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Archive for April, 2007

[In The Media] BBC World Business Report Clip for 4-27-07

April 30, 2007 | 2:12 pm | Public |

This clip was a general article on the spillover of housing weakness in the US to the general economy. Note the “phone action” in my interview.

I covered this topic in another post earlier today called: Inflated Housing Expectation’s Sticky Downside: Recession


Trulia Trends Report: April 2007 Consumer Search Patterns/Chicago

April 30, 2007 | 11:33 am | |

The fourth issue of the Trulia Trends Report was released this week. Its a continuing evolution of ideas that has come as a result of the collaboration between Trulia and my firm Miller Samuel. (disclosure: I am a member of Trulia’s advisory board.)

In this month’s issue the spotlight focused on the Second City, which interestingly enough, was the 2nd hottest city on the list.

Download the April 2007 Trulia Trends Report [PDF] here.

Here is Trulia’s post about the new report.

Check out their national heat maps. They are one of my favorite features of their service.

Inflated Housing Expectation’s Sticky Downside: Recession

April 30, 2007 | 11:13 am | |

Waiting for the other shoe to drop and its getting sticky.

Since the housing boom ended in mid-2005, the Fed has continued to play the roll of inflation hawk, worried that an over heated economy will force them to raise the federal funds rate even higher. I get the impression that they have been saying this for so long (2004) that they seem to be missing the economic slowdown (of course, I am exaggerating).

This topic is covered in the Bloomberg piece Bernanke Is Wrong on Inflation, Goldman, Merrill Say.

“House prices could decline as much as 10 percent,” said Maury Harris, chief economist at UBS in New York, in an interview. UBS, based in Zurich, is the world’s biggest money manager for the wealthy. Fed research doesn’t agree. The central bank reported “signs of stabilization in housing demand in most regions of the country,” according to the April 11 report. “Home-buying attitudes improved and continuing job growth could be expected to support home sales.”

I wonder if they are speaking to New York market participants only, because the market here is one of the few in the country that is doing well. The economy is showing weakness and a recession is a growing concern but not on many people’s radar these days.

GDP grew 1.3% in the first quarter, averaging 2.2% for the past year and well below the Fed’s 3% expectation level.

Two hands…
On one hand, the Fed is concerned about inflation and higher mortgage rates further crippling an already weak housing market. On the the other hand, the other side views the economy as not yet bearing the full brunt of the housing slowdown. I have been on the latter side, contending that the lag time for housing to fully impact the economy is probably more like 1-2 years from the point the housing market began to slow.

Since that point was about mid-2005, that means right about now. Yet the odds of a rate cut seem to be slipping. Muddy economic discussions lumber along, with an occasional insertion of the word “inflation” to nudge us awake periodically.

Housing prices tend to be sticky on the downside, falling at a far slower than they rose since many sellers simply opt not to sell. Hence the delayed housing market reaction, only accelerated (or primed – ok, sorry) by subprime. Nationally, foreclosures are rising, the number of sales are falling and prices are slipping.

I am guessing that if the Fed is very much wedded to holding firm for a while, which will keep mortgage rates stable and at low levels, but if it doesn’t cut rates by the end of the year, its going to get sticky and we may be using the “R” word a whole lot more. Or perhaps the “S” word (stagflation).

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[The Hall Monitor] Green = Red, White and Blue

April 29, 2007 | 9:13 pm |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd colors the green issue, well, green. …Jonathan Miller

The cover of the New York Times Magazine April 15, 2007 issue is captioned “The Greening of Geopolitics” How can America regain its international stature? By taking the lead in alternative energy and environmentalism.” The article was written by the noted Times columnist and author, Thomas L. Friedman and he begins ‘One day Iraq, our post-9/11 trauma and the divisiveness of the Bush years will all be behind us and America will need, and want, to get its groove back. We will need to find a way to reknit America at home, reconnect America abroad and restore America to its natural place in the global order as the beacon of progress, hope and inspiration. I have an idea how. It’s called “green”.’ Friedman’s motto: “Green is the new red, white and blue”.

