Matrix Blog

Archive for October, 2007

More Statue Sales Than Housing

October 30, 2007 | 10:51 pm | |

Its been nearly two years since I wrote about the St. Joseph statue, which was appropriate in late 2005, as the housing boom shifted gears. There has been more coverage of St. Joseph as of late, a sign of a weakening market perhaps (who says housing isn’t emotional).

In today’s WSJ, there was a fun (or sad, depending on your take) article When It Takes a Miracle To Sell Your House.

Well, St. Joseph is back (actually upside down). In Catholicism, St. Joseph, a carpenter, is honored as the husband of Mary and foster father of Jesus. Representing a humble family man, he is the patron saint of home, family and house-hunting. Here’s a full blown history.

The Catholic saint has long been believed to help with home-related matters. And according to lore now spreading on the Internet and among desperate home-sellers, burying St. Joseph in the yard of a home for sale promises a prompt bid. After Ms. Luna and her husband held five open houses, even baking cookies for one of them, she ordered a St. Joseph “real estate kit” online and buried the three-inch white statue in her yard.

Suggested use of the statue:

  • bury it three feet from the rear of the house (facing away)
  • bury it next to the front door facing away from the home.
  • display in the house.
  • bury in a potted plant in an apartment.

The sales pace of the statues is now double at

Who needs housing stats, lets start tracking sales of these statues. Its a booming business with a lot of places to purchase them (if you’re wondering):

Tags: , , ,

[In The Media] Reuters TV Clip for 10-29-07

October 30, 2007 | 5:41 pm | Public |

In Bobbi Rebell of Reuter TV’s Euros fueling NY condo market the weak dollar is discussed as a key driver of foreign demand. Arguably its a very dated topic since foreign demand has been a factor in the New York market for more than a year and also correlates with GDP levels of the various European economies. However, its still a factor in the current condo market, and specifically with new development.

Play video

Tags: ,

3Q 2007 Manhattan Market Overview Available For Download

October 29, 2007 | 2:04 pm | | Reports |

The PDF version of the 3Q 2007 Manhattan Market Overview [Miller Samuel] that I write for Prudential Douglas Elliman is available for download. I have been writing these market reports for them since 1994.

In addition, you can see the methodology that went into the report including the neighborhood boundaries and the type of content we have available.

You can also build your own custom data tables using the aggregate report data (from 1Q 89 through 3Q 2007) and view a series of quarterly market charts, most related to the current market report.

An excerpt

…Manhattan remains contrarian, but with reasonable expectations The high level of sales activity, combined with declining inventory levels, listing discounts and marketing times has not resulted in significant price appreciation year to date. This suggests a market psyche containing reasonable expectations of both buyers and sellers. This is a significant departure from the contentious conditions between market participants seen in the past several years, evidenced by patterns of sharply rising prices and declining sales. Buyers were being priced out the market and sellers had been conditioned to a rapidly appreciating market over the prior five years. In addition, Wall Street mortgage and credit market problems that appeared in mid-July and August have yet to show an impact in market data for the current quarter. Existing mortgage underwriting guidelines have become more strictly enforced with fewer exceptions allowed. A lower number of mortgage options and higher qualifying requirements for buyers is expected to temper the flow of sales activity…

Download report: 3Q 2007 Manhattan Market Overview [pdf]

Southern California Has Inflammatory Market Conditions

October 29, 2007 | 12:01 am |

A map of the fire-stricken areas [LA Times]

Here’s a good summary of the fire situation in Southern California:

By late Tuesday, the blazes had burned 420,424 acres — about 656 square miles — and destroyed 1,155 homes, making them nearly as large as the fires in October 2003 that are considered the biggest in California history. Although only one death has been directly attributed to the fires, five others have been linked to them.

There was an interesting economic take on the eventual aftermath of the Southern California fires. In Tom Sullivan’s article Beyond the Flames in this week’s Barrons. Here’s synopsis from Seeking Alpha California’s Economy May Get Post-Fire Boost.

“It’s an oddity of economic accounting…but the sharp initial pain could possibly turn into long-term stimulus,” says Alan Gin, an economics professor at the University of San Diego. How? Insurers will absorb the bulk of losses, and the eventual rebuilding boom, helped by a generous doses of federal aid, is sure to pump hundreds of millions into the Golden State.

