Matrix Blog

Wall Street Journal

Transit Union Walkout: New Surreal City

December 20, 2005 | 8:50 am | |

As I was making my way from Grand Central to my offices off Fifth Avenue, I was struck by the surreal feel of the city. The Transit Union finally went on strike [NYT] for the first time in 25 years. I never thought they would strike because it would violate the Taylor laws with fines of two days pay for every day on strike.

Undoubtably the strike by 33,700 subway and bus workers will cause extensive economic damage to tourism and companies who do business here.

Fifth Avenue was nearly empty when I crossed it, except for several skate boarders and bicylcists who ventured out in the 22 degree weather. All the cabs had their available lights on as they picked up to 4 passengers by a zone system. I heard stories in the elevator of people begging others to get in their cars since the police were strictly following the 4 passenger per car rule for cars entering Manhattan.

Here’s an appropriate article from The Numbers Guy How to Split a Shared Cab Ride? Very Carefully, Say Economists [WSJ]

Whats not to love about New York City!

Greenspanspeak Nears Peak: Fed Moves Toward Neutral On Rates

December 14, 2005 | 12:01 am | |
Source: WSJ

The Fed increased the Federal Funds rate to 4.25% [WSJ], the 13th increased since June 2004. However, for the first time since 2002, it omitted the word “accommodative” which means that rates are nearing the point where they neither stimulate or deter economic growth. The less restrictive wording will give Bernanke. Greenspan’s replacement, a little more flexibility.

For housing: If inflation is in check, then mortgage rates may be less likely to move a whole lot higher making the transition to a less frenzied housing market more attainable.

However, its not clear whether inflation really is in check. Barry Ritholtz of the Maxim Group and webmaster of Big Picture clearly disagrees with this assessment:

“Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained.” Quite frankly, we do not believe them. We know that beyond the rises in food and energy prices, nearly everything — from healthcare to building materials to education costs to insurance to commodities — costs more. And gold, the world’s best inflation indicator, is well over $500 per ounce. Where ever we look, we see evidence that prices have limited stability and an upward bias.”

Barry adds in a comment:

Microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things economists are wrong about generally.” – P.J. O’Rourke

The WSJ summarizes:

“Overall inflation recently topped 4%, at an annual rate, because of soaring energy prices. Excluding food and energy, it is only about 2%, but Fed officials worry that higher energy prices will eventually lead to higher wage demands and prices for other goods and services. Although gasoline prices have fallen back from their levels reached just after Hurricane Katrina struck the Gulf Coast, natural-gas prices have climbed, hitting a record yesterday as cold weather blanketed the Northeast.”

Tags: , , , ,

All Is Not Well On The Gulf Coast (FEMAVille)

December 13, 2005 | 12:01 am | |

Can we imagine a country without New Orleans? One could argue it will never be the same. Of course this story is not running on CNN all day so public interest in the devastation appears to be waning.

The post FEMAVille Update makes the point if many of the developers jockeying for reconstruction rights get their way, the whole Gulf Coast may end up not resembling anything like its old self. [NYT]

Some other developments:

FEMA is could cut its federal obligation by counting as in-kind contributions if a proposed law if adopted. [Louisiana Weekly]

Wells Fargo & Washington Mutual are giving an extra three months to storm victims to resume making mortgage payments and possibly longer [WSJ]

I know of an appraiser in New Orleans who lost all of her investment properties – wiped clean off their foundations. How long will they take to be rebuilt, if ever? FEMA wants the properties rebuilt higher off the ground and sturdier. There are many who simply want to rebuild it the way it was [NYT].

Whats the best way to proceed? Its not clear to me what the best course of action is. To simply rebuild the levees to withstand category 3 storms proved to be ineffective and costly in terms of lives and resources. To rebuild at category 5 or 6 strength is signficantly more expensive and would take years. FEMA has encouraged development in flood plains by providing (subsidizing) low cost flood insurance [Matrix] that encourages construction in low lying areas.

What a mess.


