Use Tiered Prices to Understand Housing Market – The Boston Case Study

** Intended for New Graduates/Analysts **

(Click on the image to enlarge)

As indicated in prior chapters, not all price segments of the same housing market necessarily move in tandem. In a well-distributed and liquid market, the price escalation generally starts at the low price tier and graduates up as the underlying market fundamentals strengthen. Therefore, in the world of research and analytics, Case-Shiller price tiered indices are highly sought after.

The above table demonstrates that while the Low tier (under $395,499) registered an excellent overall growth (between January 2017 and July 2019) of 17.90%, the two upper tiers returned much lower growth rates of 13.35% and 10.59%, respectively, and stayed significantly above the aggregate growth rate of 12.55%. Similarly, while the Middle tier did not perform as good as the Low tier, it did return a better growth rate

than the High tier, remaining above the aggregate growth rate as well. Thus, the segment-wise growth rates prove that one-size-fits-all growth rate does significant injustice to both ends of the price curve.

So what are the primary uses of the Case-Shiller price tier indices? Here are some:

1. Time-adjust Prior Year Tax Roll Values – When analysts and appeals consultants do not have the time or resources to develop new market values to challenge (validate) the current Tax Roll (market) values, the Case-Shiller tiered growth factors could be an ideal independent alternative. Given its independence, it would be a much easier sell than some internally developed heuristic rates. Of course, the counter case could be compelling too: Since the Case-Shiller markets are defined at the MSA level, the County Assessor could make  a case that such time factors are too broad-based to be meaningful at the County (small subset) level.

2.   Challenge Internal AVM Time Adjustments – AVM modelers can use the tiered time factors to challenge the internal AVM time factors. The Case-Shiller factors should be in line with the large subsets; for instance, LA County time factors should be very similar to those of Case-Shiller’s. Therefore, the internal QC supervisors, both private and public, should additionally use these independent factors to test the metallurgy of the internal models. Needless to say, those who develop models at the MSA level would be the big beneficiaries of the Case-Shiller tiered time factors.     

3.   To Periodically Update Mortgage Portfolios – Mortgage portfolio analysts can use these factors to periodically update the portfolio values, without having to develop challenger AVMs. These factors are more meaningful when the mortgage portfolios are rolled up at the MSA or regional level. Conversely, one must be careful in (over) using these factors at the small subset level, unless prior studies show that those subset factors tend to align well with the MSA’s.

4.   Update a Not-so-recent Comparable Sales Pool – When an analyst or a loan officer must work out of a not-so-recent comparable sales pool, these Case-Shiller factors could be used to time-adjust at least the older sales. Of course, it would be a quick fix, but not a real valuation solution per se. This method is especially helpful in some bigger environments (e.g., AMCs) where the time-adjusted comps are often used in batch modes, in place of the 3^rd party AVM values.   

5.  Enhance Shelf-life of AVM Values (sell side) – AVM houses sell their values to wide range of end-users like banks, mortgage companies, assessment jurisdictions, SFR rentals, REITs, large tax appeal lawyers and consultants, hedge funds, etc. Many such AVM houses outsource the development of the modeling and value generation to 3^rd party research outfits, professors, etc. Case-Shiller tier indices will help them to apply time adjustments and thus enhance the shelf-life of those AVM values, easily up to a year. 

6.   Enhance Life Expectancy of AVM Values (buy side) – Even the 3^rd party non-custom AVM values could be quite expensive, e.g., $5 to $10 per parcel. Given that, many end-users can use the Case-Shiller tier indices to enhance the usefulness of the AVM values for several quarters, thus saving a ton of money. In fact, those internally time-adjusted AVM values, oftentimes, are very similar to the new values that the originating AVM houses sell. Anecdotally, some tax appeal consultants use smart college students to have their old AVM values adjusted up to the new target date, meaning the new Tax Roll (valuation/status) date. 

  

7. Develop Analysis for Investors – When researchers are required to develop inter-market (across markets) comparisons for investors, the Case-Shiller Price Tiered indices are more useful than the un-tiered composites as these indices allow true apples-to-apples analysis. Therefore, in order to compare two competing markets, one should compare by the tiers rather than the overall markets, allowing investors to understand the current valuations of each market segment; for instance, when the Low tier makes a significant upward run, investors might shy away from that market segment (and perhaps vice versa). So, the one-size-fits-all market analysis does not work well for the investors.

