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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.

Greenspan gives a speech in Hong Kong [NYT] and mentions the r-word (recession) as being a possibility in the US and the following day, after just reaching a record, the Shanghai Composite Index corrected sharply (but its up today) [WSJ].

Notice how Greenspan still carries more weight than Bernanke in terms of an immediate market reaction after a speech?

Combine this phenomenon with the coincidence that Freddie Mac announces more restrictive parameters for subprime lending (sorry, 3rd consecutive day of talking about subprime), durable goods orders shows weakness and all of a sudden, the Dow Jones Industrial Average is falling 400 points, aided by a glitch in computerized trading.

Thats quite a sequence of events for anyone to process. However for perspective, thats a 3.29% drop in the DJIA index, only 4.4% from its record high and yet it still remains above 12,000. I don’t want to sugar coat the drop because it is still a large drop, but on Black Monday, September 19, 1987, the index dropped even more. It fell 508 points but it fell from 2,500 and nearly 23% of value was erased in a single day. Quite a different senario than 3.29%. I remember being in Kansas City visiting friends on that day in 1987 thinking I was out of business. Real estate was over. (Of course I had that same feeling on September 11, 2001).

Warning – statistical aside: Every day, the rise and fall in the DJIA is chronicled in thousands of nightly newscasts. The other day the quote went something like this (I am embelishing here just a little bit):

Stocks slid 5 points as investors grew skittish about the price of rice in China and the growing political clout of left handed orthodontists…

Thats 5 points of a total index of about 12,600 points at that time or a .0004% drop. This is more akin to a rounding error and not an indicator of anything, anymore than an increase of 5 points would be. I think the consumer sees these points as percentage and reads more into subtle changes than they should simply because no perspective is provided. Its like looking at existing home sale trends as a benchmark for a local real estate market. The DJIA is merely a list of major companies that may or may not reflect the overall stock market (sound familiar?).

ok, I am back from the aside.

I was listening to a group of real estate panelists at a luncheon yesterday as the stock market was falling. At the end of the panel, a question came from an audience member that went something like this:

Now that the stock market has fallen moret han 400 points today, what will be the impact on New York City real estate?

The answer given was essentially no affect but the question seems a little dramatic at this point. My mindset is usually oriented to the trend is your friend.

However, it does raise the point that perhaps the conventional wisdom of a continued improvement in the US economy is more tenuous than has been cheered for as of late. In the fall, I was drifting toward the belief that the economy was headed for a recession. My worries have lifted somewhat but I don’t carry the same optomism that the stock markets seem too.

Housing should ultimately provide more of a drag on the economy. I don’t think the impact of the slowdown has had adequate time to fully flow throw the economy. Honestly, its been a challenge to me personally to keep euphoria in check, when commenting on national trends given the better real estate conditions enjoyed in New York as compared to other parts of the country.

What does this stock market drop mean for the real estate economy?

I am not entirely sure. However, if the underlying economy doesn’t change significantly and more people become more risk averse, we may see more movement to saftey like we did yesterday as people move from stocks to treasuries. Treasury prices would go up, and as a result, yields would go down. As yields go, so do mortgage rates, helping temper growing damage caused by foreclosures and limiting the future effects of tightening underwriting guidelines.

All this from a Greenspan speech in Hong Kong. Just imagine if the speech was given at halftime during the Superbowl?

Tags: Getting Graphic, Alan Greenspan, Ben Bernanke, China, Sub-Prime

Comments Off on [Getting Graphic] Speeches, Stocks And Safety

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

In the December 2006 issue of Finance & Development, the quarterly publication of the International Housing Fund, there is an exellent series of graphs that illustrated the The Slowdown in Global Housing Markets.

Source: International Monetary Fund

I have always been interested in the notion that housing markets in industrial nations (on a macro level) seem to move in sync yet we (me) always downplays the meaning of national housing statistics in the US. On the other hand (thinking out loud), national housing stats are often used incorrectly to define a local market, which is not what we are referring to with the market stats of other industrial countries.

