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[Shiller] But Something Is Definitely Different About Real Estate

June 8, 2009 | 11:27 pm | nytlogo |


Source: Portfolio.com

Professor Robert Shiller, a lightening rod of public discourse concerning anything housing, largely due to it’s emotional nature, pens an excellent piece in the New York Time’s Economic View column this weekend called Why Home Prices May Keep Falling.

This seems fly in the face “glimmering hope” and “green shoot” discussion beginning to emerge in the real estate conversation this spring as seasonal market forces took hold.

Heck, anything was better than last fall.

Apparently the federal government, via the famed “stress tests” doesn’t see housing prices stabilizing anytime before 2010 – makes sense since unemployment is projected to continue to increase through the end of next year, assuming the recession ends in 2009.

He frames the conversation around the fact that falling housing prices defy investment logic. That is:

Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter.

He reiterates what people in the real estate business know to be true…

But something is definitely different
about real estate.

We still have excess supply, which will likely take a number of years to be absorbed even after the economy begins to stabilize. His reference to the 1990-91 recession resonated with me. Once it ended, housing prices didn’t stabilize for another four years.

In other words, housing markets are cyclical and housing markets are seasonal. That’s not a bad thing.


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Wondering If The Negative Gravy Train Has Left The Station?

May 6, 2009 | 12:34 am | nytlogo |

You’ve got to admire people that go out on a limb and call a market as a contrarian and turn out to be right. It’s a lucrative opportunity for those that are able to monetize it.

There is a lot of discussion lately about a slower pace of decline and that the end may be within the few years. The recession is expected to end at the end of this year and unemployment is expected to top out in about 18 months. In other words, there is plenty of room in the tank for financial opportunities for negativism.

Some notables who seem to continue to do well are:

The Housing Bubble Blog and others like it were screaming that the bubble was going to burst. They were right, despite all efforts by NAR to keep them in check. Ben Jones is one of the most prolific content posters and has the gold standard blog name for the subject. I’ve linked out and have been checking in with his work since late 2005. Although he is a free lance writer, his content appears to be collected by copying full articles from primarily newspapers and magazines around the country – with little or no analysis. Yet he’s consistent and finds a broad array of the key articles of the day. He still attracts hundreds of commenters on every post and all kinds of theories and ideas are shared. He takes donations and has banner ads. He’s created a grass roots feel.

But site traffic is down by more than half over the past year. Are people tiring of the negative?

Professor Robert Shiller, who is a very nice person and has published some terrific work on the wealth effect, economic psychology to name a few, was able to capitalize on the contrarian perspective with his book Irrational Exuberance and the subsequent update to include housing. He called the NASDAQ and housing market bubble correctly and has since released two additional books.

According to Shiller we are looking directly in the face of an enormous “speculative bubble” and the question is not whether stock prices will fall but when!

He tirelessly promoted the S&P/Case Shiller Home Price Index which has become the defacto standard for housing indexes by virtually all news outlets and economists. Despite his efforts and those of S&P, the trading markets for which the index was created, has yet to gain significant traction.

Nouriel Roubini, economics professor at NYU who is also known as Dr. Doom, has been spot on in his calling of the housing bubble. He was so blunt and negative that he quickly gained many detractors.

By late 2004 he had started to write about a “nightmare hard landing scenario for the United States.” He predicted that foreign investors would stop financing the fiscal and current-account deficit and abandon the dollar, wreaking havoc on the economy. He said that these problems, which he called the “twin financial train wrecks,” might manifest themselves in 2005 or, at the latest, 2006. “You have been warned here first,” he wrote ominously on his blog.

I’ve heard his consulting firm RGE Monitor is doing well but I have no way to confirm.

When he spoke at a convention in New York, several people quipped to me that they needed to jump out of a window because the world was ending.

Roubini was known to be a perpetual pessimist, what economists call a “permabear.”

He’s been hard to find fault with, and he fights with Jim Cramer calling him a buffoon. His recent opinion piece in the WSJ called We Can’t Subsidize the Banks Forever was strong, yet was also called to task for misquoting the IMF.

However this info was just released which makes Roubini right once again::

Regulators have told Bank of America that the company needs to raise roughly $35 billion in capital based on results of the government’s stress tests, according to people familiar with the situation.

