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Manhattan Condo Market Projected to Stabilize: Glass is Half Full and Topping Off! August 12, 2009

Posted by John Watch in AccuriZ Reports, News Feed.
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The Manhattan Condominium Market is about to “shock the skeptics”.  There have been numerous reports published by noted “Manhattan Experts”, but a recent article in Crain’s Business week begs of the question “Who is manipulating What and Why? (See the NYC Square Footage Report) (See our repsonse to the Crain’s Business Report)

Has a “Shadow” fallen on the NYC condo market, or is it just another game of smoke and mirrors?  We thank the New York City Department of Finance for enabling those who have the desire to do the actual analysis, assuming one has the ability to do so.  The Department of Finance has provided public records of a rolling sales history since 2003.  This represents all property sales in New York City;  not listings, not possible listings and not sales that didn’t close or the seller backed out.  But Real Sales data! 

DoF also provides public records to the Assessment Rolls for Class I, II, III and IV Properties.  From this Assessment Roll we can find out how many properties exist in each borough and when the property was built.  An individual with some basic computer skills can than run a query to append the sales file with the Assessment file.

Once completed, a further level of skill is required; not a lot of skill, but just a little.  Invalid sales should be stripped out of the analysis.  An invalid sale would be a property that transferred for less than $1,000 dollars.  As a seasoned valuation analyst, I would actually go an additional step and remove all sales that sold for under a $125 per square foot in Manhattan.  The simple fact is that such sales would not be representative of the market and do not come close to representing the actual cost of construction.

So common sense prevails.   In the end, a valid set of sales and property data is available for analysis. The table below indicates that the average and median sales price for condos is declining at a rate of about 8% for the first six months of 2009.  This is much lower than some reports have indicated, but HOLD ON.. there’s more.

Manhattan Condo Market 1

Source: AccuriZ.com

Manhattan Condo Market 2

Source: AccuriZ.com

The chart above considers the rolling average of sales from July 2008 to July 2009.  We have applied this property data to adjust for the over correction in the markets and the seasonal affect of winter sales.  Based on the trend line, we are projecting that for the months of July, August and September sales activity will increase and property values will adjust upward.  Furthermore, the 4th Quarter – which usually shows weaker activity and valuation – will indicate a level of stability.

In short, when you analyze data with a known common factor such as “Square Footage”, manipulation of the data is difficult.  Combine this with an open policy of NYC to provide data free for analysis when it used to cost over $20,000, analyst can now openly check one another.

There is a true check and balance and the latest reports about the Manhattan market are misleading.

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Bad Data, Bad Analysis, Inept Real Estate Broker and Misinformed Seller are All to Blame. August 11, 2009

Posted by John Watch in News Feed.
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The following commentary is in repsone to a recent Crain’s New York Business article titled “Shadow units cast pall” by Amanda Fung. The article discussed a glut of “shadow inventory” in New York City, particularly in Williamsbug and Manhattan. Sources claimed that Manhattan had more than 10,000 unsold condos. Based on my findings, the data and information being presented in the article proved to be misleading, if not out right false. Here is the response. Remember, real estate is three things: Cyclical, Seasonal and Emotional.

Amanda

I had the opportunity to read your article regarding Shadow Inventory in the Crain’s Online Publication.  My initial reaction was there are always two sides to every story. But as I reviewed the data that was being quoted, I became concerned with some of the facts and data provided to you.  My focus of concern is the condominium market and discussions related to Shadow Inventory, and more importantly data provided by the real estate sources referenced. 

In the 25 years that I have been valuing and analyzing real estate, the term “Shadow Inventory” has never been presented before.  What I gather is that this is a buzz word used to discuss inventory that has been built, is under construction or just coming on the market.  This has never been called Shadow Inventory, but pending inventory

Because the property data being presented in the article contradicts reports I have prepared and published, I started to review the information by outside sources that was provided to you in more detail.  The 18 month supply issue baffles me because I simply cannot determine where this comes from.  Also, the “glut” of Williamsburg has me confused.  Analysis of construction activity, public records and sales activity clearly indicate that Manhattan alone absorbs about 9,000 new condo units a year.  For 2009, sales activity and public records indicate an annualized absorption of about 6,000 units.  This would be 3,000 off the peak, so again how does 3,000 fewer units sales compute to 10,000 unsold units.  Also, the 7,000 plus units coming on line in 2010 will be absorbed into the market based on Historical Sales and building Activity.