8.  Flight to Quality in Financial Markets – The three tiered index helps smart investors and traders to swap investments back and forth between the housing market and the equity market as the latter comprises primarily of three price segments as well, i.e., small cap, mid cap and large cap segments. While rotating investments, the smart investors and traders would naturally prefer studying the competing markets by price tiers, to avoid having to rotate from one over-valued market segment to another similarly over-valued market segment (thus defeating the basic purpose).      

9.  Understand True Volatility – When the volatility is important to the organization, developing the tiered price volatility is critical as it does not mask the two ends of the price curve. The above volatility table shows that the Low tier has been lot more volatile than the upper price tiers. The reason is quite simple: the high growth (translating to expanded price range) segment comes with higher volatility while the low growth (resulting in more compact price range) paves the way for lower volatility. Case in point: If the aggregate rate of 3.71% is used across a portfolio, the volatility of the low price tier of the portfolio would be understated while the high price tier would be overstated, thus distorting both price segments. Of course, the middle tier would be in line with the aggregate rate.

When the new values are not immediately available, the Case-Shiller tiered price indices come in very handy while updating the older portfolios, rotating investments across financial markets, and understanding the true underlying volatility of the housing market.   

P.S. These are Case-Shiller’s seasonally-adjusted indices so the month-over-month comparison is fine. While using Case-Shiller’s seasonally unadjusted indices, one should compare July- 019 with July 2018 and July 2017, etc. 

-Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book

Condo Market Trend – Boston, Chicago, LA, NYC & San Francisco

(Click on the image to enlarge)

Lisa, a new college graduate with co-concentrations in Economics and Math, is interviewing for a Research Analyst position.

Question # 1

Interviewer: Take a look at the above graph and tell me if you see any inconsistency in the construction.

Lisa: The Chicago data range is totally out of sync with the rest so it should be graphed as Y2. In other words, instead of just X and Y, I would graph it as X, Y1 and Y2, where Y2 would represent the Chicago value range.

Question # 2

Interviewer: In that case, how would you redefine the Y ranges? Will that rearrangement help the other markets?

Lisa: The Y1 would be compressed down to a range between 200 and 325 with an increment of 25, while the new Y2 range would be between 130 and 160, with an increment of 10. And yes, the rearrangement would help project the other markets better, with a more meaningful Y1 range.

Question # 3

Interviewer: Is there any other room for improvement between the graph and the data table? 

Lisa: Yes. The data table is redundant. The data with the legends can be placed right under the months in the graph, making the table irrelevant. 

Question # 4

Interviewer: What about the growth rates? How would you show them?

Lisa: Anyone can eyeball the overall growth rates. The monthly averages are not indicative of anything meaningful here. I would therefore combine both into one more meaningful graph.

Question # 5

Interviewer: Can you make a comparative analysis of two market groups from the data table?

Lisa: The West Coast markets are moving in tandem, while the East Coast markets have forked. Specifically, LA and San Francisco have produced very similar returns, but New York and Boston are surprisingly divergent. Boston has the best return but NYC has been flat.

Question # 6

Interviewer: You just graduated from Columbia so you will know Manhattan RE quite well. Why do you think the Manhattan market has been flat-lining?  

Lisa: Two reasons: (a) the cap on SALT has been impacting the high-end Co-op and Condo markets in Manhattan and (b) as you know, the foreign buying of the US real estate has tumbled in last two years, which has dealt a serious blow to the Manhattan market, especially the high-end condo market.

Question # 7

Interviewer: If foreign buying is impacting Manhattan, it should impact LA as well. But LA has been strong. Can you explain?

Lisa: Unlike Manhattan, the foreign buyers in that market invest more heavily in private homes, rather than condos per se. Manhattan is essentially a coop and condo market. 

Question # 8

Interviewer: How would you characterize the Boston condo market? Why isn't it showing the same pattern as NYC?  

Lisa: Boston is a more natural market. SALT and foreign buyers do not impact Boston that much. It's guided by its own economic fundamentals. That is why, it has responded well to the falling interest rates in recent months.

Question # 9

Interviewer: Based on the above data, would you recommend any of these markets to our clients and, if so, why?

