Matrix Blog

New York Times

Mortgage Apps Rise As Rates Fall: Will Home Sales Rise Too?

September 8, 2005 | 12:13 pm | |

With the drop in mortgage rates that started in early August, it comes as no surprise that mortgage applications are now starting to rise

The next thought that comes to mind is whether or not home sales will follow. Sales activity seemed fairly brisk in New York, althought the NAR’s Pending Home Sales Index [Note: PDF] showed modest declines in all regions except the south. The idea here is that contracts are the better indicator of the current state of the real estate market. However, this is more of an informal survey from their members. It is still behind the market since they have only report through mid-July.

With Katrina and higher oil prices, it will be interesting to see what happens in September. I’m thinking good thoughts.

I will probably get a little annoyed if interpretation the the next round of housing data does not consider that August is usually one of the seasonally slowest times of the year for housing sales. Hence the infamous, seasonal adjustment should be applied. See Lies, Damn Lies, And Government Statistics: Part I

One other thought is the idea of using mortgage applications in predicting home sales. There is an interesting article published from the Dallas Fed Can Mortgage Application Help Predict Home Sales?[Note: PDF] Its a bit dry but my sense is that the mortgage app data really lags too much to be an effective predictor of home sales without a lot of tweaking.

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Riding The Storm Out: Housing Boom May Continue For A While

September 5, 2005 | 11:19 am | |

There was a great article in the New York Times today that provided some logic as to why Katrina could extend the housing boom further.

There have been signs lately that the intensity of the housing boom was waning as outlined in a WSJ story [Note: Paid Sub.] or could it simply be because its August? 😉

The shortage of building supplies and rising fuel prices as a result of the storm are thought to temper the economy, dragging down long term rates as inflation threats are diluted. The outlying areas around the devastated region are already seeing a surge is rental demand as people were displaced from their homes.

We can already see a damper in mortgage rates, which dropped sharply last week.

In another good article in last week’s New York Daily News [no, not because I was in it] that provided similar logic. Higher costs are keeping a damper on inflation, which keeps long-term mortgage rates low.

What I find so fascinating about all this is how different the economy is today as compared to the last oil crises in the early 70’s. Bond investors see a slowing economy as the answer to keeping inflation in check. Corporations are forced to absorb much of the higher operating costs that come along with rising fuel and material costs due to foreign competition. That in turn keeps a reign on hiring and payroll.

There is already speculation that the Fed will not raise short-term rates in their next session due to concern that the economy could slip back into a recession.

And the housing market keeps going…

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Rocking The Housing Boat With Too Much Median Income

September 4, 2005 | 10:03 am | |

WASHINGTON (MarketWatch) – For the second straight year, the income of the typical U.S. family was unchanged in 2004 after adjusting for inflation, the Census Bureau said Tuesday. [Note: Reg.].

“The median income masked widespread geographic and demographic differences:

The highest median incomes were in the Northeast at $47,994 and the West at $47,680; incomes in both regions was unchanged in 2004. The median income in the Midwest fell 2.8% to $44,657. The median income in the South was unchanged at $40,773.”

This was made more clear in New York, where the ratio of low to high median income by county was the largest gap on record. The disparity between the low (The Bronx) and high (Manhattan) median income was 52 times. The Bronx now has the lowest median income of any urban county in the country.

Shrinking Middle Class

However, the middle class is shrinking in New York City. Since the late 90’s, the upper tier of the real estate market has done well because much of the gains in personal income went to the top twenty percent…yet at the same time, the overall median income was flat.

We see statistics that show that the price of housing in many real estate markets is disproportionate to income. If you look in New York, for example, personal income growth has been seen at the top tier and, surprise, surprise that is where the new development has been targeted. Very limited new Manhattan development of middle class housing has occurred. The gains in new housing stock, when thrown into the mix, would tend to skew the overall median (yes, median) and average sales price numbers upward.

This all makes for the argument that it is not very reliable to lump all housing markets into one big bucket or compare overall housing stats to overall personal income stats since the specific market sectors are what tell the story. Otherwise, it paints a picture of rough seas and we better start bailing.


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Housing Stats Send No Clear Message, Well Sort Of

August 25, 2005 | 9:26 pm | |

rollercoaster

A slew of seemingly conflicting, or at a bare minimum, entangled housing related statistics have been released over the past few days. Each statistic is generally covered as the subject of a story rather than combined into one analysis, the results often contradict each other. Here are some headlines grouped by their indicated trends for the month:

Headline Summary – Improving Conditions (sort of):

Associated Press: Rates on 30 – Year Mortgages Decline
MarketWatch: New-home sales surge to record 1.41 mln [Note: Reg.]