UCLA Anderson Forecast: Boom Isn’t Over But Housing Industry Has Weaknesses

December 8, 2005 | 12:01 am | |

The UCLA Anderson Forecast was released today [USAToday]. “The widely respected forecasting center at UCLA said rising interest rates, slowing population growth, overbuilding and the fact that prices had reached bubble-like heights in some hot areas will drive the decline. Housing, which had been a big driver of growth, is contributing little to the economic expansion at present, the forecast said.”

“A year ago, UCLA’s respected Anderson Forecast declared the housing market a bubble and identified the prospect of a sharp housing-market downturn as the biggest risk to the U.S. economy….says the boom isn’t even over [WSJ].

The UCLA Anderson Forecast correctly predicted the 2001 recession.

The pushed back their original prediction that the US housing industry would experience a slow down beginning in mid-2005. They changed their estimate to early 2006.

The slowdown is likely to last several years, with as many as 500,000 construction jobs and 300,000 financial sector positions lost [AP].

The forecast said eight of the last 10 economic recessions were started by housing market slowdowns. Though the coming cooldown will cause a drag on the nation’s economy, it will fall short of triggering a recession, the forecast said.

“The report cited several signs that the decline could be under way:

  • New construction of housing in October was down 5.6 percent from the previous month, with new construction of single-family housing accounting for a 3.7 percent dip.

  • New home sales have declined.

  • Applications for home mortgages have trended downward since late September as rates increased.

  • In some regions, homes are remaining unsold longer and the pace of housing construction is outpacing population growth, which could spell a decline in demand.”

This is consistent with I think most people’s expectations. The volume of new development has been growing over the past several years and has finally hit a saturation point.

Baby Boomers: Please Work Past 65 And Be More Productive

December 5, 2005 | 12:05 am | |

In the article Fed Study Says Home Prices May Fall as Population Ages [WSJ], US housing prices could collapse by 2015 if the retiring baby-boomers reduce the labor pool and productivity.

The study The Baby Boom: Predictability in House Prices and Interest Rates [pdf] indicated that credibility for this study is based on his model’s ability to predict the boom and bust of the Japanese real estate markets in ’74 and ’90.

The retirement of the baby boomers is expected to reduce the working-age population and, along with it, economic output per person, according to the study by Robert Martin, an economist in the Fed’s division of international finance. The report is not an official view from the Federal Reserve.

Martin says “in the near term, house prices will peak in level terms sometime between 2005 and 2010,” and the model shows they begin to collapse by 2015, the study said. “Following the peak, house prices decline over 30% in value over the next 50 years.”

The gloom and doom of the study will be moot if workers remain in the work force past age 65 and there are sufficient gains in productivity. You can see the population trend in this cool gif file created by Calculated Risk, one of my favorite econ blogs out there.

Calculated Risk Blog: US Population distribution by age, every decade 1920 – 2000, plus 2005.

Cubic Zirconia: The Donald May Launch Trump Shopping Network

December 5, 2005 | 12:01 am | |

Trump Explores Ways to Enter TV Shopping, Talks With NBC [WSJ].

“Mr. Trump is exploring launching his own “Trump Shopping Network,” he disclosed in an interview Friday. One possible route, says a person familiar with the situation, would be for Mr. Trump to team with General Electric Co.’s NBC. The network owns a 30% stake in the home-shopping channel ShopNBC and already has a relationship with Mr. Trump through his reality show “The Apprentice,” which airs on the network. Mr. Trump has had preliminary talks with NBC about ShopNBC, the person said.”

It was Donald Trump who said:

I like thinking big. I always have. To me, it’s very simple: if you’re going to be thinking anyway, you might as well think big.”

From the man who single handedly re-invented real estate marketing, who says real estate doesn’t eventually lead to bigger and better things?

New Housing Data: Is The Glass Half Empty Or Half Full?

November 30, 2005 | 12:02 am | |

It depends on who you listen to…

Today the US government reported a record number of new-home sales [MarketWatch] which seemingly contradicted yesterday’s release of existing home sales [WSJ] by NAR.

This has brought further debate to the housing market interpretation. The media seems to be betting on a burst of the bubble [MarketWatch] while the NAR seems confident in a soft landing next year.

