Matrix Blog

New York Times

Flipping (Is) Out, In The Big Apple

October 3, 2005 | 9:27 pm | |

The New York Times asked my appraisal firm, Miller Samuel to research the “flipping” phenomenon in Manhattan, which is noted for its high housing prices and dominance of co-ops. So much has been written about real estate speculation over the past several months in other markets like Florida but no one has quantified the phenomenon in Manhattan.

The idea here is that a real estate market with rampant flipping (we define a flip as re-selling a property within 18 months) as a danger sign for future price volatility. A market based on flips is ultimately doomed, like a fee simple ponzi scheme with a foggy end point. In fact, developers in Miami encourage flips and have sales agents in place (for a 2nd commission on the same property) to sell your unit for you. Easy money.

Our study, as noted in the New York Times article on October 2, 2005, determined that property flips, after controlling for typical moves like job transfers or changes in income, was about 3% of all sales activity, far less than the national average of 23% compiled by the NAR. [Matrix].

When electricians and health care workers are quitting solid secure jobs to flip real estate, then its time to get out. Fortunately, this is not happening in Manhattan.

So in some respects, one could consider that high housing prices and difficulties with co-ops in Manhattan, actually makes the housing market there less volatile.


Rent vs. Buy Analysis Leaves Use And Enjoyment Out Of The Equation

September 25, 2005 | 9:15 pm | |

sub

The New York Times this weekend released the results of an analysis of the costs and benefits of home ownership and renting, considering the tax benefits [NY Times]. It is a difficult topic to cover.

The article concludes that now may be a better time to rent than buy since prices are rising, rents are just beginning to rise and buyers place too much emphasis on the tax deduction.

We have to give credit to the New York Times Real Estate Section for publishing this analysis since they depend largely on advertising revenues from real estate brokers. Whether or not you agree with their analysis, it is refreshing to see this sort of thing.

One point of contention I have with articles like this is the concept of valuing the bundle of rights of ownership. This is left largely out of rent to value equation because it is so subjective. For example, the Economist magazine has been trying to call the collapse of the housing market for the past 4 years [Economist] using the spread between rents and sales prices as the predictor of housing price inflation but does not attempt to quantify home ownership within their analysis.

rentdue Nearly every article like this has an advantage of ownership as a feature such as the freedom to change the “color of their living room walls,” but its not quantified. It seems to me that the rent that a property is worth does not reflect all components of its value.

In other words, if a premium is placed on owner occupancy in a given market, then the value to the purchaser would be higher for an owner occupant than it is to an investor. For example, even during the darkest days of the recession in New York, the Manhattan townhouse market reflected a premium for single family houses over two to four family houses. The rental income of the units in the building did not justify the prices being paid for two to four family houses using the multipliers and overall cap rates used by investors at that time as buyers opted to convert these houses to single family.

Using rents as the only way to quantify use and enjoyment of a property paints an incomplete picture.

In addition, the rent versus buy decision should only apply on a case by case basis. It sort of like saying that nationally housing prices went up x% and then applying that amount to your property. The same goes for the opposite end of the spectrum. Rosy reports of rising prices do not always apply to all properties in the same manner.

Related Links
Housing: Buy or Rent [Angry Bear]
NYTimes: Is It Better to Buy or Rent? [Calculated Risk]


Tags:


Better Now Than Later

September 18, 2005 | 10:10 am | |

In today’s Sunday Business section of the New York Times, Daniel Akst writes an interesting piece in his On The Contrary column called “Pop Goes the Bubble? Maybe It’s Time to Cheer”

The premise is that having housing markets cool now rather than later is much better for nearly all of us. Here’s a few of the points made in the article about the housing market now:

  • Encourages speculation
  • Promotes sprawl which increases fuel consumption
  • Diverts human capital
  • Weakens financial system by proliferation of creative financing
  • Contributes to social and economic inequality

A few problems with the article, (but not the premise)

  • People have made enormous profits (Thats why speculation is on the rise)
  • A record number of individuals have become first time buyers (Thats why rents have fallen until recently)
  • It has created a lot of jobs (job creation flows to where the money is)
  • Housing has helped the overall economy climb out of a recession with help from the consumer

But as the economist Herbert Stein once dryly observed, if something cannot go on, it will stop.



The Fabulous, Gracious Language Of BrokerSpeak Used To Be Triple Mint

September 17, 2005 | 7:20 pm | |

Over the past 20 years, real estate brokerage has evolved from a part time, to a full time profession. Many accomplished professionals from other industries have switched careers to fill the ranks. As buyers and sellers have become more sophisticated having access to more information, the brokerage profession has worked hard to keep pace. The sales agents that will succeed in the future will likely embrace changes in the industry.