Lisa: Yes, I would definitely recommend Boston. As I said, Boston is a more natural market. Additionally, for the analysts and modelers, natural markets are always better as the universe of predictive modeling performs better for those markets.  

P.S. These are Case-Shiller’s seasonally-adjusted indices so the month-over-month comparison is fine. While using Case-Shiller’s seasonally unadjusted indices, one should compare July 2019 with July 2018 and July 2017, etc. 

-Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book

How to Ace an Interview

Ceteris paribus, meaning other conditions remaining the same:

• Read a book or two on interview strategies.
• Watch a few video clips on dos and don'ts.
• Skim through several trend-setting articles subject.

This chapter by no means attempts to compete with them. Instead, it's strictly complementary. Having sat on both sides of the table, I will share my humble but slightly different take on interviews. However, I will describe my experience by combining both, i.e., how I used to approach interviews as a candidate and later what specific qualities I used to look for in candidates when I interviewed them.

1. Try Match Practice before Interviewing with the Targeted Companies. Just the way teams play several exhibition/warm-up matches before starting a major tournament, it's always healthy to interview with several second-tier companies within the industry before starting with the targeted companies. For instance, even if you target the central investment banks like Goldman Sachs, Morgan Stanley, Credit Suisse, JP Morgan Chase, etc., it's a good idea to start the interview process with several second-tier investment banks, followed by the actual targets. It will immensely enhance your confidence as you begin interviewing with your targeted companies. If the question comes up during the interview, make a generic statement like "I am focusing on investment banks only" or "Yes, I am interviewing with some of your competitors as well," etc., without making any specific name reference or categorization (1st-tier, 2nd-tier, etc.) whatsoever. 

2. Right at the outset, Ask the Interviewers if you could use your Notepad (or if you could Borrow one). FYI, the vast majority of interview questions have multiple parts, and it's generally by design. Simply put, they try to test that you can retain and answer them in the right sequence. By having a notepad in front of you, you can jot down the different parts of the questions and the sequence they are being asked, which will help you concentrate on the answers, without having to remember the various factors and juggle with the arrangements (which carry no extra points). Even if you disagree with any sequence, do not take the liberty to alter them. A candidate who does not write the questions down often expresses, "Let me start with the last part first" and rarely address the rest as they often fail to remember the last parts. Again, as a candidate, you have no right to alter the sequence. The interviewers are in charge, and you follow their instructions. There is no room for any arrogance.

3. Be Polite while answering the Opening Question, usually about yourself. Generally, the first question is about yourself (e.g., introduce yourself, describe your achievements, etc.). The interviewers typically throw the ball into your court, thus allowing you to "set the tone." Even if you had aced the SAT and then maintained straight A's in college, do not harp on that string. Instead, politely answer that you managed to "do well" in high school and college, moving on to your college major's specifics, leading to the thesis of your internship. Since your achievements are already bulleted in your resume, there is no need to double down on them. Instead, set a polite tone which will immensely impress upon them, so much so that it will have a serene carry-forward impact throughout the interview. Smart people try to minimize the use of the braggadocios' pronoun "I" and consider its overuse morally hazardous. 

4. Be equally Polite while addressing your "Strengths and Weaknesses". This tends to be a common question for new graduates. Instead of parroting a list of strengths from the Internet, politely specify a handful of diverse and meaningful (mostly related to this job) attributes saying, "These are some of the strengths that have been pointed out to me over the years" or another polite expression along this line. Do not makeup weaknesses to create an answer. Instead, politely and confidently say, "Nothing has ever been pointed out to me." If you make one up, the conversation will take a negative turn, often with a snowball effect. Remember, "Goods well bought are already half sold." The fact that you are being interviewed (and I'm talking about a real management interview, not just an HR interview) bumps your point of origin up to 50 -- it's not 0 anymore. So, continue to ride on the rising positive momentum, without the need for any negative emotions, which may only act to your detriment.