The MarketWatch article suggests three paths are possible:

  1. “any further acceleration in housing could fuel a spurt in consumer spending, but at the risk of forcing the Federal Reserve to continue raising interest rates beyond what’s now expected.”

  2. “a collapse in housing, if it were to happen, could slow job growth, shatter consumer confidence and lead to a significant retrenching in their spending.”

  3. “a gradual decline in housing would likely keep the U.S. economy growing at a slower but healthier pace, allowing the Fed to conclude its rate hikes. Most economists expect this third option to come to pass.

“Being the first to call the end of the housing boom has become a favorite parlor game for economy watchers. As evidence, they’ve gleefully pointed to the reduction in mortgage applications, to an increase in unsold homes on the market, to a slowing in home price appreciation and to a drop in home-builders’ confidence.”

This is interesting because the existing home report and the new-home report are based on a different data set and mean very different things in a changing market [Matrix].

Existing home sales lag the market by 30 to 60 days or more because they reflect closed sales. New home sale stats are based on contracts.

So if there is a change in the market, new home sales would be considered the leading indicator. However, its reliability should be tempered by the fact that new home sales represent about 10% of existing home sales.

In other economic stats released today:

At the same time, consumer confidence spiked [] reversing a 2-month slide.

US Factory orders rose 3.4% and durable goods orders posted strong gains as well. [ABCNews]

Tags: , , , ,

Housing Boom Forces: How Will They Shape The Future?

November 21, 2005 | 9:52 pm | |

In today’s WSJ article Whats behind the boom, the author explores what issues are important to consider in the housing boom.

Almost everyone agrees that prices can’t keep rising this fast much longer. The debate now is whether the boom will lead to a soft landing, with gentler price increases, or to a long, painful bust, in which prices fall considerably in some places before buyers regain confidence.

However the current boom ends, longer-term forces are reshaping the housing industry. Here is a look at some of them.

  • Geographic limitations on available property
  • A higher proportion of income now spent on housing
  • Housing sizes have increased, but the trend of moving to smaller units in urban areas is gaining
  • Lenders have pushed more risky loans
  • Housing has fueled consumer spending but has also increased debt
  • Foreigners keep buying our debt, keeping mortgage rates low
  • Anti-trust pressure on NAR, discount brokers trying to make in-roads
  • The bigger home builders got bigger, gaining market share
  • Second home and investor properties are gaining in popularity

Some interesting trends on affordability and personal income:

Source: WSJ

Housing Prices Peaking To Normal Levels And Other Related Confusing Housing Market Messages

November 17, 2005 | 10:38 pm | |

There has been a slew of economic data released over the past few days with (as usual) a mixed message to the housing market. As current levels are off from prior records, the message here seems to be that conditions are weakening, or at least are not at the peak so the housing market is falling..huh?

Seemingly, everyone is trying to call the peak of the market. See Housing Boom Past Its Peak? [CNN/Money] “Housing starts fell to an annual rate of 2.01 million in October from a revised 2.13 million pace in September, the Commerce Department reported, while economists surveyed by had forecast a reading of 2.06 million.”

New-home construction fell sharply in October as builders adjusted to a moderating housing market. The number of new building permits also plummeted last month, suggesting that the cooling will continue. Housing Starts Fall in Latest Sign Of Cooling Market [WSJ]

As noted in Calculated Risk, Economists Say U.S. housing market in downdraft [Reuters]

“The U.S. housing market has peaked and a slowdown appears underway after a five-year rally that toppled all construction and sales records and sent home prices soaring, economists said on Thursday.”

Rising mortgage rates seem to already be having the effect of returning the market to normal levels, “It’s not like it’s going to be a lousy market for housing next year,” said Frank Nothaft, chief economist at Freddie Mac. “It will just be normal as opposed to these abnormal levels we’ve seen these last couple years.”

Ain’t It Cooling?: The Number Of Sales Eases From Historic Highs

November 15, 2005 | 10:26 am | |

According to a survey by Real Trends by 48 of the major US real estate firms, the number of contracts signed this month compared to the same month last year dropped 8% but remained at historical highs [WSJ]. Of course this is not necessarily representative since nearly half of the 90 major brokerage firms did not reply to the email survey. Still the story was on page 1 of the Wall Street Journal.

