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

Click here for full sized graphic.

In David Leonhardt’ page 1 NYT front and center was an awesome chart which shows the trouble the economy is in. Jobs, financial markets and housing – that pretty much sums it up.

Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account.

Over the last year, the number of officially unemployed has risen by 500,000, while the number of people outside the labor force — neither working nor looking for a job — has risen by 1.3 million.

Employment has risen by 100,000, but even that comes with a caveat: there are also 600,000 more people who are working part time because they could not find full-time work, according to the Labor Department.

David’s article is based on the premise that the good times weren’t really of substance. Consumers as a force in the economy were driven by tapping their home equity. Their home equity was increased artificially because of easy credit. Ready credit enabled greater corporate revenues, mergers, etc. which made the financial markets happy.

Without liquid credit markets, employment weakens, housing slips and the financial markets are in turmoil.

Case in point:

The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise.

Although housing is generally considered a trailing economic indicator, it is in sync with jobs and the financial markets.

Tags: Getting Graphic, Commerce Dept, Census

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As I sit an look at how we got here, its apparent to me that no one really has a clue about how we got here in the housing market. Its a “cover my you know what” scenario now, but its really our nature to look on the bright side while its happening and the dark side after its over.

Unbridled optimism got us here.

“The Dark Side of Optimism [Salon] via Naked Capitalism: Why looking on the bright side keeps us from thinking critically,” management consultant Susan Webber argues yes. In her view, “the financial and business communities dismissed all the warnings” about the housing meltdown/credit crunch bearing down upon them because they wilfully adhered to an always-sunny-side-up view of life.

Ok back to reality…

Foreclosed homes that sit vacant are sometimes a better option for homeless because the utilities are still running.

“Many homeless people see the foreclosure crisis as an opportunity to find low-cost housing (FREE!) with some privacy,” Brian Davis, director of the Northeast Ohio Coalition for the Homeless, said in the summary of the latest census of homeless sleeping outside in downtown Cleveland.

That’s not the optimism I was expecting.

Daniel Gross in his Moneybox Column on Slate explores the proposed restrictions on foreclosures. He argues that these actions simply delay the inevitable process of “price discovery“, a process where the market determines a price based on supply and demand.

In other words, the optimism that got the mortgage industry and borrowers in trouble has carried through to the political process, whose optimism will delay getting out of this quagmire.

The carnage in subprime loans has led to a spate of foreclosures. When banks or investors take over properties, they recoup whatever they can by placing it on the market quickly and accepting any reasonable offer.

Foreclosure also has the effect of hastening price discovery on the mortgages on those homes, and on the bonds backing them. Here, again, the impact can be devastating to those who bought the assets with a great deal of leverage. Hedge funds and other institutions sitting on the depreciating debt either had to put up more collateral to maintain their leveraged positions, or dump the assets to raise cash. Bond insurers must increase reserves to prepare for defaults of the bonds they insured. And if the bond insurers fail, the financial firms that purchased insurance from them will have to take their own write-downs.

Optimism is met with an equal and opposite reaction: Pessimism.

Banks are blacklisting condo projects to minimize their damage. Major lenders have created blacklists. This seems like a prudent decision…avoid certain projects to avoid issuing a high risk mortgage. But doesn’t this accomplish exactly opposite by poisoning a local market delaying its recovery and placing performing assets in the market at higher risk?

Warning to developers: this will make it extremely difficult for most buyers to come to close on Miami’s newest buildings.

Unbridled pessimism brings unforseen risks just like optimism does by inserting external forces that fight the natural order of supply and demand.

Of course, there is another way to deal with our natural housing optimism: take a bus and get a boxed lunch on a foreclosure tour.

Tags: Dan Gross, Commerce Dept, Census, Sub-Prime

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One of the byproducts of the credit crunch has been the elimination or drastic reduction in loan products that allow a down payment of 10% or less, the reverse of the trend seen just months ago. People still want to buy homes in the US and will continue to do so.

