Morsels of Good Housing News
I'm a skeptic on the current stock market rally. In my little world of commercial real estate I just see too much pain left to come and too much damage to the remaining non-nationalized banks on the horizon to feel the worst is behind us. I will turn bullish on the stock market when it busts out above it's 200 day moving average.....I will be late in terms of the absolute bottom, but hey I was completely out at the top and foolishly bought all the way down after Bear Stearns....you can't be perfect. For now, I'm happy to just sit and see if the ginormous efforts of men and nations can turn this tide. But we at Urban Digs are not stopped clocks. We do try to bring you, our faithful readers (I use plural because I think there are at least 1 or 2) all the information we see that we think is relevant. To wit, I want to point out some information from a piece of Seeking Alpha by a guy I can only describe as a super perma-bull.
Dr. Mark Perry, who has more degrees than a thermometer, has been relentlessly optimistic throughout the downturn as far as I can tell from his past posts (Mark, forgive me if I misread your basic disposition). However, Mark recently posted some data on housing that made me go hmmmmm. So just to cast a little positive light onto your likely gloomy day - the futures are lower and Pimco's El-Erian says private equity and hedge fund firms may be cut in half within two years - take a look at the positive charts on housing from Dr. Perry.
Now I appreciate that the data source is, how shall we say it...questionable, and that the messenger (Dr. Perry) is singular in his message, but my partner who I have the greatest deal of respect for, has said to me so many times throughout this downturn, "It won't get better until housing affordability improves", so I had to share this with you.
Interestingly, Dr. Perry also has recently featured some graphs on the hard-hit California and Florida markets on his web site. The good news is that these markets have adjusted price wise and liquidity has returned. It only took a 40.5% drop in the median sales price year-to-year in California (on top of the prior couple of year declines) and a 32.5% drop in median sales price in the Florida to get sales on an upward year-to-year trajectory, with sales in California doubling and sales in Florida rising 24%.
The bad news is that I imagine that affordability will improve in New York City eventually as well, and will ultimately cause a similar year-to-year surge in sales volume, when it does.
Posted by bruce
Tue Mar 17th, 2009 09:55 AM
Can these California numbers be right? Over 600,000 units in ONE month? According to the Census Bureau, California had 13.3mm housing units in 2007, comprised of a little over 9mm single family units and a little over 4mm in multi-unit buildings (see this link - 13.3mm units, including 31% (admittedly a 2000 figure), or 4mm+, in multi-unit structures: http://quickfacts.census.gov/qfd/states/06000.html). The CAR figures suggest that about 4.7% of all housing or 6.8% of single family homes (depending on how "home" is defined for purposes of the chart) changed hands in a single month. I understand that everything in CA is in flux and there are many foreclosures, short sales, etc., etc., but these numbers just seem too big to be possible. They suggest between 56% and 82% annualized turnover. On the other hand, the FL numbers seem surprisingly low for a state with half the population of CA and lots of market turmoil causing housing to change hands.
Posted by Brian
Tue Mar 17th, 2009 10:13 AM
NAR doesnt assume current debt load when calculating affordability. They also assume most people will put down 20% and they have very "kind" front and back end ratio's in their assumptions. The home sales should be up because 50% of them are short sales or foreclosures. This is the process that needs to play out.
http://www.ritholtz.com/blog/2008/08/nar-housing-affordability-index-is-worthless/
Basically everything NAR says is useless.
Posted by Jeffrey M. Bernstein
Tue Mar 17th, 2009 10:13 AM
Bruce,
Good points. In this case I am merely reporting numbers compiled by someone else, i did not do any of the work myself so i can't vouch for it. i will try to get a look at some source data.
Posted by jeff
Tue Mar 17th, 2009 10:40 AM
Here is source data from the California Association of Realtors
http://www.car.org/3550/100782/144031/Market_at_a_Glance_2009-01..pdf
Makes sense that short sales could be double counted.
Posted by bruce
Tue Mar 17th, 2009 10:51 AM
Jeff - understood. I was really questioning the source (realtor trade group via a "super perma-bull" prognosticator), not you. I very much enjoy your urbandigs posts, by the way. Much more sophisticated than most everything else that appears on real estate blogs.
Posted by Former Seller
Tue Mar 17th, 2009 11:24 AM
Is there any data out there that illustrates current affordability in Manhattan? Perhaps this is too difficult to determine?
Posted by Noah
Tue Mar 17th, 2009 11:26 AM
its a ray, I guess. But Manhattan is lagging big time, and as you say, that means getting more affordable; i.e. lower prices.
Hmm, not sure if we have affordability index. But Im very upset at myself for not designing that BUY SIDE CONFIDENCE index 18 months ago. So curious to see how it would have behaved.
Posted by jeff
Tue Mar 17th, 2009 02:15 PM
I visited Barry Ritholz piece on the affordability index and I get his points, although for the most part he criticizes the index for not taking into account "real" world impacts on absolute affordability. Obviously this is of importance from an absolute perspective, but directionally I don't think it matters much. I believe directionally that affordability has greatly improved - are homes highly affordable to an indebted, jobless and pessimistic populace maybe not, but they are way better than 2 years ago. The data on home sales in CA and FL definitely shows the expected pick up in volume from much lower prices (despite potential double counting from short sales). I am convinced that in both the residential and commercial markets in NYC where volume has slowed to a trickle (particularly for the latter) we are about to see the bid asked spread collapse over the next 6 - 9 mos. and liquidity pick up. The stale mate just won't last and I may be naive but I don't think it resolves itself to the upside on price.
Posted by Brian
Tue Mar 17th, 2009 02:46 PM
Jeff - I agree with you in that it is more affordable that 3 years ago. However, it is still not as affordable in terms of historical standards. At the end of the day, the buyer has to feel as if they are getting a good deal. I think we are still a bit away from that.
Posted by Josh
Tue Mar 17th, 2009 05:35 PM
My new favorite marketing slogan by NYC Realtors is 'Priced Below Value!'. I see this on apartments that have been listed for the past two months?!?! Since when did the Realtor determine the value and not the market?
Posted by Jeffrey M. Bernstein
Tue Mar 17th, 2009 07:35 PM
I love it ...priced below value.... as one of my professors once wrote on a lazy student's paper "Says Nothing....Poorly"
Posted by anonymous
Tue Mar 17th, 2009 08:54 PM
I think one of the issues here is that cheap prices don't seem to me to necessitate a rebound of an illiquid asset that's falling in price with increasing supply on the horizon (housing starts unexpectedly increased by 22% last month). At least, not unless there's some tidal wave on the horizon that's going to boost demand.
Housing may be affordable today but it might very well be more affordable tomorrow.
Posted by jeff
Wed Mar 18th, 2009 11:30 AM
Anon,
I couldn't agree with you more. I think liquidity coming back is associated with the bid ask spread snapping shut, with prices resolved to the downside. Thereafter, despite "affordability" prices can easily trade sideways for years based on supply/demand and financing availability. My guess is that the nasty surprise for many investors is going to be the long holding period required to make a return on foreclosed assets....so long, that it may equate to meager annual returns for a long time. As I pointed out and Noah re-iterated recently household formation seems to track real estate prices not vice versa, so just when you need a bunch of new households to come along and soak up supply, people are preferring to stay with mom and dad or bunk in with room mates.