Matrix Blog

Housing Indices

Looking For That Ray – Knight Frank’s Sunshine Index

December 7, 2012 | 7:00 am | | Reports |


[click to open WSJ article]

As a followup to my analysis of light on property values, I came across this fun way to look at the market.

…real-estate consulting firm Knight Frank looked at 14 warm-weather vacation spots around the world. Using the average hours of sunlight per day and the average house price for a four-bedroom property in a prime real-estate location, Knight Frank arrived at the price for an hour of sunshine, averaged over a year…

Of course this is merely another way to slice and dice the high end housing market – just like the stock market – not scientific or useful but still fascinating – Florida looks like a pretty good deal.



Knight Frank Sunshine Index [WSJ]


NAR Membership Flows With Housing Market

December 6, 2012 | 11:07 am | Charts |


[click to expand]

Membership is very close to falling below the 1M threshold (1,005,838) for the first time since 2003.

The rise and fall of NAR membership with the S&P/Case Shiller Home Price Index is a logical trend in a commission driven profession with a low barrier to entry – although one would think membership would correlate better with number of sales rather than prices (Case Shiller or CSI is a price index i.e., not based on sales).

The public strongly and incorrectly relates the health of housing with prices rather than sales. Sales activity leads price direction by about a year and membership lags prices so the membership correlation to price probably reflects the time it takes people to jump into the profession when things seem to improve – the chart suggests 1-2 years. You can see the membership lag prices during the boom, at peak and when the market crashed.

In the period like now where the market is transitioning from bad to good, the sharp agents have the opportunity to do very well with less competition from those who were only in it for the quick buck.

The appraisal profession likely shows a similar pattern but perhaps would be more closely aligned with refi applications. On my “to do” list.

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Knight Frank GHPI 3Q12 – Brazil up 15.2%, Greece down 11.7% YOY

December 5, 2012 | 9:46 pm | | Reports |

No surprises here. Knight Frank’s Global Home Price Index comprehensive ranking of housing price changes in 55 countries showed Brazil and it’s economic boom at the top of the list. The Brazilians have jump started the Miami housing market nearly single handedly because housing prices at home remain so high that the US appears much cheaper.

Highlights

  • The index rose 1% year-over-year
  • European countries fill bottom twelve rankings for YOY price growth
  • Price growth in Asia Pacific is slowing



Global House Price Index 3Q12 [Knight Frank]

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[NewYork Fed] Excellent Mapping of Housing’s Recovery Process in Region

December 4, 2012 | 9:00 am | | Charts |


[click to expand]

The Federal Reserve has been relying more on CoreLogic housing data these days, rather than Case Shiller or NAR and I’m down with that. The New York Fed has put the CoreLogic data for New York, Connecticut and New Jersey to good use in a very easy to use interactive County format that I highly recommend you check out. They even present a two-fer: all sales, without distressed sales.

My only criticism of the presentation (and it’s really me just being petty) is the orientation to market peak in 2006 as the benchmark. I see the 2006 peak as an artificial level we should not be in a hurry to return to since it reflected all that was bad with the credit/housing boom.

But I digress…

The top chart shows that Manhattan and Brooklyn after removing distressed sales, have “recovered” using the Fed’s methodology. In fact all 5 boroughs are out-performing the US housing market.

Manhattan is clearly one of the top performing locations in the region or at least it is ahead of the region. The map below shows the counties (green) that are now equal to 2007 price levels. Not many in close proximity to Manhattan are doing as well.


[click to expand]



Housing Market Recovery in the Region [Federal Reserve Bank of New York]

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Get Down With It: Falling Mortgage Rates Are Not Creating Housing Sales

November 27, 2012 | 11:16 am | | Charts |

Inspired by my analysis of yesterday’s WSJ article, I thought I’d explore the effectiveness of low mortgage rates in getting the housing market going. I matched year-to-date sales volume where a mortgage was used and mortgage rates broken out by conforming and jumbo mortgage volume.

Mortgage volume has been falling (off an artificial high I might add) since 2005, while rates have continued to fall to new record lows, yet transaction volume has not recovered. I contend that low rates can now do no more to help housing than they already have.

Even the NAR has run out of reasons and is now focusing on bad appraisals as holding the market back (I agree appraisal quality post Dodd-Frank is terrible and is impacting the market to a limited extent – and I secretly wish appraiser held that much sway over the market).

I’m no bear, but the uptick Case Shiller’s report today (remembering that Case Shiller reflects the housing market 5-7 months ago) still shows slowing momentum and all 2012 year-over-year comparisons in the various national reports are skewed higher from an anemic 2011.

Five years of falling mortgage rates have only served to provide stability in volume. The monetary and fiscal conversation ought to be on ways to incentivize banks to ease credit – falling rates only makes them more risk averse.

Of course a significant drop in unemployment would likely solve the tight credit problem fairly quickly.