Thus, I answered my question. The gravy train for pessimism is still in the station.


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Celebrities Have Appraisals Done

May 3, 2009 | 11:00 pm |

The headline: Kate Walsh Gets A House Appraisal is chock full of suspense.

Who would have thought that celebrities did what many mere mortals do? …and will the appraiser take more photos than the paparazzi?

Some questions likely flying through the minds of press right now:

  • Will the appraiser use a laser measuring device or a tape measure?
  • Will the appraiser consider the finished basement in the gross building area?
  • Will the cost approach exceed the sales comparison approach and what is the land residual?
  • Is the built-in 52″ flat screen tv in the den considered a fixture or chattel?

We can only imagine the excitement if TMZ finds out those answers and others.



Good Memories of Kemp, Cram-down Fall-down

May 3, 2009 | 10:16 pm | nytlogo |

Ok, so I’m not a Buffalo Bills fan (go Jets!) and I didn’t vote for Jack Kemp when he ran for president in ’88, but I did admire him, especially his stint as Secretary of Housing and Urban Development under Bush I.

He was on the cutting edge on the topic of home-ownership and tenant-own thinking even though his stint as HUD secretary didn’t accomplish what he set out to do:

As a bleeding-heart conservative, Kemp was a logical choice for Bush as the Secretary of Housing and Urban Development, whose job would be to foster public sector and private sector methods to meet the demands of public housing. However, the scandals of Reagan’s Secretary of Housing and Urban Development Samuel Pierce and the neglect of the president were obstacles from the start, and Kemp was unsuccessful at either of his major initiatives: enacting enterprise zones and promoting public housing tenant ownership. The goal of these two plans was to change public housing into tenant-owned residences and to lure industry and business into inner cities with federal incentives. Although Kemp did not affect much policy as HUD’s director, he cleaned up HUD’s reputation

In addition to opposition in Congress, Kemp fought White House Budget Director Richard Darman, who opposed Kemp’s pet project HOPE (Homeownership and Opportunity for People Everywhere). The project involved selling public housing to its tenants. Darman also opposed Kemp’s proposed welfare adjustment of government offsets. HOPE was first proposed to White House chief of staff John Sununu in June 1989 to create enterprise zones, increase subsidies for low-income renters, expand social services for the homeless and elderly, and enact tax changes to help first-time home buyers.

Kemp wrote a position piece on bankruptcy in early 2008 that covers the issue as it relates to home ownership and low and middle income families called Bringing bankruptcy home

Bankruptcy law is wildly off-kilter in how it treats homeownership. Under current law, courts can lower unreasonably high interest rates on secured loans, reschedule secured loan payments to make them more affordable and adjust the secured portion of loans down to the fair market value of the underlying property — all secured loans, that is, except those secured by the debtor’s home. This gaping loophole threatens the most vulnerable with the loss of their most valuable assets — their homes — and leaves untouched their largest liabilities — their mortgages.

Sometimes good ideas never see the light of day because of political disconnect.

The housing rescue plan was dealt a blow last week when the Senate killed the cram-down legislation that was a centerpiece of Obama’s housing recovery plan because investors and banks were worried they would be wiped out.

A cram-down is:

a term used in bankruptcy law to refer to the Chapter 13 provision that allows debtors to retain collateral as long as they offer repayment of the “secured portion” or fair market value of the collateral in their repayment plan.

The Senate was likely afraid that the bill would give bankruptcy judges to much sway over modifying outstanding mortgages and would indemnify servicers. Here’s a summary of the version the House passed.

On a merely a practical level, I was never sure how the services would handle the cram-downs since the mortgages were sliced up into many tranches.

According to DataPoints, a Moodys.com blog:

Without the incentives provided by the reform bill, we now estimate that 475,000 fewer voluntary modifications will occur, and with judicial modifications we project an additional 1.725 million foreclosures this year. This will significantly increase the inventory of unsold homes and place additional downward pressure on already-weak house prices. Equity values will erode further, leading to more defaults and placing greater pressure on prices, thereby prolonging both the depth and duration of the housing market correction.

In other words, when the commercial banks still hold sway over Washington, despite their financial condition and debt and the net result of this failed legislation may very well be worse.