However, if the national median sales price is about $220,000, that means a down payment increase of $22,000 (ie changing from 0% down to 10% down). If we say the average household income is about $45,000, that adds a few years, not months, to the time it takes to save for a down payment.

Enter the transition period between immediate gratification and saving for a down payment.

We are now entering a transition period that defers a portion of potential purchasers from an immediate purchase until they have the ability to save up for the downpayment. This will keep transaction counts surpressed for the next few years.

In effect, the no money down loan product types allowed homeowners to move the decision to purchase from some point in the future to today. In effect, lenders may have cannibalized future sales to sustain short term loan volume at the end of the housing boom in 2004-2005 (and guess which years of origination have the fastest growing default rates?).

We saw this in the auto market a few years ago. Carmakers offered rebates to encourage sales, but it had the effect of syphoning off a future purchases. I did that. Our car lease had six more months to go but we were solicited to go ahead and get a new car immediately and the old lease would be forgiven, even though we would have leased a car in 6 months anyway. We moved our decision ahead 6 months.

This will have the effect of prolonging weak demand for another few years I would think.

Tags: Commerce Dept, Census

1 Comment

With a stressful week of market gyrations nearly behind us, its a good idea to listen to things that help relieve stress. Of course, I’m sure all Matrix readers are thinking what I’m thinking: there’s nothing better than economic humor.

After listening to the Ten Principles Of Economics by stand-up economist Yoram Bauman last year, I was hooked. As an added bonus, here’s some interesting work by his colleague at University of Washington: Chicken, chicken, chicken, which is what pretty much what I tend to hear every month when the NAR’s existing home sales and the Census department’s new home sales reports are parsed out and over analyzed.

Here’s Yoram Bauman’s latest:

Tags: Commerce Dept, Census

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Last night my eight year old’s basketball team was losing their semifinal game by as much as 9 points in the first three periods. In the final period however, things changed. As momentum shifted towards my son’s team, my son looked over at my wife and I and smiled. He could feel it getting better. They tied up the game at the buzzer and then eeked out a victory in overtime in the final seconds. All the kids on his team contributed and luckily, none of the parents watching needed medical attention when the final buzzer sounded. (Championship game on Saturday.)

What does this have to do with falling mortgage rates later this year? (Well, give me a second and I will figure out something. My son’s facial expressions are still vivid in my mind.)

I think the near term stabilization of inventory and level mortgage rates has got everyone seeing…hoping for a housing rebound on a national level. Many are hanging on to each price stat releases from NAR, the Census Bureau and others wondering if the next announcement will show a hint of optomism. The beginning of some sort of momentum towards a win (see, thats the link to the basketball story).

We have been seeing very optomistic news on the economic front with robust 4Q 06 GDP at a 3.5% pace (just revised to a feeble 2.2%) and the phrase housing rebound has been more popular than soft landing or housing bubble as of late.

In Bill Gross’ Investment Outlook column this month Ten Little Assets he addresses the fact that housing hasn’t been factored enough into the economic picture. As the founder of one of the world’s largest bond managers, PIMCO, his words resonate in the bond market like Greenspan’s still do in the stock market.

What I’ve been saying over and over again on the investment side is that the Fed will cut rates later this year and that their two key criteria will be employment and asset prices. With construction laborers about to hit the unemployment lines and the U rate in jeopardy of rising more than the Fed feels comfortable with, an ease as soon as mid-year may be in the cards. I have a strong sense as well, that mortgage credit availability is in the midst of a cyclical squeeze due to subprime defaults and “better late than never” moral suasion/congressional supervision of mortgage bankers. This should not only continue to floor the housing sector but dampen consumption, as the combined effect of layoffs and Mortgage Equity Withdrawal, “withdrawal” produce a 2% or less real and a 4% or less nominal economy. Those numbers when extended for three or four quarters (which they now have been) are the stuff leading to output gaps, rising unemployment, declining inflation, and an easing in overnight Fed Funds rates.

