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Archive for August, 2009

[Sentiment versus Confidence] Dow Jones Sentiment Index Shows Improvement

August 31, 2009 | 11:20 pm | bloomberglogo |

Confidence is more right here and now. Sentiment is more forward looking (it gives a snapshot of whether consumers feel like spending money.)

(a lame appraisal analogy would be estimated market value for a bank appraisal (today) versus anticipated sales price for a relocation appraisal (future))

but I digress…
I continue to be amazed with the types of analysis being done with the subjective nature of what is on the consumer’s mind – or in this case, what journalists are writing about:

The Dow Jones Economic Sentiment Indicator

The ESI, which was first published in April, aims to identify significant turning points in the U.S. economy by analyzing coverage of 15 major daily newspapers in the U.S.

The Dow Jones Economic Sentiment Indicator bottomed last November and has continued to edge higher. Newspaper coverage has become more upbeat about the economy (I assume they assume that consumers are sick of reading about bad news), the number of articles expressing either positive or negative sentiment about the economy has fallen now to approaching a third of the level of its peak in October 2008 following the collapse of Lehman Brothers.

A lot of people are drinking the Kool-aid right now.

I find this particularly ironic since the real estate industry has long blamed “the media” for the making real estate correction worse by “piling on.” However, I find the coverage today to be overly positive from sloppy interpretation of the 4 housing price indices: Case-Shiller Index, NAR Existing Home Sales, Commerce Dept’s New Home Sales and FHFA HPI, showed positive signs.

Actually all indices showed less negative results which were discussed excessively positive.

For example, The Conference Board’s recent Consumer Confidence Index was a little more positive:

Consumers’ assessment of current conditions improved slightly in August. Those claiming business conditions are “bad” decreased to 45.6 percent from 46.5 percent, however, those claiming conditions are “good” decreased to 8.6 percent from 8.9 percent. Consumers’ appraisal of the job market was more favorable this month. Those saying jobs are “hard to get” decreased to 45.1 percent from 48.5 percent, while those claiming jobs are “plentiful” increased to 4.2 percent from 3.7 percent.

While the recent Michigan Sentiment Index showed renewed weakness:

Confidence among U.S. consumers unexpectedly fell in August for a second consecutive month as concern over jobs and wages grew.

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2, the lowest level since March, from 66 in July. The measure reached a three-decade low of 55.3 in November.

I find the whole thing a bit foggy especially using monthly figures for comparison.

Further reading on this.


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[Case-Shiller Index] Homes Prices Now At 2001 Levels

August 31, 2009 | 1:05 pm | nytlogo |

Source: NYT (click to expand)



In Floyd Norris’ column this weekend titled After a Bumpy Ride, Back at Square One illustrates how housing prices are back to 2001 after adjusting for inflation.

During the period, the Standard & Poor’s Case-Shiller 20-city composite index of home prices rose almost 21 percent. The Consumer Price Index also rose almost 21 percent.

He concludes…

Now foreclosures are still rising, even as home sales and prices seem to have stabilized. If the worst is over, it will have been a wild ride that ended very close to where it began, but with many people much worse off for the experience.

The takeaway is that home price performance varies significantly by area so the national number doesn’t mean to much to your local market. However, it would appear that because the boom was born out of credit, the housing market may over correct.

Not relevant to post but who cares – aside: How social media are like sex


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[Interview] Dawn Doherty, Vice President of Strategic Development, StreetEasy

August 28, 2009 | 3:21 am | Podcasts |

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[The Housing Helix Podcast] Dawn Doherty, Vice President of Strategic Development, StreetEasy

August 28, 2009 | 12:43 am | Podcasts |


In this podcast I have an engaging conversation with Dawn Doherty, Vice President of Strategic Development for StreetEasy, the real estate search engine that covers New York City, Northern New Jersey and The Hamptons of both sales and rental properties.

If you listen closely, you can actually hear the jackhammers on the street below and our brief foray into electrical engineering. Fun!

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.



[New Home Sales] Up 9.6% – New Is Better Too?

August 27, 2009 | 1:40 pm | nytlogo |

Here’s the meat from the commerce department’s July new residential sales report released yesterday.

Sales of new one-family houses in July 2009 were at a seasonally adjusted annual rate of 433,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.6 percent (±13.4%)* above the revised June rate of 395,000, but is 13.4 percent (±12.9%) below the July 2008 estimate of 500,000. The median sales price of new houses sold in July 2009 was $210,100; the average sales price was $269,200. The seasonally adjusted estimate of new houses for sale at the end of July was 271,000. This represents a supply of 7.5 months at the current sales rate.

Inventory has fallen to 7.5 months from 12.4 months earlier this year because builders simply aren’t building. The general thinking is that the tax credit and low rates have helped move properties more than they would have otherwise. However, distressed property sales are now competing with new construction and credit remains tight.

The number of new properties available for sale is the lowest it has been since 1993.

Sales picked up in three out of the nation’s four geographic areas, with a sizeable gain of 16.2 percent in the South, the nation’s largest-selling region, which includes the Washington area. Sales fell only in the Midwest, by 7.6 percent.


