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Posts Tagged ‘Alan Greenspan’

[Getting Graphic] Speeches, Stocks And Safety

February 28, 2007 | 9:44 am | |

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

Click here for full sized graphic.

Greenspan gives a speech in Hong Kong [NYT] and mentions the r-word (recession) as being a possibility in the US and the following day, after just reaching a record, the Shanghai Composite Index corrected sharply (but its up today) [WSJ].

Notice how Greenspan still carries more weight than Bernanke in terms of an immediate market reaction after a speech?

Combine this phenomenon with the coincidence that Freddie Mac announces more restrictive parameters for subprime lending (sorry, 3rd consecutive day of talking about subprime), durable goods orders shows weakness and all of a sudden, the Dow Jones Industrial Average is falling 400 points, aided by a glitch in computerized trading.

Thats quite a sequence of events for anyone to process. However for perspective, thats a 3.29% drop in the DJIA index, only 4.4% from its record high and yet it still remains above 12,000. I don’t want to sugar coat the drop because it is still a large drop, but on Black Monday, September 19, 1987, the index dropped even more. It fell 508 points but it fell from 2,500 and nearly 23% of value was erased in a single day. Quite a different senario than 3.29%. I remember being in Kansas City visiting friends on that day in 1987 thinking I was out of business. Real estate was over. (Of course I had that same feeling on September 11, 2001).

Warning – statistical aside: Every day, the rise and fall in the DJIA is chronicled in thousands of nightly newscasts. The other day the quote went something like this (I am embelishing here just a little bit):

Stocks slid 5 points as investors grew skittish about the price of rice in China and the growing political clout of left handed orthodontists…

Thats 5 points of a total index of about 12,600 points at that time or a .0004% drop. This is more akin to a rounding error and not an indicator of anything, anymore than an increase of 5 points would be. I think the consumer sees these points as percentage and reads more into subtle changes than they should simply because no perspective is provided. Its like looking at existing home sale trends as a benchmark for a local real estate market. The DJIA is merely a list of major companies that may or may not reflect the overall stock market (sound familiar?).

ok, I am back from the aside.

I was listening to a group of real estate panelists at a luncheon yesterday as the stock market was falling. At the end of the panel, a question came from an audience member that went something like this:

Now that the stock market has fallen moret han 400 points today, what will be the impact on New York City real estate?

The answer given was essentially no affect but the question seems a little dramatic at this point. My mindset is usually oriented to the trend is your friend.

However, it does raise the point that perhaps the conventional wisdom of a continued improvement in the US economy is more tenuous than has been cheered for as of late. In the fall, I was drifting toward the belief that the economy was headed for a recession. My worries have lifted somewhat but I don’t carry the same optomism that the stock markets seem too.

Housing should ultimately provide more of a drag on the economy. I don’t think the impact of the slowdown has had adequate time to fully flow throw the economy. Honestly, its been a challenge to me personally to keep euphoria in check, when commenting on national trends given the better real estate conditions enjoyed in New York as compared to other parts of the country.

What does this stock market drop mean for the real estate economy?

I am not entirely sure. However, if the underlying economy doesn’t change significantly and more people become more risk averse, we may see more movement to saftey like we did yesterday as people move from stocks to treasuries. Treasury prices would go up, and as a result, yields would go down. As yields go, so do mortgage rates, helping temper growing damage caused by foreclosures and limiting the future effects of tightening underwriting guidelines.

All this from a Greenspan speech in Hong Kong. Just imagine if the speech was given at halftime during the Superbowl?


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Housing Effect Is Taxing

February 13, 2007 | 8:27 am | |

On of the byproducts of the housing boom for many municipalities was the abundance of tax revenues created by rising property tax and transfer and recording tax revenues, along with increased sales taxes for housing related costs such as home improvement items. New York City government is actually running a surplus these days, primarily related to the housing boom. But this seems to be the exception, not the rule.

What happens when the tax money slows to a trickle? Services offered by local governments suffer. In Andrew Leonard’s How the World Works column Attack of the toxic housing bust [Salon] he discusses how the housing markets in California and Florida have been responsible for a significant loss of tax revenue for government coffers in January.

