Matrix Blog

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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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]](http://www.bankrate.com/brm/news/fed/main-dec06.asp).

They do seem to be [raising more warnings about the housing market [WaPo]](http://www.washingtonpost.com/wp-dyn/content/article/2006/12/12/AR2006121201391.html) 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]](http://online.wsj.com/documents/info-fedparse0601.html) 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]](http://www.federalreserve.gov/boarddocs/press/monetary/2006/20061212/)

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]](http://www.latimes.com/business/la-fi-fed13dec13,1,1222060.story).

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]](http://www.thestreet.com/_tscs/markets/marketfeatures/10327514.html)

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.

Tags: Bankrate.com, Alan Greenspan, Ben Bernanke

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

When I bought my first house a number of years ago, It was all about the down payment. Young people would scrimp and save for years to get enough for a down payment and even then, it was rarely 20% down, so the lender would require PMI insurance.

PMI insurance covers the risk on portion of the 20% on top that is exposed. A 10% downpayment would mean that PMI would cover the 10% that was replaced by a mortgage rather than the downpayment. In other words, the borrower pays a non tax-deductible fee, to cover the additional risk by the lender, although in reality, the lender has already considered the extra risk in the rate that the borrower qualifies for. It stretches the borrower, who is already stretching to make the mortgage payment. In other words, its unfair to the consumer and unnecessary.

But I digress…

That young couple who had struggled to get together the downpayment then hoped that values would rise so they can shed their PMI payment once their home equity reaches 20%.

But today, the [piggyback mortgage [MND]](http://www.mortgagenewsdaily.com/892005_Piggyback_Loans.asp) has been one of the catalysts for the housing boom in addition to low mortgage rates. The borrower can essentially finance a large portion of the down payment with a second mortgage at the time of purchase. This allowed people to afford homes in high priced areas. Now its all about the monthly payment.

The private mortgage insurance industry has reportedly [lost 40% of their market share [Bankrate.com]](http://www.bankrate.com/brm/news/mortgages/20050303a1.asp) to piggybacks.

But now Wall Street is concerned. In Kenneth R. Harney’s [Piggybacking Onto Trouble [WaPo]](http://www.washingtonpost.com/wp-dyn/content/article/2006/07/07/AR2006070700013.html) he states:

As of July 1, the most influential ratings agency in the mortgage arena, Standard & Poor’s Corp., has upped the ante for lenders who seek to fund piggyback deals through capital market financings. The move is likely to raise interest rates and fees for some home buyers this summer, say mortgage experts, and could reduce the volume and availability of piggyback programs overall.

Piggy back loans are likely to become more expensive, which will further weaken demand, and probably have more impact on higher priced housing markets which traditionally see higher LTV’s like the northeast and the west coast. In some markets like California, piggybacks accounted for 60% of all new loans.

But why all the fuss?

S & P found that piggyback loans were 43% to 50% more likely to go into default. Thats because piggy backs are usually tied to adjustable mortgages and mortgage rates have been rising.

Financial regulators are supposedly issuing new guidelines to require lenders to pull back on these loans as well as [payment-option loans and interest-only loans](http://www.consumerreports.org/cro/personal-finance/risky-home-loans-805-home-loan-equity-information-fixed-rate-loan/overview/) because of the unseen risk they present to the housing and financial institutions.

While its good to have regulations and guidelines on this loan product, I am not so sure piggybacks are much worse than private mortgage insurance in he grand scheme of things. I think the real issue here is that this is a relatively new mortgage product that ran amuck in the housing boom and simply needs to have more controls in place.

Tags: Bankrate.com

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Here’s a container of links that didn’t ship.

• [Innovative architects turn used shipping containers into homes [SFGate]](http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2006/06/16/carollloyd.DTL)
  
• [‘Undervalued’ Town Lacks Buyers; Economists Fail to Predict Prices [REJ]](http://www.realestatejournal.com/buysell/markettrends/20060616-hagerty.html?refresh=on)
  
• [The Millionaire down the Street Was Right, But Now What’s in Store for Real Estate? [Wharton]](http://knowledge.wharton.upenn.edu/article/1498.cfm)
  
• [Should real estate brokerage markets be regulated by the government to make them more competitive? [Economists View]](http://economistsview.typepad.com/economistsview/2006/06/real_estate_bro.html)
  
