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Housing Turned The Corner, Psychologically Speaking

January 2, 2007 | 12:05 am | |

This holiday break has interjected a little philosophy into my thinking, so don’t panic. I am sure this will pass and I will be back to my old dull and boring mode in a few days. Here goes…

From mid-2005 through the fall of 2006, the key words used to described the national housing market were:

  • Boom
  • Bubble
  • Bust
  • Crash
  • Soft Landing

This language was universally used by bloggers, big media, real estate brokers, buyers, sellers, butchers, bakers and of course, candlestickmakers.

Ok, I got a little carried away but you get the point: everyone.

At some point, the extreme message got a little stale. I don’t mean to sugar coat the problems with the national housing market in any way. The change in the default message bias is what has changed and I find that pretty interesting. Here’s a very small sampling of typical upbeat news coverage of the housing market.

Another Sign Housing Slump May Be at End[Bloomberg News]
Dow Tops 12,500 after Upbeat Housing Data [BW]
First-Time Home Buyers Look at Houses Again [REJ]

I think the recent coverage of slowing inventory growth and rising new home sales (despite the fact that this statistic is utterly useless given its deviations) combined with the optimism of the New Year and the fatigue of shouting the same old message, likely brought about the change in the conversational angle.

It was similar to the 60 day transition from the phrase housing bubble to soft landing. Or when various congressional testimony or a Greenspan term interjected new popularity behind terms like froth and gravitas. Herd mentality 101.

So here is the new official phrase for the housing market (irregardless of the positive or negative nature of your local realty reality) for 2007:

Housing Has Turned The Corner


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Real Estate Media Lesson: Unchecked & Mistaken = Apples & Oranges

December 8, 2006 | 1:13 am | | Public |

There was an article that ran on the Bloomberg Newswire on a recently released market report by Real Estate Board of New York (REBNY) that seemingly contradicted the results in our study for the same reporting period (was released almost 5 weeks ago).

The Bloomberg feed on the article was picked up by the New York Post, The New York Daily News, The New York Sun and covered in Crain’s New York as far as I can tell. The New York Post version was linked to Curbed as well.

The Bloomberg article showed how one of the key stats in the report I prepare contradicted the same stat in the REBNY report…

The two reports supposedly showed the opposite trend in Median Sales Price.

Here’s what was presented in the Bloomberg newswire story that was picked up in the other papers:

REBNY:
Manhattan median sales price increased 6.7%.
The data source was from public record and a confidential survey from their members.

Miller Samuel/Prudential Douglas Elliman:
Manhattan median sales price decreased 4%.
The data source was from public record and collecting data from our appraisal practice.

Reality check

_Correct Stat That Should Have Been Used_
Miller Samuel/Prudential Douglas Elliman:
Manhattan median sales price increased 12.7%.

The Miller Samuel median sales price stat quoted over and over in all the articles reflected the change in median sales price as -4% compared to the prior quarter rather than the +12.7% increase over the prior year quarter like the 6.7% stat from the REBNY report. Both stats showed upward movement over the past year.

Apples to Oranges (Conclusion)

The results show a fairly wide spread albeit in the same direction. This is likely due to difference in the mix of what data was collected.

The idea that the two reports seemingly contradicted each other raised the interest level for its newsworthiness as a story, yet the key point made was in error – the two reports actually didn’t contradict.

Sigh…



Salad Days At The Campfire: Bernanke’s View On Rate Cuts

November 29, 2006 | 8:26 am | |

Bernanke spoke at a luncheon yesterday and its been a while since he spoke about the outlook for the economy. The regional Fed presidents have been doing all talking lately. His transparent communication approach to Fed policy seems to be working (although, in order to remain true to transparency, we should be told his lunch selection so we can factor that into his commentary). Arguably, by talking up or down the economy, the Fed has been able to stop tweaking rates every month. Now the Fed is working hard to assure investors that the economy is doing well enough to avoid rate cuts in the near future, by raising concerns about inflation. Weaker housing market conditions [WaPo] are not enough on their own to push the economy into a recession.

This contradicts the commonly held assumption that the inflation has been held in check and the economy weakening, forcing the Fed to have to cut rates by the middle of 2007. The probability of a mid year rate cut is rising [Clev Fed] as investors look further out through 2007.