Business as usual.


Dumb Money Yields Paradox of Thrift

April 29, 2009 | 10:55 am |
The Colbert ReportMon – Thurs 11:30pm / 10:30c
Daniel Gross
colbertnation.com
Colbert Report Full EpisodesPolitical HumorGay Marriage Commercial

My friend Dan is at it again – he claims to be on the “C” list of regular guests on MSNBC Countdown – now he’s achieved the pinnacle of every writer’s dream, to be interviewed by Stephen Colbert. He’s humping his new book, Dumb Money.

Colbert Nation summarizes:

Daniel Gross urges rich cable TV personalities to buy steaks, cigars and whiskey.

Very salient interview and I must say, very entertaining.


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[Essential Reference] State of New York City’s Housing and Neighborhoods 2008

March 12, 2009 | 12:01 am | furmanlogo |

It’s that time of year again - The Furman Center For Real Estate and Urban Policy just released their seminal annual report. It’s chock full of an amazing level of analysis on all 5 boroughs and an essential download.

Here’s the executive summary and the full report.

Regarding property appreciation over four decades:

  • Between 1974 and 1980, prices declined by 12.4% citywide.
  • Between 1980 and 1989, prices increased by 152%.
  • From 1989 to 1996, prices dropped by 29.3%.
  • From 1996 to 2006, the City’s latest boom, housing prices increased by 124%.

A couple of interesting points made:

  • On average, despite very high price levels, hous- ing prices in the City have not risen as much over the past two decades as they have around the country: in the most recent upturn, New York’s impressive growth of 124% was dwarfed by growth of 189% nationwide.
  • Eight of the ten neighborhoods with the largest increases in the 1980s boom were also among the neighbor- hoods with the largest price increases in the most recent boom.
  • Contrary to what one might expect, higher-income neighborhoods are not insulated from downturns, and investing in such a neighborhood does not necessarily guarantee strong future gains. Rather, prices in higher-income neighborhoods tended to grow less than the City average in the 1980s upturn and fall further in the 1990s downturn. In the most recent upturn (1996–2006), there was virtually no correlation between neighborhood income and sales price performance.


In Memoriam: New York just lost an essential New York media icon with the passing of Braden Keil of the New York Post to cancer. Combining celebrity and real estate, he always seemed to get the scoop. After starting off a bit shaky, I grew to appreciate my interaction with Braden and will miss him – he characterized his situation to me in early January: Life is indeed serving me up a lot of lemons.

I speak now from an especially close perspective to cancer but with a better outcome:
Cancer – for lack of a better word – sucks.



[Time to Blame] Because It Feels Good

February 14, 2009 | 12:02 pm | fedny |

Time magazine is starting to kick some online posterior these days reversing a slow erosion into irrelevance. I think it started with Justin Fox of Curious Capital and their expansion online has been worth following. (No, I am not a shareholder).

The financial crisis we are enduring is systemic and there is no one specifically to blame because nearly everyone is to blame, including my 2 cats, the mailbox and my old ipod. Rather than individuals, I think its better to look at the problems by industry and agency.

Still, it feels good to point the finger.

Here’s my take on it as ranked by overall impact. Nothing scientific here.

  1. Rating Agencies
  2. Investment Banks [Tie]
  3. Subprime Lenders [Tie]
  4. SEC
  5. American Consumer
  6. Investors of CDOs
  7. Bush Administration [Tie]
  8. US Treasury [Tie]
  9. Congress [Tie]
  10. Fannie Mae/Freddie Mac
  11. Commercial Banks/Mortgage Banks
  12. Federal Reserve
  13. Mortgage Brokers [Tie]
  14. Real Estate Appraisers [Tie]
  15. Clinton Administration
  16. FDIC, OTS, OCC
  17. Real Estate Brokers [Tie]
  18. Developers [Tie]
  19. Big Media
  20. Blogosphere

Did I miss anyone?

In their 25 People to Blame for the Financial Crisis piece, Time readers can vote for their favorites.

To vote for your favorites to blame as listed by Time.

To see the rankings from the Time survey.


