Matrix Blog

Statistics, Metrics & Data

[In The Media] Fox Business Interview for 6-17-08

June 17, 2008 | 1:35 pm | TV, Videos |

This morning I was invited to comment on housing starts for Fox Business Network’s Money For Breakfast show hosted by Alexis Glick.

Here’s this morning’s clip.

I wasn’t at my best on this one – no coffee prior to the interview – but it was interesting to see starts fall yet again. The May housing start figures were released by US Commerce just as the interview began at 8:30am.

Privately-owned housing starts in May were at a seasonally adjusted annual rate of 975,000. This is 3.3 percent (±10.7%)* below the revised April estimate of 1,008,000 and is 32.1 percent (±5.1%) below the revised May 2007 rate of 1,436,000. Single-family housing starts in May were at a rate of 674,000; this is 1.0 percent (±9.9%)* below the April figure of 681,000. The May rate for units in buildings with five units or more was 280,000.

April’s rise seems to be an anomaly. Expectations for housing continue to be negative as evidenced not only by these start figures which suggest there is excess inventory, but the record low NAHB/Wells Fargo Builders Confidence Index announced yesterday, was at a record low. In other words, builders, who are some of the biggest risk takers and optimists out there, are not feeling good about the situation.

It’s funny but with all the excess inventory out there, I find it hard to believe that builders continue to build, even at their “half full” output compared to 2006 levels. The decline in housing starts (which are fraught with crazy statistical problems to begin with) would likely be lagging the drop in demand as measured by inventory.

We really need a better national inventory figure.

Tags: , , , ,

[In The Media] Fox Business C-Suite Interview for 5-16-08

May 16, 2008 | 11:09 am | | TV, Videos |

Well this morning, I got up at 4:15am to do a live C-Suite interview on Fox Business News at 6:45am. Always fun and I enjoyed meeting Jenna Lee in person after having known her only via telephone when she was a reporter. I must have done ok since they invited me back next friday morning. 😉

Here’s this morning’s clip.

We talked about both housing starts and my appraisal firm, Miller Samuel. I had thought that the April numbers would show further decline. March was the lowest in 17 years and was down by 2/3 from the January ’06 high. Economists surveyed generally thought starts would be down around 1.4%.

Surprisingly, starts were up.

Starts jumped 8.2% but that was due to multi-family starts. Single family starts were actually down 1.7%. Overall starts are down 30.6% from the same time last year.

Bad Stats 101

Check out the Census’ press release quote:

Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,032,000. This is 8.2 percent (±14.5%)* above the revised March estimate of 954,000, but is 30.6 percent (±6.7%) below the revised April 2007 rate of 1,487,000.

Translation of up 8.2 percent (±14.5%): Overall housing starts were anywhere from -6.3% to +22.7%. Seems wildly vague, doesn’t it?

Single-family housing starts in April were at a rate of 692,000; this is 1.7 percent (±11.7%)* below the March figure of 704,000. The April rate for units in buildings with five units or more was 326,000.

Translation of down 1.7 percent (±11.7%): Single-family starts were anywhere from -13.4% to +10%. Seems wildly vague as well.

If you think about it, nothing has really changed since last summer’s credit crunch that would change the direction of the housing market.

  • How can we talk about a bottom yet?
  • What market force is going to get more people to buy right now?
  • What economic force is going to stimulate demand as we approach or are in a recession?

The credit markets are still frozen, mortgage rates have risen, underwriting standards are higher and reduced the buyer power of consumers.

The headline increase in starts means nothing; it is all due to a rebound in the hugely volatile, but essentially trendless, multi-family sector,” said Ian Shepherdson of High Frequency Economics.

Builders have been reluctant to build because demand for new homes has plunged and the supply of unsold property remained high. The latest data show new-home sales, for March, were down 36.6% from a year earlier. On Thursday, the National Association of Home Builders reported its index for sales of new, single-family homes slipped to 19 in May from 20. The gauge is based on a survey of builders asked about prospects for sales.

“The magnitude of the housing bubble was unprecedented, and the corrective process promises to be a long and painful one,” MFR Inc. Joshua Shapiro said of the NAHB data. “Hence, it is hardly surprising that builder sentiment is still languishing very near its all-time low.”

As far as Miller Samuel (my appraisal firm) goes, we have been booming since February. Fox Business inadvertently inserted a text banner during my interview that referred to our now defunct acquisition by RL from last fall. I had terminated the take-over in March.

