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 -Monday, February 13, 2012, 6:00 AM 16 Comments
There was a 21.2% decline in listing inventory from December 2010 to December 2011.
Relying on typical housing market scenarios and reasonable logic, a decline in listing inventory nearly always meant a tightening market was developing – fewer houses coming on line matched against steady demand meant housing prices were more likely to stabilize or rise.
Declining inventory is the variable in the housing equation that usually makes conditions improve. During the mid-decade housing boom, falling inventory was caused by the insatiable demand by buyers – product could not get out to the market fastest enough. Listing inventory was simply “worked off” by (artificially) inflated demand. Listing discounts approached zero, days on market fell to record lows and prices rose rapidly.
Old scenario: Declining Listing Inventory = declining housing prices ease their decline, prices stabilize or prices rise.
However over the last year, listing inventory fell sharply in many markets yet sales were generally anemic or showing nominal increases. In the NAR numbers, non-seasonally adjusted sales were up 1.4% year over year (using NSA since inventory is also NSA) yet inventory was down 21.2%. Inventory was clearly not declining because sales were overpowering the amount of listing inventory that was available.
New scenario: Declining Listing Inventory = fall in seller confidence and the sharp decline in distressed inventory entering the market.
Total housing inventory at the end of December dropped 9.2 percent to 2.38 million existing homes available for sale, which represents a 6.2-month supply2 at the current sales pace, down from a 7.2-month supply in November.
“The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future,” Yun said. – National Association of Realtors
We are seeing unusual declines in many markets I keep tabs on such as:
Admittedly I am cherry picking some of the cities that are posting huge declines in inventory. However the problem I find in all of these markets, is that sales are only increasing a few percentage points. Not nearly enough to explain the rapid decline.
The drops are being touted as a good sign that housing is getting back on its feet. I’m not so sure.
I think the sharp drop in many US housing markets (and this has been happening for much of 2011) has to do with three key reasons:
A large swath of foreclosure volume was artificially delayed.
Seller confidence has waned after the pounding it took last fall.
Low interest rates extended by the Fed for the next two years have removed any sense of urgency.
Declining foreclosure volume is one of the key reason inventory levels are dropping. The 1/3 decline in foreclosure volume in 2011 has resulted in a sharp drop in foreclosure inventory resulting in a sharp drop in total inventory. Distressed sales have been running at about 30% of total sales nationally for a few years but fell to about 20% in 2011. With a 2 million more homes expected to go into foreclosure over the next 2 years, a year long internal review of procedure after the 2010 “robo-signing” scandal and the 50 State AG settlement with the largest services/banks, distressed inventory is expected to rise sharply over the next several years.
Weak seller confidence is causing property not to be released into the market unless the need to sell is not optional. The 2011 home seller and buyer was bashed with the debt ceiling debate, the S&P downgrade of US debt, 400 point daily swings in the financial markets, the European debt crisis, the AG/Service settlement drama and the political stalemate on housing policy in Washington. What do people do when faced with the unknown? They sit and wait. Buyers had a lot more incentive to act with falling mortgage rates to record levels but mortgage underwriting grew tighter over the year as well.
The extension of the low interest rate policy by the Fed through the end of 2014 has obliterated any sense of urgency by sellers. I am getting a lot of feedback from real estate professionals about this as well as seeing it within my own appraisal practice. There is a lot going on the world right now and the action by the Fed suggested that they weren’t particularly encouraged by the economy. To many this may seem as an incentive for sellers to get going and sell. But many of those sellers have to buy.
The drop in inventory as a phenomenon may or may not pass quickly but one thing is clear – weird changes in market behavior happen for a reason – I don’t see declining inventory as a particular sign of strength in the housing market.
To be clear, Bill’s forecast is based on prices of the key housing indices i.e. Case Shiller and CoreLogic without seasonal or inflation adjustments. He is very clear about the definition of a housing bottom which is key to the argument – in fact, there are two housing bottoms:
First there are two bottoms for housing. The first is for new home sales, housing starts and residential investment. The second bottom is for prices. Sometimes these bottoms can happen years apart.
New Home Sales Bottomed in mid-2010 (moved sideways ever since).
