Q4 IN! Real Time Trends Confirmed

Posted by urbandigs

Tue Jan 4th, 2011 09:56 AM

A: For those using this system, you knew exactly how the Q4 report was going to shake out - turns out sales pace was down about 14% from prior quarter and median prices were down between 5% and 7.5% or so across the major brokerages, from Q3. The weak Q4 expectation from mid-November has been confirmed. Lets discuss.

Josh Barbanel at WSJ.com reports, "Manhattan Housing Prices Dip":

The number of sales fell by 13.8% in the fourth quarter compared with the previous quarter, and 7.2% compared with the year-earlier quarter, according to a report prepared by appraisal firm Miller Samuel Inc for Prudential Douglas Elliman.

The median sale price of $845,000 in the fourth quarter was off by 7.5% from the previous quarter and up 4.3% from a year earlier, the report found.
CNN Money reports, "Median Manhattan home price: $840,000":
The median price of a Manhattan apartment fell 5.6% to $840,000 from $890,000 compared with the third quarter, according to market data computed by Brown Harris Stevens and Halstead. Still, they found that prices were up 5% from the previous year.

Prudential Douglas Elliman had prices down 7.5% quarter-over-quarter, to $845,000, and up 4.3% year-over-year.

Corcoran's figures were down 5% quarter-over-quarter, to $825,000, and up 3% since last year.
And finally, the always wonderful to read Vivian Toy at the NY Times reports, "Manhattan Real Estate Market Continues Steady Growth, as Luxury Sales Perk Up":
The median fourth-quarter sales prices, in separate reports compiled by the city's biggest brokerages and by the real estate Web site Streeteasy.com, ranged from $825,000 to $845,000. Those prices represent increases of 3 percent to 11 percent from the same period in 2009. The prices are still far from the peak of the market in 2008, when the median was close to $1 million and the average over $1.7 million, but they are also up from the bottom of the market, in mid- to late 2009, when the median hovered around $800,000 and the average dipped below $1.3 million.
So what is the deal here? Manhattan continues steady growth? Manhattan housing prices dip? Who's right? The answer is both! Data can be spun in many different ways to justify a conclusion. The reason both are right is because one report compares the quarter to quarter performance while the other report looks at the year over year performance. Both are accurate. Generally speaking, in local housing markets we should compare any one given period to the same period one year prior to filter out noise from seasonality. But this is Manhattan and people want real time!

The sales report that show a quarterly drop in prices is largely a function of the very slow summer and early fall we had --> the deals of which have closed during the months of October through December. Year over year, it was the Q3 and Q4 2009 reports that basically defined the downturn of deals signed earlier in 2009 - so seeing a strong year over year report was quite expected. What you need to now is that median and average sales trends, while pure data, has some flaws to it:

1) Lagging - the timing may mis-represent the moment in time when the deal was signed into contract. There is a difference between the sale date/filing date with ACRIS and the contract signed date! Click that link for details on this lag...

2) Outliers - the data is the data and it will be subject to outliers. Generally, its the outliers on the high end that when closed, may skew a trend wildly.

3) Makeup of Closings - keep in mind that if you have a few months of mostly 1BRs closing followed by a few months of mostly 2-3BRs closing, you will see wild swings in both median and average sales price trends

I say these things to make one very important point: DO NOT BASE A BID OR AN ASK BASED ON RECENT MOVEMENTS IN MEDIAN/AVERAGE SALES PRICES!

Its meaningless to value a specific unit in a specific building based on a recent trend shown in a median market report. Not only are you exposed to the flaws I discussed above but you are introducing so many non-comparable variables into the equation that likely presents a mis-intepretation of the current marketplace. For example, I do NOT think prices fell 7.5% (as the Elliman report states) from Q3 to Q4 - and to have a buyer start a property valuation with the assumption that prices fell 7.5% in the last 3 months relative to the 3 months prior would be totally incorrect! The late summer and early fall saw a big dropoff in new deals signed for $2m+ properties, causing a wave down in both volume and median price trends from the period prior - not because a new adjustment down in bids took place across price points.

A property valuation should be done using in building comparable sales, preferably same line or same unit sales, followed by a few adjustments:

1) Time Adjustment - adjust for market conditions
2) Floor Adjustment - adjust using a floor multiplier
3) Renovation Adjustment - adjust for renovation upgrades
4) Size Adjustment - hopefully the comparable has the same footprint/size
5) Special Features Adjustment - adjust for unique features (i.e. terrace, fireplace)

Limit the variables and conduct a solid comps analysis of the target building! Every building is its own local market and once you go outside of that building you are introducing new variables that will degrade your analysis - its quite common to see 2 buildings right next to each other trade very differently. I've written on all of the adjustments before here on UrbanDigs, with the exception of the 'time adjustment'; something I consider an edge when servicing my buyer clients. If an excellent comparable sale occurred 6 months ago, 9 months ago, 15 months ago, 2 years ago, etc.., how can we adjust for time? That is the most difficult challenge when determining where we are and where did we come from!