Matrix Blog

Archive for September, 2006

[Matrix Zeppelin Series] Sticky, Herd Mentality, Media Not Distorting, Acceptance of Risk, Smell Like Cabbage, Fear of Music, Price is Key and 75 Laminated Signs

September 29, 2006 | 7:38 am |


Despite Talk Like A Pirate Day and the Carnival of Real Estate Matrix readers actually thought about other things and said their piece.

Throwing caution to carny barkers walking the plank, here’s a few notable comments from the Matrix Zeppelin:

  • I find it interesting that people expect housing prices to “crash,” yet they are unwilling to see the value of their own home as dropping. Real estate prices are sticky-downward, because we price our homes based on our expectations and desires, not newspaper reports.

  • media coverage, if its not accurate, can help exagerate the highs and the lows of a market. I am not blaming the media at all, its just that I think there is a tremendous herd mentality out there right now.

  • the “herd” is finally waking up to the reality that housing prices must revert to the mean…the media is not distorting the issue; they are merely taking a hard look (for the first time in many years) at the fundamentals of real estate. and the fundamentals are overwhelmingly negative.

  • Sort of along the lines of what you are saying, I know my own perception has changed, over the past several years. Three years ago, when I bought my first condo, I wanted as much home as possible, so I got an adjustable rate 1st loan and interest only 2nd loan. This time around, in May, I was steadfast against getting an ARM, for either. The rates were just a bit higher for the 1st, and a lot higher for the second, but I didn’t want to take any chances. Bottom line? My acceptance of risk had been reduced, because of the uncertain housing market. Others, especially those who can’t afford to take out a fixed-rate mortgage loan at 8% instead of 5% (our 2nd loan rate) will have no choice but wait it out.

  • I find the best blogs at “carnivals” also tend to find carnies. Small hands. Smell like cabbage.

  • I am in Hoboken and it’s a sea of “For Sale” signs, whether on the street or attached to buildings. But I grew up in a town that banned them. I guess it is supposed to provide owners with a sense of security, but frankly, if you really want to sell, I think it’s pretty decent advertising.

  • Here’s another one from Coldwell Banker that claims it will help me “Find myself a city to live in.” (If you’ve also got Fear of Music and ‘77 in your collection, you’re all set as far as I’m concerned.)

  • I have come to a similar conclusion concerning refinancings, but do you think that it will really have an effect on homebuyer mentality? I think that even if rates drop a little, sales will still be down and inventory up, because at this point price is key, and until that comes down, nothing will move. After all, interest rates have been low and falling all summer and it hasn’t helped at all. But that was just my own thought.

  • I know this comment is a little late, but did you hear what Barbara Corcoran had to say today on Good Morning America? She is trying to demonstrate how to sell your home in 7 days and amongst some good ideas she stated: 1) Blanket your area with “For Sale” signs. Corcoran made 75 laminated signs at Kinko’s for a total cost of $324. Make your signs bright and clear. Bright yellow is the most memorable color. Use clear, big, black lettering so people can read it easily. 2) Corcoran also made up car magnets and a giant billboard in front of the house. 3) The Freunds’ [the sellers] friend owns a ski shop on the major interstate in town, so Corcoran hung a nine-foot banner across the front of the shop. Seventy-five signs, one billboard and a nine-foot banner. Yikes!!! No doubt that Town Board will have a very lively meeting the next time they get together.


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[Getting Graphic] UCLA Anderson Forecast Brings Good News, Pessimistically Speaking

September 29, 2006 | 6:56 am | nytlogo |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Source: LA Times

The UCLA Anderson Forecast, which painted a real doom and gloom projection for California last year which did not happen (yet), has now released its current projections for the economy.

They were among the first economics group last year to declare the housing market in a bubble have changed their position to say that housing won’t decline significantly anytime soon [LA Times].

In its widely watched quarterly outlook to be released today, the UCLA Anderson Forecast reiterates earlier projections that the deteriorating housing sector will slow state and national economic output and job growth through 2008. Although it doesn’t rule out a recession, it doesn’t expect one.

Absent a recession, it reasons, homeowners would rather hold than sell into a deteriorating market. Unless a job loss forces a sale, many homeowners would rather stay put than sell for less than the high they recall some neighbor getting last year.

