Jonathan J. Miller, the president of the appraisal firm Miller Samuel, estimated that two-thirds of the roughly 4,000 [8,389] apartments for sale in Manhattan are priced too high for the current market.
â€œSo,â€ Mr. Miller said, â€œyou have this weird situation right now where you have above-average inventory, but people are fighting over the ones that are priced correctly.â€
The difference between a bidding war of two years ago and the current market is the irrational nature of bidding wars back then – it was all about “winning.” The market today is about obtaining value – with prices having fallen an average of 25% since pre-Lehman.
Also, there is a larger disconnect between buyers and sellers than a few years ago as measured by the lower pace of sales. There was a reprieve this summer when sales surged, but listing inventory is still above average levels and a higher level of listings are priced above market level leaving purchasers fighting over a smaller selection.
Although this is anecdotal, I do believe that there are fewer bidding wars that occur above list price than we saw a few years ago.
When my friend and bigger than macroBig Picture blogger Barry Ritholtz refers to me as “Our man Jonathan Miller drops the truth bomb” I am confident I nailed the current state of bidding wars.
“We may be on the way to recovery,” said Maureen Maitland, vice president of S&P’s index services. “I say ‘may’ because it’s only been a couple months of data and home prices are seasonal … It will take a couple more months to see if we have turned around.”
This quote from S&P kind of confused me since, S&P/CSI has been seasonally adjusted since November 2008.
What’s got everyone so excited is m-o-m:
Looking at the monthly data, 13 of the 20 metro areas reported positive returns; and the 10-City and 20-City Composites reported positive returns for the first time since the summer of 2006. To put it in perspective, these are the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilizingâ€.
Remember, this index tracks prices only, not sales activity. Sales trends lead price trends.
I think the takeaway with the release is that the rate of decline is getting smaller which is a good thing and it does suggest the potential for improvement going forward. But this provides no support that the moment is at hand and its only up from here. Still, I’ll take what I can.
Posted by Jonathan J. Miller -Monday, April 20, 2009, 7:09 AM 6 Comments
I’m not a big fan of confidence type surveys but because there is a dearth of activity and sentiment seems to be all there is to look at, I’ll digress from usual practice.
With affordability high because of mortgage rate drops and housing prices lower than in recent years, Americans are thinking it is a good time to buy a house according to a recent Gallup Poll:
Plunging housing prices combined with historically low interest rates have persuaded 71% of Americans that now is a “good time” to buy a house — up 18 percentage points from a year ago and the highest level of housing-purchase optimism in four years.
This seems like a bit of a disconnect or the fact that people think it’s a better time to buy doesn’t equate into actually doing it.
More than 14 million housing units are vacant. That number does not include an estimated 4.8 million seasonal or vacation homes, most of which are occupied part of the year. The combined vacancy rate of almost 15% is higher than during previous recessions: 11% in 1991 and 9.4% in 1984.
About 3% of owned homes are vacant. In normal times, “maybe 1% should be vacant,” Myers says.
More than 9% of homes built since 2000 are vacant compared with about 2% for older homes.
Homes priced at $500,000 or more are just as likely to be empty as homes that cost less than $100,000.
But the spring metaphor favorite is Shoots of Green or simply Green Shoots.
The combination of signs that the economy may have begun to recover and the arrival of spring has led to the overuse of a metaphor that could use a little pruning. Weâ€™re talking about those â€œgreen shootsâ€ (sometimes â€œshoots of greenâ€) that keep showing up in policymakersâ€™ speeches, economistsâ€™ notes and, unfortunately, reportersâ€™ stories.
But more mundane, weed-like uses on the presentation of economic news are more like these (no offense meant to the authors):
We have former Tory Chancellor Norman Lamont to thank for the term “green shoots” to describe the first signs of a post-recession return to growth. In the depths of the last downturn, in December 1991, he told a Tory party conference: “The green shoots of economic recovery are appearing once again” – only to be greeted with ridicule and contempt.
Dallas Fed chief points to ‘green shoots’:
A few signs of life are sprouting in the U.S. economy, but it’s too soon to say whether these “green shoots” will lead to a sustained recovery, said Richard W. Fisher, president and chief executive of the Federal Reserve Bank of Dallas.
One is that even in the Great Depression, things didnâ€™t head down all the time. The chart above, from Eichengreen and Oâ€™Rourke, shows world industrial production in months from the previous peak, in the Depression and in the current crisis. Notice that there were several upturns along the way; each of those could have been â€” and was! â€” heralded as the beginning of recovery.
I’m thinking a Green Jacket is even better than a Green Shoot – or shooting on the Green is better than being green with a regular jacket on.
