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Posts Tagged ‘PHSI’

Confidence Has Left The Building

March 26, 2008 | 1:14 pm | |

Guess what? People don’t feel as good with their lot in life when the value of their house falls. What a concept. Professor Shiller wrote a position paper on the Wealth Effect which tied the power of consumer spending more closely to housing than stocks.

The Conference Board released their index and it has reached the level seen only during recessions. It is at its lowest level since 1973. Incidentally, I remember walking to school in 1973 (I wasn’t old enough to drive or shave) seeing long lines at the pump and the conventional wisdom said there was only 20 years remaining for oil.

The S&P/Case Shiller Index has only one market area showing positive price growth yoy (New Yorkers: remember that CSI excludes condos from it’s metro price calcs) – Charlotte, NC and the declines across their other 19 markets are growing and some are approaching 20%. My former firm Radar Logic will be releasing their monthly report next week and I expect it to say show something similar.

OFHEO, which is scrambling to remain relevant, has converted to monthly releases to compete with the CSI index. OFHEO shows prices for January were off 3% from a year earlier. OFHEO uses a similar methodology to CSI but only tracks conforming mortgages. The current threshold is $417,000, which severely underrepresents certain higher priced housing markets on the east and west coasts. I’ll have to look into how OFHEO is going to track housing stats after September 1 when the temporary conforming mortgage loan limits increases to a max of $729K. Also, it is important to only look at their purchase index since they, for some unexplainable reason, include refinance market value estimates in their data as well. We now know that appraised values during the housing boom were systemically inflated.

Of course this negative news is offset by the NAR press release (which is patently misleading) covering existing home sales:

One bright spot is that falling home prices may be beginning to spark buyers’ interest. The National Association of Realtors said earlier this week that sales of existing homes rose in February.


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Housing Fantasy Is The New Reality Television

March 12, 2008 | 11:56 pm | |

Housing has long been viewed as an emotional investment. Along with the housing boom of the past 5 years, there has a been a boom in reality television shows. My first obsession was This Old House when Bob Vila was host.

Housing has morphed into a national obsession. No surprise there.

Take a look at this week’s television schedule for HGTV.

If we aren’t watching people decorate, we are watching them, sell, buy and flip houses.

This AP story I came across in the Washington Post called Real Estate Cold, Real Estate TV Hot seems to defy reality. Ratings are very high.

Given the downturn in many real estate markets across the country, I am struck by the dated nature of the reality show title “Flip This House”.

  • Are people still flipping?
  • Will buys consider a flip with so much excess inventory?
  • What banks are providing investors financing these days…reality shows???

The irony here is that housing reality shows have become housing fantasy shows.

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Housing Market Depreciates The Politics Of Future Expectations

November 14, 2007 | 11:34 pm | |

Whatever your political persuasion, the housing industry is moving through politics like a freight train these days.

And why not? Housing is a key source of employment, wealth, taxes, consumer spending and personal identity in the US. The cynic in me strongly believes that the average citizen votes with their wallet. Well, the wealth effect associated with a weaker housing could make for a higher voter turnout next year (ok, ok thats a “glass is half full” political forecast).

Andrew Leonard’s The politics of home price depreciation in that addresses the subject.

A key idea in the article is that the exurbs (beyond the suburbs) have been the bastion of new housing development championed by the current executive branch, yet those areas are among the hardest hit by the housing market slowdown. This housing-politics link resonates with me because of all the recent politics associated with housing:

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The Problem With NAR Forecasting Is Not Temporary

October 25, 2007 | 9:51 pm | |

In the New York Times article today Reports Suggest Broader Losses From Mortgages indicates that employment levels will be impacted from the job losses associated with problems in the mortgage industry. So now we have, lower levels of mortgage production, lower levels of construction and lower levels of consumer spending.

I guess thats why federal funds futures are indicating a 70% probability that the Fed will cut rates at their next meeting by 25 basis points.

Since August, Lawrence Yun, Chief Economist of the National Association of Realtors, has kept characterizing the mortgage and credit market problems as temporary. Every month, as the blogosphere continues lament the loss of his predecessor, David Lereah, Mr. Yun has been able to continue the tradition of reality distortion and he does not disappoint.

Temporary? Relative to what? Will mortgage problems continue on forever? Of course not. Merrill Lynch reported an $8B loss due to mortgage related problems today. National lenders are having difficulty selling paper to the secondary market investors. Will this problem go away in a few months? I don’t see how.

