Matrix Blog

Economy

[Interview] Mark Willis, Research Fellow, NYU Furman Center

June 15, 2010 | 12:01 am | | Podcasts |

Read More

Tags:


[97% Financing] National Debt In Perspective

May 11, 2010 | 8:33 am | |


[click to open source post]

I came across this amazing table (hat tip: Robert Paterson’s Weblog) that lays out the percentage of each European country’s national debt to GDP compared to the US. The author applies a 5% debt repayment rate to estimate how long it would take to pay it off (assuming no more additional debt).

While the US is far better than the 19 other countries listed, I am more concerned about the continued growth US debt – it appears to be growing unabated.

Irish eyes are NOT smiling. It’s hard to imagine an influx of foreign investors providing meaningful real estate demand from Europe anytime soon, in addition to the restraint caused by the rising dollar relative to the euro.

Reality check – At 97% financing for 19 years, the US is beginning to feel like an FHA mortgage. Hey, isn’t FHA losing money?


Tags: ,


[Bubbletheory] Lets Not Re-write History

May 10, 2010 | 12:00 am | |

I have been coming across what I believe to be somewhat weird rear view looks at the credit/housing bubble we just went through from some well respected voices. I’m thinking there is perhaps an academia disconnect from the front lines.


[click to open article]

Casey B. Mulligan is an economics professor at the University of Chicago writes “Was it really a bubble?

According to the bubble theory, for a while the market was overcome with exuberance, meaning that people were paying much more for housing than changes in incomes, demographics, technology and other basic factors would suggest.

But why would the blue line need to be where it is? Housing prices are stickier on the downside and the slope should not form a bell curve as the drawing suggests. It should be a lesser slope and drawn out over several years, shouldn’t it? And wasn’t that the whole point of the stimulus plan in reference to the first time home buyers’ and existing homeowner’s tax credit? It stimulated sales activity and as a result, artificially pushed sales price levels sideways.

Take a look at my colleague at Westwood Capital, Dan Alpert’s chart showing the exuberance of housing prices. You can slice it and dice anyway you want but THAT’s a bubble.


[click to open article]

And one of my favorite economist/writers Edward Glaeser writes “What Caused the Great Housing Maelstrom?

If the easy credit hypothesis is correct, then we can take comfort in the thought that we understand the great housing convulsion, and we can start pointing fingers at those institutions, like the Federal Reserve System, that play a role in determining interest rates.

He and his colleagues through their research seem to be saying that low interest rates and high lending approval rates don’t explain enough of the rise in housing prices.

In all due respect, I don’t know exactly how they proved their points empirically but this research seems to be a bit disconnected to what most of us observed on the ground during the boom itself.

For example, a five percent increase in loan-to-value ratios is associated with a 2.5 percent increase in prices, and loan-to-value ratios rose by less than five percent during the boom.

That seems like a very low ratio to me. As appraisers we could clearly see the pressure we were under to hit the number for the mortgage approval and that most people were placing 5%-10% down. I contend that credit was easier than anytime in modern history and that combined with interest rates kept on the floor from late 2001 to mid 2004 caused a frenzy of demand or as Professor Robert Shiller characterizes it as “Irrational Exuberance.”

This was a credit bubble and that housing was merely a way to keep score. Perhaps I am not following their logic but having lived through it and saw the lending environment first hand, its hard to imagine this whirlwind of the past 7 years was not a bubble of some kind.


Tags: ,


I’m Sorry But Don’t Blame Me, I’m Neutral

May 4, 2010 | 8:45 am | |


(courtesy: CS Monitor)

Admittedly I am getting annoyed about the lack of closure on this credit crunch thing. Can’t we simply point fingers, have someone apologize but indirectly deny responsibility and then we can then get back to buying stuff and building extensions on our houses?

Make no mistake, the credit crunch is one big mistake. It’s called a systemic breakdown because so many in the economy played a role in our economic demise. Moral hazard, government backstops, bailouts, stimulus, bonuses, trillions, synthetic CDOs have been placed in the forefront of our thinking.

But no clear financial reform path is being taken – in fact it took an investment bank using swear words in an email to get Washington’s attention and break the political maneuvering. Each party is planning to oversteer the solution to their agenda which was part of the problem that lead to this crisis. While we all worry about “free markets” we have forgotten how important it is to create a level playing field. Without rules, free markets degrade to chaos and lack of investor participation. We are seeing this now within the secondary mortgage market, especially jumbos.