There has been a considerable change in the federal funds futures index. Until recently, the index was predicting a flat federal funds rate for the remainder of the year. I have been a little more gloomy in this outlook for the past 6 months, based solely on the idea that weakness in the national housing hasn’t made much of an impact yet on the economy. At present, the index shows a 50% probability that the rate will hold at 5.25% and only a 5% chance rates will rise to 5.25%. The balance of probabilities are divided among a 5%, 4.75% and 4.5% rate in June.

I think one of the primary reasons for this is the anticipated (actually, its already happening) credit tightening spillover from the subprime fiasco. Underwriting changes won’t occur overnight but a gradual realization that lending risks are unacceptably high are beginning to influence lending decisions.

Economically, things are pretty subpar, according to the Fannie Mae economist David Berson in his weekly commentary (March 5, 2007).

real economic growth in four of the past five quarters was below 3.0 percent (a pace of growth that most analysts think represents long-term trend growth).  Because of a 5.6 percent surge in growth in the first quarter of last year, however, the growth rate of the economy from the fourth quarter of 2005 to the fourth quarter of 2006 edged up to 3.1 percent.  If the consensus forecast of 2.5 percent annualized real growth in the first quarter of 2007 is correct, then the four-quarter growth rate for real GDP will drop to 2.3 percent — a pace consistent with the trend in the annualized growth path.

Nevertheless, I’m still hoping my son’s team is able to squeak out a win on Saturday.

Tags: Commerce Dept, Census, Alan Greenspan, Sub-Prime

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Here is [the clip of my appearance](https://www.millersamuel.com/press/view.php?V=1169130088dIQVG) live on this morning’s edition of America This Morning on ABC News.

The spot covered the growing role of women in the real estate market. I relied on information from a study by the [National Association of Realtors [NAR]](http://www.realtor.org/research.nsf/htmlarchives/ResearchUpdate021506), [Harvard’s Joint Center for Housing Studies [pdf]](http://www.jchs.harvard.edu/publications/markets/n06-3_drew.pdf) and a recent and very cool page one [New York Times study on census data](http://www.nytimes.com/2007/01/16/us/16census.html?_r=1&oref=slogin&pagewanted=all) and the phenomenon of women choosing to live alone.

Caveat: Of course, live television doesn’t provide time for much detail and it was 4:45 am so I was a bit groggy after getting up at 2 am for the spot. But it was fun and I am very appreciative of the opportunity afforded me by ABC News. Amazingly, they have a full crew at that time of day.

Tags: Commerce Dept, Census, Harvard JCHS, Television, NAR, National Association of Realtors

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Before we get all excited and hope for some sort of near term national housing rebound, please take a look at Daniel Gross’ [A Phantom Rebound in the Housing Market [NYT]](http://www.nytimes.com/2007/01/07/business/yourmoney/07view.html). His [MoneyBlog](http://www.danielgross.net/) is a daily read for me.

Housing market hopefuls were uplifted by the Commerce Department’s 3.4% increase in purchases of new one-family homes. In fact, I grew annoyed because [new home sale stats are very misleading](http://matrix.millersamuel.com/?p=1012) and to place hopes on a housing rebound based such a flawed statistic, is a waste of energy.

The [FOMC](http://www.federalreserve.gov/FOMC/) piled on to the optimism by saying:

“Sales of new and existing homes showed tentative signs of stabilizing, although at levels well below their mid-2005 peaks,” the Federal Reserve’s Open Market Committee said at its December meeting.

Dan’s article points out something that makes the Commerce Department look even more statistically challenged.

If a contract to buy a home, signed in November, is canceled in December, the Census Bureau does not subtract the failed transaction from the number of sales, or add the house back to its inventory total. In the last year, as the housing market has cooled, the volume of cancellations has risen to epidemic proportions.

In fact [NAHB](http://www.nahb.org/) estimated that in November 2006, cancellations constituted 38 percent of gross sales, compared with 26 percent in November 2005 and about 18 percent in the first half of 2005. This means that 150k to 200k homes are being counted that never got built.