If we relied on Mr. Yun’s use of the word temporary and heeded his advice back in August and September, credit market issues would have long been resolved. For next month, here are some alternatives to the word temporary. I vote for fugacious.

I have long lamented how NAR has missed its golden opportunity to gain the trust of the consumer as being the authority on the housing market, despite the fact that they are a trade group. Rather than leveraging the wealth of information at their disposal, they provided comments like this:

“Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans,” he said. “The good news is that mortgage availability has markedly improved in recent weeks with interest rates on jumbo loans falling, and more people are applying for safer and conforming FHA mortgage products.

The quote attempts to parse out problems with the mortgage markets from the timing of contract and closing dates. Elements of the statement are correct, but out of context, and ultimately paint an inaccurate picture.

Speaking of disconnect, did you hear George Carlin’s comments on The View about the fires in southern California regarding people losing their homes?

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[Chip Shots] Relocation Appraisals Love ‘Em Or Leave ‘Em

July 14, 2007 | 6:59 pm |

[Alvin “Chip” Wagner III, SRA, IFA, SCRP is third generation appraiser from Chicagoland who is a public figure and well respected within the appraisal industry. Along with his business partner, Bob Headrick, they run the firm [Headrick-Wagner Appraisal Group](, which has been providing appraisal, consulting and research services throughout the Chicagoland market for more than 35 years. I met both Chip and Bob through [RAC (Relocation Appraisers & Consultants)]( When I met Chip in the late 1990’s we both spoke together at a national conference about our appraisal web sites, both among the first in the country. I have learned a lot from Chip and I am thrilled to use his firm’s market stats on my Matrix blog and post his Chip Shots column on Soapbox. Like me, he has an enthusiasm for market analysis.

In this week’s Chip Shots column, Chip lays out the discipline of relocation appraising, and its within spread (inside joke).
…Jonathan Miller

Okay, my recent posts have been negative, my own personal gripes. This week I’m going to talk about relocation appraising, something I love. If you are a “good” appraiser, you should love this type of work too.

I specialize in corporate relocation appraisals. This is a niche in the residential appraisal profession when a corporation or the government transfers one of its home-owning employees. Two appraisals are averaged together to form a buyout offer to purchase the home of a corporate transferee. There is a different definition of value called “Anticipated Sales Price.” The appraiser is asked to provide a prospective value into the future, a reasonable period up to 120 days. The appraiser is asked to provide an as-is value and make market-driven adjustments based upon the decorating and appeal of the home. The appraiser is asked to analyze three competitive listings in addition to closed sales. Pending sales that can be confirmed are encouraged to be used. They are asked to analyze the supply and demand, inventory levels, as well as marketing time (days on market). The appraisal principle of substitution is a key concept especially in the competing listings. “Why would a buyer purchase the property you are appraising for more than its competition?” is a question that is often asked of a relocation appraiser.

In a nutshell, it is the epitome of all residential appraisals. These concepts are not found on the 1004. The main reasons are because of the low tolerance for inaccuracy and cycle times, the fact that a peer appraiser is involved on every assignment, and a specially trained reviewer scrutinizes every last word you write.

Transferring America’s employees has been around since the 1950’s, and is a billion dollar industry for Realtors, appraisers, home inspectors, moving companies, mortgage companies, attorneys, relocation management companies and the corporation’s human resources department.

It is difficult to find your way onto an approved list to do relocation appraisals. Once you find client(s) that entrust you to do relocation appraisals, you better perform and meet their cycle times if you wish for repeat business.

The industry is tight, and clients typically seek out the best of the best. They keep track of your appraised value and what the property eventually sells for, and accuracy is a must to remain on the list.

When accepting and completing a relocation appraisal, you agree to cooperate by answering questions a client may have about your report. Some examples might be: “The other appraiser says the subject has 2 fireplaces, and you only note 1 fireplace. Could you reconfirm?” That is an easy one.

Or another example might be: “Your appraisal and the other appraisal both have a shared comparable, and you state it has a remodeled kitchen and make an adjustment, yet the other appraiser does not mention it.” If you did your research properly, that should be an easy one as well.

Sometimes it is: “could you expound on your Forecasting and Market Change adjustments.” That gets a little bit trickier – especially if the other appraiser does not agree with you.

I like this niche because it is recession proof and keeps me busy throughout the year. When the real estate markets go south, the importance of accurate relocation appraisals goes up.

Many appraisers do not like this type of work because of the frequent communication with the client and mandatory cycle times. Others do not like being measured against a “peer” appraiser’s work (probably because they have quality issues). Others cannot accurately appraise the properly (we are graded on what the home eventually sells for). And others have told me “they take too long to do” (there is a learning curve with the new form and what is expected).