Florida’s housing woes are manifold: insurance rates are sky-high, prompting extensive government intervention. Foreclosures are spiking, leading one opinion columnist to urge Gov. Crist to declare a one-year-moratorium on new foreclosures. The special case theory is attractive: Few states have encouraged developers to act with as much freedom as Florida, and few have seen more frenzied bursts of speculative flipping. Now the state is paying the price.

Just this week, the Sacramento Bee reported that California also witnessed significant revenue shortfalls for January, which the state controller blamed on the real estate and construction industries.

Caroline Baum, one of my favorite Bloomberg columnists, states in her recent article Banks That Took Greenspan’s Advice Pay the Price [Bloomberg]:

“Housing and housing-related employment made up a little over 40 percent of all payroll employment from November 2001 to April 2005,” she says. “Employment in residential construction declined in nine out of the 10 months ended January 2007,” with 104,000 jobs in residential specialty trade contracting lost since the February 2006 peak, according to the Bureau of Labor Statistics.

With the auto industry on the fritz, accounting for 1 of 6 jobs in the US and now housing market problems, I am skeptical that we are going to see a real long term threat from inflation and higher mortgage rates for the foreseable future.

Perhaps that will temper some of the ill effects caused by the housing slowdown in certain markets.


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Housing Turned The Corner, Psychologically Speaking

January 2, 2007 | 12:05 am | |

This holiday break has interjected a little philosophy into my thinking, so don’t panic. I am sure this will pass and I will be back to my old dull and boring mode in a few days. Here goes…

From mid-2005 through the fall of 2006, the key words used to described the national housing market were:

  • Boom
  • Bubble
  • Bust
  • Crash
  • Soft Landing

This language was universally used by bloggers, big media, real estate brokers, buyers, sellers, butchers, bakers and of course, candlestickmakers.

Ok, I got a little carried away but you get the point: everyone.

At some point, the extreme message got a little stale. I don’t mean to sugar coat the problems with the national housing market in any way. The change in the default message bias is what has changed and I find that pretty interesting. Here’s a very small sampling of typical upbeat news coverage of the housing market.

Another Sign Housing Slump May Be at End[Bloomberg News]
Dow Tops 12,500 after Upbeat Housing Data [BW]
First-Time Home Buyers Look at Houses Again [REJ]

I think the recent coverage of slowing inventory growth and rising new home sales (despite the fact that this statistic is utterly useless given its deviations) combined with the optimism of the New Year and the fatigue of shouting the same old message, likely brought about the change in the conversational angle.

It was similar to the 60 day transition from the phrase housing bubble to soft landing. Or when various congressional testimony or a Greenspan term interjected new popularity behind terms like froth and gravitas. Herd mentality 101.

So here is the new official phrase for the housing market (irregardless of the positive or negative nature of your local realty reality) for 2007:

Housing Has Turned The Corner


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Fed Speak: The Diplomacy Of Contradicting Messages, Housing The Fall Guy?

December 13, 2006 | 8:39 am | |

The Fed held firm for the fourth consecutive meeting, keeping the federal funds rate at 5.25%. Short-term rates are therefore more likely to hold steady for a while. They gave us the “hi” sign that rate cuts may be coming next year [Bankrate.com].

They do seem to be raising more warnings about the housing market [WaPo] at each of the 4 meetings where they have kept rates unchanged, inferring that housing is keeping inflation in check.

This makes me wonder…if inflation is really not that much of an immediate threat because they are inferring future rate cuts, then perhaps the Fed is overstating the economic weight of the housing market’s problems to serve as an offset? Housing seems to be their out for not raising rates right now.

During the heady days of the Greenspan reign, the WSJ journal developed a really cool graphic [ESJ] that parsed the language of the FOMC after each meeting. Likely because of greater transparency under the Bernanke era, there wasn’t a need because the language is less cryptic.

Here’s the Federal Open Market Committee’s statement on the federal funds rate [Federal Reserve]

Note the concept that Bernanke introduced by warning everyone about inflation to make investors jittery, which then causes the same effect as having a rate increase, but still gives clues that a future rate cut is coming [LA Times].