“Expect home prices five years from now to be about the same as they are today, though lower in real [inflation-adjusted] terms by 15%-20%,” the forecast said.

Based on the fact that the west coast has the highest housing prices, the highest loan to value ratios (biggest mortgages), this is quite surprising and perhaps infers more optomistic (less pessimistic) outlooks for other regions of the country.

Basically the reports say that a decline in housing will be obtained through stable prices that are adjusted for inflation, not a crash.

Housing starts are projected to drop 30% next year. UCLA says its going to be homebuilders, not home owners [SDJ], that are going to be hurt.

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Predicting The Fed’s Next Move (With ChartJunk)

September 28, 2006 | 7:06 am |

The Cleveland Fed posts some really interesting charts that track the probability of their next moves using options on federal funds futures using data from the Chicago Board of Trade. Here’s a good summary of how it works.

The charts are really cool (but full of chartjunk [Wikipedia]) and provide insight into the Fed’s direction at their October and December meetings.

The probability of the Fed holding rates at 5.25% is very high and all other choices are close to zero.

The probability of holding at 5.25% is less in December and there was some uptick in the probability that the rate could move down to 5%. This is something to watch for as economic stats are released this fall. More bad news will improve the probability that 5% is the new federal funds rate change. Although I like those odds, right now it doesn’t look like it will happen unless more bad news is on the way.

However, a falling federal funds rate is not necessarily good for housing. If the fed feels it needs to drop rates, it is because housing is fairing poorly and consumer spending is weak. Lower mortgage rates would be caused as a byproduct of the fed rate drop but would likely only provide hope that the end of the housing doldrums is near. Refi’s may rise as a result, which will help some whose mortgage ARM’s are about to reset.

As Randall Forsyth in this week’s article Looking for Shelter, But Where? [Barrons (subsc)] said:

Just as the regulators slam on the credit brake, the Fed might have to step on the gas by beginning to cut the funds rate. Pimco’s Bill Gross, the world’s bond manager, wrote Monday that at some point in 2007, the Fed will be forced to cut rates. “Don’t ask us when or how much yet,” he wrote. That will depend on housing as well as the global economy.

What’s fascinating is this time housing will be a drag, if not the precipitating factor, in a U.S. economic downturn since the banking system was deregulated in the 1980s. Indeed, since then, the Fed could simply slash rates and offset the impact of stock market crashes, as in 1987 and 2001, with a housing boom. That trick might be getting old.



Outstanding On Our Soapbox This Week: [Solid Masonry] Are These Trying Times? Just Ask Those Who Are Trying

September 27, 2006 | 5:22 pm |

In this week’s Solid Masonry weekly post on our other blog, Soapbox, Are These Trying Times? Just Ask Those Who Are Trying, Appraiser John Mason explores the trying times of sellers.


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[Solid Masonry] Are These Trying Times? Just Ask Those Who Are Trying

September 27, 2006 | 5:12 pm |

John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, tries to try out some options for sellers in Solid Masonry. …Jonathan Miller

It been said many times before, when the going gets tough, the tough get going. The question is where do they go to? But before we go on to answer that question, let’s be clear about just who the “tough” are. These days it is undoubtedly the sellers who have it tough, from individual homeowners to large scale developers. As the inventory climbs and demand falls, many are trying anything and everything to make their properties more saleable. Their options fall into one of several categories and include:

  • a) Do nothing and “wait it out,” hoping demand will pick up (a lot), supply will drop (a lot), or someone will fall in love with your home and pay your price (mucho a lot). Meanwhile, some would be sellers have decided to rent out their properties for a while, knowing the situation will improve, eventually.
  • b) Assume the problem is not you or your property; it’s simply the real estate agent. So you fire them and hire another, but make no other changes (see the following three choices).
  • c) Focus on the physical nature of the property and do things such as fix the place up, de-clutter, paint, “stage the home,” etc.
  • d) Focus on financial incentives by offering bonuses to the selling agents, paying the buyer’s closing costs, providing decorating allowances, pre-paying the real estate taxes for a set period, buying down the purchaser’s mortgage rate, etc.
  • e) Reduce the asking price to insure the property is properly priced, regardless of any ego or emotions, knowing the best priced properties sell in any market.

