Matrix Blog

Economy

[In The Media] NY1 TV Foreign Interest Returns To NYC Real Estate

January 18, 2010 | 7:19 pm | Public |


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Shazia Khan of NY1 does a nice local segment on foreign buyers (no pun intended). You can’t really tell, but due to tripod issues, the video camera is sitting on a pile of my books.

Admittedly, NYC always over hypes participation by foreign buyers (remember stories of Irish carpenters buying Manhattan condos?) but its worth paying attention to.

The dollar remains pretty weak compared to the Euro.


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[Interview] Ben Jones, Founder, The Housing Bubble Blog

January 6, 2010 | 11:30 am | | Podcasts |

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[Pending Home Sales] Tax Credit Wild Card? M-O-M Down 16%, Y-O-Y Up 15.5%

January 6, 2010 | 12:43 am | |


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NAR released their November 2009 Pending Home Sales Index which ended a 9 month string of increases.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 16.0 percent to 96.0 from an upwardly revised 114.3 in October, but is 15.5 percent higher than November 2008 when it was 83.1.

NAR attributes the drop as a pullback during November related to the uncertainty surrounding the extension of the first time home buyers tax credit which expired November 30th. However it was subsequently extended and expanded to include existing home buyers who have until the end of this April to sign a bonafide contract. We may trivialize the tax credit’s success in the NYC metro area because of the higher housing costs relative to $8,000 and $6,500 tax credits respectively but from my discussions with real estate agents around the country, it did appear to trigger a large portion of home sales in 2009.

What does the 16% drop suggest? More weakness to come?

Yes, but not in the coming months (remember this is a seasonally adjusted stat).

It signifies that the US Housing market doesn’t yet have its own set of legs. No credit = drop in sales.

The credit extension ends in April, the Fed begins their pullout from the purchasing of Fannie Mae mortgage paper, perhaps influencing mortgage rates higher.

The combination of high unemployment, rising mortgage rates and the expiring tax credit in the spring, combined with the elixir of rising foreclosures causes by sustained unemployment at high levels suggests housing sales will fall in second half 2009.

Housing in 2010: Stability in the first half, with more concern for the second half.


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[Housing Bubble Golden Rule -> 3 R’s] Regulating, Rates and Recession

January 6, 2010 | 12:24 am | |

In Bernanke’s speech to the American Economic Association on Sunday he suggested that it was regulatory failure, not keeping rates too low for too long, which caused the housing bubble.

Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates.

This seems to be splitting hairs, doesn’t it?

Low rates triggered the housing bubble as money became cheap and easy to get. If the Fed hadn’t kept rates too low for too long, the bubble would not have happened. The regulatory system was ill prepared for the insanity that followed. House prices rose so fast that underwriting had to evaporate to keep the mortgage pipeline full. Regulators hadn’t seen this before and with the removal of Glass-Steagal and Laissez-Faire mindset, everyone in DC, including Congress and regulators, drank the Kool-aid.

Actions Taken Too late

Mr. Bernanke has pointed to the Fed’s extraordinary efforts to stem the crisis, including the creation of new lending vehicles to banks and a reduction of bank-to-bank interest rates to virtually zero, as evidence that the Fed has a firm grasp of what the economy needs. The Fed’s handling of the crisis has been widely praised by economists.

The Treasury and other government agencies already have supervisory power over parts of the financial system, but so, too, does the Federal Reserve.

In his talk on Sunday, Mr. Bernanke acknowledged as much, rattling off a list of regulatory efforts the bank made to address nontraditional mortgages and poor underwriting practices.

But, he said, “these efforts came too late or were insufficient to stop the decline in underwriting standards and effectively constrain the housing bubble.”

All regulators are human and subject to mob mentality just like politicians and consumers were. Everyone is awake now. That’s why I think a “bubble czar” type position is silly. I’m not blaming the Fed or Bernanke. Now about Greenspan….