In the statement explaining its decision, the central bank’s Open Market Committee signaled new concern about risks that the economy could sputter, noting that “recent indicators have been mixed.”

With such slight changes in language, the Fed reinforced the consensus view that the nation’s monetary policymakers could begin to lower rates next year. Still, the Fed warned, “some inflation risks remain” that might necessitate credit tightening.

The Fed is walking a fine line here: [TheStreet.com]

The Federal Open Market Committee completed 2006 by telling investors to follow the data just as they would follow the bouncing ball when singing along to a Christmas carol on television. That’s what the Fed is doing. To wit, the central bank toed a careful line Tuesday by acknowledging slower growth, but maintained a tightening bias.

Definition of a diplomat: someone who informs you that you are in trouble, but you are happy they told you.

The power of words…fascinating.


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Salad Days At The Campfire: Bernanke’s View On Rate Cuts

November 29, 2006 | 8:26 am | |

Bernanke spoke at a luncheon yesterday and its been a while since he spoke about the outlook for the economy. The regional Fed presidents have been doing all talking lately. His transparent communication approach to Fed policy seems to be working (although, in order to remain true to transparency, we should be told his lunch selection so we can factor that into his commentary). Arguably, by talking up or down the economy, the Fed has been able to stop tweaking rates every month. Now the Fed is working hard to assure investors that the economy is doing well enough to avoid rate cuts in the near future, by raising concerns about inflation. Weaker housing market conditions [WaPo] are not enough on their own to push the economy into a recession.

This contradicts the commonly held assumption that the inflation has been held in check and the economy weakening, forcing the Fed to have to cut rates by the middle of 2007. The probability of a mid year rate cut is rising [Clev Fed] as investors look further out through 2007.

Here’s a recap of Bernanke’s speech coverage in several major publications:

Bernanke Warns Inflation Remains A Significant Risk [Page 1 WSJ/Dow Jones]
_Fed Chief’s View Contrasts With That of Wall Street; Could Interest Rates Go Up?_

In a contrast with the widely held view on Wall Street that slower economic growth will lead to interest-rate cuts, Federal Reserve Chairman Ben Bernanke offered an upbeat assessment of the nation’s economy, warning that tight labor markets could put more pressure on wages and prices. Many investors point to declining housing construction, mixed news on holiday sales and a tame reading on inflation as indications that the economy is weakening, inflation risks are fading and that the next move by the Fed will be to cut interest rates, perhaps as soon as next spring.

Modest growth, lower inflation ahead: Bernanke says [MW/Dow Jones]

The Federal Reserve called a halt to its long string of rate hikes in August because it believed the economy would slow and the inflation picture would improve and three months later this forecast still seems about right, Fed chief Ben Bernanke said Tuesday. In a rich speech examining most of the hot topics captivating Wall Street economists, Bernanke said the economy is still on track to expand at a moderate pace over the next year without slowing too much.He said the inflation is already “better behaved of late” and should continue to slow gradually. Much of his speech was used to gently dampen two of the major fears about the outlook – that the housing market would push the economy into a full-fledged recession, or that inflation pressures were like a smoldering campfire, seemingly controlled but ready to burst up in the next strong wind.

Fed Chief Underlines His Essential Focus on Inflation [NYT]

Signaling that the Federal Reserve was not inclined to lower interest rates any time soon, its chairman, Ben S. Bernanke, said yesterday that while economic growth should rebound next year, inflation remained “uncomfortably high.” In a speech that offered a wide range of prospects for the direction of the economy — from an unexpected surge in growth to no growth at all — Mr. Bernanke painted a generally sanguine picture. So far, he said, the economy had slowed in line with Fed’s forecasts, and inflation had “been somewhat better behaved.”

Fed Chief Optimistic of Soft Landing [WaPo]
With Eye on Inflation and Jobs, Bernanke Remains Upbeat

The nation’s central bank is growing more confident that the U.S. economy will slow gradually in a way that should cause inflation to decline without tipping the nation into a recession, Federal Reserve Chairman Ben S. Bernanke said yesterday. “Over the next year or so, the economy appears likely to expand at a moderate rate, close to or modestly below the economy’s long-run sustainable pace,” Bernanke told the National Italian American Foundation in New York, in his most extensive remarks on the economy since July. Inflation “is expected to slow gradually from its recent level.”