It looks like the region is going to need it. According to the RPX Monthly Housing Report that I author for Radar Logic, the data and analytics firm, the San Diego market has seen one of the largest price declines over the past year.

The decline in housing impacts everyone employed within the real estate industry, including construction workers, contractors/trades, architects, landscapers, real estate agents, mortgage brokers, lenders, appraisers, lawyers and probably a slew of other professions and occupations I can’t think of at the moment. This silver-lining scenario is not a zero-sum situation, but at least the potential economic stimulus is better than nothing.

[The Hall Monitor] New York State Real Property Tax Law is Kafkaesque (Or is it the other way around?)

October 28, 2007 | 12:17 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.

In this column, Todd makes an arcane labyrinth of taxation more understandable in a literary confusing and complex sort of way. …Jonathan Miller

I had never read anything by Franz Kafka but I was familiar with the term “Kafkaesque” and I used it when trying to explain the nature of tax assessment in most of the municipalities comprising Westchester County. I didn’t really know what it meant but somehow it seemed appropriate. Then one night just for fun I decided to read one of his stories, “The Metamorphosis” actually, I only read the first sentence “As Gregor Samsa awoke one morning from uneasy dreams he found himself transformed in his bed into a gigantic insect.” (note to self forget “The Metamorphosis”, by Franz Kafka and pick up a copy of “Charlotte’s Web”, by E.B. White)

Understanding Kafka may be difficult, but it is nothing in comparison to deciphering New York State Real Property Tax Law, particularly Tax Assessment as it is practiced in most of Westchester County. Here are just a few of the inconsistencies, contradictions and misconceptions you will find in the Tax Law.

The law states that “All property must be assessed at a uniform percentage of value”. It doesn’t have to be assessed at 100% of value, it can be assessed at 1%, but it must be “uniform” for all property. So if your property has a market value of $1,000,000 its assessment may be $1,000,000 (100%) or $10,000 (1%), or as is the case in my town presently $13,800 (1.38%). That’s easy enough to figure out, right? Your house has a value of $500,000 and the small office building around the corner has a value of $500,000, therefore, your assessments and taxes should be the same. Except that they’re not the same. While the law states they “must be assessed at a uniform percentage”, residential and commercial properties are, in fact, assessed at two different rates. Commercial property uses an Equalization Rate while residential property (except for co-ops and condos, but we’ll get to that later) uses the Residential Assessment Ratio, or RAR.

Not too long ago, in an effort to make your property tax bill easier to understand, New York State came up with the Taxpayer’s Bill of Rights. In my opinion this was done, at least in part, as a service to people living in municipalities where fractional assessments were the norm. This used to be the case in all of Westchester County but now it’s only the case in most of the county. It’s very easy to understand what the market value of your property is if it’s assessed at 100% because if it’s worth $500,000 it’s assessed for, you guessed it, $500,000. With fractional assessments your $500,000 property would have (if it’s in my town) an assessment of $6,900. Naturally, this confuses people. So New York State decided to “translate” the fractional assessed value shown on your tax bill into the “market value” so you could know, at a glance, its presumed market value. This way, if you believe the assessment is excessive you can file a grievance. Trouble is, the bill utilizes the Equalization Rate to translate the assessment and this is only appropriate for commercial property. Homeowners who look at their bill to see the “market value” are getting false information, unless the Equalization Rate and the RAR happen to be the same. Usually, they are not the RAR is lower. So in most cases the homeowner is lulled into thinking their assessment/market value is lower than it may actually be.

Let’s talk about co-ops and condos for a minute. Since “all property must be assessed at a uniform percentage of value” that must mean that the guy who paid $500,000 for his co-op is paying the same taxes as the woman with the $500,000 single family house. Well, maybe it must mean that but it doesn’t mean that. Those of us who are old enough remember a time when most apartment buildings were rentals. Very few apartment buildings were built as cooperatives, most were converted from rental buildings. Back when they were rentals, they were valued for assessment purposes using the Income Approach. This was appropriate since their value to an investor was based on their income stream. You couldn’t buy or sell one apartment, just the whole building. However, in buildings that have converted to co-op or condo, now you can buy or sell one apartment and that apartment has a far greater value than it did when it could only be sold together with the rest of the building. Is it fair that the owner of a $500,000 co-op should pay less taxes than the owner of a $500,000 single family house? No it isn’t, but he does.