Our firm is built for a down housing market because lenders as well as other clients actually want to know what the value is and the nuances of housing markets we cover, rather than only the number needed to make the deal. We did not fare as well as others during the housing boom because of the erosion of underwriting standards and the shift of appraisal work from retail lenders to mortgage brokers.

The current lending environment is encouraging, in a contrarian sort of way, by getting back to basics. Hopefully this will permeate the entire lending process.

The housing boom was tough for appraisers who refused to bow to pressure to push values higher than they should have been and the work was given to those who would.

But the world is changing, and like the IRS, we are here to help…

From the:

Who Cares But
It’s Still Cool

Christine Haughney’s Collateral Foreclosure Damage for Condo Owners in the NYT yesterday that sourced and used us for background, was the most emailed article in the New York Times both yesterday and today. THAT is cool (to me). It was designated to be an A1 story but was bumped for the earthquake in China coverage.

Tags: , , , , ,

Homeownership Rates Slipping, Vary By Region

May 9, 2008 | 12:41 am |

First Quarter 2008: Graph of Homeownership Rates

Interesting how much homeownership rates vary by region. The midwest has the highest rate, yet they saw the least change in price appreciation during the housing boom. Markets in the west and northeast have the lowest rates (and the highest home prices).

Hmmm, let me see…. higher prices = lower affordability = lower home ownership rates = more creative financing.

Tags: ,

[Getting Graphic] Empty And New And More Of Them

May 4, 2008 | 11:25 pm | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Source: NYT

Click here for full sized graphic.

In the It’s Newer Homes That Stand Empty as Vacancies Rise by Floyd Norris the sharp increase in vacant houses are more heavily weighted toward new construction.

The Census Bureau reported that 2.9 percent of homes intended for owner occupancy were vacant at the end of the first quarter. That figure had begun to rise even during the housing boom, a little-noticed byproduct of the aggressive construction of homes encouraged by easy credit. Before 2006, that figure had never exceeded 2 percent.

The ease of credit combined with limited underwriting resulted in an excessive level of new construction to enter the market. That’s why the rental market is as weak as the sales market in those areas that were characterized by new development. The speculation drove development beyond the level of reasonable absorption causing investor units to enter the market as competitors to existing rentals.

Tags: , , ,

Law of Reciprocal Action Meets Hopeful Enthusiasm

May 1, 2008 | 9:22 am | |

For every action, there is an equal and opposite reaction. In other words, for housing to reach a bottom, something has to happen to cause it to change direction.

Something has to change or improve. In other words, something has to get better before housing does.

Caroline Baum at Bloomberg, one of my favorite columnists, pens a witty take on the very notion that something needs to improve, in order for housing to improve called Snoozing in Econ 101 Is Hazardous to Your Health. She provides the hopeful statements made by many these days and applies good old Econ 101 logic to them – I embellish each point a bit as well:

Misleading logic is plentiful these days
Home sales won’t pick up until housing prices stop falling. What could possibly make people start buying again? According to the confused thinking above, prices will levitate spontaneously, encouraging buyers back into the market. Sales activity leads prices. Cart before the horse can’t move a market. You need activity.

Housing affordability has turned up, which is a harbinger of stronger sales ahead. Affordability is only up in the formulaic sense. Underwriting requirements are at a far higher level now than before so it is not apples and oranges. In other words, the buying power has been weakened by elevation of standards. This becomes a self-fulfilling prophecy because housing markets (think of it as collateral for mortgages) gets rattled by more conservative lending practices after it was built up by a sustained period without real underwriting standards.

Governments continue to interfere with the law of supply and demand; that’s to be expected. What’s surprising is that so many practitioners of the dismal science [Economics] can’t seem to get it right either.

Prices continue to slide

If we can all hang in there, the US population will have 700 million more people in 2100 and a good portion of the South Florida real estate market can finally be absorbed by then (call me optimistic).

Acronym of the week: YAWN: Young and Wealthy but Normal Better yet – my modification… PAWN: Poor and Worried but Normal

Tags: ,

[In The Media] BBC World Business Report Clip For 4-24-08

April 24, 2008 | 6:14 pm | Public |

Today I was interviewed by BBC TV on the housing market, specifically relating to the new home stats released today by the US Commerce Department:

Sales of new one-family houses in March 2008 were at a seasonally adjusted annual rate of 526,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.

