Matrix Blog

Archive for November, 2007

NAR’s Temporary Housing View

November 29, 2007 | 12:10 am | |

Not a month goes by that Larry doesn’t say housing is getting better and that mortgage problems are temporary.

Lawrence Yun, NAR chief economist, expected the sluggish performance. “As noted last month, temporary mortgage problems were peaking back in August when many of the sales closed in October were being negotiated. We continue to see the biggest impact in high-cost markets that rely on jumbo loans,” he said. “Mortgage availability has improved as evidenced by much lower mortgage interest rates and a sharp jump in FHA endorsements for home purchases.

I was wondering what mortgage data Larry is referring to? I don’t believe its part of his research but is a primary basis of rationalization for glowing market conditions, despite the fact that inventory tracked by NAR is at its highest level since 1985 and has continued to rise despite temporary mortgage problems.

Here’s what I said about Mr. Yun’s choice of the word “temporary” last month. Hmmm… perhaps this should be a monthly ritual until he stops using the word. Even then, we can’t be assured it will be temporary.

I yearn for the day when NAR finds that perfect moment and decides to inform the public and the consumer what is happening in the housing market, rather than assume we are illiterate. I know many, many brokerage firms and agents that agree with this. PR driven quotes like this don’t move markets so what is there to be afraid of?

UPDATE: Here’s a related article referencing some of my feelings about this topic in a Business week piece: Northeast Home Prices Remain Strong: Unlike the rest of the U.S., the region has seen price increases for the past six months. But a bad bonus season could change that

UPDATE 2: Supply of homes on market at 22-year high: Existing-home sales pace falls to 4.97 million for October, off 1.2%

Tags: , , , ,

[Federal Reserve] Real Estate Not The Only One Getting A Beige Eye

November 28, 2007 | 11:49 pm | |

The Federal Reserve released their Beige Book today, an anecdotal take on the US economy by each of its 12 member banks. Its a good “ground level” overview of the economy performed by their in-house economists. Its a must read because it clearly parses out the different sectors of the economy (not because they interview me).

The Fed Governors have been busy speaking this week, hoping to influence the markets and public sentiment. The Beige Book and Vice Chairman Kohn gave some hope today for those who feel there needs to be a rate cut. (hint: Wall Street)

In a speech in New York, Fed Vice Chairman Donald L. Kohn said the central bank would remain “flexible” and would “act as needed” to prevent the housing crisis and credit crunch from damaging the economy.

The DJIA jumped 2.6% today, the largest increase since 2003.

I have not yet been able to get my arms around the disconnect with understanding the economy without considering the impact of the deteriorating housing market. Some say the Fed is behind the curve.

Retail was spending was down on Black Friday even though Cyber Monday spending was up. The holiday seasons is expected to be off from last year.

American shoppers, lured by longer opening hours and deep discounts, turned out in greater numbers over the post-Thanksgiving weekend than they did last year — but the average amount they spent decreased, according to the National Retail Federation’s 2007 Black Friday Weekend Survey. The number of shoppers went up 4.8% to more than 147 million over the long weekend, but they spent an average $347.44, a 3.5% drop from 2006. Consumer spending is being affected by high food and energy costs as well as the housing slump.

Banking is already taking a big hit, primarily due to mortgages. According the FDIC’s release today:

Industry performance was hurt by asset-quality problems and volatility in financial markets during the third quarter. Almost half of all insured institutions reported year-over-year declines in earnings. Residential mortgage loans were the focal point of asset-quality problems. But delinquency and loss rates were up across all major loan categories,” said FDIC Chairman Sheila Bair. “Because insured financial institutions entered this period of uncertainty with strong earnings and capital, they are in a better position both to absorb the current stresses and to provide much needed credit as other sources withdraw. Going forward, the outlook for the industry depends on the severity of the housing downturn and the extent to which it spills over into the broader economy.

According to the Fed’s Beige Book, housing is spilling.