• [Sellers are liars [Inman]](http://www.inman.com/hstory.aspx?ID=53273)
  
• [Will we see a half-point rate hike? [Bankrate.com]](http://www.bankrate.com/brm/story_content.asp?story_uid=19078&prodtype=chksav)
  
• [Softer data probably wouldn’t matter [MW]](http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BEDAA137E-E7DD-492C-BAA1-19DE34E46BC1%7D&siteid=google)
  
• [Cities are hot again [CNN/Money]](http://money.cnn.com/2006/06/15/real_estate/return_to_cities/index.htm)
  
• [Even foreclosure hawks hurt by sagging real estate market [Mercury News]](http://www.mercurynews.com:80/mld/mercurynews/news/local/states/california/northern_california/14849093.htm)
  

Tags: Bankrate.com, local market knowledge

Comments Off on List-o-Links: Values, Sellers, Rate Hikes

The Texas Rangers play on Ameriquest field but 1/3 of their employees were terminated today [WaPo] raising concern whether the sub prime lender can continue. Hat tip to Bankrate.com. Frankly, with mortgage volume down significantly, I’d see this more as a cost cutting move.

The founder of Ameriquest was recently nominated to be Ambassador to the Netherlands by President Bush which brought additional scrutiny and could have added to the probability that the firm would be investigated and fined.

The parent company of Ameriquest Mortgage Co., the mortgage lender that this year reached a $325 million settlement with regulators and prosecutors over allegations of predatory lending practices, yesterday announced a reorganization that will shutter all its 229 retail branches and lay off 3,800 employees nationwide._

More than 240,000 borrowers will receive compensation from the settlement to make up for losses they suffered after getting loans from Ameriquest. The company also agreed to make major changes in how it does business.

Frankly, the extent of the settlement makes me wonder how they can overcome the stigma of such activity, and how the founder can represent our country. Its interesting how things worked out. I would imagine the regulators are watching Ameriquest closely. I don’t see how you can pay that kind of settlement and have much of any safeguards in place for future abuse or be able to change the corporate culture quickly enough.

With rising mortgage rates, and declining application volumes, there will be some cost cutting in store for all lenders and real estate related employment. Still, other job opportunities remain [BW].

Tags: Bankrate.com

Comments Off on Mortgage Job Outlook Weakens: Amerquest Penalty Larger Than Rangers Payroll

In the [Fed’s ‘Beige Book’ Finds Continued Economic Growth [WSJ]](http://online.wsj.com/article/SB114244896962699143.html?mod=home_whats_news_us) article, Economic activity “continued to expand” in most of the U.S. Federal Reserve’s 12 regional districts in January and February and employment strengthened, but labor costs and retail prices remained under control, the Federal Reserve said Wednesday.

The Fed said that business contacts “generally reported ongoing input cost pressures,” with energy prices “mentioned frequently.” However, those pressures didn’t appear to spill over into consumer prices, with the Fed stating that “prices at the retail level increased at only a moderate rate.”

Here’s the [Federal Reserve summary [FRB]](http://www.federalreserve.gov/Fomc/BeigeBook/2006/20060315/default.htm)

The Fed’s rate-setting Federal Open Market Committee is due to meet March 27-28, with analysts expecting new Fed Chairman Ben Bernanke to oversee a quarter-point interest rate rise to 4.75 percent. Job creation and other economic data in recent weeks have been strong and many [economists expect rate hikes this month and again in May to keep inflation risks under control [Reuters]](http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-03-15T200346Z_01_N15211337_RTRIDST_0_ECONOMY-FED-BEIGEBOOK-UPDATE-1.XML).

In other words, they painted a picture that the optimal Goldilocks Economy: Not Too Hot, Not Too Cold still seems to be in place. Since the next FOMC meeting at the end of this month may be one of the last two rate increases, which could take pressure off of the housing market by stabilizing mortgage rates. Its still a Catch-22 however, because the expected rate increases will keep inflation in check but inflict more damage on the housing market, which has the potential for more significant economic damage as a result.

It sure seems like the Fed goes two rate increases when it comes to housing. Obviously, thats not their sole focus but in this situation, it would appear to be more important than ever.

Both long term and short term rates have upticked lately tempering volume and has cause a reduction in the number of sales and tempered or caused a decline in housing prices in many markets.

