This clip was a general article on the spillover of housing weakness in the US to the general economy. Note the “phone action” in my interview.

I covered this topic in another post earlier today called: Inflated Housing Expectation’s Sticky Downside: Recession

The fourth issue of the Trulia Trends Report was released this week. Its a continuing evolution of ideas that has come as a result of the collaboration between Trulia and my firm Miller Samuel. (disclosure: I am a member of Trulia’s advisory board.)

In this month’s issue the spotlight focused on the Second City, which interestingly enough, was the 2nd hottest city on the list.

Download the April 2007 Trulia Trends Report [PDF] here.

Here is Trulia’s post about the new report.

Check out their national heat maps. They are one of my favorite features of their service.

Waiting for the other shoe to drop and its getting sticky.

Since the housing boom ended in mid-2005, the Fed has continued to play the roll of inflation hawk, worried that an over heated economy will force them to raise the federal funds rate even higher. I get the impression that they have been saying this for so long (2004) that they seem to be missing the economic slowdown (of course, I am exaggerating).

This topic is covered in the Bloomberg piece Bernanke Is Wrong on Inflation, Goldman, Merrill Say.

“House prices could decline as much as 10 percent,” said Maury Harris, chief economist at UBS in New York, in an interview. UBS, based in Zurich, is the world’s biggest money manager for the wealthy. Fed research doesn’t agree. The central bank reported “signs of stabilization in housing demand in most regions of the country,” according to the April 11 report. “Home-buying attitudes improved and continuing job growth could be expected to support home sales.”

I wonder if they are speaking to New York market participants only, because the market here is one of the few in the country that is doing well. The economy is showing weakness and a recession is a growing concern but not on many people’s radar these days.

GDP grew 1.3% in the first quarter, averaging 2.2% for the past year and well below the Fed’s 3% expectation level.

Two hands…
On one hand, the Fed is concerned about inflation and higher mortgage rates further crippling an already weak housing market. On the the other hand, the other side views the economy as not yet bearing the full brunt of the housing slowdown. I have been on the latter side, contending that the lag time for housing to fully impact the economy is probably more like 1-2 years from the point the housing market began to slow.

Since that point was about mid-2005, that means right about now. Yet the odds of a rate cut seem to be slipping. Muddy economic discussions lumber along, with an occasional insertion of the word “inflation” to nudge us awake periodically.

Housing prices tend to be sticky on the downside, falling at a far slower than they rose since many sellers simply opt not to sell. Hence the delayed housing market reaction, only accelerated (or primed – ok, sorry) by subprime. Nationally, foreclosures are rising, the number of sales are falling and prices are slipping.

I am guessing that if the Fed is very much wedded to holding firm for a while, which will keep mortgage rates stable and at low levels, but if it doesn’t cut rates by the end of the year, its going to get sticky and we may be using the “R” word a whole lot more. Or perhaps the “S” word (stagflation).

I am always fascinated by the spectre of blame that fills the commentary of the housing market, from insane commenters on Curbed, to mainstream media sound bites. Last fall, before the outbreak of subprime fever, I had noticed the beginning of the transition from housing bubbles to mortgages.

Daniel Gross in his always interesting Moneybox column on Slate writes about the widespread blame on the housing market for our nation’s woes in The Real Estate Blame Game: the unlikeliest victims of the housing slump.

Here’s a summary of the problems caused by a weak housing market:

• Pickup truck sales
  
• Railroads
  
• Boat retailers and manufacturers
  
• All of Latin America
  

But we all know that the weather is the cause of all of housing woes so we can safely say that pickup truck sales, railroads and boat retailers, especially those who are exported to Latin America, are severely impacted when the snow on the ski trails in Utah, feel as light as champagne.

Sigh

This was a split screen discussion on luxury foreclosures. Note my two titles in the video.

A few thoughts about auction properties:

• The discount achieved is usually based on an unrealistic list price, suggesting a wildly large discount.
  
• When a listing is sold through an auction, the discount, if any, is the result of a short marketing period. In other words, the property is exposed to a specific buyer for a very short period of time. The advantage to an auction sale is that sellers to whom “time is of the essence” get a reprieve and unload the property sooner. Its not a discount for the sake of a discount. They are essentially paying for a shorter marketing time.

Radar Logic Incorporated and my appraisal and consulting firm Miller Samuel Inc. have entered into a joint venture named Radar Logic Research, LLC.

Radar Logic Research Press Release [pdf]
Radar Logic White Paper Here’s more technical information.

Radar Logic Incorporated, through its partner Ventana Systems, Inc. a mathematics consulting and software firm, have leveraged methodologies commonly used in the sciences, and applied it to real estate. The objective was to make sense of the national residential housing market by creating a daily housing “spot” price to be used in the trading of real estate derivatives.

The Radar Logic Daily Index is a single, statistically accurate value representing the price per square foot paid in a defined metropolitan area on any given day. Data is gathered from public source records and then translated by our proprietary algorithms into an accurate reflection of the values paid in actual arms-length real estate transactions.