Yes, there has been a decline in sales activity since the peak of 2007, but new construction has not exceeded demand in population growth and affordable housing.  The key word is affordable.  The fact that a developer lists a property too high relative to the market does not indicate a collapse, but a misinformed seller.

Your article is an amazing coincidence for me, because hours before I read it, I completed an in-depth analysis of Williamsburg/Greenpoint condo market for a client.  What I discovered was not a “glut” of housing, but incorrectly priced housing.  My clients project was listed by a real estate agent with unit values $100,000 above the market and incorrectly stated square footage.  My firm has been arguing this point for years, it is all about the property data.  Based on the recommendations provided, the client relisted the units at the prevailing price per square foot rate for walk-up condo units of $550 psf.  He has already received four inquiries, with one being a serious buyer.  He did not receive a single call on the building in the past three months.  My analysis does not indicate that this community is in a “bust stage”. 

Bad data, bad analysis, inept Real Estate Broker and misinformed seller are all to blame.  What is most disturbing is bad data and bad analysis. 

The following is a summary of my analysis that was provided to the client:

Since 2000, the following construction activity has occurred in the City based on the 2009/10 New York City Department of Finance Records:

Single Family Homes       9,012 new units

Two Family                         25,974 new units

Three Family                      6,157 new units

Tax Class I condos            719 new units

Tax Class II condos           26,699 new units

“454 sales have occurred in Williamsburg/Greenpoint market in the past year.  There are 192 sales classified as walk-up condominium projects with an average sppsf of $570.86 and Median of $569.17.  Given the location of your property, I recommend listing at $550 psf for 1 Bedroom Units and be prepared to accept 10% less.  Development around your complex will draw buyers, but there is a correlation to subway proximity and value.  Hence the 10% lower acceptance.  The number of new units coming on the market is meeting the demand of residents from the Lower Eastside, notably NYU students who cannot afford to rent or buy in Manhattan.  Over the past 10 years, NYU has acquired many housing units south of 23rd which has driven up housing costs.  After 9/11 Williamsburg/Greenpoint experienced a revitalization effort that has brought a new wave of construction and demand for the area.  Current market conditions mean that you have to price correctly, the prior listings could have potentially hurt your efforts, creating a distress situation perception in the market.”

Amanda, some questions about the data provided to you!

According to your article, Jonathan Miller states that there are 10,445 unsold condo units in Manhattan, plus another 7,000 coming on-line.  He calls these shadow units.  According to the New York City Department of Finance, for Manhattan there are:

Class I Condos:                  198  total units

Class II Condos:                 100,173 total units

Public records show a total of 26,699 units were constructed since 2000.  This represents over 25% of all condominium units.  Mr. Miller is stating that 10% of all condos are vacant or unsold?  And by unsold, does that mean there is a current owner who wants to sell or can’t sell?

Based on Mr. Millers comments, 10% of all condo’s are on the market in Manhattan, with another 7% coming on.  This just does not factor correctly and here is why:

Since 2003 there has been no more than 10,000 valid sale transfers per year of condominium units in Manhattan. (See table below).  Mr. Miller states that there are 10,445 unsold units in inventory which appears to be a normalized number, so what is the point.  This isn’t of much significance given the history of sales for condominium units.  As a matter of fact, all units constructed since 2000 have been absorbed into the market within a very finite time (less than 6 months).  Following is more information to support our data points:

Since August of 2008 there have been 10,076 condo sales in Manhattan.  This represents 10% of all properties.  When only usable sales are considered, (indicated square footage over 200, valid sale price over $10,000), the number is reduced to 5,407 sales or 5.4% of all condo properties with an indicated Average Sales Price of $1,805,328 and Median of $1,089,527.  The variance is rather significant.  Analysis of 2009 Sales Only shows 1,764 valid sales with a Average sale price of $1,656,783 and Median of $1,025,000.  Perhaps the use of the Average and Median Sale price is confusing some, because the Sale Price Per Square Foot provides a totally different view of the market.