5. Show a very Positive Attitude while Describing your Knowledge and Impression of the Company. This is another general question for the new graduates. As a candidate, you must have this answer well-prepared and adequately practiced. Instead of spending too much time and effort on the company's headcounts, ultra-modern real estates, and global footprints, emphasize on what attracts you about this company: how the company became the best in class; its world-class training program; its perennial growth prospects; its cutting edge marketing initiatives; its top-of-the-line yet highly diverse workforce; its proven and consistent room for growth, etc., but staying away from the obvious like excellent salary, benefits, physical work environments, etc. Refrain from getting bogged down to balance sheet nitty-gritty, holding back all of your questions till the end or until you are asked to do so. Just focus on addressing their issues as politely, precisely, and thoughtfully as you professionally can.  

6. Avoid any Negative Talk/Opinion about your Current or Prior Employers and Bosses. If you completed an internship or held temp/part-time jobs during the college years, do disclose all of them in your resume. If you are asked to talk about them, try to keep the narrative as positive and perfect as possible. Smart people do not enjoy negative talks or tones. If you do, they may sympathize with you superficially, but rest assured you will be pushed down to the list's bottom. We all know life is not a bed of roses, so smart people do not waste time dwelling in the past; they move on and work towards a brighter tomorrow. At an early age, I learned from Lord Buddha to live in the present, which always helped me stay positive and focused. Positive people are inherently more productive and tend to make great corporate leaders. Their positive energy helps create very positive work environments. No doubt, it's a real blessing to work with a perennially upbeat boss.

7. While answering the Main Questions, try to Walk Away from the Herd. Remember, for two or three openings, the shortened list may still comprise twenty to thirty highly qualified candidates. So, while answering the main questions, use your knowledge (depth) and intelligence (ability to get to and stick to the real issue) to narrow the competition. In doing so, whenever you can, try to walk away from the herd, so you stand out -- in addition to conventional thinking, present outside-of-the-box solutions, preferably with the help of some real examples from your internship, work/study programs, etc. Soon, you will be solving enterprise-level challenges, so make an emphatic case in front of them that you are capable of rising way above the occasion and, thus, you rightfully belong there alongside those brilliant minds. 

8. Save the Best for Last. Show off your Mettle with some Awe-inspiring Questions. The primary interview has ended. Now, it's your turn to ask them some questions. Remember, this is the only part of the interview you will control, so it's your time to show off your Mettle. Bang away with questions they have never heard of. Bang away with items that will leave them wanting more. Bang away with things that they will ask one another later. Bang away with questions that will prove you are the super-human they have been waiting for. Anything less will significantly reduce your chances. Whatever answers you get, accept them politely. It's impolite to ask them follow-up questions; instead, move on to the next question. Again, this is not the forum to ask any HR questions. Even if the topic comes up, politely decline it by saying, "If I have any HR questions, I will later contact the HR Department. Thank you anyway." 

9. Rejections must Inspire you to Prepare harder and smarter for Future Interviews. While you should take rejection as a passing show, it must also inspire and impel you to prepare better for future interviews. Steve Jobs used to say, "You can't connect the dots looking forward; you can only connect them looking backward." Every time I was rejected (after having interviewed), I told myself I was not prepared enough to get the job. Then again, I knew quite well the mistakes I made and promised myself I would not repeat them. Of course, one of the best ways to reduce the incidence of classic or run-of-the-mill errors is to allow yourself some meaningful match practice (#1 above). A rejection is not a let-down, rather a reminder of better opportunities ahead, taking advantage of which requires slightly better preparations. You are almost there!

A few years ago, I was (phone) interviewing an overseas candidate for a Senior Analyst position. I was so impressed with the answers that I had to give him a perfect 10. Then it was his turn to ask me some questions. The first question he asked pertained to his work hours. I had no choice but to mark the one off his score. The point is, when you are interviewing for a career job that might lead you to be the future CEO of the company, the last thing you should think about is your work hours. When you are starting in the labor force, you have to be flexible. If you are looking for an 8 to 5 job, you need to redevelop that Mettle.

-Sid Som, MBA, MIM

homequant@gmail.com

Link to the Book

Turning LinkedIn into an Effective B2B Marketing Tool

LinkedIn is the most influential business social today, undoubtedly rising head and shoulder above the competition. Whether one is seeking a new job opportunity or is looking to connect with other industry professionals or business leaders, one needs to have a decent presence on LinkedIn. Given the fast-changing marketing landscape, LinkedIn could be a handy B2B marketing tool as well. So, how does one turn it into a useful marketing tool? Here are the considerations:

1. Choosing Contacts – You must evaluate and select the LinkedIn contacts very carefully (no room for family and friends here), especially zeroing in on the decision-makers. For example, if you are currently offering services to banks and other financial institutions, learn to constrain your research and the resulting search to the decision-making vertical, i.e., VP-SVP-EVP, etc., leaving out the non-decision making universe as they would not be much help in your endeavor.

