Matrix Blog


Earth to US: You Are Not Alone

August 31, 2005 | 11:14 pm |

[Seoul] raises property taxes to cool surging prices [Note: Reg.]

[Spanish] Housing loans up 26% in May amid ongoing boom

[South Africa] Property boom driving demand for materials

[UK] rate cuts could spark another housing boom

[New Zealand] Headed for Heartbreak?

[China] Concerns deepen over housing boom

[Iceland] Name Europe’s latest ‘tiger.’ Hint: look toward the Arctic Circle.


Is there a pattern here? It seems to me that there has been a lot of analysis on what the Fed will do to cool of the housing boom, but its apparent that many parts of the world are dealing with the same thing the US is at the same time. Australia and the UK just came out of their housing boom 2 years ago.

I would think that any solutions for a soft landing for the US real estate markets must come from internationally-orientated strategies.

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Talk Is Cheap. Supply Exceeds Demand.

August 30, 2005 | 10:04 pm |


We are going through a challenging economic climate right now. Ever notice how many “economists” are out there?

What is an economist? (Besides someone who studies the economy).

According to the U.S. Department of Labor Bureau of Labor Statistics (BLS) Occupational Outlook Handbook economists:

“study how society distributes scarce resources such as land, labor, raw materials, and machinery to produce goods and services. They conduct research, collect and analyze data, monitor economic trends, and develop forecasts. They research issues such as energy costs, inflation, interest rates, exchange rates, business cycles, taxes, or employment levels.”

An economist friend once told me that “economists are paid to worry.” There’s that old joke: “if you put a group of economists in the same room, not only can they not agree on where the economy is going, they can’t agree on where it came from.” and of course, “economics is the only field in which two people can share a Nobel Prize for saying opposing things.” For such a serious profession, there sure are a lot of economist joke sites on the web.


But I digress…

The BLS definition is all well and good for government and academia, but what about trade groups and corporations that have economists and chief economists? Where there are profits and influence, there may be a credibility problem. Many are using the title “Chief Economist” in the real estate economy these days, including appraisers, brokers, analysts and others.

Wall Street has been using this title for years. I never really thought about the potential conflicts until now, since I see economists as a profession of independent critical analysis, but perhaps thats just the idealist in me.

Although, I’m concerned, I’m not angry. I’ll leave that to one of my favorite blogs, The Angry Economist.

The Numbers Are In: Advisors More Confident Than Consumers

August 29, 2005 | 8:18 pm |


For the fourth month in a row, the Advisors Confidence Index (ACI) showed an improved outlook. The ACI provides a measurement of the US economy and the stock markets. The Advisor Confidence Index is based on a survey of 150 independent registered investment advisors.

The quotes from the advisors provide interesting insight. They touched on the main factors that will provide the most impact on the direction of the markets and the economy: Oil & Housing. The next 6-months appear to look better than the following 6-months.

However, this conflicts with consumers perceptions of the state of the economy. The University of Michigan Consumer Confidence Index fell sharply in August, further than analysts projections, the second drop in the past two months.

Apparently investor advisors are more optomistic about the future than consumers are.


Katrina & Oil Prices: The Perfect Storm

August 29, 2005 | 7:23 pm |


Late last week, as the hurricane threat to the Gulf of Mexico increased, the oil futures market became concerned that production would be affected. Futures traders bid up the price of oil and gasoline due to the perceived future constraints on supply and now oil seems headed for $70 per barrel. The futures market seems hyper-sensitive to any threat to oil production these days.


How can this impact housing prices?

Simple. Higher Mortgage Rates.

As this and other inflationary factors gain momentum (if they do), bond investors would likely become concerned about the inflation risk in the long term, which eventually translates into higher borrowing costs. Higher borrowing costs generally translate into lower home prices.

Then again, thats just one theory of many. Lets ride the storm out.


Headline: Real Estate Sells Newspapers

August 29, 2005 | 6:36 pm | |


The interest in real estate is keeping newspapers seeing black ink. [Note: Paid Sub.] Besides homeowners who have seen the value of their properties rise over the past several years, it is newspapers, specifically classified advertising, that have enjoyed the rise but the recovery has been slow.


Real estate comprises 1/4 of all classified advertising. Gains in real estate advertising has possibly masked increased competition from web site listings. Correspondingly, newspaper stocks have not done well in 2005.

Could the intensity of bubble talk be more influenced by the thirst for dollars than we give it credit for? Could the media make the bubble a self-fulfilling prophecy?


Live From Wyoming: Low, Risk Premiums

August 27, 2005 | 2:09 pm | |


Greenspan spoke this week at symposium, held in Jackson Hole, Wyoming, sponsored by the Federal Reserve on the legacy of his 18 year era. He took the position that the housing market now suffers an imbalance.

The Federal Reserve is paying closer attention to the rising values of assets such as stocks, bonds and homes, as low interest rates encourage more risk-taking, Fed Chairman Alan Greenspan said.

Low “Risk Premiums” (A new mantra?) This trend reflects what Mr. Greenspan said was the increased willingness of investors to accept low “risk premiums, a willingness based on a complacent assumption that the low interest rates, low inflation and strong growth of recent years are likely to be permanent.”


His concern is when (bond) investors become more cautious, yields will rise, lowering housing values and then selloff of bonds that caused rates to drop in the first place. “This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.”

Other notable Greenspan-speak, etched in the public conscience are:

A Conundrum – An inverted yield curve appears to loom on the horizon.

