Matrix Blog

Economy

[Fierce Finance] Of Wall Street Bonuses And Crooked Estates

September 29, 2009 | 4:18 pm |

Discovered a new financial services web site today called Fierce Finance that has some compelling content and a cool name. Here are a couple of the items…

Wall Street bonuses if handled correctly, may not be that controversial.

If banks are not accepting even more in taxpayer funds and are making profits legitimately, I doubt anyone will have a problem with big bonuses.

It will be challenging however after what is anticipated to be fairly large profit reports from a few of the larger financial institutions. That has ramifications for stirring up the Main/Wall Street debate, compensation restrictions by Congress (and fanning the flames of housing demand in the NYC metro area).

And a slide show of the more “infamous” properties that were tainted in controversy in the past year.

Between the SEC’s post-Madoff hyper vigilance and the intense media coverage of the financial services industry, a great deal of scandal has surfaced over the last year.

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The Housing Market Is Working…For The Government

September 17, 2009 | 1:39 pm | |

In a WSJ piece called No Easy Exit for Government as Housing Market’s Savior

…the article notes that

After a year of extraordinary interventions in the economy, the federal government is starting to pare its support for the private sector.

except for housing…

  • 80% of new mortgages benefit from government support
  • The $8,000 first time home buyers tax credit
  • The Federal Reserve has worked hard to keep interest rates at or near historic lows

“At least for the next two years, and possibly longer, it is not possible that the government would say: ‘The U.S. mortgage market no longer needs our support,'” says Dwight Jaffee, an economics professor at the University of California Berkeley’s Haas School of Business. “Were they to say that, the mortgage market and the housing market would almost surely crash.”

The article does seem to suggest that the government should rethink its stance on housing.

Promoting homeownership has been a stated goal of Republican and Democratic presidencies for decades. The Obama administration recognizes it will need — at some point — to rethink broadly the government’s role in housing and mortgages. Administration officials also acknowledge that moment won’t come soon.

Good grief – it’s not housing that is the problem – it’s credit. That’s where the focus should be. Both parties and government regulators help foster the environment the ultimately imploded. The housing boom was merely a byproduct.

It could have been gemstones or pet rocks. Let’s not confuse stupid credit policy with housing.

That’s why it is bitterly disappointing to see the momentum gone for real regulatory reform for financial services. The same regulators and executives remain at the helm.

It’s amazing how the passage of time makes the current credit environment somehow not seem broken. Not much has changed in the mortgage lending process to enhance the safety of the financial system.

Of course there are always gemstones.



[Interview] Jason Bram, Senior Economist, Federal Reserve Bank of New York

September 3, 2009 | 10:30 pm | | Podcasts |

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[The Housing Helix Podcast] Jason Bram, Senior Economist, Federal Reserve Bank of New York

September 3, 2009 | 7:38 pm | | Podcasts |


I was fortunate to have Jason Bram, Senior Economist with the Federal Reserve Bank of New York join me for the podcast. We covered a lot of ground including regional employment, securities industry employment versus all other employment, the rent versus ownership ratio and confidence versus sentiment.

Jason referenced a few charts during the discussion including the forward looking Index of Coincident Economic Indicators.

Note: The views expressed here are those of the interviewee only and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.

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.



[Sentiment versus Confidence] Dow Jones Sentiment Index Shows Improvement

August 31, 2009 | 11:20 pm | |

Confidence is more right here and now. Sentiment is more forward looking (it gives a snapshot of whether consumers feel like spending money.)

(a lame appraisal analogy would be estimated market value for a bank appraisal (today) versus anticipated sales price for a relocation appraisal (future))

but I digress…
I continue to be amazed with the types of analysis being done with the subjective nature of what is on the consumer’s mind – or in this case, what journalists are writing about:

The Dow Jones Economic Sentiment Indicator

The ESI, which was first published in April, aims to identify significant turning points in the U.S. economy by analyzing coverage of 15 major daily newspapers in the U.S.

The Dow Jones Economic Sentiment Indicator bottomed last November and has continued to edge higher. Newspaper coverage has become more upbeat about the economy (I assume they assume that consumers are sick of reading about bad news), the number of articles expressing either positive or negative sentiment about the economy has fallen now to approaching a third of the level of its peak in October 2008 following the collapse of Lehman Brothers.

A lot of people are drinking the Kool-aid right now.

I find this particularly ironic since the real estate industry has long blamed “the media” for the making real estate correction worse by “piling on.” However, I find the coverage today to be overly positive from sloppy interpretation of the 4 housing price indices: Case-Shiller Index, NAR Existing Home Sales, Commerce Dept’s New Home Sales and FHFA HPI, showed positive signs.

