Upcoming Q2 Report: Corcoran's Likely To Be Least Rosy
A: The market is definitely experiencing a seasonal slowdown right now. You can blame it on the volatile equity markets, the declining euro, or the decline in confidence/wealth effect with all the sovereign debt concerns floating around. I'm going to stick with 'the market simply needed a breather' line. After what was a very active 4 months to start the year, seeing a surge in sales pace, it's clear that it was unsustainable and normal considering the seasonality of our markets. Looking ahead to the upcoming Q2 report that is released in about 9 days, expect rosy year-over-year reports from Elliman & Halstead; a bit less so from Corcoran! I'll explain.
First, here is another sneak peak at one of the charts in the upcoming UD 2.0 showing you the monthly pace of contracts signed direct from the real time Broker Status Updates tool that we have developed:
You can see from the tabs at the top of this sneak peak the huge tasks I've taken on to build this new platform. Unfortunately with a project like this, delays in launching are part of the process. From this chart you can see how the reflation (orange bars showing 2009) morphed into a bit of a mini-frenzy in early 2010 (red bars showing 2010). The latest monthly pace fell sharply to about 1,100 contracts signed for May and I expect this to fall to around the 900 level for June. This is normal, seasonal, and expected given the unsustainable pace from the 4-5 months prior.
On to the upcoming Q2 report.
Back in May I discussed, "Why The Q3 Report Will Reveal Improvement". Most people look into year over year comparisons of the market in order to filter out the noise that is associated with seasonality. Monthly and quarterly moves are useful in determining the general trend of the market, but comparisons to the same period one year earlier give a seasonally adjusted view of the health of the marketplace. It is for this reason that I believe:
1) Year-over-Year Comparison to Q3-2009 - It was the 3rd quarter report of 2009 that defined the downturn, a few months after the real trough in our market, as public record finally caught the sales that were signed into contract earlier last year. We are now heading into these negative defining reports, making y-o-y trends easier to beat.
2) Public Record Yet To Catch The Full Improvement - Due to the lagging nature of these reports, as time passes we will see how this market behaved for months that already passed. I can tell you that JAN-MARCH 2010 were very strong as tight inventory and strong demand caused some competition amongst buyers. The result was a sharp decline in days on market trends and listing discount measurements; as seen in the chart in my post, "Misinterpreting 'Bidding War' Statements From Brokers". With time, quarterly reports will gradual catch up with the progressive improvement right as we head into the two y-o-y reports that defined the downturn this market experienced.
Looking at the chart below, which shows you the Quarterly Average Sales Price Trends from 3 top Manhattan brokerages, we can visually see that Q2 and Q3 2009 reports were the weakest ones reflecting the adjustment we had.
Focusing on Q2 of 2009, you can see that Corcoran's price levels are significantly above those for Halstead & Elliman. Therefore, on a y-o-y basis, expect Corcoran to show a less rosy report than these other two big brokerages. Q3-2010 is a different story and likely will be a very good report on a y-o-y basis. As is usually the case, its very likely the market will be experiencing a different sales pace than the report suggests at the time of release due to the lagging nature of our marketplace. Time will tell!
Posted by launch?
Wed Jun 23rd, 2010 08:58 AM
love the charts Noah!
So when do you expect the new site to go live?
Posted by Scott
Wed Jun 23rd, 2010 10:05 AM
Noah,
I've been absent for a while here on UD. Hope all's well and things are coming along with 2.0. I entirely agree with your statement that the market just needed a breather. I don't know how much stock I am willing to put into the euro, soveregn markets, etc. Same with pockets across the Hudson.
In our main market of Hoboken, sales volume is surging, but more inventory continues to come online, thus keeping rate of absorption stagnant at about 8 months. Prices continue to fall at about 1% per month. What this tells me is that the disconnect between buyer/seller is alleviating and prices should hopefully stabilize by the end of the year as long as volume stays consistent. We'll see. Time will tell.
Posted by Noah
Wed Jun 23rd, 2010 10:07 AM
the inventory platform is done. However, its in a developmental state and does not have any 'wrappings' around it. All efforts thus far have been on the data and backend algos and rules for the data. Now I need to design the front wrappings so the tools are more useable for the average broker or consumer that the system is built for to follow this market in real time.
Not sure how long it will take.
Second issue is development of key element of this system. Cant get into it here. But we have a decision to make. Launch without it, and add that in 2-3 months later. Or, delay launch and launch everything at once in 2-3 months.