We can never remove the human factor from the problem since regulators were clearly asleep at the switch (since Clinton) compensation had perverse incentives favoring short term profits over long term viability, regulators were neutered by the prior administration (think prior SEC under Bush) so its dumb to have some sort of czar. It’s never one factor – it a combination of people, events, institutions and politics that light the fuse.

I am looking forward to some sort of meaningful financial reform. If neutrality isn’t baked into the system, then this is all a big waste of time. Regulators need authority and can not be influenced and investment banks can’t pick the regulator they want. Rating agencies should not be paid directly by the investment banks whose products they rate. Appraisers can not be fearful of their livelihood because they don;t hit the number, etc.

Here’s what it all boils down to now: blame and being sorry.

Blame
Another Jonathon Miller (no relation, but awesome name) and his wife are suing a large builder for not preventing flipping in their housing development which brought in “irreverent transients” who party loudly, park erratically and install unauthorized satellite dishes.

I’m not doubting those conditions exist and it appears to be a creative way to get your money back.

When the housing market collapsed, some contracted buyers abandoned deals. From the outset, the project exhibited “ghost-town-like” qualities, the suit says.

Looking back, the Millers say the developer should have worked harder to prevent so-called flippers from buying units. Buyers were supposed to stick around for at least 18 months.

Saying I’m Sorry
In particularly interesting Reuters Summit Notebook piece, People make mistakes, take Alan Greenspan and Captain of Titanic

Phil Angelides, Financial Crisis Inquiry Commission chairman, says he’d rather see some taking of responsibility than hear another “I’m sorry.”

“Personally I don’t see my role as … to obtain apologies. What I don’t hear is a sense of responsibility and self-assessment about what occurred. There seems to be a disconnect between the practices that people undertook and the financial collapse,” he said at the Reuters Global Financial Regulation Summit.

“I’m struck by the extent to which all fingers point away generally from the person testifying,” Angelides said.

When it gets to this point, its too late. Let’s try to be proactive with some sort of meaningful financial reform. Not more regulation, not fewer protections for neutral parties.

If we can’t do this as a country, well, don’t blame me.

Tags: , , ,


[Charticlismic] Matching Google Searches To Real Estate

May 3, 2010 | 11:22 pm |

Well its been a while since I looked at the seasonal search patterns tied to real estate via Google – very cool way to parse out consumer thinking on specific topics.

Real Estate

Clearly the surge of interest begins January 1 of each year but its also interesting to see total search volume slide since 2005. What’s even more interesting is to observe 2010 search levels, while consistent in pattern to prior years, is at its lowest level since the series began in 2004. Recovery?

Rental

“Rental” follows the same pattern as the overall real estate category – strong surge at beginning of the year, sharp fall off at end of year. The decline is not nearly as pronounced as “real estate”.

Jobs

“Jobs” as a search term has been climbing since 2008 with some strange spikes in queries in recent months. This criteria seems to be the inverse of the “real estate” and “rental” trends.

Unemployment

“Unemployment” shows no seasonality – only a steep climb since mid-2008.

Luxury Goods

“Luxury goods” has shown a steady decline since peaking in 2005. Strange – I would have thought it would have peaked in 2007 or 2008 since credit enabled a “luxury” culture that wasn’t sustainable.

Mortgage

“Mortgage” begain to spike in 2008 and continued in 2009 as the lending net cast by banks for mortgages shrunk considerably. I believe the low level of queries reflects the frustration associated with tight credit – that the public doesn’t think things will improve soon and therefore search activity is at its lowest since 2004 when this series began.


Tags:


[Glaeser 2-fer] Cities Do It Better + Manhattan Preservation Follies

April 28, 2010 | 10:21 am | |

I’m a big fan of the work of Harvard Economics Professor Edward Glaeser‘s work, especially that related to Manhattan. This week we are hit broadside with two compelling pieces to read.


[click image to open article]

The first is yesterday’s Cities Do It Better article in the NYT Economix section where he asks the question:

What makes dense megacities like New York so successful?

Economic geography was one of my favorite courses in college because it was so applicable to understanding the logic of how a city evolved and operated. Access to natural resources, transportion, labor, etc. He references Jed Kolko’s essay in “Agglomeration Economics” that he edited.

