Posted by Jonathan J. Miller -Monday, April 23, 2012, 11:04 PM 1 Comment
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Recently I was contact by The Real Deal Magazine to take a look at the correlation between the stock market performance and the housing market. I personally don’t believe it and I have written about correlation and how silly it can get.
The thinking goes like this:
The Dow Jones Industrial Average rises, the housing market rises = correlation = a housing market indicator, but…
“Twenty-five percent of New York City wages come from financial services,” Miller said. “It’s part of the fiber of being here and so there’s always been a propensity to correlate the Dow Jones industrial average with housing here. I don’t ascribe to that belief. Housing is not a stock. [Rather,] if you have a robust and actively traded market, in theory, employment is more likely to be stable, which consummates sales transactions.”
When I think about the housing rebound in the dark days just after the Lehman tipping point and how stock-market orientated we are in Manhattan, the only thing that seemed to push consumers back into the market was the roar of the stock market in the first quarter of 2009. This comparison against sales (transactions) seems show the same trend. While I’m still not on the correlation bandwagon, the 20-year trend is quite compelling.
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 -Tuesday, March 20, 2012, 10:32 PM Comments Off
Was invited to be on Bloomberg TV’s Street Smart today with Trish Regan to talk about the outlook for Manhattan housing prices with particular attention paid to reduced bonus compensation. Always fun to go to BB.
True (funny) story just before I did the interview:
I was getting mic’ed up and makeup applied while waiting for my turn on the set when I looked up and standing in front of me was Patrick Doyle of Domino’s Pizza holding a large pizza box as a prop for his appearance (It must have been warm because it smelled great).
I introduced myself and he couldn’t have been nicer, and a bit self conscious standing in a newsroom holding a pizza box. I immediately remembered his latest commercial – my kid’s and I were commenting on it last weekend while watching March Madness. I quipped to him that I had a few ideas that could make me CEO – he cracked a smile and then proceeded to do a great interview – check out his closing line in the commercial so my story makes sense.
Posted by Jonathan J. Miller -Tuesday, March 13, 2012, 12:54 PM Comments Off
As shown in the above Bloomberg chart based on our Manhattan data and the NYS Comptroller’s, Wall Street Comp/person and the Manhattan luxury market show similar trending. Not speaking to causation here.
Bad news for sellers? So the logic follows that with a decline in compensation per person in 2011 – largely from a poor second half 2011 performance, luxury prices could slip a bit in 2012 and perhaps the following year if things continue as they were. I said:
“People are making decisions a year or more down the road because they’re getting their deferred cash,” he said. “We may see a little weakness in 2012,” and “next year could be weaker based on this trend of lower compensation.”
However…
Good news for sellers? Some view Wall Street’s poor performance in the second half of 2011 as an anomaly, and with bond trading now on the rise, bank performance could be better next year (or the same if another second half plunge occurs). If the former occurs then there is more potential for greater Wall Street comp and perhaps better luxury housing market performance. I like the above debt chart because it really illustrates how much the industry fell in the latter half of the year. The WSJ reports:
For the first time in a year, traders and bankers are optimistic about the future following a dark second half of 2011. Layoffs, pay cuts and public outrage against the financial industry undermined morale at banks and securities firms, while economic malaise throttled banking and trading businesses.
Smaller Wall St. Bonuses Mean Cheaper Condos in New York: Chart of the Day [Bloomberg]
Bond Trading Revives Banks [WSJ]
I did the math back then with the available numbers and opined that the bonus drop would amount to 10% decline in compensation from a fairly high level.
One of the biggest question marks about compensation has to do with deferred compensation. If compensation is shifting away from cash, then arguably financial service sector employees would have less to spend on housing in the near term. The number being thrown out (20% to 30%) is a little less than 1/3 of total compensation. However the NYS Comptroller indicated that the actual share of deferred comp was probably smaller than generally thought because there were cash payouts from previous year’s deferred compensation.
Stymied by regulatory requirements, the European debt crisis and a sluggish economic environment at home, the nation’s largest banks suffered in 2011…Despite the difficult environment, New York firms continued to pay roughly $20 billion in year-end cash compensation to their employees. The average bonus was $121,150, down just 13 percent from the previous year as the headcount shrunk. In 2006, the year before the financial crisis, the average investment bank employee took home a bonus of $191,360.
With the modest decline in Wall Street compensation, this report is clearly better than anticipated, but it likely means housing prices in Manhattan won’t be seeing gains in 2012 and could even see modest declines.
Still, it’s better news than originally thought from the market’s key driver of housing demand.
