Inventory analysis from Miller - you dummies need to read this

nice post, thanks. inventory/sales volume remains the key to price action. miller has said this many times. and our inventory numbers are far higher than the national average. prices are still falling nationwide and nationwide existing homes are at about 9 months of inventory. so for those who keep on saying "we have no idea where prices will be so might as well buy now", look again. the formula is simple and all the facts are in plain sight.

I thought this one summed things up nicely as well (although not strictly an inventory analysis, a state of Manhattan economy/real estate market analysis):

http://matrix.millersamuel.com/?p=4458

Our current inventory includes a larger percentage of delusional sellers than at any other time in recent history. The most telling aspect of this graph is the fact that we are only marginally higher than 2006 levels. And look at how these lines look to be flattening out at the present day. Am I missing something?

Its actually a poorly drawn graph, but the point is, as urbandigs also says, there is seasonilty, people. Inventory always rises and falls in the same way every year at different times of the year. When people look at month to month (or even week to week) trends and say "We have hit bottom!" they are being delusional.

So year over year, you can say May is way up, and up by even more versus may 2007, etc.

and

http://curbed.com/archives/2006/07/19/three_cents_worth_manhattan_wellseasoned.php

But the June inventory numbers seem to be right on par with 2006. Wouldn't you expect them to horribly worse? This is hugely surprising to me.

I am just curious about any reaction to UWS's comments regarding the June inventory. I looked at the inventory chart provided in this thread, and he seemed to be right. Am I missing something here?

Money became very cheap in 2003. initially that affected existing condo and coop sales. i suspect the run up has something to do with the early conversion, developments. preconstruction contracts usually didn't show up in inventory back then, often until closing. large numbers of apartments began closing in that time period. why it skews toward June i'm not certain, but it would be a good question for Miller.

"But the June inventory numbers seem to be right on par with 2006. Wouldn't you expect them to horribly worse? This is hugely surprising to me."

But how were the sales figures in 2006? Much faster pace.

OK, I'm the dummy. What's the take away? I looked at the graphs, tell me in plain (dummy style) what this means. Feel free to call me names as long as you include a fair explanation of what i'm seeing in this graph and how it should effect my decision making.

falco, the run up started in 2004, although that's not reflected in the inventory on the charts. prices started steeply climbing, not enough product. conversions initially filled that gap, and small buildings started sprouting like up here and there, inventory increased (although some of that increase slope is artificial due to the way new development units/conversions were recorded) through 2006 when supply ran out again. Another huge increase in prices and another increase in inventory when new developments started to roll on and demand was still strong.

now we have the same supply, but not the same demand, nor the factors that would create a similar demand in the near term. the new developments are continuing to come on, but we can't begin to absorb what's already there. and you sir are no dummy. jason's right, the key to this picture is sales and momentum.

i apologize, this will be long, but for some reason the miller samuel post i gave just pulls up the site not the article i wanted to post. it's on page two of Matrix. the employment chart is missing here.

Guest Appraiser Columnist:
Jim MacCrate, MAI, CRE, ASA
MacCrate Associates
Appraisal & Valuation Issues Blog

Jim has worn many hats including a Director at PricewaterhouseCoopers in New York City and Chief Appraiser at European American Bank. He is a prolific writer on valuation issues and teaches a number of the real estate appraisal classes through the Appraisal Institute and New York University. I have had the pleasure of taking a number of courses taught by Jim.
…Jonathan Miller

Many so called real estate experts have been predicting the bottom to the real estate market will occur in late 2009 or early 2010. No one can predict with any degree of accuracy the future, much less the bottom of the real estate market in any metropolitan area. It is important for real estate professionals to remember that real estate markets vary by location. Some markets will do well while others are doing poorly. For example, the Detroit real estate market was depressed long before the recession was declared official by the federal government and the beginning of the decline in the New York real estate market. The real estate market in the New York metropolitan area has been driven low interest rates and by the growth of the financial, insurance, and real estate sectors of the economy which began in earnest in first quarter of 2004 as indicated in the following chart:

Total employment is now falling with the FIRE and construction sectors of economy taking a big hit in employment beginning with the collapse of Lehman Brothers. Real estate salespeople, brokers, and appraisers must stop listening to the noise from Washington, D.C., politicians, and others who have mislead us in the past. What we are witnessing, the economists and politicians have witnessed this before during the late 1920’s, the late 1950’s and early 1970’s. In order to properly value real estate, one must cut out all the outside noise and analyze carefully what the local real estate market data is telling you.

