Monday, January 16, 2012
Is the residential housing market improving? That's a difficult question to get a straight answer to. Last month, the National Association of Realtors announced that it had double-counted some home sales since January 2007, and revised five years worth of sales numbers, reflecting a much weaker market than previously understood.
A New York Times article also demonstrates that we need to be cautious in taking national statistics, or even state and regional-level statistics, at face value. For example, a new report indicates that home sales in New Jersey picked up in the latter part of 2011, with increases in contracts signed in six of the seven months between May and November. However, the report also reveals "A great division in market fortunes between northern and southern Jersey — and urbanized areas close to Manhattan and more rural regions..." For example:
"Salem County, rich in historic houses and farmland but short on well-paying jobs or a quick commute to an urban center, has the largest inventory of all 21 counties surveyed: 44.5 months’ worth of houses, the preponderance of them priced under $400,000."
“Simply put,” said Dawn Rapa, a Coldwell Banker Elite agent working in rural Salem County, “the only people I’ve seen selling their houses recently are those who absolutely had to — because they were in financial disarray, a job change, divorce or death.”
In my work on the commercial real estate market, I've noted that a few large markets, such as New York City, Washington, D.C., and San Francisco, distort national and regional statistics for two reasons: (1) those real estate markets are largely immune to severe or long-term economic downturns because of there is still more demand than supply; and (2) property values are significantly higher in those markets than in the remainder of the country. In other words, Class A commercial real estate in New York has remained strong through the financial crisis. Those high-value transactions mask continued weakness in cheaper Class B and C assets, and make the commercial real estate market look more vibrant than it really is. Although I haven't taken a close look at the residential real estate statistics, it appears that the same distortions may be taking place.