Demand for residential real estate remained quite depressed, with only a few tentative and scattered signs of stabilization amidst the ongoing slowdown. Most Districts pointed to further increases in the inventory of available homes, with the earlier tightening of credit conditions for mortgage lending continuing to create barriers for some buyers. Consequently, prices on new and existing homes sold were reported to be down on a short-term or year-earlier basis in most Districts. The pace of homebuilding remained very low in general, and builders continued to shelve projects and lay off workers in many areas; contacts generally do not expect a significant pickup in homebuilding until well into next year at the earliest. Among scattered positive signs, however, co-op and condo sales in New York City picked up during the survey period, Richmond reported favorable readings on home sales in a few areas, and Kansas City reported that home inventories fell a bit in the Denver metro area. Weak home demand had mixed effects on conditions in rental markets: Chicago reported that builders’ conversions of new homes to rental property put downward pressure on rents, while Dallas noted that demand for apartments picked up, in part because some potential homebuyers are unable to qualify for mortgages.

I worry that the Fed won’t take action quick enough though. A 25 basis point cut won’t cut it.

I have been worried about a recession for more than a year now. Since its been six years and many may have forgotten what a recession actually is. There is some argument that we are already in one but don’t yet know it.

UPDATE: As Lenders Tighten Flow of Credit, Growth at Risk [NYT]

Tags: ,

Miller Cicero’s New York City Income Property Market Report First Half 2007 Is Released

November 28, 2007 | 10:28 pm |

Our commercial advisory firm just released its New York City Income Property Market Report for the first half of 2007. My commercial valuation partner John Cicero put the report together. Its the only one of its kind available.

Here’s an excerpt:

The number of closed sales was up 11.3% in the first half of 2007 compared to the prior six month period, driven by the sales activity in Manhattan, including Northern Manhattan. Manhattan saw twice as many walk ups sold in the first six months of 2007 compared to the second half of 2006. Along with the increase in the number of sales, the median price of a Manhattan apartment building showed a sharp increase as well, breaking $500 per square foot for the first time. The median price of a walk-up apartment building in Northern Manhattan also set a record, exceeding $300 per square foot. The outer boroughs were mixed, however, as the price of walk-up apartment buildings in Brooklyn and Queens remained relatively flat, while Bronx saw a decline in price to $100 per square foot. The cap rates for walk-up apartment buildings, which comprise the greatest sample size, illustrated further compression in Manhattan, including Northern Manhattan, and generally remained flat in the Bronx, Brooklyn and Queens. Though the number of sales is up sharply from the second half of 2006, with 2,063 closed sales compared to 1,852, there were nonetheless 13% fewer sales than the first half of 2006, one year ago, which was the most active period of the past four years…

Massey Knakal will distribute over 300,000 hard copies of the report over the next few months.

Massey Knakal New York City Income Property Market Report [pdf]

Report Methodology [Miller Cicero]

Tags: ,

Despite Philadelphia Cream Cheese, Number of Sales Reach Low

November 24, 2007 | 8:21 pm |

This 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. He analyzes the Philadelphia real estate market using the city’s real estate database through Hallwatch, a watchdog group. The results are published in a research paper called Philadelphia House Price Indices each quarter as a public service to the Philadelphia real estate community. Here’s his methodology [pdf].

The report is always informative and I am glad I am able to present his efforts on Matrix -Jonathan Miller

Download the full report [pdf].

Read the Hallwatch article on the market: Philadelphia Experiences First Citywide Drop in House Values Since 2002

The Philadelphia real estate market is showing weaker appre, but a lower level of sales activity. Here’s a few salient points made by Kevin:

  • Just under 6,000 homes changed hands during the third quarter—the fewest sales since 2003 Q3.
  • With sales volume slumping, the number of homes lingering “for sale” on the market continued to climb, to nearly 12,000 units—more than double the amount listed in 2004.
  • With the fallout from subprime and the tightening of mortgage credit, foreclosures rose in the third quarter to just over 900 homes—about fifty percent higher than in 2005. (link to slide 35)
  • And, for the first time since 2002 Q3, house prices declined citywide on a quality- and seasonally-adjusted basis—about minus 1.1%

More discussion concerning the report []. 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.


