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[The Assessor] New WSJ Column, Includes, Well, An Appraiser (Also Hamptons Data)

April 28, 2010 | 7:35 pm | | Public |

[click to read article (subscription)]

This week’s Wall Street Journal introduces a Greater New York section that focuses on, among other things, regional real estate. They’s staffed up have been the talk of the real estate community for the past month.

The new column “The Assessor (prior names under consideration included “The Appraiser” – how cool would that be?) features a sort of factoid visual presentation of some element of regional housing each day.

Today I contributed a slice of Hamptons data, including five metrics, to focus on five towns that had the highest average sales price in the luxury section of the 1Q 2010 Hamptons/North Fork Market Overview I prepare for Prudential Douglas Elliman. However I took the towns and analyzed all the sales, not just those in the top 10% of the entire East End and compared them to the prior year quarter and prior quarter.

The idea was to take a look at a slice of the market and see how it performed. It is really a bad idea to look at individual towns for trends in that market as many attempt to do because the data sets are way too low and varied to be statistically meaningful and can be misleading. The 5 time sample size for this analysis was deemed adequate.

One thing that is clear – sales in these higher-priced towns outpaced the overall rate of sales growth suggesting that the high-end market seems to be returning to the fray. In addition, the jump in median and average sales prices do not suggest that is how prices are rising, but rather how there was a substantial shift in the mix towards high-end sales.

I’m just sayin’…

Actually I’m not saying there’s a housing recovery. We seem to be observing a return to a more reasonable mix of sales activity, rather then the substantial skew toward the lower priced market segments during 2009.

[CDO] ‘The Big Short’ Meets Harvard Graduate Thesis Paper

March 22, 2010 | 12:28 am | |

I’m a big fan of Michael Lewis’ writings starting with Liar’s Poker (think onion cheeseburgers for breakfast and traders owning more speed boats than suits) and much of his other work including Money Ball, Panic (a collection of his favorite news accounts of the credit crisis) and The Blind Side (Academy Awards), but I am very much anticipating reading his new work “The Big Short: Inside the Doomsday Machine.

Admittedly I am growing weary of Wall-Street-what-went-wrong books and I still need to read Andrew Ross Sorkin’s “Too Big Too Fail” compendium on my nightstand (worrying its becoming “Too Big To Read”) but I definitely will. But the Lewis book has got my attention for some reason. It’s weird to sound like I am recommending a book I haven’t purchased or read yet but I guess I am relying on past experience.

In the book acknowlegements, the WSJ Deal Journal blog points out that Lewis:

praises “A.K. Barnett-Hart, a Harvard undergraduate who had just written a thesis about the market for subprime mortgage-backed CDOs that remains more interesting than any single piece of Wall Street research on the subject.”

And my favorite quote referring to the idea of making the numbers say what you needed them to say.

“If you just randomly start regressing everything, you can end up doing an unlimited amount of regressions,” she said, rolling her eyes.

Read the thesis.

She was able to track down information and cover the looming CDO disaster completely on her own through basic research.

Perhaps most disturbing about these losses is that most of the securities being marked down were initially given a rating of AAA by one or more of the three nationally recognized credit rating agencies, essentially marking them as “safe” investments.

A lot can be said for taking a detached or neutral look at a complicated situation. Sometimes the collective mindset takes on blinders, or in this case, blind folds.

A couple of charts to peak your interest.


Wall Street Bonus Money Flows Like Molasses

March 2, 2010 | 1:49 pm | |

Note to readers – Matrix was hacked and we moved to a new host. Lost some of the graphics as a result – will get back on track shortly.

[click to expand]

The Wall Street bonus pool rose 17% and average bonus per person rose 25%.

Wall Street bonuses paid to New York City securities industry employees rose by 17 percent to $20.3 billion in 2009, according to an estimate released today by State Comptroller Thomas P. DiNapoli. Total compensation at the largest securities firms grew even faster and industry profits could exceed an unprecedented $55 billion in 2009, nearly three times greater than the previous all-time record. In 2008, the industry lost a record $42.6 billion.

On the surface this sounds like there will be a big jolt to the NYC regional economy. The sector is an important economic engine, providing 25% of the income from 5% of the jobs. Every job lost on Wall Street causes the loss of 2.5 private sector jobs.

The higher growth in bonuses are bittersweet – while the average per person bonus was up because there was job loss in the sector. Arguably few jobs lost than forecast but it tempers the bonus impact on the real estate economy.

