Matrix Blog

Showing Results for "investor"

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

A Silver Lining: As Housing Price Appreciation Eases, Fed’s Fixes May Be Nearing End

November 17, 2005 | 10:56 pm |

In the Investor’s Soapbox article by A.G. Edwards The Silver Lining to a Housing Slowdown [Barrons], the writer states:

History shows that housing is often the strongest part of the economy in the early stage of an expansion when interest rates are still low. As the economy improves, the Fed starts to worry about inflation, and policy makers push interest rates upward in order to contain inflation. As interest rates increase, housing usually cools off. If the Fed does not push interest rates too high, the slowdown in housing does not hurt the overall economy because spending in other sectors supports economic growth.

The takeaway in this article is that if the economy does not weaken significantly, housing prices are not expected to be hurt. If home prices are not appreciating rapidly, the Fed may be less likely to raise short terms rates any more because inflationary pressures are less apparent.

One can wish, can’t he?

That 80’s Show: Rentals Going Condo

November 11, 2005 | 10:48 pm |

With relatively stagnant rent rolls, many landlords are considering converting their rental projects to condo [REJ]

The author says:
“I know what you’re thinking: Condo conversions are so 1980s. But the boom is back, fueled by the torrid residential housing market. Low mortgage rates and creative financing have turned thousands of would-be renters into homeowners, and a growing number of building owners have decided to cash in on the trend by converting apartment units to condos. The boom started heating up in 2003 as the broader real-estate market experienced a home-buying frenzy.”

Condo conversions are the last to arrive for the party. Often they are competing with new developments built as condo. Rents may not support investor purchases or entice existing tenants to buy, even with an “insider discount” because landlords are bullish on the market.

Converted projects may be inferior in construction when compared to as built condos because they are often configured for tenant occupancy characterized by a lower grade of construction.

Some cities are restricting conversions because the supply of rental housing is evaporating. “In the face of a dwindling supply of rental units, the city [Las Vegas] will consider Wednesday temporarily banning the conversion of apartments to condominiums.” In fact, the amount of available rental housing has been cut in half in the past year. The moratorium on condo conversions would last 6 months [Knowlegeplex].

Condo Prices Rose, Demographically Speaking [Matrix]

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: ,

New Fannie Mae Forms Start November 1: Its The End Of The World As We Know It

October 30, 2005 | 10:49 pm |

And I feel fine…

The new Fannie Mae forms start this Tuesday November 1. Its days like this I realize how fun it is to be an appraiser. The form is being changed for reasons I still can’t explain. In fact, nearly all the forms are being changed at the same time. Something about conforming to changes in USPAP, forcing more thorough reporting, catching flips, etc.

I am sure software vendors are thrilled, appraisers are annoyed and lenders are frustrated. I love change. I love new things. However, this could be a potential fiasco in the making.

What day does use of the form begin? I am getting all kinds of instructions on when to start using the forms from my clients. The required use of the new form should begin on November 1 based on (per my clients):

The effective date of the report? (I am going with this)
The order date of the report?
Anything you have inhouse from that point on?

Here’s a few issues to consider.

  1. Fannie Mae does not buy all the paper that is sold to the secondary market. I understand that a number of these investors may not want appraisers to use the new forms. They are under no requirement to use them.

  2. Appraisers will be using the re-sending appraisals on the new forms that have already been delivered on the old form.

  3. I took this opportunity to launch an entirely new software application we developed with the new forms in it. Training for us will be doubly hard.

  4. This has been a revenue opportunity from trade groups and individuals to sell books and promote seminars, which makes the whole conversion even more scary (when it really isn’t).

  5. Judging by how hard it was for many lenders who optically scan incoming reports when they went digital, I suspect this won’t be much better.

  6. We will be managing more forms now since Fannie Mae made sure that these new forms would not be appropriate for any other use by including a series of poorly worded, extensive liability pitching to the appraiser, limiting conditions. Rest assured, we have all been told its no big deal.