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Jumbos Fell Harder, Now Rising Faster, But Off Low Base

November 26, 2012 | 8:30 am | |

In the WSJ, FNC reported that jumbo mortgages saw a larger year-over-year gain than conforming:

Home sales using a jumbo mortgage had year-over-year growth of 7.9% through September, compared with 2.7% for nonjumbo sales, according to an analysis for The Wall Street Journal by mortgage-technology company FNC.

Could this be a sign that credit is thawing a bit more quickly at upper end of the market?

Capital Economics Ltd., in a recent research note, found that jumbo loans are going to borrowers with credit scores as low as 700, compared with 720 or higher previously, and that financing has generally reached $2 million from a previous upper limit of $1.5 million.

Anecdotal sure, but when looking at the actual jumbo mortgage data, it appears that from 2005 to 2012, mortgage volume for jumbo fell 83.1% and non jumbo fell 46.9%. In other words, jumbo mortgage volume fell 2x further than non jumbo from peak. Also, a number of the high cost markets had their base level lowered expanded what is now considered a “jumbo loan”:

Also, the floor for a jumbo loan fell in some high-cost areas last fall. In Los Angeles and New York, for example, the definition of a jumbo dropped to $625,500 and up from $729,750 and up. With the lower floor, a loan of $700,000 would now be a jumbo loan.

So the fact that jumbo volume is up 7.9% versus 2.7% reflects it being calculated from a much lower base number, and with lower jumbo thresholds, more loans are being classified as jumbo. This likely resulted in a somewhat larger jumbo market share, reaching 5.5% of total mortgages in 2012 compared to 5.2% in 2011.

My takeaway here is that jumbos are not growing at 3x the rate of conforming as FNC seems to be suggesting, but jumbos (5.5% of the first mortgage market) are more likely consistent with the balance of the mortgage market.

Since jumbos have no real secondary market to allow mortgage lenders to free up their capital to lend more, jumbos are actually performing amazingly well however you slice it, just not better than conforming mortgages.

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[Breaking News] CNN Gives Housing Followers Heart Attack, Case Shiller Up 1.2% YOY

September 25, 2012 | 12:01 pm |


[click to open report]

I like this index chart from the report (2nd chart presented in their report) better than the more commonly used % based chart (1st chart presented in their report) because it provides better context. The recent trend is clearly a small see-saw but still sliding in general. I’m not a fan of the CS index for its 5-7 month lag but since it’s some sort of gold standard for housing, it’s important to point out that this clearly shows housing remains tepid at best.

But more importantly…






Shortly after the S&P/Case Shiller report was released this morning at 9:00am, I got the following CNN Breaking News email at 9:15am:

Home prices in 20 major U.S. cities rise to highest level in nine years, according to a new report.

I just about had a heart attack, wondering how I could be so far off in my assessment of the housing market. However I opened the report and the numbers didn’t show that kind of gain.

At 10:21am I received a followup email from CNN Breaking News:

Correction: Home prices rose in July to their 2003 level, but remain lower than the peak in 2006. CNN’s previous alert erroneously stated that home prices had risen to the highest level in nine years.

Not to single CNN out since this has happened at ABC, Breitbart and Fox.

Speed comes at a price: Accuracy.

Similar phenomenon in the appraisal business. The absurd speed demanded by retail banks and AMCs of their appraisers even after the “lessons learned” in this credit crunch, attracts the wrong kind of appraiser. Speed still trumps accuracy.



Home Prices Increase Again in July 2012 [S&P/Case Shiller]

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NAR and Florida Realtors to Create Repeat Sales Index: Why?

September 4, 2012 | 6:00 am | |

Last week the Florida’s state Realtor association announced they are developing a repeat sales index for tracking the state’s housing market. NAR is doing the same thing on a national level. My first thought was, huh?

The new Florida Realtors Real Estate Price Index will use data from the Florida Department of Revenue to chart home prices for the state and metro areas during the last 17 years.

Why create yet another housing index?

NAR has been sharply critical of the repeat sales methodology for years – and now to suddenly create one because it works better? Damaging logic and once again undermining NAR’s credibility and branding.

The motivation for the creation of a new index seems to be the popularity of the Case Shiller Home Price Index which has been a thorn in NAR’s side since it was introduced a number of years ago. Ironically, NAR enabled Case Shiller to thrive from NAR’s own inability to become a neutral trusted advisor of the exclusive housing data they publish. The culture at NAR Research enabled the two most recent chief economists Lereah and Yun to consistently interpret the numbers with an almost cartoonish glowing angle that has caused severe damage to the NAR brand.

In other words, Realtors and their associations have long ago missed the opportunity to be a reliable provider of real estate stats, but that’s really ok. After all, the association is a trade group and any stats they produce are, by definition, tainted even if they aren’t. Case in point: NAR just revised their Existing Home Sales stats after data provider CORElogic discovered there was a significant error and pressured them to do a revision. NAR had double counted about 2M sales since 2007.