_Of interest_
What is the Beige Book and why is it Beige? [Economically Speaking, Its Beige [Matrix]](http://matrix.millersamuel.com/?p=16)

Tags: Beige Book, Bankrate.com, Ben Bernanke

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Its been a busy day…here are a few stat links of interest:

• [The Conference Board Consumer Confidence Index Rises Again [CB]](http://www.conference-board.org/economics/consumerConfidence.cfm)
  
• [Graph the trends: See how rates have changed over time [Bankrate]](http://www.bankrate.com/brm/graphs/graph_trend.asp)
  
• [Mortgage Application Volume Survey [MBA]](http://www.mortgagebankers.org/news/)
  
• [Intended Federal Funds Rate [FOMC]](http://www.federalreserve.gov/fomc/fundsrate.htm)
  
• [Effective Federal Funds Rate [Fed Reserve]](http://research.stlouisfed.org/fred2/series/FF/118)
  
• [New Residential Sales in December [PDF]](http://www.census.gov/const/newressales.pdf)
  
• [Gross Domestic Product 4th Quarter 2005 [BEA]](http://www.bea.gov/bea/newsrel/gdpnewsrelease.htm)
  

Tags: Commerce Dept, Census, Bankrate.com

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Many markets have a primary industry that influences their respective housing industry. In Redmond, its Microsoft; [in Detroit, its the Big 3 [Detroit News]](http://www.detnews.com/apps/pbcs.dll/article?AID=/20051204/BIZ/512040341) and in [Manhattan, its financial services and their associated bonus income [NYT]](http://www.nytimes.com/2006/01/12/business/12bonus.html?pagewanted=print). Wall Street accounts for roughly 6% of the city’s jobs and 20% of its personal income. Bonuses typically account for more than 50% of personal income in much of the sector. Its always played a significant roll in the real estate economy, good or bad.

When the New York State Comptroller announces the bonuses paid every year, its already old news. Most people know, or have a sense of knowing by the second or third week of December how much their bonus will be.

There has been a lot of discussion about whether this year would be different, that Wall Streeters would not invest, despite the record bonus money that would be paid out.

• Would Wall Streeters use it to buy real estate?
  
• Does the fact that the bonus money was more concentrated at the upper echelons mean that only upper end properties would be sold?
  

Early indicators point away from the naysayers, but the jury is still out. Most of the CEO’s of the Manhattan based real estate brokerage firms I have spoken with indicated that they saw a surge in sales activity starting immediately after Thanksgiving, a few weeks before the bonus amounts would be known. Our firm saw a significant up tick in the number of sales that we appraised in October and a surprising number of $20M+ purchases were made.

My first reaction was that this was simply pent-up demand from two consecutive quarters of fewer transactions than we saw in the first half of the year. I expected the the number of sales to drop off after the first of the year.

Wrong.

We are seeing an elevated level of sales activity across the board, not just at the high end. Its not clear if this is a short term blip or not. [Long term mortgage rates have been trending down since mid-November [Bankrate]](http://www.bankrate.com/brm/news/mtga/20060112a1.asp), possibly setting the stage for a more favorable real estate mindset in the first few quarters of 2006.

However, don’t expect an official announcement about that.

[Webmaster’s note: I’ve been a little light on the number of posts I have presented over the past few days. Its all Inman’s fault. I have been [attending the Inman conference](http://www.inman.com/connectny/ny.aspx) this week and its really been refreshing. I enjoyed being there for no specific reason other than a lot of new ideas and products, great information and a whole lot of smart people (self excluded). I’ll be back on track Tuesday, after all, its a long weekend. jm]

Tags: Bankrate.com, Wall Street Bonus

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In the Lewis and Parrish article [Economic Addiction [Barron’s]](http://online.barrons.com/article/SB113538482375331002-search.html) their premise is that “for decades, desparate people have turned to 12-step programs to overcome their addictions to alcohol, drugs, overeating or even sex.”

The question facing incoming Federal Reserve Chairman Benjamin Bernanke is how many steps will it take to recover from an addiction to easy money?

“Like many addictions, America’s current problem came from the overuse of a good thing, in this case monetary stimulus. Like many addictions, its consequences pervade all aspects of daily living, as prolonged low interest rates are reflected in rising inflation, the frothy — if not bubbly — housing sector and the low savings rate. And like many addictions, the self-destructive behavior has been facilitated by enablers, in this case the traders and investors in the bond market.”

