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Housing Statistics In The Public Domain: Out Of Context, Out Of Our Minds

January 20, 2006 | 12:01 am | |

Often one of the problems with national or local housing statistics, as diseminated in press releases from real estate trade groups and companies, and the media, is how often the numbers are presented incompletely or out of context or with plenty of spin, often unintentionally. While the article is not specific to real estate, Carl Bialik’s The Numbers Guy column explores this phenomenon in Monitoring the Numbers in the News [WSJ].

“For 10 years, Richard Holden has been monitoring bungled numbers in news reports and teaching journalists to be more vigilant.

Mr. Holden was a longtime editor at The Wall Street Journal and now works as executive director of the Dow Jones Newspaper Fund, an educational foundation funded by Journal parent Dow Jones & Co. Several years ago, he started gathering examples of poorly presented numbers from newspapers (including the Journal). One article said a baseball manager was seeking his 1,000th career victory this season — but didn’t specify how many he’d amassed so far. Another article reported that certain salaries were doubled from $200,000 to $500,000.

…Mr. Holden focuses on numbers that probably are correct, but are poorly or mistakenly presented by newspapers…”

One of my favorite sports quotes was from superstar basketball player Jason Kidd when he was drafted by the NBA Dallas Mavericks before he was traded to the NJ Nets. He said something to the effect of: “We’ve got to turn this team around 360 degrees.” Most knew what he meant, but it meant literally nothing.

One thing I have learned and was backed up in a class I took presented by Edward Zufte, the zen-god of presenting information. His books include Envisioning Information and make the point that any chart or table without a source or identification of the scope of the data set (I’m interpreting here) “is a lie.” Within real estate, the public has grown to be wary of spin and amateur use of statistics which is strange since the industry is oozing with numbers. Only firms that resist the urge to spin with almost reckless abandon, will be taken seriously.

Here are a few examples in a long list of misrepresented housing statistics:

  • Housing prices have increased 10% to $500,000. 10% from when to when? Last month, last year?

  • Market fell 10%: Celebrity XX couldn’t sell so she was forced to dump the property for 10% less than list price. Implication is that the market fell 10% when actually the market was rising during the marketing period and the house was simply overpriced.

  • List prices in the county fell 10% this month. Implies the market is falling when list prices could have simply risen faster than the market. And of course, fell 10% from when?

  • Prices of McMansions increased a whopping 300% since last year. Well, thats possible but since this data was based on 5 sales, its hardly credible. This happens more often than you think.

  • The x-axis or y-axis of a chart are manipulated to smooth or increase the effect. Here are two examples using the same data. Only the scale on the y-axis was changed:

Which real estate market is better?



Silent Mortgages Could Make A Lot Of Noise In The Gulf

January 17, 2006 | 12:01 am | |

Jeffrey Lubell, the Executive Director of the Center for Housing Policy in Washington, DC writes commentary called: Let’s Talk Out Loud About ‘Silent Mortgages’ [WSJ]

For the devastated Gulf Region, silent mortgages could be an effective way to rebuild in addition to FEMA grants and SBA loans.

Download the discussion draft [pdf]

With silent mortgages, no payments are due until the homes are resold. Because the source of repayment is the property itself, rather than the family’s income, poor credit and low incomes are less significant obstacles, enabling far more families to qualify.

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Can You Lend A Dime?

January 10, 2006 | 10:43 am | |

In the article So Many Lenders, So Few Takers [Businessweek], the article explores the impact of the lower number of sales on the lending industry.

One of the beneficiaries of the housing boom has been the lending industry that serves it. The industry has focused on efficiency and expansion through consolidation and automation. All of this has come with a price. A byproduct of all this has been the marginalization of most appraisers to become form fillers discouraging competent appraisers to stay in the business. I have long ranted about this in my other blog Soapbox.

Now that the machine is built, will the mortgage applications continue to roll in?

It doesn’t look like it. The Mortgage Bankers Association projects an 18.6% decline in application volume in 2006. Its a double wammy. The slight upward trend of mortgage rates in the latter half of 2005 and the fact that rates have remained so low for so long means that the refi boom has already run its course. The number of sales is declining and is expected to drop in 2006.

We saw the same thing in the late 1989 drop in purchase volume and the post-1992/1993 refi boom. Lenders who built up staff and departments, pared back on overhead and eliminated non-revenue departments, and shifted emphasis to wholesale lending (mortgage brokers). This was seen as the panacea to eliminate the overhead burden, but lenders gave up certain elements of control over quality which remains in place today.