Fed chief’s comments hint no rate cuts loom [Boston Globe/Bloomberg]

Federal Reserve chairman Ben S. Bernanke said the US economy will pick up in the coming year and emphasized that inflation remains his greatest concern.

I find it annoying, however, that whenver Bernanke is making some sort of significant statement that impacts housing, Greenspan is quoted about the housing market [BW] at the same time. (Do they share their calendars?) He is about to publish an analysis of the “serious dispute” over the true effect of mortgage wealth on consumer spending.

So Bernanke’s take is basically this. Housing and the economy are not expected to drop like a stone next year and if there is a rate cut, its likely to be later in 2007.

Which raises a more important question: Did he have a salad for lunch?

Update: The Fed Cries Wolf; Mr. Market Isn’t Listening [Caroline Baum/Bloomberg]


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Buy This: It’s a great time to buy or sell a home.

November 3, 2006 | 8:26 am | |

The National Association of Realtors has launched its first ever media blitz to the tune of $40 million to unspin the spin of the past 5 years. When the market was rising, houses seemed to sell themselves and the news was always up, up up, The NAR, until July of this year, kept the mantra going even after the market had cooled at the end of last year.

It severely damaged their credibility as market experts because at some point, the market is the market. Its a shame because they provide a lot of good information. In July, we first started to hear comments in the order of “sellers need to price realistically” because if properties aren’t selling, even though the hype says its a good market, then the membership is not making money.

The assumption by the consumer is now if the market is not going up, then it must be going down.” As a result, the number of sales has fallen sharply this year as the consumer simply waits until the time is right.

The brokerage community largely feels that the media has been responsible for the housing downturn because they have been churning out so many negative stories that buyers have lost the sense of urgency to make a decision and are simply waiting for the market to come down. I have been to a number of Realtor functions where the media is made to be responsible for all negative aspects of the housing market, which is simply ridiculous, but I imagine its a statement of frustration. You tend to remember all the red traffic lights you saw when you are running late to an appointment.

The 1M+ NAR membership beseached the trade group to do something about it the message being delivered to the consumer. They decided to launch an ad campaign [NYT] to send a different message out, to better present NAR’s side of the story:

The National Association of Realtors will begin promoting the notion that buying a home is an unalloyed good in a $40 million campaign that boldly declares: “It’s a great time to buy or sell a home.”

The ad refers to buyers and sellers but in reality, the target market is clearly buyers. There are already plenty of sellers out there as evidenced by rising inventory levels over the past year.

The danger in doing this, is that the consumer could construe this as a sign of desperation [NYDN] and hunker down further. However, I think that the net result will be favorable and its probably something they should have done as the market began to turn last year, not after the fact.

Here’s the ad:

The bullet point message ad is a good approach, although lets look at each point made:

  • Interest Rates At Record Lows: Well, they are near record lows. Forecasts suggest rates aren’t going to change all that much over the next year so thats a good thing for housing. The only problem is that mortgage rates are flat and may decline because the economy is weakening. No job, no house.

  • Large Inventory Won’t Last: This is a highly questionable point because it infers that demand is going to increase to erode inventory, yet the whole driver of this ad campaign was lower sales activity.

  • Prices Overall Have Stabilized: Well, annual appreciation has shown a decline for two months in a row so it is not clear what would change this pattern. Stabilized pricing probably refers to the fact that they are not rising anymore and although they showed a small drop, NAR probably feels that prices will remain stable for the next several months.

  • Positive Outlook: They cite Former Fed Chair Alan Greenspan as suggesting that most of the negatives to do with housing are behind us. Who cares what the former chairman thinks and didn’t he get us here to this point anyway? The current chairman is not so optimistic.

  • Real Estate Is A Great Investment: It has been for me, and not just because its one type of financial investment.

  • Don’t Delay: This is the closing point of the ad and its main goal – create a sense of urgency when none currently exists.

