Matrix Blog

Had a nice conversation about the rental market with Bloomberg’s Pimm Fox, one of the nicest people you’ll ever meet, on his show Taking Stock.

Tags: Pimm Fox, Television, Bloomberg News

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Got to join Tom Keene on his Bloomberg Surveillance Midday to talk housing – national and NYC metro, credit, distressed and donuts. I love the show structure, one of the few networks that provides a longer interview format for more substantive conversations in their programming.

Ironically I rode in on the train with Tom that morning:

Jonathan Miller on Housing Market [Bloomberg TV]

Tags: Tom Keene, Bloomberg Surveillance

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Today’s excellent Bloomberg News piece on Rent versus Buy: Manhattan Best For Homebuyers Since 2006 As Rents Jump uses our metrics, namely those found in this chart and info crunched from our preparation of The Elliman Report: Manhattan Rentals 1Q 12:

[click to expand]

We are not saying it is cheaper to buy than it is to rent. However with record low mortgage rates and record high rental rates, there are more people transitioning to rental than we have seen in a number of years.

• Manhattan Best For Homebuyers Since 2006 As Rents Jump [Bloomberg]
• Manhattan Rental Charts [Miller Samuel]
• The Elliman Report: Manhattan Rentals [Douglas Elliman]

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Years ago, there was a Dunkin’ Donuts commercial with the catch phrase “got time to make the donuts” which has remained one of my regular phrases.

For the past few months I’ve talked a lot about housing markets with “a hole in the middle” in my speaking engagements. I’ve been surprised at the volume of in-person feedback on “Donuts” just from my Bloomberg TV appearance with Deirde Bolton a few weeks ago including a senior bank executive at a board meeting I was presenting, a WSJ editor and reporter and others.

For lack of a better description, many housing markets, especially along the coastal US, are like a donut (NYC’s version is more of a bagel than a donut – thicker but not as sweet). Incidentally, I made donuts at the bakery in college so I’m obviously more than qualified to use this weak analogy.

The “hole in the middle” pattern is something I’ve been observing in the various housing markets I follow or dabble in – i.e. Manhattan, Westchester, Hamptons, Brooklyn, Miami, SF, DC, to name a few. I’m not defining it by a specific price but the middle is more like the segment just above the middle in these markets. It’s placement is specific to the price structure of each market.

It goes like this:

• Strength at the entry-level – due to record low mortgage rates and pricey rental market;
• Strength at the upper end – less dependent on irrational lending standards with limited places to invest, foreign buyers, wealthy domestic buyers; but
• Weakness (a hole) in the middle – relative to the top and the bottom.

The “donut housing economy” is holding back consumers from trading up in an orderly fashion. i.e. from the low to middle of the market, from middle to high (or the reverse).

By describing the middle as a “hole” I don’t see the middle as a stark barren wasteland (i.e. w/o sprinkles). I’m simply observing that it’s weaker relative to the top and bottom…for now.

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NAR’s Existing Home Sales numbers continue to edge higher. In this chart I annualize the non-seasonally adjusted and seasonally adjusted results. Think there isn’t seasonality in housing sales?

Here’s a good summary by Peter Coy at Bloomberg Businessweek.

No doubt a big reason was the improvement in affordability. The interest rate on a 30-year fixed-rate mortgage has continued falling since the period covered by the NAR report, portending better times ahead. Freddie Mac (FMCC), the mortgage-buying giant, says the rate was 3.79 percent in the week ended May 17, the lowest since it began keeping records in 1971. The Realtors’s index of affordability hit a record high in the January-March quarter. It factors in sales prices of existing homes, mortgage rates, and household income, which is slowly strengthening as the labor market improves.

And here’s a trend on inventory and absorption (months supply). Inventory continues to slide (not seasonally adjusted).

• Existing Home Sales Rise—Affordability Helps [BloombergBusinessweek]
• Existing Home Sales [NAR]

Tags: Existing Home Sales, Absorption, Seasonal Adjustment, NAR, National Association of Realtors

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Tags: Forbes

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Ahhh, 2007 seems like only yesterday when I wrote about NY AG Cuomo’s lawsuit against First American‘s appraisal unit, eAppraisIT

Please note: eAppraisIT’s tagline is “redefining value.”

“The attorney general claims that defendants engaged in fraudulent, deceptive and illegal business practices by allegedly permitting eAppraiseIT residential real estate appraisers to be influenced by nonparty Washington Mutual,” presiding justice Luis Gonzalez wrote in today’s unanimous decision. “We conclude that neither federal statutes, nor the regulations and guidelines implemented by the OTS, preclude the Attorney General of the State of New York from pursuing litigation.”

