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[Getting Graphic] New York Workers Are Flush

July 14, 2006 | 6:17 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for full graphic [NYT]

Source: NYT



According to a report by the Federal Reserve Bank of New York called Taking the Pulse of the New York City Economy covered in the article Report Shows Quick Growth in New York Since 9/11 [NYT], New York City’s economy bounced back after Sept. 11 with surprising speed and is much healthier now than its slow-growing job market indicates.

The economy bounced back quickly, much faster than the stock market bubble just prior to 9/11. Although the economy has 100,000 few jobs than it did before 9/11, it would have anyway. Actually, unemployment in NYC is at 5%, which is the lowest level in 18 years. In addition, the average NYC worker makes 63% more than the average US worker, as compared to 20% in 1980.

While many economists and analysts assume job growth has all been at the highend, much of the gains had come in the middle of the job spectrum, especially among the self-employed and small businesses.

This sort of correlates with the fact that the housing boom in New York impacted all price demographics in New York.


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[Getting Graphic] Affording Everything But The House

July 14, 2006 | 5:57 am |

Getting Graphic is a semi-sort-of-irregular collection of our favorite real estate-related chart(s).

This monthly economic summary by Norther Trust called Oh Magic Eight Ball, Is Economic Growth Slowing Significantly? [pdf] ponders a number of housing issues in a series of charts. I have provided two of the most relevant here from the report.

National housing affordability is at its lowest level since 1989 (down=lower affordability, gray=recession).

The spread between national sales and inventory levels is widening.


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[Getting Graphic] FOMC Makes It 17 at 5.25% And Seems to Get It About Housing

June 30, 2006 | 6:40 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related images(s).

Click here for full graphic [WSJ]

The official press release [FOMC]

Source:WSJ


Inspired by Greenspanspeak, and transitioning to Bernankespeak, the Wall Street Journal continues a well-executed tradition of graphically interpreting what the Fed really means.

Inflation is a concern but they don’t seem as intent on raising rates indefinitely. August is looking pretty definite as far as rate increases go.

The federal funds rate has been raised 17 consecutive times since June 2004 by 25 basis points and is at its highest level in 5 years [WaPo].

As a relief to many, the FOMC specifically recognized that housing does play a significant role:

Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

I still contend that the full thrust of the cooling of the housing market is not fully borne out in the stats and we are headed for more economic weakness in 2007. The use of the dreaded “R” word will accelerate. Merrill Lynch economists say there is now a 40% chance of a recession in 2007 [Calculated Risk].

That could mean rate cuts next year but thats only good news to housing if job creation doesn’t deteriorate too much.


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[Getting Graphic] Feeling Bad About The Boom

June 29, 2006 | 6:34 am |

Getting Graphic is a semi-sort-of-irregular collection of our favorite housing-related chart(s).

Click here for both full graphics [WaPo]

Washington Post-ABC News Consumer Comfort Index Survey (last 12 months)

Source:WaPo


Washington Post-ABC News Consumer Comfort Index Survey (1986-2005)

Source:WaPo


The housing boom could be defined as the period from 1997 to 2005 with a break in 2001 when we saw a recession and 9/11. In the past 5 years, I have always wondered, although the housing sector was setting records, why it seemed that consumers remained anxious even though they were doing ok financially? Of course, I could have been alone in this regard.

The Washington Post-ABC News Consumer Comfort Index Survey seems to bear this out. The participants are asked 3 questions in this rolling average survey. They rate the:

  • condition of the national economy,
  • state of their personal finances, and
  • whether now is a good time to buy things.

Self-perception of the state of their personal finances was usually positive but the other factors were negative. You can also view the methodology and the data.

The annual results of the survey shown have been negative as shown in the chart above and this has carried through to 2006.

The survey doesn’t answer the question, but it does show how cranky all of us have been.

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[Getting Graphic] Fed Increases: Pinch Me When It Starts To Hurt

June 29, 2006 | 6:06 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for full graphic [WaPo]

Source:WaPo


If the Federal Reserve raises the federal funds rate today for the 17th consecutive FOMC session, then this will be the longest period of tightening in 50 years.

