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Archive for November, 2006

Real Estate Blogs, A Spiraling Public Discourse On An Obsession

November 30, 2006 | 8:25 am |

Well, I stumbled across what looks to be a neat media blog at PBS called MediaShift written by Mark Glaser.

Its got a pretty good overview of the whole real estate obsession: bubble, bust, boom, expansion, crash with a heavy dose of vitreol, vengeance, blamethemedia and spin phenomenon and links to the leading blog resources. (ok, ok, Matrix is one of them…I was going to get to that).

I found his slant interesting (hey, its PBS), and perhaps ironic, that the leading bubble bloggers are supposedly making a lot of money (or so they say, yet haven’t quit their day jobs (I thought Ben Jones did?)).

However, I got the impression after reading this PBS piece, that these bubble bloggers were therefore incentivized to fuel the flames to get more readers, namely renters and burned investors (aka more advertising) but still venting their pure emotional frustration with the situation. Try to find one positive aspect of the current real estate market on any bubble blogs. It doesn’t exist because its contrary to the purpose of those blogs to begin with. I guess their counter point would be that there are no positive elements in the current market.

I suppose its a little of both. Bubble blogging was born out of a serious concern over the housing market and the spin from the real estate industry and now it seems to have matured and evolved into a mainstream phenonemon, which seems contrary to why it evolved to begin with. I guess cycles apply to everything. There is some great stuff out there written by people who care about the topic at a pretty deep level, but it doesn’t always mean its accurate or doesn’t have an agenda or spin behind it. They also seem to be free from lawsuits unlike Big Media (since they don’t have deep pockets).

Its a continuing battle to remain pure.

But I guess thats the same with all topics. Think about conversations around the dinner table at Thanksgiving. I am sure the topics for many included politics, religion and of course, real estate.

Mainstream media has tried to figure out blogging with some failures, but increasingly, more success. Included in my list of favorite real estate blogs (and columns) are many from “big media”, several were referenced in his column.

Real estate blogging is going to evolve and change. Technology and consumer acceptance all play a role. I can’t even imagine what the genre is going to look like when the real estate market has another up cycle.

Lord help us.


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[Commercial Grade] Looking Forward (To Not Being A Nuisance)

November 29, 2006 | 12:24 pm |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John looks forward to the day when appraisers are not seen as a nuisance, and its sooner than you think.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays on Wednesdays, one of the smartest guys I know. …Jonathan Miller


Heading into the end of 2006, we find ourselves trying to gauge what 2007 will bring in the commercial real estate market, and by extension, what it means for the commercial appraisal profession. Will we be working at the same torrid pace that we did throughout the year, or will we be dusting cobwebs off the ceilings?

In his article Banks are Pulling the Plug on Loans [SA], Bill Cara provides some insight. He reminds us that it is the bankers who regulate the money supply for commercial real estate loans, and they are pulling back. In a Senior Loan Officer Opinion Survey, 36.5% of the bankers surveyed reported that loan quality is likely to deteriorate, and 41.8% reported that loan standards have tightened. This suggests lower commercial loan volume from the banks in the near future.

More restrained lending is not a bad thing. We “old timers” remember what happened in the late 80′s when banks couldn’t push money out the door fast enough. For borrowers it’s been a “buyer’s market” and they got to call the shots with the lenders (including, remarkably, which appraiser to use). I look forward to borrowers no longer taking their ability to finance for granted. Means that they’ll be a little more responsive to our requests for property data, and not treat the appraisal process like a nuisance.


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Salad Days At The Campfire: Bernanke’s View On Rate Cuts

November 29, 2006 | 8:26 am | nytlogo |

Bernanke spoke at a luncheon yesterday and its been a while since he spoke about the outlook for the economy. The regional Fed presidents have been doing all talking lately. His transparent communication approach to Fed policy seems to be working (although, in order to remain true to transparency, we should be told his lunch selection so we can factor that into his commentary). Arguably, by talking up or down the economy, the Fed has been able to stop tweaking rates every month. Now the Fed is working hard to assure investors that the economy is doing well enough to avoid rate cuts in the near future, by raising concerns about inflation. Weaker housing market conditions [WaPo] are not enough on their own to push the economy into a recession.