This is 8.5 percent (±16.1%) below the revised February rate of 575,000 and is 36.6 percent (±11.1%) below the March 2007 estimate of 830,000.

Of course the ±16.1% is a wacky margin of error but the trend is clearly down.

Inventory is declining but that looks to be meaningless because the Commerce Department does not go back and restate their figures based on canceled contracts which have been at high levels.

Perhaps the only ray of hope was data showing that inventories of unsold homes fell for the 12th consecutive month in March, an indication that builders are making some progress to get their inventories under control. However, with sales plunging even faster, the supply of homes on the market rose to 11 months, the most in 27 years. Inventories are likely understated as well because of canceled sales contracts.

Like a broken record, “its all about credit.”

Here’s the BBC broadcast (2:44).

Tags: , , ,

Low Bar Means Fall

April 5, 2008 | 11:58 pm |

In professions that have a low barrier to entry like real estate brokerage, membership would be expected to responds fairly quickly to changes in market conditions.

I was inspired to create a chart (with hat tip to Bubble Meter) to show the trend.

I plotted NAR annual membership against houses under construction. I picked Census’ housing units under construction to represent activity (and the fact that I could get data back a while).

The sharp drop in construction probably suggests a sharp drop in NAR membership in the near future since it represents a metric for activity.

Tags: , , ,

Builder Confidence Not Building

March 20, 2008 | 12:01 am |

The Commerce Department released its new residential construction stats and starts are down 28.4% below last year and permits are down 36.5%. This is consistent with the NAHB Builder Confidence stats released the day before:

I find it interesting to follow trade associations like the National Association of Homebuilders (NAHB), and observe how they present their take on the housing market. In one of the worst environments for construction in recent memory (hard to find either financing and buyers), optimism still prevails:

“Our surveys confirm what I’ve been hearing personally from builders across the country, which is that interested buyers are out there, but they are either reluctant to go ahead with a home purchase or they are unable to find mortgage financing they can afford,” said NAHB President Sandy Dunn, a home builder from Point Pleasant, W. Va.

I am guessing this is an understatement of the year, no?

The headline of the press release says: Builder Confidence Remains Unchanged In March.

Which makes it sound like a neutral market when actually confidence is almost at its lowest level in 23 years since the index has been published. Yes?

Builder confidence in the market for new single-family homes remained unchanged in March, according to the latest NAHB/Wells Fargo Housing Market Index (HMI), released today. The HMI held firm at 20, which is near its historic low of 18 set in December of 2007 (the series began in January of 1985).

To their credit, they provide constructive suggestions to fix the housing slump and even though there is sugar coating (they are a trade association, after all), they do not stray from the realities of the market. No?

This just in: NAR Chief Economist Named Among Top Forecasters for Accuracy. ????

I’m feeling a bit rhetorical today, yes?

Tags: , , , ,

[Getting Graphic] Charting The Not-So-Good Times

March 8, 2008 | 11:07 pm | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Source: NYT

Click here for full sized graphic.

In David Leonhardt’ page 1 NYT front and center was an awesome chart which shows the trouble the economy is in. Jobs, financial markets and housing – that pretty much sums it up.

Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account.

Over the last year, the number of officially unemployed has risen by 500,000, while the number of people outside the labor force — neither working nor looking for a job — has risen by 1.3 million.

Employment has risen by 100,000, but even that comes with a caveat: there are also 600,000 more people who are working part time because they could not find full-time work, according to the Labor Department.

David’s article is based on the premise that the good times weren’t really of substance. Consumers as a force in the economy were driven by tapping their home equity. Their home equity was increased artificially because of easy credit. Ready credit enabled greater corporate revenues, mergers, etc. which made the financial markets happy.

Without liquid credit markets, employment weakens, housing slips and the financial markets are in turmoil.

Case in point:

The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise.

Although housing is generally considered a trailing economic indicator, it is in sync with jobs and the financial markets.

Tags: , ,

[Riding The Bus] For Closure Of Optimism

February 19, 2008 | 11:02 pm | |

As I sit an look at how we got here, its apparent to me that no one really has a clue about how we got here in the housing market. Its a “cover my you know what” scenario now, but its really our nature to look on the bright side while its happening and the dark side after its over.

Unbridled optimism got us here.

