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Federal Reserve, New York

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

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

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[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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[Vox Video] Housing Crash Fix Explained From Geithner’s Perspective

May 13, 2014 | 11:03 am | fedny |

Former US Treasury Secretary Timothy Geithner is promoting his book chronicling the financial crisis Stress Test: Reflections on Financial Crises. Great book name, btw.

He sits down with Vox Media’s Ezra Klein to talk about what happened. I highly recommend watching this entire interview. Once you get past Ezra Klein’s sock selection, he touches on all the key points that would help us better understand what went wrong. It reconfirms why I enjoy reading anything Ezra writes.

I also have to say that Geithner has a great engaging conversational style that I enjoyed and helped me gain additional insights. However the problem with the Geithner’s responses – that I can’t seem to get past – is that Geithner was head of the New York Fed, surrounded by Wall Street, during the housing bubble run up. You walk away from this conversation feeling like his actions were the only appropriate responses to the crisis – ie focus only on the banks (and grow moral hazard significantly). Of course it has to be a nightmare to get anything done in Washington. However, I also got that same feeling when I read Andrew Ross Sorkin’s well written “access journalism” book, “Too Big To Fail” – that saving the banks was all that mattered to him.

It doesn’t help that I read previously Neil Barofsky’s terrific book “Bailout” which provides a lot of insights into how the sausage was made – identifying the US Treasury’s exclusive focus on the banking system when there were opportunities to help main street at the same time. Apparently Geithner takes Barofsky to task in the book, probably because Barofsky did the same.

I’m not sure if I’m going to pick up a copy.

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NY Fed: New York City and State Expanding at “Brisk Pace”

March 21, 2014 | 5:03 pm | fedny |

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[click to view report]

The Federal Reserve Bank of New York uses a coincident index to track the New York, New Jersey and New York City economies.

They define a coincident index as:

“A coincident index is a single summary statistic that tracks the current state of the economy. “

The Fed results share no analysis but state:

Our Indexes of Coincident Economic Indicators (CEI) for January show economic activity expanded at a brisk pace in New York State and New York City, but was essentially flat in New Jersey.

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[Pre-Nor'easter Keynote] Long Island Housing Market: Transitioning from “Recovery” to “Recovered”

February 12, 2014 | 12:17 pm | fedny | Public |

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A while back, I was invited by the Long Island Chapter of the Appraisal Institute to keynote for their winter dinner/seminar tonight in Westbury, Long Island:

LI Housing Market: Transitioning from “Recovery” to “Recovered”

It’ll be great to catch up with my friends and colleagues and I always love to talk appraisalspeak for extended periods of time.

The presentation will cover (2 CE credits):

Long Island Market Reports, Key Trends, Drivers of the Current Residential Market, Fiscal Cliff, Pent-Up Demand, Record Low Inventory, Mortgage Rates, Federal Reserve, Transitioning to a Sustainable Long Term Housing Market Recovery

In a question and answer period, discussion will include Snapshot of the Long Island Housing market, including 4Q 2013 market research results in Long Island, Hamptons and the North Fork; Affordability, What is driving Sales Activity?; The relationship between Sales and Prices – Why is inventory low?; Spike in Mortgage Rates; Federal Reserve taper miscommunication; Why are Housing Prices Rising?; Long Island and Manhattan real estate economy, Credit Issues, Lending, Market Trends, Impacts, and Challenges in Year 2014.

The latest Nor’easter is supposed to start at about 2AM so it looks like we’ll get this done just under the wire!

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Money for Nothing Movie Trailer

March 28, 2013 | 5:29 pm | fedny | Videos |

I can’t wait for the documentary Money for Nothing to be released. In fact I donated to IndieGoGo.com because I was so impressed that I wanted my own copy.

This documentary is compelling and so are all the cast members. It includes a who’s who list of current and past members of the Federal Reserve as well as economists and Wall Street experts. Cast members include my friend Barry Ritholtz and Gary Shilling who both have been on my podcast. Todd Harrison of the great site Minyanville.com and John Mauldlin who I have always looked to for insights. Jim Grant of Grant’s Interest Rate Observer who called me at the height of the crisis to get a gauge on the Manhattan housing market.