This contradicts the commonly held assumption that the inflation has been held in check and the economy weakening, forcing the Fed to have to cut rates by the middle of 2007. The probability of a mid year rate cut is rising [Clev Fed] as investors look further out through 2007.

Here’s a recap of Bernanke’s speech coverage in several major publications:

Bernanke Warns Inflation Remains A Significant Risk [Page 1 WSJ/Dow Jones]
_Fed Chief’s View Contrasts With That of Wall Street; Could Interest Rates Go Up?_

In a contrast with the widely held view on Wall Street that slower economic growth will lead to interest-rate cuts, Federal Reserve Chairman Ben Bernanke offered an upbeat assessment of the nation’s economy, warning that tight labor markets could put more pressure on wages and prices. Many investors point to declining housing construction, mixed news on holiday sales and a tame reading on inflation as indications that the economy is weakening, inflation risks are fading and that the next move by the Fed will be to cut interest rates, perhaps as soon as next spring.

Modest growth, lower inflation ahead: Bernanke says [MW/Dow Jones]

The Federal Reserve called a halt to its long string of rate hikes in August because it believed the economy would slow and the inflation picture would improve and three months later this forecast still seems about right, Fed chief Ben Bernanke said Tuesday. In a rich speech examining most of the hot topics captivating Wall Street economists, Bernanke said the economy is still on track to expand at a moderate pace over the next year without slowing too much.He said the inflation is already “better behaved of late” and should continue to slow gradually. Much of his speech was used to gently dampen two of the major fears about the outlook – that the housing market would push the economy into a full-fledged recession, or that inflation pressures were like a smoldering campfire, seemingly controlled but ready to burst up in the next strong wind.

Fed Chief Underlines His Essential Focus on Inflation [NYT]

Signaling that the Federal Reserve was not inclined to lower interest rates any time soon, its chairman, Ben S. Bernanke, said yesterday that while economic growth should rebound next year, inflation remained “uncomfortably high.” In a speech that offered a wide range of prospects for the direction of the economy — from an unexpected surge in growth to no growth at all — Mr. Bernanke painted a generally sanguine picture. So far, he said, the economy had slowed in line with Fed’s forecasts, and inflation had “been somewhat better behaved.”

Fed Chief Optimistic of Soft Landing [WaPo]
With Eye on Inflation and Jobs, Bernanke Remains Upbeat

The nation’s central bank is growing more confident that the U.S. economy will slow gradually in a way that should cause inflation to decline without tipping the nation into a recession, Federal Reserve Chairman Ben S. Bernanke said yesterday. “Over the next year or so, the economy appears likely to expand at a moderate rate, close to or modestly below the economy’s long-run sustainable pace,” Bernanke told the National Italian American Foundation in New York, in his most extensive remarks on the economy since July. Inflation “is expected to slow gradually from its recent level.”

Fed chief’s comments hint no rate cuts loom [Boston Globe/Bloomberg]

Federal Reserve chairman Ben S. Bernanke said the US economy will pick up in the coming year and emphasized that inflation remains his greatest concern.

I find it annoying, however, that whenver Bernanke is making some sort of significant statement that impacts housing, Greenspan is quoted about the housing market [BW] at the same time. (Do they share their calendars?) He is about to publish an analysis of the “serious dispute” over the true effect of mortgage wealth on consumer spending.

So Bernanke’s take is basically this. Housing and the economy are not expected to drop like a stone next year and if there is a rate cut, its likely to be later in 2007.

Which raises a more important question: Did he have a salad for lunch?

Update: The Fed Cries Wolf; Mr. Market Isn’t Listening [Caroline Baum/Bloomberg]


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Business 360 Forecast: Manhattan’s Mug Is Half Full

November 29, 2006 | 12:01 am | nytlogo |

As Jason Kidd, upon being drafted to the Dallas Mavericks pro basketball team declared:

We’re going to turn this team around
360 degrees.