The whole world, it seems, is going green. I’m not just talking Al Gore and an academy award for “An Inconvenient Truth”. Even Wal-Mart (who no one accuses of being a “tree-hugging liberal”), is strutting its “green” stuff. Solar energy is HOT. We’ve woken up to the fact that we’re much better off blocking the sun from our cancer prone skin and let it instead be soaked up by those funny looking collection panels up on the roof.

In the construction industry, “green” is making great strides, though much more quickly in commercial buildings than in single family houses. But this is to be expected when (costly) new technologies are emerging. Large scale projects have a better chance of achieving some economy of scale. Check out the websites for Leadership in Energy and Environmental Design, or LEED and the recently reconstructed 7 World Trade Center for examples of the latest energy saving features.

It may be happening at a slower pace with regard to single family houses, but it seems only a matter of time before the move toward “green” will be reflected in all new dwellings. There was a case in the news recently involving a newly built house in the leafy, affluent New York suburb of Scarsdale. It’s not easy being green when the neighbors are offended and they are supported by the Board of Architectural Review. Those of you who are unfamiliar with a local B.A.R. should count yourselves as lucky. The power they wield, arbitrary and capricious, is astounding. The good news for the couple who are building their house in Scarsdale is that they finally got approval for their solar panels (which, by the way, are on the back of the house and not visible from the street).

My prediction is that the next residential building boom will incorporate all the latest energy saving technology. Houses in the future will be dramatically different from those of today. They’ll be smaller and “Smarter”. Big, ugly boxes, what some call McMansions, houses with lots of space but no soul, will not age gracefully. Eventually, their owners will tire of dragging the thirty foot extension ladder into the foyer just so they can change a light bulb. The key phrase in my prediction (of such a radical change in houses) is the “next residential building boom”, because I haven’t said when I think that will occur. Real estate tends to run in cycles. The most recent boom was from 1998 2005. When will the next one start? Don’t hold your breath, but when it does it’ll be “green”, the next red, white and blue.

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[Straight From MacCrate] Consider Review Appraisals

April 29, 2007 | 4:07 pm |

Jim MacCrate, MAI, CRE, ASA, has worn many hats in his career. He taught a number of the appraisal classes I have taken through the Appraisal Institute. and I think he is one of the few people who actually understands the “J-Factor.” His wife Judy is an SRA and is an accomplished appraiser in her own right, having managed an appraisal panel for a large lending institution throughout its various mergers for a number of years. I can only imagine the riveting conversations at dinnertime. This week, in his inaugural post, he dashes dogma and talks non sequitor to get to the topic of appraisal review. …Jonathan Miller

Non Sequitor cartoon strip
“A pinch of preconceived notions, a dash of dogma, mix well in a bowl of innuendo, then just say the magic word” . . . and what do you get? A real estate appraisal? Or just a quote from Max in the cartoon Non Sequitur.

With all the players in the appraisal process, it’s no surprise client pressures from all sides can create biased reports. Unfortunately, lawyers, accountants and other real estate advisors who work on a performance fee basis sometimes suffer ethical lapses. They opt for fat fees, rather than fair appraisals. Even government reinforces subtle pressure on real estate appraisers by failing to protect society with required standards (minimal licensing and limited resources to monitor unscrupulous appraisers and their clients). Without such oversight, appraisers must learn to walk away to avoid compromising their ethics and professionalism.

Thus the need for unbiased professionals to review appraisal reports for fraud, incompetence, or human error. The Uniform Standards of Professional Appraisal Practice (USPAP) defines the review function as distinct from real estate valuation/consulting, so different standards apply.

Many review appraisers are independent professionals who are educated, trained, and experienced to evaluate appraisal reports. They must know the property type, the market, the geographic area, and the correct analytical methods for an accurate analysis. They judge the quality, completeness, and adequacy of the appraisal report to determine if its information is relevant and the correct valuation techniques support reasonable conclusions.

Max also concludes

Facts are a lot more fun when you get to make them up.

That’s why appraisal reviews offer good insurance and professional appraisal reviewers make qualified industry watchdogs.