Trust me when I say that we have not even begun to scratch the surface of this topic but before you leap, headlong into the world of New York State Real Property Tax Law, you just might want to brush up on your Kafka. Keep in mind however, Kafka is “assessmentesque”.

Tags: , ,

[Chip Shots] The Market Is Listing…Dynamically

October 28, 2007 | 11:55 am |

Alvin “Chip” Wagner III, SRA, IFA, SCRP is third generation appraiser from Chicagoland who is a public figure and well respected within the appraisal industry. He runs the firm A.L. Wagner Appraisal Group., which has been providing appraisal, consulting and research services throughout the Chicagoland market for more than 35 years. I met Chip through RAC (Relocation Appraisers & Consultants) and have learned a lot from him. Like me, he has an enthusiasm for market analysis. Its great to have him share his insight on Soapbox.

This week, Chip talks about appraising in declining markets and the usefulness of understanding what competing properties are doing.
…Jonathan Miller

In this ever changing real estate market, I seem to be noticing new dynamics in the marketplace all the time. Almost daily, another little light goes on in my brain.

I have been doing this full time for 18 years, plus a few more years during high school and college while working in the family business, and I have never seen a market even close to this. A few of us have, but a majority of us have not.

I’ve appraised in a declining market, but most of the time, it was short-lived. Or it may have been a specific sub-market with unique influences leading to the decline (such as upper priced housing, or the influence of new construction in a marketplace).

But the most interesting “dynamic” I am noticing at the current time, is the lack of “good” comparables for use in my appraisals to estimate market value.

Unlike the Jonathan Miller’s Manhattan real estate market, the Chicago real estate market like most other areas of the country is in a period of decline. Fortunately, the Chicago area appears to be holding up better than some markets around the country. As a student of statistics, I am finding that macroeconomic statistics in most areas of Northeastern Illinois are showing declines. Sporadic sub-markets continue to hold up, but these areas are becoming fewer and fewer.


The local and national media and real estate community continues to talk about the increasing inventory, focusing on the total number of listings that are competing for buyers in the market place. It is true that in the Chicago metropolitan area (which encompasses over 9 million people) that the number of detached home listings has nearly doubled in the past two years (from 30,991 on 10/1/05, to 60,668 on 10/1/07) and most reports are focusing on this upward trend.

But the interesting dynamic also contributing to the inventory levels is the decline in sales volume. The annualized sales volume (12-month period) as of 10/1/05 was 83,757 sales of detached homes, and as of 10/1/07 it had shrunk to 59,626 sales.

While this is only a 29% decline in sales volume, the active listings increased a whopping 96%. The continued downward trend in contracts pending continues to force the sales volume lower each month and quarter it is calculated.

As a result, the challenge of the appraiser is that nearly 1/3 of the comparable sales have been removed from the pool of sales data for consideration. And in the volatile market with increased number of foreclosures, there is a wider range of values for these sales, than we had in previous markets. This is because of the foreclosure, pre-foreclosure and some corporate relocation sales that are now infiltrating the sales data pool with “lower” sales prices.

As they say, the cream rises to the top. And in the housing market, the few homes that are selling are the “crème puffs” out there. These homes still seem to be getting top dollar as a buyer can be choosy and select that home in perfect condition with fewest physical, functional and external defects.

These two dynamics are stretching what would be a small range of values in a “tract” housing neighborhood just two years ago, to a very wide range of values in today’s marketplace.


Fannie Mae guidelines ask mortgage appraisers to utilize comparable sales within the past 6 months. In other appraisals, the appraiser selects the most comparable sales, regardless of how recently they sold. In relocation appraising, the appraiser is given the latitude to select the “best” comparables, without limitations on when the most recent occurred.