Its slow season so not sure what we will do.
Posted by In Debt We Trust
Wed Jun 23rd, 2010 10:39 AM
What do you think of the end of the housing credit? Today's housing numbers were horrible. Will Congress revive the $8k credit again?
Posted by Noah
Wed Jun 23rd, 2010 10:45 AM
I doubt they will put in place another housing program. Maybe they will extend deadline for closings to qualify, but even that was shot down once already.
At this point, its clear the stimulus was artificial and we are going to start to see the weakness that was masked over for so long now by stimulus programs. I think the credit ultimately is a failure, and not worth the cost of the program. I always thought the market should adjust naturally, more painful, but more healthy too. But that path doesnt jive with fixing and recapping the banks, which is the plan right now
Posted by AvUWS
Wed Jun 23rd, 2010 04:21 PM
Noah,
Word of advice from someone who has designed products. Tie the ribbon on it. It is really REALLY hard to release something when you know you can still make it better. But 2 months from now will always turn out to be more (often 2-3 times more).
If what you have is deliverable, as in useful and stable, release it. It will free you to do two things. One is work on improvements at a more leisurely pace. Two is to find out what the real reaction of the public is. You might find they really want a different bell or whistle than the one you had been planning.
My advice comes from experience. Tying the ribbon is one of the hardest things for me to do but When I listen to others about doing it it often turns out to be the right choice.
An old engineering addage is that "best, or perfect, is the enemy of better."
Posted by Noah
Wed Jun 23rd, 2010 05:33 PM
AvUWS - its great advice..we are doing that. We are delaying the launch of the final tool, which I think will be insanely useful.
My tasks are to do the front end UI now for the platform, and make it very user friendly. Final step. Couldnt start this until we were done with data and chart development. Just a matter of co-ordination and execution from my other development team that handles the front end.
Still this may take a week, and beta may take few weeks...beta is less for data checks and more for functionality and useability of the system. Its very raw right now, far from ready for launch.
THANKS for the good advice!
Posted by In Debt We Trust
Thu Jun 24th, 2010 10:34 AM
Noah,
Wow. A poor refinancing market means that agency MBS are now trading well above par and even well above the levels when Bernanke was buying them on a routine basis.
The average price of $5.2 trillion of bonds guaranteed by government-supported Fannie Mae and Freddie Mac or federal agency Ginnie Mae climbed to 106.3 cents on the dollar yesterday, according to Bank of America Merrill Lynch’s Mortgage Master Index. That’s up from 104.2 cents on March 31, when the Federal Reserve ended its program purchasing $1.25 trillion of the debt.
http://debtsofanation.blogspot.com/2010/06/debts-of-lenders-mortgage-bonds-rally.html
Posted by Thisson
Thu Jun 24th, 2010 11:32 AM
IDWT: I saw that article too. Methinks those bonds are not as safe as investors believe them to be.
Posted by Noah
Thu Jun 24th, 2010 11:37 AM
yea same here...crazy. Me thinks many bonds not so safe anymore!
Posted by In Debt We Trust
Thu Jun 24th, 2010 09:08 PM
Continuing on the bond vein, Bill Gross came out today and said that now is the time to go long equities (when has he ever said that?). His argument is that the bond rally of 2008-2010 is at its peak and we'll see bonds lose their value as interest rates slowly climb.
I think he's got the right idea about the eventual return on assets but I have my doubts about his timing - especially after the Fed confirmed low rates again at this week's meeting. Continuing distress in European and US credit markets means that the 10 year yield may see 290 or lower. (The last time that occurred was in the dark days of Fall 2008 and early spring 2009).
http://www.investmentnews.com/article/20100624/FREE/100629954
The king of bonds is now talking up stocks as a better long-term investment. He says that as U.S. Treasury returns fall, investors will have to take more risk with high-yield bonds, equities and, eventually, real estate.
“If you're talking about the next 10, 15, 20 years, there's certainly the recognition that assets will grow faster in those categories,” he says. “Over the long term, stocks return more than bonds when appropriately priced at the beginning of an investment period.”
Posted by anonymous
Fri Jun 25th, 2010 09:11 AM
Don't forget that PIMCO is launching an equities fund.
Posted by AvUWS
Fri Jun 25th, 2010 09:36 AM
Seems in vogue to tar someone with "talking their book". A different way of looking at it might be to ask why suddenly Pimco thinks it is a good idea to open an equity fund?