About 5 years ago, John Marchant of Business360 approached me to provide information for his forecast of the Manhattan real estate market. The forecast would use information generated during the preparation of our quarterly market reports. He impressed me with his insight and I was even more impressed with his approach to the research as well as his candor.

Business360 is a high-quality information and business services company, underpinned by a unique and flexible resourcing model and large global team of specialists and generalists. This particular report and related forecasts have been covered in The New York Times, Crain’s, New York Observer and The Financial Times.

Here’s their track record:

But their forecast remains a contrarian viewpoint:

Prices are falling in other U.S. markets and the situation in Manhattan is increasingly unclear. Confidence and psychology are important factors in the market and today Manhattan’s market looks to be at a balance point. Supply is up strongly and buyers are holding back, making for a stalemate. Prices have run up very strongly over the last seven years or so, greatly outstripping personal income gains, and many believe prices should pull back to bring them in line. However, a review of prices over a 25-year period, or against the last peak in 1987, suggests that prices have room to rise.

The report is available to download for a modest fee ($99).

However, since John is a better negotiator than I am, I get nothing financial out of the deal, other than a copy of the report and a free round when we go out to bend an elbow.


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Its Always Sunny In Philadelphia?: 3rd Quarter 2006 Condo Report

November 28, 2006 | 10:47 pm |

This condo quarterly market report is provided by Dr. Kevin Gillen, an economist at the Real Estate Department of the Wharton School and Fellow of the University of Pennsylvania. This is a supplement to his quarterly market report. He analyzes the Philadelphia condo market using the city’s real estate database through Hallwatch, a watchdog group. The results are published in a research paper called Philadelphia Condo Price Indices each quarter as a public service to the Philadelphia real estate community. Here’s the methodology [pdf].

Its great stuff. -Jonathan Miller

Download the full report [pdf].

Read the Hallwatch article on the market: Philly Condos: Prices Stagnate as Demand Softens.

Condo prices level out as newly completed units continue to hit the market

  • 906 units closed this quarter, a record amount, but up only slightly from prior quarter.
  • Condo inventory rose to a record 2,052 units
  • Average of days on market increased to a record 95 days
  • The area around Center City increased 4.9%
  • Center City decreased 5.6%
  • Northwest decreased 0.1%
  • Northeast Philadelphia increased 2.2%

Hallwatch is a private and independently maintained watchdog website that does a lot of in-depth, independent and investigative pieces on city politics, as well as real estate.

[Real Estate Brotherly Love Staredown: 3rd Quarter 2006 Market Report For Philadelphia, PA]



[Hicks On Sticks] Comp Check Battles

November 27, 2006 | 11:32 am |

Butch Hicks is an appraisal veteran that hails from Northern Virginia. I first met him when he was the President of RAC (Relocation Appraisers & Consultants) and was struck by how he got straight to the point, and peppered it with a southern drawl. He is a leader in the appraisal industry and has an affinity for crunching housing market data like I do. In his first post for his Hicks on Sticks column in Soapbox, Butch deals with the ethics and practicality of doing comp checks (which in their pure form, completely violates USPAP). I am thrilled to have him contribute to Soapbox. …Jonathan Miller


“Bill Hicks my friend (if he was a friend, he would have called me Butch), how are you doing? My name is Slick E. Lender and I’m with AllQualify Mortgage. We have just begun an expensive ad campaign in Virginia and anticipate a lot of appraisal work for you as a result and I’d like to establish a relationship with you as the sole appraiser for our use there.”

And so begins yet another phone request for a comp check.

“Ok,” I respond, “what comp do you want me to check?” This, my ‘old’ response, usually resulted in a pained and questioning “huh” from the other end of the phone line. “You asked for a comp check,” I reply, “so which one do you wish me to check?”

These requests for comp checks, whether made by phone or fax, have increased dramatically with the advent of the internet, the slowing of the realty market and rising interest rates that have all but chocked off the refinancing deals of the recent past. Like all appraisers, I assume, I take a different attitude toward such requests from my regular clients as opposed to those like Slick E. but of late my patience has worn a bit thin on all of them.