During the housing bubble I often felt like screaming as I saw the financial world through my appraisal glasses thinking I missed an important math class in 8th grade. Fast growing banks with gigantic mortgage volume and many of my appraisal competitors in bed with mortgage brokers were clearly smarter than me – they could make the numbers work and I couldn’t.

In 2003 and 2004 I remember being absolutely confident as a non-economist that the Fed was keeping interest rates too low for too long. I could see it in the loss of lending standards and the lavish incomes enjoyed by those around me who embraced a world of based on moral flexibility. The froth was simply ignored.

Don’t mean to get sentimental on you dear readers, but this movie struck a chord with me. Enjoy the trailer and watch for the release date announcement.

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Housing Data as Pop Culture

February 14, 2013 | 7:00 am | delogo | Charts |


[click to open article]

A recent post in CNN/Money featured Andy Warhol’s 1984 “U.S. Unemployment Rate. No Campbell Soup Cans but it feels strange to associate his art with economic data from the 1980s. It somehow works for me. One of the coolest property inspections I made was through “The Factory” years ago.

In 2007 the “Stand-up Economist” Yorman Bauman led the way with this much watched video on the difference between macro and micro economists. “Microeconomists are wrong about specific things while macroeconomists are wrong about things in general.” HI-larious.

And recently the TV game show “Teen Jeopardy” had 5 questions about the “Federal Reserve.”

Christie’s sales rep said:

“Economic data has become popular culture. While we used to think of it as being some kind of verified information only for people who are really knowledgeable about the economy, it’s popular culture now. You can talk to a taxi driver about it.”

I completely agree. Gangnam Style and GDP now go hand in hand.

We devour housing data ie the recently released Real Deal Data Book (I’ve got a lot of charts and tables in there!)

Throw in the heavy downloads of our report series for Douglas Elliman, NAR Research, CoreLogic, Case Shiller, RealtyTrac, etc. it’s clear to me that housing data is an obsession and embedded in popular culture (thank goodness).

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Tight Credit Is Causing Housing Prices to Rise

February 6, 2013 | 9:18 am | nytlogo | Charts |


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I’ll repeat that: Tight Credit Is Causing Housing Prices to Rise.

Yes I know. I’ll explain.

This week the Federal Reserve released it’s January 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices and it continued to show little movement in mortgage underwriting standards but demand was up. The increase in demand has not softened mortgage lending standards. In fact, mortgage standards have remained essentially unchanged since Lehman collapsed in 2008.

On the household side, domestic banks reported that standards for both prime and nontraditional mortgages were essentially unchanged over the past three months. Respondents indicated that demand for prime residential mortgages increased, on net, while demand for nontraditional residential mortgages was unchanged.

Tight lending standards has prevented many sellers from listing their homes because they don’t qualify for the trade up, holding supply off the market. The shortage is manifesting itself by also keeping people unaffected by tight credit from listing until they find a home they wish to purchase. Record low mortgage rates keep the demand pressure on as affordability is at record highs. Rising prices are not really based on anything fundamental like employment and a robust economy.

Tight credit + record low mortgage rates => reduced supply + steady demand => rising prices.

Like I said before…

Tight Credit Is Causing Housing Prices to Rise.

I’ll repeat that….

Tight Credit Is Causing Housing Prices to Rise.



January 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices [Federal Reserve]
Falling Inventory Has Created a Housing “Pre-Covery,” not “Recovery” [Miller Samuel Matrix]

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[NewYork Fed] Excellent Mapping of Housing’s Recovery Process in Region

December 4, 2012 | 9:00 am | fedny | Charts |


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The Federal Reserve has been relying more on CoreLogic housing data these days, rather than Case Shiller or NAR and I’m down with that. The New York Fed has put the CoreLogic data for New York, Connecticut and New Jersey to good use in a very easy to use interactive County format that I highly recommend you check out. They even present a two-fer: all sales, without distressed sales.

