Matrix Blog

Archive for August, 2008

[Shakespeare On Subprime] “First Let’s Kill All The Lawyers”

August 27, 2008 | 11:58 pm | fedny |

Perhaps one of the most misused phrases in the history of literature is the reference to a quote in Shakespeare’s play “Henry VI”, “First lets kill all the lawyers.”

The line is from The Second Part of Henry VI, act IV, scene ii, line 86; spoken by Dick the butcher, a follower of Jack Cade of Ashford, a common bully who tries to start a rebellion on which the Yorks can later capitalize to seize the throne from Henry.

The plan would be to take away the rights of common citizens but that would only work if they “killed all the lawyers.”

In the wake of the subprime crisis, there will be plenty of opportunities in litigation, foreclosure and bankruptcy actions over the next several years. We are all (or at least I am) screaming for action on going after those that overstepped rule of law.

But what about those who were hurt who can’t afford legal advice? With so many law firms working with financial institutions in the wake of the crisis, there is a potential conflict of interest.

That hurdle is “issue conflict”—the potential conflict of interest for any law firm that has lawyers representing banks, savings and loans, and other financial institutions.

But the need—arising from the subprime mortgage debacle and exacerbated by skyrocketing food and fuel costs as well as rising layoffs—is great. Mark Schickman, a partner at Freeland Cooper & Foreman in San Francisco who chairs the ABA’s Standing Committee on Pro Bono and Public Service, says one in every 160 homes is subject to foreclosure.

“It’s almost a losing battle trying to provide legal services to the poor,” he says. “Every time we think we’re making headway, something like the foreclosure crisis comes in and pushes us from the goal. Pro bono attorneys are coming out in droves for this. It’s really heartening.”

In the ABA Journal article Prime Aid, Subprime Crisis there is already a surge in such activity.

In April, the Association of the Bar of the City of New York’s standing Committee on Professional and Judicial Ethics issued an informal opinion (PDF) regarding homeowner representation by firms that represent financial institutions.

The Federal Reserve Bank of New York and the City Bar Justice Center are sponsoring a pro bono legal services effort called the Lawyers’ Foreclosure Intervention Network that pairs homeowners at risk of foreclosure with attorneys and certified law students.

It’s an encouraging development as well as good public relations effort for the legal profession.

I’ll have to crack open that dusty copy of Hamlet.


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[Bullish In Technicolor] Housing Prices Show More Weakness

August 26, 2008 | 11:38 am | nytlogo |

It’s 48 hours of market report nirvana!

Guess what?

  1. Home prices are falling. [shocking]

  2. And prices during the spring market didn’t fall as much as the winter. [informative]

This is all very new and helpful. [sarcasm]

Here’s a recap

Here’s a thought. Mortgages are more expensive and less accessible than two years ago. Until that changes, I wouldn’t expect real, measured improvement. Improvement will come eventually. Let’s deal with the situation at hand rather than all the focus of calling the turnaround correctly.

What especially drives me crazy has been the viewpoint that things are getting better based on rising activity and/or prices in the spring in certain markets. It’s called “seasonality.”


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City Of Architecture: 2nd Quarter 2008 Market Report For Charleston, SC

August 26, 2008 | 12:07 am |

The research for this monthly market report is provided by Brad Rundbaken, of Diversified Resource Group, LLC, a real estate appraiser, consultant and investor with a stock brokerage background. He analyzes the Charleston real estate market using the Charleston-Trident MLS and inserts a lot of extra analysis on the national housing market. In fact, he crams it in there and he’s not afraid to share his opinions. He was terminated by his former employer (an appraisal firm) once he started publishing his market stats in 2006. However, honesty pays and he tells me his new venture is thriving.

Brad also runs a great blog. Here are the areas he covers and his methodology
…Jonathan Miller

View the entire report

Here are some of his observations pertaining to the overall Charleston market.

  • The average sales price dropped 6.6% in the Tri-County region compared to the prior year quater.
  • Q2 2008 sales are down significantly at -33.5% compared to the prior year quarter.
  • Due to economic weakness and tighter credit conditions sales have slowed by 33.5% and inventory has grown 11.3% since last year in the Tri-County Region.
  • Days on market has also increased by 31% since Q2 2007.
  • The Tri-County Market spring quarter did not live up to expectations of many local realtors and experts. Many are being quoted that it will get better next year. Based on what? Higher interest rates and a economy in a recession?
  • As inventory continues to rise the % Diff Sales to List Price has increased the most in Charleston County. This increase in the Discount can be attributed to buyers getting better deals on the higher end of the market which encompasses Charleston County in such areas as Mount Pleasant and the beaches.
  • As I have stated before there is a “shadow inventory” that is not transparent in the MLS statistics that is very worrisome. I have seen months inventory in the years after completing Market Analysis Studies for developers.
  • The CMR is very concerned about the high end of the residential market. These are the most risky loans to banks and inventory continues to build to extremely high levels.
  • The CMR predicts the average price per square foot will continue to decrease in many areas until the credit markets get back to normal. It is important to remember that many upgrades, discounts and closing costs being paid by sellers often do NOT show up in the Market Matrix. Real estate often has visibility issues with regards to the true price trends. An appraisal or Market Analysis should provided more transparency if done properly.