I think if the ads are run frequently enough, it may help stimulate some sales activity and it shows to its membership, that NAR is working for them. However, running an ad is not going to create another housing boom.

UPDATE: Good grief, I went back and re-read this post. Normally I don’t go back and make changes but my grammar and explanations were particularly horrific this morning so I made some changes. Hope I don’t have to go to Iraq now


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Good Grief: 5 Stages of Housing Grief

October 30, 2006 | 8:25 am | |

From Paul Krugman’s Op-ed piece Bursting Bubble Blues [NYT subsc]:

* (1) Housing bubble? What housing bubble? “A national severe price distortion [in housing] seems most unlikely in the United States.” (Alan Greenspan, October 2004)

  • (2) “There’s a little froth in this market,” but “we don’t perceive that there is a national bubble.” (Alan Greenspan, May 2005)

  • (3) Housing is slumping, but “despite what you hear from some of the Eeyores in the analytical community, a recession is not visible on the horizon.” (Richard Fisher, president of the Federal Reserve Bank of Dallas, August 2006)

  • (4) Well, that was a lousy quarter, but “I feel good about the U.S. economy, I really do.” (Henry Paulson, the Treasury secretary, last Friday)

  • (5) Insert expletive here.

Krugman makes the argument that the drop in GDP and construction spending as well as the rise in foreclosure rates foretell a long decline in housing (I seem to recall a recurring pessimistic theme in his past columns on housing). From a political perspective, the Bush administration has tried to turn coverage from the Iraq War to the economy but that doesn’t appear to be a wise strategy.

In case you’re wondering, I don’t blame the Bush administration for the latest bad economic numbers. If anyone is to blame for the current situation, it’s Mr. Greenspan, who pooh-poohed warnings about an emerging bubble and did nothing to crack down on irresponsible lending.

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Point (Ben):Counterpoint (Alan)

October 9, 2006 | 12:07 am | |

Remember the Point:Counterpoint routine on Saturday Night Live? It can be summed up by the quote: Jane, you ignorant slut!

I can’t help but think how out of sync Fed Chairman Ben Bernanke is with former Fed Chairman Alan Greenspan. Or is the former chairman out of sync with the current chairman? I am not really who is ignorant recognizing that both men are extremely smart. The photo of each precisely measures how important the housing market is as it relates to the economy.

October 7, 2006: Greenspan says…

Former Federal Reserve Chairman Alan Greenspan said that last week’s rise in weekly mortgage applications could signal that the “worst may well be over” for the U.S. housing industry, according to a report of a speech Greenspan gave in Canada on Friday.

Sounds like the the worst is over…

October 5, 2006: Bernanke says…

There is currently a substantial correction going on in the housing market,” Mr. Bernanke said. The decline in residential housing construction is one of the “major drags that is causing the economy to slow.

Or more pain is yet to come…

It would seem to me that the Greenspan era was a legacy of rapid asset appreciation (stocks and real estate) followed by asset corrections so I am not so sure why there remains so much concern placed on what Greenspan thinks. To his credit, Greenspan has been careful not to steal Bernanke’s thunder.

I think it comes down to public relations. Greenspan never stumbled in his public relations (not policy) during his tenure to my recollection. However, Bernanke has not been consistent as he relates his economic message on housing to the public.

The recent Bernanke speech felt more harsh than what he previously relayed so I am not sure whether to rely on the message. I hope Bernanke figures out a clear message soon. Greenspan is still sounding pretty good to the hopeful.


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[Matrix Zeppelin Series] utter desperation, Madden Curse, collapse city, anonomous wolves, sales are way off, listen to the CEO’s, parallel universe, blink first, entry barrier, fierce competition, stretch to buy, WAY south

October 6, 2006 | 2:36 pm | |


A lot of grumbing about the economy and real estate brokers this week (that isn’t hot air) as well as some carry over on the herd mentality discussion last week. Here’s a few notable comments from the Matrix Zeppelin:

  • Concerning the issue about the media and the herd mentality – There is no question in my mind that the media helps create a mindset that pushes the trend to the extreme. I am a regular reader of Money.com. Last year, they ran a regular series of articles called “Mogul in the Making” that show cased how some average person (like a fireman or a housewife) was making big bucks in real estate. The articles mostly made you feel like you were missing out if you were not investing in real estate. During that time, never once did I see an article about someone’s home not selling. Now, they run an article about once a week called “Help – my home won’t sell” and showcase someone who had high hopes of a quick sell and it’s just not happening. The articles are written to show utter desperation on the part of the seller. In the “hot” market, I know of homes that sat on the market for months, and I now know of homes that have sold in a matter of days (I am in Atlanta). Once a trend starts, the media shows no balance at all, which in turn helps drive the “herd” to the extreme.