But bonuses are controversial especially when so many are struggling outside of Wall Street. President Obama fell prey to populist sentiment with his “Fat Cats on Wall Street” comments but now doesn’t begrudge them (I’ve never been able to use begrudge in a sentence before).

Bonus income accounts for as much as 50% of total compensation for an individual.

But as John Mack, Morgan Stanley Chairman, has said

“I still don’t think the industry gets it,” Bloomberg reported the veteran banker as saying yesterday during an appearance in Charlotte, North Carolina (hat tip Huffington Post). “The issue is not structure, it is amount.”

My anecdotal feedback is that compensation seems to be about 70% restricted stock and 30% cash. And institutions like UBS are reportedly paying out half of the cash compensation now and half in 6 months.

That knocks the wind out of the “sales” (sorry) for a spring frenzy in the NYC housing market that has grown accustomed to a frenzy over the past decade. Still, it will help but I am skeptical about it helping above seasonal expectations, but who really knows.

[click to expand]
Source: New York State State Comptroller


Everyone (Unemployment) Is Not Equal

February 16, 2010 | 12:19 am | |

[click to open report]

This report sort of blew me away. When I think of unemployment I usually see it as an across the board phenomenon. I’m not sure why I would see it that way since housing markets don’t behave that way.

As WSJ sums up the report results:

According to a study from Northeastern University’s Center for Labor Studies, unemployment for those in the top income decile–individuals earning more than $150,000 a year–was 3% in the fourth quarter of 2009. That compares with unemployment of 31% for the bottom 10% of income, and unemployment of 9% for the middle decile.

The differing rates of underemployment–including those working part-time for economic reasons–are also notable. Underemployment for the top 10% was 1.6%, while the bottom was 21%.

Rental Market Leads Sales Market

February 13, 2010 | 11:40 pm | |

Ok, so I have long said that sales lead housing prices, but what about rents?

The rental market leads the sales market. Its pretty logical since rents respond more quickly to employment trends than the sales market and employment is the key to economic recovery.

In an interesting CNN/Money/Fortune piece, which focuses on Deutsche Bank reports (which I can’t find yet)

…steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. That’s a golden mean that America hasn’t seen in almost a decade. The DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas.

They address the rent v. buy ratio which was:

  • 1999 – rents were 87% of ownership costs
  • mid-2006 – rents were 60% of ownership costs
  • 3Q 2009 – rents were 83% of ownership costs

In 2009, apartment rents dropped 2.3%, and the fall continues. And enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore. Thankfully, the improving economy and decline in the rate of job losses means that rents should soon stabilize and could even start increasing by the end of 2010.

Frankly, a national decline in rents of 2.3% seems to understate the weakness of the rental market since the vacancy rate hit its highest level in 30 years at the end of 2009.

In New York City, the vacancy rate improved by 0.1 percentage point for the second straight quarter, but around 60% of rental buildings dropped their rents in the fourth quarter from the previous quarter. Effective rents — which include concessions such as one month of free rent — fell 5.6% in New York last year, the worst since Reis began tracking the data in 1990.

[Not Really Counted] 1.7M Units In Shadow Housing Inventory

December 22, 2009 | 1:04 am | |

[click to open full report]

One of the by-products of the credit crunch has been the rise in shadow inventory. Within my own market stats, I consider shadow inventory all units that are complete or under construction but not yet offered for sale as condos (sometimes as cond-ops or co-ops). In many cases the developer was unable to sell the initial block of units offered and is therefore unable to release the units behind them.

The development stalls because the lender behind the developer usually prevents the units to be converted to rentals because the value of the project would fall considerably as a rental on their balance sheet, causing stress to their capitalization ratio.

The lender’s reluctance to make such a decision is referred to as:

  • pretend and extend
  • pray and delay
  • kick the can down the road
  • a rolling loan gathers no loss

First American CoreLogic tracks shadow inventory. They define shadow inventory as real estate owned (REO) by banks and mortgage companies, as a result of foreclosures and other actions, such as deeds in lieu, as well as real estate that is at least 90 days delinquent. They put the amount of shadow inventory at $1.7M in 3Q 09, up 54.5% from $1.1M a year ago.

Visible inventory, like the amount estimated NAR and Census every month, is estimated at $3.8M, down 19.1% from $4.7M last year.