[Trulia] Foreclosures As Part Of The Mainstream

November 24, 2007 | 4:47 pm | |

One of the things that has always bugged me about the way many analyze real estate markets is the prevailing wisdom that foreclosure properties are not relevant to understanding the market…that foreclosure sales are “tainted.”

A sale coming out of foreclosure is a sale anyway you slice it. It represents competition for existing listings. If foreclosure list prices happen to be lower, they will influence non-foreclosure listing prices and time on the market for all properties. Foreclosure listings or sales are not some special transaction in a vacuum. The decision to include them should not be affected by whether the market is rising, falling or stable.

So I thought it was pretty cool to see the announcement of Trulia’s partnership with RealtyTrac and the addition of 400,000 foreclosure listings to the more than 2,000,000 listings that are currently available on

Coincidentally [wink], this month’s Trulia Trends Report spotlights foreclosure listings. The report is based on a continuing evolution of ideas that has come as a result of the collaboration between Trulia and my appraisal firm Miller Samuel.

Trulia understands how important it is not to arbitrarily filter out content.

Disclosure: I am a member of the Trulia Industry Advisory Board so I may have been temporarily insane when I wrote this post.

Thanksgiving Tranches

November 24, 2007 | 12:05 pm | Radio |

I hope everyone had a great Thanksgiving. Its my extended family’s favorite holiday to get together. My kids and I overwhelmingly concur that the best benefit of the post-thanksgiving festivities are the amazing sandwiches comprised of leftovers: turkey, stuffing, cranberry sauce, horseradish/mayo, mashed carrots, turnips, potatoes on fresh bread.

However, in subprime tranches, investors didn’t know what ended up in their sandwiches [?????] so the lesson is… eat them at your own risk.

Tags: , ,

[The Hall Monitor] Oil And Water DO Mix

November 23, 2007 | 8:02 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.

When you mix oil and water, you can see a rainbow. …Jonathan Miller

Contrary to what you’ve been told, oil and water do mix, at least in regard to the deleterious effect that a shortage of one and/or the other will have on the future viability of suburbia. In his 2004 documentary film The End of Suburbia, Canadian director Gregory Greene examines the history of suburban development in North America and questions its future sustainability. The basic premise of the film is that the North American suburban model, which is based on the automobile as the primary mode of transportation, is predicated on cheap and abundant energy. And a phenomenon known as “Hubbert’s Peak” or “Peak Oil” argues that the days of cheap and abundant energy, specifically oil, are behind us. “Peak Oil” basically suggests that we have reached, or soon will reach, the point at which half of the world’s oil reserves have been exhausted. It will not be possible to increase productivity beyond current levels, indeed future extractions of oil will be more expensive and less efficient. Combine this leveling off in supply with the increasing demand generated by China and India as their economies grow and you get increasing energy prices worldwide.

As to supplies of water, well (no pun intended), this is clearly an issue in the southeastern and southwestern United States, which are both currently experiencing severe drought conditions. Until the recent downturn in the market, these areas were also among the fastest growing, in terms of new housing construction, in the country. From a recent article in the New York Times Magazine, The Future is Drying Up

A report by the National Academies on the Colorado River basin had recently concluded that the combination of limited Colorado River water supplies, increasing demands, warmer temperatures and the prospect of recurrent droughts “point to a future in which the potential for conflict” among those who use the river will be ever-present. Over the past few decades, the driest states in the United States have become some of our fastest-growing; meanwhile, an ongoing drought has brought the flow of the Colorado to its lowest levels since measurements at Lee’s Ferry began 85 years ago.