  • The funny thing about Herd Mentality (and something that Wall Street veterans know) is that going in other direction can be much more profitable. I look at Money Magazine cover stories and I think of the Sports Illustrated Curse. If you’re younger than 25, you may also know this as the Madden Curse. Anyway, I am envious of homebuyers in the market right now. Not only are mortgage rates the lowest that they’ve been in 6-8 months, but sellers are fearful of not being able to sell. Low rates and low prices — an excellent buying situation.

  • I would hate to be in a fox hole with Ms. Corcoran. Her suggestions have panic written all over them. If I were interested in her clients home I would know beyond a shadow that they were in “collapse city” mode. Maybe some creativity and good old fashion overtime would help. Problem is these sellers have signed up for a closing as quick as possible evidently. Buyers lick your chops. It’s time to unleash the capital now that everyone is locking down.

  • [re Curved: Three Cents Worth] Holy Crap did you get thrown to the anonomous wolves! I love that when one person voices their opinion openly, it is criticized by those unwilling to stand by their opinion with their name. At least I like the graph… Good job.

  • I don’t see why anyone would be envious of buyers when affordability is at an all time low. The fact that sales are way off in an environment of low interest rates and solid employment reveals just how far prices are from sustainable.

  • I think the key point that needs to be highlighted is that the July numbers were revised significantly lower than previous. If you go with the original July numbers Aug would be lower. My guess is they will futher revise the Aug numbers lower once all the new construction cancellation factors in. One just needs to listen to the CEO’s of Lenar, Toll, etc on what the market is doing.

  • I’ve thought since this spring the short term rates would be falling simply as a corrective response to Greenspan paranoia. The inflation he was constantly fighting simply didn’t exist, at least to the extent he wished us to believe. The economy has been absorbing all the ‘extra’ money supply. What I’m really eager to see is how the Fed responds to $45 oil, becuase it appears it’s in our near future. Will they call the positive economic response inflationary? If so, we’re in trouble again. Sometimes I think the Feds live in a parallel universe.

  • So whats it going to be. Are owners going to blink first or buyers. Will it be a soft landing,or will prices continue to decline gradually over a long period of time? I have a question for every owner trying to sell their apt in manhattan. Can they afford to buy their apt today for the price they are asking. Do they have the cash available for the down payment, do they have have the income necessary to service the mortgage debt. I bet the answer to this question by most sellers would be no. So what makes them believe that someone else out there can?

  • It is unfortunately true that the entry barrier for real estate brokers is very low, especially in New York. I have always found it odd that one of the toughest real estate markets in the world has such low qualification requirements for its professionals. Good news is, Department of State has decided to raise the bar. If there is no change in plans, as of January 2007, the number of hours required for licensing as well as continuing ed will increase. Although it is not quite sufficient to bring the industry standards to the necessary level, it is a start.

  • Thanks for posting this. I am seeing articles on line that indicate that new agents had it easy and will be the first to leave when things get tough. This business has never been easy. New agents had fierce competition because there are so many of us. Some of the experienced agents are the ones the coasted through the boom years and they may have trouble. They were so busy they did not take the time to learn new skills. They will wake up and realize that if they can’t use a computer they may be in for a rough ride.