A key point as far as I’m concerned:

In a multi-industry city, like New York, workers could readily find some other employer. The young Chester Carlson was laid off from Bell Labs during the Great Depression, then moved to a law office as a patent clerk and then joined the electronics company that would make Duracell batteries and then invented the Xerox copier.

It’s sort of like my assumption that it is much more likely you will run into someone you know from another state or went to high school with in Manhattan than you would if you lived a mid-sized city. High density brings opportunity.

But there is more risk in cities like Detroit whose economy has always been one-dimensional. Pittsburgh and Houston are examples of smaller cities that learned to diversify after hovering near insolvency in prior decades.


[click image to open article]

His second article was released in City Journal called Preservation Follies which warns against excessive landmarking which serves to make Manhattan less affordable. He’s not anti-preservation, but he makes a case for excessive landmarking which has including buildings that don’t deserve it. His approach was novel to me, in the way that he tracks acres as the metric of landmarking:

He also looks at the addition of housing units within landmark districts:

During the 1980s, the mostly historic tracts added an average of 48 housing units apiece—noticeably fewer than the 280 units added in the partly historic tracts and the 258 units added in the nonhistoric tracts. In the 1990s, the mostly historic tracts lost an average of 94 housing units (thanks to unit consolidation or conversion to other uses), while the partly historic tracts lost an average of 46 units and the nonhistoric tracts added an average of 89 units.

…and its impact on housing prices…

From 1980 through 1991, the average price of a midsize condominium (between 800 and 1,200 square feet) sold in a historic district was $494,043 in today’s dollars. From 1991 through 2002, that price was $582,671—an 18 percent increase. The average price of a midsize condo outside a historic district, meanwhile, barely rose in real dollars, from $581,865 in the first decade to just $583,352 in the second.



[Interview] The Wealth Report 2010 Knight Frank, Andrew Shirley, Editor + Liam Bailey, Head of Residential Research

March 23, 2010 | 4:55 pm | | Podcasts |

Read More

Tags:


[CDO] ‘The Big Short’ Meets Harvard Graduate Thesis Paper

March 22, 2010 | 12:28 am | |

I’m a big fan of Michael Lewis’ writings starting with Liar’s Poker (think onion cheeseburgers for breakfast and traders owning more speed boats than suits) and much of his other work including Money Ball, Panic (a collection of his favorite news accounts of the credit crisis) and The Blind Side (Academy Awards), but I am very much anticipating reading his new work “The Big Short: Inside the Doomsday Machine.

Admittedly I am growing weary of Wall-Street-what-went-wrong books and I still need to read Andrew Ross Sorkin’s “Too Big Too Fail” compendium on my nightstand (worrying its becoming “Too Big To Read”) but I definitely will. But the Lewis book has got my attention for some reason. It’s weird to sound like I am recommending a book I haven’t purchased or read yet but I guess I am relying on past experience.

In the book acknowlegements, the WSJ Deal Journal blog points out that Lewis:

praises “A.K. Barnett-Hart, a Harvard undergraduate who had just written a thesis about the market for subprime mortgage-backed CDOs that remains more interesting than any single piece of Wall Street research on the subject.”

And my favorite quote referring to the idea of making the numbers say what you needed them to say.

“If you just randomly start regressing everything, you can end up doing an unlimited amount of regressions,” she said, rolling her eyes.

Read the thesis.

She was able to track down information and cover the looming CDO disaster completely on her own through basic research.

Perhaps most disturbing about these losses is that most of the securities being marked down were initially given a rating of AAA by one or more of the three nationally recognized credit rating agencies, essentially marking them as “safe” investments.

A lot can be said for taking a detached or neutral look at a complicated situation. Sometimes the collective mindset takes on blinders, or in this case, blind folds.

A couple of charts to peak your interest.


Tags:


Wall Street Bonus Money Flows Like Molasses

March 2, 2010 | 1:49 pm | |

Note to readers – Matrix was hacked and we moved to a new host. Lost some of the graphics as a result – will get back on track shortly.


[click to expand]

The Wall Street bonus pool rose 17% and average bonus per person rose 25%.

Wall Street bonuses paid to New York City securities industry employees rose by 17 percent to $20.3 billion in 2009, according to an estimate released today by State Comptroller Thomas P. DiNapoli. Total compensation at the largest securities firms grew even faster and industry profits could exceed an unprecedented $55 billion in 2009, nearly three times greater than the previous all-time record. In 2008, the industry lost a record $42.6 billion.

