Matrix Blog

Editor Greg David invited me to participate in Crain’s New York Economic Forecast Breakfast on January 31, 2008. Crain’s New York Magazine is a great resource on the regional economy.

I participated in this function last January and thoroughly enjoyed it. I look forward to hearing what Greg and the other guests have to say (as well as enjoy a good breakfast).

To purchase tickets for the event.

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The 4Q 2007 Manhattan Market Overview that I author for Prudential Douglas Elliman was released earlier this month. I neglected to post this on Matrix earlier because [insert excuse here]. Other reports we prepare can be found here.

The [data](https://www.millersamuel.com/data) and a series of [charts](https://www.millersamuel.com/charts/index.php?Node=1168392467huPCj) are also available.

About two years ago, I began posting the links of the coverage of each report to see how each media outlet reports the market using the exact same data. I find it to be an interesting process.

Here was some of report coverage based on the same data (you get the idea):

The Link List

The New York Times Wall Street Journal Bloomberg New York Daily News The New York Post CNN/Money Reuters The Real Deal Financial Times The New York Observer Inman News Pravda New York Magazine The Guardian (UK) Gothamist

Radio and TV clips

[January 3, 2008] [WNBC-TV](https://www.millersamuel.com/press/view.php?V=1200250632RTFDO)
[January 3, 2008] [Bloomberg – On The Economy](https://www.millersamuel.com/press/view.php?V=1199546236SUWda)
[January 3, 2008] [WCBS](https://www.millersamuel.com/press/view.php?V=1200251851JjnBj)
[January 3, 2008] [WPIX](https://www.millersamuel.com/press/view.php?V=1200251790mAdXr)
[January 3, 2008] [Fox 5 TV](https://www.millersamuel.com/press/view.php?V=1200251722mLTOl)
[January 3, 2008] [Bloomberg TV](https://www.millersamuel.com/press/view.php?V=1200251635MRWfT)
[January 3, 2008] [WABC TV](https://www.millersamuel.com/press/view.php?V=1200251448XSKgJ)
[January 3, 2008] [WNBC HD TV](https://www.millersamuel.com/press/view.php?V=1200251398iFHZL)
[January 3, 2008] [NY -1](https://www.millersamuel.com/press/view.php?V=1200251173WBTZa)
[January 3, 2008] [Fox Business Network](https://www.millersamuel.com/press/view.php?V=1200251316NtDiP)
[WCBS Radio](https://www.millersamuel.com/press/view.php?V=1200252066ovtow)
[NPR Radio](https://www.millersamuel.com/press/view.php?V=1200252257XyFbj)

Tags: New York Observer, Sub-Prime, Radio

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When I came across this download mp3information by the FDIC, it brought to mind something I thought of while reading the review of Steve Martin’s new book “Born Standing Up” I saw in Time Out New York Magazine yesterday.

I remember one of my favorite Martin routines went something like:

>Q: How to have a million dollars and never pay taxes…

>A: First, get a millions dollars…then…

In other words, their advice is probably too late for many, although the FDIC probably means well with their publication.

The FDIC Issues Tips on Shopping for and Negotiating a Good Mortgage in the New, Tougher Climate for Loans :

• Try to raise your credit score in the months before you apply for a mortgage, such as by paying off much or all of what you owe on credit cards.
• Contact several lenders, let them know you are comparison shopping, and then try to negotiate the best deal.
• Compare fixed-rate and adjustable-rate mortgages (ARMs), even if the latter carries a lower initial interest rate, because a fixed-rate loan may be cheaper in the long run.
• Be wary of a loan with payments that can increase substantially, such as mortgages with low monthly payments in the early years in exchange for the deferred repayment of principal and/or interest.
• And, watch out for unfair and deceptive sales practices that lure people into costly or inappropriate loans.

Definitely wild and crazy advice.

Of course, it might make more sense to seek a loan modification.