“‘The air is coming out of the balloons,’ says David Lereah, chief economist at the National Association of Realtors, the nation’s leading real-estate trade group.”

“‘We believe the market has peaked,’ says Doug Duncan, chief economist of the Mortgage Bankers Association. Because of brisk sales earlier this year, he expects sales of new and previously occupied homes to reach a record 8.3 million in 2005, up 4% from 2004. But he believes sales will decline 3.5% next year, ending a four-year streak of record-setting totals.

A cooling of the market is likely to be welcomed by the Federal Reserve, which has worried that home prices have become frothy and banks’ mortgage underwriting standards have slipped. For the past few years, fast-rising home prices have allowed people to borrow more against their home equity, fueling a spending boom. Last month, Fed governor Donald Kohn, citing ‘some indications that housing markets are cooling off,’ said this would force consumers, who are not saving any of their current income, to save more to build wealth, restoring balance to the U.S. economy.”

The gist of this WSJ article is the fact that the market is cooling but remains at record levels. In other words, the number of transactions will ease from historic record levels. However, articles on the housing markets like this seem to blend the number of sales with price levels to the average reader. The takeaway here is that the “frenzy” is generally over, the number of sales will ease and that housing prices are not expected to rise as rapidly as years past.

Tags: , , ,

Real Estate Market Takes Its Toll, Bro

November 9, 2005 | 10:03 pm | |

Toll Brothers, the nations largest builder of homes, said that housing prices were not soaring anymore and that future sales projections would have to be revised. [NYT] Still, they project an increase of 7% more homes to be built next year. They have begun to offer additional amenities to encourage sales.

“Per capita disposable income grew 3.6 percent over the last year, according to the Commerce Department.

More than four out of five economic forecasters surveyed by Blue Chip Economic Indicators said they expected existing-home price growth to slow to 5 percent by the end of 2006, from 13 percent over the last 12 months.

“All of a sudden, the ads in the paper show special mortgage deals, special incentives,” Mr. Toll said last week, referring to new housing developments nationally. “That’s an absolute indicator that the market has softened.”

Mr. Toll also attributed his company’s new sales forecast to toughening local regulations, saying governments in many cities were delaying new projects to placate existing residents who want slower growth.”

Since the recent hurricanes, home prices are not appreciating significantly anymore. The average price of their homes are $679,000, and the average buyer has an income over $100,000. It would seem to me that since their average sales price is likely double the national average (the median is about $220,000), that their market is essentially the upper end and is not necessarily representative of the overall market. Still it does suggest a slow down.

John Mason, an appraiser and frequent commentor of posts to this blog writes:

The Toll Brothers revising future sales and profit projections.
I never thought of it before, but now that these companies have grown to the point that they are publicly traded [NYT] on the exchanges, we get to see a more transparent market.

Softer Real Estate Outlook Sends Markets Into Retreat [NYT/AP]
Is the House Party Over? [WSJ]


Condo Prices Rose, Demographically Speaking

November 8, 2005 | 11:23 pm | |

[The National Association of Realtors tracked the national median sales price of a condo at $223,500 [REJ]]( From 2001 to 2004, condos appreciated 57% while single family houses appreciated 25%.


  • A demographic shift in the middle class with “single professionals, divorcees, active retirees and single parents” driving the market.
  • Speculation by investors
  • Developers have realized that land values can be maximzed by building condos on them instead of commerical properties.
  • Rising interest in downtown living.
Source: WSJ

The Wall Street Journal did an analysis of 5 strong and 4 weak condo housing markets.

“The median price for a condominium surpassed that of a single-family home for the first time last year. And it appears that this year will be the 10th consecutive record-making year in terms of rising U.S. condo prices and the number of condo sales, with median condo price tags still above those for single-family homes, says Walter Molony, spokesman for the National Association of Realtors. In September, the U.S. median condo price of $213,600 was up 9% from September 2004.”

Home, Sweet, Condo? [Matrix]

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
Joined October 2007