It is definitely more work, as the report has extensive sections for narrative writing, and every appraisal needs three competitive listings and three comparable sales gridded. Photos of every room are needed. An adequate description of the home’s interior condition and décor/appeal is required along with suggestions as to what the client may need to do to competitively market the home. The additional work approximately is double the time of accurately completing a URAR, and the fee you charge would also be approximately double.

The volume of this type of work is going to vary from region to region. The major metropolitan areas with corporate presence are likely to have a high volume of job transfers for home-owning employees. The smaller markets may have limited volume of this work.

Many appraisers often ask me how to get into relocation appraising. I was fortunate as I was born into it (literally, my father had been doing this type of work since the middle 1960’s).

My advice is to first join the Worldwide Employee Relocation Council (ERC is the trade association for the relocation industry); take classes if possible (the ERC has an on-line appraisal course); train with an experienced relocation appraiser if possible (most appraisers do not want to train their competition); and make it known that you are available to do this type of work. My biggest referral source is Realtors who are listing these properties often refer appraisers that they know that specialize in relocation appraising).

Getting involved with the ERC will let you know who the clients are that order these types of appraisals. Getting involved includes reading their monthly magazine called Mobility, attending their conferences (they have an annual Spring convention every May), and earning the Certified Relocation Professional (CRPTM) designation from the ERC.

For more information on relocation appraising, visit the website of the Worldwide Employee Relocation Council and the Relocation Appraisers and Consultants.

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Looking In The Mirror: Speculative Stock And Housing Markets

March 15, 2007 | 9:29 am |

Here’s a pretty interesting comparison of two recent asset busts by Greg Carmwell in Goldseek called Housing: Game Over.

Of course its always easier to look in the rear view mirror.

Dot and Tele Com
* Public Participation: Enormous numbers of day traders.
* Borrowing: Huge margin debt and massive corporate spending on technology.
* Fraud: Illegal IPO allocation, fraudulent accounting, and now back dating of stock options. Just think of Enron and Worldcom.
* Questionable Supply: Junk companies going public in which most of them failed.
* Crash: NASDAQ dropped 80%.

* Public Participation: Large numbers of condo flippers and investor/speculators.
* Borrowing: Extraordinary amount of mortgage lending much of which is highly risky given the repayment terms and interest rate risk.
* Fraud: Widespread appraisal fraud and false information provided on loan applications encouraged by shady mortgage brokers. Massive accounting irregularities by Fannie Mae and Freddie Mac.
* Questionable Supply: Massive numbers of condo conversions of basic apartments and a large amount of new condo construction.
* Crash: Housing prices are falling rapidly in areas that have experienced great appreciation, inventory is exploding, and new home sales have dropped 25% from its peak.

Housing markets that had significant investor activity don’t speak for the entire housing market not unlike assuming NASDAQ stocks behave like NYSE stocks. Still, its pretty interesting.

Actually, his points made about housing wouldn’t be as digestable without the recent disclosures of the widespread fraud and lack of understanding of risk by sub-prime mortgage investors.

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Zipping It Up: Taking Sides On Housing

November 2, 2006 | 8:58 am | |

As we zip up our jackets for a long winter, national housing stats released over the last two weeks have shown weakness, finishing up with NAR’s [Pending Home Sales Index [MW]](pending home sales index), which showed a 1.1% drop from the prior month and a 13.6% drop from the prior year in the number of contracts signed.

Rather than merging together opinion (hint: using the zipper analogy), economists’ interpretation of the housing slowdown’s impact on the economy has been relegated to two different camps and the void between them is growing (sort of like the disconnect between buyer and seller right now):

The pessimistic view:
The housing downturn will dry up equity withdrawals causing consumers to pare back their spending and since the economy is 70% consumer based, this spells trouble next year – in other words, a recession.

The less pessimistic view (not to be confused with the optimistic view – still trying to find it as of post time):
Total net worth is more important than housing net worth. Business will take the baton and some of the pressure off the of consumer, thereby tempering the economic downturn.

