Matrix Blog

Archive for April, 2010

[Three Cents Worth #146] The Rent Versus Buy X-Games

April 30, 2010 | 5:34 pm | | Charts |

It’s time to share my Three Cents Worth on Curbed, at the intersection of neighborhood and real estate.

Three Cents Worth: The Rent Versus Buy X-Games

This week I paired sales and rental data, adjusted for inflation, over the past (nearly) 20 years. I am constantly told that the rental market leads the sales market, but I’m not sure about much other than the two acting as opposites.

There was a big crossover post-9/11, likely caused by the Fed dropping rates to historic low levels, which fueled the housing boom and weakened the rental market

[Click to expand and read full post on Curbed]

Check out previous Three Cents Worth posts.

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[The Housing Helix Podcast] Tony Pistilli, Certified Residential Appraiser, Vice-Chair Minnesota Department of Commerce Real Estate Appraiser Advisory Board

April 29, 2010 | 3:00 am | Podcasts |

Last month I spoke to and interviewed Tony Pistilli, a certified real estate appraiser on the Minnesota Department of Commerce Real Estate Appraiser Advisory Board. He’s got a possible solution to the current appraiser – appraisal management company conflict. Its all about conforming to RESPA and preventing banks from shifting the burden to appraisers to pay for bank compliance.

Its the first logical solution I’ve heard. The banks are essentially making the appraiser pay for their RESPA compliance by taking it out of the appraiser’s fee, often 50% of the stated appraisal fee. The consumer is being mislead by the appraisal fee stated by the lender at time of mortgage application.

  • – Appraisers and borrowers are paying for services the banks receive, not the bank.
  • – Banks should pay for the services received from the AMC’s who manage the appraisal process.
  • – Appraiser’s fees should be market driven.
  • – Banks should be held accountable for the quality of the appraisal.

He’s been spreading the word through all the channels/usual suspects in the blogosphere. Here’s my original post, including his article:

[HVCC and AMCs Violate RESPA?] Here’s a possible solution

His views seemed to have been picked up by the Appraisal Institute, the largest appraisal trade organization in the US, in their letter to HUD looking for clarification on RESPA and the disclosure of fees paid by consumers. Here’s the FAQ on the new RESPA rule.

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.

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[Interview] Tony Pistilli, Certified Residential Appraiser, Vice-Chair Minnesota Department of Commerce Real Estate Appraiser Advisory Board

April 29, 2010 | 12:01 am | Podcasts |

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[The Assessor] New WSJ Column, Includes, Well, An Appraiser (Also Hamptons Data)

April 28, 2010 | 7:35 pm | | Public |

[click to read article (subscription)]

This week’s Wall Street Journal introduces a Greater New York section that focuses on, among other things, regional real estate. They’s staffed up have been the talk of the real estate community for the past month.

The new column “The Assessor (prior names under consideration included “The Appraiser” – how cool would that be?) features a sort of factoid visual presentation of some element of regional housing each day.

Today I contributed a slice of Hamptons data, including five metrics, to focus on five towns that had the highest average sales price in the luxury section of the 1Q 2010 Hamptons/North Fork Market Overview I prepare for Prudential Douglas Elliman. However I took the towns and analyzed all the sales, not just those in the top 10% of the entire East End and compared them to the prior year quarter and prior quarter.

The idea was to take a look at a slice of the market and see how it performed. It is really a bad idea to look at individual towns for trends in that market as many attempt to do because the data sets are way too low and varied to be statistically meaningful and can be misleading. The 5 time sample size for this analysis was deemed adequate.

One thing that is clear – sales in these higher-priced towns outpaced the overall rate of sales growth suggesting that the high-end market seems to be returning to the fray. In addition, the jump in median and average sales prices do not suggest that is how prices are rising, but rather how there was a substantial shift in the mix towards high-end sales.

I’m just sayin’…

Actually I’m not saying there’s a housing recovery. We seem to be observing a return to a more reasonable mix of sales activity, rather then the substantial skew toward the lower priced market segments during 2009.

