Matrix Blog

Affordability, Affordable Housing

[Three Cents Worth #271 NY] How New York’s Average Sales Price Broke the $1 Million Mark

November 4, 2014 | 4:00 pm | curbed | Columns |

It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements.

Check out my 3CW column on @CurbedNY:

Although it has been a little more than a month since the third quarter ended, I thought I’d show that the average sales price of the five boroughs in aggregate broke the $1 million threshold for the first time, to a record $1,040,516…

3cw11-4-14
[click to expand chart]


My latest Three Cents Worth column on Curbed: How New York’s Average Sales Price Broke the $1 Million Mark [Curbed]

Three Cents Worth Archive Curbed NY
Three Cents Worth Archive Curbed DC
Three Cents Worth Archive Curbed Miami
Three Cents Worth Archive Curbed Hamptons

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Bloomberg View Column: Credit Crunch Lives on in Housing

October 22, 2014 | 5:05 pm | BloombergViewlogoGray | Charts |

BVlogo

Read my latest Bloomberg View column Credit Crunch Lives on in Housing. Please join the conversation over at Bloomberg View. Here’s an excerpt…

Don’t be fooled by low mortgages rates, which once again are below 4 percent: Credit for buying a home or refinancing an existing mortgage has almost never been tougher to get.

[read more]


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Bloomberg View Column: Rent Control’s Winners and Losers

October 21, 2014 | 3:31 pm | BloombergViewlogoGray | Charts |

BVlogo

Read my latest Bloomberg View column Rent Control’s Winners and Losers. Please join the conversation over at Bloomberg View. Here’s an excerpt…

Any renter in New York City has probably has felt the pain of coming up with the monthly payment. There are plenty of reasons for the city’s steep rents…

..So what would happen if rent control and its cousin, rent stabilization, disappeared overnight?

[read more]


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Bloomberg View Column: Housing’s New Wealth Effect

September 27, 2014 | 1:00 pm | BloombergViewlogoGray | Charts |

BVlogo

Read my latest Bloomberg View column Housing’s New Wealth Effect. Please join the conversation over at Bloomberg View. Here’s an excerpt…

It was a busy week for housing market reports. The U.S. Census published its new home-sales results for August, showing an 18 percent gain from the prior month and a 33 percent increase from August 2013. News headlines relied on words such as “surged” and “soared” to describe the results.

Only a few days earlier, the National Association of Realtors released its existing home-sales report for August, which showed month-over-month sales falling for the first time in four months. The inventory of unsold properties was 4.5 percent higher than a year earlier. I recently addressed the market slowdown in “Understanding Housing’s Dog Days.”

[read more]


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[Three Cents Worth #268 NY] Units In New Developments Grow Larger

August 31, 2014 | 3:57 pm | curbed | Columns |

It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements.

Check out my 3CW column that I posted a few weeks ago on @CurbedNY:

For this chart, I looked at a little more than a decade of Manhattan closed sales by square footage, breaking out the market by new development sales and re-sales. During this period, the average square footage of a new development sale was 1,382—15.6 percent larger than the 1,195 average square footage of a re-sale. However, new development sales size showed significant volatility as developers adapted to the changing market. The underlying driver of volatility is the quest to achieve the highest price per square foot premium a developer realizes by creating larger contiguous space. As a result, the much chronicled “micro-unit” phenomenon falls short and can’t become mainstream under current market conditions without external incentives (i.e. government). The math doesn’t work…



3cwNY8-12-14
[click to expand charts]


My latest Three Cents Worth column on Curbed: Units In New Developments Grow Larger [Curbed]

Three Cents Worth Archive Curbed NY
Three Cents Worth Archive Curbed DC
Three Cents Worth Archive Curbed Miami
Three Cents Worth Archive Curbed Hamptons

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Terrific Chart on Homeownership by Age

June 23, 2014 | 11:03 am | wsjlogo |

wsjstudentdebttrend
[Source: WSJ]

I really like the way this chart illustrates the 20 year decline in the homeownership rate. A few thoughts on what it shows:

Under 35 – Lowest in 20 years – record student debt and tepid economy plays a significant role in falling rate.

35-44 – most volatile, has overcorrected – large gain during credit boom and fell well below 1994 levels.

45-54 – fell below 1994 levels but didn’t rise as much during credit housing boom.

55-60 – higher than 45-54 group but followed a similar arc – fell below 1994 levels but didn’t rise as much during credit housing boom.

65 and above – only category to finish higher than 1994 levels – not heavily influenced by credit bubble.

Overall – is currently higher than 1994 levels. Coming down from artificial credit bubble high – probably won’t stop declining until credit begins to normalize.