The total unsold inventory (which combines the visible and pending supply) was 5.5 million units in September 2009, down from 5.7 million a year ago. The total months’ supply was 11.1 months, down from 12.7 a year earlier. This indicates that while the visible months’ supply has decreased and is beginning to approach more normal levels, adding in the pending supply reveals there is still quite a bit of inventory that will impact the housing market for the next few years, especially in the context of the current increase in home sales, which is in part due to artificially low interest rates and the homebuyer tax credit.

In other words, even with the surge in activity over the past several months, total inventory hasn’t changed all that much (I agree with Bob).

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[Looks Fishy] Case-Shiller 20-City Home Price Index Is Spoiling

December 4, 2009 | 12:47 am | |

[click to expand]

My often quoted colleague and friend Dan Alpert at Westwood Capital had a great take on the recently released Case Shiller Index that he shared with me.

Dan looked at the number of cities within the 20-city index in 2009 that had month over month positive or negative changes in price.

The lines form, well, a large fish. A lot has been made of the index “going positive” as a sign housing has bottomed. By June, nearly all cities in the index were showing positive price trends. Since then there has been a growing trend of more cities going negative.

Besides the chart showing a large bird-like beak next month, the fish is starting to spoil. As Dan summarizes:

Res ipsa loquitor


[Tax Credit] Existing Home Sales Up 10.1% M-O-M, 23.5% Y-O-Y

November 23, 2009 | 4:01 pm | |

The National Association of Realtors released their October 2009 Existing Home Sale Report and the news was positive and kind of weird.

Driven by the first-time buyer tax credit, existing-home sales showed another big gain in October with a strong uptrend established over the past seven months, while inventories continue to decline.

It looks like the uptick in sales last month has been eliminated with the downward revision this month.

Existing-home sales

Existing-home sales – including single-family, townhomes, condominiums and co-ops – surged 10.1 percent to a seasonally adjusted annual rate1 of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, and are 23.5 percent above the 4.94 million-unit level in October 2008. Sales activity is at the highest pace since February 2007 when it hit 6.55 million.

The number of sales was up 23.5% over the same period last year and up 10.1% from August. Both saw unusually sharp increases, caused by the expiration of the tax credit (and then renewal and expansion), falling mortgage rates, rising foreclosures (falling prices) and improved affordability.

If you remove the seasonality adjustment, the number of sales was up 20.8% over the same period last year and up 6.6% from August, still significant.

“It’s an impressive increase and shows a lot of pent-up demand for housing,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “Buyers have enough confidence to take the plunge. The housing market recovery will be a durable one.

I’m not clear how the recovery is durable since it is solely dependent on artificially depressed mortgage rates, federal agency bailouts and tax credits.

Median existing home price

Prices continued to fall as there remained a large market share of foreclosures and lower priced properties and condos receive the most interest from buyers.

The national median existing-home price for all housing types was $173,100 in October, down 7.1 percent from October 2008. Distressed properties, which accounted for 30 percent of sales in October, continue to downwardly distort the median price because they usually sell at a discount relative to traditional homes in the same area.

Listing inventory continues to decline.

Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply2 at the current sales pace, down from an 8.0-month supply in September. Unsold inventory totals are 14.9 percent below a year ago.

Whats kind of weird about all of this good news, is that prices are falling,low end sales activity surged, market share of foreclosure sales remains high and high end housing market segments are the weak.

The NAR press release seems to couch readers in their anticipated sharp decline in sales over the winter.

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[Philling Up With Yankees Stimulus] Bomber World Series Victories Boosts Economic Growth

November 2, 2009 | 9:55 pm | |

Because we can’t let an obvious economic trend pass me by – and it has nothing to do with being a Yankee fan. After all, I pride myself on my neutrality in housing market coverage – 26 World Series Championships aside – 27th coming shortly.

WSJ’s Real Time Economics does a fun (ok, in their words, stupid) analysis, arguably for the Yankee brethren, that:

Win or lose, just an appearance by that Yankees in the World Series seems to foretell the next year’s growth. The economy grew an average of 4% in years after the Yankees lost the World Series. We’d also note that the last time the Yankees played the Phillies in the World Series (the Yankees won in four games) the economy grew a robust 7.7% the following year.

Phillies victories, it seems, don’t foretell the same kind of economic boost. The Phillies have twice won the World Series — last year and in 1980. Growth in 1981 was a paltry 2.5%, while economists expect the full-year number for 2009 will be negative. But what about growth after Phillies’ World Series losses? About 5%, on average.