For most of us water is something we don’t even think about – turn on the tap and there it is. As a child I remember watching my father go around the yard with the garden hose watering the plants and lawn. And once the green things had their fill he would finish up by hosing down the sidewalks and the asphalt driveway! Then he might announce, “let’s all go for a drive” and we would pile into the station wagon and head out with no particular destination in mind. Yes, this was forty five years ago but I’m sure mine was not the only family doing this, and I don’t think very much has changed in terms of how we value these precious resources. Certainly not when you look at the sizes of our cars and houses. Gas prices in this country, while now averaging over three dollars a gallon, are still a bargain when compared with those in Europe (over six dollars a gallon in Switzerland) and most of the rest of the world.

“The End of Suburbia” is, as you might expect given the title, more Cassandra than Pollyanna but it holds out hope for a solution in what it refers to as New Urbanism. And if nothing else, the issues of oil and water might put the “crisis” of sub-prime mortgages in its proper perspective.

Tags: , ,

FDIC As Tipster: Negotiating A Good Mortgage

November 20, 2007 | 12:02 am | |

When I came across this download mp3information by the FDIC, it brought to mind something I thought of while reading the review of Steve Martin’s new book “Born Standing Up” I saw in Time Out New York Magazine yesterday.

I remember one of my favorite Martin routines went something like:

>Q: How to have a million dollars and never pay taxes…

>A: First, get a millions dollars…then…

In other words, their advice is probably too late for many, although the FDIC probably means well with their publication.

The FDIC Issues Tips on Shopping for and Negotiating a Good Mortgage in the New, Tougher Climate for Loans :

  • Try to raise your credit score in the months before you apply for a mortgage, such as by paying off much or all of what you owe on credit cards.
  • Contact several lenders, let them know you are comparison shopping, and then try to negotiate the best deal.
  • Compare fixed-rate and adjustable-rate mortgages (ARMs), even if the latter carries a lower initial interest rate, because a fixed-rate loan may be cheaper in the long run.
  • Be wary of a loan with payments that can increase substantially, such as mortgages with low monthly payments in the early years in exchange for the deferred repayment of principal and/or interest.
  • And, watch out for unfair and deceptive sales practices that lure people into costly or inappropriate loans.

Definitely wild and crazy advice.

Of course, it might make more sense to seek a loan modification.

Sheila Bair, chair of the FDIC has a constructive solution for borrowers in trouble:

>She’s proposing that the banks automatically modify every subprime loan if the borrower lives in the house and has been paying on time. Payments would continue at the starter rate, without a step-up. That could prevent foreclosure on about 1 million loans, Bair says, freeing overtaxed bank staffs to focus on the borrower’s default.

Loan modifications could be a good halfway point for many to avoid foreclosures. Lenders learned that it was often cheaper to renegotiate than to bear the expenses associated with foreclosure.

Tags: ,

Crains New York Business Economic Spotlight Chart – November 2007

November 19, 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.


Government Needs The Housing ATM Too

November 17, 2007 | 11:54 pm | |

As I was charged $1.50 today for using another bank’s ATM, I thought…

A lot has been made about the impact of the weaker housing market on consumer spending:

The question, though, is just how much consumers will restrain their free-spending ways. Research by economist Carroll suggests that every $1 decline in house prices lops about 9 cents off of spending. The current value of residential housing is about $21 trillion, according to the Federal Reserve. So if home prices fall by 10%, as many people expect, that would lead to roughly a $200 billion hit to spending over the next couple of years. A 15% tumble in home prices would produce a $300 billion pullback in spending, or about 3% of personal income.

That accords well with calculations by BEA economists. They figure that households took out $340 billion in cash from mortgage and home-equity financing in 2006. That source of funding could largely disappear over the next couple of years.

The California Governator [-10%] ordered all departments to plan for significant budget cuts because of the weakening housing market.