Options “a” and “b” appear to be the most popular choices, by far. These two choices allow for the least discomfort, as would be sellers don’t have to admit it’s their ego (or sense of greed) getting in the way. And for “flippers” they don’t have to acknowledge their timing was off and they over-paid. Should the market continue on a downward slide (yes, the market is in a downward slide), many of these folks are in for a brutal awakening.

Options “c” and “d” are also quite popular, as they represent a compromise of sorts, in that sellers feel like they are having their cake and eating it too. That is, they can concede a concession or two, but gain a sense of comfort by getting what they consider to be a good sale price. Call it what ever you wish, it’s still a market in a downward slide.

Option “e” is clearly the most painful of the choices. For some it represents a sense of missed opportunity (if only we had sold last year). For flippers new to the game or heavily leveraged it can mean an end their dreams (aka another get rich quick scheme shot to hell). But for a growing number, it is of great relief to get out while they still could sensing things might get worse before they get better.

While life is not fair, it is also not unfair. It is not out to get us and most of us will be here when the sun rises tomorrow. But are these trying times? Just ask those who are trying.

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[Curbed] Three Cents Worth: Buyer Urgency v. Seller Resolve

September 27, 2006 | 4:34 pm | curbed | Columns |

Its Wednesday, so its that time of the week to provide my Three Cents Worth as a post for Curbed, and rumour has it that they are afraid to go to carnivals at night.

This week I went for the abstract rather than the empirical: tried to come up with an index for what seems like a major issue in the current market psychology: the buyer and seller disconnect. But in true Curbed style, I got thrown to the wolves.

Three Cents Worth: Buyer Urgency v. Seller Resolve

Previous posts can be found here.


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Can’t You Read The Signs?

September 27, 2006 | 7:51 am | nytlogo |

“For-sale” signs that is.

A question that has never been answered to my full satisfaction is why some municipalities choose to seek controls on “for-sale” signs placed in front of property listings. I have never lived in a town that had any such sanctions. However, I first started noticing the phenomenon in the New York region about 15-20 years ago in the outlying suburbs. The market was weakening and one of the towns, New Canaan Connecticut required that all real estate brokers use a simple black and white “For-sale” sign with no phone number or brokerage name [NYT]. They are the same size and look just like typical signs except that they have no information on them.

Source: Bubblemeter

There is tremendous inconsistency in this topic depending on the location and property type. Condos and co-ops usually do not allow any such signage hung on the outside of their buildings for re-sales, say on their balconies or in windows, but its not unusual to see such signs just off the street in suburban markets. Lockboxes and a clutter of “for-sale” signs can be distrubing for existing residents. In New York, townhouses usually have the sign bolted to the side of the building since typically there is no yard in the front of the property. New developments, however, usually have large signs or banners on the outside until there are no units remaining. I always wondered whether such signage is legal and simply not enforced.

Someone pointed out to me a few days ago that much of the advertising on scaffolding in New York is illegal but not enforced (I can’t confirm this). The city simply collects the fines. Its so commonplace, I always assumed it was all legal. I also assume (sorry for a lot of assuming on this topic) this applies to signs that advertise new developments on scaffoldings as well.

Here are a few examples of alternative signage allowed in a town that voted to prohibit “for-sale” signs by real estate brokers. These pictures were sent to me from Shelter Island, New York. I’d say these are less attractive than standard real estate broker signs.

Short sighted solutions don’t create the desired effect these towns are attempting to create.

However, as inventory rises, more signage would appear more likely to prompt consumer and local government reaction because a proliferation of signage infers economic weakness of that particular town.



For Better And Worse: NAR Existing Home Sales And Prices

September 26, 2006 | 1:24 pm | trulialogo |
Source: WSJ

For all the coverage coming out of the housing sector coverage yesterday [Businessweek], I think the consensus reached by many was that the numbers were better than expected. I’d say I basically agree but I am not sure what that really means for the market.

Last week, Trulia asked me to be on their “power panel” and venture a guess of the percent change in the housing numbers would be released by NAR on monday.

Annual national existing homes sales data as of August:

My prediction: -16.3%
Actual (NAR) : -12.6%

Annual sales price of existing homes as of August:

My prediction: -0.4%
Actual (NAR) : -1.7%

Prior month change in inventory:

My prediction: +6.3%
Actual (NAR) : +1.5%

I got the right direction on all three questions but needed a little fine tuning on the amounts. Given regional variations in the data, I can live with the differences.