I’m not going into a discussion here of how providing comp checks in order to lasso an appraisal request might place the appraiser in jeopardy as regards USPAP; I assume all appraisers are aware of such, though the evidence might indicate otherwise (on numerous occasions, I’ve been told by requestors that I’m the first to ever have bought that issue up). Also, I must admit, it’s a little difficult to get terribly angry with those making such requests because I recognize that a primary reason they are doing so is because so many of my fellow ‘professionals’ easily accommodate them.

Worse, to some degree, are those faxed requests that eat up otherwise clean paper. I’ve begun a collection of the worst offenders (another subject for later), you know, the ones with the Appraisal in Appraisal Request crossed out and replaced with a handwritten “Comp”. Lenders, having now caught on the fact that some appraisers (like myself) do not provide comp requests, have now resorted to blast faxing such to every appraiser in a given market. Experience tells them, I suppose, that someone will bite and the chase for ‘the number’ is on.

There was a time when I would respond for such requests by simply sending all sales in a subject neighborhood to the requestor and letting them decide at that point whether or not to proceed with a formal appraisal request. It’s not that difficult to do with my current MLS system but it does take a little time. Time is money however and for that reason I eventually halted even that process. But, what the heck, I’m in the appraisal business and I earn a living by collecting a fee for such, so my new view is to take advantage of a technology that is in some fashion, competing with me.

Zillow.com is now my friend. Since appearing on the scene, I have taken to measuring its performance against mine on actual sale cases. How, you may ask, do I do that? Simple! Since I do a lot of relocation work, I have something to measure my own performance against. By capturing Zillows value, along with my own on every relocation assignment and tracking the history of the subject as it goes to settlement, I have concluded that in most cases, the Zillow value is in excess of my value estimate and the eventual sales price (in fact, of late, the Zillow value is generally higher than even the subjects initial list price).

Back to earning the fee part earlier noted (not to mention saving myself the aggravation), I have devised a new tactic. Now, when I get that call from Slick, I simply point him to the Zillow website. If, after obtaining a ‘value’ there, he wishes to proceed, fine, I can accept the assignment with no problem and a very clear conscience.

Coming in ‘low’ is not a problem; the value is what it is. I don’t worry about irate phone calls from anyone (borrower or lender) any longer; experienced appraisers learn to develop a thick skin.

Experienced appraisers also learn which battles to fight and ones involving comp checks are no longer a priority of mine.

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PNC Christmas Price Index: Seasonal Financial Information Run Amok

November 27, 2006 | 8:02 am |

For the past 22 years, PNC Wealth Management and Institutional Investments [PRWeb - warning: plays music] has created a Christmas Price Index [warning: plays music]. Its a more fun type of CPI to deal with.

The CPI is a creative effort used by educators to teach students about economic indicators and inflation (and future potential wealth management clients). PNC does a really nice job with it so the inference here is if they can track 3 French hens and 6 Geese Laying (I thought it was “a-laying”), then just imagine what they can do with swaps, bonds and mutual funds.

I hate to be PC here, but it seems like there is ample opportunity for other firms to enter the fray, tackling holidays in the index format like Eight Days of Hanukkah and The Seven Principles of Kwanzaa.

Last year’s Christmas Price Index post [Matrix]



Strawberry Fields Forever Days On Market

November 27, 2006 | 12:05 am | raclogo |

I have been tracking the Manhattan housing market in report format for more than 12 years, appraising it for more than 20 years and I often worry I became Manhattan-centric as a result. Things that I thought were pretty standard here I assumed would apply to other markets in the same way.

….like…

  • rating a neighborhood by whether a resident can buy strawberries at 3am (never done that, but I have heard this discussed more than once)
  • hailing a cab in a downpour to get to work (but doing this on a street going in reverse of the morning rush ’cause the odds are better)
  • buying a few bags a of groceries at a time because thats all that can be carried (but making the argument that its because you eat only fresh food)
  • taking a dozen elevators rides per day and still remain fascinated by the changing floor numbers
  • not making eye contact with oncoming strangers when walking
  • taking comfort in the fact that 80% of all clothes worn are black
  • and the subways are actually pretty clean and reliable

…ok you get my point.