In the April 2001 article published in Worldwide ERC’s Mobility Magazine titled The Difference Between Relocation Appraisals and Other Types of Appraisals, the author (yours truly) wrote:

The relocation appraisal asks the appraiser to consider closed sales without limitation. Often, the best sale to compare the subject property to is a home that is the same model, located on the same street, that closed longer than 13 months ago, and that was personally inspected by the appraiser who is using the comparable.

The premise behind this statement at the time I wrote the article in 2001, was that one of the easiest adjustments for an appraiser to make and support is a market change/time adjustment.

After experiencing these declining market trends over the past two years, combining my training and experience with networking with my peer real estate professionals, I have now become a very big believer in utilizing the most recent data available.

Two years ago, I would have suggested that the appraiser utilize the comparable sale of the same model that occurred 10 months ago and that looking in the rear view mirror, it is easy to see the stable, increasing or decreasing market trend, leading to a market change adjustment.

But today, with the limited sales data in many markets (plenty of competing listings data by the way) and the wide range of values in that limited data pool, I strongly believe and urge real estate professionals to consider the most recent market data, and seek out that data in competing areas if the data does not exist or is extremely limited or dated in the immediate marketplace.

But how do we know where to go? This can be best explained as “profiling the buyer” a strength of real estate agents and brokers working in a specific marketplace. They realize a buyer comes into an area focusing on specific demographics and price ranges, not on the “XYZ” subdivision. The appraiser values the property based on what is going on in the XYZ subdivision, not what is going on based upon demographics and the price range.

The real estate professional needs to understand the dynamic of market change, and the importance of understanding what is happening with the most recent sales whether they exist in the immediate neighborhood, or if you must venture to nearby similar areas.


A final thought, the savvy real estate appraiser understands the importance of the competing listings and their impact on the market value of a given property. Why would someone pay more for the subject property than what a competing property is priced at? Sound familiar? It should. This is our real estate Principle of Substitution1.

With twice as many homes on the market which is supply, combined with the declining demand (falling contract pending and sales volume) the extra pressure eventually leads to declining values.

Spend time to analyze the active listings and select the most comparable one. Then add that listing to the sales comparison grid as a fourth or fifth sale in your appraisals. You might be surprised when those listings are adjusting lower than your sales. Why? Your market is declining.

1 Principle of Substitution states: that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution. This is the primary principle upon which the sales comparison approach is based.

Tags: ,

Mortgage Brokers: Oversight From Hindsight In Plain Sight

October 26, 2007 | 12:01 am | |

Its been a long time coming.

There is now a movement at the federal government level to create oversight of the mortgage broker industry.

US Representative Barney Frank introduced legislation yesterday that would establish for the first time close federal supervision of mortgage brokers, who have become the dominant providers of home loans – particularly the subprime loans at the heart of the foreclosure crisis.

Whether or not this legislation passes, this industry needs oversight and not self-policing. The majority of residential mortgages are being issued through wholesale channels (mortgage brokers). There are certainly excellent mortgage brokers out there but the system needs checks and balances.

As it relates to appraisals, I have always contended that the person who is paid a commission on the issuance of a mortgage to a consumer should have no say in assessing the loan quality. There is too much of a chance for self-dealing.

Bank of America announced today that it will cease lending through wholesale channels. Translation: no mortgages through mortgage brokers.

WaMu tried to be proactive to preempt more regulation from coming down the pike.

The company’s new rules apply to its loans marketed through 19,000 independent mortgage brokers, among other outlets, but not through its own branches. Earlier this month, it began requiring brokers to verify that they have disclosed key loan terms, spelled out in simplified language. Washington Mutual will also call borrowers before the mortgage closes to review the terms.

The Federal Reserve consumer panel made recommendations today including:

  • Not to use the teaser rate to qualify.
  • Require escrow payments for property taxes and costs tied to buying a house.
  • Limit or eliminate prepayment penalties.

There’s still a lot of marketing goin’ on.

It struck me as a little fishy but at about the same time, the White House was also busy.


The Problem With NAR Forecasting Is Not Temporary

October 25, 2007 | 9:51 pm | |

In the New York Times article today Reports Suggest Broader Losses From Mortgages indicates that employment levels will be impacted from the job losses associated with problems in the mortgage industry. So now we have, lower levels of mortgage production, lower levels of construction and lower levels of consumer spending.