The most telling statistic [Motley Fool] in all of this is the number of existing home sales. All 4 regions (Northeast -11.6%, Midwest -11.1%, South -7.4% and West -22.8%) showed a decline in the number of sales. This is the recurring theme in many local markets. Why? There is no sense of urgency on the buyer side at the moment. The lack of buyer urgency is substantiated by declining mortgage rates over the last quarter. This fairly significant decline did not spark additional sales activity. 30 Year mortgages are between 0% and 0.25% above rates seen when the Fed began tightening its belt in June 2004 and 1 Year ARMs are between 1% and 1.25% above the prior rates. Perhaps ARMs are part of the problem. 30% of originated mortgages are ARMs and most of the investor purchases were financed with ARMs and they are more than a quarter of all transactions…

The sales price of existing home sales seems to be less consistent by region. 3 of the 4 regions showed a price decline (Northeast -3.9%, Midwest -1.1%, South -2.6%) while the West increased 0.3%. The west seems to be behind the curve a bit since prices showed a gain but housing sales dropped about double the the rate of anywhere else.

The west seems to be 6 months behind the rest of the country.


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More Songs Indexes About Buildings Housing And Food

September 26, 2006 | 11:57 am |

If you are a Talking Heads fan, you’ll get the title. If not, its a completely silly, but thats the idea when it comes to many indexes. It seems that there is an index for everything and everyone, but are they useful or merely headline grabbing public relations opportunitues? I am not sure I care.

Here are a few indexes I have been following, some more than others:

An Index To Aspire To

Forbes recently released its The Cost of Living Extremely Well Index which tracks the costs of luxury items that most Americans don’t buy (because they are not found at Wal-Mart or Target (pronounced “tar-JAY” for the social elite). The idea is to separate purchase costs of the wealthy as compared to the _paper-cup using, American Idol watching, blue jean wearing, mid-sized compact driving, gum chewing, Wonder Bread buying public like most of us are.

Of course, one of the biggest costs of living extremely well (or as I like to say: Extreme Living) that is missing from the index is housing. If you can buy an $11M helicopter, you can probably afford an expensive home. In most of the US, a luxury home is something over $1,000,000. In Manhattan, its something over $40,000,000 and its usually one of many homes that are owned.

I am not sure how Forbes would track this because there really isn’t a reliable national luxury housing index. Coldwell Banker has tried. The NAR might consider tracking an upper percent of home sales rather than setting some sort of artificial price threshold index.

An Index To Gain Weight With

The Economist introduced the Big Mac Index (subsc) about 20 years ago.

Burgernomics is based on the theory of purchasing-power parity, the notion that a dollar should buy the same amount in all countries. Thus in the long run, the exchange rate between two countries should move towards the rate that equalises the prices of an identical basket of goods and services in each country. Our “basket” is a McDonald’s Big Mac, which is produced in about 120 countries. The Big Mac PPP is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued.

An Index To Wake Up To

A few years ago, The Economist began the Tall Latte Index [ABC] which basically does the same thing as a Big Mac. I was thinking that a Venti Caramel Frappucino calorie or caffeine count may correlate better to the housing market than the cost.

An Index To Have With Your Lunch

While I am on the Economist bandwagon, lets not forget the Coca-Cola Map that correlates wealth with its consumption. The conclusion?

Coke consumption takes off at the upper end of the development scale. Finally, democracy goes better with Coke. Consumption rises with political freedom, as measured by Freedom House’s seven-point scale. Have a cola, North Korea.

Of course, here’s another map that breaks down the language of soft drinks. Click on the states for the actual numbers by county. Yet another map available on CNN.com that was interactive a few years ago but now is only available as a pdf.

In my book, a Coke is a soda.

But I digress…

I will post about more serious subjects later today. Right now too I’m too busy gauging how hungry and thirsty I am.


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[In The Media] CNBC Morning Call Clip for 9-25-06

September 25, 2006 | 3:09 pm | Public |

Here is a clip of my appearance on today’s Morning Call show on CNBC.

I was guest along with Nicolas Retsinas, the Director of Harvard’s Joint Center for Housing Studies. We were interviewed by Mark Haines who was great.

As it always is the way on television, there was not enough time for the topic but it was fun to do.


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