In their nearly always pessimistic outlook, but very insightful market commentary by Commstock Partners this week [Don’t Believe the Hype on Housing](http://www.comstockfunds.com/index.cfm?act=Newsletter.cfm&CFID=12464329&CFTOKEN=98986847&category=Market%20Commentary&newsletterid=1284&menugroup=Home), they define the generally inferred housing bottom as a

…a triumph of hope over reality.  Almost everything we see indicates that housing is still in a decline that has further to go.

• Builders continue to report steep declines in new orders
  
• Housing prices do not include non-price incentives and concellations
  
• Underwrtiting standards are tightening (I have to laugh about that – if they increased 5-fold, standards would be much more lax than 5-10 years ago.
  
• State and federal guidances have been issued about non-traditional mortgages
  
• Subprime lenders are going bust.
  

It seems that as far as new home sales go, demand may be less than it seems. Of course before we write off the housing rebound completely, new home sales only accounted for 14.4% of all housing sales (annualized) in November.

Tags: Dan Gross, Commerce Dept, NAHB, Census, Sub-Prime

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Priceless…

I got the idea for this post after trading emails with David Leonhardt of the New York Times the other day as he worked in his interesting Economix column: [The Hidden Truth About Home Prices [NYT]](http://www.nytimes.com/2006/12/06/business/06leonhardt.html) and the companion article [More on Housing Prices [NYT]](http://www.nytimes.com/2006/12/05/business/06leonhardt-side.html?_r=1&oref=slogin)

Its very difficult for most consumers, government officials, academia and real estate professionals to get a real world gauge on how a real estate market is actually doing. Tried and true methods all seem to have some sort of flaw and when a market is in transtion, the changes become even more pronounced. And then throw in the source of the information, with the presence of spin, makes the effort even more daunting. Those covering the market, whether it be Big Media and the blogosphere tend to gravitate towards whatever is released that day.

There are two schools of thought on housing stats:

• Price indexes– These are generally based on repeat sales of the same property over time or an aggregate analysis of housing prices, with some adjusted for seasonal changes and/or inflation.
  
• Housing prices – These results are based on an aggregate summary of the sales that transferred during the period and can be skewed by the mix.

You’ve got producers of indexes telling you that prices are less meaningful, yet users of the indexes often view them as a “black box” and don’t grasp how the information was calculated (do we hear “seasonally adjusted?”) Indexes tend to be created for macro markets because the data set needs to be large. Cycnicism has been a detriment to reliance on indexes.

Those that rely on housing prices tout that they are the real thing yet most resources for housing prices tend to be non-economist types, trade groups and real estate firms, because they tend to be easier to generate and report than an index. There are a growing number of market studies put out in the public domain by local real estate brokers and agents (and of course, appraisers) to try to bridge the gap between the national stats and local markets. However these reports are often limited by the size of the data, limited understanding of what the data really means and are clouded by their intentions.

There are generally four sources of housing stat interpretation:

• Government – namely Commerce/Census/OFHEO
  
• Economists – Chicago Mercantile Exchange (Shiller) and other “Starconomists” like Roubini, Zandi (Moody’s) and others.
  
• Real estate brokerage trade groups and firms – The National Association of Realtors (NAR) is the primary source of information on national housing and local brokerage firms. Regional MLS systems and brokerage firms are the other primary provider.
  
• Online services like [Zillow.com](http://www.zillow.com/), [RealtyTrac](http://www.realtytrac.com/), [ZipRealty](http://www.ziprealty.com/index.jsp) release housing stats but generally don’t provide historical trends to include for perspective.
• Real estate appraisers, consultants and analysts I would fall into this category as well as other housing stats from other markets presented on Matrix. We tend to relay on actual housing prices and interpret them without the trade group or incentivized spin, but its not without its faults either. The data is generally influenced by mix of housing stock that sells so its important that this group bridges the gap between the results and actual conditions.
  

Local, National and Internet:

• National housing stats are reported religiously by nearly all national media outlets yet don’t have a link to local markets. What happens in a neighborhood may or may not comparable to national markets and if the results are consistent, its really coincidence. NAR has touted national housing stats as an argument for real estate as a good investment but it doesn’t reflect local volatility.
  