Housing Prices Will Bottom Around March 2012 (will move sideways after that).
He provides a logical argument but I think he’s missing a key ingredient in the logic – how will the market be impacted by distressed properties and how they will impact the price trend:
Falling inventory is masking significant shadow inventory built-up during the credit crunch. Inventory is declining to more manageable levels, not because there are fewer homes to sell, but because sellers are holding back until conditions improve – big difference.
In other words, the call of a bottom is missing a huge element from the equation – supply. The forecast of a housing bottom could certainly be right in the short term, and housing prices could bottom in March temporarily, but there is a lot of excess supply to be dealt with and I suspect that prices will begin to slide as REO activity begins to slowly enter the market. It simply has to – there is too much of it.
No gloom and doom here, just that the market still has a lot of distressed inventory to absorb. Distressed real estate (foreclosure) volume has fallen by about one third in 2011 as lenders/servicers held back releasing more units into the market largely because of the “robo-signing” scandal in late 2010 and the potential AG settlement that has been languishing for much of the year.
The housing market got an REO reprieve in 2011 and has caused housing bulls to get ahead of themselves and the housing market, way too focused on demand, and not enough focus on supply.
Posted by Jonathan J. Miller -Monday, February 6, 2012, 9:36 AM Comments Off
So Clint Eastwood is one of my all-time favorite actors, most recently in Gran Torino (curiously a Ford), my wife’s family hails from Detroit and I’ve always wanted a car with a Hemi engine, but besides all that, this was my favorite commercial of the Superbowl.
I like the symbolism that the country needs to regroup and the game isn’t over yet (yes I realize that Fiat has a 58.5% ownership stake in Chrysler but please let me bask in the glow). A lot of negativity to churn through in the coming years because many people are hurting financially.
Posted by Jonathan J. Miller -Monday, January 23, 2012, 8:55 AM Comments Off
Ok, at least it’s it’s Year of the Dragon, not the Year of the Rat but the Chinese New Year does bring to mind some other associations with housing in the post-credit crunch world.
Here are names I have associated with each year since the fall of Lehman and the impact on housing.
2008 (Rat) – Year of the return to reality. Appropriately named, the year notes the final punctuation mark on the credit boom unraveling and the fact that the entire world lost it’s mind.
2009 (Ox) – Year of the first time buyer. The first year after the September 2008 fall of Lehman Brothers that marked the beginning of a new credit environment as well as a new housing market. Mortgage rates fell to the floor and the Federal government introduced the first time homebuyer tax credit – later expanded to existing homeowners. For appraisers it was the “Year of the Appraisal Management Company” as the Cuomo/Fannie Mae agreement effectively prevented the residential appraisal industry from becoming a reliable and impartial benchmark provider.
2010 (Tiger) – Year of the short sale. Preceding the incoming flood of foreclosures, the banking industry understood that it was a lot cheaper to effect a short sale rather than go to foreclosure. Unfortunately they had no idea how to manage the process and many fell into foreclosure. Here’s some free advice to banks looking to cut losses on foreclosure activity: actually pick up the phone.
2011 (Rabbit) – Year of the foreign buyer/trophy property sale. The DC politically charged debt ceiling debate leading to the S&P downgrade of US debt and economic debt problems in Europe drove many foreign buyers to the US housing market as a safe haven. A byproduct of this trend was a surge in the sale of unique high end properties in the US. Think Candy Spelling and Sanford Weill. I had originally dubbed 2011 as “Year of the foreclosure” but the “robo-signing” scandal in late 2010 tempered servicer/lender plans of releasing foreclosures into the market until they were more confident they could prove ownership and the right to actually foreclosure (what a time we’re living in).
2012 (Dragon) – Year of the foreclosure/election year do-nothingness. Servicers/lenders will begin to ramp up the foreclosure process again as more time has passed for them to get their ducks in a row. I am doubtful there was enough time to do much of anything considering the millions of potential transactions but it’s likely to start this year and heavier than usual volume should last for at least 3 years. This is a good thing because we need to clear the market before claiming a housing recovery. We will likely see a surge in election year political promises as an attempt to help troubled homeowners such as a more streamlined shortsale process, an improved loan modification process and an expanded refinance policy, but judging from all feeble attempts so far and the stalemate in DC on economic policy and their stunning lack of understanding about what ail’s housing, we’ll probably get the status quo instead.