…while Manhattan real estate related assumptions include…

  • the fact that price per square foot rises with larger properties
  • new development is nearly always targeted to the upper end of the market
  • its tough to build without tearing something down
  • co-ops are a pretty standard form of ownership
  • average days on market is about 120 to 150 days in a balanced market

Average days on market is measured by taking the number of days from the last list price change, if any, until contract date.

For the 2nd and 3rd quarter, the average days on market in Manhattan was 144 and 150 days respectively.

This market stat should be relatively consistent around the country in housing markets that are relatively price stable (coming out of a boom period) like Manhattan is. When I began crunching the data for Long Island (Queens, Nassau and Suffolk Counties) this stat was pretty consistent by county and averaged 86 and 83 days respectively. This was curious to me because it was so different than the Manhattan market, yet the position of the markets is fairly similar. In fact, the argument could be made that Long Island is a weaker housing market than Manhattan right now. So why is the average days on market so different (lower)?

I was speaking to an appraiser last week who covers Northeast Ohio and his marketing times for a market in weaker in health to Manhattan is about 90 days. Another appraiser I know in Charleston, SC reported a 54 day marketing time this quarter for a market in a similar stage.

My 120 to 150 day rule of thumb is sort of on all Fannie Mae forms used for nearly all residential mortgage lending. There are three choices for describing marketing time:

  • Less than 90 days,
  • 90-120 days,
  • greater than 120 days

(translation: fast, medium, slow).

The Employee Relocation Council defines reasonable marketing time (a balanced market) as 90 to 120 days, yet most markets that are argueably buyers markets (not balanced = slow) actually average a shorter period than this standard.

I also looked to the stats in an appraisal organization known as Relocation Appraisers & Consultants [RAC]. Their appraisers (self-included) are considered among the best relocation appraisers out there and they compiled stats in each of their markets. The RAC Report covers a variety of markets across the country and like New York, the results are also all over the place.

Since the 3Q results are not posted by RAC yet so I looked at the 2Q results. They break out the DOM figures by price strata so I selected the middle price strata of each market and rounded.

  • Las Vegas (40 days)
  • Los Angeles (55 days)
  • Atlanta (75 days)
  • Texas (overall – 50 days)
  • Denver (100 days)
  • New Jersey (40 days)
  • Chicago (western suburbs – 90 days)

_plus the previously discussed 2Q results_

  • Manhattan (144 days)
  • Long Island (86 days)
  • Northeast Ohio (90 days)
  • Charleston, SC (43 days)

One lesson in all this is that real estate is local but I wonder, is there a different efficiency in the way a property is sold or takes to sell in different markets? Is it the legal process? In other words does the time it takes to actually go to contract once the meeting of the minds occurred play a key variable here?

And how do those fresh strawberries get to Manhattan all year ’round?

UPDATE: Speaking of Strawberry Fields, did you see the full page ad by Yoko Ono in the NYT this Sunday? I’ll always remember exactly where I was on December 8, 1980.



Realtor® is to Real Estate Agent as Porsche® is to Tractor

November 27, 2006 | 12:03 am |

After attacking the real estate brokerage community’s incentive for working in the seller’s best interest to get the highest possible price, Freakonomics has more fun with NAR by using the NAR blog post Realtor® is to Real Estate Agent as Mercedes® is to Car as a resource.

Irrelevant asides: NAR loves to use the “®” symbol…Did you know Porsche used to make some of the best tractors in the world?

NAR cites the Harris Interactive poll: “Most Prestigious Occupations” which places real estate brokers at the bottom of the list but says the results would have been different if the term “Realtor” had been used in the poll.

Ok, first of all, lets get Real(tor) here:

  • Any job with a low barrier to entry, can’t be prestigious by definition.
  • Who really cares whether their job is prestigious? I would think the primary emphasis is how fulfilling it is and what the potential compensation is (not necessarily in that order).
  • There has been a rising trend of MBA’s, lawyers and other trained professionals that have been entering the profession thereby raising the bar, but their voice has been drowned out by the 30% surge in NAR membership over the past two years which likely included much of the original sterotypes that resulted in the lower prestige rating.
  • Training is a good thing, and being a Realtor is probably better, in terms of professionalism overall, but it by no means guarantees it. It comes down to the individual. Some are, some aren’t just like many professions.

