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Three Cents Worth: Appreciate While You Still Can

[This week, chartman Jonathan Miller introduces "Manhattan median sales price four ways," which was, and this is totally a coincidence, our favorite dish at Hunan Palace growing up. At the risk of getting tangled in the lines, we'll let JM do most of the explaining. But we will offer this fortune cookie nugget gleaned from our reading of Miller's graph: He who does not appreciate appreciation may lose his shirt. Click on the image to expand.]

Over the past several months there have been a lot of arguments made about whether the market is still rising and by how much. One of the arguments, which has simply astounded me, says that housing prices increased by more than X% last year so that means that housing is still strong. I have heard and read quotes like this in many markets across the country. However, that point is irrelevant as a description of the current state of the market. It got me thinking about the different ways people look at rising prices and how the "A-word" (Appreciation) should be presented.

I plotted the change in Manhattan median sales price four different ways, which provides some clarity as well as more confusion (which is the point). The results vary significantly using the same basic data. I apologize in advance to those who like more simple charts but I couldn't help myself this week. In fact, I left two other measurements off the chart which will be used in a future post -- seasonal adjustments and cumulative adjustments-- because I didn't want to clutter the chart more than it already is.

After the jump, a brief rundown of the mysterious four ways.

Change over prior quarter (thin green)
This notes the short term change in the market, but does not consider seasonal changes. I use it to look back at the prior quarter in my quarterly market reports but don't rest all judgement on this indicator.

1-year moving average using prior quarter data (thick green)
This uses the data above and paints a much more neutral or conservative picture of the market than is actually occurring. I don't consider this useful at all.

Change over prior year quarter (thin orange)
I like this because it compares "like seasons" which helps you gauge how much the current period relates to similar periods, like the spring market in the second quarter as compared to the prior year. However, it does not tell you about what the market is doing at the current moment. For example, if a market increased 100% in one year, but that occurred two quarters ago, this stat will paint a glowing picture about a flat market. I use this in my quarterly reports in combination with the change over prior quarter stats (above).

1-year moving average using prior year quarter data (thick orange)
I love this indicator from the perspective that I think it represents the visual image most people have of the real estate market over the past decade. Still its a lagging indicator because it averages the last 4 quarter's results. Its interesting to note that the appreciation rate over the past year (2005) was less than the appreciation rates we saw during the dotcom boom (2000).
· Manhattan Median Sales Price Appreciation 4 Ways [MillerSamuel]