Here are my favorite semi-housing related points of his presentation:
National
*…the output of the U.S. economy—grew at a 3 percent annual rate from mid-2009 through 2010. While hardly a blistering pace, this growth was sufficient to add nearly 1 million jobs and reduce the unemployment rate by a half percentage point during 2010. Then, during the first half of 2011, growth slowed abruptly to a 0.8 percent annual rate. Job growth slowed so much that the unemployment rate rose back up to 9.1 percent.
Growth slowed partly because of temporary factors…Energy and commodity prices rose sharply…April’s tragic earthquake and tsunami in Japan disrupted many global supply chains.
Residential construction—which typically boosts economic activity during a recovery—is at a standstill. Moreover, many homeowners are now consuming less because the decline in house prices reduced their wealth…
Mortgage rates are at record lows…but obstacles to refinancing and access to credit for home purchases are limiting the support provided by low rates to house prices and consumption…the prospect that unemployment and negative equity will continue to feed the foreclosure pipeline—continues to put downward pressure on home values.
…cutbacks in employment and spending by state and local governments intensified in 2011 and are likely to continue…states are likely to cut spending further as the federal government stimulus aid to states peters out.
…the federal government will soon end much of the support it has been providing to the economy through stimulus programs….it will be very important to avoid excessive short-term cutbacks or tax increases that could harm the recovery.
…the sovereign debt crisis in Europe has weakened the outlook for global growth and with it, U.S. exports…some financial institutions are facing pressures to cut back lending.
Without robust growth, the economy is more vulnerable to negative shocks, which unfortunately seem to keep coming. It is like riding a bicycle—at a slow speed, the bicycle wobbles and the risk of falling rises. Politics here and abroad have not helped. The intense debate around raising the debt ceiling and the subsequent downgrading of the federal debt took a toll on household and business confidence.
Stabilizing the housing sector is particularly important because housing equity is an important part of household wealth...Taken together, such efforts could help shift people’s expectations about future house prices. If prospective homeowners no longer fear that prices could decline further, they will be more willing to enter the market to take advantage of reduced prices and low financing costs, and existing homeowners will feel more confident about spending. A vicious cycle could be replaced by a virtuous circle, in which stabilization in house prices supports spending, growth and jobs.
Regional
Citywide employment fell by nearly 4 percent during the downturn, much less than the nationwide job loss of 6.5 percent. During the recovery, New York City has already regained half of the net jobs lost during the recession. This has happened without much help from the securities industry (Wall Street), which has been a driving force behind local economic recoveries in the past. This time, the strongest contributors to job growth have been professional and business services, leisure and hospitality.
Posted by Jonathan J. Miller -Tuesday, October 11, 2011, 6:30 AM 3 Comments
My wife and I saw Moneyball the other evening and thought it was one of the best movies we had seen in years. I’ve long been a fan of the author Michael Lewis whose books all dot my book shelf and now iPad such as Liar’s Poker, The Big Short, The New New Thing, The Blind Side, The Money Culture, Panic and Next. I just bought his new book, Boomerang.
The Moneyball script was amazing – the movie theatre was packed it was all about its quality dialog and nuance of facial gestures+great acting. Several fits of laughter enveloped the theatre after some hilarious quips.
The premise was how the Oakland A’s general manager came to the realization that a small market team could not compete with the payroll of teams like the New York Yankees and they had to think different (sound familiar?) by taking a fresh approach to the analytics of baseball. The scouts were relying on factors that didn’t really have much to do with a player’s performance. “An ugly girlfriend means no confidence.”
I see a parallel in real estate. (Of course I would since that’s what this blog is about). It’s like the long term reliance of housing price trends as some sort of statement of market health, when in fact, its just about the very last thing an observer should be relying on.
In the movie the metric of vital importance was on-base percentage and runs, not batting average. In housing it is number of sales, not price.
I’ve been on a 6 month hiatus from podcasting after 150+ interviews over the previous 2 years – had a bunch of other things going and I needed to take a little break. I’ve been itching to return and was talking to my friend Barry the other day and he wanted to do another one (his 3rd) and here it is.
It’s “R”-rated (for Ritholtz) so wear your earphones if around sensitive-types as he covers the state of housing, a possible recession and his exciting conference next Tuesday.
This podcast was too big so I cut it into 2 parts. The first part was presented yesterday.
Posted by Jonathan J. Miller -Wednesday, October 5, 2011, 12:30 PM 1 Comment
PART I OF II
I’ve been on a 6 month hiatus from podcasting after 150+ interviews over the previous 2 years – had a bunch of other things going and I needed to take a little break. I’ve been itching to return and was talking to my friend Barry the other day and he wanted to do another one (his 3rd) and here it is.
It’s “R”-rated (for Ritholtz) so wear your earphones if around sensitive-types as he covers the state of housing, a possible recession and his exciting conference next Tuesday.
This podcast was too big so I cut it into 2 parts. The next will be up tomorrow.