  • I’m surprised the number of people in NYC spending 30% of their income is so low. I certainly spent more than that when I lived on Avenue A. On a side note, I will suggest to the NYT that Boulder and College Station, where nearly 50% of renters spend 50% of their income are both home to large public universities, so the incomes may be skewed. As one who now manages a portfolio of workforce housing communities across the midwest and south, we’re noticing a nice uptick in occupancy and a gentle increase in rents. We don’t operate in markets like DC, where the ‘conversion’ fad removed a large portion of the managed rental stock (as opposed to investors who will rent individually), so rents are rising because of demand, not a lack of supply. That said, I don’t agree with Mr. Frey that people necessarily stretch to rent as much as they stretch to buy. I think they rent where they feel safe, find attractive amenities, and can make their rent payments without unreasonably stretching.

  • If inflation continues to be a concern (as it is now, accorsing to fed statements), the Fed cannot cut rates. If it does, long rates will rocket up, making refis impossible. If inflation plummets and allows the Fed to cut rates, that means the economy is heading WAY south next year. I see no good outcome here.


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[Getting Graphic] FOMC Goes Number 2, Mirroring The Housing Market

September 21, 2006 | 6:21 am | |

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

Click here for full graphic [WSJ].

Source:WSJ


Inspired by Greenspanspeak, and transitioning to Bernankespeak, the Wall Street Journal continues a well-executed tradition of graphically interpreting what the Fed really means.

The official press release [FOMC]

While there are some lingering concerns about inflation, the reduction in energy prices seemed to appease them but left open the option for further increases. For the second straight time, there was one board member casting a descenting vote for another 25 basis point increase, something that didn’t happen under Greenspan’s watch.

From their observations, it appears that they are acknowledging a weakening housing market by reducing the word “gradually” from the housing comment made in August. (see bold).

September Statement

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

August Statement

Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

With the state of the nation’s housing cooling rapidly, I am thinking that the FOMC may actually drop rates by their December meeting. They appear to have overshot their target by underestimating the effects their 17 rate increases on the housing market’s impact on the economy.

_August Statement Analysis_
Cooling Economy Makes FOMC Stop [Matrix]

_June Statement Analysis_
FOMC Makes It 17 at 5.25% And Seems to Get It About Housing [Matrix]

PIMCO: Biggest econ risk is U.S. housing [Businessweek]


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Bernanke Waved His Freak Flag High

September 14, 2006 | 12:01 am | |

Greenspan mastered language as Fed Chairman during his tenure which became known as “Greenspan-speak” where we hung on certain words in a sentence.

Current Fed Chairman Bernanke had a little difficulty initially but was able to create Bernanke-speak, a flavor of Greenspan-speak.

Why the initial stumble? Afterall he is known for his academic record:

  • Won South Carolina’s State Spelling Bee at 11 years old
  • 1590 out of 1600 on SAT exam (highest in the state)
  • Class Valadictorian

Carol Baum’s Bernanke’s Hippie Dictionary [Bloomberg] article reports that Bernanke created it as a high school junior. Perhaps this can give us some insight how he relates to the housing market as well:

Here are the highlights:

  • Dig — to like, to enjoy, as “The hippie undertaker digs his work.”
  • Down trip — a drag
  • Drag — a down trip
  • Hang-up — a neurosis or fetish
  • Lie-In — a form of peaceful protest that often fails when demonstrators go to sleep
  • Square — someone who stays home New Year’s Eve to hear Guy Lombardo play “Auld Lang Syne”
  • Straight — as in “stiff” (see “dig”)
  • Swing — what someone does who thinks Guy Lombardo is a football coach (see square)
  • Trip — a rocket flight without the rocket

Far out, like, I hope that like, this clears things up, man…dig?


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[Matrix Zeppelin Series: Readers Write] Perception, Substitution Principles, Apples To Apples, Timing, Sidelines, Dis-intermediate Or Impractical

September 8, 2006 | 5:35 am | |


We are now in post-Labor School Is In Session Mode and Matrix readers are showing it. This week we had many well thought out points of view on a whole range if issues. There were a few readers that stayed after school to finish them:

  • Falling prices do not spur sales—stabilized and rising prices do. Most people did not buy stock when the market was falling? If they did it was only because their “perception” was that the fall was temporary. Slowing of housing sales tells me that the current “perception” is that prices will continue to fall.