Privately-owned housing starts in February were at a seasonally adjusted annual rate of 583,000. This is 22.2 percent (Â±13.8%) above
the revised January estimate of 477,000, but is 47.3 percent (Â±5.3%) below the revised February 2008 rate of 1,107,000.
Every year at this time the metric is always discussed in the context of its prior month change rather than the prior year result. It’s March and this metric is based on February data. Housing starts nearly always rise starting at the beginning of the year. In all the press coverage, little or no attention was placed on the fact that starts are 47% below last year at this time, providing an illusion to the uninformed that construction is booming.
So my initial takeaway from this announcement and the ensuing buzz was, predictably, skeptical.
Last week the Dow jumped, and even though it has no direct correlation with the housing market, people were noticeably upbeat about the improvement in the stock market. This week – more of the same.
My initial takeaway was again, predictably, skeptical.
This provided some closure (not to the victims) on this horrendous financial situation. Nothing to be skeptical about.
The AIG $165M bonus debacle became the next event to focus on. It certainly appears that these bonus payments were enabled by Congress and Treasury from the beginning and feeble attempts were made to say “gee, contracts were signed and therefore we need to honor them.”
The public isn’t that stupid and responded in outrage and now suddenly every government servant from the president on down now suffers from a case of righteous indignation. The AIG audacity of paying these bonuses, along with Thain’s bathroom renovation, is clearly the symptom of a larger reality distortion and one of the reasons we are in this mess. Yet if this is a crisis of confidence and the $165M represents peanuts relative to the trillions at play, its symbolism is far more important – at least for now. Merrill Lynch bonuses are next on the radar.
I bank at one of the national firms in the headlines and, while the thought has crossed my mind, I still place a lot of faith in FDIC’s handling of the problem. Of course, the fact that FDIC could run out of money is a growing concern. Let’s hope our the message from elected officials doesn’t weaken confidence at a time of growing bank failures.
The clip discusses the too big to fail concept. In most cases, the failure of a small bank has limited if any impact on the depositors in those institutions, but it can wipe out investors in those institutions. Sheila Bair, FDIC chairman and one of the consistent voices of competency in Washington, suggested that lawmakers may consider some sort of cap on size – giving some definitions toward the “too big to fail” concept.
It talks about the increased reliance on “brainy financial engineers” called quants and how they were focused on modeling risk without paying attention to historical trends as it relates to mortgage securitization (and we now understand the ultimate impact on housing markets).
In 2000, while working at JPMorgan Chase, Li published a paper in The Journal of Fixed Income titled “On Default Correlation: A Copula Function Approach.” (In statistics, a copula is used to couple the behavior of two or more variables.) Using some relatively simple mathâ€”by Wall Street standards, anywayâ€”Li came up with an ingenious way to model default correlation without even looking at historical default data. Instead, he used market data about the prices of instruments known as credit default swaps.
The phrase “don’t kill the messenger” (probably used by many ethical appraisers commiserating about delivering bad news to a lender who didn’t want to hear it) applies here. This engineer profiled created a formula and the masses loved for its simplicity and were blinded by high profits, never looked deep enough to understand its misapplication.
Nassim Nicholas Taleb, hedge fund manager and author of The Black Swan, is particularly harsh when it comes to the copula. “People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked,” he says. “Co-association between securities is not measurable using correlation,” because past history can never prepare you for that one day when everything goes south. “Anything that relies on correlation is charlatanism.”
It seems that smart people do not have all the answers. Here’s a nobel laureate in economics on Wall Street whose firm just filed for bankruptcy.
Posted by Jonathan J. Miller -Wednesday, February 11, 2009, 12:48 AM 3 Comments
Back in January, David Lereah, former chief economist for the National Association of Realtors, came clean with the Wall Street Journal. It appeared to be more of a timed interview to coincide with the start of his new venture.
Mr. Lereah, who says he left NAR voluntarily, says he was pressured by executives to issue optimistic forecasts — then was left to shoulder the blame when things went sour. “I was there for seven years doing everything they wanted me to,” he said, looking out his window to his tree-filled yard in this Washington suburb.
The spin from NAR was excessive and offensive during his reign – so much so he inspired blogs like David LereahWatch and kept the blogosphere full of content for many years. I remember thinking the disconnect of his press releases during his reign was significant and infuriating.
I got to meet him in the green room before we were both on a CNBC special in 2004 at his height (I was an obviously lesser figure in the program) yet he seemed embarrassed about his prognostication.
It’s hard to imagine that NAR and Lereah were not acting as a team in the false message delivered in a procession of press releases. Although both have separated ways, NAR and Lereah are still at it.