I guess thats why federal funds futures are indicating a 70% probability that the Fed will cut rates at their next meeting by 25 basis points.

Since August, Lawrence Yun, Chief Economist of the National Association of Realtors, has kept characterizing the mortgage and credit market problems as temporary. Every month, as the blogosphere continues lament the loss of his predecessor, David Lereah, Mr. Yun has been able to continue the tradition of reality distortion and he does not disappoint.

Temporary? Relative to what? Will mortgage problems continue on forever? Of course not. Merrill Lynch reported an $8B loss due to mortgage related problems today. National lenders are having difficulty selling paper to the secondary market investors. Will this problem go away in a few months? I don’t see how.

If we relied on Mr. Yun’s use of the word temporary and heeded his advice back in August and September, credit market issues would have long been resolved. For next month, here are some alternatives to the word temporary. I vote for fugacious.

I have long lamented how NAR has missed its golden opportunity to gain the trust of the consumer as being the authority on the housing market, despite the fact that they are a trade group. Rather than leveraging the wealth of information at their disposal, they provided comments like this:

“Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans,” he said. “The good news is that mortgage availability has markedly improved in recent weeks with interest rates on jumbo loans falling, and more people are applying for safer and conforming FHA mortgage products.

The quote attempts to parse out problems with the mortgage markets from the timing of contract and closing dates. Elements of the statement are correct, but out of context, and ultimately paint an inaccurate picture.

Speaking of disconnect, did you hear George Carlin’s comments on The View about the fires in southern California regarding people losing their homes?

Tags: , , , , , , , ,

[True Gotham] True Square Footage Can Be (Gross)ly Overstated

October 25, 2007 | 3:49 pm | Public |

Episode IV: Square Footage Causes Confusion

Doug Heddings, a successful New York real estate brokers who wants to get to the bottom of the square footage problem and fellow blogger at TrueGotham presents his fourth installment of the series: TrueGotham TV Explores Square Feet: Episode Four. This week’s discussion includes how square foot inconsistencies arise and what is their cause.

Episode I: [True Gotham] True Square Footage Is Multi-Dimensional
Episode II: [True Gotham] True Square Footage Methodology Is An Idea
Episode III: [True Gotham] True Square Footage Is Not Gross Nor Standardized

[Curbed] Three Cents Worth: PPSF Volatility, A Nice Spread

October 24, 2007 | 11:35 pm | | Charts |

Its Wednesday (barely), so its that time of the week to provide my Three Cents Worth as a post on Curbed. I looked at the volatility of the change in price per square foot over the past decade. Some curbed readers would rather eat fast food.

To view Three Cents Worth: PPSF Volatility, A Nice Spread

Check out previous Three Cents Worth posts.

Tags: ,

[Getting Graphic] Its More Than The Kitchen That Needs Fixin’

October 23, 2007 | 11:46 pm |

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

Source: Joint Center for Housing Studies.

Click here for full sized graphic [pdf].

The Joint Center for Housing at Harvard University released its quarterly The Leading Indicator for Remodeling Activity (LIRA):

“As homeowners become increasingly concerned about falling house prices and a slowing economy, home improvement spending is dragging” explains Nicolas P. Retsinas, director of the Joint Center for Housing Studies. “Coupled with very modest home sales, spending levels are likely to fall.”

Economic conditions are currently mixed and the futures markets are projecting the 65% likelihood of the Fed reducing rates by another 1/4 point, with more decreases in the future. The impact of the housing market has not had a chance to completely impact the economy. During the recent housing boom, rising labor and material costs were kept in check by low mortgage rates.

Remodeling expenditures are projected to decline through mid-2008 although I must admit that seems conservative. The LIRA indicator is a moving average and the impact of tightening credit during the quarter is likely not included in the report results.


Crains New York Business Economic Spotlight Chart – October 2007

October 22, 2007 | 12:01 am | | Charts |

I have had the pleasure of providing a monthly chart for the Economic Spotlight section of Crain’s New York Business magazine since September 2003. Here is the latest, which appears in the current issue of Crain’s New York Business.

Source: Crain’s New York Business

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