Average Sales Price Per Square Foot      

  • $1,229 (7/2008 to 7/20009)          
  • $1,180 (’09 Only)

Median Sales Price Per Square Foot       

  • $1,145 (7/2008 to 7/2009)          
  • $1,070 (’09 Only)

Square Footage has a significant impact on the values, with less than a 7% variance between Mean and Median, and property values from 2008 to 2009 are only down 4%, not the 30% levels being reported by some.  And we cannot just rely on the Average and Median Sale Price alone.

Further Analysis by Sales per Year since 2003 indicates the following (Click To View)

Bad Data Big Text 174 

 Total Sales are all recorded instruments with the New York City Department of Finance and County Clerk (http://www.nyc.gov/html/dof/html/home/home.shtml )

Useable Sales are defined as sales greater than $10,000, greater than $100 per square foot and having a valid square footage greater than 200 feet (minimum required for living space).

Usable sales historically represent about 60% of all sales.  Since July of 2008, this figure has dropped to 54% and for all sales in 2009 it is at 46%.  2009 is projected to have the lowest useable sales on record since 2003.

CURRENT value indicators clearly show that on a rate per square foot basis the Manhattan Condominium Market is off in value by less than 4%.  (all data used in this analysis is obtained from the NYC Department of Finance and is 100% verifiable).

You have quoted many individuals and their opinions in the article, but they appear to be lacking the data like the statistics being presented above.  It concerns me when I believe reporters receive information from sources that appear to have a hidden agenda.  The developments coming on line can easily be absorbed into the market. 

Again I will state, Bad data, bad analysis, inept Real Estate Broker and misinformed seller are all to blame for listing properties to high.  Analysis of actual data and using accepted and appropriate statistical analysis yields results that are explainable and defensible.  Quoting individuals without verification from noted and verifiable sources impinges the creditability of the article.

John Watch, President & CEO

http://www.accuriz.com

718-461-1310

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NYC Square Footage and Median Price Differentials: Bronx August 5, 2009

Posted by John Watch in AccuriZ Reports.
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A new AccuriZ report titled “Square Footage and Median Price Differentials,” highlights the property data and sales activity of New York City and the differnces between median sale price and price per square foot. Below is an excerpt from the Queens section of the report. To see the full Bronx report, as well as the additional boroughs, CLICK HERE

Real Estate is like a set of Russian Nesting Dolls.  Analysts tend to focus on the entire market, with minimal effort given to the underlying components.  As you examine various segments of the markets, different pattern emerge. Generally in real estate there are three rules:  Location, Location and Location.   And in the current market, if you do not have to sell you don’t.

Real Estate comprises of three elements:  Cyclical, Seasonal and Emotional. The present market comprises of all three, which is extremely rare.

Source: AccuriZ.com

Public records show that residential properties in the Bronx are also decreasing and reflect a similar pattern that exists in Queens. One notable difference is that properties that contain a residential unit and commercial unit appear to be declining at a greater rate.

For more Real Estate Reports and detailed statistical analysis, CLICK HERE 

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Cyclical, Seasonal or Emotional: Where is the Real Estate Market Today? July 31, 2009

Posted by John Watch in AccuriZ News, AccuriZ Reports, News Feed.
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seeking2This was originally a comment made to a SeekingAlpha.com article by Tim Iacono titled, ‘Has the Housing Market Hit Bottom?’

Real Estate is three things:

  • Cyclical

  • Seasonal

  • Emotional

Cyclical Cycles run about 15 years in length with the current cycle beginning late 2006.  Looking at public records, we can track the beginning of this down cycle to the last down cycle in 1990-1991 and we have heard thousands of comments on this.  When the cyclical adjustment occurs it is an adjustment to the underlying structural issues in the market.  For this real estate cyclical cycle, the structural problem is comprised of two elements:

A. Influx of new home buyers who received mortgages through non-standard financing.  That is the emergence of No Asset, No Docs, Interest Only, Mortgages at 125% of Value programs.  We all know the affect these had on the market.

B. Excessive over development which created 5 million vacant housing units not supported by population demand.  Expectations of Baby Boomer migration and new homeowner growth fueled this development.  The existing oversupply issue will take at least two, if not three more years to be absorbed and new housing starts will remain below 800,000 units in 2010 and 1 million in 2011.