  • There is a definite distortion in Shiller’s graphic, but I think the error is in the gov’t inflation numbers. Ever since Greenspan instituted the “substitution principle” in the inflation gauge we have had a false reading of true inflation. I think inflation since 2001 has been so under-reported, that by using the official numbers, we are seeing this skew in Shiller’s graphic. Looking at real world examples where I live (central Florida), housing is up 110% since 2001, milk has gone from $2.20 to $3.40/gallon, and we all know what gas prices have done in the last 5 years. Even Disneyworld tickets have gone from $40 to $67. About the only places I have not seen major price increases would be automobiles and consumer electronics/computers, but those are from production efficiencies. I imagine most of the HELOC growth has been because people are needing the extra income to keep the same lifestyle they had in the ’90s because incomes have been flat while inflation has been much higher than reported.

  • If you want to know what the long term average annual price change was over the last few years as a whole then the OFHEO data is good. If you want to know what the average price change was during the most recent 12 months only you will not find that in the OFHEO data. This is becuase OFHEO uses same house data for determining their index – using the recent transaction compared to its prior transaction years ago. Apples to apples but measuring long term averages – not recent movement. A home bought five years ago and sold recently will show a positive average annual gain – even though it has declined during the latest period. The OFHEO HPI is essentially a rolling average of many years of price movement.

  • Market timing is inextricably linked to the efficient market hypothesis. The EMH states, quite simply, that it is impossible to outperform the market. Why? Because the market is all-knowing, an asset is always perfectly priced based on all known information. All market participants share the same information and no single player has any advantage. Market timing is a perfectly valid concept in an imperfect market, especially in those markets where information isn’t equally shared among all players (an information asymmetry exists). A single participant who receives advanced notice of information will most certainly have an advantage over the other market participants. Information assymetry in the real estate market is just one of the reasons that it is an imperfect market. Keep in mind that real estate is a radically different asset than stock. While the stock market is far from being perfectly efficient, it is most certainly more efficient than the real estate market. Don’t forget that insider trading is a form of market timing. Does it work? Yes, albeit not legal. While I don’t believe it possible to “time the market” in a traditional sense, I do believe that the price of an asset will revert to it’s fundamental-driven mean when both overpriced and underpriced.

  • While I agree that many are on the sidelines, I disagree as to why. I don’t feel people are not purchasing because they fear prices MAY fall, people are not purchasing because prices have NOT fallen. I am one of those buyers on the “sideline” and I’m not trying to time for the bottom. But I am looking for price reductions as I feel prices are overly inflated. (That being said I do plan to stay in any home I purchase for a minimum of 10 years.) So I feel that this doesn’t mean I’m trying to time the market. I’m just waiting for the inevitable and I think others are as well.

  • I sell real estate now, but I was in the business of design and Web development for years. There is a old saying and a glib truth in selling and buying design services: “you can have it good, cheap and fast; but you can only get any two of those at a time.” I think that applies across many industries including real estate services. There is certainly evidence that technology can change things. The ability for it to dis-intermediate an industry, as the expedia/zillow guys did to travel agencies, is possible, but also quite rare. I’d ask you if the customer has actually benefited from it? Are air fares significantly cheaper because of it? I haven’t noticed; and it now costs my time to find the best fare and route. Discount on-line stock brokers did not put the full service ones out of business. The smart ones that offer real knowledge and guidance are still around. Amazon did not kill Wallmart, Ebay has not replaced Christies, and Yahoo did not see Google coming. There is room in the market place for multiple business models. The perception of value is what’s important. The big lie in all of this is that people are led to believe that they are getting the same services for less. What’s missing from the Redfin service proposition is any claim that they will work to get a seller the highest price possible. That’s what brokers actually do. Their model is based around doing it cheaper not better; and you generally get what you pay for. The caricature of the overpaid, lazy real estate broker is spin that serves Redfin and others who would like us to believe it. Like the title of your post implies Jonathan, as an industry, full service practitioners and the NAR could probably do a better job at communicating.

  • I might be able to market-time the cost of housing, but I can’t market-time things such as losing my job, getting a new job, having a baby, terrorist attacks, parents dying, getting divorced, having a mental breakdown, or inheriting wealth. It may not be impossible to market-time housing prices, but simply impractical.


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