Actually all indices showed less negative results which were discussed excessively positive.

For example, The Conference Board’s recent Consumer Confidence Index was a little more positive:

Consumers’ assessment of current conditions improved slightly in August. Those claiming business conditions are “bad” decreased to 45.6 percent from 46.5 percent, however, those claiming conditions are “good” decreased to 8.6 percent from 8.9 percent. Consumers’ appraisal of the job market was more favorable this month. Those saying jobs are “hard to get” decreased to 45.1 percent from 48.5 percent, while those claiming jobs are “plentiful” increased to 4.2 percent from 3.7 percent.

While the recent Michigan Sentiment Index showed renewed weakness:

Confidence among U.S. consumers unexpectedly fell in August for a second consecutive month as concern over jobs and wages grew.

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2, the lowest level since March, from 66 in July. The measure reached a three-decade low of 55.3 in November.

I find the whole thing a bit foggy especially using monthly figures for comparison.

Further reading on this.


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[Sticky On The Downside] The Economics of Inventory

August 24, 2009 | 10:56 pm |

In the August issue of Mobility Magazine, a publication of the Employee Relocation Council, economists Anton Haidorfer and Edward Seiler explore the relationship of the level of inventory against the rate of change of housing prices in their article:

The Economics of Inventory: Using the Number of Homes for Sale to Learn About Local Housing Markets

The inventory-to-sales ratio (I/S) measures how quickly the market can absorb the current stock of homes for sale at the given sales pace. Historical data has shown that when an I/S measure is near seven to eight months, real home prices grow at the rate of inflation. That is, when supply equals demand, home prices are bid up at the same rate as inflation or the cost of construction. Data also show when I/S is greater than seven months that real home prices fall and, when I/S is less than four months, home prices rise very quickly.

The red line on the chart marks the point where the amount of supply relates to no home price appreciation. Notice how the trend line is steeper to the left while rising (less supply) and the more gradual to the right while falling.

Good stuff.

“Jonathan, take a memo – you need to do this for Manhattan.”



[Council on Foreign Relations] The Crisis Guide: The Global Economy

August 19, 2009 | 11:08 pm |

The Council on Foreign Relations [CFR] has long produced high quality content and has embraced new forms of distribution (I love their iPhone app and subscribe to their heavyweight Foreign Affairs publication on my Kindle).

This summer they released a terrific interactive guide on the financial crisis called:

Crisis Guide: The Global Economy

It’s very well done and includes Google Motion Charts, which are very cool.

Play around with all the interactive features such as the timeline and the video. Interesting presentation.



[Interview] Kevin Gillen PHD, Wharton Economist, Econsult

August 6, 2009 | 3:46 am | Podcasts |

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$8,000 Tax Credit + Low Mortgage Rates = Cash For Clunkers

August 4, 2009 | 8:01 pm | |

The Cash for Clunkers Program seems to be working…the kind of clunker you can live in.

For the fifth consecutive month, the number of signed contracts was higher than the previous month – this figure is seasonally adjusted so the increases are not due to the spring uptick.

NAR does not share it’s sample size and therefore why they present this metric as an index so I am always wary of a data set we don’t know the size of. Contract data is less prevalent than closed sales across the markets they cover so its a non-random sample by definition and therefore full disclosure is needed. But still…

The results are encouraging and supports the concept that if homes are priced correctly, they will actually sell. Buyers are out there.

I suspect a portion of the increase is a combination of the release of pent-up demand that caused people to freeze in their tracks at the end of last year, plus record low mortgage rates, lower home prices and the coming expiration of the $8k tax credit all played a part.

My concern is that the pace of foreclosures is expected to rise and there hasn’t been a “cash for clunkers” equivalent for the housing/mortgage market.

At the same time, personal income dropped 1.3% from last year, the largest drop in 4 years.

A weak labor market is one reason economists say a rebound in housing will be slow to develop. The unemployment rate, which reached a 25-year high of 9.5 percent in June, may exceed 10 percent by early 2010, according to the median forecast of economists surveyed by Bloomberg last month.

Housing trends are more likely to follow employment and income trends and this is good news. However, it doesn’t mean the keys has been turned in the ignition.

Still, it’s better than a “start.”


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[NIMBY] Peter Schiff’s Predictions Met With Disdain, Yet Were Accurate

August 2, 2009 | 6:03 pm | Radio |

I try my best to keep an even keel on what I observe about our regional housing market – the benefit is it enables me to be criticized by more people as too negative and too positive. 😉

It’s been quite a fascinating year to observe how so many became so wedded to their original beliefs despite how much the world is changing around them.