• Local housing markets tend to have smaller data sets and are more affected by the mix of what sells. They can have a powerful affect on local moods but are often written by marketing departments as public relations pieces for trade groups and firms with a vested interest in the results and how it affects the bottom line.
  
• Internet is an important delivery mechanism for real estate stats, but are often less thought out than traditional sources because many producers of this information don’t have direct real estate experience, but rather have online experience from other industries. This isn’t necessarily a bad thing, because bad habits and bias may not be developed but often, inappropriate uses of month over month stats exagerate certain market conditions.

Pitfalls and/or spins betrays most sources:

• New home sales – Government stat quality is suspect and not necessarily unbiased. You just have to take a look at the widely quoted housing stats like [New Home Sales from the US Commerce Department [pdf]](http://www.census.gov/const/newressales.pdf). You just have to read an excerpt from the October release to see what I mean: This is 3.2 percent (±11.2%)* below the revised September rate of 1,037,000, and is 25.4 percent (±10.0%) below the October 2005 estimate of 1,346,000.
• Median sales price ([National Association of Realtors](http://www.realtor.com)) – There is an emphasis on the national numbers in their series of reports on new and existing home sales. They do break up the country into quadrants, but all real estate is local. They have such an opportunity to gain the public trust but usually provide hard spin to the results and are very inconsistent in the commentary from month to month.
• Sales price index ([OFHEO](http://www.ofheo.gov)) – The median sales price includes refinance data and excludes sales with non-conforming loans (mortgages greater than $400,000).
• Housing price index ([Chicago Mercantile Exchange](http://www.cme.com/)) – Robert Shiller’s repeat sale index lags the market by about 4 months and is targeted towards investors, not consumers. Trading volume is growing but is still too small to really provide a sense of market direction.

Since all politics real estate is local, but reporting of larger data sets is easier but less relevant, its very difficult for the consumer of real estate market information to know what, in fact, the truth is.

At the end of the day, real estate truth is open to interpretation.

Tags: Robert Shiller, Zillow, Commerce Dept, OFHEO, Census, Realtor.com, NAR, National Association of Realtors

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Records are abound lately:

Yesterday at 7:46am EST, the [U.S. POPClock Projection](http://www.census.gov/population/www/popclockus.html) reached 300,000,000 as the estimated US population.

• One birth every…………………………………. 7 seconds
  
• One death every……………………………….. 13 seconds
  
• One international migrant (net) every………. 31 seconds
  
• Net gain of one person every………………… 11 seconds
  

(in fact 12 new borns just now started screaming)

200,000,000 was passed in 1967 – population doubled in 39 years. I find it amazing that the population was 76,000,000 in 1900 – seems huge to me for that period of time.

[Hospitals were having fun with the 300M stat [Chicago Trib]](http://www.chicagotribune.com/news/nationworld/chi-0610180140oct18,1,4018342.story?coll=chi-newsnationworld-hed) as well.

The idea of a growing population seems to be favorable, especially with growing immigration and their influence on the demand for housing. Harvard’s Joint Center for Housing Studies released their seminal [The State of the Nation’s Housing 2006 [JCHS]](http://www.jchs.harvard.edu/publications/markets/son2006/index.htm) early this year which projected favorable demand for housing over the next 10 years.

Over the longer term, household growth is expected to accelerate from about 12.6 million over the past ten years to 14.6 million over the next ten. When combined with projected income gains and a rising tide of wealth, strengthening demand should lift housing production and investment to new highs.

In combination with the 300,00,000 number, Forbes did a study on [The Average American: 1967 And Today [Forbes]](http://www.forbes.com/2006/10/16/demographics-income-population-biz_cx_tvr_1017median.html?partner=daily_newsletter) referring to Mr. & Mrs. Median. The Median’s can’t be seen as average can they?