Here’s a recap of Bernanke’s speech coverage in several major publications:

Bernanke Warns Inflation Remains A Significant Risk [Page 1 WSJ/Dow Jones]
_Fed Chief’s View Contrasts With That of Wall Street; Could Interest Rates Go Up?_

In a contrast with the widely held view on Wall Street that slower economic growth will lead to interest-rate cuts, Federal Reserve Chairman Ben Bernanke offered an upbeat assessment of the nation’s economy, warning that tight labor markets could put more pressure on wages and prices. Many investors point to declining housing construction, mixed news on holiday sales and a tame reading on inflation as indications that the economy is weakening, inflation risks are fading and that the next move by the Fed will be to cut interest rates, perhaps as soon as next spring.

Modest growth, lower inflation ahead: Bernanke says [MW/Dow Jones]

The Federal Reserve called a halt to its long string of rate hikes in August because it believed the economy would slow and the inflation picture would improve and three months later this forecast still seems about right, Fed chief Ben Bernanke said Tuesday. In a rich speech examining most of the hot topics captivating Wall Street economists, Bernanke said the economy is still on track to expand at a moderate pace over the next year without slowing too much.He said the inflation is already “better behaved of late” and should continue to slow gradually. Much of his speech was used to gently dampen two of the major fears about the outlook – that the housing market would push the economy into a full-fledged recession, or that inflation pressures were like a smoldering campfire, seemingly controlled but ready to burst up in the next strong wind.

Fed Chief Underlines His Essential Focus on Inflation [NYT]

Signaling that the Federal Reserve was not inclined to lower interest rates any time soon, its chairman, Ben S. Bernanke, said yesterday that while economic growth should rebound next year, inflation remained “uncomfortably high.” In a speech that offered a wide range of prospects for the direction of the economy — from an unexpected surge in growth to no growth at all — Mr. Bernanke painted a generally sanguine picture. So far, he said, the economy had slowed in line with Fed’s forecasts, and inflation had “been somewhat better behaved.”

Fed Chief Optimistic of Soft Landing [WaPo]
With Eye on Inflation and Jobs, Bernanke Remains Upbeat

The nation’s central bank is growing more confident that the U.S. economy will slow gradually in a way that should cause inflation to decline without tipping the nation into a recession, Federal Reserve Chairman Ben S. Bernanke said yesterday. “Over the next year or so, the economy appears likely to expand at a moderate rate, close to or modestly below the economy’s long-run sustainable pace,” Bernanke told the National Italian American Foundation in New York, in his most extensive remarks on the economy since July. Inflation “is expected to slow gradually from its recent level.”

Fed chief’s comments hint no rate cuts loom [Boston Globe/Bloomberg]

Federal Reserve chairman Ben S. Bernanke said the US economy will pick up in the coming year and emphasized that inflation remains his greatest concern.

I find it annoying, however, that whenver Bernanke is making some sort of significant statement that impacts housing, Greenspan is quoted about the housing market [BW] at the same time. (Do they share their calendars?) He is about to publish an analysis of the “serious dispute” over the true effect of mortgage wealth on consumer spending.

So Bernanke’s take is basically this. Housing and the economy are not expected to drop like a stone next year and if there is a rate cut, its likely to be later in 2007.

Which raises a more important question: Did he have a salad for lunch?

Update: The Fed Cries Wolf; Mr. Market Isn’t Listening [Caroline Baum/Bloomberg]


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Zipping It Up: Taking Sides On Housing

November 2, 2006 | 8:58 am | |

As we zip up our jackets for a long winter, national housing stats released over the last two weeks have shown weakness, finishing up with NAR’s [Pending Home Sales Index [MW]](pending home sales index), which showed a 1.1% drop from the prior month and a 13.6% drop from the prior year in the number of contracts signed.

Rather than merging together opinion (hint: using the zipper analogy), economists’ interpretation of the housing slowdown’s impact on the economy has been relegated to two different camps and the void between them is growing (sort of like the disconnect between buyer and seller right now):

The pessimistic view:
The housing downturn will dry up equity withdrawals causing consumers to pare back their spending and since the economy is 70% consumer based, this spells trouble next year – in other words, a recession.