Review the report for more details on the tri-county market area as well as many other market areas. Chocked full of data.


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Windy City Update: Chicagoland 2Q 2008

August 26, 2008 | 12:01 am |

This quarterly market report is provided by Chip Wagner and Robert Headrick. I have had the pleasure of knowing them for a large part of my appraisal career. They are both very active in appraisal industry matters having held many leadership positions. Their respective firms have been covering the Chicagoland market since 1970 and as a result, they both have a wealth of insight. Their focus is on relocation, litigation and mortgage appraisals as well as slayers of appraisal myths. Chip and Bob author a series of market reports on the Chicagoland real estate market and Chip writes a column on our other blog, Soapbox called Chip Shots.

…Jonathan Miller

View the report

And their commentary…

What now?

In 32 of the 184 communities (about 17%), there was an increase in average sales price from second quarter 2007 to second quarter of 2008. Over 82% of the Chicagoland market has seen a decline in the average sales price.

An interesting observation shows that many of these areas that saw increases were higher priced communities. This is an interesting anomaly in the statistics. In every area, there has been a noted increase in the Months Supply of Inventory (increase in active listings, combined with a decrease in under contract and annual sales volume). What this tells us, in the higher priced communities where fewer homes are selling, and the mean (or average) sales price of these homes appear to be increasing because a few higher sales that are still occurring, influence the mean number as the sample size decreases.

Believe it or not, some significant asking price reductions on multi-million dollar homes are contributing to the appearance of increasing mean sales prices (i.e. a builder is asking $3,500,000 and after 2 years on the market will take $2,200,000). There are many deals out there – at all price points. Unfortunately, many of the deals are as a result of somebody’s misfortune.

Furthermore, in some communities where tear-down activity may be taking place in that market, the market has slowed significantly for these modestly priced homes, again, influencing the mean sales price in the area by removing the lower priced home sales making it appear that there is increasing average.

I would caution users of this report, that having done doing appraisals in these market areas, that there is evidence of declining values when analyzing Sale/Resale data, and the higher priced housing is especially volatile. This is true with every community. The change in mean sales price may or may not represent truly the community’s increase or decrease in values. Statistics are a great tool, but they can be interpreted and misinterpreted in different ways.

Again, real estate is local, so some areas are doing better than others as we caution these statistics are macroeconomic data. And indeed, there are some pockets and many instances where prices have increased in the past year, but this is few and far between, not the norm.


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[Like Whipped Cream Cheese] Philly Real Estate: Fewer Sales, Higher Prices

August 25, 2008 | 11:09 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].

Kevin does a great job parsing out the market and its a pleasure to share his results on Matrix —Jonathan Miller

Download the full report [pdf].

Read the Hallwatch article on the market: Philly real estate: fewer sales, higher prices in some areas

Here is one of the key points:

Although Philadelphia’s house prices may be resisting their continued declines, home sales continued their downward plunge this spring. Even though spring is normally the busiest time of year for housing transactions, only 4,546 dwellings changed hands under arms-length conditions this past quarter. This is a 25% drop from spring 2007, and a 42% drop from the housing boom’s peak in the summer of 2005.

More discussion concerning the report [Hallwatch.org]. 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.



[iTrulia] Getting Mobile With Luke Skywalker, Etc.

August 25, 2008 | 10:37 pm | trulialogo |

Since the new iPhone and it’s 2.0.2 software came out, I have been lovin’ the new apps that have entered the fray. The power of GPS allows blending data and location into a nice neat package. And endless array of possibilities.

One of my favorites of the just released: the Trulia iPhone app (disclosure: I have been on Trulia’s Industry Advisory Board since its inception). But it’s not just for the iPhone.

I got a demo of the beta when I was at Inman Connect SF last month. I have to say, unequivocally, that the app is even better than “more cowbell.” Actually it’s incredibly easy to use, allowing me to see what is for sale in the immediate area, drilling down to property details and what open houses are available (inside joke: thanks so much for not calling them “open homes”). It also enables viewing the Trulia voices feed specific to the location.

Keep it simple, make it powerful.

In fact, I’ve really been iPhone App happy lately. I was turned on to two other apps by my friend Andrew, that I find myself using everyday (aside from “iSaber“) called Jott and Evernote. Awesome.

Proud father moment: My teenage son was out with a bunch of his friends and one of them pulls out an iPhone, exclaiming, “hey guys, check this out!” and began brandishing iSaber with it’s Star Wars sound and light effects. My son looks at the kid and deadpans, “yeah, my Dad uses that one.”