Note: a special thanks to Nancy Reiss of The Write Stuff and Max Ramsland, MAI for their help with this.

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Lame Blame Game of Shame = Bad Weather

April 25, 2007 | 12:05 am | |

I am always fascinated by the spectre of blame that fills the commentary of the housing market, from insane commenters on Curbed, to mainstream media sound bites. Last fall, before the outbreak of subprime fever, I had noticed the beginning of the transition from housing bubbles to mortgages.

Daniel Gross in his always interesting Moneybox column on Slate writes about the widespread blame on the housing market for our nation’s woes in The Real Estate Blame Game: the unlikeliest victims of the housing slump.

Here’s a summary of the problems caused by a weak housing market:

  • Pickup truck sales
  • Railroads
  • Boat retailers and manufacturers
  • All of Latin America

But we all know that the weather is the cause of all of housing woes so we can safely say that pickup truck sales, railroads and boat retailers, especially those who are exported to Latin America, are severely impacted when the snow on the ski trails in Utah, feel as light as champagne.


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[In The Media] CNBC Power Lunch Clip for 4-24-07

April 25, 2007 | 12:01 am | Public |

This was a split screen discussion on luxury foreclosures. Note my two titles in the video.

A few thoughts about auction properties:

  • The discount achieved is usually based on an unrealistic list price, suggesting a wildly large discount.
  • When a listing is sold through an auction, the discount, if any, is the result of a short marketing period. In other words, the property is exposed to a specific buyer for a very short period of time. The advantage to an auction sale is that sellers to whom “time is of the essence” get a reprieve and unload the property sooner. Its not a discount for the sake of a discount. They are essentially paying for a shorter marketing time.

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Radar Love = Radar Logic Research

April 24, 2007 | 10:06 am | | Public |

Radar Logic Incorporated and my appraisal and consulting firm Miller Samuel Inc. have entered into a joint venture named Radar Logic Research, LLC.

Radar Logic Research Press Release [pdf]
Radar Logic White Paper Here’s more technical information.

Radar Logic Incorporated, through its partner Ventana Systems, Inc. a mathematics consulting and software firm, have leveraged methodologies commonly used in the sciences, and applied it to real estate. The objective was to make sense of the national residential housing market by creating a daily housing “spot” price to be used in the trading of real estate derivatives.

The Radar Logic Daily Index is a single, statistically accurate value representing the price per square foot paid in a defined metropolitan area on any given day. Data is gathered from public source records and then translated by our proprietary algorithms into an accurate reflection of the values paid in actual arms-length real estate transactions.

First, a little history…

The name Radar Logic references modern radar, and its ability to illuminate order out of chaos.

When I met with the CEO Michael Feder not too long ago and began to grasp what he and his team had accomplished, a light bulb went on in my head (despite the usual foggy conditions) and I wanted to be a part of this effort immediately. (more on that below) The Radar Logic approach solved the glaring problems found in national market statistics, such as moving averages and omission of data types. Up until now, this has prevented the financial markets from efficiently using residential real estate as a basis of trading instruments such as derivatives in a manner similar to the futures and options contracts available in more traditional commodities.

A derivative is a financial instrument used to trade or manage the asset upon which the instrument is based. It “derives” its value from something else (another asset or instrument). Derivatives are most often used to manage risk or to take positions on future market directions. Derivatives exist for a wide range of assets, such as commodities (gold, oil, corn), stocks and bonds, and on indices, such as the Dow Jones Index®. Until now, there have been few derivatives markets for residential real estate. Radar Logic Incorporated was founded for the purpose of enabling financial derivatives based on real estate.

The residential housing market is the largest asset class in the United States. To provide some perspective, the Federal Reserve indicates that the US housing market represents about $21 trillion in value. Commercial real estate, while a large asset class, is only about 20% of that amount. Yet because the residential real estate market is made up of 124 million units worth an average of around $240,000, it is fragmented and difficult to measure.