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[Interview] Dan Green, Loan Officer, Waterstone Mortgage, The Mortgage Reports Blog, BringTheBlog.com

August 26, 2009 | 3:00 pm | Podcasts |

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[The Housing Helix Podcast] Dan Green, Loan Officer, Waterstone Mortgage, The Mortgage Reports Blog, BringTheBlog.com

August 26, 2009 | 1:58 pm | Podcasts |


I had a good conversation with my friend and colleague Dan Green, a loan officer with Waterstone Mortgage in Cincinnati who provides a very lucid font line depiction of the state of mortgage financing, despite his characterization of me as being Bobby Flay-like.

He runs a very well-written blog called The Mortgage Reports and a service called Bring the Blog. I have always found him to be in front of the technology curve.

Back in early 2008, Dan created one of the best videos on how the tightening of underwriting guidelines left many people stranded. I think it is required viewing.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.



[Over Coffee] Morning Quote: Less Desirable

August 26, 2009 | 12:05 am |

Here’s a recent situation with a national lender we rarely work with. One of my staff got the following request:

I got an addendum request from [bank] today. The borrower says they have better views then the comps used. Borrower says they don’t have to look at the “less desirable” neighbors, a housing project.

If I agree could I please make the appropriate adjustment.

Good grief.

Has this banker ever heard of Fair Housing? You can’t make this stuff up.



[Case-Shiller Index] Up M-O-M 1.4%, Down 15.4% Y-O-Y, Feels Like 2003

August 25, 2009 | 1:20 pm |

From the Case-Shiller Index Report released today:

“For the second month in a row, we’re seeing some positive signs,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The U.S. National Composite rose in the 2nd quarter compared to the 1st quarter of 2009. This is the first time we have seen a positive quarter-over-quarter print in three years. Both the 10-City and 20-City Composites posted monthly increases, as did most of the cities. As seen in both seasonally adjusted and unadjusted data, as well as the charts, there are hints of an upward turn from a bottom. However, some of the hardest hit cities, especially in the Sun Belt, show continued weakness.”

The press release has the monthly 10/20-city, quarterly 10/20-city and national index with monthly and year over year data and references to month, quarter and year are all interspersed so its tough to follow.

Here’s what it looks like – The 10-City and 20-City Composites recorded annual declines of 15.1% and 15.4%, respectively. These are also improvements from their recent respective record losses of -19.4% and -19.1%. The 10-City and 20-City Composites posted their second consecutive monthly increases. Both indices were up 1.4% in June over May, and up 0.5% in May over April. Eighteen of the 20 metro areas saw improvement in their annual returns compared to those of May. Looking at the monthly data, the same 18 metro areas reported positive returns in June.

For the national composite, housing prices rose 2.9% from Q1 to Q2 and fell 14.9% from the prior year quarter before seasonal adjustments.

In other words, the indexes show improvement in the short term.

Shiller notes a change in mindset:

“The animal spirits seem to be coming back,” said Robert Shiller, Yale economics professor and developer of the Standard & Poor’s/Case Shiller Home Price indexes. “The psychology does seem to be changing.”

But Shiller is cautious about the good news:

“The really important things [affecting home prices] are unemployment and momentum,” said Shiller, who is a Yale economist. “We have momentum, which is very important, but we also have high unemployment.”

And, he added, “the government has not yet handled the foreclosure problem.”


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[Westwood Capital] Only 16.9% To Fall, Land Bubbles

August 25, 2009 | 12:21 pm |

Westwood Capital, LLC, an investment bank, led by founder and managing partner Dan Alpert, projected that housing prices would decline by 28.2% from peak based on the Case-Shiller Index as a benchmark. Arguably pessimistic at the time, the 43% decline that actually occurred was a lot more bleak.

Westwood just released a compelling research piece called Reconstructing American Home Values which suggests we are 75% of the way through the decline.

Here’s a few of the salient points presented:

To firmly return to the upper limits of historically justifiable levels of stabile prices relative to rents in particular, we believe the Case-Shiller 20 markets must decline, on average (with considerable differences among markets), by an additional +/-16.9% from May 2009 levels.

In the final years of the housing mania of the 2000s, home buyers not only assumed the price they paid would rise to the moon; they paid more than 50% of their homes’ purchase price toward what was effectively a wildly overpriced option on that presumed growth, relative to the portion that could be reasonably attributed to the cost of shelter. They not only massively overpaid that option; they were also leveraging themselves to the teeth to do so. For the entire period from 1997 through the bubble’s peak in 2006, housing prices in the Case-Shiller 20 metropolitan statistical areas rose by a total of 163.8% before inflation, and 107.6% after inflation is taken into consideration!

In other words, in addition to the cost of shelter, the housing bubble was caused by an irrational jump in the cost of an option to purchase a property’s future price appreciation. The report concludes that that the future appreciation portion of the value equation was over valued by at least 50%.

Another point that was brought up related to the fact that the value of land is attributable to what it can be used for. When housing markets rise, it is really the value of the land that rises rather than the value of the improvements.

I also like the discussion on rent v. sales price disconnect that began in 1997.

A big concern going forward is rent deflation, which is already occuring as many “For Sale” properties are becoming rentals due to the lack of demand.

Here are a few of the charts that interest me from the report:


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