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[Apologist Pollyanna Prognosticator] For $495/Year, Lereah Will Drop The Spin

February 11, 2009 | 12:48 am | wsjlogo |

Back in January, David Lereah, former chief economist for the National Association of Realtors, came clean with the Wall Street Journal. It appeared to be more of a timed interview to coincide with the start of his new venture.

Mr. Lereah, who says he left NAR voluntarily, says he was pressured by executives to issue optimistic forecasts — then was left to shoulder the blame when things went sour. “I was there for seven years doing everything they wanted me to,” he said, looking out his window to his tree-filled yard in this Washington suburb.

Of course his successor, Lawrence Yun, who started off with the same hard core spin, but a few months into the credit crunch pulled back from his wildly optimistic ways which was, for lack of a better word, refreshing (relatively speaking).

Coverage after the WSJ article was here, here, here and here, etc. You get the picture.

The spin from NAR was excessive and offensive during his reign – so much so he inspired blogs like David LereahWatch and kept the blogosphere full of content for many years. I remember thinking the disconnect of his press releases during his reign was significant and infuriating.

I got to meet him in the green room before we were both on a CNBC special in 2004 at his height (I was an obviously lesser figure in the program) yet he seemed embarrassed about his prognostication.

It’s hard to imagine that NAR and Lereah were not acting as a team in the false message delivered in a procession of press releases. Although both have separated ways, NAR and Lereah are still at it.

MarketWatch did a humorous recap of the major forecasting errors provided by Lereah.

So why am I bringing all this up when I said I was tired of the topic of Lereah?

Because I came across a press release today from his new venture Reecon Advisors, Inc. For $495 per year, you can get to hear what Lereah thinks about the housing market – he writes his newsletter from home and has less than 50 subscribers but hopes to get more. Because he is now independent, he will provide an non-biased viewpoint. Ok, doesn’t the very fact that he would say this completely discredit because it infers – he – can – be – bought. Why is now different?

Listen, I don’t fault the guy for trying to make a living. After 7 years of hard core spin, a subsequent apology that confirmed this, mockery by the blogosphere who outed his frequent misdirections, and later disenfranchisement with NAR, who on earth would actually subscribe?

The web is a beautiful thing. You can set up a web site and appear like a big research think tank. Makes your head spin doesn’t it.


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What’s What, Where’s Where, Who’s Who in America

January 31, 2009 | 1:21 am | Public |

Ok, here’s kind of a fun interview that was posted today on Who’s Who In America. Are you kidding? It’s about me. I read my interview to confirm if it was actually about me. It was. So read it.

Here’s the synopsis as I presented it:

  • I lost my faith in humanity caused by a morally flexible business environment
  • Then I saw it coming
  • But I warned everyone
  • Yet no one listened
  • So I decided to keep toiling
  • Because I believed in my appraisal expertise
  • Made easy because I love what I am doing
  • And finally the sky fell
  • Suddenly people were looking for honesty in a sea of doom and gloom
  • My faith in humanity was restored

The typical rags to riches (in theory) ethical appraiser story you read about every day.

Who?

’nuff said.



[Risk of "Going Big"] Housing Market Goes Up, Down, Will Live Another Day

January 2, 2009 | 7:12 pm | nytlogo |

On New Year’s Eve, we were surfing tv channels and saw the usual fodder of the Dick Clark-Carson Daly-Celebrities excited to be in Times Square-rock bands-yelling revelers-ball dropping-confetti falling expected festivities. My son wanted to watch the Robbie (son of Evel) Knievel jump on Fox so I acquiesced. Not to take anything away from Robbie Knievel but it was a routine, mundane boring type of jump. My expectations were a lot higher and a number of my friends had the same reaction.

Then we switched over to ESPN and saw another “Robbie” make a jump. Robbie Maddison made the most amazing motorcycle jump (actually 2) I have ever seen and, of course the up and down ramps symbolized the housing market pattern of the past several years (sorry I can’t help it). Please watch – it’s worth a look, I promise.

Last year he went the distance (322 feet).

Of course, the moral of the story is along the lines of, even with the sharp decline after the sharp incline, he, of course, lived. Notwithstanding that Robbie has to be insane. In his pre-jump interview, he was hoping young people learn from this by going big.

Trillions of dollars later, the financial system can’t afford to “go big”.

Happy New Year, everyone.