Mr. and Mrs. Median’s $46,326 in annual income is 32% more than their mid-’60s counterparts, even when adjusted for inflation, and 13% more than those at the median in the economic boom year of 1985. And thanks to ballooning real estate values, average household net worth has increased even faster. The typical American household has a net worth of $465,970, up 83% from 1965, 60% from 1985 and 35% from 1995.

Here’s a great [summary of the Forbes article stats in Big Picture](http://bigpicture.typepad.com/comments/2006/10/the_average_ame.html) by Barry Ritholtz who also comments below.

Although we have more, apparently we are not very happy about it. We suffer from Permanent Income Theory.

Milton Friedman dubbed “Permanent Income Theory,” which assumes that people measure where they are relative to where they expected to be a few years ago. They don’t care a bit what the average income was four decades ago.

“If you expect a 3% rise in income and you get 2.5%, you’re disappointed,” says Ken Goldstein, an economist at the Conference Board, a private research group in New York.

And today, the [Dow Jones Industrial Average exceeded 12,000 for the first time](http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=mktw&guid=%7B474F547A-7647-4950-8ACC-F34E0D845543%7D) breaking the October Jinx of 1929, 1987, 1978, 1979, 1989 and 1997.

However, the new high-water mark also was achieved at a time when many economic reports have pointed to slower growth, and suggested to some analysts that a market correction might be more appropriate. For Barry Ritholtz, president of Ritholtz Capital Partners, the market has been on “a mission to get to 12,000 no matter what the data has been saying.” “But I think there is a disconnect between the market and economic reality,” when you bear in mind that earnings are at their cyclical peak and the economy is slowing.

A recap: There are a lot of us, we are making more money, the stock market is active yet we are unhappy. I must need to buy a new house.

Tags: Commerce Dept, Barry Ritholtz, Census, Forbes, Harvard JCHS

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

[Click here for large graphic [NYT]](http://www.nytimes.com/imagepages/2006/10/02/nyregion/20061003_CENSUS_MAP.html)

Housing costs (mortgage or rental) have risen sharply over the past five years according to new data by the Census Bureau and presented in the article by Janny Scott and Randal C. Archibald called [Across Nation, Housing Costs Rise as Burden [NYT]](http://www.nytimes.com/2006/10/03/nyregion/03census.html?_r=1&th=&adxnnl=1&oref=slogin&emc=th&adxnnlx=1159869635-uQotyeco2pjM7gnTYWUgWQ&pagewanted=all).

The data was collected through 2005 so it does not reflect further rising mortgage costs and rental costs in 2006.

Over the period, there was a large increase in homeowners paying more than 30% of their income on housing. They are not alone. There has been a surge in renters paying more than 30% of their income as well.

Why?

“People want to hang on and stay in the market,” said William H. Frey, a demographer at the Brookings Institution in Washington, “and they are willing to stretch themselves to find or to rent a house that is suitable.”

S. Lawrence Yun, an economist with the National Association of Realtors, said renters in desirable cities might be spending more of their income on housing in hopes of getting a toehold in places with good schools, better homes and a good quality of life. He said, “There is certainly a concern that people are devoting a large portion of their income to housing, and one of the reasons is due to the more limited housing supply.”

Its an interesting dilemma because conventional wisdom says that those priced out of the housing market during the boom, will simply rent and wait for the market to be more affordable, but at the same time rents are rising rapidly as many have the same idea. Here in New York, the rental market is currently doing what the sales market just got through doing.

The most pronounced increases in housing appear to be in urban areas, many of which have been revitalized in recent years but suburbs also showed significant gains in housing costs. In many metro areas, the surrounding suburbs have reached price parity making the move to the suburb one of lifestyle and not of cost savings.

Its possible that certain sales markets may benefit from a rental bounce back as home buyers become discouraged and decide to go to rentals only to suffer further dissappointment when they realize how much rents have gone up at the same time. Either way, its looking more expensive these days.

It certainly makes for the argument of Fed interest rate cuts in 2007 as the economy cools off.