2. Limited Success at the Beginning – Expect minimal effectiveness at the beginning, say 20-30%. Of course, it could be higher or lower, depending on mutual interest and compatibility. Regardless, try to align with the decision-makers, remembering quality is better than quantity here. In other words, 20% effectiveness from the universe of decision-makers would be far better than 50% effectiveness from random bankers.

3. Content is King – Content is king, so do not waste time on unrelated issues or themes; instead, stick to your area of expertise, business, or the competition. For instance, instead of sharing or re-publishing news or articles from various news agencies, place your pieces and commentaries, so your offering or business stands out. The originality is greatly rewarded. The frequency is also critical in maintaining proper visibility, so try to contribute frequently, preferably daily.

4. Avoid Direct Marketing – Unless specifically requested by your contacts, it's better to avoid direct marketing. It would be harikari to spam contacts with un-solicited literature. It's a severe turn-off to the busy business people. All such marketing must be indirect via meaningful posts and articles, allowing contacts to be self-enticed to reach out to you. When they reach out to you, it's already half-sold. The adage – goods well-bought are already half-sold – applies quite well here.

5. Target Population – Define the target population you would like to achieve within a specified timeframe. A high-water mark is critical. Again, quality is more important than quantity; for instance, 1,000 vertical-level decision-makers (quality) are more valuable than 2,000 random bankers (just quantity), mostly non-decision makers. Set a timeframe, say within six months, to achieve this goal. Spend an hour each night – religiously – reviewing candidate profiles and sending out invites.

6. Increased Marketing – As liquidity increases, you need to intensify your marketing efforts. It's a numbers game: 1 to 2% effectiveness becomes significant when the underlying population is large and impactful. In other words, if you have a contact population of 3,000 decision-makers, a 1% response rate (or 30 leads per day) is quite significant – at least initially. As the population increases, you will get increasingly more requests to join your network, boosting your population faster.

7. Automated Campaign – Considering it's a 100% targeted platform, the use of mechanical or impersonal campaigns must be minimized. For instance, instead of placing a marketing flyer in front of your contacts, write a meaningful introductory piece, followed by a set of links pointing to your flyers. It's good to understand that the business leaders can smell automated campaigns (a.k.a., bots) from far away, so all costs must avoid them. Of course, when the leads are self-enticed (after having read your piece), they are far more result-oriented.   

8. Keep the Base Growing – Just the way you would grow your own business, keep your LinkedIn base growing. The growth pattern must be collinear, meaning they must grow in tandem (as they complement each other). As the base grows, your percentage of success will grow at a much faster rate as the mutual interest grows. Similarly, you will receive a much higher volume of requests. Remember, it's your business, so do not unnecessarily relax your acceptance rules. On the contrary, now that your base is liquid, try to tighten it a bit. For example, roll up your original VP-SVP-EVP vertical to SVP-EVP-FVP now.

9. Some Exceptions Worth Considering – Lastly, here is an optional consideration – an exception (to the stringent acceptance rule) that many follow. For example, now and then, when I receive requests from certain rule-breaking yet deserving candidates like the mothers trying to return to work, veterans entering the labor force, new STEM graduates looking for jobs, etc., I wholeheartedly welcome them into the network.

At any rate, LinkedIn has grown into a business social powerhouse, so it must be used as a marketing platform to complement other marketing efforts. B2B professionals should use it as one of the primary marketing tools, but building a good deck is the key to such success.

-Sid Som, MBA, MIM
homequant@gmail.com

Link to the Book

How to Pre-launch a B2B Start-up

"I have been toying with a B2B concept for a while. I think it has great potential. How do I take it forward?"

As an entrepreneur, I often get this question from budding entrepreneurs.