I would chalk up the consistency between countries as being influenced by low global interest rates (except Japan [WSJ]). Housing is a lagging economic indicator and followed the influence of low interest rates.

Also, actual price levels achieved in the nations tracked in the studies exceeded fundamental factors used to predict them. This suggests that fundamentals as a measurement tool are incomplete, or that a global housing bubble is indicated. I’d probably go with the former since fundamentals are a topic I touched on last week.

Previous housing market cycles in the United States have been associated with vastly different economic outcomes. In the 1979 cycle, real house prices fell, and consumption, residential investment, and GDP growth all slumped. Of course, economic conditions then were very different from those today: real interest rates were very high, as was the unemployment rate. The 1987 housing cycle was associated with a limited growth impact, and the IMF forecasts that the current housing cycle will do the same for 2007 growth. But there are downside risks. First, the slowing in house price appreciation could be more pronounced than expected—a drop in prices cannot be ruled out. Second, the wealth effects of slower house price growth on consumption may now be larger than in the past because of the greater exposure of households to asset price movements.

Tags: Getting Graphic

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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 graphic [NYT].

In Vikas Bajaj and Christine Haughney’s article [Mortgage Applications Up as Home Buyers See a Break in Rates [NYT]](http://www.nytimes.com/2007/01/09/business/09home.html?_r=1&oref=slogin) shows how mortgage applications are trending up as mortgage rates have trended downward since last year. This is a good thing, and while rising mortgage rates are what tripped the off switch of the housing boom engine, falling mortgage rates won’t flip with switch back on.

True, mortgage rates have brought people back into the market who were on the fence, and have helped people refinance at a favorable rate, but the effect on monthly payments pale in comparison to the difference in price levels versus affordability in many real estate markets across the country. The housing boom had gone on so long and with such intensity that the momentum in price appreciation became disconnected with affordability, helped along by the mortgage industry’s weakening underwriting standards.

Don’t get me wrong, low mortgage rates are a good thing, its just not the only thing that needs to happen for the national market to be strong across all 50 states. And I don’t agree with one of the quotes in the article. I don’t think mortgage rates are going to rise all that much, if at all this year (but honestly, who knows this?) if the national economy continues to slip. In fact, I think that if mortgage rates really were expected by many to rise later this year, refi and purchase volume would spike in much larger numbers.

This isn’t happening, reflecting a bit of the national economic malaise that is setting in.

Tags: Getting Graphic

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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 graphic [NYT]](http://www.nytimes.com/imagepages/2006/12/09/business/20061209_CHARTS_GRAPHIC.html)

[Home equity lending volume has dropped off sharply [NYT]](http://www.nytimes.com/2006/12/09/business/09charts.html?n=Top%2fNews%2fBusiness%2fColumns%2fFloyd%20Norris&_r=2&adxnnl=1&oref=slogin&adxnnlx=1165950795-mrLYt7UGSjOQTYoLnBh1sQ) over the past two years, prompted by the rise in short term lending rates.

The Equity Paradox: Although housing prices have steadily risen for the past 25 years, so has mortgage debt as a percentage of property values.

One of the by-products of the housing boom and the wealth effect as it relates to housing has been the change in borrower psychology. The first two items are logical and expected reasons why mortgage debt has grown:

• purchasers financing higher housing prices
  
• homeowners refinancing their homes
  

However, the acceptance of greater debt as a way to fund consumer lifestyles has been the new development on the housing front in recent years:

• the increased willingness to use home equity lines of credit to finance other purchases. This has been the true legacy of the recent housing boom.

Many economists worry that further weakness in the housing market, particularly if it leads to an outright drop in house prices, could shrink home equity and lead consumers to pull back in the months ahead.

In the article [Home Equity Down, While Household Net Worth Is Up [REJ]](http://www.realestatejournal.com/buysell/markettrends/20061211-conkey.html?refresh=on) the fundamentals for consumer spending are good right now but consumer borrowing is dropping.

the Fed said consumer borrowing decreased by 0.6% in October, the largest monthly drop in 14 years. “In the grand scheme of things, households are stepping back a bit and being more conservative,” said Daniel Jester, an economist at Moody’s Economy.com.

