Are sellers finally re-gaining their leverage?
You may have noticed how we have pinged you, our readers, at different times to participate in our ground-breaking survey about your level of confidence in the economy, your own financial situation and the housing market. We have compiled the results, crunched the numbers, mixed in our special sauce and … voila! We are proud to introduce NYC’s first Real Estate Sentiment Index.
What is it, you ask? And what good is it? Great questions. It is the first of its kind leading indicator for the NYC housing market.
To provide some context, an economic indicator (or business indicator) is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. Economic indicators can be classified into three categories according to their usual timing in relation to the business cycle: leading indicators (ex. the stock market, consumer confidence, etc.), lagging indicators (ex. unemployment, consumer price index, etc.), and coincident indicators (ex. production, personal income, etc.).
Until very recently, all that real estate aficionados had at their fingertips were lagging indicators of what’s to come: closed sales (2-5 months lagging), Case-Shiller numbers (3-6 months lagging) and other like data that looked in the rear view mirror to report what already happened. Recently, sites like UrbanDigs have launched real-time market indicators (read: coincident) to include inventory movement and signed contracts, a huge leap towards adding efficiency and transparency to an otherwise inefficient market. However no leading indicators have existed to date to give a sense of what’s to come, other than anecdotal data from brokers of the media on what buyers and sellers are thinking.
This is where we come in! Using the Conference Board methodology for creating indices, we have crunched your responses into a user-friendly, quarterly index that tracks the ways buyers and sellers feel about the market BEFORE purchase or sale decisions get made. Call it a sentiment or a confidence index, the results are meant to place a behavioral overlay on top of the lagging and coincident data we already have and get a glimpse into what the near future might bring. Any number over 50 represents positive sentiment or an expectation of improving conditions; conversely, a number under 50 represents a negative sentiment or an expectation of worsening conditions.
We have sliced and diced the numbers in several tranches, all of which combine to create the overall Confidence Index, the one number that combines buyer and seller sentiment about today and the future. The sub-components of the Sentiment Index are:
o The Current Index – how buyers and sellers feel about the current state of the market
o The Future Index – how both camps feel about the next 12 months
o The Buyer Index – the combined current and future state of the market from buyers’ perspectives
o The Seller Index – the combined current and future state of the market from buyers’ perspectives
With no further ado, here are the results of The Apple, Peeled NYC Real Estate Sentiment Index (APSI) – no, it doesn’t make for an easy acronym. Also, keep in mind that we only have two data points as of now: last quarter and this quarter, so the analysis is just beginning.
The Overall Index (the APSI): 72 (a 2.9% increase from 70 last quarter). A number of 72 indicates the expectation of healthy market improvement and confidence. For this quarter, it was primarily driven by sellers’ rosier outlook across all categories. The index was generally dragged down by buyers’ pessimistic expectations of decreasing housing prices.
o The Current Index: 77 (a 1.9% increase from 75 last quarter). This number indicates a sense from both buyers and sellers that both the economic situation and their personal financial situation are improved versus a year ago.
o The Future Index: 68 (3.7% increase from 66 last quarter). While lower than the current index, it still represents a positive future outlook and has seen a very healthy increase from only a quarter ago.
o The Buyer Index: 62 (2.9% increase from 61 last quarter), the improvement of which driven by a whopping 8% increase in buyers’ housing price outlook, versus the small 2.2% increase in seller expectations. This could indicate that buyers are moving closer to sellers’ perspectives, and not the other way around, a potential sign (though too early to tell) that sellers are regaining their leverage.
o The seller index: 81 (2.9% increase from 79 last quarter), driven primarily by an improvement in sellers’ future economic outlook
Overall, we have found it interesting to note the dramatic 19-point difference between the sentiment of buyers versus that of sellers. This may be due to sellers (i.e. owners) having an overall greater level wealth and assets versus the buyer population (i.e. renters). After all, the demographics of owners versus renters in NYC can be quite divergent. Alternatively, this may be the psychological effect of wanting to believe that one’s existing asset can sell for more in the future and the wealth effect that comes along with ownership. This contrasts with your more typical buyer position that the economy is not yet on stable footing or that housing prices have further to fall.
Lastly, we take some solace in the observation that our current index level comes mighty close to mirroring Michigan’s latest Consumer Sentiment index of 77.5, and not so far from the latest Conference Board Consumer Confidence reading of 70.4, both at three year highs.
On a quarterly basis, we will be tracking and reporting this data to provide insight into where the markets may be headed. Going forward, you can expect much more commentary on the data, itself, with corresponding graphs and charts, to replace the lengthier introduction of this index for this quarter.
Thank you for reading this to the end, and help us celebrate this first of its kind market indicator through your comments!