Posted by Jonathan J. Miller -Wednesday, February 29, 2012, 5:25 PM 2 Comments
It’s time to share my Three Cents Worth on Curbed NY, at the intersection of neighborhood and real estate in the capitol of the world. I’m simply here to take measurements.
Since the New York State Comptroller announced official Wall Street 2011 compensation numbers today (to be distributed in 2012), I thought I’d compare Wall Street compensation per person against Manhattan sales by year. As an industry, real estate seems to think it lives and dies by Wall Street compensation. No argument that it’s important to the NYC economy, accounting for 25 percent of NYC private sector wages but only 5 percent of private sector jobs…
If savvy analysts can accurately predict the index in the coming months, then how does this encourage investors to get on both sides of the trade. Call me crazy but if I knew what the index results would be in the coming months, that would mean that most market players would know and then it’s not possible to beat the market (sorry traders, but this is my weak attempt to talk like a trader).
The chart above is a forecast found in a recent housing study. It’s how I currently envision the US housing market given the millions of distressed property sales that need to go through the system.
The S&P/Case Shiller Home Price Price Index’s reason for being, as well as other competing indices were intended to be a benchmark for Wall Street to hedge housing using options (derivatives). This would have served a very logical and useful purpose to be sure but it has been a dismal failure. In one of the most volatile housing markets in history, trading volume has been anemic or non-existent, or at a fraction of the volumes needed to be an efficient market. Still, S&P/CS has become the consumer benchmark as the media grapples with how to characterize the market. The data problems and years of messaging bias over at NAR Research have enabled alternatives like S&P/Case Shiller and Corelogic.
The S&P/Case Shiller December report published today, (2 months after the close of the period, reflecting October-November-December closed sales, reflecting August-Spetember-October contracts) reflects a continuing malaise in US housing even though the 2011 housing market got a reprieve thanks to the robo-signing scandal at the end of 2010 and the anticipated settlement agreement between the major services and the 50 US state attorney generals.
Data through December 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed that all three headline composites ended 2011 at new index lows. The national composite fell by 3.8% during the fourth quarter of 2011 and was down 4.0% versus the fourth quarter of 2010. Both the 10- and 20-City Composites fell by 1.1`% in December over November, and posted annual returns of -3.9% and -4.0% versus December 2010, respectively. These are worse than the -3.8% respective annual rates both reported for November. With these latest data, all three composites are at their lowest levels since the housing crisis began in mid-2006.
What’s interesting is how many don’t seem to understand what the index represents. Here’s a not uncommon interpretation via AP:
The declines partly reflect the typical slowdown that comes in the fall and winter.
No they don’t – the indices effectively washes out seasonality, both through the seasonal adjustments made to the index and the methodology itself. The non-seasonal adjusted results are virtually the same – and the methodology doesn’t reflect certain truisms like the surge that occurs in nearly every spring market since the dawn of time (or at least since cable tv was invented).
December 2011 S&P/Case-Shiller Home Price Indices [Standard and Poors
]
Survey: Prices declined in 18 of 20 cities in final months of 2011 [AP/WaPo]
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 -Friday, February 3, 2012, 10:44 AM 1 Comment
Had a lot of fun with Tom Keene, Bloomberg’s editor-at-large, radio and TV anchor on his must watch show Midday Surveillance yesterday. Always flattering to be asked to guest co-host for the hour and a challenge to keep up with his fast paced wit. I’ve always felt that Bloomberg news, now with new emphasis on TV is business news the way it should be delivered – longer interviews and neutral presentations.
The show’s theme was housing and I felt compelled to give him more reasons to hand-wring about his upcoming apartment rent increase. Was fun to do.
The hour was divided into 4 segments, the last three with guests:
Posted by Jonathan J. Miller -Monday, November 21, 2011, 3:03 PM Comments Off
My friend Barry Ritholtz penned an especially terrific column published in WaPo back on November 5th “What caused the financial crisis? The Big Lie goes viral.” that is worth reading if you haven’t. And apparently many have since there are several thousand comments/social media shares associated with it.
He lays it all out for us. Here’s my favorite part:
Here is the surprising takeaway: They are winning. Thanks to the endless repetition of the Big Lie.
A Big Lie is so colossal that no one would believe that someone could have the impudence to distort the truth so infamously. There are many examples: Claims that Earth is not warming, or that evolution is not the best thesis we have for how humans developed. Those opposed to stimulus spending have gone so far as to claim that the infrastructure of the United States is just fine, Grade A (not D, as the we discussed last month), and needs little repair.
Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long-standing housing policies that were at fault.
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
