LI Real Estate - Big Trouble
A: Specifically, Suffolk County about 50 minutes east from Manhattan. I was visiting family today, who happen to be selling their house right now, and let me tell you how insane it is in terms of the # of For Sale signs there are. Almost every street off the main street had a 'OPEN HOUSE THIS WAY' sign trying to lure passing drivers down the road. I couldn't even count how many homes I noticed for sale in the area around Commack, Dix Hills, Melville, & Huntington. If this is any indication how it is in markets around the country, we have some serious fundamental issues that need ironing out before any nation wide housing bottom will be found.
I know, this blog is supposed to be about Manhattan right? Yes. It is. But how can I not report on this kind of stuff when it is so close to home. Manhattan is a different animal from the other markets across the US, but what I saw today is very troubling. I worry that data released by the government and other organizations is not really telling us the true story. It can't be. I mean, the neighborhoods I mentioned above are so overcrowded that I honestly thought a housing slowdown would be somewhat contained. After all, good school districts and solid homes on 1/2 acre lots should always be in decent demand in this part of Long Island. There are just too many growing families with $$$ looking for homes. Right?
But the inventory I saw today told a different story. And to boot, I read this story via The Big Picture from John Burns Real Estate Consulting Group.
According to the article titled, "Message To Fed: The Housing Market is Falling Much Faster than Reported":
* Closing Data: We purchase and compile actual home closing data for approximately 181 counties across the country, which captures the counties where about 55% of the U.S. population lives and a significant percentage of all of the counties where the large home builders are active. This data shows that sales have fallen 22% if you compare sales over the last 12 months to the prior 12 months. On a straight year over year comparison, the decline is much more.The article calls for the fed to lower interest rates NOW, and ahead of the curve, before the problems get real bad. I don't see that happening as the fed has a history of NOT messing around with tradable markets using speculation. Rather, they will once again be behind the curve and wait to see the real data hit before pulling the trigger on stimulative rate cuts. But this consulting firm argues that the data is where the problem is in the first place! If the data were real, housing would be showing a much worse performance than we are currently being told.
* Mortgage Bankers Association (MBA) Data: The MBA Seasonally Adjusted Purchase Application Index, which is a measure of the number of people filling out loan applications to buy a home, is down 18% from its peak in September 2005.1 With presumably more applications being filled out by borrowers who now have to shop around for a loan, how could sales have fallen by less than 18%?
* Builder Data: The nation's two largest homebuilders, D.R. Horton and Lennar, are reporting that orders have declined 27% to 37%, year-over-year. 2 3 D.R. Horton and Lennar have dropped prices significantly in many markets to generate sales, while the resale market has not. How could their sales have fallen more than the resale market, even if new home communities tend to be in fringe areas?
* Realogy Corporation Data: Realogy, which is the parent company of Century 21, Coldwell Banker, and ERA, participated in roughly 1.9 million brokerage related transactions in 2006 compared to 2.3 million in 2005, representing a year-over-year decline of 18% nationwide.4
* 2005-2006 NAR State Data: The National Association of Realtors state data does show sharp year-over-year corrections in major states: 28% drop in Florida, 24% drop in California, and a 28% drop in Arizona. Our data, however, shows the sales have probably dropped by 34%, 27% and 38%, respectively. The national numbers include some large states where sales volumes have not corrected substantially, such as in Texas and Ohio, but we believe these markets are not very healthy for other reasons. Interestingly, our calculations were tracking very closely with NAR data through 2005, as illustrated above. We did investigate NAR methodology and have found absolutely no reason to believe that the NAR is intentionally misleading anyone, as some have suggested.
* New Home Data: The Census Bureau calculation of new home data does not calculate sales net of cancellations, and cancellations are running much higher than normal right now, which is why the sales numbers overestimate actual sales.
The medicine, the rate cuts, will be good but it will take time to kick into effect. Right now, I have a feeling the disease is far worse than people think outside Manhattan real estate, and I wonder how that will ultimately affect consumer spending and the economy and finally, New York City real estate.
For now, the Manhattan market is 'strong like bull' as it enters the normal cool down season during summer months. Comparing Manhattan real estate to suburban markets on the outside is like comparing apples to oranges. Sure they are both fruit, but fundamentally they are very different.
Comments (3)
I think it's nice to say that rates need to go down, etc. But the reality is that real-estate is unaffordable even for young couples on above average dual income. Either they have rich parents who help them out (which is nothing more than early inheritance), or they're on their own. In the latter case, real-estate have to come down to earth and that means keeping the interest rates high. The bubble needs to deflate, hopefully slowly and housing indicators need to come back down to historical levels. And that means ownership percentages which need to come back down. They are just a lot of people who have bought houses, who should not have.
If the younger generation buys real estate at such inflated prices, they will consume less and go into too much debt for a long, long time. Raising interest rates, help prices go down, which will help consumptions down the road for the long term.
Lower interest rates now will only allow existing homeowners to continue to overcharge and continue to accumulate more wealth at the expense of younger generations.
Posted by Marmotton | May 21, 2007 10:44 AM
great point! I agree that rates need to stay where they are or even go higher to let the housing bubble correct itself and curb inflationary pressures that still exist.
The stock market is certainly not pricing in any US economic weakness, or else it would be selling off instead of reaching record highs.
Posted by Noah | May 21, 2007 3:58 PM
The market in Long Island has been "soft" ( over priced?) for some time compared to other similar markets in the country. Part of the reason is that it's a very "local" market not given to great amounts of cooperation and sharing amonst its brokerage community.That being said, compared to other marketrs around the world, real estate in the United Staes IS NOT over priced especially when you take into account that the value of the dollar has fallen in value over the last few years agianst many different world currencies, virtually wiping out any real gains we think we have seen in home values. (the world is "flooded" with dollars) Real estate in this country has great value. now and in the long term, we have not seen anything yet as to what values will rise to.
Posted by scott L gibson | May 22, 2007 1:43 AM