[In The Media] Data Minefield: Knowing Its Limitations

August 22, 2008 | 12:24 am | delogo | Public |

Yesterday, Newsday ran nearly a full page story with my photo on the first page (different from the print version) of their business section discussing the vast array of housing information out there. The reporter’s article idea originated last week when I was interviewed for the release of the Prudential Douglas Elliman Long Island/Queen Market Overview I prepare and my plans to expand coverage and separate these two market areas.

Housing and mortgage reports are barometers of the market, but may not necessarily portray a complete picture. For example, one report may have higher numbers while another might not cover certain sales.

In other words, the size and quality of the data set defines the markets a report should cover. “Cart before the horse” so to speak.

Experts like Miller Samuel CEO Jonathan Miller say the full picture is in knowing the limits of the data

Manhattan-based appraiser Jonathan Miller bases his quarterly sales reports on numbers from the MLS, but he said he noticed a year ago that the records were a few thousand sales shorter for Queens than those in New York City’s property records.

I found the following comment by LIBOR puzzling because I was not criticizing their quality whatsoever. In fact, the quality of their information is excellent.

The Long Island Board of Realtors disputed the discrepancy, saying it compiles data recorded by brokers.

The point I was making is that by definition, MLS data in any market is a subset of the entire market. Their data set may represent nearly all sales or a small portion of sales. Their data set may serve as a proxy for the entire market or it may not. If an analyst has the means to collect data in excess of the quantity available from a local MLS, it only serves to benefit market participants.


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Losing Count, A Nation Holds Its Breath

August 22, 2008 | 12:01 am |

Ok, not really.

A lot is being made of McCain’s lack of recall about the number of properties he owns, 8?, 10? It’s kind of humorous. Here’s a few that pile on.

Not to sound like an apologist, but I suspect there are many investors out there who couldn’t give you an accurate, off the cuff, answer either. It’s really trivial trivia (if there is such a thing). McCain doesn’t say, “Gee, I really want to boost my number of houses from 10 to 11.”

In my book, you get a pass after owning three houses. At that point, you’re entitled to be oblivious.


[I.O.U.S.A.] Sooner Or Later It’s Real Money

August 21, 2008 | 10:41 pm |

A must see movie is coming out this weekend: I.O.U.S.A

To view more preview clips.

From the press release

Throughout history, the American government has found it nearly impossible to spend only what has been raised through taxes. Wielding candid interviews with both average American taxpayers and government officials, Sundance veteran Patrick Creadon (Wordplay) helps demystify the nation’s financial practices and policies. The film follows former U.S. Comptroller General David Walker as he crisscrosses the country explaining America’s unsustainable fiscal policies to its citizens.

As we slog through the current credit condition, its really an opportunity to reconsider the over reliance of debt as a way for government (and ourselves) to avoid making hard choices.

In fact, there is very little wiggle room with efforts for debt reduction on a federal level largely because of entitlements. Add to that a GSE bailout that may well exceed $100M and counting.

One for two

The Congressional Budget Office found that “typical estimates of the economic [deadweight] cost of a dollar of tax revenue range from 20 cents to 60 cents over and above the revenue raised.”3 Studies by Harvard’s Martin Feldstein have found that deadweight losses are even larger. He noted that “the deadweight burden caused by incremental taxation … may exceed one dollar per dollar of revenue raised, making the cost of incremental governmental spending more than two dollars for each dollar of government spending.”


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Urban Housing Trends Aren’t A Crime

August 20, 2008 | 11:58 am | nytlogo |

In an analysis done of census data pre-housing boom (1990s), The Brookings Institute in their recent report Where Workers Go, Do Jobs Follow? found that:

  • Roughly 65 percent of all residents and nearly 60 percent of all jobs are now located in the suburbs, with over a third of each in the higher-income suburbs.
  • Population grew strongly during the 1990s in the lower-income suburbs, while job growth was particularly strong in the higher-income suburbs

And then comes the 2000s
The New Urbanism movement, bolstered by the housing boom’s creation of new luxury housing stock and redevelopment of underutilized commercial districts, has seemingly reversed the long term migration to the suburbs. The decline in serious crime levels in urban markets have also played a major role in boosting demand (and may in turn further influenced the decline)

Will the current economic downturn undo urban housing trends in many US cities?

Based on the St. Lousi Fed research paper City Business Cycles and Crime by Thomas A. Garrett and Lesli S. Ott , perhaps not:

We find weak evidence across U.S. cities that changes in economic conditions significantly influence short-run changes in crime. This suggests that short- run changes in economic conditions do not induce individuals to commit crimes…we do find that short-run changes in economic conditions influence property [versus violent] crimes in a greater number of cities.

I have always seen crime levels and other quality of life issues as long term trends, like steering a super tanker (admittedly, a tired analogy).

And while we are on the subject of research papers…


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