In fact I think the Fed has done an excellent job keeping our financial system from the brink. Lets recognize Bernanke’s comments for what they are – dodging the minefield of Congressional approval. God help us if Congress is able to audit the Fed. Its not the audit I object to – its the politicalization of it. We need to keep the Fed neutral (in theory).


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[The Housing Helix Podcast] Lakshman Achuthan, Co-founder, Managing Director, Economic Cycle Research Institute (ECRI)

December 31, 2009 | 4:49 pm | Podcasts |

In this podcast, I have a conversation with Lakshman Achuthan, the co-founder and managing director of the Economic Cycle Research Institute (ECRI), an independent organization focused on business cycle analysis and forecasting. ECRI maintains business cycle chronologies for 20 countries around the world other than the U.S.

Lakshman is the managing editor of ECRI’s forecasting publications and regularly participates in a wide range of public economic discussions. ECRI’s U.S. Weekly Leading Index is widely followed.

He is a member of Time magazine’s board of economists and the New York City Economic Advisory Panel (where I met him) and serves as trustee on a number of non-profit boards. He is the co-author of Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy published by Doubleday.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.



[Interview] Lakshman Achuthan, Co-founder, Managing Director, Economic Cycle Research Institute (ECRI)

December 31, 2009 | 3:13 pm | Podcasts |

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[HousingRecoveryWatch] Geography of a Recession

December 9, 2009 | 3:04 am |

This is a month old, but I never got around to posting it. An amazingly beautiful effort.

I was reminded of this today and it sets the stage for something I will post later today which uses a similar mapping presentation.

Watching the video version or this version paints a compelling picture of US unemployment. Notice how high the levels are in the west, rust belt and southeast and how strong the “sand state” unemployment situation was in 2007.

Next – try to imagine a US housing recovery with this sort of employment situation.



[Economic MetricWatch] How Do These Mean Housing Gets Better?

November 10, 2009 | 12:53 am | |

The US economy is pretty weak right now.
We need US housing to recover.
We want housing to recover.
Housing stats looked pretty darn nice this summer, didn’t they?
Please get better?

But housing can’t get better all by itself. That’s why its pretty silly to simply watch housing price trends. Prices are a lagging indicator if there ever was one.

Here’s a look at the four key economic indicators and their relationship to the housing economy – there’s a pattern here.

GDP


At 3.5% 3Q 09 GDP, forecasters are saying the economy has gotten out of the recession. But this is really a thin metric – obviously fictional.

Let’s start with the big picture. At the end of 2008, official GDP was -6.4%. This was also likely an understatement, but for the sake of argument let’s treat it as “fact”. Move ahead to the Q3 2009 reading of +3.5% and we see a swing of 10% in U.S. GDP – in merely the span of nine months. The only factor in the U.S. economy pushing against this massive contraction (and debt implosion) is the “Obama stimulus package”. However, using the Obama regime’s own numbers, less than $300 billion of true “stimulus” would reach the U.S. economy over the course of this entire year.

Yet consumer spending fell 0.5%, the most since December 2008 so the recession is not necessarily over.

Unemployment


Source: Daily Kos
With all the happy news surrounding this summer’s surge in home sales, its hard to imagine a housing recovery without jobs. In fact, unemployment is growing and even the broader definitions of unemployment are showing more deterioration.

With the release of the jobs report on Friday, the broadest measure of unemployment and underemployment tracked by the Labor Department has reached its highest level in decades. If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression. In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982.

Dow Jones Industrial Average


Source: MarketWatch
The DJIA reached new highs for 2009. One of the key reasons for the housing surge has been the renewed (or simply improved) confidence by consumers in the financial system which began at the end of Q1 when the DJIA began its steady assent. It keep climbing. Perhaps its time to short the markets, or even housing?

The Dow Jones Industrial Average (INDU 10,227, +203.67, +2.03%) rose 203.52 points, or 2%, to 10,226.64 — its best finish since Oct. 3, 2008 and the second 200-point gain in three trading days. The blue-chip measure has risen 4.7% over the four-day winning streak that began with the Federal Reserve’s policy statement last Wednesday, which quelled fears that the central bank might raise rates soon.