In Neil Henderson’s Tighter, Tighter: When Will Fed Increases Start to Pinch? [WaPo], he asks the question: So why isn’t the economy choking by now?

The answer? Money is still pretty cheap.

The Fed directly controls the interest rate banks charge one another for overnight loans, a benchmark known as the federal funds rate. That rate indirectly influences borrowing costs throughout the economy. The central bank uses its influence over rates to try to keep the economy growing at a sustainable pace without igniting inflation. Tighter credit dampens spending, making it harder for businesses to raise prices. Easier money does the opposite.

In contrast to the campaign of the past 25 months, the Fed has previously acted much more aggressively, pushing interest rates much higher and much faster to battle hotter inflation — and causing much more economic pain in the process.

Homeowners have not felt real pain yet. According to the Mortgage Banker Association, foreclosures and delinquencies actually fell year over year in the first quarter. However, the stats are expected to erode as higher energy costs and adjustable rate mortgage rate resets start to inflict more pain.

I think we are at the point of parity, and today’s expected increase along with an increasing probability of one in August could be seen in the history books as the beginning of a period of overshooting.


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Plateau: Making The Case For Rate Cuts In 2007

June 28, 2006 | 6:57 am |
Source:NYT

In an interesting article by Paul J. Lim: What the Fed Is Up to, and Why You Shouldn’t Fret [NYT] he makes the case that the likely Fed interest rate increase tomorrow and possible increase in August will have little impact on long term investors.

Recession is a concern for 2007 and many economists are already predicting that the Fed is overshooting and will have to cut rates soon to avoid slipping into a recession. This may be good for housing if there is not irreparable damage caused by the next 1-2 rate cuts. Housing markets have been cooling for much of this year.

I have been speculating about rate cuts in 2007 since this past February.

However, the economy is doing well now with corporate profits up. With higher energy costs, and signs of inflation, the Fed’s hand is forced to raise rates now.

Some investors may be paying close attention to the Fed because they think that once it pauses, the stock market will have an all-clear sign to resume its bull run. That was certainly the case in 1995, when the Dow Jones industrial average rallied more than 40 percent in the 12 months after the last Fed rate increase that year.

Sam Stovall, chief investment strategist at Standard & Poor’s, recently studied what he called the “plateau period,” or the time between a Fed rate increase and the first in a new series of interest rate cuts.

He concludes, with some caveats, that the average time between the last rate hike and the next rate cut is about 5.5 months. If August is our last rate hike, it looks like the 1st quarter of 2007, could be the point were the Fed is forced to cut rates if the economy stalls.


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[Getting Graphic] Imput This: Rentals And Sales Trends Are Different

June 9, 2006 | 10:28 am |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Source:NYT

Click here for full graphic [NYT]

In 1996, when the imputed rent replaced sales trends in the CPI calculation, the government provided evidence that this would have little impact on CPI. However, in Floyd Norris’ column this week What Happens if Inflation Is Overstated? [NYT], he shows that things have changed considerably since then.

  • Sales have doubled
  • Rents have increased by a third

I commented about this last February in the post At The Core Of Inflation, Housing Sales Are Merely Rentals.

There is the belief that inflation was understated because rentals were weaker than sales during the housing boom and quite possibly the Fed may have been quicker to raise rates to cool off the market. Now with the rental market expected to grow, inflation may be over stated.

Higher interest rates might weaken the economy, but could also help the dollar. Lower rates could hurt the dollar, but also strengthen the economy.

Flexibility may be essential. “If Bernanke commits categorically to a response to core price pressures,” said Robert J. Barbera, chief economist of ITG, “he could find himself raising rates because housing does worse because of the arithmetic of how that plays out in the C.P.I.”

Bernanke may find that making the Fed more transparent, may be easier said than done and Norris concludes that Mr. Bernanke may come to understand why Mr. Greenspan so rarely said anything clearly.


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Harvard: The State of the Nation’s Housing 2006

June 7, 2006 | 11:04 pm |

Every year I look forward to the release of the The State of the Nation’s Housing study by the Joint Center for Housing Studies at Harvard. Its a comprehensive macro look at our nation’s housing that is insightful and easy to read.

