Friday Morning March 12, 2010 7:00 AM to 8:30 AM [TOMORROW]

Usually I post something AFTER I speak, but since I was invited to “guest co-host” (in title only since I’ll have no idea what I am doing) Bloomberg Surveillance tomorrow, I thought I’d give a head’s up. I’ll be on with Ken since Tom will be traveling.

Talking mortgages, housing, mods, short sales, foreclosures. Always fun to be in the studio.

The release of pent-up demand in late 2009 greatly improved the absorption picture for re-sale property in Manhattan. Not much change, however, over the first two months of the year.

February 2010

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Elevated sales activity in the second half of 2009 showed a greatly improved absorption rate for all market price strata. Even when I began to track absorption in this manner last August, the picture had already improved greatly. See below to compare to current.

August 2009

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View 2009 and 2010 archives.

Note: This chart series does not include shadow inventory (properties ready for market but not yet listed for sale) so it generally understates the rate of condo absorption. The data set is too thin for a reliable Uptown presentation.

I recently had the good fortune of getting to know the founder and owner of LINK Boston, Debra Taylor Blair. Her firm built and operates the MLS system in Boston. She also provides invaluable information to the public and the real estate community through her Conversation Series.

She and I are kindred spirits in the world of data and look forward to a better understanding of the Boston market.

Coming soon: Matrix coverage of the Boston market.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.

Trulia released its Price Reduction Report for March 2010 and press release

The report suggests that sellers are being more realistic when pricing their homes. Over the past year, the rate of price decline began to ease and actually stabilize in certain housing markets. Prices stabilized, largely because sellers finally began to adapt to the new (lower priced) market.

I wouldn’t be surprised if this discount trend begin to expand again in the coming months as sellers enter the spring housing markets with more optimism after a higher level of activity at the end of last year. The tax credit continues to play a role in the higher level of demand. As Trulia builds history on this report, I’m interested on seeing what seasonal patterns there are.

Unemployment remains at very high levels and credit remains very tight. I don’t this see this trend suggesting a housing recovery – its more of a sign that we are leaving surreal market conditions of 2009.

a new all-time low for national home price reduction levels since the company started tracking in April 2009, with 19 percent of listings currently on the market in the United States as of March 1, 2010 experiencing at least one price cut. This represents a 10 percent decrease from the previous month and the first time price reduction levels have dropped below 20 percent. The total dollar amount slashed from home prices dropped to $21.6 billion and the average discount for price-reduced homes continues to hold at 11 percent off of the original listing price.

Of the 50 largest US cities…

Top 5 Cities (most price deductions)

Bottom 5 Cities (least price deductions)

US home sellers more realistic on prices -Trulia

The percentage of U.S. homeowners who cut the listing price on their houses fell in February to the lowest level in 10 months, as initial pricing became more realistic heading into the spring selling season, real estate web site Trulia.com said on Tuesday.

President Obama announced his intent to appoint several individuals to serve on the Recovery Independent Advisory Panel. One of them is Edward Tufte who has been my inspiration to look at the housing market with data in different ways. He’s taught me how to see through the BS in charts and tables we are spun with nearly every day – and no – I am not one of his PR people.

He says:

I will be serving on the Recovery Independent Advisory Panel. This Panel advises The Recovery Accountability and Transparency Board, whose job is to track and explain $787 billion in recovery stimulus funds.

Anyone who has been reading this blog since the early days (2005) knows I am a big fan of Edward Tufte, professor Emeritus of Political Science, Statistics, and Computer Science at Yale University. His self-published books are fascinating and cover the way we present information. I’ve attended one of his seminars when he came to New York.

• The Visual Display of Quantitative Information
• Envisioning Information
• Visual Explanations
• Beautiful Evidence

I especially love his essay on Powerpoint, the worst way to present information in the history of mankind (ok, so I get a little emotional about the topic). Here’s a sampling.

The Obama administration has come up with a radically aggressive plan to reduce foreclosure activity which has remained alarmingly high. The key ingredient is to encourage lenders/services to allow more short sales – selling the home for less than the amount of the mortgage without going after the debtor for the shortfall. Mortgage modification plans have not been successful to date.

The New York Times page 1 story today Program Will Pay Homeowners to Sell at a Loss does a masterful job in presenting the program and summarizing the problems of the issue to date, I just wish the title wasn’t so simplistic.

Perhaps I am missing the point, but I feel like this solution has focused on the wrong side of the mortgage default equation. Are servicers going to forgive $200,000 in principal to get $1,000? Are homeowners going to move forward because they get $1,500 (more than the servicer) in relocation fees?

The flood of short sale requests are already overloading many bank’s ability to handle the administration of this crisis – hard to see them able to manage the process any more efficiently.

However, the only way out of this crisis is a solution with principal foregiveness in the equation or people will simply walk away and perhaps the servicer/lender ends up being hurt more. No easy answer I suppose.