The less pessimistic view (not to be confused with the optimistic view – still trying to find it as of post time):
Total net worth is more important than housing net worth. Business will take the baton and some of the pressure off the of consumer, thereby tempering the economic downturn.

According to Cross Profit:
(1) a housing recession has begun
(2) the housing markets are likely to remain weak for an extended period of time
(3) the overall economy should be able to avoid a full-scale recession but below-trend economic growth is likely to persist through late 2007
(4) the Federal Reserve is likely to ease in the spring or summer of 2007

The “two camp” phenomenon has applied to economists covering the overall economy as well. Liz Rappaport writes in her Between Goldilocks and Recession [TheStreet.com]:

In light of Wednesday’s weaker-than-expected manufacturing and construction spending data, a slew of economic indicators that began with Friday’s 1.6% reading of GDP have pushed traders and economists into distinctive camps: Those who believe in the soft landing are on the defensive, while those who’ve called for recession all along are feeling rather prideful and puffed up.

Yet there is even some discussion that lower economic growth this quarter suggests higher growth in coming quarters. As Caroline Baum, in her article Economy Robbed Peter to Pay Paul? I Doubt It [Bloomberg]

Why? I know of no law of nature — or economics, for that matter — that says growth is a fixed pie, to be divvied up among quarters on a random basis. According to that logic, growth stolen from one quarter shows up in the one that follows. A strong quarter borrows growth from the subsequent one, which is destined to be weaker.

Housing, like the economy, is not a zero sum game and both sides won’t agree on housing’s ultimate impact on the overall economy or vice-versa, so…zip it.

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[List-o-links] From The Tank: Tools, Lessons And Messages

October 27, 2006 | 12:05 am | |

Periodically I purge some links I collect that are worthy of a post or were interesting or fun, but I didn’t have enough time to expound upon and too much time had passed by. Since I didn’t want them to let them be forgotten, I pulled them out of the tank – definitely worth checking out.

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Fed Speaks Like A Hawk, After All, Its A Dismal Science

October 17, 2006 | 10:39 am | |

Like the quote about glasses being half full, economists are known, to their own admission, for being pessimistic. They are paid to worry. Thats why the profession is lovingly referred to as the dismal science.

This summer we finally caught a break from the Fed as they decided take a breather on interest rate increases after 17 in a row. However, we have been getting a broad spectrum of feedback from regional Fed presidents raising doubts about whether inflation is in check, inferring future interest rate increases. Seemingly talking “hawkish” about controlling inflation, with a weakening economy has got us all scratching our heads.

Caroline Baum, in her column this week: Fed Officials Are Paid to Worry, Talk Like Hawks [Bloomberg] she addresses this confusion.

Even with the sentiment shift and price declines over the past two weeks, the June contract, at an implied yield of 5.19 percent, is still fully priced for a 25-basis-point rate cut by midyear.

In other words, the Fed seems to be talking about inflation as another way to slow down the economy, without being forced to provide yet another increase in interest rates. The market has already priced in another cut by the middle of 2007 despite the rhetoric. Near term expectations as evidenced by the traded options on federal funds futures which measures public expectations of future Fed actions shows evidence that rates will likely stay put through the first half of 2007.

With mortgage rates remaining relatively stable right now, housing inventory at record levels but seemingly at peak, expect more hawkish (and confusing) language being disseminated from the Fed in the coming months to keep inflation in check.



I Must Not Think Bad Thoughts: Plane Crashes Into Manhattan Condo

October 12, 2006 | 10:13 am | |

Yesterday a small plane crash crashed [WSJ] into The Belaire Condo at 524 East 72nd Street [Gawker] in Manhattan killing New York Yankee pitcher Cory Lidle and his flight instructor.

Not knowing the details, my first instinct was a rehash of the 9/11. Not a feeling of panic but simply an addition to my menu of options for what may have happened. Apparently, the US government had the same feeling as fighter jets were scrambled. News traveled quickly and within moments I got a few emails from friends in other parts of the country asking if I was ok and calls from the media [Bloomberg]. Of course this tragedy is all about the people killed and injured and our sympathies for their family and friends.

This feeling of dread was quickly diffused as more information came in (quickly I might add). In fact, a real estate broker who was showing a buyer the penthouse unit in the building when the plane hit [WSJ], was reporteldy undeterred by the event and still interested in the unit.

