Posted by Jonathan J. Miller -Thursday, May 10, 2012, 10:50 AM 1 Comment
A few days ago, a post by Felix Salmon at Reuters caught my eye: Chart of the day: Let’s go buy a house! Yesterday he asked me to send similar data for NYC and would run the same chart. I sent over 20 years worth of median sales price and median rental price (face) data for Manhattan and he punched one out: Rent vs buy, Manhattan edition laying the results on top of the US data.
He’s running a payment equivalent adjusting for inflation and he says:
Obviously the Manhattan data series, with fewer transactions, are much noisier than the national series. But broadly speaking, it costs you the same amount to buy a house today, in terms of your monthly mortgage payment, as it did at the end of 2004, when the median sales price was just over $600,000.
Here’s what I told him when admiring his chart handiwork:
We are def moving into a gray area where we are now seeing more and more Manhattan individual apts as cheaper to buy than rent in our appraisal practice – especially coops since they are cheaper than condos. Obviously the problem remains whether the buyer is credit worthy.
Since this analysis is in aggregate, there is not a “tipping” point where the line is crossed and everyone runs out and just starts buying apts (i.e. Justin Bieber tickets).
Posted by Jonathan J. Miller -Wednesday, March 21, 2012, 9:43 AM Comments Off
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When I was contacted to do yesterday’s Bloomberg interview, a by-product of the producer’s call was to show the affordability of housing to Wall Street. We never covered it in the interview and I was (self) taught never to waste a good charting opportunity.
While there is no reliable causation measure of bonus size to Manhattan housing prices there has long been a connection (i.e. common sense). I took the Manhattan annual average sales price for the past 20 years and compared it to the average annual Wall Street bonus per person. The resulting multiplier shows some element of affordability: the higher the multiplier, the less affordable Manhattan housing is.
I realize there are disclaimers needed in doing this including:
With the regulatory overlay from DC rising, bonuses are becoming smaller relative to overall compensation.
Not everyone on Wall Street getting a bonus lives in Manhattan (but a
disproportional amount probably do).
Bonus income is just less than half of total Wall Street compensation.
Post-Lehman saw higher share of deferred bonus over cash.
Wall Street total comp only accounts for about 25% of total NYC wages.
Foreign buyers and Fortune 500 type executives have picked up some of the Wall Street slack.
With those disclaimers aside or perhaps because of them, the chart shows:
The 20 year trend shows greater affordability over time but significant volatility along the way.
The early 1990’s recession, 2001 recession and 2008 credit crunch/recession all showed sharp reductions in affordability (higher multiplier).
The 20 year average annual multiplier is 9.9
Given the fact that sales contract activity seems to be ahead of last year, prices remain stable, foreign buyers continue to participate in large numbers and the economy is grinding towards improvement in the region, the decline in bonuses doesn’t appear to be a huge deal for the housing market at this point. Certainly not helpful but perhaps can be characterized as having a nominal impact on the market – if you believe this methodology.
Posted by Jonathan J. Miller -Wednesday, March 14, 2012, 7:25 PM Comments Off
[click to open full press release]
While there has been a smattering of good economic news as of late, the local outlook in New York City employment situation is showing some vigor.
Barbara Byrne Denham, Chief Economist at Eastern Consolidated, shares her seasonally adjusted NYS Dept of Labor sourced good news (I’ve long been a fan of her employment analysis):
It is an understatement to say that these gains exceeded all expectations. Most have been concerned about Wall Street layoffs when in reality the industry added jobs steadily over the last two years. In fact, at 172,600 jobs, the securities industry is only 16,400 jobs off its peak of January 2008.
Since bottoming in September 2009, New York City has added 156,400 jobs, a growth rate of 4.3%. The private sector has added 165,500 jobs, a growth rate of 5.3%. At the national level, the U.S. has added 3.17 million jobs since the trough of February 2010, a growth rate of 2.4%; the national private sector has grown by 3.66 million jobs or 3.4%.
Consistent employment gains eventually lead to improved housing demand. However construction employment lags, but professional services are up.
What is interesting about this research is the idea that not only did the economy get crushed by the housing crisis, but the fact that the recovery is being delayed because of the legacy of bad lending decisions that created the run-up in housing prices.
Low interest rates just aren’t cutting it anymore – in order to gain traction with the consumer, the study indicates that rates would have to be inverted – that lenders would need to pay borrowers. Crazy.
The pace of recovery since the financial crisis has been less than half as fast as after the last two major recessions, which ended in 1975 and 1982. In first 10 quarters after those recessions, the economy grew by 13.4 percent; in the wake of this recession, the economy grew by only 6.2 percent.
And, the paper says, “more than half the underperformance in this recovery is associated with housing-related sectors.”
No shortage of charts in the paper – here’s a couple that jumped out at me:
Posted by Jonathan J. Miller -Monday, February 13, 2012, 9:25 PM 1 Comment
This video has some spicy language, not for the faint of heart, it but c’mon, this is riveting economics humor by Yoram Bauman, the first and only stand-up economist. This new video delves into the theory of why S*** happens.
Posted by Jonathan J. Miller -Wednesday, February 8, 2012, 2:41 PM 2 Comments
This research paper from the Boston Fed addresses the issue of “House Lock” – the idea that people who have negative equity on their homes are trapped and can not migrate to where the jobs are.