One of the residuals of the past, now on the decline, is the language of brokerspeak: [“This apartment has the most dramatic bathroom in New York City”]( http://www.newyorkmetro.com/nymetro/realestate/columns/gothamrealestate/5106/). Its the slang of superlatives used to describe property listings. The irony here is that the purchase or sale of a residential property is one of the largest financial transactions in anyone’s life and yet it can be reduced to brokerspeak.

Successful real estate brokers seem to rely less on brokerspeak to sell their listings than in prior years. Brokers still use plenty of superlatives, but hey, they are selling something, so thats ok. The major brokerage firms seem to be paying more attention to this and it shows in their online listings…brokerspeak is on the decline.

How To Classify A Phrase As Brokerspeak
A simple test: try saying the phrase This living room is absolutely sun-drenched to a loved one and not feel awkward.

How To Translate A Phrase From Brokerspeak
See: Reader’s Digest’s Speaking the Real Estate Language: What Brokers Say vs. What They Really Mean.

Favorite Brokerspeak Phrases
Triple Mint and Mint (no Double Mint? perhaps due to Wrigley’s copyright?)
Fabulous (or Fab) Views (An adjective that provides no explanation)
Gracious Living (what is that?)

Low End BrokerSpeak
From the basement of brokerspeak, here is a great post presented as only Curbed.com can.



Fed Study: Sub-Prime Lenders Serve 3x More Blacks Than Whites

September 16, 2005 | 11:13 pm | |

According to a study by the Federal Reserve [PDF] blacks are 3 times more likely to borrow through sub-prime lenders than whites. Sub-prime mortgages are typically 2% above prime rates.

[New York Times] Blacks Hit Hardest by Costlier Mortgages

The new report, based on data collected from 8,853 lenders, is the Fed’s first attempt to look for evidence of racial and ethnic discrimination in the booming business in exotic mortgages and subprime lending.


Tags:


Mortgage Apps Rise As Rates Fall: Will Home Sales Rise Too?

September 8, 2005 | 12:13 pm | |

With the drop in mortgage rates that started in early August, it comes as no surprise that mortgage applications are now starting to rise

The next thought that comes to mind is whether or not home sales will follow. Sales activity seemed fairly brisk in New York, althought the NAR’s Pending Home Sales Index [Note: PDF] showed modest declines in all regions except the south. The idea here is that contracts are the better indicator of the current state of the real estate market. However, this is more of an informal survey from their members. It is still behind the market since they have only report through mid-July.

With Katrina and higher oil prices, it will be interesting to see what happens in September. I’m thinking good thoughts.

I will probably get a little annoyed if interpretation the the next round of housing data does not consider that August is usually one of the seasonally slowest times of the year for housing sales. Hence the infamous, seasonal adjustment should be applied. See Lies, Damn Lies, And Government Statistics: Part I

One other thought is the idea of using mortgage applications in predicting home sales. There is an interesting article published from the Dallas Fed Can Mortgage Application Help Predict Home Sales?[Note: PDF] Its a bit dry but my sense is that the mortgage app data really lags too much to be an effective predictor of home sales without a lot of tweaking.

Tags: , , , ,


Riding The Storm Out: Housing Boom May Continue For A While

September 5, 2005 | 11:19 am | |

There was a great article in the New York Times today that provided some logic as to why Katrina could extend the housing boom further.

There have been signs lately that the intensity of the housing boom was waning as outlined in a WSJ story [Note: Paid Sub.] or could it simply be because its August? 😉

The shortage of building supplies and rising fuel prices as a result of the storm are thought to temper the economy, dragging down long term rates as inflation threats are diluted. The outlying areas around the devastated region are already seeing a surge is rental demand as people were displaced from their homes.

We can already see a damper in mortgage rates, which dropped sharply last week.

In another good article in last week’s New York Daily News [no, not because I was in it] that provided similar logic. Higher costs are keeping a damper on inflation, which keeps long-term mortgage rates low.

What I find so fascinating about all this is how different the economy is today as compared to the last oil crises in the early 70’s. Bond investors see a slowing economy as the answer to keeping inflation in check. Corporations are forced to absorb much of the higher operating costs that come along with rising fuel and material costs due to foreign competition. That in turn keeps a reign on hiring and payroll.

There is already speculation that the Fed will not raise short-term rates in their next session due to concern that the economy could slip back into a recession.

And the housing market keeps going…

Tags:


Rocking The Housing Boat With Too Much Median Income

September 4, 2005 | 10:03 am | |

WASHINGTON (MarketWatch) – For the second straight year, the income of the typical U.S. family was unchanged in 2004 after adjusting for inflation, the Census Bureau said Tuesday. [Note: Reg.].