Download the report [pdf]

The report suggests that the current housing slowdown will be moderate but affordability problems over the next decade will continue to deteriorate.

Nevertheless, the housing sector continues to benefit from solid job and household growth, recovering rental markets, and strong home price appreciation. As long as these positive forces remain in place, the current slowdown should be moderate.

Over the longer term, household growth is expected to accelerate from about 12.6 million over the past ten years to 14.6 million over the next ten. When combined with projected income gains and a rising tide of wealth, strengthening demand should lift housing production and investment to new highs. But with the economy generating so many low-wage jobs and land use restrictions driving up housing costs, today’s widespread affordability problems will also intensify.

Here’s a sample of some of the wide variety of charts from the study:


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[Getting Graphic] Remodeling Equation: Value > Cost = Boom

May 19, 2006 | 12:01 am |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related images(s).

What remodeling bubble, you ask? Well, every year the Cost vs. Value Report by Remodeling Magazine lays out statistics on the investment return of kitchen and bathroom remodels, room additions and other projects in every major city in America.

Source:Remodeling Online

Click here to read the study

Bathrooms were the only category on a national basis to exceed 100%. Actually, I would have thought kitchens would have resulted in a higher value than bathrooms relative to cost. Its a larger room on average, occupying more space than a bathroom. It has more visual impact and is the most shared living area in the home.

I’d be interested in historical figures if they were available. As evidenced by the chart, the relationship of cost to value changes. For example, in New York, and I would expect in many metro areas, the cost of a renovation far exceeded its contribution to value during a weak economic period. In the 1990-1991 recession, we found that the ratio of cost to value was 2:1 but served to accelerate marketing time.


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[Getting Graphic] Home Purchase Purpose

May 19, 2006 | 12:01 am |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for the related article [KBD]

Whats kind of scary about the purchase breakdown is the number of investor units. 27.7% of all purchases is a lot of units. Whats even more of a concern is that there are markets where investor units are a non-factor, like New York, New York, so there are markets where the share is significantly higher.

I am less concerned about the stability of the vacation home market since thats more a function of changing demographics (aging baby boomers).


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[Getting Graphic] Further Evidence That Housing Has Shifted Gears

May 16, 2006 | 12:01 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Some Markets Start to Cool As Inventory Levels Rise; Low-Cost Cities See Uptick [WSJ]

Home prices were higher in many U.S. markets in the first quarter of 2006, but the pace of growth is cooling.

In its latest report of home prices in 149 metropolitan areas, the National Association of Realtors said the median price of a single-family home in the U.S. was $217,900 in the first quarter, up 10.3% when compared with the same quarter a year ago. That’s a smaller increase than in the fourth quarter, when the median price of a home was up about 13.6% year-over-year.

David Lereah, NAR’s chief economist, said in a statement that home prices are rising less rapidly because the inventory of homes available for sale is rising. “With the supply of homes picking up very nicely in many areas of the country, pressure is coming off of home prices.” Mr. Lereah also indicated that the trend is continuing into the current quarter, and that he expects price-appreciation will be “returning to normal rates of price growth in the single-digit range.”

Source:WSJ


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[Getting Graphic] Sweet 16 at 5%: The Fed Remains Consistent But Muddies The Water

May 11, 2006 | 8:53 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related images(s).

Source:WSJ



The Bernanke Fed was true to form as the Federal Open Market Committe raised the federal funds rate, its key short-term interest rate another 25 basis points to hit 5%. As with prior Fed actions, the Wall Street Journal has an interesting analysis called Parsing The Fed where it analyzes the nuances of FedSpeak.

For the first time in 2 years, the Fed gave the impression it was nearing the end of its rate hike strategy but left itself the option to continue to do so at a later date as the information from economic unfolds [Polley].

I would think this posture will create further uncertainty for the bond market, which will continue to place upward pressure on fixed rates even after short term rates level off, should the Fed stop. This seemingly lack of clear articulation by the Fed does not help the housing market, which has already been dampened by rising mortgage rates.

Here is the actual release from the FOMC


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