[NAR] Existing Home Sales Surge 9.4%, 45% Are First Time Buyers

October 23, 2009 | 11:08 pm | |

[click to expand]

Not surprisingly, existing home sales jumped this month. Here’s NAR’s existing home sales release and the data.

including single-family, townhomes, condominiums and co-ops – jumped 9.4 percent to a seasonally adjusted annual rate1 of 5.57 million units in September from a level of 5.10 million in August, and are 9.2 percent higher than the 5.10 million-unit pace in September 2008. Sales activity is at the highest level in over two years, since it hit 5.73 million in July 2007.

The NAR wants the tax credit to be renewed so that the housing market can experience a self-sustaining recovery.

In fact, its all about the tax credit.

Sales of existing homes surged in September as buyers raced to take advantage of the tax credit for first-time home buyers before it expires next month.

Nationwide, sales of previously owned homes jumped 9.4% in September to a seasonally adjusted annual rate of 5.6 million from a downwardly revised 5.1 million in August, the National Assn. of Realtors reported Friday.

A long time friend of mine in suburban Chicagoland, who is a successful real estate agent told me that three quarters of his business was prompted by the tax credit. If its not renewed, sales will fall sharply.

In other words, the take away from this report seems to be a bit of a false positive. The surge in sales was a release of pent-up demand from a stalled market in the beginning of the year. Everyone’s chiming in about how important the tax credit is to restore housing market activity.

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Weening Off Quantitative Easing, But Who Buys GSE Debt?

October 7, 2009 | 11:31 pm | |

Council on Foreign Relations has a very interesting chart on who financed the massive amounts of debt that the U.S. government issued in the first half of 2009.– it is divided by “official buyers” who generally are government entities have have motivations other than profit and “economic buyers” who are looking for a return.

The Federal Reserve plans to slow and then stop its purchases by the end of the first quarter of 2010. This raises the question of who will replace this source of demand, and at what price.

This would likely result in higher mortgage costs next year if the Fed stops buying GSE paper because of reduced liquidity (The article has several other charts which serve to emphasis the Fed’s role in stabilizing the banking system and keeping mortgage rates low).

The point of the Fed’s purchases was to lower mortgage rates during the worst of the housing slump and lower funding costs at the GSEs, which were struggling with skittish investors in the private market. That plan has largely worked; rates for a 30-year fixed-rate loan have fallen to 5.11%, according to, and GSE debt with five-year maturities traded at 30.5 basis points above Treasuries this week.

But most analysts are predicting those rates will rise by at least 50 basis points before the Fed stops buying and could rise even further afterward. That might not hurt as much on the MBS side, as long as investors have an appetite for mortgages, but could pose problems on the debt side if investors are worried about funding an institution that might not be around a few years down the road.

At the same time, there is discussion of dismantling the GSE’s in favor of a new agency or restructure into smaller agencies.

My sense is that we can’t revert to the old Fannie and Freddie because they answered to 2 masters: Taxpayers and Shareholders.

I don’t see how mortgage rates don’t edge up next year. That offsets any hope that housing prices will begin to rise and suggests there are a number of years to go before they do.

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[REIS Report] US Apartment Vacancy Rate 7.8%, 23 Year High

October 7, 2009 | 10:56 pm | |

[click to expand] source: Calculated Risk

On Thursday (in about an hour) we are releasing our 3Q 2009 Manhattan Rental Market Overview. In the meantime, the REIS report is a wake up call to the economic realities of the apartment market in New York and the US.

The U.S. vacancy rate reached 7.8%, a 23-year high, according to Reis Inc., a New York real-estate research firm that tracks vacancies and rents in the top 79 U.S. markets. The rate is expected to climb further in the fall and winter, when rental demand is weaker, pushing vacancies to the highest levels since Reis began its count in 1980.

This is the seventh straight quarter where less space has been rented. Net effective rents (face rent less concessions like free rent and payment of commissions) has fallen sharply since the Lehman bankruptcy. REIS sees vacancy rates peaking in a year and rents declining through 2011.

Why? Rising unemployment and 7.2M jobs lost in the recession so far.

New York vacancies jumped to 11.4 percent in the third quarter from 6.6 percent a year earlier, and the city’s effective rents tumbled 18.5 percent, Reis said.

The drop in rents is about twice the decline New York experienced in 2002, following the Sept. 11, 2001, terrorist attacks. Rents fell 9.3 percent that year, Calanog said.

That’s why landlords are aggressively focused on tenant retention. The New York balcony BBQ conversation is dominated by “how much the landlord knocked off the rent to get me to renew.”

Pollyanna has moved out.


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