…These observations have raised concerns that the prolonged weakness in the U.S. housing market is keeping unemployment high by preventing homeowners who have negative equity from relocating to other states with better job markets. Having a negative equity position in their homes is likely to further deter homeowners from selling in an already weak housing market. Other options, such as engaging in a short sale or strategically defaulting on the loan, can be costly in terms of lost value or a damaged credit record. And in all likelihood, the number of underwater households is likely to persist as house prices continue to fall in many areas due to continually high levels of unemployment and foreclosure.
The report concludes that there is NOT a strong correlation between people stuck in their homes and the high unemployment rate.
home owners are already less transient than renters and account for only 20% of state-to-state migration.
negative equity reduces the probably of migration but does not impact unemployment rates.
Still it seems to me that Fed has become much more focused on housing as the way to fix the economy as of late. Of course, this is not official Fed policy speaking in this paper, but with what feels like an increase in housing related research (or I am super sensitive to this as of late), maybe it represents the “Id” of the Fed mindset. You can see it in the last sentence of the paper:
Instead, increased efforts to alleviate the housing sector’s drag on the economy— such as helping more homeowners to refinance or stemming the tide of foreclosures—may be more effective at stimulating aggregate demand and reducing the high rate of joblessness during the recovery.
Are American Homeowners Locked into Their Houses? The Impact of Housing Market Conditions on State-to-State Migration [Federal Reserve Bank of Boston]
Posted by Jonathan J. Miller -Sunday, February 5, 2012, 3:32 PM 4 Comments
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Last year I got an email from a Matrix reader, Ben Tanen, a former VC now running his own investment partnership that invests in public companies, with an interesting take on the buying power of gold as it relates to Manhattan apartments.
Like many things in my life, I let this “nugget” (sorry) slip through the cracks last year. He recently updated it with our new numbers in the recent release and it’s quite compelling.
The value of gold has risen sharply in recent years during the wobbling of the global financial markets – investors see precious metals like gold as a way of preserving purchasing power over the long run. In fact, in 2011, gold had more purchasing power relative to Manhattan real estate than at anytime during the past 22 years (the limit of our publicly released data).
It would take 908 ounces of gold to purchase the average Manhattan apartment versus the 1996 low point of 1,030 ounces, a point where many think our asset bubble problems began (stocks, then housing).
Posted by Jonathan J. Miller -Tuesday, November 29, 2011, 10:00 AM Comments Off
The New York Fed publishes a coincident index using data on employment, real earnings, the unemployment rate and average weekly hours worked in manufacturing and its beginning to show nominal weakness. This comes out monthly so I’ll keep an eye on it.
In October, the New York City Index of Coincident Economic Indicators (CEI) decreased at an annual rate of 0.4%, following a 0.1% increase in September. The index has risen 2.4% over the past year.
Since NYC housing’s future in the region partially depends on where the regional economy is going (it’s not all about foreign buyers), this suggests the NYC economy slipped a bit last month but is better than last year.
I can’t decide why this was submitted to Wapo since it offers no solutions to stabilize the housing market. Should be renamed “here are some of the problems with the housing market.”
Some feel he’s made our credit problems worse by derailing Obama’s economic strategy. Here and here is a two part podcast with Barry Ritholtz that contains some very choice words for Dr. Summers.
When I first read Summer’s piece I was reminded of Steve Martin’s line on SNL (way back in 1978) where he offers some sage advice on “how to have a million dollars and never pay taxes”:
“First, get a million dollars, then…”
The observations he makes are not new and not insightful beyond basic conventional wisdom. I continue to be amazed at how disconnected the very smart DC econoliteri are from what ails housing.
“First, banks need to lend, then…”
First, and perhaps most fundamentally, credit standards for those seeking to buy homes are too high and too rigorous.
Second, as President Obama stressed in rolling out his jobs plan, there is no reason that those who are current on their GSE-guaranteed mortgages should not be able to take advantage of lower rates.
Third, stabilizing the housing market will require doing something about the large and growing inventory of foreclosed properties.
Fourth, there is the issue of preventing foreclosures, the initial focus of housing policy efforts. The right way forward is far from clear.
Here are my observations to these 4 points:
First – Banks have to be incentivized to lend and ease underwriting standards. The problem with Washington establishment is they have been begging and pleading for banks to lend since the crunch began. THIS WILL NOT WORK. Banks don’t want to, primarily because of the low rate policy held by the Fed. No real spread and tough to equalize the risk between borrowing from the Fed for free and a higher risk proposition with Joe and Mary Homebuyer.
Second – Yep. Low rates don’t do anyone any good if you can’t get a mortgage. That’s what is happening now. It’s all credit access, baby.
Third – Five years of elevated REO activity coming. Its not going away and housing won’t recover until it clears the market. Our government resources can’t stop this. They aren’t large enough.
Fourth – Uh, yes its a complex problem.
NOTICE TO THE WASHINGTON ECONOMIC POLICY ELITE
Create economic incentives to lenders and problems slowly go away. Housing won’t recover without credit repair. Incentivize lenders to lend. Asking doesn’t work. Focus on the banks and they will in turn help the consumer. Don’t bypass the banks and go directly to the consumer since that’s not a sustainable fix.
Late into the Depression, 10% down lending returned to the market with government incentives and helped housing recover more quickly. You don’t starve a recession and feed a boom. Washington’s still got it exactly backwards.
Had a fun interview with Tom and Sara this morning on the always MUST watch/listen Bloomberg Surveillance. We talked housing, rentals, vacancy and inventory. An added bonus was the addition of Adam Davidson – co-founder and co-host of Planet Money... Read More