Seasonal Changes occur every year and follow a fairly consistent pattern.  The news today and for the next several months is a result of seasonal changes, not necessarily structural ones.  The spring and summer selling seasons always show the top values in any market, and the fall and winter show the bottom.  This is one of the prime effects of the recent crash; it began in late 2006 and early 2007, but did not pick up speed until late 2008.  By that time, the snow ball going down the hill was an avalanche and the population and financial system reacted accordingly:  they ran!  The actual correction or rebound in housing will not show signs until the beginning of the spring 2010 selling season.

Emotional changes are best described by many of the commentaries.  Because we lack so much important property data on the real estate markets, such as the sales price per square foot which the rest of the industrialized world uses and because of our own ignorance or arrogance (we all know the answer) our emotions take control.  Fear of the unknown is the worst element of any financial market.  That is what we’ve experienced for the past nine months. 

What creates fear is the lack of information.  In real estate, we always are reporting on the past and trying to guess the future.  Utilization of more quantitative data will permit us to evaluate data more accurately and track the markets in an efficient manner. 

How many of the commentators and authors have the actual data?  How many are relying on other data sources to build their articles?  I have the actual sales and inventory data from over 1,000 assessment offices covering the top 100 MSA’s; but I must rely on Census, Commerce, Labor for their data and we all know there are issues with the data.

So I finish with this, the Free Market must develop an independent solution to track and predict the real estate market, or we will all be talking about this again in 15 years.

For more information on Real Estate Reports and Property Data, CLICK HERE

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Financial Crisis and Becoming Accountable July 30, 2009

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Originally posted in NY Times Article

housing-market-crisis

Greed and capitalizing on a persons’ misfortunate brings out the worst in us as a nation.  The current financial crisis has many culprits, but millions of victims.  We can say what we want about over indulgence and living beyond our means. But we must ask; how was this all possible in the first place?

The FAILURE of the prior administration to regulate the mortgage industry, notably those loans acquired by private investors who sought higher returns than the banks is the root problem.  Like any parasite or disease, there are innocent victims who suffer because of proximity to the original disease. 

 At this point in time the CURRENT administration has the ability to step forward, provide a cure and start the healing process.  Take a look at a proposed cure called Mortgage Assistance Program. This proposed cure has flaws, but it offers a real solution to a disease that needs a real cure.

The real question is, will the CURRENT Administration step forward and lead us, or will it succumb to the efforts of the Banking Lobby, or more appropriately the Loan Servicing Lobby?  Greed is not a good thing when our nation is staring into the financial abyss caused by a small group of individuals who sought ways to manipulate the American Dream.

For more information regarding property data, public records, Real Estate Reports and the Mortgage Assistance Program CLICK HERE.

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Foreclosure Plan Presented for Discussion July 15, 2009

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FDR signs H.R. 1946, the lend-lease bill to give aid to Britain and China

President Franklin D. Roosevelt signs H.R. 1946, the lend-lease bill to give aid to Britain and China.

If someone can pay rent, that rent can be considered part of a mortgage payment. The government is providing $8,000 for first time buyers, so why can’t the government pay part of the payment and have the borrower repay the government in the future?? Here is an example of how it could work.

• Mr. and Mrs. ZZZZZ have a mortgage payment of $1,170 ($200,000 loan with 30 year payout at 5.75% interest).
• The ZZZZ’s lose their job and can only pay $470, so the government pays the difference of $700
• So the ZZZZ’s remain homeowners and work through their problem. It takes the ZZZZ’s 10 months to get back on their feet, the government paid out $7,000 and now the ZZZZ’s owe the government.
• But the government says okay, you can start paying us back in seven years and the payment will be over 10 years at an interest rate of 3%.

What the government has done is to provide assistance to the property owner (just like the bailout plans for the Financial Industry and Automotive Industry) and requires them to pay back the obligation starting in seven years. This is not a freebie, but short term assistance. Franklin Roosevelt called it Lend Lease.

This program is not perfect, but it can assist a lot of people who want to own homes. Most importantly, it is channeled directly to the property owner, not a large corporation that has other motives besides keeping the property owner solvent.