Sheila Bair, chair of the FDIC has a constructive solution for borrowers in trouble:

>She’s proposing that the banks automatically modify every subprime loan if the borrower lives in the house and has been paying on time. Payments would continue at the starter rate, without a step-up. That could prevent foreclosure on about 1 million loans, Bair says, freeing overtaxed bank staffs to focus on the borrower’s default.

Loan modifications could be a good halfway point for many to avoid foreclosures. Lenders learned that it was often cheaper to renegotiate than to bear the expenses associated with foreclosure.

Tags: FDIC, Sub-Prime

2 Comments

The bi-annual real estate issue of New York Magazine had been talking about a crash since 2003. However this year, they apply a more reasonable discussion to the burning question: Why is New York different and how long will it last? (since their new owners took over a few years ago, editorial content has returned the magazine to “must-read status”).

Aside: Of course I love the fact that the average sales price for Manhattan 2Q 2007 presented in the Prudential Douglas Elliman Manhattan Market Overview that my firm authors of $1,333,316 is on the cover (something about loving numbers).

While I am not in total agreement with all the content, it is a refreshing approach because the article tries to present both sides in a best and worst case scenario format. The take away is weighted toward the pessimistic view.

There is discussion of

Hyman Minsky’s ingenious model of asset bubbles, economic stability breeds riskier and riskier investors: First come the “hedge borrowers,” who play with their own money; they are followed by “speculative borrowers,” who have enough cash flow to keep the lender at bay but not enough to cover the principal investment, and finally “Ponzi borrowers,” who are, as the name suggests, borrowing to refinance other debts they can’t meet, in the wild hope that the market will keep climbing.

Of course, New York had very little speculation during the New York housing boom so this applies more to borrowing habits of market participants.

The article references economists I admire and have quoted in the past: Joseph Gyourko, Christopher Mayer, Todd Sinai, Edward Glaeser, Robert Shiller and Nouriel Roubini (whenever I am feeling too optimistic) plus several others. Brad Inman coins the phrase: “Irish Effect.” They also included my friend Noah Rosenblatt, who runs Urbandigs.com and is someone I recently discussed the housing market for hours after midnight on the tarmac of Atlantic City’s airport on a grounded jetBlue flight from the recent San Francisco Inman conference (how cool is that?).

Worst Case: In this scenario, a full-fledged credit crunch rips through the system. The August employment figures, showing no growth for the first time in four years, are the beginning of a serious downward trend. The economy heads for a hard landing, and an all-out recession ensues.

Best Case: In this instance, the current liquidity problem is contained by the end of the year. Employment figures pick up in September. Global growth continues.

A correction to the article is needed: The widely quoted Case Shiller Index doesn’t include co-op and condo sales as indicated in the article, which is 96.9% of the Manhattan sales market, nor does it include new development and foreclosures.

This just in: Lehman’s net declines, but less than analysts expectations.

Tags: Case-Shiller, Robert Shiller, Lehman

3 Comments

My son planted about 30 tomato plants in our garden this year so needless to say, I am now full of tomatoes.

One of the things that have come out of all the upheaval in the mortgage markets has been the frequency and clarity of explanations as to what happened and how the markets got into this predicament. Hindsight is 20/20 so they say. It was not long ago that people were scratching their heads about how prices can rise at an expotentially higher rate than income for a seemingly indefinite period of time.

It was all about the Benjamins mortgages and how easily the payments could be managed. Downpayment became monthly payment in the dialog between buyers and lenders. Lenders reduced underwriting requirements to bare bones, appraisers were encouraged to become form fillers. The lending community came up with mortgage products to stimulate transactions and Wall Street responded, creating a labrynth of tranches designed to move risk around to the right places…except investors ulitmately figured out that few on Wall Street really understood the risk. And then the world changed.

As Jim Grant wrote in Time Magazine (special thanks to “the man who wears shirts that look like graph paper.”):

That is the way great ideas end, not with a bang, not with a whimper, but through reductio ad absurdum. You know investment bankers are not satisfied until every good idea is driven into the ground like a tomato stake.

Here’s a few recent summaries of what happened over this period of mortgage excess that I found particularly interesting.