It is to be expected that there will be more intense competition among lenders for a smaller piece of the pie and more pressure placed on the valuations, especially related to refinance assignments, in order to make the deals work. Borrowers still have expectations of high housing price increases on par with last year. On the bright side, I expect to see a reduction of certain exotic mortgages as consumer awareness of the pitfalls increases.



Manhattan 4Q 2005 Chain Links

January 5, 2006 | 12:01 am | |

We released the data for the Manhattan Market Overview I author for Prudential Douglas Elliman for the 4th Quarter 2005. Here’s a summary of the media coverage. Otherwise, here’s a list of the articles that covered the study. It provides an interesting perspective on how each media outlet covers the same story:

[NY Times]
[WSJ]
[CNN/Money]
[Int’l Herald Tribune]
[Reuters]
[NY Daily News]
[NY Sun]
[The Real Deal]
[Inman News]
[NY Observer]
[Crains NY]
[NY Newsday]
[TheStreet.com]
[Honolulu Star-Bulletin]
[NY Post]

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I’ve Fallen Down And I Can’t Get Up: The Fed Might Stop Rate Increases Soon

January 4, 2006 | 12:01 am | |

Source: WSJ


In Greg Ip’s Page One Article Fed Suggests It’s Close to Ending Run of Rate Rises: New Manufacturing Data Underpin Officials’ View Of Waning Inflation Risk [WSJ], “Federal Reserve officials are less worried about inflation and thus may raise interest rates just one or two more times in the next few months, minutes of their December meeting suggest.”

Meeting Minutes [Fed]

Language in the FOMC minutes suggests 1-2 more increases in the federal funds rate as economic data was weaker than expected.

The minutes said Fed officials’ inflation concerns had “eased somewhat” since the previous meeting Nov. 1. They noted that slowing housing-price gains would restrain consumer spending, and that officials had to be “mindful of the lags in the effect” of past rate increases on the economy. These factors all weigh in favor of the Fed halting its policy-tightening soon.

My chief complaint with the Fed in the Greenspan, that it always seemed to me that they go 1-2 more rate increases than actually warranted, and it up loosening economic policy within 18 months. Its refreshing to see concern that the effects of their strategy has not taken full effect on the economy yet. In addition, the weakening economy and lower inflation threat may actually influence long term mortgage rates to decline within the year, which would provide stimulus to the housing market. Then again, it may not.


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Throwing The Housing Market A (Yield) Curve

January 3, 2006 | 12:01 am | |

In Daniel Gross’ The Dread “Inverted Yield Curve” – It makes brave economists cower [Slate] he counters the concerns made over the yield curve as the result of “rigid thinking.”

A) rising interest rates and higher energy prices are poison for the economy.
B) an inverted yield curve signals recession

The former was disproved in 2005. Short-term interest rates rose sharply as the Federal Reserve continued to hike rates at every opportunity it had, and energy prices continued to climb. Yet the economy grew at a healthy clip…

In theory, an inverted yield curve means that investors and the Federal Reserve are fretting about inflation in the short term, and that investors are pessimistic about long-term growth. The combination of slow growth and high inflation is often deadly.

“You have to look at a broad array of leading indicators and see if there’s a consensus,” he said. And the consensus—among economists and among leading indicators—doesn’t signal that anything close to a recession is in the offing.

As a group, for example, the 56 economists polled by the Wall Street Journal in November believe growth will average 3.2 percent over the course of next year. That’s a slowdown from the current rate of growth but nowhere near a recession…Not a single economist of the group forecasts negative growth for any quarter.”

Here is some other commentary on the Inverted Yield Curve.

The post Who’s afraid of the big bad yield curve? [Econbrowser] explains why we did get an inversion.

The short rate has been rising rapidly because the Federal Reserve is concerned about inflation and has been raising rates to slow the economy. The longer term yields fell this month because investors’ expectations of both inflation and the level of economic activity likely slipped a bit, along with a possible decline in the term premium. All of these factors usually suggest the likelihood of a slowdown in economic activity.”

Source: WSJ

The WSJ article Examining an Inversion discusses this issue with three noted economists, two of them from Swiss RE provided these comments on housing as it relates to the inverted yield curve.

An inverted curve tends to be associated with economic weakness. But there are few such signs right now. Industrial production is rising, manufacturing activity is expanding, business spending on capital equipment is up; housing permits are climbing and unemployment is falling, among other strong trends.

Strong corporate balance sheets today provide enough funds for investment even if consumer spending softens because of a moderating housing market.