A significant benefit of this program is that payments to financial institutions will resume and cash flow will get back to normal levels, thus credit availability should improve.

There needs to be conditions such as confirming gross income via income tax statements; confirming employment and confirming current payroll. The only group of individuals who would be excluded are those who own more than one property (there should be no break to the investor who treated real estate as a business) and cases where mortgage fraud exists in the form of straw buyers and invalid sales (properties that sold more than three times within five years and the value change was greater than 150%).

  • This total assistance would be capped at $50,000 and could run for 24 to 36 months
  •  In a given year up to $25,000 could be provided.
  • The government would be releasing the funds over 12 months, thus the federal outlay would be limited.
  • The total cost of $10 million loans receiving assistance would be $250 billion per year or $500 billion in total.
  • This is much cheaper than the TARP bailout and part of this can be funded with the current $70 billion in TARP repayments.

The greatest difficulty in implementing this program is processing and accounting. Loan Servicing companies would need to add staff (if one servicer can process 50 applications a week, 4,000 servicers would need to be hired, plus additional support staff) Wow, as many as 10,000 new jobs would be created. Add to this job creation the fact that several million homes do not go into foreclosure and more jobs are not lost due to desperate situations.

Yes it is possible and yes it can work.

The reason it can work is because real estate goes through cycles. If people are forced to sell at liquidation prices, everyone loses. Give property owners a chance to get back on their feet, get back to work and the whole economy starts to turn around.

As stated earlier, this is not perfect and many will complain about the injustice. But think about the injustice of the corporate bailouts, the injustice that first time home buyers get a break, the injustice that shareholders come before the individuals who created value in the companies by buying products. One can go on and on, or we can try.

We only fail if we do not try.

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Why Square Footage Matters! Larger Homes Indicate Stable Values June 25, 2009

Posted by John Watch in AccuriZ Reports.
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Median Sale Price of Northeastern Queens compared to Queens COunty

Median Sale Price of Northeastern Queens compared to Queens County

A new report by AccuriZ entitled; Why Square Footage Matters! Property Values in Northeast Queens Stable for 2009 indicates that when property data is stratified on a median sale price based on the square footage of the residence, Northeast Queens home values are stable. Here is an excerpt from the report:

A more detailed analysis of the median sale price based on the square footage of the residence indicates an entirely different pattern of price value changes. When the sales data is stratified into the calculated rate per square foot based on sale price, the rate of change for Queens County is -10.58%since 2006 versus -21.3% based on the Median Sale Price. For Northeastern Queens the rate of change is -.37% versus -12.8%. The data clearly indicates that building size represents a significant impact relating to the value of the property.

Yes, overall values are surely down, but based on this report and public records, building size causes a significant difference in the values being presented. What do you think about these conclusions?

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The Real Truth on Real Estate Values June 19, 2009

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Since the mid 1980’s reputable groups have published information regarding real estate values and trends by regions of the country.  Because many organizations lacked access to specific property data, most importantly the total living area; sales data was always presented as the Median Sale price or in some cases the Average Sale Price.  Over the past five to seven years, the Median Sale Price is the constant. 

As valuation consultants serving the assessment industry, we have discovered over the past ten years the weakness in presenting only the Median Sales Price.  Most importantly, what are we comparing to for the baseline?  Our analysis focuses on the sale price per square foot, a factor used by the assessment and appraisal industry.  Over the past 18 months, we have monitored reports relating to the change in property values and the significant declines.  Many economists correctly state that home values exceed the level of affordability as compared to income levels. 

Based on this one standard, there appears to be wide spread belief and acceptance relating to the current declines in property values.  We do not dispute the adjustment, but rather the statements of how significant the adjustments have been.  The following is a perfect example of why we need to study the market on a rate per square foot basis, based on public records:

Median Sales Price for Zip Code xxxxx in 2006 was $303,000

Median Sales Price for Zip Code xxxxx in 2007 was $283,000

Median Sales Price for Zip Code xxxxx in 2008 was $244,000

The pattern indicates a decline in values of 6.7% from 2006 to 2007, 13.8% from 2007 to 2008 and overall for two years 19.5%.