To look at the markets following of both events, I assessed how each economic shock impacted sales activity of Manhattan co-ops and condos, which account for roughly 98% of the Manhattan single-unit residential market. I compared both event timelines by using a three-year window. I track quarterly closed sales, and they lag contract signing by an average of 45 days at that time — but you get the general idea.
One important similarity between the two periods: Both were already influenced by recessions, whether people were aware of it at the time or not.
Sept. 11: The housing market was already sliding down that slippery slope as sales activity weakened and marketing times expanded. The go-go market created by the tech boom in the preceding few years was unwinding and prices were beginning to soften, especially at the upper end of the market. Access to credit remained reasonably accessible, unlike today.
In the weeks that followed 9/11, the housing market was a virtual ghost town with little contract activity. A well-known brokerage firm issued a press release saying that prices had fallen 30% overnight, but I took issue with that claim since there were essentially no sales to measure the market — a classic mark-to-market situation. That press release was subsequently withdrawn.
When the Federal Reserve pushed rates to the floor shortly after the attack and mortgage rates fell sharply, consumers responded. We observed a surge in demand firsthand about five weeks after the attacks — the market restarted at the entry-level priced apartment segment. This was made clear to me when we were engaged by a bank to appraise the purchase of a one-bedroom apartment in the East 50s in a non-doorman building. The contract was signed after a five-way bidding war. Soon we were seeing many such bidding wars and the market began to boom from the bottom up.
Lehman: Sales activity in the housing market peaked in 2007 and prices peaked a year later in 2008. Sales activity was erratic in 2008 leading up to Lehman but the trend was clearly weakening. The slowdown actually began during the summer of 2007 when the mortgage system started to break down. When American Home Mortgage collapsed and the two Bear Stearns hedge funds famously imploded during that summer, the pace of the market began to cool. By the time Lehman went under (and Fannie Mae, Freddie Mac and AIG were bailed out at nearly the same time), the consumer and mortgage lenders went into the fetal position and waited.
Unlike the 9/11 timeline, the Manhattan housing market took nearly two years to reach levels seen in September 2008 and have not come close to peak sales levels reached in the two years prior to the credit crunch (obviously because artificial credit conditions were in place). Unlike the months following 9/11, residential mortgage credit has continued to remain unusually tight and has in fact tightened since the beginning of 2011. Hard to rally the consumer when the Fed continues to keep rates too low for banks to be incentivized to lend.
Leading up to 9/11 a lot was done to reduce oversight of commercial lending, neutering regulators and allowing investment banks step into the mortgage process. The Fed kept rates rock bottom through June 2004, fueling an unprecedented housing boom. Prices were rising so quickly in the first half of the decade that affordability waned and banks removed all underwriting standards in order to keep the pipeline full as Wall Street off-loaded the risk to investors across the globe.
Of course, it all ended badly, marked by the Lehman bankruptcy.
Posted by Jonathan J. Miller -Wednesday, August 17, 2011, 5:55 PM 5 Comments
I was reading a good blog post over at Time: Busted Recovery: How Much is Housing to Blame? when I came across an out-of-character quote from Chris Thornberg of Beacon Economics, someone whom I normally find offers sage advice:
Still, Chris Thornberg of Beacon Economics says there is a little hyperbole when people say the economy can’t recover without the housing market. That’s because much of what we normally think of the housing market doesn’t produce a lot of economic value. “Realtors have perpetuated the fraud that selling homes back and forth between people is good for the economy,” says Thornberg. “I’m not convinced that does that much for the economy.”
His use of the word “fraud” set me off.
However I agree with what he is saying about housing and the economy – I do believe there is way too much hyperbole that housing must recover before the economy recovers. I think that the economy will likely recover before housing will and that housing will be a drag on overall economic recover. And we all know that all jobs created by the housing market during the boom quickly evaporated during the bust.
But this part…
“Realtors have perpetuated the fraud that selling homes back and forth between people is good for the economy,” says Thornberg. “I’m not convinced that does that much for the economy.”
Really? Fraud?
While I’ve been very vocal about the misleading comments about the credit crunch and housing observations coming out of NAR since the days of David Lereah and now with Lawrence Yun, it’s ridiculous to call it fraud. It’s called selling and spin. Big difference although they are also distasteful.
It is the job of Realtors to sell homes for sellers and help find homes for buyers. They are in the business of sales. Realtors are represented by The National Association of Realtors who are a trade group and the function of a trade group is to help their members be more successful and represent their interests.
I’ll bet every single trade group has similar pitches specific to their client’s needs. Attend plumbing convention and you’ll be told that PVC pipes enable our country to grow. Attend a snack food convention and there will be no discussion about eating too many candy bars. Attend a dental convention and you’ll hear all the spin about brushing and how bad candy is for teeth (but good for business).
I think the part many miss with the dissemination real estate information, is that a trade group as a source should not be presented in the media as an authoritative source on a topic. Yes they can attest to a condition that helps their members but we should never see them as a neutral go-to resource. Think Mortgage Bankers Association, American Banking Association, National Association of Homebuilders, etc. Massive spin for their members. It’s not fraud.