As far as the housing markets go, if you subscribe to the argument that the brief inversion of the yield curve does not assure a recession, then all is sort of ok. The economy is expected to drag this year no matter what you think of the inversion, which would be expected to keep mortgage rates in check or see modest gains at best as long term rates remain historically low. However, the wild card is jobs and corporate profits. If the economy slows too much, then personal incomes and job creation will suffer and housing will not provide the offset to keep the economy moving due the potential for rising mortgage rates.


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In Search Of Affordable Housing, Many Are Moving Away From The Coasts

December 28, 2005 | 12:01 am | |

It is affecting population shifts, congressional representation and housing demand.

_Population Shifts_
In the article People Fleeing Pricey Coastal States for South, West [USAToday] an analysis of the census data halfway through the decade, Americans are shifting away from the coasts toward more affordable locations such as the Southwest, Southeast and the Rocky Mountains.

The quest for affordable housing and jobs is driving Americans from expensive coastal states to more moderately priced parts of the country.

  • At its current rate of growth, Florida will exceed the population of New York in 5 years.

  • Upstate New York population losses more than offset the boom in New York City.

  • California’s gains were more attributable to births than to new residents.

  • Virginia gained more population than 9 northeastern states combined due to employment growth.

_Affordability_
A growing number of people are simply Too Poor for Hot Housing Market, Too Affluent for Buyer Assistance [Washington Post]

Government officials “are scrambling to provide “workforce housing” — price-controlled homes for families with high five- and even six-figure incomes.”

While urban areas like New York have long provided housing assistance for low and middle income residents, areas like Washington, D.C. have focused on low income. As a result, there are a lot of residents simply priced out of the current boom.

The National Association of Realtors released its affordability index Housing Affordability Hits 14-Year Low Higher Prices, Rising Rates Hurt Buyers as Creative Loans Lose Some of Their Punch [WSJ]

“There are signs that the growing costs of homeownership are also beginning to take a toll on the housing market. “There’s a systematic erosion of affordability,” says David Seiders, chief economist of the National Association of Home Builders. That decline is “the main reason … the market is starting to cool.””

Source: WSJ


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Housing Boom Brings Obscure But Distinctive Architects To Public Attention

December 27, 2005 | 12:01 am | |

In Amir Efrati’s article Wright, Neutra and … Al Beadle? Unknown ’50s, ’60s Architects Get Big Push From Brokers; Rising Prices, Leaky Roofs [WSJ] he discusses how “the real-estate boom hasn’t just been good to homeowners fortunate enough to cash in on it. It’s also helped the reputations of a crop of architects and developers who until now were pretty obscure.

  • Paul Rudolph – Sarasota, Fla. – Covered porches, flat roofs. Check out his Manhattan 4-level apartment built in the 1970’s. He called and hired me to appraise it when he was terminally ill.

    Architect: Rudolph

  • Robert Rummer – California to Oregon in the 1960s and ’70s, known for flat roofs, is big in Portland.

    Architect: Rummer

  • H.B. Wolff – a 1950s developer in Denver.

  • Abrom and Benjamin Dombar – houses built with mahogany and cyprus, who were apprentices of Frank Lloyd Wright.

  • Howard Meyer – Dallas – Brightly painted front doors, window shades.

    Architect: Meyer

  • Al Beadle – Phoenix – Steel frames, foundations on stilts.

    Architect: Beadle

  • Homer Delawie – San Diego – Hillside homes on posts, floor-to-ceiling glass-walls.

    Architect: Delawie

  • Paul Hayden Kirk – Seattle – Japanese-influenced design like Shoji screens, courtyards.

    Architect: Kirk

Most of these characters never became as famous as their contemporaries, Richard Neutra and John Lautner, who were known for free-flowing spaces and avant-garde theatrics (the living room of one Lautner house was built to rotate on a turntable and become a patio).

“That’s mostly because “midcentury modern,” or MCM, was cutting-edge in the 1950s and ’60s but dated quickly and lost its popular appeal as buyers returned to more traditional features.”

“Moreover, its sleek, futuristic look was widely copied and over time became associated with cheap cartoonish knockoffs. Then, a new wave of architects came along who considered modernism “bland and boring,” says Thomas Hines, a professor of history and architecture at the University of California, Los Angeles. “They wanted to make allusions to the past.”

“Now, real-estate brokers and preservationists are resuscitating the reputations and homes of some lesser-known mid-century figures.”

And why not? With a heightened interest in real estate, it follows that many would seek to understand houses for their architecture as much as their function as shelter. The brokers recognize this as a marketing opportunity, a hook to sell these properties for their clients.

My dealings in New York with Paul Rudolph and a few other unusual properties has made me realize that, although the general consumer may not be interested in them, there is definitely a market segment that is completely wild about them. It was my experience that the limited marketability of these residential properties were made up by the premium their enthusiastic fan base would pay, usually resulting in a pricing offset.