[Glaeser 2-fer] Cities Do It Better + Manhattan Preservation Follies

April 28, 2010 | 10:21 am | |

I’m a big fan of the work of Harvard Economics Professor Edward Glaeser‘s work, especially that related to Manhattan. This week we are hit broadside with two compelling pieces to read.

[click image to open article]

The first is yesterday’s Cities Do It Better article in the NYT Economix section where he asks the question:

What makes dense megacities like New York so successful?

Economic geography was one of my favorite courses in college because it was so applicable to understanding the logic of how a city evolved and operated. Access to natural resources, transportion, labor, etc. He references Jed Kolko’s essay in “Agglomeration Economics” that he edited.

A key point as far as I’m concerned:

In a multi-industry city, like New York, workers could readily find some other employer. The young Chester Carlson was laid off from Bell Labs during the Great Depression, then moved to a law office as a patent clerk and then joined the electronics company that would make Duracell batteries and then invented the Xerox copier.

It’s sort of like my assumption that it is much more likely you will run into someone you know from another state or went to high school with in Manhattan than you would if you lived a mid-sized city. High density brings opportunity.

But there is more risk in cities like Detroit whose economy has always been one-dimensional. Pittsburgh and Houston are examples of smaller cities that learned to diversify after hovering near insolvency in prior decades.

[click image to open article]

His second article was released in City Journal called Preservation Follies which warns against excessive landmarking which serves to make Manhattan less affordable. He’s not anti-preservation, but he makes a case for excessive landmarking which has including buildings that don’t deserve it. His approach was novel to me, in the way that he tracks acres as the metric of landmarking:

He also looks at the addition of housing units within landmark districts:

During the 1980s, the mostly historic tracts added an average of 48 housing units apiece—noticeably fewer than the 280 units added in the partly historic tracts and the 258 units added in the nonhistoric tracts. In the 1990s, the mostly historic tracts lost an average of 94 housing units (thanks to unit consolidation or conversion to other uses), while the partly historic tracts lost an average of 46 units and the nonhistoric tracts added an average of 89 units.

…and its impact on housing prices…

From 1980 through 1991, the average price of a midsize condominium (between 800 and 1,200 square feet) sold in a historic district was $494,043 in today’s dollars. From 1991 through 2002, that price was $582,671—an 18 percent increase. The average price of a midsize condo outside a historic district, meanwhile, barely rose in real dollars, from $581,865 in the first decade to just $583,352 in the second.

[S&P/Case Shiller] February 2010, Feels Like 2003

April 27, 2010 | 10:47 pm | |

[click to open report]

Last week S&P made the decision to de-emphasize seasonal adjustments given the chaos of the past several years. A good move towards better transparency.

The S&P/Case Shiller Index showed:

  • 0.6% increase year over year, first in about 3 years – caused by the tax credit.
  • 20-City Composite is down 32.6% since June/July 2006.
  • Month over month decline in 19 of the 20 cities in the index.
  • 0.9% decline from January to February 2010, 5th consecutive monthly decline.
  • As of February 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003.

After 5 consecutive months of m-o-m declines, the Case Shiller Index is feeling the influence of rising foreclosures and a possible housing double dip, despite the stimulus in sales activity from the multiple federal tax programs.


[WPAR] 1Q 2010 Westchester County, NY: Tax Credit Driving Sales

April 27, 2010 | 9:51 pm | |

The Westchester-Putnam Multiple Listing Service, Inc. provides a quarterly analysis of the Westchester County real estate market, a suburb of New York City.

Although we perform appraisals in Westchester it’s been a while since I wrote about the market. I just did the keynote at Westchester Real Estate, Inc.’s annual award luncheon and got some great feedback from the brokers in attendance.

For perspective, and aside from the last two years, annualized sales levels in 2010 are below every year since 1993. In fact, the annualized sales level for 2010 is exaggerated since the first quarter benefitted from elevated sales activity caused by the federal tax credit which will not continue to skew sales higher in the second half of 2010.