A Frothy Housing Market – “The Fed feels it needs to squeeze more air out of the market – the housing market in particular, although the Fed has stressed that it’s not targeting housing with interest-rate policy.”

Irrational Exuberance – Greenspan first used the phrase in 1996 several years before the stock market corrected in 2000 but it came to define the rapid run up in stocks in the 1990’s. The analysts that missed the dot com bubble now seem to be the ones warning us about the housing market boom’s eventual conversion to bust.


Turning the Bond Market Upside Down: Inverted Yield Curves

August 27, 2005 | 10:01 am |

yieldcurveinverted According to an inverted yield curve is a “Usually a chart showing long-term debt instruments that have lower yields than short-term debt instruments. It is sometimes referred to as a negative yield curve.” But they are cause for concern: “History has shown that inversions of the yield curve have preceded the last five U.S. recessions. The yield curve can accurately forecast the turning points of the business cycle.”


Why would investors accept lower long terms rates than short term rates?

According to “The answer is that long-term investors will settle for lower yields now if they think rates — and the economy — are going even lower in the future. They’re betting that this is their last chance to lock in rates before the bottom falls out. Inverted yield curves are rare. Never ignore them. They are always followed by economic slowdown or outright recession as well as lower interest rates across the board.”

Perhaps this is an indicator that the economy will stall, and rates will go down even further. Stay tuned.

See previous post Yield Curve Enters Kitchen Table Talk

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Urban Beats Suburban

August 25, 2005 | 10:46 am |

suburbs In certain pockets of the country, homebuyers are choosing the city over the suburbs as home buyers re-evaluate urban areas. This demographic shift is occuring as baby boomers get older and many urban areas have largely seen a cultural renaissance over the past 10 years.


Growing suburbs are now experiencing the problems of their neighboring urban areas and homebuyers are now considering moving farther out where land is cheaper but the commute is longer.

With oil prices rising, this makes for an interesting situation since commuting costs will rise making the feasability of a long distance commute less likely to be sustained.

ARM’ed But Ready To Get Fixed

August 24, 2005 | 11:00 pm | |


As the yield curve flattens, that is the spread between long term rates and short term rates is negligible, homeowners are considering making the move from ARM’s to Fixed mortgages [Note: Paid Subscription].

As the supply of fixed mortgages increases when people shift from ARMs because of the flat yield curve, it could mean upward pressure on mortgage rates (ie bond prices down, yields up). Why borrow at a rate for 1 or 2 years when you can have the same rate for 30 years? The effect of the shift in the market is greater in moving from ARM to fixed since roughly 70% of fixed rate mortgages are securitized and 25% of ARM’s are.

But wait! There’s more potential confusion.

The demand for mortgage-backed securities from foreigners is still strong since their yields provide a greater return for investors than treasury notes generally do. Higher demand, means higher bond prices, means lower yields, means long term rates could stay at low levels for a while.

Miami Vice

August 24, 2005 | 10:26 pm |


In the Economist print edition: From Coke to Cubists [Note: Paid Subscription] the current surge in Miami condo development is characterized as leading its transformation from drug-dealers’ playground to mainstream metropolis.”

Source: The Economist

Roughly 65,000 condos are under some stage of development.

According to a Merrill Lynch study on “Mega Metro Bubbles”, Miami was top on the list. The study analyzed income to price ratios to determine affordability. Miami housing had some of the highest appreciation rates found in the US since 2001.

With all this development, someone got the idea to start a franchise in Miami for flipping condos called, oddly enough, Condo Flipâ„¢ pat. pend. (Coming soon to an overheated market near you.)

Their slogan:
Source: Condo Flip.

Seems a bit arrogant, doesn’t it?

Bubblicious? OMG, Give It A Rest!

August 23, 2005 | 10:00 pm | |

A humorous article was contributed for today’s NYT Op-ed Section on what else?: Bubble? What Bubble? The piece made me chuckle and stirred a lot of discussion. But now Bubble-speak has really gotten out of hand.

opedchart Source: [NYT]

The usually staid and conservative Wall Street Journal used “Bubblicious” [Warning: Paid Subscription] in an article today.

Economists believe that such bubblicious markets could see home prices fall.

And this quote linked to an another well-written article using the jargon Bubble-Metrics: Economists Handicap Housing Markets [Warning: Paid Subscription]

Bubblicious? Bubble-metrics? I think we have gone from simple concern to plain giddiness.

Here are some rational thoughts of bubbleosity:
The Bubble in Bubbles

The Gamblers Say No Bubble, But Can’t Pick Superbowl Anymore

August 22, 2005 | 11:03 pm |

David Leonhardt’s article today about Online Betters was quite good. Using the odds fleshed out by online traders, you could have:

  • Predicted the winner presidential election for all 50 states in 2004
  • 85% of recent Emmy winners
  • The current American Idol winner

The NYT article says that online gamblers see no sign of a housing bubble anytime soon…


Not sure I want to rely on this as a way to get comfortable with the real estate economy but it is tempting. One could argue that the recent poker craze, is a sign of speculative environment.

Then we get into predicting presidential elections..
2004 Predicting a Bush Victory [The Formula]

Using the Superbowl…

footballillustrated This brings to mind Superbowl predictors of presidential elections called The Superbowl Effect:

2000 It’s Redskins vs. the markets in the presidential race
1996 NFL Index Predicts Super Year For Stocks


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