My only criticism of the presentation (and it’s really me just being petty) is the orientation to market peak in 2006 as the benchmark. I see the 2006 peak as an artificial level we should not be in a hurry to return to since it reflected all that was bad with the credit/housing boom.

But I digress…

The top chart shows that Manhattan and Brooklyn after removing distressed sales, have “recovered” using the Fed’s methodology. In fact all 5 boroughs are out-performing the US housing market.

Manhattan is clearly one of the top performing locations in the region or at least it is ahead of the region. The map below shows the counties (green) that are now equal to 2007 price levels. Not many in close proximity to Manhattan are doing as well.


[click to expand]



Housing Market Recovery in the Region [Federal Reserve Bank of New York]

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Federal Reserve: Mortgage Underwriting Standards Haven’t Eased

November 5, 2012 | 7:00 am | fedny | Reports |


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The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices came out and the news was more of the same. Their survey covers senior loan officers at about 60 domestic and two dozen foreign banks with US branches.

Key in on: Net Percentage of Domestic Respondents Tightening Standards for Mortgage Loans

Banks’ residential real estate lending standards reportedly remained about unchanged over the past three months. As in each of the previous three surveys this year, respondents reported little change in their standards for prime mortgages. In the October survey, standards on nontraditional mortgages were reportedly unchanged, in contrast to the tightening reported earlier in the year. Respondents continued to report that demand for residential mortgage loans had increased over the past three months on net, although the fractions of banks that reported an increase in demand for both prime and nontraditional residential mortgage loans declined from their levels in the July survey. Standards and demand for home equity lines of credit were reportedly about unchanged.

People are confusing rising demand with easing standards.


[Devoid of Sellers] 3Q 2012 Manhattan Sales Report

October 2, 2012 | 9:00 am | delogo | Reports |

We published our report on Manhattan market sales for 3Q 2012 this morning.   I’ve been writing them for Douglas Elliman since 1994.

My Take

-Housing prices continue to remain stable – the slight YOY dip in prices was caused by a large increase in 1-bedroom sales pulling the overall numbers down (mortgage rates driving the entry-market)
-Closed sales slipped 5% from last year but pendings jumped 4.9% ahead of last summer – 2011 had more written business in first half of year while 2012 had more momentum going through summer.
-Inventory fell 24.3% from last year to lowest level in 7.5 years. Low equity keeping many sellers from listing (those sellers can’t become buyers because of tight credit), election year paralysis and concern about direction of economy, Europe, Federal Reserve’s QE3.
-Condo price trends outpacing co-op price trends likely due to foreign buyer demand.
-Luxury market prices slipping as inventory edging higher – however there was a jump in 3-bedroom sales.
-New development sales market share at 17.8%, consistent with past several years.
-Manhattan remains one of the best housing markets in the US: employment rising, tight inventory and strong international demand – despite tight credit conditions.

Here’s an excerpt from the report:

…The Manhattan housing market showed seasonally stable pricing and sales activity. Smaller apartments continued to gain market share as mortgage rates continued to fall and city employment levels rose. The sharply declining listing inventory reached a 7.5-year low, while the monthly absorption rate demonstrated a brisk market pace as it reached a 5-year low. All price indicators posted modest year-overyear declines, as 1-bedroom apartments gained 5% market share to represent 37.8% of all sales, edging out the 2-bedroom market as the largest market segment. Median sales price was $890,000, down 2.3% from $911,333 a year ago. Average sales price and average price per square foot slipped 1.4% and 2.4% from the prior year quarter to $1,444,463 and $1,103 respectively. Year-to-date, median sales price remained unchanged from a year ago at $850,000, while average price per square foot increased 0.6%, further reflecting price stability in the overall market…

Updated charts and data tables will be uploaded later today. UPDATE: The charts and data tables are updated.

Here’s the press coverage for the report today.




The Elliman Report: 3Q 2012 Manhattan Sales [Miller Samuel]
The Elliman Report: 3Q 2012 Manhattan Sales [Prudential Douglas Elliman]

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