The institutions in my 2007 post have seen change:

• WAMU…gone!
• OTS…soon to be gone!
• First American…renamed CoreLogic.
• eAppraisIT…business as usual.

New York can proceed with a lawsuit accusing title insurer First American Corp of colluding with Washington Mutual Inc. to fraudulently inflate home values, a state appeals court unanimously ruled on Tuesday.

Attorney General Andrew Cuomo had accused First American and its eAppraiseIT unit in a November 2007 lawsuit of having “caved” to pressure from Washington Mutual to use a list of pre-approved appraisers who provided inflated appraisals, in an effort to win more business.

I have to confess I’m not too neutral here on this issue – a few years ago, I decided not to renew one of our FirstAmerican subscription resources (floorplans) since we had access to more cost effective resources. Despite the cancellation at the end of the contract period, FirstAmerican continued to bill us every month for a year despite dozens of calls by me, then proceeded to threaten us with collection and then ultimately sent us to collection. This was because I opted not to renew my subscription. They couldn’t get us out of their billing system. Scary. On top of that, they never sent the product (they always send the product and then bill you).

I finally resorted to screaming and yelling until I finally got it resolved. I’ve never experienced anything like that before.

Double Whammy
So its hard to believe an appraisal management company owned by FirstAmerican was above reproach but the courts will decide, not a disaffected (you should see the emails between Wamu and FirstAmerican presented in the Cuomo lawsuit. The link to the original lawsuit document is broken now but trust me, the emails were a doozy – here’s the Wamu 10k filing).

A False Premise and a Certain Irony
Here’s irony I can’t shake. Cuomo’s Home Valuation Code of Conduct agreement between Fannie Mae and his office change the landscape of bank appraisal work forever. What started out as good intentions to stop the conflict of interest between mortgage brokers and appraisers, ended up enabling the appraisal management company (AMC) institution which is what eAppraisIT is. The lawsuit shows that AMC are MORE exposed to bank pressure than individual appraisers are.

Tags: Cuomo, Appraisal Management Companies, eAppraisIT, AMC

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Just a bit of house cleaning…err NAR’s Pending Home Sales Index being released at 10am this morning.

I’ll be on The Hays Advantage show with Kathleen Hays on Bloomberg Radio talkin’ pending home sales (contracts) today at 12:30 on AM1130, XM channel 129 or SIRIUS channel 130.

Always enjoy being on her program.

Tags: Pending Home Sale Index, PHSI, Radio, NAR, National Association of Realtors

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What’s cooler than watching TV on Friday night? Watching C-Span on Friday night, of course.

Whats been very surprising to me after the unfolding of the financial crisis in 2008, has been how little attention the rating agencies have attracted for their role in the systemic breakdown of the mortgage process.

There was no separation between (church) sales and (state) underwriting. Nothing has changed. Same goes for appraisers and the pressure still being applied by financial institutions.

Its actually a scary since it’s not clear how we get investors back into the secondary mortgage market if they don’t trust the ratings that are issued. That would be an important step in helping ease investor concerns. Again same goes for appraisers operating in a neutral environment.

How can someone with their hand in the cookie jar be trusted with an independent rating system?

Crazy

On Friday night I watched the following panel discussions of former, disaffected employees arguably thrown softballs by the panel. I found it to be riveting because the the agencies were primarily concerned about their market share, not the quality of their ratings and the dollars and ramification were massive. The rating agencies were “enablers” by rating everything “AAA” so countries like Iceland could go bankrupt. Just like appraisers were the “enablers” of mortgage fraud by mortgage brokers.

I remember having lunch with several guys at an investment bank back around ’06-’07 who spoke with disdain, if not venom, at how the rating agencies didn’t understand the products they were rating. More as a respect issue, not for concern of the wrong rating.

Panel 1

There are two other panels for this hearing also worth listening too [Panel 2] [Panel 3]

How can anyone charged with neutral assessment of the value of an asset who is fearful of their ending their career or losing their job, do a proper assessment if they are too “low”? Or someone who can be “morally flexible” and therefore make millions personally.

Human nature.

Good grief.

Here’s a must-read article relating to trust and self-dealing by Michael Lewis:

Bond Market Will Never Be the Same After Goldman

And the closing quote:

Indeed, the social effects of the SEC’s action will almost certainly be greater than the narrow legal ones. Just as there was a time when people could smoke on airplanes, or drive drunk without guilt, there was a time when a Wall Street bond trader could work with a short seller to create a bond to fail, trick and bribe the ratings companies into blessing the bond, then sell the bond to a slow-witted German without having to worry if anyone would ever know, or care, what he’d just done.