This applies to TV pundits.

Here’s a few Peter Schiff clips that many of you may have seen, but its worth refreshing your memory. What is particularly interesting in this clip is the lack of content within any responses given by all those who disagreed with Schiff. Just disbelief, distrespect and misinterpretation of historical trends.

…such as Ben Stein’s description of the subprime problem as tiny, Arthur Laffer’s penny bet and and Mike Norman’s disrespectful tone and lack of understanding about bank underwriting and housing despite being a business radio host (his show was cancelled in 2009 and he blamed “Schiff and cockroaches who believed Schiff”) stand in stark contrast to reality.

While on this topic, I continue to have regular exchanges of emails with some real estate agents who suggest that Manhattan, Fire Island, The Hamptons, etc. (high end enclaves) are basically immune from the world’s economic problems because “They are an island, can’t be expanded, there’s nowhere like them, etc.”

Here’s a recent exchange:

As a real estate broker, I know what I see. I see Manhattan being an island, indeed. Once value was perceived, people began buying. I haven’t been happy about some of your negative statements, not because I am in denial but because I truly see a different reality.

This agent later told me in the exchange that their spouse was laid off and times are tough for everyone (but not their customers?).

Of course there are many agents who have adapted and have been successful in this market. It’s not about being more positive, it’s about helping customers navigate it and finding opportunity.


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[Interview] Sam Chandan PHD, Chief Economist, Real Estate Econometrics, Adjunct Professor, Wharton

July 31, 2009 | 10:07 pm | Podcasts |

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[Beige Book] Less Bad = Begun To Stabilize, Moderated

July 30, 2009 | 12:57 am | |

The Federal Reserve just released the Beige Book which provides anecdotal commentary on the economy nationally and across the regions of its member banks.

Here’s real estate and mortgage excerpts from the overall report. The macro take away is the pace of economic decline has “begun to stabilize” or “moderated.”

Residential real estate markets stayed soft in most Districts, although many noted some signs of improvement.

Real Estate and Construction

Residential real estate markets in most Districts remained weak, but many reported signs of improvement. The Minneapolis and San Francisco Districts cited large increases in home sales compared with 2008 levels, and other Districts reported rising sales in some submarkets. Of the areas that continued to experience year–over–year sales declines, all except St Louis–where sales were down steeply– also reported that the pace of decline was moderating. In general, the low end of the market, especially entry-level homes, continued to perform relatively well; contacts in the New York, Kansas City, and Dallas Districts attributed this relative strength, at least in part, to the first–time homebuyer tax credit. Condo sales were still far below year–before levels according to the Boston and New York reports. In general, home prices continued to decline in most markets, although a number of Districts saw possible signs of stabilization. The Boston, Atlanta, and Chicago Districts mentioned that the increasing number of foreclosure sales was exerting downward pressure on home prices. Residential construction reportedly remains quite slow, with the Chicago, Cleveland, and Kansas City Districts noting that financing is difficult.

Banking and Finance

In most reporting Districts, overall lending activity was stable or weakened further for most loan categories. In contrast, Philadelphia reported a slight increase in business, consumer, and residential real estate lending. As businesses remained pessimistic and reluctant to borrow, demand for commercial and industrial loans continued to fall or stay weak in the New York, Richmond, St. Louis, Kansas City, Dallas, and San Francisco Districts. Consumer loan demand decreased in New York, St. Louis, Kansas City, and San Francisco, stabilized at a low level in Chicago and Dallas, and was steady to up in Cleveland.

Residential real estate lending decreased in New York, Richmond, and St. Louis. Dallas reported steady but low outstanding mortgage volumes, while Kansas City noted that the rise in mortgage loans slowed. Refinancing activity fell dramatically in Richmond, decreased in New York and Cleveland, and maintained its pace in Dallas. Bankers in the New York District indicated no change in delinquency rates in all loan categories except residential mortgages, while Cleveland, Atlanta, and San Francisco reported rising delinquencies on loans linked to real estate.

Banks continued to tighten credit standards in the New York, Philadelphia, Richmond, Chicago, Kansas City, Dallas, and San Francisco Districts; and some have stepped up the requirements for the commercial real estate category, in particular, due to concern over declining loan quality. Meanwhile, Cleveland and Atlanta reported that higher credit standards remained in place, with no change expected in the near term. Credit quality deteriorated in Philadelphia, Cleveland, Kansas City, and San Francisco, while loan quality exceeded expectations in Chicago and remained steady in Richmond.


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