In response, Schwarzenegger’s finance department has ordered agency directors to formulate plans to cut budgets by 10% for the spending blueprint the governor will unveil in January, according to administration officials who spoke on condition of anonymity. That would mean substantial cuts in all state programs, including education, transportation and healthcare, the officials said.

NYC Mayor Bloomberg [-2.5% to -5%] issued a hiring freeze and curbs on spending due to a weakening economy.

It is the first time officials have resorted to a citywide plan to make cuts since October 2002, when the budget was still reeling from the aftershocks of the Sept. 11 terror attack. Since then, the city’s superheated real estate market and fat payouts on Wall Street have led to surpluses, including a record $4.4 billion in the last fiscal year, which allowed the mayor to increase spending and services while cutting taxes and offering rebates.

Reduced transfer taxes, real estate taxes and other housing related revenues may cause many local and state governments to pull back spending that may have ballooned during the housing boom. If governments don’t react quickly enough, taxes will need to be raised to make up the shortfall.

The ATM like behavior of local government is an economic element of the weakening housing market across the country that doesn’t get much attention.

Mortgage Lenders Don’t Want The Bill For Mortgage Problems

November 17, 2007 | 6:38 pm |

Within the bill (H.R. 3915: Mortgage Reform and Anti-Predatory Lending Act of 2007) that appears headed for a lot of negotiation and work if it has a chance of being passed, the US House of Representatives is trying to prevent another mortgage and credit problem in the future by dealing with loose and deceptive loan practices.

One of the concerns with the legislation is its lack of precision, possibly inviting litigation every time a borrower falls behind on their payments. Yet the problems are real.

>Treasury Secretary Henry M. Paulson recently said there could be more than 1 million foreclosure proceedings started this year, with 620,000 of them dealing with sub-prime loans made to people with poor credit. Some analysts say a much larger number of mortgages is headed for trouble.

The White House objects to parts of the bill and the Senate does not have a bill in the works yet, delaying reforms on the mortgage market, which could be a year away. Hardly responsive to the problem. I wonder why the federal government can’t seem to get its act together on mortgage reform right now?

Holden Lewis of Bankrate breaks down H.R. 3915 nicely.

The “credit” card is played

>opponents said the bill would limit the availability of credit by hobbling lenders with red tape and filling them with a fear of running afoul of regulators or getting sued by borrowers.

The Mortgage Bankers Association objects to the bill because it places restrictions on its members, including selling mortgage products with interest rates above the what the borrower qualifies for. Another restriction they object to is the introduction of licensing to the profession.

While I agree with the intention of licensing, it is only there to complement existing restrictions and will not solve the problem by itself. The MBA can not self-police (look what happened). By only implementing licensing and no other regulator reforms, will only make the problem worse.

After appraisal licensing was introduced in 1991, the quality of appraisals fell considerably over the next decade. The rise of wholesale lending (mortgage brokers) as an origination source and appraisal licensing was a powerful cocktail for bad mortgages.

Why? Because an appraisal license freed the lender from some liability. Hey, I hired them because they were licensed by the state. There was less responsibility or focus on the competence of the appraiser being hired. A similar thing will happen with mortgage brokers if this is the only action taken.

There needs to be greater oversight introduced and the lenders need to be held more responsible (financial incentives are the only way to make this work) for the quality of mortgages they sell to investors, to force lenders to take a hard look at the mortgage brokers they do business with. Until now, its been lip service.

This is a systemic problem that mushroomed to disaster this summer. It will likely take as long to fix the problem as it took for the problem to develop, perhaps into the next “up” cycle.

On second thought, lets ram this legislation through right now.

Tags: , ,

Contrarian Economics Of Housing Is Being Written

November 16, 2007 | 12:01 am | |

This is the golden era of contrarian economics. Its simply heaven. Its a pleasure to take a break from dry rambling economic theory that is detached from the real world.

There are a slew of great writers out with a lot of new ways to think and see the housing market. Here are a few recent articles that were written by some of my favorites:

But I digress…