How Missed Signs Contributed to a Mortgage Meltdown [New York Times] with a very cool chart. Things were moving so quickly but we should have seen it coming.

As far back as 2001, advocates for low-income homeowners had argued that mortgage providers were making loans to borrowers without regard to their ability to repay. Many could not even scrape together the money for a down payment and were being approved with little or no documentation of their income or assets.

In December, the first subprime lenders started failing as more borrowers began falling behind on payments, often shortly after they received the loans.

Reaping What You Sow: Hedge Fund and Housing Bubble Edition [Huffington Post]. This article suggests that a Fed rate cut represents help for the wealthy and not the masses.

Last week we got to watch as the markets went wild with the realization they were over leveraged on bad debt, until Bernanke rode in with a huge bailout, answering a question (and settling some bets) on whether he was an inflation fighter, or an inflationist (he’s an inflationist, and he has now proved it.)

Bloody and Bloodier – The subprime-lending crisis is worse than you think, and could crush financial and real-estate markets for years. [New York Magazine]. Besides sharing dentists, I can empathize with Jim Cramer’s pain as of late. Barron’s Magazine dedicated its cover story to analyzing how wrong his advice has been in his CNBC show Mad Money in the article: Shorting Cramer.

You’re losing money right now. This very minute. You’re losing money if you own an apartment. You’re losing money if you own a country home. You’re losing money if you own a stock or bond mutual fund. You’re losing money if you have a pension plan. You’re probably losing money here or there, you’re probably losing money everywhere (except maybe from your savings account and wallet). But this is no Dr. Seuss story. It’s more of a John Steinbeck tale, and we are the victims, a new generation of Tom Joads, and it’s the damn bankermen who broke us. No, there won’t be a police officer to investigate, and the government, at least this federal government, won’t save us.

Panic on Wall Street [Salon]. It starts with an obligatory blame Greenspan bent but goes deeper.

There is a standard explanation included as a paragraph in almost every story attempting to explain the current turmoil. It goes like this: Anxious to goose the U.S. economy out of its dot-com-bust doldrums, Alan Greenspan and the Federal Reserve Bank lowered interest rates to rock bottom in 2001. The resulting flood of cheap money encouraged an orgy of borrowing at every level of the U.S. and world economies. Whether you wanted to buy a house or a multibillion-dollar conglomerate, lenders were your best friends, falling over themselves to offer you whatever amount of capital you desired — and charging low, low rates of interest. Cheap money led to a growing complacency about risk. If you ran into trouble, you could just refinance your house, or borrow a few billion more dollars today to pay off the billions you might owe tomorrow.

Tags: CNBC, Alan Greenspan, Ben Bernanke, Sub-Prime, Bailout Nation

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With 4 kids, 3 businesses, the Yankees and a lot of things going on in between, I still wonder why I haven’t been reading as many books as I used to. My wife is a voracious book reader, but over the past few years, I haven’t kept pace.

I took on this self-loathing view point after attending Daniel Gross‘ book launch last night for Pop! Why bubbles are good for the economy. I spoke with him at his book launch party last night as well as met Barry Ritholtz, who, along with Dan, are among the smartest and most acessible writers and interpreters of economics out there.

I read a large portion of Dan’s new book on my train commute home. Really good…enjoyable. When I got home, I decided to take a look at my magazine and newspaper subscription list and I realized how large it has become. To examine my list…

I am not including papers I pick up for my commute home including the NY Post, NY Sun, NY Daily News or Newsday, or count copies of Metro or AM New York for the subway.

I am not includimg the 119 rss feeds coming into my bloglines account, the email blasts I subscribe to, nor the sites like Slate, Salon, CNN/Money, Curbed, TheStreet.com, Inman, WashingtonPost.com, SFGate.com (SF Chronicle), Bankrate.com, PIMCO, Forbes.com, Seeking Alpha and quite a few others I like to check in with every day.

