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The interest in real estate is keeping newspapers seeing black ink. [Note: Paid Sub.] Besides homeowners who have seen the value of their properties rise over the past several years, it is newspapers, specifically classified advertising, that have enjoyed the rise [but the recovery has been slow.](http://business.bostonherald.com/businessNews/view.bg?articleid=99705&format=)

Real estate comprises 1/4 of all classified advertising. [Gains in real estate advertising](http://www.forbes.com/associatedpress/feeds/ap/2005/07/14/ap2139932.html) has possibly masked increased competition from web site listings. Correspondingly, [newspaper stocks have not done well in 2005.](http://money.cnn.com/2005/08/24/news/fortune500/newspapers/)

Could [the intensity of bubble talk](http://matrix.millersamuel.com/?p=76) be more influenced by the thirst for dollars than we give it credit for? Could the media make the bubble a self-fulfilling prophecy?

Tags: Forbes

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A slew of seemingly conflicting, or at a bare minimum, entangled housing related statistics have been released over the past few days. Each statistic is generally covered as the subject of a story rather than combined into one analysis, the results often contradict each other. Here are some headlines grouped by their indicated trends for the month:

Headline Summary – Improving Conditions (sort of):

[Associated Press: Rates on 30 – Year Mortgages Decline](http://www.nytimes.com/aponline/business/AP-Mortgage-Rates.html)
[MarketWatch: New-home sales surge to record 1.41 mln [Note: Reg.]](http://www.marketwatch.com/news/story.asp?dist=nwtpm&param=archive&siteid=mktw&guid=%7B5838221E%2DDB28%2D4F1E%2D93E9%2D64DFC8B507BC%7D)

Headline Summary – Weakening Conditions (sort of):

[Wall Street Journal: Economic Data Send Mixed Signals [Note: Paid Sub.]](http://online.wsj.com/article/0,,SB112488615798321755,00.html?mod=djemTAR)
[New York Times: The nation’s long housing boom appears to be losing steam.](http://www.nytimes.com/2005/08/24/business/24econ.html)
[New York Times: Rents Head Up as Home Prices Put Off Buyers](http://nytimes.com/2005/08/25/realestate/25rent.html?hp&ex=1124942400&en=973467168b71e01d&ei=5094&partner=homepage)
[Wall Street Journal: Rise in Supply of Homes for Sale Suggests Market Could Be Cooling [Note: Paid Sub.]](http://online.wsj.com/article/0,,SB112381117394311632,00-search.html?KEYWORDS=rise+in+supply+of+homes&COLLECTION=wsjie/archive)

And The Trend (This Month) Is…

Existing home sales are far greater than new sales so their decline, coupled with rising rents and expanding inventory would appear to indicate a leveling off of the market. But then again, these are July stats, an historically slow period of the year for housing sales, and next month is expected to be more of the same.

What The Real Estate Economy Really Needs:

[Washington Post: More Cowbell!](http://www.washingtonpost.com/wp-dyn/articles/A46074-2005Jan28.html)

…sorry, it was late when this was posted.

1 Comment

[As the yield curve flattens](http://matrix.millersamuel.com/?p=28), that is the spread between long term rates and short term rates is negligible, homeowners are considering making the move from ARM’s to Fixed mortgages [Note: Paid Subscription].

As the supply of fixed mortgages increases when people shift from ARMs because of the flat yield curve, it could mean upward pressure on mortgage rates (ie bond prices down, yields up). Why borrow at a rate for 1 or 2 years when you can have the same rate for 30 years? The effect of the shift in the market is greater in moving from ARM to fixed since roughly 70% of fixed rate mortgages are securitized and 25% of ARM’s are.

But wait! There’s more potential confusion.

The demand for mortgage-backed securities from foreigners is still strong since their yields provide a greater return for investors than treasury notes generally do. Higher demand, means higher bond prices, means lower yields, means long term rates could stay at low levels for a while.

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A humorous article was contributed for today’s NYT Op-ed Section on what else?: Bubble? What Bubble? The piece made me chuckle and stirred a lot of discussion. But now Bubble-speak has really gotten out of hand.

Source: [NYT]

The usually staid and conservative [Wall Street Journal used “Bubblicious” [Warning: Paid Subscription]](http://online.wsj.com/article/0,,SB112482310401420773,00-search.html?KEYWORDS=bubblicious&COLLECTION=wsjie/archive) in an article today.

Economists believe that such bubblicious markets could see home prices fall.

And this quote linked to an another well-written article using the jargon [Bubble-Metrics: Economists Handicap Housing Markets [Warning: Paid Subscription]](http://online.wsj.com/article/0,,SB112474611480519927,00.html?mod=article-outset-box)

Bubblicious? Bubble-metrics? I think we have gone from simple concern to plain giddiness.