They contend that the bond market is tempting the Fed to ignore warning signs of inflation. The Fed has limited options if inflation does appear because of such low rates. They content that Bernanke, because of his “inflation targeting” will be more focused on inflation than Greenspan.

The authors suggest that [energy prices will affect core inflation [MarketWatch]](http://www.marketwatch.com/news/story.asp?dist=nbk&param=archive&siteid=mktw&guid=%7B6C28BDBE%2DCF78%2D47AF%2D9083%2D2766079F2ACF%7D&garden=&minisite=) and housing too.

Higher housing inflation is a certainty: Owners’ occupied-housing costs, nearly 30% of the core consumer-price-index basket, are calculated using rents, which are moving up as higher rates dampen the ownership boom.

Thats an interesting take and a bit gloomier than I would have thought. While rents are likely to move up as mortgage rates rise, mortgage rates have been largely docile for the past two months. The authors seem to assume that housing prices must fall if they are not rising, with no option for more modest increases or even a sideways move. The dramatic metaphors make for an interesting read as well (just mention sex in the same sentence as economics and I pay attention).

This all or nor nothing stance has been one of the characteristics of the housing commentary and media coverage which has been more pronounced than in the last cycle.

Tags: Bankrate.com, Alan Greenspan, Ben Bernanke

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In the article: [Americans looking to Mexico for real estate [Bankrate.com]](http://www.statesman.com/business/content/business/stories/03/5mexicorealestate.html) 1.5 million Americans own real estate there. Values have tripled in the past 5 years, outpacing the US housing market.

However, foreign buyers pay premiums such as 30% down or financing through Mexican banks at 15% or more. Some US banks are starting to offer financing but the laws are different in Mexico providing more risk.

“[Development was spurred by skyrocketing real estate prices in the USA [USAToday]](http://www.usatoday.com/news/world/2005-11-30-baja-boom_x.htm?csp=N009) and changes to Mexican laws in the wake of the 1994 North American Free Trade Agreement (NAFTA) that encourage foreign investment and make purchasing beachfront land easier.”

In Baja, a 1500 SqFt house costs in the mid-$200k range.

I would suspect that demand for properties across the border would ease if demand in the US eases. Although the financing costs are higher in Mexico, [the actual values are far lower [WSJ]](http://online.wsj.com/article/SB113529348368429901-search.html?KEYWORDS=housing&COLLECTION=wsjie/6month) which is a lure for US buyers.

Tags: Bankrate.com

Comments Off on Retirement With No Borders, Its A Mexican Land Rush!

The Mortgage Bankers Association (MBA) today released its [Weekly Mortgage Applications Survey](http://www.mortgagebankers.org/news/2005/wk1221.asp) Their findings for the weekending December 16th were as follows:

• Purchase Index down 5.2% from prior week
  
• Refinance Index down 1.6% from prior week
  
• Refi Market Share was 41.7% up from 40.2% in prior week
  
• Average 30-year Fixed Mortgage Rate was 6.22% down from 6.28% in prior quarter
  

Mortgage rates have been generally trending down slightly since the second week in November which is expected to stimulate modest sales activity in early 2006.

Tags: Bankrate.com

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How would you like to be buried upside down in someone’s backyard?

In Anna Bahney’s article [The Tricks of the Trade in Coping With Slower Sales [NYT]](http://www.nytimes.com/2005/12/11/realestate/11selling.html?emc=eta1&pagewanted=print) real estate brokers are now being more creative in marketing property as buyers and sellers adapt to the slower pace of sales. At the end of the day, properties are selling, just not at the brisk pace seen earlier in the year.

My grandmother had used a St. Joseph statue to sell her house, not sure where she got it but apparently [there is a whole cottage industry behind the concept. [Catholic Company]](http://www.catholiccompany.com/product_detail.cfm?ID=3531) A number of years ago she convinced many of her friends to use it with great success I was told.

[Here are some instructions for proper use [Bankrate].](http://www.bankrate.com/brm/news/real-estate/20040831a1.asp)

When I went to sell my home, she gave me a statue but I could not bring myself to use it. …of course my home sold slower than expected. 😉

Tags: Bankrate.com, St. Joseph, luck, superstition, Catholic Supply of St. Louis Inc.

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