Now there are a few on the list that are simply impossible to read everything or I choose not to (namely the New Yorker and The Economist because they are weekly and chock full of stories although I admit I look at every cartoon in the New Yorker.) I definitely don’t read all of these publications front to back. I included non-real estate subscriptions because, well, you never know.

Its apparent that anyone can get so involved in reading news, it could become a full time job. Where’s Evelyn Wood when I need her?

I feel like a sieve, with a slew of these publications going through my brain and the parts that stick, end up in my blog and in my understanding of the real estate market, the economy, and of course, make intelligent picks for next year’s March Madness tourney.

I suspect I am missing a few but don’t have time to check…too many to things to read. Here are the subscriptions I can think of and these are in no particular order.

new york times
wall street journal
barrons
financial times
new yorker
city journal
new york observer
crains
the economist
new york magazine
new york living
time out new york
the real deal
sports illustrated
portfolio
wired
hemmings muscle car
excellence (porsche)
panorama (porsche)
businessweek
american banker
valuation review
real estate weekly
yankees magazine
2 local weekly newspapers

The quantity has cut into my book reading time, that’s for sure. Its a good thing I have invented more time in the day (no time to explain). Suggestions for additions are welcome (no lesson learned from this exercise).

Hey did you hear about that new magazine that came out the other day….?

UPDATE: Here’s a few I forgot to mention:
rolling stone
haute living
new york home
appraisal today
real estate valuation magazine
appraisal journal

Tags: Dan Gross, Barry Ritholtz, Bankrate.com, Forbes, New York Observer

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In Jhoanna Robledo’s article this week: This Man Knows What Your House Is Worth: An appraisal of Jonathan Miller, she does an excellent job covering a dull and boring topic: Me.

Admittedly, I was nervous, wondering how this article would turn out.

When they approached me, the piece was going to be more personal, including interviewing friends from my younger days including Bart Simpson (really! and he happens to be an appraiser) and Woody Wheeler, who was my group leader when I rode my bike across the US in ’76 (Wheeler, really!). A warm thanks to everyone who was quoted.

Fun stuff. But they neglected to include my banged up but beloved HP 12C as a tool, as well as my Mac 17″ Powerbook.

Update: What’s In Jonathan Miller’s Pocket? [Curbed]

Ok, thats enough fun for now. Until the next one, its back to the real estate economy.

Tags: Jhoanna Robledo, Television

6 Comments

Every year I get a little jittery around this time as the anniversary of the events of 9/11 approach. Memories get re-hashed and reviewed, followed by sadness and disbelief, but then followed by amazement at the perseverance.

For me personally, the thought that some nut will do something stupid to get attention on each subsequent anniversary date is always a worry. Last year on the 4th anniversary, I remember thinking that the 5th anniversary (this year) was the biggie. And sure enough, a major plot was discovered and foiled.

I generally don’t read about 9/11 anymore. Its not that I want to forget or am avoiding it, but rather I have been filled to the brim with stories over the past 5 years about the events and directly from people who experienced a loss.

However, New York Magazine does a really good job in this week’s issue, asking the question: [What if 9/11 didn’t happen?](http://newyorkmetro.com/news/features/19147/) where they ask different people for their take. Its a refreshing counterhistory piece.

Each year, I have been asked countless times by various media to provide stats on the performance of the housing market (which admittedly grated me) and every year the market seemed to show resiliancy and strength (coupled with low mortgage payments).

However, for the first time, [I was asked to discuss the real estate market as if 9/11 never happened](http://newyorkmetro.com/news/features/19147/index3.html), which sort of threw me for a loop since I had never thought about 9/11 in this context before. It was incredibly hard to filter out all the emotion and tragedy and simply answer their question.

Basically, I attributed the latest housing boom to the sharp drop in mortgage rates shortly after 9/11. And I don’t just mean New York. Of course, this is not to imply that the phenomenon was a good thing in any way shape or form. I’d trade the housing boom to turn back the clock. But of course, there is no going back and the world keeps on turning.

On a far less materialistic level, whole concept of what was, and what will never be can be pretty sobering.

Phew, this is kind of heavy. Its time for a vacation.