Here are some rational thoughts of bubbleosity:
[The Bubble in Bubbles](http://bigpicture.typepad.com/comments/2005/04/the_bubble_in_b_1.html)
[Real Estate’s Wall of Worry](http://bigpicture.typepad.com/comments/2005/08/anyone_can_spot.html>)

Comments Off on Bubblicious? OMG, Give It A Rest!

Well, maybe thats a little harsh. Is it just me or is [economic data released each month](http://www.truthpizza.org/logic/stats.htm) alternating between panic and calm? A lot of information is being thrown at us and its got me worried.

Over the past several months, the economy has seemingly see-sawed between improvement and decline. A lot of it has to do with [revising previously released stats by the Department of Labor.](http://www.dol.gov/dolfaq/go-dol-faq.asp?faqid=98&faqsub=Consumer+Price+Indexes&faqtop=Statistics&topicid=6)

The [factors that are used to seasonally adjust the data](http://www.bls.gov/cpi/cpisaqanda.htm) are updated annually. Also, seasonally adjusted data that have been published earlier are subject to revision for up to 5 years after their original release.

The first thing I want to (really) understand is seasonal adjustments. I am very wary of their use because the methodologies used by the [Bureau of Labor Standards seem complicated and not fully explained.](http://www.bls.gov/cpi/cpisaqanda.htm) There does not seem to be a standard technique or a way of verifiying their validity.

Now we have concerns over the auto maker data which is important since it is a significant component of core inflation. Prices of cars in June rose 1.5% after a 1% fall in May [despite aggressive discounting by automakers [Note: Paid Subscription]](http://online.wsj.com/article/0,,SB112428088507015510,00.html?mod=djemTAR).

As quoted in the Wall Street Journal…

But the advance in auto prices appears to be inconsistent with the aggressive discounting by auto makers over the past few months.

Another stat bash involves [petroleum data [Note: Subscription]](http://www.marketwatch.com/news/story.asp?siteid=mktw&dist=nwtwk&guid=%7BD24A6E8A%2D30C7%2D4592%2DB54B%2D07372BA4EA73%7D) which is one of the major factors of CPI.

As quoted in the MarketWatch…

The oil market has always been volatile, but there’s one constant that reliably drives prices one way or another: the weekly reports on U.S. petroleum supplies.

With many home-buying consumers on economic pins and needles and a blind faith in government statistics, there should be concern that we are all getting more accurate information.

Go to sequel to this post [Lies, Damn Lies, And Government Statistics: Part II](http://matrix.millersamuel.com/?p=68)

Tags: Pizza

Comments Off on Lies, Damn Lies, And Government Statistics: Part I

According to this article from the Real Estate Journal [Note: Subscription], condo prices exceeded single family home prices for the first time ever in early 2005.

Condo Facts
* Condos leapt to prominence after the 1961 Housing Act enabled the [FHA](http://www.investorwords.com/1904/Federal_Housing_Administration.html) to insure mortgages on the units.
* 970,000 condos were sold nationwide in 2004
* 1 out of 7 existing home sales are condos
* national median condo sales price is $223,500
* national median home sales price is $218,600

Why are the overall condo prices higher than houses?

With the resurgence of urban areas and a decline in “nuclear” families (40% in 1970 to 24% in 2000), condos have increased in demand.

Areas of Concern
Now there is concern that the change is more than demographics, that [condo prices are rising too fast [Note: WSJ Subscription]](http://online.wsj.com/article/0,,SB112433219383716375,00-search.html?KEYWORDS=behind+zooming+condo+prices&COLLECTION=wsjie/archive) as a result of speculators and investors favoring them over housing.

With great investor concentration in condos, could infer that the single family housing market has the potential to be less volatile in a market down turn.

Tags: FHA

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Yesterday, the Bureau of Labor Statistics released the CPI figures for July and while core inflation was relatively flat, energy and housing saw large gains. The concern was that oil was threatening to fan the flames of inflation. [The PPI Report](http://www.bls.gov/schedule/archives/ppi_nr.htm#2005)

A day later that concern seemed a bit exagerated as…economists expressed little concern [Note: Subscription] that the higher prices producers are paying signal broad inflation.

Economists also pointed to Tuesday’s consumer-price report, which showed a modest 0.5% advance in July, with the core rate increasing a benign 0.1%.

In addition, the producer-price index for intermediate goods rose 1%, largely because of energy-cost pressures, and the core intermediate index fell 0.1%, the third consecutive monthly decline.

[What is the Producer Price Index?](http://help.econ.census.gov/econhelp/glossary/#P) In other words, CPI measure price changes to the buyer while PPI measures price changes to the seller.

[Rising oil prices appear to be slowing economic growth](http://www.abc.net.au/news/newsitems/200508/s1440234.htm) and placing investor concerns of inflation at ease for now.