The next Chinese New Year will be named Year of the Snake. Uh, I’ve never liked snakes.
Posted by Jonathan J. Miller -Thursday, August 11, 2011, 2:54 PM 1 Comment
I saw this in The Real Deal and felt compelled to comment in their post because the rationale was so utterly ridiculous. This must have been a PR placement segment for the bank.
Yes mortgages are cheap and house prices are low so affordability is at record levels – but banks currently have the tightest mortgage underwriting requirements in decades. Consumers aren’t blind lemmings following the media off a cliff.
Here’s my comment on the blog post:
Seriously, this has to be the lamest reason ever given for a weak housing market. When you run out of reasons, the fall back is to blame the media. With low interest rates and lower housing prices, the crisis of confidence is all about bank underwriting standards. Keeping a 20% down policy has nothing to do with why consumers have low confidence. According to the Fed, residential credit has remained tight, if not tightened. Why? Because unemployment is stuck in the 9’s, Fannie/Freddie are in flux and now the financial markets are volatile. The “crisis of confidence” comes from banking’s about face on mortgage financing. Give the consumer some credit (pun intended) for having some intelligence. Good grief.
“Crisis of confidence” comes from a consumer not being able to get a mortgage or refinance to take advantage of low rates and low prices. Crisis of confidence comes from consumers watching the economic events unfold without any competent leadership, only containing high stakes political brinksmanship.
Let’s say we get past the age old “blame the media for everything” rationale?
Posted by Jonathan J. Miller -Wednesday, June 29, 2011, 9:22 PM 1 Comment
Housing industry advocates couldn’t have scripted this any better. A down-on-its-luck, beaten-up fundamental US economic sector got its own very unique stimulus program today that came in the form of a credible poll that covered consumer views on homeownership.
This New York Times article and NYT/CBS News Poll results will be linked to by the hundreds of thousands and read by millions of homeowners, want to be homeowners and real estate professionals for the next few years providing the long neglected alternate view of actual real estate consumer sentiment, which shows very favorable results towards homeownership but with trepidation about the risk.
The NYT news alert I received summarized the key findings quite succinctly:
Owning a house remains central to Americans’ sense of well-being, even as many doubt their home is a good investment in after a punishing recession.
Nearly nine in 10 Americans say homeownership is an important part of the American dream, according to the latest New York Times/CBS News poll. And they are keen on making sure it stays that way, for themselves and everyone else.
Support for helping people in financial distress over housing is higher than support for helping those without a job for many months.
The part that was left out or not understood was that the institution of homeownership has been baked into our culture since the 1920’s. The recent crisis was NOT about homeownership. It was really about the financial mechanism to mortgage it, the loss of regulatory oversight and blending of the investment and commercial banking worlds.
One side bar to the poll was similar to the “not in my backyard” argument concerning consumer culpability for some aspect of the systemic breakdown of the financial system and the shift of blame towards the banks.
Amid the swirl of recent disclosures about banks following improper and illegal procedures in pursuing foreclosures, 42 percent blame lenders, while 29 percent blame regulators.
When the question was asked in early 2008, as the crisis was still building, the numbers were reversed, with 40 percent blaming regulators and 28 percent blaming lenders.
Only a handful of respondents at either moment blamed the borrowers themselves for taking loans they could not afford.
Posted by Jonathan J. Miller -Tuesday, November 16, 2010, 10:00 AM 1 Comment
Point2 is a marketing service for real estate agents – they survey their real estate professional members across North America to get a sense of how they feel about their current and future market conditions.
[click to expand]
Several months ago I commented how both the US and Canadian real estate brokerage community seemed to take a very gloomy outlook for the housing market once the contract expiration date of the US federal tax credit for housing was reached. Now that the closing date for the tax credit of September has passed there was an increase in confidence.
Was this change in direction because of a perception that the housing stimulus is over? Or just a one month blip? Who knows.
I realize this is an exercise in correlation, not causation.
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