According to [Cross Profit](
(1) a housing recession has begun
(2) the housing markets are likely to remain weak for an extended period of time
(3) the overall economy should be able to avoid a full-scale recession but below-trend economic growth is likely to persist through late 2007
(4) the Federal Reserve is likely to ease in the spring or summer of 2007

The “two camp” phenomenon has applied to economists covering the overall economy as well. Liz Rappaport writes in her [Between Goldilocks and Recession []](

In light of Wednesday’s weaker-than-expected manufacturing and construction spending data, a slew of economic indicators that began with Friday’s 1.6% reading of GDP have pushed traders and economists into distinctive camps: Those who believe in the soft landing are on the defensive, while those who’ve called for recession all along are feeling rather prideful and puffed up.

Yet there is even some discussion that lower economic growth this quarter suggests higher growth in coming quarters. As Caroline Baum, in her article [Economy Robbed Peter to Pay Paul? I Doubt It [Bloomberg]](

Why? I know of no law of nature — or economics, for that matter — that says growth is a fixed pie, to be divvied up among quarters on a random basis. According to that logic, growth stolen from one quarter shows up in the one that follows. A strong quarter borrows growth from the subsequent one, which is destined to be weaker.

Housing, like the economy, is not a zero sum game and both sides won’t agree on housing’s ultimate impact on the overall economy or vice-versa, so…zip it.

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[Matrix Zeppelin Series] utter desperation, Madden Curse, collapse city, anonomous wolves, sales are way off, listen to the CEO’s, parallel universe, blink first, entry barrier, fierce competition, stretch to buy, WAY south

October 6, 2006 | 2:36 pm | |

A lot of grumbing about the economy and real estate brokers this week (that isn’t hot air) as well as some carry over on the herd mentality discussion last week. Here’s a few notable comments from the Matrix Zeppelin:

  • Concerning the issue about the media and the herd mentality – There is no question in my mind that the media helps create a mindset that pushes the trend to the extreme. I am a regular reader of Last year, they ran a regular series of articles called “Mogul in the Making” that show cased how some average person (like a fireman or a housewife) was making big bucks in real estate. The articles mostly made you feel like you were missing out if you were not investing in real estate. During that time, never once did I see an article about someone’s home not selling. Now, they run an article about once a week called “Help – my home won’t sell” and showcase someone who had high hopes of a quick sell and it’s just not happening. The articles are written to show utter desperation on the part of the seller. In the “hot” market, I know of homes that sat on the market for months, and I now know of homes that have sold in a matter of days (I am in Atlanta). Once a trend starts, the media shows no balance at all, which in turn helps drive the “herd” to the extreme.

  • The funny thing about Herd Mentality (and something that Wall Street veterans know) is that going in other direction can be much more profitable. I look at Money Magazine cover stories and I think of the Sports Illustrated Curse. If you’re younger than 25, you may also know this as the Madden Curse. Anyway, I am envious of homebuyers in the market right now. Not only are mortgage rates the lowest that they’ve been in 6-8 months, but sellers are fearful of not being able to sell. Low rates and low prices — an excellent buying situation.

  • I would hate to be in a fox hole with Ms. Corcoran. Her suggestions have panic written all over them. If I were interested in her clients home I would know beyond a shadow that they were in “collapse city” mode. Maybe some creativity and good old fashion overtime would help. Problem is these sellers have signed up for a closing as quick as possible evidently. Buyers lick your chops. It’s time to unleash the capital now that everyone is locking down.

  • [re Curved: Three Cents Worth] Holy Crap did you get thrown to the anonomous wolves! I love that when one person voices their opinion openly, it is criticized by those unwilling to stand by their opinion with their name. At least I like the graph… Good job.

  • I don’t see why anyone would be envious of buyers when affordability is at an all time low. The fact that sales are way off in an environment of low interest rates and solid employment reveals just how far prices are from sustainable.

  • I think the key point that needs to be highlighted is that the July numbers were revised significantly lower than previous. If you go with the original July numbers Aug would be lower. My guess is they will futher revise the Aug numbers lower once all the new construction cancellation factors in. One just needs to listen to the CEO’s of Lenar, Toll, etc on what the market is doing.

  • I’ve thought since this spring the short term rates would be falling simply as a corrective response to Greenspan paranoia. The inflation he was constantly fighting simply didn’t exist, at least to the extent he wished us to believe. The economy has been absorbing all the ‘extra’ money supply. What I’m really eager to see is how the Fed responds to $45 oil, becuase it appears it’s in our near future. Will they call the positive economic response inflationary? If so, we’re in trouble again. Sometimes I think the Feds live in a parallel universe.

  • So whats it going to be. Are owners going to blink first or buyers. Will it be a soft landing,or will prices continue to decline gradually over a long period of time? I have a question for every owner trying to sell their apt in manhattan. Can they afford to buy their apt today for the price they are asking. Do they have the cash available for the down payment, do they have have the income necessary to service the mortgage debt. I bet the answer to this question by most sellers would be no. So what makes them believe that someone else out there can?