What is a repeat-sales index?

A repeat sales index measures the difference in price from sales that recently sold and their prior sale. New development is omitted because those units have never sold before – a huge characteristic of the Florida housing market. Of course if the property was gut renovated, doubled in size, torn down and rebuilt, a repeat sales index does not know this. A repeat sales index is also subject to the same skew in housing type that a hedonic (i.e. Existing Home Sales) index is and is therefore adjusted using varying formulaic methodologies.

A repeat sales index does not reflect true seasons in housing. Yes there is a nominal difference between their seasonally adjusted and non-seasonally adjusted trends, but it does not show the spring rush and winter doldrums as they actually occur. There seems to be a need by economists to show a steady line rather than a seasonal visual a consumer would better understand.

Whats wrong with the Case Shiller Index?

I’ve been quite critical of the Case Shiller Index since I began this blog in 2005 namely because:

  • it is 5-7 months behind the market;
  • it excludes co-ops, condos and new development.

I do admire Robert Shiller and Karl Case as pioneers in this field but the CS index was NEVER intended to be a consumer tool used to measure housing. It was meant to be the basis for allowing Wall Street to hedge the housing market. A logical goal indeed, but CS was conceived before it was feasible to “game it” i.e. many economists and analytics firms can now accurately project the results of the index in advance. Not a good thing for investors who want to bet on it which explains why such limited trading actually occurs.

There are a lot of housing indices these days. There are also many new data companies that can do analytics a lot better than Realtors can because they only do analytics for a living. Without neutral commentary, how do more housing indices by NAR or Florida’s association make the picture any clearer to the consumer (and Realtors)? Instead I think the Florida association should be focusing on ways to help their members be more successful.



Case Shiller Index [Standard & Poor’s]
Existing Home Sales [NAR]
Florida Association of Realtors [Home Page]

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[WSJ] The Crazy 8: Comparing Results of National Home Price Indices

June 9, 2012 | 1:18 pm | |

Matthew Strozier over at WSJ with Column Five (a large producer of infographics) presented an interesting side by side of 8 national housing indices.

All but one index shows a year over year decline in housing. Trulia’s new Price Monitor by Jed Kolko would be a great addition once the year-over-year history is established. It was also interesting that NAR’s Existing Home Sales was omitted (I’m not advocating).

Beyond the obvious price decline, my takeaways were:

  1. US indices are general in sync on the year-over-year. Our confusion in the monthly barrage of housing metric releases is that most push the month-over month.
  2. With the proliferation of these indices, data subscriptions must be getting cheaper. There are a few more out there as well.
  3. Of the indices presented, their data collection and methodologies vary significantly (where disclosed) yet their results were consistent perhaps suggesting the 7 for 8 result is coincidence as opposed to an aggregated trend.
  4. Sales prices are not something we should be obsessed with as an indicator of market health (think Las Vegas, mid decade). I’d much prefer seeing more attention paid to sales trends since they are a pre-cursor to price trends if you are trying to reasonably answer the question: Has the US housing market hit bottom?

It is interesting and my rough understanding that most of these indices were created and run by economists, scientists or data wonks, many for Wall Street purposes with virtually no real estate types. That’s obviously fine until you consider what is said in barrage of monthly press releases for some, citing things that are not empirically measured in their respective reports, i.e. weather, inventory, etc. that create further confusion.

I’d love to see a side by side comparison of the lag time from the point of “meeting of the minds” between buyer and seller for each index. The significant lag time reflected in this index genre is a practical one due to the massive scale of information, but I think it would give consumers (who were generally not the intended users of any of these indices at the time they were created) a better sense of reliability for each.

National housing indices provide useful tools for setting government economic policy but the consumer’s obsession with the idea of a national housing market and it’s relevance to their local markets is, well, crazy.

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[Knight Frank] Q1 2012 Global House Price Index: Europe Is A Problem

June 5, 2012 | 12:37 pm | |

Here’s a great research piece from Knight Frank on the state of housing in many of the world’s cities.

South America is dominating other regions in market performance right now. Canada shows strength (all the HGTV shows seem to be filmed there) and why isn’t Greece falling harder?

Knight Frank published their The Global House Price Index recorded its weakest annual performance since the depths of the recession in 2009, recording only 0.9% growth in the year to March 2012. Doubts over the Eurozone’s future, along with the Asian governments’ staunch efforts to cool their markets and deter speculative investment, have taken their toll.

Here’s in the index table:



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[Interview] Robert Dorsey, Chief Data and Analytics Officer, FNC Co-Founder

November 18, 2010 | 11:03 pm | Podcasts |

Read More

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[Shadow Inventory] S&P: New York Metro Highest at 103 Months

June 15, 2010 | 9:21 am |

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]