Despite a 54% increase in sales activity in 1Q 2010 over the prior year quarter, sales listing inventory actually increased 3.9%. In other words, new listings entering the market outpaced the properties being sold off. With the gains in sales, we would expect a decline in inventory over the same period.

Here’s an excerpt from the WPAR report.

Real estate firms participating in the Westchester-Putnam Multiple Listing Service reported 1,313 closings of Westchester residential property transactions in the first three months of 2010, an increase of 54% from the same period a year ago. Putnam County closed transactions were up by 28%. The closings largely reflected marketing and contract activity that took place during the late autumn and closing months of 2009.

Although the year to year percentage increases in sales were high in all categories of housing tracked by the MLS, it must be noted that they were calculated against the very poor sales base of the opening months of 2009. At that time total sales were less than half those of the peaks posted in 2006 and 2007. The 2010 volume was closer to that posted at the start of 2008 when the real estate recession first took hold in our area. Seasonally adjusted1, Westchester’s 2010 first quarter sales were equivalent to an annual sales rate of 6,830 units; that approximate annual volume was last experienced in 1995 and 1996.

Download the Westchester and Putnam Counties 1Q 10 report [WPAR]


[Vortex] The Hall Monitor: Seasonality Should be Considered in Comp Selection

April 27, 2010 | 8:39 pm |

Guest Columnist:
Todd Huttunen

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 Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox

Jonathan Miller

Seasonality Should be Considered in Comp Selection

April 26, 2010

The Westchester numbers for the first quarter just came out today. Even with the turbulence we’ve seen in the last couple of years, there remains a consistent trend in the median selling prices as relates to “seasonality”.

Not unlike Metro-North or Hamptons rentals, there is a “peak” and an “off peak”.

Whether the overall market is trending up or down, houses that close in the second or third quarters sell for considerably more than those that close in quarters four or one.

Appraisals done “in season” (assuming 60 days from contract to closing, these would be valuation dates in the six months between February 1 and July 31) should rely, if possible, on sales that closed in the second and third quarters, if not from the year of the appraisal then on the prior year. Conversely, appraisals made between August 1 and January 31, or “off season”, should focus on sales from quarters four and one.

Adjustments are required for the difference in market conditions between “in season” and “off season” for single family houses in the New York metropolitan area. What those adjustments should be can be fairly easily calculated by looking at the historical data for median prices. Remarkably, in Westchester at least, the differences are pretty consistent either in upward of downward trending markets.

Check out that serpentine line on the Median Price chart – just for fun, print it out and draw a line connecting only quarters two and three to each other over the years. Then do the same to quarters four and one and watch how quickly that serpentine line straightens out into two lines with much more of a consistent trend to them.

I really don’t understand why appraisers are so stuck on this idea that only sales taking place within six months of valuation date should be used. Six month old sales can be the most misleading ones of all, insofar as market conditions are concerned.

p.s. I know I addressed this issue in a prior post but it bears repeating since it seems almost no one is paying any attention.

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[Public Speaking] GreenPearlEvent’s REMarTech

April 26, 2010 | 8:56 am | Public |

[click to open]

I’ll be a speaker on Day 2: Thursday Morning April 29, 2010 at 8:40 AM on the Master Bloggers and Microbloggers panel.

It’s a great panel of people I know and respect.

The entire conference, which starts on Wednesday, is full of great resources and accomplished professionals. Ryan Slack, the founder of GreenPearl, is focused on providing content that people can actually apply to their everyday work experience.

You can register here.

[Public Speaking] VU2010 Moving Forward: The State of the New York Real Estate Market

April 26, 2010 | 8:44 am | | Public |

Tomorrow morning, I get to be the keynote speaker for this event – a brief presentation. Vivian Marino of the New York Times and her distinguished panel gets to do the heavy lifting. Online registration is here.