Builders Build: New Home Sales Are Not A Leading Indicator, Got It?

December 23, 2005 | 12:01 am | |

The stats for new home construction showed more brisk activity than was expected [WSJ].

According to the Commerce Department:

  • Housing starts increased 5.3% to a seasonally adjusted annual rate of 2.123 million units.

  • Permits for future building rose 2.5% last month to a 2.155 million annual rate.

“I was a little surprised by the strength” of new construction, said David Seiders, chief economist at the National Association of Home Builders. However, he said much of the activity was tied to new housing permits and sales orders placed several months ago.

NAHB reports that builders are becoming more dependent on sales incentives versus last spring.

This seems to be a contradiction. I had a prominent real estate broker call me yesterday after this report was released and tell me her listings were not selling as quickly as before and yet the NAHB stats were so positive.

My response:

Builders know how to build and they keep doing it ’till they can’t build anymore.

So new construction stats do not immediately relate to housing demand.

Barry Ritholtz of The Big Picture, one of my favorite blogs, agrees. In his post Howz Real Estate Doin’? he concludes:

Bottom line: New home starts and permit apps are not a leading indicator of the housing cycle.

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Retirement With No Borders, Its A Mexican Land Rush!

December 23, 2005 | 12:01 am | |

In the article: Americans looking to Mexico for real estate [Bankrate.com] 1.5 million Americans own real estate there. Values have tripled in the past 5 years, outpacing the US housing market.

However, foreign buyers pay premiums such as 30% down or financing through Mexican banks at 15% or more. Some US banks are starting to offer financing but the laws are different in Mexico providing more risk.

Development was spurred by skyrocketing real estate prices in the USA [USAToday] and changes to Mexican laws in the wake of the 1994 North American Free Trade Agreement (NAFTA) that encourage foreign investment and make purchasing beachfront land easier.”

In Baja, a 1500 SqFt house costs in the mid-$200k range.

I would suspect that demand for properties across the border would ease if demand in the US eases. Although the financing costs are higher in Mexico, the actual values are far lower [WSJ] which is a lure for US buyers.


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Sing: On The Second Day Of The Transit Strike The Numbers Told To Me….

December 22, 2005 | 12:01 am | |

In Carl Bialik’s The Numbers Guy Column The Numbers Behind the Transit Strike [WSJ] he discusses the numbers thrown around relating to the economic damage to the city.

“Ms. Van Wagner, an economist, and her agency’s (office of comptroller) chief economist reported that a strike could cost the city $400 million in economic activity on Tuesday and $300 million on subsequent weekdays this week, as city residents miss work and shoppers can’t reach stores. The price tag for the weekend, should the strike last that long, is estimated at $100 million total for both days, because less business gets done on weekends, and the economists expect the Jewish and Christian holidays to slow business even more than usual.”

“New York’s Economic Development Corporation put its estimate for lost economic activity higher, at $440 million to $660 million per day.”

Mayor Bloomberg has been using $400M.

Other economists call these estimates very high. In 1980 during the last strike, the estimates ran at about $100M per day.

The media has reported $400M to $660M per day damages.

I know its costing businesses something. Many of my employees can not make it in to work or arrive late or have left early. Appointments and potential business meetings were canceled. Some have telecommuted.

Has this affected the real estate market? Not really. Brokers and their clients are winding down their activities about now anyway. The wild card here is how long the strike will last but I remain skeptical that even an 11-day strike like the city saw in 1980 would have a measurable affect on the real estate market.

However, on the bright side, it does give us something to complain about.


You Got To Make More To See The Glass As Half Full

December 21, 2005 | 12:01 am | |



In James Hagerty’s article Wealthy Families See Home Values Climbing Further [WSJ], most wealthy people expect home prices to continue rising over the next five years according to a PNC Financial survey.

  • 65% expect at least 10% increases
  • 31% expect at least 20% increases
  • 7% expect a decline

Wealthy was defined as making at least $150k annually and have $500k available for investing.

Regions saw disparity in results
* New Englanders were the most cautious about housing. Only 10% expected a rise of more than 20% over five years, and 18% predicted a decline.
* Floridians were the most optimistic. 50% expected an increase of more than 20%.

“Dean Baker, a Washington economist who is a longstanding bear on home prices, said the survey shows many people are unrealistic about the outlook. Mr. Baker, co-director of the Center for Economic and Policy Research, noted that interest rates are rising, income growth is slow, and “we’re building homes faster than we ever did before.” Even so, Mr. Baker said, “this bubble has gone on way longer than I expected.””


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