On the bright side, I suspect most appraisers will expect to be compensated for the additional work and frustration. The new forms require more information and add more liability, some of it unrealistic, in addition to the cost of new software upgrades.

At the end of the day, we will all survive and get the reports out the door, perhaps late and incorrectly, but we will figure it out as we go on our own.

Tags: , , ,

The Inflation Engine Pushes Mortgage Rates Up: Big Oil Has Some Explaining To Do

October 30, 2005 | 8:14 pm |

The spike in gasoline prices occurred before the wrath of hurricanes in late summer. After adjusting for inflation, rising gasoline prices pre-hurricane were still relatively low in historical terms and perhaps thats why inflation had remained low. At that time, bond investors viewed the sharp increase as more likely to provide a drag on the economy rather than stir up inflation concerns.

There has been a lot of speculation that high gasoline prices are stimulating inflation. However, for perspective, gasoline prices today adjusted for inflation are about the same as the 1950’s but real per capita income was less than half as much today [Boston Globe]. In other words, gasoline prices are not high relative to historic norms.

However, that can be a bit simplistic since the economic engine is built around lower price levels than we are currently experiencing. The persistence of high gasoline prices may be one of the primary inflation catalysts as as core inflation (excluding food and energy) is virtually flat. To make matters worse, oil companies are now posting record profits [Marketwatch] which is of particular concern to many since the gasoline prices have risen so much in such a short period of time.

Inflationary pressures are now beginning to influence a modest rise in mortgage rates.

Of note
Gregg says oil company profits should be taxed [Boston Globe]
Katrina & Oil Prices: The Perfect Storm [Matrix]

Tags: ,

Donald J. Trump Gets $1.5 Million for Speech

October 20, 2005 | 8:59 pm |

As a possible test for how overheated the real estate market is, Donald Trump the developer and tv star, is getting paid $1.5M for a speech [Marketwatch] to (I’ve heard) 48,000+ faithful called “One Weekend Can Make You A Millionaire!” at The Learning Annex.

He is one of the best real estate marketers of all time and is a household name. But really, how much useful information is anyone going to get with that size audience? Are many savy real estate investors going to attend this event? I suspect his appeal is mainly to new real estate investors who want some of his karma and to those who admire him for his international reputation and television star status. Whatever the reason, people are coming out in droves to see the event, its a real happening.

If lender takes back an investment property from an attendee of this event, they’ll say “you’re foreclosed”…

[What’s he really worth?] [NYT]

The Conundrum: A riddle in a mystery in an enigma in a boom

October 13, 2005 | 11:17 am | |

Greenspan’s conundrum has been the fact that [Financial Times] bond yields have remained low. We are expecting to see some upward movement as more inflationary data comes out over the next few months.

Two sides are presented as to why the bond market yields have remained low, which has extended the housing boom and has been counter to historical patterns:

Why is the bond market right? Investors are buying bond yields at low rates because they believe the economy will slip. A flat yield curve often pre-dates a recession. Also, the bond market is not concerned about growth right now, only inflation. With central banks keeping rates low as well as heated competition from Asia. Also, demographics may be keeping yields low. The 25-44 year old age group is shrinking so consumption growth should shrink as well keep rates low in the long term.

Why is the bond market wrong? A recession is not in the forecast and the equity (stock) markets are not worried about one. Also, there may be a global savings surplus – and we hear this a lot – there is so much capital out there, seeking out limited opportunities for investment. A potential revaluation in the Yuan, high US budget deficit and further inflationary economic data would cause yields to re-adjust to proper levels. There was an article today in the Wall Street Journal that suggests that global inflation may return.

The sharp rise in energy costs and economic damage caused by the 2 recent hurricanes has added to the pressure.

In other words, no one really knows what the long term outlook is for bond yields. Yet it is critical to the housing market since mortgage rates are usually tied to bond yields.

