[click to open report]

The reports are de-emphasizing seasonally adjusted results since the last 2 years have wreaked havoc on that metric. I for one am glad as I have always distrusted seasonal adjustments. Let the reader do the math rather than have anything in a black box.

From the press release:

“The monthly Composites cover June and the national index covers the second quarter, when the government’s program for first time home-buyers was winding down. While the numbers are upbeat, other more recent data on home sales and mortgages point to fewer gains ahead,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Even with concerns about near term developments, we recognize that the housing market is in better shape than this time last year. Further, California’s cities have moved from some of the hardest hit to three of the four leading cities based on year-over-year gains. Among the other hard hit cities, the news is also a bit encouraging – Las Vegas, however, remains among the weaker cities.

The S&P/Case Shiller Index showed:

• 17 of the 20 MSAs and both Composites saw home prices increase in June over May
• 10-City and 20-City Composite were up 1.0% in June over May.
• 15 of the 20 MSAs and both Composites have positive annual growth rates
• No market is registering a doubledigit decline.

4-5 Month Lag In Meeting of Minds
One of the issues with the S&P/Case Shiller and this index class is the significant lag in depicting current market conditions. If the consumer wants to do the math on typically monthly results, the majority of the data in the June report probably saw a “meeting of the minds”/contract last March/April, then closed in June, reported at the end of August. Today’s market is in a far different place than it was pre-tax credit (April 30th). That is likely why this release warns us about anticipated future declines to be caused by the tax credit expiration.

“The monthly Composites cover June and the national index covers the second quarter, when the government’s program for first time home-buyers was winding down. While the numbers are upbeat, other more recent data on home sales and mortgages point to fewer gains ahead,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

Indexes like these develop a sense of the direction a few months in advance as they the data falls in their bucket.

In other words, S&P/CSI is generally more of a confirmation of we already know about the housing market rather than a provider of new insights. And in the New York metro area, co-ops, condos, new development and foreclosures are not included so it becomes even less telling.

Still, the original concept behind the S&P/Case Shiller Index was to provide a trading tool to hedge housing markets for which Professors Shiller, and later Case, are true pioneers, yet market indexes like this have not seen heavy derivative trading volume and therefore seem to have been relegated to consumer use. With financial reform, it will be harder, not easier to obtain the necessary critical mass for widespread Wall Street adoption.

Here’s a few snippets from yesterday’s NAR Existing Home Sale report…

Some commentary on what the existing home sale numbers mean…

A small unemployment rant for BBC…

And in Brazil…

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. Point2 get about 3,000 response a month from members but I’m not sure about its statistical validity.

[click to expand]

I graphed the US and Canadian indexes and saw Canadian agents go very negative right after the US tax credit expiration (green line) whereas the US agents didn’t drop until July. The Canadian government provided a tax credit program in early 2009 so its not clear why the Canadian agent confidence collapsed and is now aligned more closely with US agents.

DC (US) and Manitoba (Canada) were the top markets in their respective countries.

S&P just released their “Variations In U.S. Shadow Inventories Could Spell Home Price Declines In Some Areas, Stabilization In Others” report which looked at shadow inventory and its impact on the regional pricing.

source: S&P

source: S&P

The volume of troubled residential properties has been growing in nearly every U.S. state since 2005, and borrowers nationwide are now defaulting on their mortgages faster than existing defaults are being resolved through liquidation, according to Standard & Poor’s Ratings Services. These trends have given rise to a large “shadow inventory” of distressed properties—which we define as outstanding properties that are (or were recently) 90 days or more delinquent on mortgage payments, in foreclosure, or real estate owned (REO)—that haven’t yet hit the market.

source: S&P

The New York City metro area had the highest level of shadow inventory at 103.1 months, followed by Miami with 61.8 months and Boston with 58 months. The report suggests Miami is improving, but relative to what? Miami still shows more than 5 years of shadow.

source: S&P

The fallout from the recent mortgage crisis has reduced financing for borrowers as lenders began to enforce stricter underwriting standards. Lenders have generally become more selective about their borrowers, providing fewer would-be homebuyers with loans.

view press release [S&P]

download report [my link - S&P report link being fixed at time of this post]

[click to expand]

The New York Times Real Estate section has been upgrading and tweaking the stats they provide on their listing database. The chart above shows the trend line for the number of listings seeing price reductions and increases. Increases remain nominal and constant while the number of listings with price decreases nearly doubles since the beginning of the year.

One thought I had is that more sellers thought prices were going to rise throughout the spring with the volume surge and set prices too high (a phenomenon I discussed in my 1Q 2010 report). When that strategy met resistance from buyers, a rising number of sellers capitulated and dropped their prices resulting in a leveling off of sales activity in April.

Here’s the NYTimes.com/realestate search window I used for the analysis that can be embedded.

Ever since I introduced my Manhattan Rental Market Overview last year, I’ve been playing around with price/rent multipliers and concluded that something has to change. Either prices need to fall or rents need to rise in order to get out from under the credit fueled ownership premium buyers were paying during the boom. I used median sales price versus median rent (annualized).

Trulia created the Trulia.com Rent v. Buy Index that is based on the 50 largest US cities by population and divides the average listing sales price by the average listing rental price using 2-bedroom apartments, condos and townhomes.