First off, a B2B Service is one of the most challenging segments to penetrate. Consider these steps to pre-launch a B2B start-up:

1. Conducting a Pilot – If you have a good job, do not jump ship. Instead, take some time off and try out a pilot "live." If your concept/invention pertains to the same industry you are currently employed, have an attorney review your employment contract for "conflict of interest" and "no compete" clauses. Since start-ups do not qualify for SBA loans, hire a qualified consultant to review your financials (both business and household), type of business formation (S, LLC, C, etc.), liability insurance, etc.  

2. Implementing Marketing Plan – Make sure you implement your marketing plan (from the actual business plan) to promote the pilot (as if it were the real launch!). It's better to have an average concept backed by a super-duper marketing plan (recipe for success) than a super-duper concept supported by an average marketing plan. Therefore, a significant amount of time and effort must be paid to developing the marketing plan. Ideally, it should also be reviewed by a marketing expert or a social media consultant, thus ensuring that the bases are amply covered.

3. In the Case of Local Service – If it is a local service, some meaning networking is critically coupled with several live campaigns (with real money) to get a good reaction for the future clients' actual outcome. When campaigns are launched or conducted without real money, they could lack the kind of intensity that is generally needed to get the right feel for the market. For instance, if the product or service relates to the real estate valuation market, it is critical to network with the local appraisers, assessors, realtors, social media consultants, etc.

4. In Case of National Service – If it is a national service, it's essential to mobilize the marketing Rolodex (LinkedIn, FB, Instagram, etc.), with an announcement that you are open for business. Before promoting national service, it's essential to understand the industry trend, especially any emerging trend. It's good to visit one or two seminars or conferences where national vendors display their products at the exhibit hall. While attending such conferences could be expensive and time-consuming, the resulting rewards generally far exceed the associated costs.  

5. Campaigning on Twitter – Campaigning on Twitter is more specialized than other social vehicles, so it's crucial to simultaneously implement the marketing campaigns. The campaigns need to fine-tune, and rerun (or re-implemented) based on Twitter Analytic, which could often be an iterative process to optimize the marketing plan, and short-cut could lead to an inefficient strategy. It might be a good idea to even consult with a well-known Twitter expert to iron out any hidden inconsistencies. The point is, the marketing plan must virtually back the product or service being promoted.

6. Advice from the like-minded – Seek advice from the like-minded B2B entrepreneurs – both successful and struggling – to avoid reinventing the wheel. It will save you many trips to the ER, so to say. Locally, it complements networking and, nationally, it saves a ton by not having to attend some vital industry seminars. As long as the product or service is not directly complete with theirs, most would welcome and satisfy your curiosity by sharing their road to success, critical in developing self-confidence.

7. Publishing the Underlying Concept – If you have already written a book highlighting the invention's underlying concept, it might be a good idea to join the Amazon Marketing Service to beef up its sale, bolstering "indirect" marketing before the actual pre-launch. The Kindle version alone is not enough; the Paperback is equally essential. Additionally, Twitter and other social campaigns need to be developed with direct links to the book. Ideally, the book's publication should coincide with the pre-launch of the actual product or service to intensify the marketing efforts without having to split the advertising and marketing costs.

8. Business IT Concept – If it is a Business IT concept, it's imperative to copyright it, leading to patenting; otherwise, the market protection would be virtually absent. While it's costly to patent it in a host of other countries at the outset, it is prudent to start the process here, gradually followed by the nations as they would be penetrated. The filing of the US copyright and provisional patenting will, at least, prevent the foreign companies from doing business here from directly infringing on yours. The provisional patent application will buy you 12 months to prepare for and submit the actual application (during which time "patent pending" could be added).

9. Analyze the Pilot Results – Analyze the results from the pilot as they come in, preferably in direct collaboration with a well-known marketing consultant, and seeking analytical help from a consulting data scientist could make sense as well. If you find that the results far exceeded your (and your consultant's) expectations, work on initiating a much larger pilot with the updated service coupled with a vastly upgraded marketing plan, adequately factoring in the initial pilot's inputs. If the follow-up growth curve is exponential (at this point, linear growth is not good enough!), you are "on to something."  

As indicated above, a pre-launch is a critical interim stage that must not be ignored. Far too many budding entrepreneurs make the mistake of launching the product/service without a meaningful pilot, thereby depriving them of the market knowledge, a priori, to face the competition.

-Sid Som, MBA, MIM

homequant@gmail.com

Link to the Book