Headline Summary – Weakening Conditions (sort of):

Wall Street Journal: Economic Data Send Mixed Signals [Note: Paid Sub.]
New York Times: The nation’s long housing boom appears to be losing steam.
New York Times: Rents Head Up as Home Prices Put Off Buyers
Wall Street Journal: Rise in Supply of Homes for Sale Suggests Market Could Be Cooling [Note: Paid Sub.]

signs

And The Trend (This Month) Is…

Existing home sales are far greater than new sales so their decline, coupled with rising rents and expanding inventory would appear to indicate a leveling off of the market. But then again, these are July stats, an historically slow period of the year for housing sales, and next month is expected to be more of the same.

What The Real Estate Economy Really Needs:

Washington Post: More Cowbell!

cowbell …sorry, it was late when this was posted.


Lies, Damn Lies, And Government Statistics: Part II

August 21, 2005 | 12:07 pm | |

Go to the prequel of this post Lies, Damn Lies, And Government Statistics: Part I

And here is another post of the same topic concerning PPI Well, Maybe The Inflation Threat Is Not That Bad After All?

…After I finished my post on this topic last Friday, I came across yet another significant statistic that we should be uncomfortable with. Daniel Gross wrote an excellent article on productivity stats that suggests that the stats have even confounded Greenspan.

productivity
Source: New York Times


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Going Dutch

August 21, 2005 | 11:21 am | |

bubble

In today’s New York Times article, Professor Robert Shiller “>voices his concern about a real estate bubble. Professor Schiller is well-known for predicting the last stock market correction and possibly influencing Fed Chairman Greenspan’s use of the phrase irrational exuberance, the name of Professor Shiller’s subsequent book.

According to the article, origins of a housing bubble began with the Dutch about 400 years ago. Recently, a Dutch economist, Piet M. A. Eichholtz, a professor of Maastricht University, used Mr. Schiller’s method for converting actual sales into an index and found that the housing market saw a series of booms and busts. They found that in the long run, there was no long term trend and that prices match gains in personal income.

Mr. Shiller has a Norwegian housing index and a US Index that shows a similar pattern and is concerned that the recent run-up shows we are in a bubble.

shillerindex
Source: New York Times


To his critics, he says that housing charts generally go back to the 1970’s and stock market charts go back almost a century.


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What Else is New? Existing-Home Sales Hit Records, But…

August 17, 2005 | 8:40 am | |

The recurring theme across the US is an increase in the number of sales and sales prices. NAR’s existing home sale report saw a record pace in the number of sales. West Virginia drew top honors with the largest gain in sales activity over the past year.

In addition to volume, housing prices have been rising nationwide. Condos seem to be leading the way in Massachusetts [Note: Subscription].

Around the country housing prices and exist-home sales are setting records or near record levels but the rate of appreciation seems to be easing across the country.

Regional articles: Wisconsin
Minneapolis
California
Southern California
Wisconsin
Upstate New York


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From Rubble to Rubles

August 16, 2005 | 10:07 pm | |

There is a housing boom in Russia where prices in an exclusive area of Moscow known as Ostozhenka, housing exceeds $10,000 per square meter. That translates to just under $1,000 per square foot. After New York, Moscow has the highest concentration of billionaires.

Mortgage financing is a relatively new concept in Russia and is helping fuel the boom. Lack of supply, is also fueling the boom, but as little as 6 months ago, the government was saying there was no housing boom.

Like Russia, China and Korea are seeing lack of supply and ready credit is very similar to the US situation. The housing boom pattern seems to be similar around the globe, however, the disparity between the entry and luxury segments as well as investor speculation in China, Korea and Russia are at a higher level than seen in the US.


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Media Coverage Of The Words “Real Estate Bubble”

August 8, 2005 | 12:09 pm | |

Media coverage of the words “real estate bubble” was analyzed by our public relations firm, Publitas. The results were very interesting.

Admit it. Many of us now groan when we read another story of the housing bubble or crash (whether its true or not). The story cycle has run its course.

This is a very similar methodology employed by Robert Shiller of Yale as covered in the New York Times.

However, the Shiller analysis uses a multi-year Lexis-Nexis news search seems biased toward the later years. Major news organizations have a much greater presence on the web now than they did, say 8 or 9 years ago. The absolute number of hits should be far less in earlier years. His analysis should have been done as a percentage of total news stories.

Here’s the problem…

People are now using the logic that since information on the housing bubble has been pumped out into the mainstream ad nauseam, the odds of a market correction is now somehow less since more people are informed. Matrix thinks this is very misguided and relies on “mob mentality” too much. Safety in numbers is more of a distraction. Now that the market has made it through the hailstorm of coverage, we can start really looking at what is going on in real estate.


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