Up until recently, I don’t think the public realized that there was any difference in credibility in the analysis of the real estate market from NAR. That realization has propped up alternatives like Case Shiller and CoreLogic (although Case Shiller has many of its own serious flaws).
So despite the easy target, let’s raise the bar on the discourse. Realtor-bashing isn’t in style anymore. Realtors are simply doing their jobs and there isn’t some sort of conspiracy – they are too busy driving clients around looking at homes.
In fact, of all people that touched the home buying process, from rating agencies, investment banks, consumers, mortgage brokers, commercial banks and appraisers during the bubble, Realtors had little to do with the run up. They were order-takers in a nation gone insane.
Posted by Jonathan J. Miller -Tuesday, August 16, 2011, 10:52 AM Comments Off
[click for info graphic]
Trulia released its Rent v. Buy Index today that reflects a more robust rental market, to the point where 74% of the 50 largest markets show it is cheaper to own.
I report and work in the market (NYC) that ranks at the top of the Renting is Cheaper than Buying list and I will be covering the market (Las Vegas in 3Q) that ranks at the top of the Buying is Cheaper than Renting list.
“While recent stock market volatility on top of the slow economic recovery makes homebuyers nervous, it has not destroyed the American dream of homeownership. However, prospective homebuyers, who are ready and qualified to buy, face an uphill battle despite falling home prices and record-low mortgage rates,” said Ken Shuman, Head of Communications at Trulia. “Today, many banks are actually less enthusiastic about approving residential mortgage applications, which has dragged out the home buying process. Until a middle ground on lending practices can be met, many highly-qualified buyers may be forced to be renters by choice for now.”
My key takeaway here is that a strong rental market does not mean a local economy is recovering. Generally the rental market leads the sales market in a recovery because rents are more responsive to changes in unemployment than sales are. The rental market is strong in many markets primarily because credit is so tight.
The American Dream or whatever you want to call it, is a separate matter. Homeownership is currently on the decline because it was artificially high during the credit boom and mortgage underwriting remains unnaturally tight in the aftermath. In my view, falling homeownership has 0% to do with the American Dream thing and 100% to do with the Fed keeping rates artificially low.
Incidentally, Trulia now has no peer in the real estate space when it comes to interactive visualizations since they purchased Movity. I moderated a panel at the Inman Data Summit in SF with Eric Wu, one of the Movity founders and now Head of Geo Products with Trulia. He creates some crazy amazing elegant stuff. [disclaimer: I'm on Trulia's industry advisory board]
Posted by Jonathan J. Miller -Monday, August 15, 2011, 11:40 AM 3 Comments
My friend Barry Ritholtz over at the Big Picture does a nice overview of where housing needs to go and how we need to create an economy to sell off vacant homes, not rent them.
He says “Drift Lower” Is best-case scenario for housing. In NYC, which is one of the better US housing markets, I have been saying for more than a year that “move side-ways” is the best-case scenario for housing in the region.
Posted by Jonathan J. Miller -Wednesday, August 10, 2011, 9:20 AM Comments Off
Sorry, but being stuck for hours on an airport tarmac yesterday with the pilot telling us every 20 minutes he was trying to get a departure time as soon as the storm passed at our destination did wonders for my outlook in the economy and the housing market. No irony that the airline was AA or Double A (American Airlines).
My non-political observation about President Obama’s speech covering the S&P downgrade is best described in Dan Gross’ Yahoo Finance Column “We Need Policy, Not More Posturing — And Now“
Never mind that this is the sort of thing a coach tells Little Leaguers as they’re about to get mercy-ruled. By heaping scorn on Standard & Poor’s, President Obama, and the rest of official Washington, Monday violated Gross’s Second Rule of Punditry: Don’t Pick Down, Pick Up. When you engage in verbal fisticuffs with people below you on the pecking order, it only brings you down and raises them up to your level. Besides, this isn’t an episode of Crossfire.
My political observation is that we seem to have reached the end of the road, err, politically. How do politicians cut costs when they are elected by their constituents who want them to bring home the bacon or deliver tax breaks? I cringe each time I hear phrases like “we need to cut costs” and “we need to eliminate tax loopholes.” After all the brinksmanship and positioning, we end up with some sort of bland compromise and the totality (sp?) of decades of this sort of thing has left us with a massive deficit and reactive fiscal policy with regulatory oversight on things that already happened.
One is that the U.S. political system at some point has to adjust to the reality that we are just one more country trying to make it in a big, bad global economy and probably ought to stop shooting ourselves in the foot on a regular basis. The debt ceiling debate was one example of this; the seeming inability to get a handle on increasing health care costs (or to talk rationally about it in the political arena) has been another. This was the most convincing justification the S&P gave for its downgrade, and while I’m enough of a Pollyanna to believe we’ll eventually get our act together, I don’t see any short-term fix.
The Fed announcement yesterday struck me as further political posturing until after the next election cycle. Good grief.
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