  • It is unfortunately true that the entry barrier for real estate brokers is very low, especially in New York. I have always found it odd that one of the toughest real estate markets in the world has such low qualification requirements for its professionals. Good news is, Department of State has decided to raise the bar. If there is no change in plans, as of January 2007, the number of hours required for licensing as well as continuing ed will increase. Although it is not quite sufficient to bring the industry standards to the necessary level, it is a start.

  • Thanks for posting this. I am seeing articles on line that indicate that new agents had it easy and will be the first to leave when things get tough. This business has never been easy. New agents had fierce competition because there are so many of us. Some of the experienced agents are the ones the coasted through the boom years and they may have trouble. They were so busy they did not take the time to learn new skills. They will wake up and realize that if they can’t use a computer they may be in for a rough ride.

  • I’m surprised the number of people in NYC spending 30% of their income is so low. I certainly spent more than that when I lived on Avenue A. On a side note, I will suggest to the NYT that Boulder and College Station, where nearly 50% of renters spend 50% of their income are both home to large public universities, so the incomes may be skewed. As one who now manages a portfolio of workforce housing communities across the midwest and south, we’re noticing a nice uptick in occupancy and a gentle increase in rents. We don’t operate in markets like DC, where the ‘conversion’ fad removed a large portion of the managed rental stock (as opposed to investors who will rent individually), so rents are rising because of demand, not a lack of supply. That said, I don’t agree with Mr. Frey that people necessarily stretch to rent as much as they stretch to buy. I think they rent where they feel safe, find attractive amenities, and can make their rent payments without unreasonably stretching.

  • If inflation continues to be a concern (as it is now, accorsing to fed statements), the Fed cannot cut rates. If it does, long rates will rocket up, making refis impossible. If inflation plummets and allows the Fed to cut rates, that means the economy is heading WAY south next year. I see no good outcome here.

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Trulia Power Panel Plays Hardball With Darts

September 22, 2006 | 6:59 am | | Public |

Having two posts about [Trulia](/ this week is almost as bad as the [Zillow launch]( when every blog on the planet (including Matrix) posted about them until everyone became physically ill.

With that riveting insight out of the way, [I was asked to participate on a “Power Panel”]( where a diverse group of industry experts, insiders and watchers will periodically come together to share their perspective on real estate issues facing consumers.

The premise of the panel is to predict the results (or make a wild guess) of a pending data release (in this case, [NAR’s existing home sales]( and give some quick thoughts about it. The comments about the stats were of most interest me.

This exercise reminds me of the Wall Street Journal’s “Darts versus Pros” where a group of experts picked the direction of a portfolio of stocks and were are up against a journalist, who simply threw darts at a stock index table hung on a wall. It usually went about 50/50 but it could get ugly.

I hope I don’t embarrass myself on Monday when the results are posted, but then again, you should see me play darts.

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Housing: Giving A Hard Look At A Hard Landing

September 18, 2006 | 7:17 am | |

If you are in a bad mood or are looking to stop drinking coffee, here’s a scary summary of the national housing market by [Comstock Partners]([Commstock]( via [WSJ]( pointed out by [Barry Riholz]( of [BigPicture]( I hate to simply present the list again but is a summary of the state of the housing market based on national statistics thats a little disturbing. Each item on its own can be explained but the combination paints a more powerful picture.

Whats important to realize is that the stats are national and represents the worst elements of different markets. You can pick out specific examples of [stats on the list that are hyped]( but even after doing that, the numbers presented in total are a concern (are you reading this Ben?) and builds the argument that we are in the midst of a hard landing.

Warning: viewer discretion is advised (its nationally orientated so it doesn’t apply to all markets).

