Matrix Blog

Posts Tagged ‘Ben Bernanke’

[Getting Graphic] Imput This: Rentals And Sales Trends Are Different

June 9, 2006 | 10:28 am |

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


Click here for full graphic [NYT]

In 1996, when the imputed rent replaced sales trends in the CPI calculation, the government provided evidence that this would have little impact on CPI. However, in Floyd Norris’ column this week What Happens if Inflation Is Overstated? [NYT], he shows that things have changed considerably since then.

  • Sales have doubled
  • Rents have increased by a third

I commented about this last February in the post At The Core Of Inflation, Housing Sales Are Merely Rentals.

There is the belief that inflation was understated because rentals were weaker than sales during the housing boom and quite possibly the Fed may have been quicker to raise rates to cool off the market. Now with the rental market expected to grow, inflation may be over stated.

Higher interest rates might weaken the economy, but could also help the dollar. Lower rates could hurt the dollar, but also strengthen the economy.

Flexibility may be essential. “If Bernanke commits categorically to a response to core price pressures,” said Robert J. Barbera, chief economist of ITG, “he could find himself raising rates because housing does worse because of the arithmetic of how that plays out in the C.P.I.”

Bernanke may find that making the Fed more transparent, may be easier said than done and Norris concludes that Mr. Bernanke may come to understand why Mr. Greenspan so rarely said anything clearly.

Tags: , ,

[Getting Graphic] As Payroll Drops, The Fed May Overshoot The Sick Sector

June 6, 2006 | 12:02 am | |

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

Source: LA Times

A gain of 75,000 in non-farm employment in May [BLS] is less than half of what was expected. Analysts wonder whether the Fed can prevent a deep economic slowdown [LA Times]. The benchmark 10-year treasury dropped below 5% on Friday indicating investor view the economy as weakening.

Bernanke’s seemingly hawkish views (anti-inflation) comments today upset the equity markets. An analyst said Being inflation-vigilant when you’re acknowledging an economic slowdown is not what investors want.

There is concern that the Fed may still choose to raise rates at the June meeting anyway amid concerns of an inflation threat. Bernanke in a speech on Monday said:

As had been expected, recent readings also indicate that the housing market is cooling, partly in response to increases in mortgage rates. To be sure, the data on home sales and construction have been somewhat erratic from month to month, reflecting weather conditions, statistical noise, and other factors. However, overall, housing activity has softened relative to the high levels of last summer, and the rate of house-price appreciation appears to have lessened. A slowing of the real estate market will likely have the effect of restraining other forms of household spending as well, as homeowners no longer experience increases in the equity value of their homes at the rapid pace seen in recent years.

According to the available data, business investment appears to have risen briskly, on net, so far this year. In particular, investment in nonresidential structures, which had been weak since 2001, seems to have picked up appreciably, raising the possibility that increased nonresidential construction may absorb some of the resources released by the slowing housing sector.

This seems to infer that the Fed thinks that the business sector will offset the drop in the consumer sector but the (seemingly always pessimistic) UCLA Anderson Forecast said:

UCLA Anderson Forecast Director Edward Leamer said all the speculation about what the central bank and its new chairman, Ben S. Bernanke, should do about rates was folly because of a real estate slowdown that was well underway.

“I don’t think the Fed, at this point, has much control,” Leamer said.

“We have a sick sector, the housing sector, and there’s not a whole lot of medicine the Fed can provide.”


To The The Economist, The Housing Outlook Bears All

May 30, 2006 | 12:01 am |

The Economist magazine has been bearish on housing since at least 2002. The current issue is no exception.

[My apologies in advance to those who do not have a subscription, but its well worth getting one. -ed]

The current cover story features the image a bear: Despite the rattled markets, the world economy is still relatively strong. Just don’t bet your house on it [The Economist].

They seem to be less concerned with the equities markets and more concerned about the housing market in the US and its global implications.

By borrowing against the surging prices of their homes, American consumers have been able to keep on spending. The housing market is already coming off the boil. If prices merely flatten, the economy could slow sharply as consumer spending and construction are squeezed. If house prices fall as a result of higher bond yields, the American economy could even dip into recession. Less spending and more saving is just what America needs to reduce its current-account deficit, but for American households used to years of plenty it will hurt.

My beef with the Economist, is their love affair with the rental market and its relationship to owner occupied housing. The rental equivalent of owner occupancy, because it is less than the cost of housing, portends certain doom from their view point. This has always struck me as overly simplistic. For many reasons, an investment property is rarely of the same quality or caliber as an owner occupied property and reflects different motivations and buyers. This is the same flawed rationale that includes the rental equivalent of housing in our CPI stats rather than using actual sales stats to represent the housing market. Rental markets have not behaved like the owner occupied markets have during this recent housing boom.