The Dark Side of Optimism [Salon] via Naked Capitalism: Why looking on the bright side keeps us from thinking critically,” management consultant Susan Webber argues yes. In her view, “the financial and business communities dismissed all the warnings” about the housing meltdown/credit crunch bearing down upon them because they wilfully adhered to an always-sunny-side-up view of life.

Ok back to reality…

Foreclosed homes that sit vacant are sometimes a better option for homeless because the utilities are still running.

“Many homeless people see the foreclosure crisis as an opportunity to find low-cost housing (FREE!) with some privacy,” Brian Davis, director of the Northeast Ohio Coalition for the Homeless, said in the summary of the latest census of homeless sleeping outside in downtown Cleveland.

That’s not the optimism I was expecting.

Daniel Gross in his Moneybox Column on Slate explores the proposed restrictions on foreclosures. He argues that these actions simply delay the inevitable process of “price discovery“, a process where the market determines a price based on supply and demand.

In other words, the optimism that got the mortgage industry and borrowers in trouble has carried through to the political process, whose optimism will delay getting out of this quagmire.

The carnage in subprime loans has led to a spate of foreclosures. When banks or investors take over properties, they recoup whatever they can by placing it on the market quickly and accepting any reasonable offer.

Foreclosure also has the effect of hastening price discovery on the mortgages on those homes, and on the bonds backing them. Here, again, the impact can be devastating to those who bought the assets with a great deal of leverage. Hedge funds and other institutions sitting on the depreciating debt either had to put up more collateral to maintain their leveraged positions, or dump the assets to raise cash. Bond insurers must increase reserves to prepare for defaults of the bonds they insured. And if the bond insurers fail, the financial firms that purchased insurance from them will have to take their own write-downs.

Optimism is met with an equal and opposite reaction: Pessimism.

Banks are blacklisting condo projects to minimize their damage. Major lenders have created blacklists. This seems like a prudent decision…avoid certain projects to avoid issuing a high risk mortgage. But doesn’t this accomplish exactly opposite by poisoning a local market delaying its recovery and placing performing assets in the market at higher risk?

Warning to developers: this will make it extremely difficult for most buyers to come to close on Miami’s newest buildings.

Unbridled pessimism brings unforseen risks just like optimism does by inserting external forces that fight the natural order of supply and demand.

Of course, there is another way to deal with our natural housing optimism: take a bus and get a boxed lunch on a foreclosure tour.

Tags: , , ,

Like Car Sales: Short Term Housing Volume Comes Out Of Future Sales

September 12, 2007 | 11:30 am | |

One of the byproducts of the credit crunch has been the elimination or drastic reduction in loan products that allow a down payment of 10% or less, the reverse of the trend seen just months ago. People still want to buy homes in the US and will continue to do so.

However, if the national median sales price is about $220,000, that means a down payment increase of $22,000 (ie changing from 0% down to 10% down). If we say the average household income is about $45,000, that adds a few years, not months, to the time it takes to save for a down payment.

Enter the transition period between immediate gratification and saving for a down payment.

We are now entering a transition period that defers a portion of potential purchasers from an immediate purchase until they have the ability to save up for the downpayment. This will keep transaction counts surpressed for the next few years.

In effect, the no money down loan product types allowed homeowners to move the decision to purchase from some point in the future to today. In effect, lenders may have cannibalized future sales to sustain short term loan volume at the end of the housing boom in 2004-2005 (and guess which years of origination have the fastest growing default rates?).

We saw this in the auto market a few years ago. Carmakers offered rebates to encourage sales, but it had the effect of syphoning off a future purchases. I did that. Our car lease had six more months to go but we were solicited to go ahead and get a new car immediately and the old lease would be forgiven, even though we would have leased a car in 6 months anyway. We moved our decision ahead 6 months.

This will have the effect of prolonging weak demand for another few years I would think.

Tags: ,

Micro-Economics Beware: Stand-up Economist At Caroline’s

August 17, 2007 | 8:31 am |

With a stressful week of market gyrations nearly behind us, its a good idea to listen to things that help relieve stress. Of course, I’m sure all Matrix readers are thinking what I’m thinking: there’s nothing better than economic humor.

After listening to the Ten Principles Of Economics by stand-up economist Yoram Bauman last year, I was hooked. As an added bonus, here’s some interesting work by his colleague at University of Washington: Chicken, chicken, chicken, which is what pretty much what I tend to hear every month when the NAR’s existing home sales and the Census department’s new home sales reports are parsed out and over analyzed.

Here’s Yoram Bauman’s latest:

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