Yikes. Maybe there is hope for change after all.

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[click to play clip]

I did a short interview on Bloomberg yesterday regarding their coverage of Knight Frank’s 2010 Wealth Report

The Bloomberg coverage was in reference to my contribution to the report via interview where they matched me up against their analyst Xavier Wong, Head of Research for Greater China and Hong Kong.

The prime New York market, where prices fell 12.5% in 2009, is gaining strength , but the recovery is tentative, says Leading New York property commentator Jonathan Miller

The frozen market in Manhattan in the first half of 2009 gave way to a much stronger second half of the year. By the summer, the market began to see a recovery in sales activity following an improvement in economic confidence prompted by a revival in the stock market.

While the market has undoubtedly improved compared with last year, we ought not to get too excited. The recovery of late 2009 was a short-term uptick, due in large part to a release in pent-up demand. My view is that the surge in demand is not the start of a rising housing market. While sales are up sharply, prices have moved “sideways.”

I have some lingering concerns for the New York market in 2010. The market has been aided by government stimulus measures – tax credits for first time buyers, in particular. This package will expire in mid-2010. While the US economy is growing, the high rate of unemployment – around 10% and somewhat higher locally – as well as a tight mortgage lending environment do not provide a firm basis for ongoing growth in house prices.

A real fear for 2010 is rising mortgage rates, currently at near record lows. The potential for growing foreclosures, which were not a problem in 2009, is another real factor.

One segment of the market that has seen a noticeable uptick has been international demand, where the weak dollar has prompted interest from Asia, Europe and South America. Demand from South Korea has also become more noticeable.

Looking outside New York, both Boston and Washington DC have also improved, with rising resale volumes in both markets. On Long Island, the Hamptons luxury second home market has surprised everyone with its resilience to date. As a discretionary market, there was general concern that this region would see large declines in prices and sales from the 2008 and early-2009 market turmoil. In fact, both sales and price trends have remained in line with the Manhattan market.

Watch the clip which summarizes the report [Bloomberg]
Open 2010 Wealth Report [Knight Frank]

Tags: Europe, Television, China

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[click to open report]

The Wealth Report 2010 was released today by Knight Frank Research. It is a much anticipated annual survey targeted at the high end consumer with great detail on global residential property trends. The report covers 56 high end housing markets across the globe.

Check out The Housing Helix podcast for my interview with Andrew Shirley, Editor and Liam Bailey, Head of Residential Research for the Knight Frank Wealth Report 2010.

I had provided commentary on the NYC housing market for the report.

….While the market has undoubtedly improved compared with last year, we ought not to get too excited. The recovery of late 2009 was a short-term uptick, due in large part to a release in pent-up demand. My view is that the surge in demand is not the start of a rising housing market. While sales are up sharply, prices have moved “sideways.”…

Some interesting data points:

• Overall annual global decline was 5.5%
• Monaco saw prices as high as $5,900 p/SF US.
• 73% of cities saw year over year declines versus 40% last year.
• Middle East down 27.5% – the largest decline – Dubai showed a 45% drop.
• Asia Pacific up 17.1% – the highest increase – Shanghai showed a 52% gain.

In light of this strong growth, the Hong Kong government has threatened measures to restrict the market – notably through mortgage lending restraint, reducing, for example, the mortgage limit for luxury property from 70% to 60%. Despite these potential restrictions the market continues to grow.

This example points to an interesting development. The crippling impact of property bubbles bursting in Europe and the US has created a much more confidently interventionist approach in China, Hong Kong and Singapore (where cooling measures were introduced in September last year) among other markets.

Listen to the interview with Knight Frank [The Housing Helix Podcast]
Download The 2010 Wealth Report [Knight Frank]

[click to play clip]

Update: Just came across the Bloomberg video and my interview giving a quick take on the US luxury portion.

Tags: Europe, China

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[click to open]

Friday Morning March 12, 2010 7:00 AM to 8:30 AM [TOMORROW]

Usually I post something AFTER I speak, but since I was invited to “guest co-host” (in title only since I’ll have no idea what I am doing) Bloomberg Surveillance tomorrow, I thought I’d give a head’s up. I’ll be on with Ken since Tom will be traveling.

Talking mortgages, housing, mods, short sales, foreclosures. Always fun to be in the studio.

Tags: Television, Radio

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