By adding in the median square footage of the sales and presenting the sale price per square foot, a similar pattern of downward valuation occurs, but the rate of decline is lower:

Median Sales Price for Zip Code xxxxx in 2006 was $303,000, 2,144 sf  $141.32 sppsf

Median Sales Price for Zip Code xxxxx in 2007 was $283,000, 2,080 sf  $136.05 sppsf

Median Sales Price for Zip Code xxxxx in 2008 was $244,000, 1,980 sf  $123.23 sppsf

The pattern indicates a decline in values of 3.8% from 2006 to 2007, 9.5% from 2007 to 2008 and overall for two years 12.9%.

Analysis of sales activity and valuation increases since 1996 indicate two clear patterns:

1. The median house size increased because of new construction, with typical homes exceeded 2,100 square feet versus existing homes with a median square footage of 1,850.  So part of the valuation increase is based on larger homes selling, not market appreciation.  New homes are on average 12% larger than homes built prior to 1996.  We have collected and measured this data for over 30 million properties, notably Arizona, Florida and Nevada where there is a oversupply of housing.  Each state have different median square footage values, but similar patterns. 

2. Market appreciation or depreciation can be measured on the quality and condition of the home as well.  When a market is appreciating, property owners will maintain their homes because of the potential added value for selling a home in good to excellent condition.  Real Estate Brokers and Agents stress this constantly when selling and showing homes.  Buyers also seek houses with low cost of maintenance and repair in a stable and appreciating market.  Conversely, when values decline property owners may have limited funds to maintain values and most signifcantly distressed sales have an impact on property values. 

Distressed sales indicate a change in the purchaser profile as well. When foreclosures dominate the market, few buyers are willing to pay top dollar for quality homes, opting instead to acquire a baragin or fixer-upper.  These trends in real estate values have occurred in prior down cycles and will reverse to the up cycle trend in the future.

As we emerge from this current down cycle, there needs to be s hift in the manner for which data is presented and anaylzed.  Over or understating valuation changes will only lead to further instability and significant shifts in the real estate cycle. 

I look forward to commentary from other professionals relating to this issue.

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Housing In Crisis June 18, 2009

Posted by John Watch in AccuriZ Reports.
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Over the past twelve months there have been varied reports, analysis and commentary regarding to the current housing crisis. Most of commentary has focused on financial institutions and the lending practices of the past seven years. Analysis of the current crisis should not minimize or dismiss these lending practices, but should recognize that these policies are part of the symptoms that were ignored.

Many factors can be attributed to this crisis, but perhaps the most significant variable is new housing starts. From 2000 to 2008, 15.1 million housing units were built, according to public records. This level of development does not vary significantly in total units from similar growth patterns in the 80’s (15.8 million units) and the 90’s (15.7 million units), except one must note that the current cycle covers an eight year period versus 10 year periods.

An initial review of the property data indicates that there is no significant anomaly; however when we consider additional information such as the number of vacant units and primary (seasonal unitsare removed from count) a pattern of over development begins to emerge…

See more HERE

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Housing index declines in June | The Real Deal | New York Real Estate News June 16, 2009

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Housing index declines in June | The Real Deal | New York Real Estate News

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No one should be surprised by statistic for the Housing Index decline.  Based on reports from the National  Association of Realtors, property data and public records from other sources such as Commerce and Bureau of Census, sales transactions appear to be increasing for the first and second quarter.  This upward tick should be expected because the Spring/Summer season always shows an increase. 

While this does not indicate a reversal in the current crisis, it does indicate the potential for market stabilization.  Additionally, it appears that the decline in housing is attributed not only to the oversupply in housing, but it is also attributed to smaller homes being sold versus larger homes during the peak.

Housing in Crisis  discusses the surplus housing situation and the impact on property values when we compare Median Sales Price Per Square Foot historical trends.  There is no doubt the market is correcting itself, but we need to compare Apples to Apples, not Apples to Oranges or Pears or Bananas.

A full recovery will not occur until the surplus housing crisis abates and this most likely will not occur until 2011 or 2012.  With over 3 million excess housing units it will take no less than three years for the natural cycle of population growth to absorb these excess units.  By analyzing the actual data, not estimates one can evaluate market conditions in a more objective manner.