In addition, residential real estate as an asset class, is constantly changing. It is characterized by seasonality, new development, the surge of condos in metro areas and now, the rise in foreclosures. Its always changing. The Radar Logic methodology considers all verifiable transactions in a market to arrive at a value for the day that is not a moving average.

Its really exciting, and its groundbreaking stuff, to say the least. The beauty of this approach, is that there are no hidden filters, assumptions or calculations. In other words, the market is the market.

In addition to my duties at Miller Samuel and Miller Cicero, I have become Chairman of Radar Logic Research, LLC as well as Director of Research for Radar Logic Incorporated. I am still going to be active in the operation of Miller Samuel and produce the New York area market report series for Prudential Douglas Elliman that I created and have authored since 1994, with more markets to be added. Trust me, I have simply invented more time in a day. (More on that at another time, when there is more time in the day.)

Radar Logic Research will develop and publish research products providing market commentary and analysis related to real estate values across the United States later this year for institutions as well as enterprise-specific consulting services to real estate and financial organizations, including builders, developers, brokerages, commercial lenders, REITs, and investors such as pension funds, hedge funds and insurance companies. The initial plan is to offer these services to cover 25 major metro areas, roughly 2/3 of the value of the US housing market.

More on this to come!

Ok, back to work.

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1Q 2007 Long Island/Queens Market Overview Available For Download

April 23, 2007 | 12:03 am | | Public |

The PDF version of the 1Q 2007 Long Island/Queens Market Overview [Miller Samuel] that I write for Prudential Douglas Elliman [PDE] is available for download. We just introduced this study series in 2006.

You can see the methodology that went into the report.

You can also build your own custom data tables using the aggregate report data (from 2Q 2003 through 1Q 2007). I have created a series of quarterly market charts that may be of interest as well.

_An excerpt_

…Overall price indicators showed weakness this quarter particularly at the higher end of the market. Overall median sales price showed relative stability as compared to the same period last year while average sales price showed a modest decline. Inventory levels are expected to level off as seasonal demand increases the number of sales. Current inventory levels remain below those seen in the second and third quarters of last year. However, the number of sales for the quarter is the lowest seen in three years suggesting a lower intensity of sales activity this spring, even when seasonally adjusted….

Download report: 1Q 2007 Long Island/Queens Market Overview [pdf]

Here’s the media coverage for the study. I think I got most of them. Normally I would have covered this the day of publication last week but if you remember, I was kind of in Seine.

Here’s the recap:

Bloomberg News
The Real Deal
New York Observer
Crain’s New York

Bloomberg Television – In Focus

Bloomberg Radio
Bloomberg Radio

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Real Estate as a Cartoon – Cookie Cutter

April 23, 2007 | 12:02 am |

Source: The New Yorker

Periodically, I see a cartoon that grabs my interest (so its got to be real estate related). This one comes from one of my regular reads, The New Yorker which is chock full of great cartoons, and yes, I do read the articles too.

I didn’t get official permission so I hope they don’t mind. This was emailed to me as part of their cartoon of the week presentation.

The caption might read:

Are they moving in or out?

My vote is in and it seems to be a perfect fit. Don’t we wish all buyers felt the same way?

Crains New York Business Economic Spotlight Chart – April 2007

April 23, 2007 | 12:01 am | | Charts |

Since 2003 I have provided a chart that appears once a month in the Economic Spotlight section of Crain’s New York Business magazine. Here is this month’s chart appearing in the current issue of Crain’s New York Business.

Source: Crain’s New York Business

Go here for a complete archive of all my Crains’s New York Economic Spotlight charts. They are organized by year.

As an added bonus (to me, actually, ’cause I am in it), there is an interesting article in Crain’s on how NYC currently has the edge over the outlying suburbs.


Outstanding On Our Soapbox: High Pressure = Appraiser Inflation, Systematic Inattention And False Markets

April 23, 2007 | 12:01 am |

In our other blog, Soapbox, I wrote a post called Appraiser Inflation, Systematic Inattention And False Markets, in my Sounding Bored column.

This week I notice some are now finally paying attention to the inflated truth in the real estate market, albeit a little too late.