Tags: Lawrence Yun, Getting Graphic, Commerce Dept, Census, NAR, National Association of Realtors

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In David Berson’s weekly commentary this week he discusses how [housing affordability falls as rates and prices increase [Fannie Mae]](http://www.fanniemae.com/media/berson/weekly/index.jhtml).

There is an inverse relationship between mortgage rates/housing prices and affordability. Rates and prices rise, affordability falls. Nothing new here. You have less disposable income to buy other things or you don’t make the qualifying ratios in order to obtain financing.

The NAR housing affordability index measures the share of the median-priced house (as defined as the median price of existing single-family homes sold in the monthly NAR home sales survey) a family earning the median income (as defined by the U.S. Bureau of the Census) can afford at the prevailing mortgage interest rate and using standard underwriting criteria. The prevailing interest rate is the effective rate on loans closed for existing homes from the Federal Housing Finance Board’s Mortgage Interest Rate Survey. The calculation also assumes an 80 percent loan-to-value ratio and a qualifying housing-to-income ratio of 25 percent.

These standards are a little outdated due to the 80% LTV and 25% ratio. There is a significant number of sales that relied on 90+% LTV’s and 33%+ H to I ratios. Ease of financing one of the triggers for the recent housing boom. Nevertheless, affordability was kept in check as prices increased because it was all about the monthly payment and not about the down payment.

What I find fascinating with the chart is the idea that affordability would be virtually the same today as this time 3 years ago had housing prices remained flat. If rates had remained constant, affordability would have dropped over the past 3 years.

In other words, the rise in housing prices is the bigger culprit in declining affordability, not the uptick mortgage rates.

Its an interesting concept because I am often asked what the mortgage rate threshold is before it causes a correction. I have been unable to come up with an answer I am comfortable with and perhaps this is why.

[Note: Berson’s links lasts one week. After 9/6/06, go here and search for his 8/28/06 post.](http://www.fanniemae.com/media/berson/weekly/archive/index.jhtml;jsessionid=M41NEMFNU4ZOVJ2FQSHSFGA?p=Media)

Tags: Commerce Dept, Census

4 Comments

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

[Click here to expand](http://www.nytimes.com/imagepages/2006/08/19/business/20060819_CHARTS_GRAPHIC.html)

With all the buzz about the consumer’s 2/3 share of the economy and housing as the biggest purchase in many of our lives, [we have tended to be housing-centric [pbs]](http://www.pbs.org/newshour/bb/business/july-dec06/housing_08-23.html) in the search through the tea leaves.

Sometimes I think that we can be better informed by looking at other industries for the health of the economy as it relates to the housing market rather than the other way around.

And since I was just in Detroit to visit family, what better way to look at the housing market, than to look at the impact of the auto industry on the economy? Afterall, 1 in 6 jobs is linked to this sector.

Floyd Norris does that for us in his [A Car-Sales Indicator Suggests a Recession Is Near or Already Here [NYT]](http://www.nytimes.com/2006/08/19/business/19charts.html) using census data.

The accompanying chart shows the rate of change in sales by new-car dealers, comparing the most recent 12 months with the 12 months before that; it is adjusted for inflation. The rule — unveiled here for the first time — is that if the figure is down 2 percent or more, a recession is either under way or set to begin within a few months. The figure fell to a negative 2.4 percent when June sales figures were released last week by the Census Bureau.

There is, of course, no mystery now as to what the problems are for car dealers. They are pinched by the slumping real estate market because people can take less money out of home equity to buy cars. And soaring gasoline prices have made driving much more expensive and new-car payments more burdensome. In July, sales at gasoline stations accounted for 10 percent of all retail sales, the highest figure in decades.

We are starting to see warnings from large car dealerships. [This one is from AutoNation [OCR]](http://www.ocregister.com/ocregister/money/economy/article_1251196.php).

The result? Its a double edged sword. An offset, or perhaps not enough of one. Recession means a weaker economy and falling borrowing costs, but it also means layoffs, lack of job growth and more consumer pessimism, which brings more complacency about housing.

Tags: Getting Graphic, Commerce Dept, Census, PBS

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