“The median income masked widespread geographic and demographic differences:

The highest median incomes were in the Northeast at $47,994 and the West at $47,680; incomes in both regions was unchanged in 2004. The median income in the Midwest fell 2.8% to $44,657. The median income in the South was unchanged at $40,773.”

This was made more clear in New York, where the ratio of low to high median income by county was the largest gap on record. The disparity between the low (The Bronx) and high (Manhattan) median income was 52 times. The Bronx now has the lowest median income of any urban county in the country.

Shrinking Middle Class

However, the middle class is shrinking in New York City. Since the late 90’s, the upper tier of the real estate market has done well because much of the gains in personal income went to the top twenty percent…yet at the same time, the overall median income was flat.

We see statistics that show that the price of housing in many real estate markets is disproportionate to income. If you look in New York, for example, personal income growth has been seen at the top tier and, surprise, surprise that is where the new development has been targeted. Very limited new Manhattan development of middle class housing has occurred. The gains in new housing stock, when thrown into the mix, would tend to skew the overall median (yes, median) and average sales price numbers upward.

This all makes for the argument that it is not very reliable to lump all housing markets into one big bucket or compare overall housing stats to overall personal income stats since the specific market sectors are what tell the story. Otherwise, it paints a picture of rough seas and we better start bailing.


Tags: ,


Housing Stats Send No Clear Message, Well Sort Of

August 25, 2005 | 9:26 pm | |

rollercoaster

A slew of seemingly conflicting, or at a bare minimum, entangled housing related statistics have been released over the past few days. Each statistic is generally covered as the subject of a story rather than combined into one analysis, the results often contradict each other. Here are some headlines grouped by their indicated trends for the month:

Headline Summary – Improving Conditions (sort of):

Associated Press: Rates on 30 – Year Mortgages Decline
MarketWatch: New-home sales surge to record 1.41 mln [Note: Reg.]

Headline Summary – Weakening Conditions (sort of):

Wall Street Journal: Economic Data Send Mixed Signals [Note: Paid Sub.]
New York Times: The nation’s long housing boom appears to be losing steam.
New York Times: Rents Head Up as Home Prices Put Off Buyers
Wall Street Journal: Rise in Supply of Homes for Sale Suggests Market Could Be Cooling [Note: Paid Sub.]

signs

And The Trend (This Month) Is…

Existing home sales are far greater than new sales so their decline, coupled with rising rents and expanding inventory would appear to indicate a leveling off of the market. But then again, these are July stats, an historically slow period of the year for housing sales, and next month is expected to be more of the same.

What The Real Estate Economy Really Needs:

Washington Post: More Cowbell!

cowbell …sorry, it was late when this was posted.


Lies, Damn Lies, And Government Statistics: Part II

August 21, 2005 | 12:07 pm | |

Go to the prequel of this post Lies, Damn Lies, And Government Statistics: Part I

And here is another post of the same topic concerning PPI Well, Maybe The Inflation Threat Is Not That Bad After All?

…After I finished my post on this topic last Friday, I came across yet another significant statistic that we should be uncomfortable with. Daniel Gross wrote an excellent article on productivity stats that suggests that the stats have even confounded Greenspan.

productivity
Source: New York Times


Tags: ,


Going Dutch

August 21, 2005 | 11:21 am | |

bubble

In today’s New York Times article, Professor Robert Shiller “>voices his concern about a real estate bubble. Professor Schiller is well-known for predicting the last stock market correction and possibly influencing Fed Chairman Greenspan’s use of the phrase irrational exuberance, the name of Professor Shiller’s subsequent book.

According to the article, origins of a housing bubble began with the Dutch about 400 years ago. Recently, a Dutch economist, Piet M. A. Eichholtz, a professor of Maastricht University, used Mr. Schiller’s method for converting actual sales into an index and found that the housing market saw a series of booms and busts. They found that in the long run, there was no long term trend and that prices match gains in personal income.

Mr. Shiller has a Norwegian housing index and a US Index that shows a similar pattern and is concerned that the recent run-up shows we are in a bubble.

shillerindex
Source: New York Times


To his critics, he says that housing charts generally go back to the 1970’s and stock market charts go back almost a century.


Tags: ,


What Else is New? Existing-Home Sales Hit Records, But…

August 17, 2005 | 8:40 am | |

The recurring theme across the US is an increase in the number of sales and sales prices. NAR’s existing home sale report saw a record pace in the number of sales. West Virginia drew top honors with the largest gain in sales activity over the past year.

In addition to volume, housing prices have been rising nationwide. Condos seem to be leading the way in Massachusetts [Note: Subscription].

Around the country housing prices and exist-home sales are setting records or near record levels but the rate of appreciation seems to be easing across the country.

Regional articles: Wisconsin
Minneapolis
California
Southern California
Wisconsin
Upstate New York


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