Real estate agents will determine property value

One mechanical aspect of this process which demonstrates the administration’s and government in general’s disconnect in the need for neutral analysis of value. Real estate agents, who are paid to sell property, determine the “reserve” price above which the lender/servicer must adhere to.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”

How about a neutral party in the process? A qualified appraiser? (not the yahoos doing AMC work in high volume). I would assume the agents selecting the number are not allowed to sell the property (huge assumption on my part) but why not have someone who can’t ever sell the property, whose full time job it is to estimate market value, be assigned that task?

The devil is in the details.

It’s time to share my Three Cents Worth on Curbed, at the intersection of neighborhood and real estate.

Three Cents Worth:
Reading the Tea Leaves of Listing Inventory

This week I thought I’d try to compare the listing inventory trend in the first two months of any given year and see if there was a corresponding change in re-sale price per square foot adjusted for inflation. The thinking is that faster inventory growth means more weakness in price—pretty basic.

[Click to expand and read full post on Curbed]

Check out previous Three Cents Worth posts.

Zillow has been one of the most visible and talked about AVMs (Automated Valuation Models) in the US and enjoyed considerable press during the housing boom. Of course they have always been at the mercy of the quality of public record data despite their technology prowess.

Perhaps they were more guilty of overhyping the reliability of their “Zestimates” in the early days by presenting value estimates precisely down to the dollar. But hey, it was cool to see how much your neighbor’s house was worth.

There was an interesting article in Valuation Review (subscription) and HousingWire.

The study concludes that:

Zestimates on Zillow.com are no more accurate than homeowner’s estimates.

When it comes to using the Zillow.com automated valuation model (AVM) to get a free listing price on a house, users may be getting what they paid for, according to a report published by the Appraisal Institute that finds the Web site overestimates the values on homes almost as often as the actual homeowners.

Zillow has become the real estate punching bag to the real estate community. And once again, they are on the defensive in the media coverage of this report.

Here’s the issue:

The key issue regarding Zillow’s Zestimates is whether they reflect transaction prices. Zillow has been described both as “a useful site” and as “categorically wrong.” There have been many instances of praise and many instances of complaints by homeowners using the Web site to estimate the value of their homes. Realtors in general have also been critical of the values produced by Zillow.

Agents had issues with over valuation because they tended to set seller’s expectations too high. Of course, appraisers have an ax to grind with a service that was perceived to trivialize their expertise in valuation.

The report, “Zillow’s Estimates of Single-Family Housing Values,” was authored by Daniel Hollas, Ronald Rutherford and Thomas Thomson, doctors in economics, real estate and business, respectively. The report was published in the quarterly technical and academic publication of the Appraisal Institute, the nation’s largest association of real estate appraisers.

View the report.

Floyd Norris’ Off The Charts column “Banks Out of the Woods? Maybe Not” had some sobering news from the FDIC.

• $1 of $8 in outstanding 1-family mortgage loans is to a troubled borrower.
• 40% of 1-family residential construction loans delinquent or uncollectible.
• Number of outstanding loans falling, even after adjusting for write offs.
• 2.9% of loans written off in 2009, highest rate in FDIC history.

Some good news?

• Fewer loans are going bad – 30-89 day loan arrears falling

However this good news may be misleading – a regulatory change allows banks to only write down the exposure.

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The Wall Street bonus pool rose 17% and average bonus per person rose 25%.

Wall Street bonuses paid to New York City securities industry employees rose by 17 percent to $20.3 billion in 2009, according to an estimate released today by State Comptroller Thomas P. DiNapoli. Total compensation at the largest securities firms grew even faster and industry profits could exceed an unprecedented $55 billion in 2009, nearly three times greater than the previous all-time record. In 2008, the industry lost a record $42.6 billion.

On the surface this sounds like there will be a big jolt to the NYC regional economy. The sector is an important economic engine, providing 25% of the income from 5% of the jobs. Every job lost on Wall Street causes the loss of 2.5 private sector jobs.

The higher growth in bonuses are bittersweet – while the average per person bonus was up because there was job loss in the sector. Arguably few jobs lost than forecast but it tempers the bonus impact on the real estate economy.

But bonuses are controversial especially when so many are struggling outside of Wall Street. President Obama fell prey to populist sentiment with his “Fat Cats on Wall Street” comments but now doesn’t “begrudge“ them (I’ve never been able to use begrudge in a sentence before).

Bonus income accounts for as much as 50% of total compensation for an individual.

But as John Mack, Morgan Stanley Chairman, has said

“I still don’t think the industry gets it,” Bloomberg reported the veteran banker as saying yesterday during an appearance in Charlotte, North Carolina (hat tip Huffington Post). “The issue is not structure, it is amount.”

My anecdotal feedback is that compensation seems to be about 70% restricted stock and 30% cash. And institutions like UBS are reportedly paying out half of the cash compensation now and half in 6 months.

That knocks the wind out of the “sales” (sorry) for a spring frenzy in the NYC housing market that has grown accustomed to a frenzy over the past decade. Still, it will help but I am skeptical about it helping above seasonal expectations, but who really knows.

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Source: New York State State Comptroller