As the economy weakens in 2007, one of the reasons is likely due to the pull back of consumer spending that was previous funded by homequity loans. A drop in interest rates may help temper the economic damage by preventing these borrowing costs from rising. However, its most important for the economy to ween itself off of debt dependency. Thats seems like only a remote possibility over the next several years. Once its part of our psychology, its probably tough to shake it loose.

I have got a lot of holiday shopping to do in the next few weeks, I sure hope my house can afford it.

Tags: Getting Graphic

Comments Off on [Getting Graphic] Equity Paradox: Its Not How Much You Are Worth, Its How Much You Can Borrow

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

The [UCLA Anderson Forecast](http://www.uclaforecast.com/), which painted a real doom and gloom projection for California last year which did not happen (yet), has now released its current projections for the economy.

They were among the first economics group last year to declare the housing market in a bubble [have changed their position to say that housing won’t decline significantly anytime soon [LA Times]](http://www.latimes.com/business/la-fi-ucla28sep28,1,1800483.story?coll=la-mininav-business).

In its widely watched quarterly outlook to be released today, the UCLA Anderson Forecast reiterates earlier projections that the deteriorating housing sector will slow state and national economic output and job growth through 2008. Although it doesn’t rule out a recession, it doesn’t expect one.

Absent a recession, it reasons, homeowners would rather hold than sell into a deteriorating market. Unless a job loss forces a sale, many homeowners would rather stay put than sell for less than the high they recall some neighbor getting last year.

“Expect home prices five years from now to be about the same as they are today, though lower in real [inflation-adjusted] terms by 15%-20%,” the forecast said.

Based on the fact that the west coast has the highest housing prices, the highest loan to value ratios (biggest mortgages), this is quite surprising and perhaps infers more optomistic (less pessimistic) outlooks for other regions of the country.

Basically the reports say that a decline in housing will be obtained through stable prices that are adjusted for inflation, not a crash.

Housing starts are projected to drop 30% next year. UCLA says its going to be [homebuilders, not home owners [SDJ]](http://www.sdbj.com/industry_article.asp?aID=64062042.7486536.1369966.7947308.6237233.672&aID2=105373), that are going to be hurt.

Tags: Getting Graphic

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

[Click here for full graphic [WSJ]](http://interactive.wsj.com/documents/info-fedparse0609.html).

Inspired by Greenspanspeak, and transitioning to Bernankespeak, the Wall Street Journal continues a well-executed tradition of graphically interpreting what the Fed really means.

[The official press release [FOMC]](http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060920/)

While there are some lingering concerns about inflation, the reduction in energy prices seemed to appease them but left open the option for further increases. For the second straight time, there was one board member casting a descenting vote for another 25 basis point increase, something that didn’t happen under Greenspan’s watch.

From their observations, it appears that they are acknowledging a weakening housing market by reducing the word “gradually” from the housing comment made in August. (see bold).

September Statement

The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.

August Statement

Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

With the state of the nation’s housing cooling rapidly, I am thinking that the FOMC may actually drop rates by their December meeting. They appear to have overshot their target by underestimating the effects their 17 rate increases on the housing market’s impact on the economy.

_August Statement Analysis_
[Cooling Economy Makes FOMC Stop [Matrix]](http://matrix.millersamuel.com/?p=791)

_June Statement Analysis_
[FOMC Makes It 17 at 5.25% And Seems to Get It About Housing [Matrix]](http://matrix.millersamuel.com/?p=723)

[PIMCO: Biggest econ risk is U.S. housing [Businessweek]](http://www.businessweek.com/ap/financialnews/D8K8N2B00.htm?campaign_id=alerts)

Tags: Getting Graphic, Alan Greenspan, Ben Bernanke

Comments Off on [Getting Graphic] FOMC Goes Number 2, Mirroring The Housing Market

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

This week, there are a series of charts found in Northern Trust’s US Economic & Interest Rate Outlook: [We Agree With Fed Staff- Six More Quarters of Below-Potential Growth [pdf]](http://www.northerntrust.com/popups/popup.html?http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0609/document/us0906.pdf)

The [Federal Open Market Committe](http://www.federalreserve.gov/FOMC/) [minutes from the August 8 meeting](http://www.federalreserve.gov/FOMC/minutes/20060808.htm) indicated that from the current quarter through the end of 2007, the committee believes that economic growth will be less than its potential. Northern Trust anticipates a rate cut by the FOMC in December will be needed keep the economy from slipping into recession. This will have the affect of tempering the downward slide housing market with lower mortgage rates.