First, a little history…

The name Radar Logic references modern radar, and its ability to illuminate order out of chaos.

When I met with the CEO Michael Feder not too long ago and began to grasp what he and his team had accomplished, a light bulb went on in my head (despite the usual foggy conditions) and I wanted to be a part of this effort immediately. (more on that below) The Radar Logic approach solved the glaring problems found in national market statistics, such as moving averages and omission of data types. Up until now, this has prevented the financial markets from efficiently using residential real estate as a basis of trading instruments such as derivatives in a manner similar to the futures and options contracts available in more traditional commodities.

A derivative is a financial instrument used to trade or manage the asset upon which the instrument is based. It “derives” its value from something else (another asset or instrument). Derivatives are most often used to manage risk or to take positions on future market directions. Derivatives exist for a wide range of assets, such as commodities (gold, oil, corn), stocks and bonds, and on indices, such as the Dow Jones Index®. Until now, there have been few derivatives markets for residential real estate. Radar Logic Incorporated was founded for the purpose of enabling financial derivatives based on real estate.

The residential housing market is the largest asset class in the United States. To provide some perspective, the Federal Reserve indicates that the US housing market represents about $21 trillion in value. Commercial real estate, while a large asset class, is only about 20% of that amount. Yet because the residential real estate market is made up of 124 million units worth an average of around $240,000, it is fragmented and difficult to measure.

In addition, residential real estate as an asset class, is constantly changing. It is characterized by seasonality, new development, the surge of condos in metro areas and now, the rise in foreclosures. Its always changing. The Radar Logic methodology considers all verifiable transactions in a market to arrive at a value for the day that is not a moving average.

Its really exciting, and its groundbreaking stuff, to say the least. The beauty of this approach, is that there are no hidden filters, assumptions or calculations. In other words, the market is the market.

In addition to my duties at Miller Samuel and Miller Cicero, I have become Chairman of Radar Logic Research, LLC as well as Director of Research for Radar Logic Incorporated. I am still going to be active in the operation of Miller Samuel and produce the New York area market report series for Prudential Douglas Elliman that I created and have authored since 1994, with more markets to be added. Trust me, I have simply invented more time in a day. (More on that at another time, when there is more time in the day.)

Radar Logic Research will develop and publish research products providing market commentary and analysis related to real estate values across the United States later this year for institutions as well as enterprise-specific consulting services to real estate and financial organizations, including builders, developers, brokerages, commercial lenders, REITs, and investors such as pension funds, hedge funds and insurance companies. The initial plan is to offer these services to cover 25 major metro areas, roughly 2/3 of the value of the US housing market.

More on this to come!

Ok, back to work.

The PDF version of the 1Q 2007 Long Island/Queens Market Overview [Miller Samuel] that I write for Prudential Douglas Elliman [PDE] is available for download. We just introduced this study series in 2006.

You can see the methodology that went into the report.

You can also build your own custom data tables using the aggregate report data (from 2Q 2003 through 1Q 2007). I have created a series of quarterly market charts that may be of interest as well.

_An excerpt_

…Overall price indicators showed weakness this quarter particularly at the higher end of the market. Overall median sales price showed relative stability as compared to the same period last year while average sales price showed a modest decline. Inventory levels are expected to level off as seasonal demand increases the number of sales. Current inventory levels remain below those seen in the second and third quarters of last year. However, the number of sales for the quarter is the lowest seen in three years suggesting a lower intensity of sales activity this spring, even when seasonally adjusted….

Download report: 1Q 2007 Long Island/Queens Market Overview [pdf]

Here’s the media coverage for the study. I think I got most of them. Normally I would have covered this the day of publication last week but if you remember, I was kind of in Seine.

Here’s the recap:

Bloomberg News
The Real Deal
New York Observer
Newsday
Crain’s New York

WPIX CW11
Bloomberg Television – In Focus

Bloomberg Radio
Bloomberg Radio

Periodically, I see a cartoon that grabs my interest (so its got to be real estate related). This one comes from one of my regular reads, The New Yorker which is chock full of great cartoons, and yes, I do read the articles too.

I didn’t get official permission so I hope they don’t mind. This was emailed to me as part of their cartoon of the week presentation.

The caption might read:

Are they moving in or out?

My vote is in and it seems to be a perfect fit. Don’t we wish all buyers felt the same way?

Since 2003 I have provided a chart that appears once a month in the Economic Spotlight section of Crain’s New York Business magazine. Here is this month’s chart appearing in the current issue of Crain’s New York Business.

Go here for a complete archive of all my Crains’s New York Economic Spotlight charts. They are organized by year.

As an added bonus (to me, actually, ’cause I am in it), there is an interesting article in Crain’s on how NYC currently has the edge over the outlying suburbs.

In our other blog, Soapbox, I wrote a post called Appraiser Inflation, Systematic Inattention And False Markets, in my Sounding Bored column.

This week I notice some are now finally paying attention to the inflated truth in the real estate market, albeit a little too late.