The Dollar


Source: MarketWatch
Gold broke the $1,100 barrier as the dollar fell to $1.50 against the Euro. The G-20 summit didn’t show support for the dollar. Look for more foreign investment of residential real estate if this trend continues.

“A lot of it is sentiment-driven and there the dollar is getting a vote of no confidence,” Mr. Dolan said. “The massive borrowing by the U.S. government is undermining confidence in the longer-term outlook for the dollar.”

Long term – housing doesn’t recover until the economy does.



[Philling Up With Yankees Stimulus] Bomber World Series Victories Boosts Economic Growth

November 2, 2009 | 9:55 pm | |

Because we can’t let an obvious economic trend pass me by – and it has nothing to do with being a Yankee fan. After all, I pride myself on my neutrality in housing market coverage – 26 World Series Championships aside – 27th coming shortly.

WSJ’s Real Time Economics does a fun (ok, in their words, stupid) analysis, arguably for the Yankee brethren, that:

Win or lose, just an appearance by that Yankees in the World Series seems to foretell the next year’s growth. The economy grew an average of 4% in years after the Yankees lost the World Series. We’d also note that the last time the Yankees played the Phillies in the World Series (the Yankees won in four games) the economy grew a robust 7.7% the following year.

Phillies victories, it seems, don’t foretell the same kind of economic boost. The Phillies have twice won the World Series — last year and in 1980. Growth in 1981 was a paltry 2.5%, while economists expect the full-year number for 2009 will be negative. But what about growth after Phillies’ World Series losses? About 5%, on average.



[Interview] Justin Fox, Time Magazine Columnist, Curious Capitalist Blogger, The Myth of the Rational Market Author

October 12, 2009 | 9:10 pm | Podcasts |

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[The Housing Helix Podcast] Justin Fox, Time Magazine Columnist, Curious Capitalist Blogger, The Myth of the Rational Market Author

October 12, 2009 | 6:04 pm | Podcasts |


In this podcast, I have a conversation with Justin Fox, economics and business columnist for Time Magazine and author of the book The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.

As publisher Harper Collins says about the book: “Chronicling the rise and fall of the efficient market theory and the century-long making of the modern financial industry, Justin Fox’s The Myth of the Rational Market is as much an intellectual whodunit as a cultural history of the perils and possibilities of risk.”

Here’s his interview on The Daily Show with Jon Stewart.

I first became acquainted with Justin by stumbling on his blog The Curious Capitalist which takes complex economic issues and translates them into everyday speak.

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[Audio Quality Alert] What began as a 30-minute interview was cut to 18 minutes because of a random recurring podcast issue I have been trying to resolve: audio distortion. About 18 minutes into the interview I had to cut it short. My sincere apologies to Justin. But I got an idea and I set out this past weekend to solve the mystery. I am happy to report: problem solved going forward – I explain how at the end of the podcast – so much for myth of the rational podcast.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


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[New York Fed] Is the Worst Over?

October 5, 2009 | 11:45 pm | |

In the recently released paper “Is the Worst Over? Economic Indexes and the Course of the Recession in New York and New Jersey”, by Jason Bram, James Orr, Robert Rich, Rae Rosen, and Joseph Song the answer seems to be…sort of.

In this paper, key metrics of nonfarm payroll employment, real earnings (wages and salaries), the unemployment rate, and average weekly hours worked in the manufacturing sector were used to create coincident indexes for New York state, New York City and New Jersey. A coincident index is a single summary statistic that tracks the current state of the economy.

The paper points out that regional economic cycles are not the same as national cycles. They conclude that the region may not mirror, and could lag the national economy.

  • Wall Street, once it begins to rehire, will be subject to more regulatory oversight, which may limit its economic contribution.
  • Government shortfalls
  • Private education and health sector employment may not contribute as much of a stabilizing effect on total employment as it has in years past.


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