Economic stats seem to be more volatile than ever. For example, core cpi would have been even lower had it not been for the rise in auto prices, yet this does not correlate with recent record auto sales due to aggressive discounting. Economists have long complained about the reliability of auto sales and later revisions. Accounting for about one-sixth of US jobs, so the impact of these stats affects the reliability of the overall numbers significantly.

What does all this mean? Many believe the Fed has at least 3 more increases in it before the end of the year. This doesn’t seem to mean that mortgage rates are bound to increase.

Tags: Commerce Dept, Census

Comments Off on Well, Maybe The Inflation Threat Is Not That Bad After All?

The recurring theme across the US is an increase in the number of sales and sales prices. NAR’s existing home sale report saw a record pace in the number of sales. West Virginia drew top honors with the largest gain in sales activity over the past year.

In addition to volume, housing prices have been rising nationwide. [Condos seem to be leading the way in Massachusetts [Note: Subscription]](http://www.masslive.com/business/republican/index.ssf?/base/business-0/1124178866282500.xml&coll=1).

Around the country housing prices and exist-home sales are setting records or near record levels but the rate of appreciation seems to be easing across the country.

Regional articles: [Wisconsin](http://www.madison.com/wsj/home/biz/index.php?ntid=50766&ntpid=1)
[Minneapolis](http://twincities.bizjournals.com/twincities/stories/2005/08/15/daily17.html?jst=b_ln_hl)
[California](http://www.rednova.com/news/general/209083/southern_california_home_prices_rise_to_new_record/)
[Southern California](http://www.latimes.com/business/la-fi-homes16aug16,0,762231.story?coll=la-home-business)
[Wisconsin](http://www.jsonline.com/homes/buy/aug05/348904.asp)
[Upstate New York](http://www.uticaod.com/archive/2005/08/17/news/7168.html)

Tags: Existing Home Sales, NAR, National Association of Realtors

Comments Off on What Else is New? Existing-Home Sales Hit Records, But…

According to the US Census, the average size of a house in the US is 2,349 square feet, up almost 300 square feet from 1990. We are seeing larger homes coming into neighborhoods called Faux Chateaus [Note: Subscription] or McMansions [Note: Paid Subscription].

Its not just the size thats increasing in new construction, more amenities are being added.

This trend tends to overshadow pricing in the housing market. Larger housing skews the overall market statistics, both median sales price and average sales price, so the rise in prices would be overstated.

Tags: Commerce Dept, Census

Comments Off on Supersized Housing With More Amenties

What is the Beige Book and why is it Beige? Prior to 1970 it was red and not intended for public reporting. Perhaps the color was not considered neutral enough for economic reporting – beige seems to be about as neutral as you can get. In 1983, the Beige Book became a public report.

More digging to do on the latter, but here’s the latest…well, not exactly hot off the presses¦Federal Reserve: Beige Book–New York–July 27, 2005

Basically, economic expansion is now more moderate than earlier this year, including retail sales and labor costs and productivity. It is interesting that one of the items that has kept mortgage rates (long term rates) in check for so long has been the fact that productivity has outpaced economic growth. As a result, large corporations have been more likely to refrain from hiring new employees. The limited growth in employment has kept long term rates in check as investors are less concerned about the threat of inflation.

Construction and real estate were robust across the region, but the rate of price increases has slowed. This doesn’t mean prices are falling, it means that the rate of appreciation is slowing.

Tags: Beige Book

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According to a WSJ.com article, some sellers are cutting prices on their luxury homes. Since this sector has been the target of new development for several years, it follows that the luxury market would see less of a “froth” than the balance. Unfortunately for developers, the luxury sector sees the highest margins.

Anecdotally, I think that media coverage of high end sales has probably induced sellers to out price the market. In other words, list prices saw greater appreciation than sales prices. I would expect to see an increase in negotiability and an expansion in marketing times in this sector until supply is absorbed.

However, I don’t hold out much hope for that as mortgage rates saw steady gains over the past 6 weeks.

Tags: Bankrate.com

Comments Off on Some Sellers Cut Prices On Their Luxury Homes

Mortgage financing standards continue to ease in order for lenders to stay competitive. According to an article in the Wall Street Journal the lending risk has been rising along with the rapid escalation in prices.

What is interesting to note, is that standards are easing for investors as well. The NAR reported 23% of all home sales were by investors in March 2005 while First American tracked 9.86% for the first 4 months of 2005. The First American figures are likely to be low because they don’t include second homes. The spread between these two figures suggests that the secondary home market is significant.

Easier access to financing, keeps the churn going. However, the danger is that the combination of leverage and easy access to funds, combined with rapid price escalation, adds potential volatility to the market.

Live by the sword [financing],
Die by the sword [financing].

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