convinced that does that much for the economy.”
His use of the word “fraud” set me off.
However I agree with what he is saying about housing and the economy – I do believe there is way too much hyperbole that housing must recover before the economy recovers. I think that the economy will likely recover before housing will and that housing will be a drag on overall economic recover. And we all know that all jobs created by the housing market during the boom quickly evaporated during the bust.
But this part…
“Realtors have perpetuated the fraud that selling homes back and forth between people is good for the economy,” says Thornberg. “I’m not convinced that does that much for the economy.”
While I’ve been very vocal about the misleading comments about the credit crunch and housing observations coming out of NAR since the days of David Lereah and now with Lawrence Yun, it’s ridiculous to call it fraud. It’s called selling and spin. Big difference although they are also distasteful.
It is the job of Realtors to sell homes for sellers and help find homes for buyers. They are in the business of sales. Realtors are represented by The National Association of Realtors who are a trade group and the function of a trade group is to help their members be more successful and represent their interests.
I’ll bet every single trade group has similar pitches specific to their client’s needs. Attend plumbing convention and you’ll be told that PVC pipes enable our country to grow. Attend a snack food convention and there will be no discussion about eating too many candy bars. Attend a dental convention and you’ll hear all the spin about brushing and how bad candy is for teeth (but good for business).
I think the part many miss with the dissemination real estate information, is that a trade group as a source should not be presented in the media as an authoritative source on a topic. Yes they can attest to a condition that helps their members but we should never see them as a neutral go-to resource. Think Mortgage Bankers Association, American Banking Association, National Association of Homebuilders, etc. Massive spin for their members. It’s not fraud.
Up until recently, I don’t think the public realized that there was any difference in credibility in the analysis of the real estate market from NAR. That realization has propped up alternatives like Case Shiller and CoreLogic (although Case Shiller has many of its own serious flaws).
So despite the easy target, let’s raise the bar on the discourse. Realtor-bashing isn’t in style anymore. Realtors are simply doing their jobs and there isn’t some sort of conspiracy – they are too busy driving clients around looking at homes.
In fact, of all people that touched the home buying process, from rating agencies, investment banks, consumers, mortgage brokers, commercial banks and appraisers during the bubble, Realtors had little to do with the run up. They were order-takers in a nation gone insane.
Posted by Jonathan J. Miller -Wednesday, March 16, 2011, 11:06 AM 3 Comments
I read a great NYT Op-Ed article this weekend by David Brooks called “The New Humanism:
Reason, which is trustworthy, is separate from the emotions, which are suspect. Society progresses to the extent that reason can suppress the passions.
This has created a distortion in our culture. We emphasize things that are rational and conscious and are inarticulate about the processes down below. We are really good at talking about material things but bad at talking about emotion.
There has been a groundswell of this type of reasoning from the brokerage community as of late – I wrote about “Analysis Paralysis“
I asked the question – does it come down to “ignorance is bliss” versus “knowledge is power”?”
I was reminded of the Op-ed piece when I read Fred Peters’ interesting take in Warburg Blog post It’s Not All In Your Head which basically addresses the paradox.
I think he is saying that we can’t be too dependent on one or the other approach and like mortgage lending, the pendulum has swung too far. The brokerage community, coming from a gatekeeper legacy which extolls “It’s always a good time to buy” versus the blogosphere mantra, a la Felix Salmon/Reuters “It’s never a good time to buy.”
About 10 years ago, the president of a small real estate brokerage company told me as we were walking down the street:
You know, Jonathan, I like your market reports except for the fact that there a too many numbers in them.
Admittedly I was a taken aback by the comment.
The disconnect between us in our role in the housing market was clear. I see the reports as a way of delivering information to help people be informed. This broker, who was successful and knowledgeable saw market research as raising more questions…and more comfortable with market reports in their previous form; as a brochure, a comfortable picture of a home filled a narrative on how wonderful it is to own a fine residence.
In other words, “ignorance is bliss” trumps “knowledge is power”?
I remember hearing developer Ian Schraeger use the phrase “Analysis Paralysis” in a Real Deal New Development Forum a while ago when he was lamenting the fact that everyone was overanalyzing the market and unable to decide whether to purchase.
I can appreciate a broker/developer’s frustration in getting the market to go in the direction they need it to. That’s called “having a vested interest in the outcome” and contradicts the purpose of market research in their mind. They make a living on enabling transactions. I understand that. However buyers and sellers need to be comfortable before they come out in droves and change the direction of a market. If they don’t feel as confident as the agent, then be patient. If the conditions the brokers see are valid, the buyers will come around. If they aren’t valid, they won’t.
Posted by Jonathan J. Miller -Thursday, February 17, 2011, 2:28 PM 9 Comments
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Matt Carter at Inman News wrote an interesting article on CoreLogic’s contention that NAR’s existing home sales numbers are inflated by as much as 20% and this has been going on for years. The article suggests since 2004, but it is more like since 2000…read on.
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