I think its more directly related to affordability. Low mortgage rates have been the key driver of this boom and any other factors are minor in comparison.

In fact their focus on this point has gotten to be the source of some rather dark humor in economics circles. However, the tone of this article seems to back-pedal this 5 year argument a bit, providing both a hard and soft landing scenario.

Here’s a sample of articles for each of the past several years that repeatedly show their view point that the American housing market is headed for a hard landing.

The current bear article seems to be calling for the Fed to continue rate increases because for the world, it is best that America slows today. Later, imbalances will loom even larger. The Economist seems to be saying that inaction by the Fed now would raise the odds significantly that we could see a recession in 2007 as a result.

I contend that the slowing housing market has not been fully represented in the current array of economic stats, and when it does, a recession is already possible without anymore increases by the Fed.

Lets hope that Bernanke doesn’t read The Economist.

Tags: , , , ,

Housing Stats Can Be Misleading (Long Live The Fed)

May 26, 2006 | 7:55 am | |

Well, the bad news is that we have to work today (well, most people) but the good news is that we have a long weekend ahead of us (and a lot of kayaking to do). I prospose we use the time to ponder how the housing market is really doing.

The housing stats and the anticipation of the Fed’s next move, seems to be largely reliant on misleading data. The Fed has ready indicated that they themselves are waiting to see what the data tells them before the next FOMC meeting. That in and of itself is reasonable, but the message seems to be that they are not in the driver’s seat. That is a big concern for the consumer.

I still contend that the weaker housing data has not yet impacted the overall economic stats in any significant way. When it does, the Fed may find itself needing to loosen monetary policy again after two years of belt tightening.

Housing Stats

  • Housing market hangs in Fed’s balancing act [USAToday]. Adjustable-mortgage products that made the housing market more resilient over the past five years have left it more fragile as interest rates rise, complicating life for the Federal Reserve…a slowing housing market increases rental rates. In the Labor Department’s formula for calculating the consumer price index, rents are a big chunk of what’s called “core inflation,” a measure that excludes food and energy. Higher core inflation, in turn, spooks bond and stock traders, who fear an outbreak of inflation, putting more pressure on the Fed.

  • Mortgage apps fell by most in three months USAToday.

  • New home sales rise [Matrix] but we know that the new home sale stats is so flawed that it should not be relied on.

  • Inventory fell [BW]. Inventory supply fell from 6 months to 5.8 months.

  • Sales of existing homes [BW] increased but at the slowest pace in 4.5 years and prices increased 4.2% to $223,000 which is the smallest annual price gain since 2001.

Fed Commentary

Tags: ,

Links: International HOusing Prices [IHOP], Not Flat As A Pancake

May 15, 2006 | 12:01 am |

It looks like there has been extra butter and syrup applied to the international housing market this year (ok, this was the last pancake reference, I promise). It is amazing how much the housing markets outside the US have seen significant appreciation over the past year.

When considering the impetus for the recent US housing boom and the current slow down, this certainly makes for a strong argument that the cause and effect was not just about the US economy since the US has behaved as much as many other countries has. So perhaps we don’t need to be quite so zeroed in on Bernanke and the Fed and perhaps look toward other factors such as the trade deficit and the weakness of the dollar.

Here’s a sample of recent news links:

Have I left any countries out that have seen significant growth?

Tags: , , ,

[Getting Graphic] Sweet 16 at 5%: The Fed Remains Consistent But Muddies The Water

May 11, 2006 | 8:53 am | |

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


The Bernanke Fed was true to form as the Federal Open Market Committe raised the federal funds rate, its key short-term interest rate another 25 basis points to hit 5%. As with prior Fed actions, the Wall Street Journal has an interesting analysis called Parsing The Fed where it analyzes the nuances of FedSpeak.

For the first time in 2 years, the Fed gave the impression it was nearing the end of its rate hike strategy but left itself the option to continue to do so at a later date as the information from economic unfolds [Polley].

I would think this posture will create further uncertainty for the bond market, which will continue to place upward pressure on fixed rates even after short term rates level off, should the Fed stop. This seemingly lack of clear articulation by the Fed does not help the housing market, which has already been dampened by rising mortgage rates.

Here is the actual release from the FOMC

Tags: ,

Realty and Econ Sausage Links

May 4, 2006 | 12:01 am | |

Here’s a few articles that have been hanging around for a future post but I don’t want their relevance to slip away.