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Housing is a Drag: US Student Debt Bubble Made Worse by the Baby Boomer Nanny State

June 16, 2014 | 1:55 pm | fedny |

nyfednonmortgbalances

[click to open report]

I like to say that we never had a housing bubble in the US. It was a credit bubble with a housing as a symptom. The same credit bubble logic applies to college costs which have run unchecked well past the housing bubble “pop” in 2006 and the great recession.  Lately there has been discussion on the student debt crisis by economists and financial journalists that the phenomenon is overhyped – which prompted this post as a college tuition paying parent.

College costs for a 4 year degree are growing at a rate of about 5%, well above inflation. Access to credit has remained easy for students and parents to obtain so there are no real checks and balances (no pun intended) on college costs. Demand is high as students and their parents often fight to gain admission and can worry about paying off the debt later.

It’s been widely discussed that anemic household formation is holding back the housing market and the economy from fully recovering, that student debt has been the key culprit in holding back young people from striking out on their own, resigned to live at home until their finances get better. Speaking as a parent who just finished sending a son through college with more on the way, it’s a hard reality for parents too.

I was standing on the platform the other day waiting for a delayed commuter train (hey, it’s Metro North, who else) and struck up a conversation with a woman who was lamenting about all the debt she and her husband incurred sending their 4 kids to Ivy League schools – only for them to be unable to find a job in their chosen profession or find one that pays a living wage – these factors are often mutually exclusive.

Parents that borrow heavily to finance their children’s education is the sort of thing that is missed in economic data because that debt is in some other form of a home equity loan or other debt.

“Parents are facing an economic crisis because they are borrowing too much for college,” says Rick Darvis, executive director of the National Institute of Certified College Planners. “They’re sacrificing their current lifestyle and robbing their future retirement.” The rising levels of parental debt could ripple through the rest of the economy. By the time parents are in their 50s and 60s, they should be saving for retirement instead of taking on new liabilities, says Joseph S. Messinger, a certified college planner and president of Capstone Wealth Partners in Columbus, Ohio.

We are seeing financial coping strategies emerge like going to a community college for 2 years to save money and transferring to a better school for the remainder – or questioning the value of college all together. The cost/benefit of a college degree is being called into question because of the combination of spiraling costs and tepid job opportunities for many in the current economy.

The baby boomers have taken on significant debt to finance their children’s education. Sure the average student debt is $25k to $29K, the cost of a new or used car, but I contend a large portion of college debt is in the shadows born by the parents.

helicopter house

The average cost for a 4-year degree is about $23K (blended cost of private and public) which suggests that the debt would only cover about 80% of the cost of first year. This would imply that more than 3/4 of the cost of a 4-year degree was paid in cash through savings and working during the four year period. That doesn’t seem plausible to me – actually it seems ludicrous. Parents have to be paying  cash or taking on an inordinate amount of debt to pay for the other 75% of the cost that doesn’t show up in the school related debt numbers.  How common is it to see parents in our helicopter nanny state shoulder little to no financial burden for their children’s college educations? No matter the demographics, I contend it’s quite rare.

And how does this impact the US housing market recovery?

  • Household formation is weak as young adults with high debt, limited job opportunities or both, live with their parents after graduating – for extended periods of time, delaying their entrance into the housing market.
  • Parent’s are burdened by taking on debt for children’s college education, can’t trade up, make a lateral move, or downsize because they can’t qualify for a mortgage to buy a house (and keeps inventory off the market as well, making prices rise).

The tepid economy has exposed the problem – and the heavy debt loads could provide a drag on housing for an extended period of time.

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Documentary: The Coney Island Zipper, A Land Use Battle

May 25, 2014 | 9:12 pm |

coneyislandzipper
[click to view film on PBS until 4/1/17]

I saw the documentary: ZIPPER: CONEY ISLAND’S LAST WILD RIDE (here’s the trailer) over the weekend on the land use battle in Coney Island. I like the filmmakers’ focus on the guys that ran the “Zipper” (the ride is guaranteed to make me throw up) to humanize the development battle between NYC, Coney Island residents and the developer. Plus you can’t go wrong with a good Blue Oyster Cult song in the opening.

After watching the documentary (you can purchase or rent it here), you can’t help but see how difficult it is to develop property in NYC striking a balance between community needs with economic feasibility as well as navigate political power and government.

This difficulty is a key reason why residential housing costs are so high in most urban markets.

Still, a new ride in Coney Island was just opened – The Thunderbolt Roller Coaster.

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We’re at “Peak Anti-Homeownership”

May 21, 2014 | 11:00 am |

Joe Weisenthal, Executive Editor of Business Insider, pronounced we’re at “Peak Anti-Homeownership” after reading Barry Ritholtz’ Bloomberg View piece on homeownership a few weeks ago.

If financial journalists and housing pundits today truly reflect the US sentiment about housing and homeownership, then we’re clearly manic about our largest asset class.