After all, bonds is what they know. They are giants in that business. Why would they start an equity fund so Bill Gross can spend his time talking about it and to compete with others that are already better known and entrenched in that business? Unless of course they really DO think that equities is where they need to be.
So yeah, people "talk their book", but there is a difference between someone talking about something because he just made the investment himself, and someone who bough in a while ago and is looking to some point not too far in the future where he would like to sell it.
Posted by Noah
Fri Jun 25th, 2010 10:25 AM
I dont get it..Didnt Gross recently announce they noticeably increased their exposure again to govt bonds? Like a month ago or so?
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aBr8znCjE.1U
" Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., boosted holdings of U.S. government-related debt to the highest level in six months as Europe’s sovereign debt crisis increased the refuge appeal of the securities.
The $227.9 billion Total Return Fund’s investment in the debt was increased to 51 percent of assets in May, from 36 percent the previous month, according to the website of Newport Beach, California-based Pimco."
How can he switch so soon?
Posted by Thisson
Fri Jun 25th, 2010 11:54 AM
As long as the deflation continues, bonds will go up - until we get to a currency crisis.
Catalyst for that could be if they decide to bail out the states, or maybe even just monetizing the losses of Fannie, Freddie, FHA and FDIC.
Posted by AvUWS
Fri Jun 25th, 2010 12:05 PM
They don't have to monetize the losses at the GSE's because this has already been done. They just did it quietly and without fanfare and without putting a limit to it. What they haven't done is put onto the US balance sheet where it really belongs because no one wants to be the one to increase the Fed Debt by another 5+ Billion in one move. (granted they would also be adding the assets, but people often don't look to both sides of the balance sheet.)
Posted by anonymous
Fri Jun 25th, 2010 02:32 PM
I don't think Gross switched his position. I think he is highly invested in gov. bonds because the additional yield of other bonds does not compensate for the credit risk. It's just the least bad choice at the moment.
Posted by Fred
Fri Jun 25th, 2010 03:38 PM
On the bond theme, i think watching the yuan and the CHF are key here. beijing went from 6.81 to 6.78 in a week. granted they could raise or stay sideways on a whim but the point is, the currency regime is shifting fast to the commodity currencies, driven by china. politically, we know the Fed can't raise rates (and if they did, well, they'd all but guarantee a GOP sweep in November & a double dip), but what can happen and what will likely happen is a slow, steady creep up of the 10 yr yield. the only way out is debasement, plain and simple. another thing that seems to be occurring is a near term bottom was put in for the industrial metals and silver. copper just punched through technical resistance at $3.10/lb and the miners are following. with the wall street finreg stuff behind us, it may just be time for equities to run here. i do think this is the beginning of the second phase of the housing correction though and if congress' inability to extend unemployment benefits is any indication how they will react to an extension of housing credits, prices can keep going lower for a while.
on the bright side, i read that the super duper deluxe brokers in NYC are saying the $10mm market game is ON! whoo hoo! quick! get 'em while there hot boys and girls.....
Posted by Real Estate
Fri Jun 25th, 2010 08:54 PM
The above thought is smart and doesn’t require any further addition.
It’s perfect thought from my side.
Real Estate
Posted by Marilyn Harra Kaye
Wed Jun 30th, 2010 12:52 AM
While reports keep saying the market is getting stronger, one should look carefully at a healthy market to ascertain the truth. In a healthy market in Manhattan there are no auctions and we have auctions almost monthly. In a healthy market there is financing and the best financing available is FHA up to $749K.Seven Hundred thousand does not buy much in Manhattan and until the banks give financing to million dollar properties there are very few sales unless you buy new construction where financing may be available thru the sponsor.A strong market in Manhattan has a way to go...something to think about! Marilyn Harra Kaye, President, MLBKaye International Realty
Posted by coach handbags
Fri Aug 13th, 2010 04:51 AM
Focusing on Q2 of 2009, you can see that Corcoran's price levels are significantly above those for Halstead & Elliman. Therefore, on a y-o-y basis, expect Corcoran to show a less rosy report than these other two big brokerages. Q3-2010 is a different story and likely will be a very good report on a y-o-y basis. As is usually the case, its very likely the market will be experiencing a different sales pace than the report suggests at the time of release due to the lagging nature of our marketplace. Time will tell!
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