[Seasonality Adjustments] are Confusing and Perhaps, Misleading

April 26, 2010 | 7:30 am |

[click to open announcement]

A few years ago, I was thinking about running another set of our market numbers for the NYC metro area as seasonally adjusted since that was prevalent in housing indexes such as NAR, Case Shiller, New Home Sales. However, when I spoke to several economists on how to set out to actually do this, I found there was no real standard and methodologies used were rarely disclosed. I opted not to pursue a conversion.


NAR takes their monthly numbers, annualize them and then adjust for seasonality. Seems like stacking Jenga wood blocks. The smaller the base piece, the more volatile the blocks are at the top of the stack.

It felt like the reliability of the data could be diluted as a result. One of the things that happened in the NYC metro market in 2009 – seasonality ran amok post-financial crisis. Contract peak moved forward 90 days for the first time in the 25 years I’ve been tracking the market, from May-June to August-September which will then screw up year over year comparisons.

Apparently that was the feeling of S&P/Case Shiller because the wild swings in housing markets of the past several years skewed seasonality and was confusing the message.

Announcement: S&P/Case-Shiller Home Price Indices and Seasonal Adjustment

I applaud them for making a change which will result in a greater clarity of their trend analysis. Remember, the CSI index wasn’t designed for its popular use as the standard for tracking the US housing market. It was designed to be an index for investors to trade housing related financial instruments. Investors (and consumers) always need greater clarity and its great that they took action.

In some recent reports the two series have given conflicting signals, with the seasonally-adjusted series rising month-over-month and the unadjusted series declining. After reviewing the data, the S&P/Case-Shiller Home Price Index Committee believes that, for the present, the unadjusted series is a more reliable indicator and, thus, reports should focus on the year-over-year changes where seasonal shifts are not a factor. Additionally, if monthly changes are considered, the unadjusted series should be used.

Raw is better. I’m sure there are great applications of seasonality, but let’s keep the black box out of the housing market analysis.

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Credit Rating Agencies Finally Get Rated

April 26, 2010 | 12:01 am | |

What’s cooler than watching TV on Friday night? Watching C-Span on Friday night, of course.

Whats been very surprising to me after the unfolding of the financial crisis in 2008, has been how little attention the rating agencies have attracted for their role in the systemic breakdown of the mortgage process.

There was no separation between (church) sales and (state) underwriting. Nothing has changed. Same goes for appraisers and the pressure still being applied by financial institutions.

Its actually a scary since it’s not clear how we get investors back into the secondary mortgage market if they don’t trust the ratings that are issued. That would be an important step in helping ease investor concerns. Again same goes for appraisers operating in a neutral environment.

How can someone with their hand in the cookie jar be trusted with an independent rating system?


On Friday night I watched the following panel discussions of former, disaffected employees arguably thrown softballs by the panel. I found it to be riveting because the the agencies were primarily concerned about their market share, not the quality of their ratings and the dollars and ramification were massive. The rating agencies were “enablers” by rating everything “AAA” so countries like Iceland could go bankrupt. Just like appraisers were the “enablers” of mortgage fraud by mortgage brokers.

I remember having lunch with several guys at an investment bank back around ’06-’07 who spoke with disdain, if not venom, at how the rating agencies didn’t understand the products they were rating. More as a respect issue, not for concern of the wrong rating.

Panel 1

There are two other panels for this hearing also worth listening too [Panel 2] [Panel 3]

How can anyone charged with neutral assessment of the value of an asset who is fearful of their ending their career or losing their job, do a proper assessment if they are too “low”? Or someone who can be “morally flexible” and therefore make millions personally.

Human nature.

Good grief.

Here’s a must-read article relating to trust and self-dealing by Michael Lewis:

Bond Market Will Never Be the Same After Goldman

And the closing quote:

Indeed, the social effects of the SEC’s action will almost certainly be greater than the narrow legal ones. Just as there was a time when people could smoke on airplanes, or drive drunk without guilt, there was a time when a Wall Street bond trader could work with a short seller to create a bond to fail, trick and bribe the ratings companies into blessing the bond, then sell the bond to a slow-witted German without having to worry if anyone would ever know, or care, what he’d just done.

Yikes. Maybe there is hope for change after all.