On a Macro Basis the Indicators are all Negative

The recent indicators reported by the government suggest that the economy is improving because the rate of unemployment is declining, consumer confidence is improving, the rate of decline in manufacturing is subsiding, etc. All of the above and other statistics still suggests that economy is not improving and real estate values will not begin to rebound until the economy turns over and employment begins to increase with an increasing payroll income and wealth. That is not bound to happen for awhile.

In the New York Metropolitan area, the leading indicators for increasing real property values are all declining, including the following:

Population is stabilized or falling
Number of households has stabilized or is declining
Total employment is declining
Total payroll/income is declining
Consumer confidence is negative
Businesses are still contracting including manufacturing, retail and the financial services sectors of the economy.
The results of the 2010 Census should be interesting nationwide. Listen to what the leading indicators are telling you about the macro market.

Now, on a Micro Basis

Real estate is fixed and immobile. The value of real property is driven by local indicators which impact the demand for real estate in a specific location. All the macro indicators referred to above are also negative in the New York Metropolitan area. In order to determine if the real estate market is rebounding versus stabilizing at a much lower level of activity and prices, the following factors should be analyzed carefully in addition to the factors that generate demand:

Sale price trends
Increase/decrease in the number of sales
Increase/decrease in the number of listings for sale
Increase/decrease in the number of days on market
Increase/decrease in sales concessions
Response to for sale or for lease advertisements
Increase/decrease in the number of foreclosures
Increase/decrease in the number of loan defaults.
These trends are extremely important to watch, but the trends will not reverse until consumer confidence is positive and total payroll/income, employment and the number of households is increasing. It must be remembered that real estate prices remained depressed for several years after the recessions of the 1970’s and 1980’s. Why should this time be any different, and, in fact, it is already worse in many markets.

What sort of direct relevance does this article have to do with the inventory issue? Not that I believe in anything anybody is saying about the economy, but why shoul I give more credibility to him?

excellent article, ar. McCrate is right on.

AR,
Big help, thanks!
So, the trend is down, trends presist, don't go against the trend. Ignore seasonal artifact...Correct?

falco, the trend is down. but more importantly, find your comfort level without worrying about the consequences of taking your time. people haven't had this luxury in a long time. don't feel any pressure because the market feels some happiness here and there, it's to be expected.

Finding a comfort level?
Interesting point. The more you look the more you become aquatinted with the inventory choices in a price catagory. I'm comfortable with what I want to spend. No, I take that back. I've become comfortable with what I think I'm going to have to spend in order to procure a domicile that meets some minimum standard that I have set for myself. While I was busy toiling away at the salt mines the costs associated with RE greatly out paced my abilty to earn. I'm not sure what I was doing when 1 million became pocket change but, when I emerged from the mines that's what seemed to have happened. Now it seems that price is in the reset process. Don't want to pull the trigger too fast and miss the big prize, don't want to wait too long and miss the prize. To this you can add the fatique of the search. When you spend enough time on this site you see posters for considerable perionds of time and then they vanish. you can't help thinking that...Ahha! They completed the process they are free! I've spent enough time on these sites and done enough research to be a miny RE afficinado which is something I would be compelled to do given the enormity of this one single purchase. I'm ready!!! Stick a fork in me. I'm mature enough to realize this and, would not let this effect my desision making but,...........................WHEN ARE GOING TO GET THERE! (said in the tone of a kid in the back seat of a car on vacation)

heresy...you could always take the summer off, like p09 and val. come back fresh as a daisy for fall. but i'd hope you continued to stop by SE to share some random thoughts just for fun (some threads are fun, after all, some not so much).

and isn't it interesting how perceptions of comfort levels can change?

AR,
You know me already, I'm not going anywhere. I'm watching the market like one of those crocs you see on National Geographic. Quietly submerged at the edge of a watering hole on the Serengetti, patiently waiting for that unsuspecting seller to gain just that right level thirst that compelles them to the edge of the water.
If for some reason I disappear from this site without notice...every time you see croc skin pocketbook...think of me.

Falco, very similar situation here. They can stick a fork on me, too...

I own several pairs of crocodile skin boots & shoes. Always looking to pick up more.

I'll note that over the last 30 years I've noticed that almost always the people who got "taken" the most and made terrible RE investments thought they got incredibly good deals.