Because I came across a press release today from his new ventureReecon Advisors, Inc. For $495 per year, you can get to hear what Lereah thinks about the housing market – he writes his newsletter from home and has less than 50 subscribers but hopes to get more. Because he is now independent, he will provide an non-biased viewpoint. Ok, doesn’t the very fact that he would say this completely discredit because it infers – he – can – be – bought. Why is now different?
Listen, I don’t fault the guy for trying to make a living. After 7 years of hard core spin, a subsequent apology that confirmed this, mockery by the blogosphere who outed his frequent misdirections, and later disenfranchisement with NAR, who on earth would actually subscribe?
The web is a beautiful thing. You can set up a web site and appear like a big research think tank. Makes your head spin doesn’t it.
Aside from Declining Declinism, I would also could consider Recessionary Recess and Falling Fallout. My kids remind me often of the double-negative wonder of “That’s totally non non-heinous” used effectively in Bill & Ted’s Excellent Adventure.
Bill and Ted take this to the extreme and use it to their advantage to really emphasize words. If something is heinous it is bad. If itâ€™s non-heinous thatâ€™s one negative and it becomes good. Itâ€™s itâ€™s non-non-heinous then the negatives cancel each other out but the emphasis of the word heinous becomes double, so it becomes really bad.
Here’s the gist from Dan:
Economic prognostication is hamstrung by a tendency to extrapolate from recent trends far into the future. It happens at the top of a cycleâ€”the Dow is going to 36,000! Housing prices will never fall!â€”and it happens when we plunge into a ditch.
Troubled Asset Relief Program (TARP), which infused billions of dollars into the financial system, helped prevent more institutions from failing. TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees.
State Comptroller Thomas P. DiNapoli seems to be inferring that high level executives held back and the more pedestrian lower paid employees took the money? I don’t think so. Sure, CEOs at Citi and others witheld bonus compensation, but that wasn’t in the majority. In fact 79% of all Wall Street employees got paid a bonus this year.
The president needs to think like Andrew Cuomo. â€œ â€˜Performance bonusâ€™ for many of the C.E.O.â€™s is an oxymoron,â€ he said. â€œI would tell them, a) you donâ€™t deserve a bonus, b) where are you going to go? and c) if you want to go, go.â€
Firstly, I think we all need a refresher course on what a bonus is:
noun, plural -nusâ‹…es
1. something given or paid over and above what is due.
2. a sum of money granted or given to an employee, a returned soldier, etc., in addition to regular pay, usually in appreciation for work done, length of service, accumulated favors, etc.
3. something free, as an extra dividend, given by a corporation to a purchaser of its securities.
4. a premium paid for a loan, contract, etc.
5. something extra or additional given freely: Every purchaser of a pound of coffee received a box of cookies as a bonus.
I always saw bonus as a mislabeled compensation method – most see it as base pay plus commission. After all, the average compensation on Wall Street has averaged 40% to 50% of total compensation and bonus payouts have been at or near record levels over the past 6 years – based on nothing really. It morphed into a way to offload compensation risk to the employees. We’ll pay you half of your salary at the end of the year if we can, which morphed into no matter what.
Felix Salmon at Portfolio opines further on this point – that there is a minimum bonus payment level that must be made (seemingly contrary to Andrew Cuomo’s statement above).
Now there are good reasons for having a bonus system: it incentivizes profitable work, and it makes it easy for banks to pay less money in lean years. But as Bookstaber writes, there’s definitely an implicit minimum bonus at investment banks — a sticky level below which it’s hard to cut bonuses any further.
There are reasons to have a minimum bonus, rather than baking that money into base pay: it’s not included in pay-rise calculations, for starters. But when banks start getting multi-billion-dollar government bailouts, it looks really bad if they then just turn around and spend a similar amount of money on bonuses.
But resentment is growing and the campaign weary “Main Street vs. Wall Street” has found new life. Wall Street has lost billions, been bailed out for billions and been paid billions in bonuses. The mortgage securitization juggernaut will end up costing taxpayers trillions and the industry is whining about compensation.
But seriously, did Congress really expect Wall Street to stop paying out bonuses voluntarily? Its part of the culture, always has been. It’s like asking Congress voluntarilynot to run attack ads and not be overly partisan - it’s simply built into their DNA.
No moral judgement being made here – people outside this world don’t seem to understand what makes Wall Street tick. If its not mandated, then status quo will prevail.
I’m not quite ready to use the word “haunted” in my housing language, but I had a nice chat with Brian Sullivan and Mandy Drury of CNBC TV’s ‘Street Signs’ – 30 Rock is always quick walk from my office... Read More