On the other hand, the NAR’s Home Sales Forecast is rising [RisMedia]

[NAR’s 10-2005 US Economic Outlook] [PDF]

Tags: , , ,

Mortgage Fraud: Fannie and Freddie Not Using Their Advantage To Their Advantage

October 12, 2005 | 7:59 am |

Fannie Mae and Freddie Mac are in an interesting predicament. After benefiting from one of the largest housing booms in history, making it their mission statement to making housing available to more Americans than ever before, they didn’t count on the widespread mortgage fraud that has permeated the industry [Houston Chronicle/AP]. (Of course, I am not considering their own internal irregularities.) They have their own team of investigators to flush out fraud.

Looser underwriting requirements, automated valuation, dependency on wholesale lending (mortgage brokers) and exotic mortgage products are all part of the problem. Usually a member of the real estate industry is involved such as an appraiser, real estate broker, mortgage broker or lawyer.

It would seem to me that this is only a punitive effort and not preventative. These government sponsor enterprises already have a competitive advantage over other secondary mortgage market players and should be using some of this muscle to reduce the risk of mortgage fraud.

The danger here is that investors, at some point, are going to actually see the need to measure the risk associated with mortgage fraud, which will be reflected on the portfolio values that are bought and sold.

Other articles of interest:
Fannie and Freddie Now Have To Tell [Soapbox]
FBI sees double the Suspicious Activity Reports [Soapbox]
White Lies: Study Shows Occupancy Fraud in 53% of Claim [Soapbox]
Predatory Lending Results From Overzealous Efforts To Increase Homeownership [Soapbox]

Tags: , , ,

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

September 25, 2005 | 9:15 pm | |


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]


The Real Storm On The Horizon Is Rita, Not Inflation

September 22, 2005 | 7:30 am | |

As noted in the Investor’s Soapbox submitted by Lehman Brothers yesterday [Barron’s Online], inflation fears may be overblown:

Even though oil prices are still very high, the mere fact that prices have become less volatile and, by extension, less surprising, is contributing to the recent simultaneous increase in oil and S&P 500 prices. There are three other contributing factors are also at work.

First, the current combination of oil prices, monetary policy, and fiscal policy is collectively not tight enough to cause a recession.

Second, in the face of rising energy costs, corporate profitability has been more resilient than initially expected.

Third, despite high energy prices and some pass-through, broad-based measures of core inflation are not apt to accelerate to dangerous levels.

Indeed, the leading indicators of inflation point to low but positive levels of core inflation in the months ahead, just as they did a couple of years ago when many investors were worried about deflation.

One of the pass-throughs besides oil prices include building materials. Builders may get squeezed because they expect to have a limited ability to pass through higher costs to the consumer who they feel are nearing peak levels of affordability [REJ].

Despite the recent actions by the Fed, the bond market rose yesterday [WSJ], concerned that we are headed for an economic slowdown, influenced by Katrina and further damage by Rita. Rising bond prices would hold down long-term (including mortgage) rates.

In other words, the weakened economy does not allow producers to pass through all their increased costs to the consumer. The bond market views the price volatility of fuel and building materials as a drag on the economy, which could dampen the inflation-risk. However, the Fed does not agree.

Redux: 11’s the Charm?: The Fed Raises Rate To 3.75% [Matrix]

Tags: ,

Despite Katrina, Inflation Threat Allows No Rest For The Weary

September 20, 2005 | 8:09 am | |

Although we are recovering from yesterday’s annual Talk Like A Pirate Day, we are now facing the outcome of today’s Federal Open Market Committee’s meeting. Its widely expected that the Fed’s policy of raising short term rates regular 25 basis points will continue, but it may skip this increase in one of the few remaining meetings this year [WSJ]. This would be the 11th increase in the federal funds rate since June 2004.


Bond investors are starting to demand higher yields on the widely held consensus that the after-effects of Katrina will be inflationary. In fact, the yield curve, once flattening, is now reversing with the spread between lower short term rates and higher long term rates increasing.

Views of economic growth haven’t necessarily changed, but rather the rate of inflation alongside the growth has. Fuel and building material data will be skewed this fall, further adding to the confusion. This will likely provide upward influence to mortgage rates.

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