Some individuals inquired whether this incident would stigmatize the building. Assuming the building checks out ok, I don’t see how this would have any negative impact on values in the building. Once the debris is removed and access to units in the building is practical, things should be back to business as usual. The question of stigma arose recently after the Manhattan townhouse exploded [Curbed] a few months ago creating a groundswell of publicity.

In the twisted world of public relations, more eyeballs on the property may prove to be helpful to provide exposure for sale or simply serve to offset the negative impact of a tragedy like this.

Not meant to be in poor taste, I remember a line spoken by Robin Williams in the movie The World According To Garp after a small plane crashed into the house they were looking to purchase.

We’ll take the house. Honey, the chances of another plane hitting this house are astronomical. It’s been pre-disastered. We’re going to be safe here.



[Media Chain-Links, Fenced In] 3Q 2006 Manhattan Market Overview

October 4, 2006 | 11:13 am | | Public |

The 3Q 2006 Manhattan Market Overview that my appraisal firm, Miller Samuel, authors for Prudential Douglas Elliman, was released for publication today. The raw numbers were released and a summary of their interpretation were provided to the media. The pretty report will be available for download later this week or early next week. I wait until the end of the quarter before I start working on it so there is not enough time to get it together before publication of the results. This quarter ended last Saturday so it made for a long weekend.

The actual data and charts will be available soon. The actual report pdf will be available next week.

For perspective, every quarter I place links to articles about the report for a few days after publication to make it easy to compare how each media outlet (big and small media, blogs) presents the exact same set of data.

This article list is presented in no particular order, basically when I found them. I include some duplicate news feeds because I like to see what regions are interested in the story.


Manhattan real estate finally starts to cool [CNN/Money]
Buying in Manhattan? Apartment Prices Steady [New York Times]
Manhattan apartment prices slip in latest quarter [New York Daily News]
Manhattan apartments selling slower [Newsday]
Manhattan apartment market seen in soft landing [Reuters]
Manhattan Co-Op Apartment Prices Dip 16% as Buyers Favor Condos [Bloomberg (no link yet)]
Manhattan Housing Stays Stable [TheStreet.com]
Manhattan apartment prices leap despite sales drop [Reuters]
Jonathan Miller On Summer ’06: New York Realty Isn’t So Bad [NYO The Real Estate]
Prices down, sales up in Manhattan housing market; co-op prices slump [The Real Deal]
As Dow Hits Record High, Homes Falter [NY Sun]
N.Y. CRA$H PADS [NY Post]
Manhattan real estate market slows down [Inman]
DownMarket Reports: Choose Your Own Adventure! [Curbed]
Sector Snap: Manhattan Apartment REITs [AP] Highlights from the Prudential Douglas Elliman Third Quarter Overview [True Gotham]
Manhattan residential real estate market cools [Valuation Review]

Here are a handful of tv spots as well.


[WABC]

[Bloomberg TV]

[WCBS]

[WCBS]


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Bernanke Waved His Freak Flag High

September 14, 2006 | 12:01 am | |

Greenspan mastered language as Fed Chairman during his tenure which became known as “Greenspan-speak” where we hung on certain words in a sentence.

Current Fed Chairman Bernanke had a little difficulty initially but was able to create Bernanke-speak, a flavor of Greenspan-speak.

Why the initial stumble? Afterall he is known for his academic record:

  • Won South Carolina’s State Spelling Bee at 11 years old
  • 1590 out of 1600 on SAT exam (highest in the state)
  • Class Valadictorian

Carol Baum’s Bernanke’s Hippie Dictionary [Bloomberg] article reports that Bernanke created it as a high school junior. Perhaps this can give us some insight how he relates to the housing market as well:

Here are the highlights:

  • Dig — to like, to enjoy, as “The hippie undertaker digs his work.”
  • Down trip — a drag
  • Drag — a down trip
  • Hang-up — a neurosis or fetish
  • Lie-In — a form of peaceful protest that often fails when demonstrators go to sleep
  • Square — someone who stays home New Year’s Eve to hear Guy Lombardo play “Auld Lang Syne”
  • Straight — as in “stiff” (see “dig”)
  • Swing — what someone does who thinks Guy Lombardo is a football coach (see square)
  • Trip — a rocket flight without the rocket

Far out, like, I hope that like, this clears things up, man…dig?