On the surface this sounds like there will be a big jolt to the NYC regional economy. The sector is an important economic engine, providing 25% of the income from 5% of the jobs. Every job lost on Wall Street causes the loss of 2.5 private sector jobs.

The higher growth in bonuses are bittersweet – while the average per person bonus was up because there was job loss in the sector. Arguably few jobs lost than forecast but it tempers the bonus impact on the real estate economy.

But bonuses are controversial especially when so many are struggling outside of Wall Street. President Obama fell prey to populist sentiment with his “Fat Cats on Wall Street” comments but now doesn’t begrudge them (I’ve never been able to use begrudge in a sentence before).

Bonus income accounts for as much as 50% of total compensation for an individual.

But as John Mack, Morgan Stanley Chairman, has said

“I still don’t think the industry gets it,” Bloomberg reported the veteran banker as saying yesterday during an appearance in Charlotte, North Carolina (hat tip Huffington Post). “The issue is not structure, it is amount.”

My anecdotal feedback is that compensation seems to be about 70% restricted stock and 30% cash. And institutions like UBS are reportedly paying out half of the cash compensation now and half in 6 months.

That knocks the wind out of the “sales” (sorry) for a spring frenzy in the NYC housing market that has grown accustomed to a frenzy over the past decade. Still, it will help but I am skeptical about it helping above seasonal expectations, but who really knows.



[click to expand]
Source: New York State State Comptroller


Tags:


Everyone (Unemployment) Is Not Equal

February 16, 2010 | 12:19 am | |


[click to open report]

This report sort of blew me away. When I think of unemployment I usually see it as an across the board phenomenon. I’m not sure why I would see it that way since housing markets don’t behave that way.

As WSJ sums up the report results:

According to a study from Northeastern University’s Center for Labor Studies, unemployment for those in the top income decile–individuals earning more than $150,000 a year–was 3% in the fourth quarter of 2009. That compares with unemployment of 31% for the bottom 10% of income, and unemployment of 9% for the middle decile.

The differing rates of underemployment–including those working part-time for economic reasons–are also notable. Underemployment for the top 10% was 1.6%, while the bottom was 21%.



[Interview] Barry Ritholtz, Bailout Nation, Fusion IQ, The Big Picture Blog

January 25, 2010 | 8:14 pm | Podcasts |

Read More

Tags: , ,


[FCIC] Financial Crisis Inquiry Commission Is In Business

January 18, 2010 | 8:11 pm | |



[click to open]

I am coming up for air after the productive and engaging Inman Real Estate Connect conference last week. I got to connect (no surprise there) with a lot of great people connected with real estate and lead three panel discussions on foreclosure related topics.

One of the things I have been following has been the activity on this new Financial Crisis Inquiry Commission or FCIC to those in the (alphabet soup) know.

Aside: kudos to the web designers for all the new dot-gov web sites such as recovery.gov. Simple to read and navigate. Yay!

FCIC.gov is something readers of Matrix should pay attention to.

Not because this effort will result in some sort of punishment for those who strayed from the straight and narrow (its a wide road). Since the financial crisis was a systemic breakdown, I would guess we will see something like this happen again in our lifetime, but hopefully not on the same scale because its human nature.

However, I recommend following this site to observe how the government will systemically explore what happened even though it was an important contributor to the breakdown. Sort of a government introspective while simultaneously protect their turf and save face. All the participants of this endeavor will no longer be in power when the next crisis hits. That’s why regulatory reform is so important.

My hope is something good comes out of the vetting process – it usually does – and we place logical constraints in place to prevent the scale of this sort of breakdown from happening in the future.

If its a slow evening for you, I recommend watching the C-SPAN versions of the January 13-14 hearings and review the associated documents.

Here are some sobering charts presented by the commission.




[click to expand]


Tags:

Get Weekly Insights and Research

Housing Notes by Jonathan Miller

Receive Jonathan Miller's 'Housing Notes' and get regular market insights, the market report series for Douglas Elliman Real Estate as well as interviews, columns, blog posts and other content.

Follow Jonathan on Twitter

#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
NYC CT Hamptons DC Miami LA Aspen
millersamuel.com/housing-notes
Joined October 2007