Here’s a sample of charts that relate to the housing market prices.

The following charts indicate how important the housing market is to the economy as represented by its relationship to gdp, personal income and equity withdrawal:

Tags: Getting Graphic

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[Getting Graphic] Bay Area Change In Home Prices Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

[Click here for full analysis [Econbrowser]](http://www.econbrowser.com/archives/2006/09/house_prices_st.html). Econbrowser developed some interesting charts from the [OFHEO housing data](http://www.ofheo.gov) just released.

[Click here for full graphic [Washington Journal]](http://www.washingtonmonthly.com/archives/individual/2006_09/009444.php) via [[Brad DeLong]](http://delong.typepad.com/sdj/2006/09/its_a_great_mar.html).

The first chart shows median housing price changes over the past year (2Q 05 to 2Q 06) and the second chart shows median earnings since 2000. Admittedly different time frames but it provides an interesting comparison. No rocket science here but for the most part, changes in income sort of correlate to changes in housing prices.

Tags: Getting Graphic, OFHEO

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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 graphic [NYT]](http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif)

Here’s a pretty intimidating chart on housing prices over the past 116 years adjusted for inflation by noted economist Robert Shiller. I missed this chart when reading my copy of the New York Times but luckily [I caught it in Curbed](http://www.curbed.com/archives/2006/09/05/curbed_roundtable_september_state_o_the_market_report.php).

Its a pretty wild chart but something doesn’t seem right. Or is it? Matrix readers, can you share your thoughts?

Tags: Robert Shiller, Getting Graphic

8 Comments

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

Floyd Norris makes the brilliant but simple comment:

IF you raise prices enough, people will stop buying.

in his article [In Housing as in Most Things: What’s Up the Most, Falls the Most [NYT]](http://www.nytimes.com/2006/08/26/realestate/26charts.html?_r=1&n=Top%2fNews%2fBusiness%2fColumns%2fFloyd%20Norris&oref=slogin).

I have always pictured the US as the cross section of a boat. When the water gets choppy (such as a housing boom or bust) the east and west coasts move up and down more than the center of the country. Well, this past housing boom has proved to be no exception.

Home sales as a percentage, have generally fallen further on the coasts than they have in the Midwest. In other words, areas that saw the largest jump in housing prices during the boom, are the same areas that are seeing the largest drop in home sale activity. A realization seems to have set in that was lacking before: price levels were pushed beyond affordability before buyers realized it.

This drop in activity is caused inventory levels of existing single family homes to swell. On a national level inventory has generally ranged from 2 to 2.5 million homes. With the drop off in demand, home inventories are nearly at 4 million.

Tags: Getting Graphic

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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 graphic [NYT]](http://www.nytimes.com/imagepages/2006/08/24/business/20060824_ECON_GRAPHIC.html)

Well, sort of.

One of the long used investment arguments for the housing market has been the idea that housing prices have never declined in the modern era. This shouldn’t (but it does) suggest that prices don’t decline. Its a play on statistics.

This month, three of four national regions saw a drop in median sales prices and all regions saw sharp drops in the number of sales. This is still is a play on statistics since I would guess that housing prices in many of the three regions (all but the South) are not falling, but rather, the mix of units has changed. This is not to say they won’t, but I don’t get the impression that sales prices (not list prices) are actually falling on most actual transactions based on current media coverage.

Its also interesting that national inventory absorption now takes 7.3 months versus 4.6 months a year ago.

Perception-wise, its going to get interesting if the South stops holding everyone else up. Market psychology/mob mentality is a fragile thing.

Tags: Getting Graphic, Absorption

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