Through The Roof [The New Yorker]
How Close is a Real Estate Meltdown? [GoldSeek]
House of Pain Is Building in Housing [TheStreet]
Every Breath You Take: Bernanke Parody [Columbia Business School]
Louis Rukeyser, Television Host, Dies at 73 [NYT]
The Real Estate Job Boom [BW]


Economy Is Slightly Brighter Than Beige

April 27, 2006 | 7:37 am | |

The Federal Reserve [released its Beige Book yesterday [NYT]]((, which provides an anecdotal commentary of economic conditions in each of the Fed’s regional banks.

The economy is expanding modestly but concern is growing that higher energy prices will create more cost pressures but so far, not all businesses have been successfull passing along these costs to their customers.

Meanwhile, the pace of housing market activity was said to be cooling or moderating in many Fed districts, although commercial real estate activity was firming, the Fed’s report said.

In general, year-on-year price appreciation seems to be lower than in quarters past,” the Fed said.

To read the Beige Book (I find it easy to read and informative about regional economic conditions) and conditions in each of the districts (regions) go here [FRB]

_More coverage_
US Fed beige book says economic activity increased [Reuters]
Reading Ben Bernanke For Clues About ‘Near’ [WSJ]
Economically Speaking, Its Beige [Matrix]

Tags: ,

Tuesday Morning Link Pysche

April 25, 2006 | 7:50 am |

Here’s a collection of links that seem to cover the state of the market psyche at the moment.

Home index trading delayed [OCR]
Bernanke and the Three Bears [BW]
An economy of contradictions []
Warning flags flutter on economy [CSM]
Dice still tumbling in housing market [OCR]
Homeowners Flee Cities For Lower Prices [CA]
Freddie Mac Steps Up Mortgage Purchases [WaPo]


The Fed: House of Hints

April 24, 2006 | 12:05 am | |

William Safire’s On Language column called Glutmanship [NYT Mag] this week addressed the language of the Fed (if I only paid attention in my English classes…)

Consider your reaction if I whispered to you, “The Fed is likely to raise interest rates by 25 basis points!” Scary, no? But what if I said, “Looks as if Ben Bernanke and the boys are going for another quarter-percent rise in rates.” You would yawn; been there, done that.

Some samples of Fedspeak:

  • inverted yield curve

  • conundrum

  • the global saving glut

  • productivity gains

  • an accommodative policy

  • increases in resource utilization

Here’s what the Fed does [Fed].

Why not speak directly? According to Greg Ip, a WSJ reporter that covers the Fed:

The reason is that the Fed prizes flexibility. If it were too explicit in describing what it planned to do, it would be harder to do something different in the event the economy behaved unexpectedly.. . .Thus even as it communicates more, it prefers to do so in Fedspeak.”

Actually it sounds just like my kids when they are describing how much homework they have to do that evening, leaving options open in case there is something is good on tv.


Fed To Markets: One And Done (Hopefully None)

April 19, 2006 | 12:01 am |

I have always contended that the Fed goes about 2 rate increases too far when it comes to the housing market, but of course this time its different (it always is). Housing plays a much bigger role in the economy than ever before. Its been a security blanket during tough economic times. Lets hope the quilt doesn’t unravel, for the economy’s sake.

Liz Rappaport, in her article Advantage: ‘One and Done’ attempts to dissect the Bernanke-led Federal Open Market Committee (FOMC) language.

[The FOMC] might focus on the imagery of uncertainty sprinkled through the text, in phrases such as “hard to predict” (the impact of housing price moderation) and “expressed surprise” (that energy prices hadn’t passed through to inflation measures).

There is an increasing chance that the FOMC may pause in its quest to keep inflation in check, without making global markets nervous about inflation. The Fed is worried about tightening too much [MW] before policy changes have had time to take affect.

The fed funds target now stands at 4.75% [AFX] after the central bank put in 15 consecutive rate increases since June, 2004. The market has fully priced in another quarter-point increase to 5% next month.

I think by this point Fed policy has had its desired effect, when it comes to housing. I had read somewhere that changes in the federal funds rate can take as much as 12 months or more to take full effect. Its probably not a bad idea to take a breather and see where this is going. The Fed is walking a fine line between fighting inflation and taking us into a recession.


Parsing Bernankespeak Into Transparency

March 30, 2006 | 12:44 am | |

Click here for larger version[WSJ]

The WSJ always does a great job parsing the FOMC press release after each meeting. During the Greenspan era, it was a science. With Bernanke at the reigns, he seems to be placing the Fed in the position of being more transparent and he got a unanimous vote in his first meeting.

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