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The US Relieved That New Yorkers Can Breath Easier: London Is More Expensive

September 5, 2006 | 6:49 am | | Public |

A Bloomberg and AP story on London housing prices exemplifies how fascinated we are with rankings when it comes to housing no matter where we live. CBRE compared upper end London housing prices to my most recently completed Manhattan Market Overview in the 2Q and were found to about 20% more expensive (1,200 pounds vs. 1,000 pounds).

While thats interesting, its not the reason for this post.

Look at the extent of the coverage [Google].

As of this morning, the story was picked up by 147 newspapers. Except for markets like Shanghai, Taiwan, Canada, Australia and a few major US markets and national publications, the vast majority of the coverage was in mountain, midwestern or southern states. Most of these markets did not see appreciation rates as high as the US coasts did. These markets include locations such as Alabama, North Dakota, Arkansas, Wyoming, Montana, Nebraska and Wisconsin among others.

Apparently big numbers, either real estate prices or appreciation, still sell newspapers.


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Low Rates Did/Did Not Fuel The Housing Boom

August 25, 2006 | 7:52 am | |

After getting over the trauma of learning Pluto was not a planet [Detroit FP] yesterday, I turned my attention back to the housing market.

Will the Fed raise rates, or won’t they? Its been an exhausting year trying to second guess them. It appears, as past experience dictates, they went a little too far and now housing is weakening more rapidly than expected. Now the Fed has to figure out how to get the nation’s economy out of its dependency on housing. They are discussing this and other issues now at their annual retreat in Jackson Hole. [Bloomberg]

Bernanke, Fed chairman since February, takes the Jackson Hole, Wyoming, podium today after two days of reports showing home sales and prices retreating after a five-year boom spurred by the strategy he advocated.

The results of that policy are now complicating his task as he attempts to maintain growth while wrestling down prices. Given real estate’s importance to the economy, the Fed may have to hold interest rates steady even as inflation exceeds Bernanke’s comfort zone of 1 percent to 2 percent, excluding food and energy.

There have been some interesting Fed studies over the past year, with mixed messages and some contradictions. Here are two examples:

Falling Rates Fueled Housing Boom: A Trend and Variance Decomposition of the Rent-Price Ratio in Housing Markets [pdf]

Housing Prices May Become More Volatile, Fed Report Says [WSJ]

The rise in housing prices over the past decade “owes significantly” to falling inflation-adjusted interest rates and changes in the mix between rates and the “housing premium,” which could mean more volatile home prices in coming years, according to a paper written by Federal Reserve economists.

Economic Fundamentals Fueled Housing Boom: The great turn-of-the-century housing boom [pdf]

The Chicago Fed says that low mortgage rates did not fuel the real estate housing boom. Spike in housing is no bubble, Fed says [Philly.com]

“While we have so far mostly avoided discussing housing prices, our findings do suggest that to the extent that house prices have grown considerably in recent years, this is not due to unusually excessive speculation in the housing market, such as would occur in a bubble. Instead, our findings point toward the high prices being driven by fundamentals.”

[Of course low mortgage rates fueled the housing boom -ed]


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[Getting Graphic] Cooling Economy Makes FOMC Stop

August 9, 2006 | 6:38 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].

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.

The official press release [FOMC]

There have been some inflationary signs recently with rising energy costs, concerns about supply and core inflation has risen as well (inflation without food and energy). However, the fed indicated that these will work themselves out and did not raise rates. The first time the fed has paused after 17 consecutive 25 basis point increases since June 2004.

Basically, their observation on housing was consistent with June but the overall economy has essentially changed. I’d venture to guess that the economy changed because housing kept doing what its been doing over the past 2 months and was the primary catalyst for the economic change. Its interesting because the fed seems to be saying from their position that housing didn’t deteriorate further since they used the exact same language in the statement (see bold).

August Statement

Economic growth has moderated 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.

June Statement

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.

With the state of the nation’s housing, it is sure looking like rate cuts in 2007.

_June Statement Analysis_
FOMC Makes It 17 at 5.25% And Seems to Get It About Housing [Matrix]

_Why this might mean the end of rate increases for a while_
Why a Pause in Rate Cycle Is Apt to Be the End: Caroline Baum [Bloomberg]


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