The conversation by a number of financial journalists and a particular Nobel Prize winning economist has morphed into a homeownership-is-a-false-aspiration pronouncement, almost entirely supported by treating this asset class as a stock. Didn’t we learn the hard way that this was flawed thinking during the prior boom? And unless I’m mistaken, the majority of US homebuyers, aside from investors, used leverage for much of the last 50 years. How about we estimate the ROI on what real people actually do and stop thinking about homeownership as a stock transaction? Good grief.

2012-2013 – Last year’s housing market “recovery” pronouncement was based on nothing fundamental, merely Fed policy of QE and years of pent-up demand released after the “fiscal cliff” came and went without a major catastrophe. Pundits caught up in the price euphoria said the housing market was firing on all cylinders. Yet surging price growth was largely based on sales mix-shifting, less distressed sale buying, tight credit causing, lack of inventory inducing, fear of rate rising, double-digit price growth. Positive housing news was refreshing news to many, but there was nothing fundamental driving the market’s performance to such incredible rates of growth. I couldn’t wrap my arms around 13% price growth with tight credit, stagnant income growth and unacceptably high under-unemployment as economic fundamentals.

2014 – This year’s housing market, which is being compared to the year ago frenzy, is showing weaker results. The housing recovery “stall” is being blamed on the weather, falling affordability and weaker first time buyer activity. This has brought some in the financial media to conclude that homeownership is over rated.

An aside about the weather – a homebuyer last January didn’t say “Gee, since it is 0 degrees outside, let’s cancel our appointment with the real estate agent and delay our home buying plans for 5 years.” Of course not – the harsh weather merely delayed the market for a month or two. However since it hasn’t “sprung back” yet, then clearly there is something else going on besides the weather.

Falling homeownership and anemic household formation is the result of a lackluster economy and a global credit crisis hangover. I can’t make the connection how these weaker metrics have anything to do with a flaw in the homeownership aspiration. Homeownership is falling because it rose to artificial highs (Fannie Mae was shooting for 75% during the housing boom) and is now overcorrecting because credit is unusually tight, the byproduct of a lackluster economy, the legacy of terrible lending decisions and fear over additional forced buybacks of flawed mortgages among other reasons.

I’m quite confident that a significant, sustained economic recovery will go a long way to ease credit conditions and eventually revert homeownership to the mean and we can stop with the “cart before the horse” orientation. While homeownership has never been right for everyone, recent calls that it’s not right for anybody is just as flawed.

Then we’ll pronounce “Peak-Homeownership” in our own manic way.

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Contrary To Popular Belief, The World Has Manhattan All Wrong

May 18, 2014 | 11:00 am |

nycsubway1969timelife
[Source: Time-Life]

Today, when I speak to friends and relatives in other parts of country, I find a consistency in the image Manhattan currently conveys and it’s completely skewed. Here’s a little background.

1985 to 1995 [Wild West] I moved to Manhattan in 1985 and it was perceived by outsiders as a very dangerous place. “Manhattan-bashing” was in vogue. My relatives in the Midwest saw Manhattan as a place where tourists were getting mugged and stabbed in broad daylight (It didn’t help that my father was mugged twice in Midtown outside of our office in broad daylight on a weekday). They feared for our lives.

1996 to 2000 [Dot Com Boom] Manhattan now had “Silicon Alley” as well as NASDAQ – which was soaring. Midwesterners were caught up in the stock market frenzy as evidence by conversations of trades of Microsoft and Caterpillar stock over potato salad and cheeseburgers and bottles of Faygo.

2001 to 2008 [9/11 to Development Boom to Lehman] The 9/11 tragedy struck New Yorkers hard but the subsequent rise of NYC from the ashes into an eventual new development housing boom was simply amazing. The Manhattan housing boom peaked in 2008, two years after the US housing market had peaked. This period ended with the collapse of Lehman Brothers and access to credit worldwide immediately evaporated.

2009 to 2010 [Collapse and Rebound] There was a surprisingly rapid improvement in the regional economy in the year following Lehman’s collapse and housing rebounded faster than expected.

2011 to 2014 [Playground of Wealthy Foreigners] Manhattan and Brooklyn become a favorite safe haven for international investors to park their money in real estate.

But now we stuck with a Manhattan housing market exaggerated stereotype (represents 90% of media coverage) in 2014:

  • Most sales are all-cash transactions.
  • Most purchasers are made by foreign buyers.
  • Most sales are millions of dollars (i.e. $5M and up).

When in fact, the 2014 Manhattan housing market reality is:

  • 45% of sales are all-cash transactions.
  • Foreign buyers are a small part of the market – i.e. 60% of all sales are co-ops and foreigners don’t purchase them.
  • More than half of all sales are below $1M (i.e. $5M+ is way up in the top 5%).

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