I would speculate that there will be a sharp drop in NAR membership over the next few years that will coincide with the drop in the number of sales that has already occured. The low barrier of entry means a quick response to market conditions.

Many of the half-serious, part time agents will be the first to drop out, leaving the brokerage profession ripe for the new generation, and thats probably something for the public to look forward to.

I suspect real estate appraisers are not that much different than real estate agents in this poll.

My personal goal is to be better than a farmer in the poll rankings.

In other words, be like a farmer out standing in my field.


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[Matrix Zeppelin] Stuffing omelettes, fire sale, skewed, inconsistencies are consistent, in the black, rolling junker, your britches

November 27, 2006 | 12:02 am |


Inventory levels stirred the most discussion in the shortened holiday week and a lot more answers than the original post was attempting to provide. And lets not forget Stuffing Omelettes, represented to be insanely good and now served on the Matrix Zeppelin:

  • In a stabilizing/stagnant market, you don’t want to flood the market with units, and so you may choose a specific unit type to offer and figure that the remainders will either be sold alongside them, or held back for rentals. Much of the pricing strategy depends on when the developer sees their first returns. With a 90% LTC, it may take until the penthouse floors are sold for the developer to actually see their ‘profit’…In general, you save the PH for last so that you can leverage the successful sell-out of the lower floors to command a high premium for the PH. If you’ve already made your returns, then you might be wiling to fire sale the remainders.

  • If the number of condo units being built is spiking up in recent years, leading to new condos being a larger percentage of overall housing stock, then even if the percentage of new condos being warehoused is a constant, wouldn’t those held-back inventory units be increasing as a percentage of overall units available? Meaning data is more skewed now than a few years ago?

  • I have a similar problem in Charleston. My inventory numbers on condo/townhomes are off because the marketing agents will not list all of the active condos when they are available. For example there is a 315 unit condo conversion and the realtor only has 5 units as active in the MLS right now. This really skews the inventory numbers in the market and it is impossilbe for me to track all these scenarios.

  • Clearly the tic upward in new developments under construction would skew the unreleased inventory numbers upward a little as well. Does it matter? Is it inventory if it isn’t built yet? When I sell in new construction it may take several months to a year to close the deal. It seems that the equally significant numbers are related to sales volume. The sold and closed deals from new developments today, reflect a significant delay in buyer activity from as much as a year ago. Likewise, I’ve a number of new development deals in contract for next year that represents buyer activity from the second half of 2006. It means that there is hidden buyer activity too. Since it’s ultimately a supply and demand question, to be relevant, doesn’t the inventory question need to be considered in relationship to absorption? How is it possible to really understand it at all with so much elasticity in the timing of that relationship? Suffice it to say Johnathan, that the post raised more questions for me than it answered; but I’d agree with you that, “…this technique has been done for as long as I can remember, inventory numbers should still show reliable trends. In other words, the count would be considered a constant in the equation.” At least I can take comfort in the fact that the inconsistencies are consistent.

  • Once a developer is in the black, whatever the mix, prices will climb – even if simply to tell customers to submit offers, that invariable tend to be high offers (or higher than the previous asking price) – you can achieve this in any market as long as your initial marketing mix creates a feeling of something being exclusive – once you have that and have sold a unit or two – even at low numbers – you simply make your money back on the remaining property.

  • I always get a chuckle when I see signs like that – or the ones that say “Make $3000/mo P/T – $8000/mo F/T”. You’d think if they were so successful, they could afford to have professionally-made signs. The best one, however, is the sign on the rolling junker that says “We buy houses”. Yeah, right… you can’t afford four tires that match, but you can buy a house for cash…

  • Speaking of stuffing. The next morning use the stuffing to make Stuffing Omelettes. It is insanely good.

  • We see signs, just like the one shown above, all over the Ocala area… and yes, we are also seeing the “We Buy Ugly Houses” ads as well. Just hold on to your britches, the next year should bring us more comedy in Real Estate!


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