UPDATE: [Jonathan Miller On 9/11: It’s the Housing Boom, Stupid [NYO]](http://therealestate.observer.com/2006/08/jonathan-miller-on-911-its-the-housing-boom-stupid.html)

Tags: New York Observer

3 Comments

Every month, I provide data and analysis for a chart that appears once a month in Crain’s New York Magazine. Here is this month’s chart appearing in this week’s issue of [Crain’s New York Business](http://www.crainsny.com) for what seemed relevant in the real estate housing market at that time. I really enjoy dealing with this publication.

[Please go here for an archive of all Crains’s New York Economic Spotlight charts](https://www.millersamuel.com/charts) that have I done. They are organized by year.

Tags: Crains New York Business

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One of the reasons to love Manhattan is clearly Central Park. New York Magazine asked us to venture a wild guess as to what Central Park was worth in the article [Reasons to Love New York: Because We Wouldn’t Trade a Patch of Grass for $528,783,552,000.](http://www.newyorkmetro.com/nymetro/news/reasonstoloveny/15362/index.html)

So there is no confusion, this is a purely hypothetical, far-fetched, non-scientific wild guess based on so many caveats (and done in about 3 minutes) that reality doesn’t enter into the equation so we are not violating any licensing requirements…got it?

After the dust settled, here’s the math used.

Webmaster’s Note: Its quite possible, and highly likely, that the net value of all of Manhattan would be less after Central Park was developed. A very high level of inventory that might take decades to absorb would be created, but assuming instant absorption, units facing the park would lose their views, proximity to the park would not matter anymore and a cultural and recreational resource would be lost to all homes in Manhattan. In other words, it would likely be bleak on the real estate front.

[Imagine Central Park on the real estate market [The Real Deal]](http://www.therealdeal.net/tools/print_article.php?article_num=/breaking_news/2005/12/19/1135033153.php&article_name=Imagine+Central+Park+on+the+real+estate+market)
[Appraised value of Central Park: $528,783,552,000. Sell! [Curbed]](http://www.curbed.com/archives/2005/12/19/monday_pm_linkage.php)

Update
[Central Park: $528.8 Billion [The Walk-Through]](http://walkthrough.nytimes.com/?p=117)

Tags: Absorption

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New York Magazine had a recent story on the glut of real estate brokers in Manhattan. Like the housing market, there seems to be an endless supply of individuals looking to make their fortune in real estate. Well, it looks like reality is beginning to set in.

Doing the Math (annual):

27,081 brokers in Manhattan
less
20,000 residential sales per year (2 sides x 10,000 sales)
equals
1.4 brokers for every sale per year.

See a previous post, [Out of Commission](http://matrix.millersamuel.com/?p=94)

This is a national phenomenon.

Since the entry into the brokerage profession is relatively simple, the employment should be more reactive to changes in the real estate market as compared to many other professions. Boom in the housing market = surge in brokers.

I have no stats on it, but I suspect the fallout rate, Darwin’s survival of the fittest should correlate as well. However, the large number of drop outs creates more opportunities to enter the profession.

[The Big Picture also posts this chart](http://bigpicture.typepad.com/comments/2005/09/manufacturing_v.html), which was originally [taken from PIMCO](http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO+September+2005.htm). It compares the trend of real estate agent hires versus manufacturing jobs. The chart is misleading since the lines don’t really cross at the “X” because the scales are different, but the trend is apparent, real estate or service jobs are increasing and traditional factory jobs are declining as a percentage of the population.

Also taken from the Big Picture, which was taken from Mike Panzer, [this chart relates membership in the NAR as a percentage](http://bigpicture.typepad.com/comments/2005/04/a_bull_market_i.html) of US total population and total labor force. The trend spiked in the late 1970’s and trended downward until the past few years.

I look at this chart very skeptically. I wonder if the NAR became a more effective organization in the mid-1970’s for such a pronounced jump, almost overnight.

With current membership running at 1.1M members, thats pretty significant, anyway you slice it.

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