Yes, Mortgage Rates Impact Housing Prices

Posted by Jonathan Miller - Wednesday, December 26, 2012, 4:50 PM

I few weeks ago I was dressed down by an analytics friend of mine who is in the business. Based on his employment and housing sales analysis in Alabama (I’ve never been) he suggested my comments about mortgage rates influencing housing prices as anecdotal and hypocritical (who says analysts have to have tact) – that only employment can be correlated. And further…since mortgage rates can not be proved to influence housing sales through multiple regression, any such claims are hearsay and anecdotal. While I agree that housing’s largest influence comes from employment, I was a bit surprised by the out-of-left-field agita I inspired.

He was focused on the predictive element of a trend versus a knee jerk reaction to a sudden change in a metric. My comment about a spike in mortgage rates at this moment (not predicting it) as ending the party – is apparently what caused him to lose faith in my analysis. Appreciative of the constructive feedback, I whipped up a couple of US macro price charts.

Yes, US employment trends correlate with US housing prices and mortgage rates correlate by showing an inverse trend against housing prices.

Predictive? Only if considered with other metrics.
Anecdotal? Hardly.

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Second Avenue Subway’s Impact On Rents

Posted by Jonathan J. Miller -Thursday, February 23, 2012, 5:49 PM
1 Comment

In one of the greatest column names ever devised during the illustrious history of the New York Times known as “The Appraisal” [wink], Elizabeth Harris, pens “Amid a Subway Project’s Dust and Noise, No Complaints About the Rent” about the war zone that is Second Avenue on the Upper East Side of Manhattan. I was on vacation when this was published earlier this week and I was forbidden to bring my laptop.

I was approached to try to take a stab at measuring the impact of the Second Avenue subway construction on the local housing market. Listen to the blasting.

Sales transactions move too slowly to capture the neighborhood impact since this is a relatively recent event of the past few years. So I looked at rents since they are smaller and more nimble.

Methodology
I divided a portion of the Upper East Side neighborhood into three zones (East 64th Street to East 96th Street) as follows:

The blocks to the east and west of Second Avenue (Third Avenue to First Avenue)The blocks to the west of Third Avenue (to Fifth Avenue)The blocks to the east of First Avenue (to East River)

I analyzed all the properties collected during our production of the The Elliman Report: Manhattan Rentals that actually rented in 2010 and 2011 and compared them. In a rental housing market that is seeing sharp gains in rents in the past year, I thought it would be interesting to see if there was a material difference in direction between the subway “zone” and everywhere else. I was only looking at “face” rents (the rent paid before deducting concessions) because I have more of that data.

And there was a difference.
In fact, the subway zone showed a 1.7% decline in median rent year-over-year, a 3.2% increase to the west and a 2% increase to the east. And the number of rentals in the subway zone increased 9% while the areas to the west and east fell 5.1% and increased 2% respectively over the same period suggesting that increased affordability may be attracting tenants.

Construction was supposed to be completed by 2016, but now it looks like 2018 or longer.

A gigundo transfer station…
[Courtesy: NYT]

…and trucks carrying explosives [Turn your head to left when viewing photo]…
[Courtesy: NYT]

While I was on vacation, I was contacted by Eyewitness News to discuss my numbers on camera but that wasn’t possible – although the online story includes no mention of the source of the results, the video did provide proper credit.

Thoughts
As time moves closer to completion some buyers may benefit from upside given how unpleasant some blocks are right now. The construction will likely provide downward pressure on housing prices in the near term but those along the zone will likely catch-up and perhaps even benefit from the transportation upgrade.

As a general rule, neighborhood property values tend to be higher in the west and lower in the east. It’s also possible that the price midpoint may shift further to the east than it is now once construction is completed.

Location specifics aside, additional subway access to and from the neighborhood should prove to be a tremendous asset to property owners in that area over the long run.

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Purchase Apps Fall – S&P Downgrade’s Impact on Housing Market

As I wait to be battered by the impending visit by (Hurricane) Irene and returning from a mini-vacation, but I was struck by the latest results of the latest Mortgage Banker Association seasonally adjusted rate index:

The seasonally adjusted gauge of loan requests for home purchases tumbled 5.7 percent to its lowest level since December 1996, the MBA said. Refinance demand also sagged as interest rates rose, with the refinance index slipping 1.7 percent.

Mortgage rates are at the all-time low, yet mortgage applications are down. Why? Part of the decline is likely because consumers have become jaded with low rates since they have been so low for so long. These are seasonally adjusted numbers so the decline is not due to the typical August slow down.

I feel strongly that the decline in mortgage purchase applications is largely due to the S&P US downgrade of several weeks ago which roiled (my new favorite word) financial markets across the planet. Consumers don’t like the unknown and they are waiting for a sign of better times. It doesn’t mean people aren’t buying homes. What it means is that fewer people are buying homes. If this becomes sustained or rises, lower sales levels will lead to additional price declines.

I think I’ll focus on the weather right now.

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<b>Real Estate</b> Owned and Foreclosure Problems Impact School Children

Total Articles: 11588
Total Downloads: 5368756 By : John Cutts   
Submitted 2011-03-11 20:08:30 The Baltimore Neighborhoods Indicator Alliance has recently released a study showing that an increasing number of children are affected by real estate owned and foreclosure numbers in Baltimore, Maryland. The Alliance's study covered the period 2008-2009.

According to the study, around 2,400 school children studying in public schools are currently residing in distressed homes in Baltimore or in houses under some stage of foreclosure. The figure represents a 20% rise when compared with statistics gathered five years ago. What is even more significant than the rise is the fact that, according to the report, almost half of the children actually live in rental properties.

Prior to the real estate crisis, the number of rental distressed properties in Maryland that accounted for total foreclosure numbers were fewer than 30%. The data presented by the Alliance showed that in the Patterson High and Brehms Lane Elementary schools, over 50 students are living in houses under foreclosure. This means that around 7% of Brehms' students are affected by foreclosure, while in Patterson; the figure is over 3.5%.

The study highlighted the extent of the impact of real estate owned and foreclosure problems on the city. Analysts have also stated that students who are living in a property under foreclosure will be at higher risk of not finishing school since they could be forced to live in another place and switch schools or end up not going to school altogether. They stated that problems at home often affect students' academic performance, with some of them facing the possibility of dropping out and discontinuing their education.

Analysts have also highlighted the increasing number of rental distressed properties for sale in the city, stating that some landlords are unable to collect rent due to high unemployment levels, while others have probably taken out loans during stronger economic times and were later caught by the real estate crisis.

Housing industry observers have stated that the number of foreclosures and real estate owned properties in Baltimore will likely continue to increase in 2011. The study by the Alliance also showed that, at this time, rental housing is taking as much of the worst of the crisis as residential homes.

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