Non-Existent Abominable Snowmen and the $100 Million Home Market

Halloween is fast approaching and I’ve already had enough candy over the past week to last another year. I’m still consistent, having avoided wearing a full costume (all appraiser jokes aside) since I was 13. I still can’t make eye contact with any of those slasher movie commercials that flood our television screens this time of year because I get the sense that something dangerous is out there…


U.S. Housing Reports (Big Monsters Outside Your Market)

It’s been a while since I’ve talked about or visited the monthly gauntlet of U.S. housing reports. Frankly these national oriented U.S. housing reports create more confusion than clarity. Consumers read them and apply them to their own homes despite there being no connection. But since we are fed a steady diet of them, it’s good to understand their strengths and weaknesses. Here are a few guiding principles when reading them:

– There is no national housing market, it’s simply an aggregation of thousands of local markets.
– These reports are presented with seasonal adjustments – seasonal adjustments make the reports one more step away from the data – economists love them and they can be useful, but for the consumer, I would rather not “smooth” the data. I want it presented as close to raw as possible.
– The reports always emphasize their month over month trends. I assume it is because they think of the asset class as similar to a stock. Yet it is not and short term views imply that a consumer can “time” the housing market to great precision.
– They provide no real context or insight to the local market. Just like the Dow Jones Industrial Average Index has no relationship to the stocks you may hold in your portfolio.

Still, we freakin’ love to be spoon fed their results each month.

Here are some of the monthly reports we are smothered with:

NAR Pending Home Sale Index
This is my favorite of the national reports only because it is the most current even though it is incorrectly marketed as “forward looking.” I’m not endorsing it as a fantastic resource but it’s the best of what is available. Technically it represents the market of the past month by looking at the number of contracts signed. I believe sales activity is a much better indicator of a market’s health than prices.


NAR Existing Home Sale Index
This report is also one of my favorites because it has 3 moving parts: sales, inventory and prices. I like to strip away all the seasonal adjustment gobbledygook.


S&P/Case Shiller 20-City Index
I think I’ve spent half of my career bashing this index even though I periodically connect with one of its authors, Nobel Laureate Robert Shiller, who is one of the smartest and nicest people around. The problem with the concept is that it was created for Wall Street to hedge single family housing, not consumers. I believe only the Vampire Squid ended up buying the rights to use the index for trading until finally the index was given away for free. The reason it’s not particularly useful? It lags the “meeting of the minds” between buyers and sellers by about 6 months and only reflects price trends, not sales. In fact, Zillow has been incredibly accurate in forecasting what CSI will show before it is published because of the reporting lag. The people that speak to the report each month simply use analogies and homespun assumptions to link it to the actual market. I find it maddening.


U.S. Census Bureau New Residential Sales (aka “New Home Sales”)
The new home sale report from Census actually reflects both multi-family (apartment buildings) and single family sales. Multi-family sales have been booming in recent years while single family sales have been tepid. It’s a good report to follow but I always use the non-seasonally adjusted results.


A Refresher On How Housing Got Here

After looking at all this charts, I’m sure many of you are reminded (if you need reminding) about the massive housing bubble of the prior decade, I highly recommend this 2008 podcast – I remember listening to it before Lehman collapsed. It’s riveting and illustrates how different things are today.


And perhaps you should consider listening to this fascinating podcast from 2 of my favorite follows on Twitter: on Foreign Policy’s Global Thinker’s Podcast: Why Won’t Regulators Rein in Big Banks?

Let’s move on from reality mode and into fantasy mode.

$100 Million Dollar Housing Mania

Source: WSJ

I’ve come to the conclusion that the $100 million single family housing market doesn’t really exist, at least not in the way it has been publicly presented. Yes there are listings of homes above the $100 million threshold, one as listed as high as $500 million, but there have only been a handful of actual sales over the past few years. There have been a parade of press releases touting new 9-figure listings entering the market, but none of them have actually sold. The idea that there are many listings priced to the stratosphere seemed to justify to sellers that this market exists and to join the party. The problem is pretty basic: these homes are not selling. By my understanding, a seller can ask whatever they wish for their home, but if it never sells, then the home was not priced to actually sell. In fact, I contend that during the past two years, this market never really existed as some sort of new unexplored territory.

There were two great articles written in the past week that addressed this market that are worth a read:

What Really Makes a House Worth a Hundred Million Dollars? [Curbed National] Where Prices Start at $115 Million: Bel Air’s Trophy Home Boom [WSJ]

By the way, my street name is “JMillz”…


This just in…

11:30am Friday I am working from home today and just got the sad news that the building adjacent to our office building collapsed while being demolished and there was at least one fatality. Tragedy. Thankfully all of our staff got out of the building without issue. Never a dull moment in New York City.


Given this situation, I am pushing my discussion about Super Storm Sandy and interest rates to next week.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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