Top 10 Cities Cheaper To Own Than Rent
[click to open full index]

At the peak of the real estate bubble, cities like Miami, Phoenix and Las Vegas were not affordable for many. Now the opposite is true,” said Pete Flint, co-founder and CEO of Trulia. “Home sellers in these hard hit areas are forced to lower their prices to compete with all the foreclosures on the market. As a result , these unattainable markets are so affordable it makes better financial sense to buy than rent.

Top 10 Cities Cheaper To Rent Than Own
[click to open full index]

That’s the theory since affordability is now so favorable to purchasers – however the problem with some of the former speculative markets which are now very affordable to buyers, is the fact that financing isn’t readily available because of shadow inventory and significant oversupply. There was so much overbuilding back in the day that there aren’t enough buyers now and the mortgage lending net is not cast nearly as wide.

If the Price-to-Rent Ratio is:

• 1-15: cheaper to own than to rent
• 16-20: neutral
• 21+: cheaper to rent than own

Trulia.com Rent vs. Buy Index [Trulia]

[click to open report]

Last week S&P made the decision to de-emphasize seasonal adjustments given the chaos of the past several years. A good move towards better transparency.

The S&P/Case Shiller Index showed:

• 0.6% increase year over year, first in about 3 years – caused by the tax credit.
• 20-City Composite is down 32.6% since June/July 2006.
• Month over month decline in 19 of the 20 cities in the index.
• 0.9% decline from January to February 2010, 5th consecutive monthly decline.
• As of February 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003.

After 5 consecutive months of m-o-m declines, the Case Shiller Index is feeling the influence of rising foreclosures and a possible housing double dip, despite the stimulus in sales activity from the multiple federal tax programs.

[click to open announcement]

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.

[click to play clip]

I did a short interview on Bloomberg yesterday regarding their coverage of Knight Frank’s 2010 Wealth Report

The Bloomberg coverage was in reference to my contribution to the report via interview where they matched me up against their analyst Xavier Wong, Head of Research for Greater China and Hong Kong.

The prime New York market, where prices fell 12.5% in 2009, is gaining strength , but the recovery is tentative, says Leading New York property commentator Jonathan Miller

The frozen market in Manhattan in the first half of 2009 gave way to a much stronger second half of the year. By the summer, the market began to see a recovery in sales activity following an improvement in economic confidence prompted by a revival in the stock market.

While the market has undoubtedly improved compared with last year, we ought not to get too excited. The recovery of late 2009 was a short-term uptick, due in large part to a release in pent-up demand. My view is that the surge in demand is not the start of a rising housing market. While sales are up sharply, prices have moved “sideways.”

I have some lingering concerns for the New York market in 2010. The market has been aided by government stimulus measures – tax credits for first time buyers, in particular. This package will expire in mid-2010. While the US economy is growing, the high rate of unemployment – around 10% and somewhat higher locally – as well as a tight mortgage lending environment do not provide a firm basis for ongoing growth in house prices.

A real fear for 2010 is rising mortgage rates, currently at near record lows. The potential for growing foreclosures, which were not a problem in 2009, is another real factor.

One segment of the market that has seen a noticeable uptick has been international demand, where the weak dollar has prompted interest from Asia, Europe and South America. Demand from South Korea has also become more noticeable.

Looking outside New York, both Boston and Washington DC have also improved, with rising resale volumes in both markets. On Long Island, the Hamptons luxury second home market has surprised everyone with its resilience to date. As a discretionary market, there was general concern that this region would see large declines in prices and sales from the 2008 and early-2009 market turmoil. In fact, both sales and price trends have remained in line with the Manhattan market.

Watch the clip which summarizes the report [Bloomberg]
Open 2010 Wealth Report [Knight Frank]

[click to open report]

The Wealth Report 2010 was released today by Knight Frank Research. It is a much anticipated annual survey targeted at the high end consumer with great detail on global residential property trends. The report covers 56 high end housing markets across the globe.

Check out The Housing Helix podcast for my interview with Andrew Shirley, Editor and Liam Bailey, Head of Residential Research for the Knight Frank Wealth Report 2010.

I had provided commentary on the NYC housing market for the report.

….While the market has undoubtedly improved compared with last year, we ought not to get too excited. The recovery of late 2009 was a short-term uptick, due in large part to a release in pent-up demand. My view is that the surge in demand is not the start of a rising housing market. While sales are up sharply, prices have moved “sideways.”…

Some interesting data points:

• Overall annual global decline was 5.5%
• Monaco saw prices as high as $5,900 p/SF US.
• 73% of cities saw year over year declines versus 40% last year.
• Middle East down 27.5% – the largest decline – Dubai showed a 45% drop.
• Asia Pacific up 17.1% – the highest increase – Shanghai showed a 52% gain.

In light of this strong growth, the Hong Kong government has threatened measures to restrict the market – notably through mortgage lending restraint, reducing, for example, the mortgage limit for luxury property from 70% to 60%. Despite these potential restrictions the market continues to grow.

This example points to an interesting development. The crippling impact of property bubbles bursting in Europe and the US has created a much more confidently interventionist approach in China, Hong Kong and Singapore (where cooling measures were introduced in September last year) among other markets.

Listen to the interview with Knight Frank [The Housing Helix Podcast]
Download The 2010 Wealth Report [Knight Frank]

[click to play clip]

Update: Just came across the Bloomberg video and my interview giving a quick take on the US luxury portion.