  • 32.6% of new mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000.
  • 43% of first-time home buyers in 2005 put no money down.
  • 15.2% of 2005 home buyers owe at least 10% more than their home is worth.
  • 10% of all home owners have no equity in their homes.
  • $2.7 trillion in loans will adjust to higher rates in 2006 and 2007.
  • 70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.
  • Homeowners face higher payments as mortgages are reset. Generally, monthly payments rise between $200 and $500 depending on the size of the mortgage.
  • [According to Reality Trac, August foreclosures were up 23% over July and 53% over a year ago.](
  • The number of homes for sale is at record highs, and inventories are 59% higher than a year earlier.
  • New home sales are down 22% and existing home sales down 11%.
  • The NASB housing market index has recorded an all-time decline.
  • The housing affordability index is at a 15-year low.
  • The house price-to-income (rents) ratio is off the charts. According to HSBC, in 18 states accounting for over 40% of national home values, the price-to-income ratio is 3.6 standard deviations above the mean.
  • The OFHEO index of house prices deflated by the consumption price deflator has soared to a record high of 350 from 250 in 2001. From 1976 to 1996 it never was above 220.
  • According to the NAR the year-to year prices of existing homes are now flat. A short time ago they were rising at a yearly rate of 16%.
  • Nationally, home prices have not declined on a year-to-year basis since 1933. Recently, however, prices have been dropping in the North East, West and Mid-West.
  • Sales incentives are now estimated at 3% to 7% of selling prices.

Maybe I will get that cup of coffee.

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NAR: Declining Prices Will Spur Sales?

September 7, 2006 | 10:14 am | |

Thats a pretty weak position to take.

Over the past 12 months, the National Association of Realtors trade group has extolled the strength of the housing market and spun this assessment until aparrently it can’t spin anymore.

David Lereah, their Chief Economist, who released the [NAR Pending Home Sales Index which showed dropping volume [WSJ]]( He finally asserted that sales prices would decline slightly over the next few months.

Sales have stalled partly because “the sellers are not bringing prices down fast enough,” Mr. Lereah said. “They’ve been very stubborn.” A drop of 5% to 10% in California and southern Florida “probably would be enough to bring sales back,” he said.

“The quicker we can get negative prices, the quicker we can get sales coming back,” Mr. Lereah said.

Source: WSJ

Now the sellers are to blame?

The number of transactions will not increase until buyers sense that prices have stabilized. Lereah is clearly wrong on his take. Its not some erroneous magic number for prices to fall like 5% or 10% so that volume will pick up. Who knows what the number is? It might be higher or lower than that. It might be 0 for all we know.

Buyers simply want safety and affordability and hat varies by market.

To recap: falling prices do not stimulate people to buy. Prices fall when buyers are not buying.

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The US Soft Landing Safety Net Scenario

June 15, 2006 | 4:53 pm | |
Source: Economist

The current (June 8th) edition of the Economist does [a quarterly update on the global housing market [Economist]]( After five years of bashing the housing market (some of it deserved), they actually seem to be backpedaling or at least showing less gloom and doom than they showed in 2002, 2003, 2004 and 2005. The emphasis in the analyses done at that time was estimating the rental equivalent for housing. Now with the CPI rent equivalent outed in recent media, this argument seems to fall flat.

Nevertheless, there is a lot of good stuff.

According to estimates by The Economist, the total value of residential property in developed economies has risen by three-quarters since 2000, to almost $75 trillion. The increase is equivalent to more than 100% of those countries’ combined national incomes. Countries in which house prices have gone up most have tended to enjoy the strongest growth in consumer spending as homeowners, finding themselves wealthier, have treated themselves.

[Yesterday I wondered why everyone]( is so unanimous about a soft landing, which in turn, makes me worried because conventional wisdom is usually wrong.

However, the Economist article is very insightful. Here are some of the key points addressing the US soft landing safety net scenario:

  • The idea that the Fed will drop rates if the housing market drops too quickly (I believe rates wil need to be dropped in 2007).

  • National housing prices have not dropped since the Great Depression. Thats simply a play on statistics since many local markets have seen drops over various periods of time. Housing declines happen in different parts of the country at different times with the net affect to be positive. We see that in local markets as well when the mix of housing changes from period to period. Appreciation for a city might be flat yet the individual sectors saw increases only because of a surge in lower priced home sales.

  • Whats different this time is that nearly every market boomed at the same time, suggesting they will fall at the same time as well. I think that this is misplaced. Certainly there was a national boom that covered most markets, however the degree to which they boomed is quite a different story. Upstate New York, with its struggling economy, saw nominal appreciation while Miami, driven by investor speculation, saw significant appreciation.

  • Foreign markets like Australia and Great Britain have not fallen after their housing booms ended. They claim those market cycles are far from over since the personal income and housing prices are at a pronounced spread.

In the US, they project it would take 10 years of stagnant prices for personal incomes to catch up to the cost of housing. Thats a very interesting they make point since I belive that personal incomes outpaced housing price increases over the past 25 years or more with the exception of the past 2-3 years. Wouldn’t this suggest that more housing booms should have occurred. There is always more impetus to a boom than just personal incomes.

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