The S&P/Case-Shiller Home Price Indexes measure the residential housing market, tracking changes in the value of the residential real estate market in 20 metropolitan regions across the United States. The most recent data covers home sales through February 2009.
In Portland, prices are down 14 percent from last year. Portland home values are down 19 percent from their peak in July 2007.
Several states are considering a real estate transfer tax to help boost state and local budgets. During the booming real estate market, such taxes were considered to be relatively low-cost: When a market is hot, everyone can get warm. Now that housing is cooling down, the transfer tax throws a wet blanket on shivering sellers.
Earlier this year, Toronto imposed a land transfer tax on the sale of real estate within its municipal boundaries. A recent study (PDF) published by the C.D. Howe Institute finds that the transfer tax caused a 16 percent decline in the number of single-family homes sold and a 1.5 percent reduction in house values. Unsurprisingly, the decline in house values is approximately equal to the amount of the tax.
Portland housing prices dropped another 1.3 percent in September, marking the fourth straight month of declining home prices. Nationwide, the Case-Shiller composite index continued 27 months of declines. While Portland’s market has not seen the same declines as the composite, the graph to the right suggests that the Portland market lags the the composite by about a year. If this trend continues, Portland may see further drops in home prices over the next year or so.
A recent LNG terminal building boom has, in turn, produced a natural gas pipeline building boom. Terminals bring in shipments of liquefied natural gas (LNG). Through a regasification process, the LNG is changed back into gaseous natural gas. Pipelines transmit the natural gas (in gas, not liquid, form) from terminals to end users and to other pipelines.
In some places, property owners and other stakeholders have expressed concern that a proposed pipeline would reduce the values of nearby properties. Pipeline operators note that natural gas pipelines typically do not change the general use of the land. Certain building structures and landscaping, however, cannot be built on the pipeline right of way. Some argue that a pipeline introduces a safety or environment risk, and that such risks reduce property values. On the other hand, a pipeline can provide a positive amenity, such as a greenbelt or buffer that may increase property values.
Eric Fruits recently completed an econometric study of the relationship between residential property values and proximity to a natural gas pipeline. The analysis indicates that neither the announcement of a proposed pipeline nor the completion of the pipeline had any measurable effect on property values.
Politicians and the planners they hire argue that streetcars and other rail projects provide a magical opportunity to change the zoning and uses of languishing urban areas.
Eric Fruits writes in Oregon Business that there is nothing magical about streetcars. Politicians always have the opportunity to wave their zoning wands to accommodate developers demands. Streetcars are to development as french fries are to a burger platter–a nice, but not necessary, complement.
The Wall Street Journal reports on a recent study that concludes that when a company’s CEO buys a “trophy” home, investors can profit by selling or shorting the company’s stock.
The article reports that investors who short shares of after the “trophy” home purchase would reap average returns of 29% after one year, and 46% after two years.
When discussing this paper last week in class, one student raised his hand and told him that his boss gave him virtually the same advice. The boss said that if the student ever caught the boss buying a private jet, then the student should find another job because the company would not be around much longer.
Sometimes students are the best teachers.
Eric Fruits provided expert testimony to Oregon state court regarding Plaintiff’s diminished earning capacity resulting from alleged medical malpractice. Dr. Fruits business valuation analysis included a statistical analysis of the relationship between Plaintiff’s property appraisal business income and an real estate market activity. Lam v. Kaiser, et al.
I was interviewed for today’s Wall Street Journal regarding Portland, Oregon’s downtown real estate market. I noted that Portland’s downtown is more vibrant than a lot of other cities, but that demographics combined with Portland’s business climate and long-ranging infrastructure projects put the downtown market on “the razor’s edge.”
Coinciding with the WSJ article, the Oregonian announced that a major downtown retailer is leaving for the suburbs. Then, I received an email announcing that the Cascade Policy Institute will move out of downtown.
Residential real estate agents are paid a commission of 5-6 percent of a property’s selling price, paid by the seller to his or her agent. The commission is then split roughly 50-50 between the seller’s agent and the buyer’s agent.
Because residential real estate agent compensation is closely correlated with housing prices, unexpected or rapid increases in housing prices can confer an income windfall on agents. During a housing boom, agents reap a windfall as property prices (and their commissions) rapidly increase. In addition, because properties turn over so quickly on their own, agents spend much less time and effort promoting their client’s properties.
Income windfalls don’t pass unnoticed. And with low barriers to entry, new agents quickly entered the market. The figure below on the left shows that nearly half of the increase in real estate payrolls was because of new agents entering the occupation. Contrast real estate agents with all sales occupations (below on the right). In the broader occupation, employment increases accounted for a little more than a quarter of payroll increases.
The simple economics story: Windfalls cannot persist in face of competition.
If you’ve ever been in the market for a home, chances are you’ve used the Multiple Listing Service. The MLS is a bulletin board maintained by the National Association of Realtors or its local operators governed by rules promulgated by the NAR. Official policy of the NAR is that that MLSs must make all types of listings available to the websites of participating brokers. However, a revised policy past last week at the NAR’s annual convention allows individual brokers or their firms to exclude certain listings in the MLS from their own websites.
Recently, the Federal Trade Commission has been scrutinizing MLSs that have excluded certain kinds of listings on brokers’ sites and national sites, such as Realtor.com. The FTC’s scrutiny has generated awareness of Realtor’s exclusionary practices, but will have little economic impact on the prices paid for housing or the commissions paid to brokers.
The revised policy was a response to the FTC’s scrutiny. Under the revised policy, brokers must use “objective criteria” to exclude a listing. Listings by “discount” brokers can be excluded under the “objective criteria” rule, if the brokers provide fewer or limited services in exchange for lower fees.
Discount brokers and consumer advocates argue that any exclusion is anticompetitive and harms consumer choice. Exclusion is anticompetitive because small brokers and discount brokers cannot display their listings. Consumer choice is harmed because some sellers’ properties wouldn’t be displayed and buyers can’t see all listed properties.
Full service brokers counter that creating an attractive and useful website can be a costly and time-consuming exercise. Forcing full service brokers to display the listing of those who cannot or will not develop their own websites provides a “free ride” to discount brokers that is subsidized by full service brokers.
For home sellers, the revised policy has more “sound bite” impact than actual impact. Excluding a listing would entail identifying the listing broker and determining the broker’s commission and service levels. As such, it is more difficult and costly to exclude a specific listing than to simply serve all available listings. Thus, it is unlikely that widespread site-by-site exclusion would actually occur. Ultimately, the revised policy will have little economic impact on the display of listings.
That said, buyers should ensure that their agents investigate all available sources of listings. With the growth of listings on Craigslist, eBay, and for-sale-by-owner (FSBO) sites, buyers may miss out on buying their optimal property if such sites are ignored.
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