[Matrix Zeppelin Series] utter desperation, Madden Curse, collapse city, anonomous wolves, sales are way off, listen to the CEOâ€™s, parallel universe, blink first, entry barrier, fierce competition, stretch to buy, WAY south
Posted by Jonathan J. Miller -Friday, October 6, 2006, 2:36 PM
A lot of grumbing about the economy and real estate brokers this week (that isn’t hot air) as well as some carry over on the herd mentality discussion last week. Here’s a few notable comments from the Matrix Zeppelin:
Concerning the issue about the media and the herd mentality â€“ There is no question in my mind that the media helps create a mindset that pushes the trend to the extreme. I am a regular reader of Money.com. Last year, they ran a regular series of articles called â€œMogul in the Makingâ€ that show cased how some average person (like a fireman or a housewife) was making big bucks in real estate. The articles mostly made you feel like you were missing out if you were not investing in real estate. During that time, never once did I see an article about someoneâ€™s home not selling. Now, they run an article about once a week called â€œHelp â€“ my home wonâ€™t sellâ€ and showcase someone who had high hopes of a quick sell and itâ€™s just not happening. The articles are written to show utter desperation on the part of the seller. In the â€œhotâ€ market, I know of homes that sat on the market for months, and I now know of homes that have sold in a matter of days (I am in Atlanta). Once a trend starts, the media shows no balance at all, which in turn helps drive the â€œherdâ€ to the extreme.
The funny thing about Herd Mentality (and something that Wall Street veterans know) is that going in other direction can be much more profitable. I look at Money Magazine cover stories and I think of the Sports Illustrated Curse. If youâ€™re younger than 25, you may also know this as the Madden Curse. Anyway, I am envious of homebuyers in the market right now. Not only are mortgage rates the lowest that theyâ€™ve been in 6-8 months, but sellers are fearful of not being able to sell. Low rates and low prices â€” an excellent buying situation.
I would hate to be in a fox hole with Ms. Corcoran. Her suggestions have panic written all over them. If I were interested in her clients home I would know beyond a shadow that they were in â€œcollapse cityâ€ mode. Maybe some creativity and good old fashion overtime would help. Problem is these sellers have signed up for a closing as quick as possible evidently. Buyers lick your chops. Itâ€™s time to unleash the capital now that everyone is locking down.
[re Curved: Three Cents Worth] Holy Crap did you get thrown to the anonomous wolves! I love that when one person voices their opinion openly, it is criticized by those unwilling to stand by their opinion with their name. At least I like the graphâ€¦ Good job.
I donâ€™t see why anyone would be envious of buyers when affordability is at an all time low. The fact that sales are way off in an environment of low interest rates and solid employment reveals just how far prices are from sustainable.
I think the key point that needs to be highlighted is that the July numbers were revised significantly lower than previous. If you go with the original July numbers Aug would be lower. My guess is they will futher revise the Aug numbers lower once all the new construction cancellation factors in. One just needs to listen to the CEOâ€™s of Lenar, Toll, etc on what the market is doing.
Iâ€™ve thought since this spring the short term rates would be falling simply as a corrective response to Greenspan paranoia. The inflation he was constantly fighting simply didnâ€™t exist, at least to the extent he wished us to believe. The economy has been absorbing all the â€˜extraâ€™ money supply. What Iâ€™m really eager to see is how the Fed responds to $45 oil, becuase it appears itâ€™s in our near future. Will they call the positive economic response inflationary? If so, weâ€™re in trouble again. Sometimes I think the Feds live in a parallel universe.
So whats it going to be. Are owners going to blink first or buyers. Will it be a soft landing,or will prices continue to decline gradually over a long period of time? I have a question for every owner trying to sell their apt in manhattan. Can they afford to buy their apt today for the price they are asking. Do they have the cash available for the down payment, do they have have the income necessary to service the mortgage debt. I bet the answer to this question by most sellers would be no. So what makes them believe that someone else out there can?
It is unfortunately true that the entry barrier for real estate brokers is very low, especially in New York. I have always found it odd that one of the toughest real estate markets in the world has such low qualification requirements for its professionals. Good news is, Department of State has decided to raise the bar. If there is no change in plans, as of January 2007, the number of hours required for licensing as well as continuing ed will increase. Although it is not quite sufficient to bring the industry standards to the necessary level, it is a start.
Thanks for posting this. I am seeing articles on line that indicate that new agents had it easy and will be the first to leave when things get tough. This business has never been easy. New agents had fierce competition because there are so many of us. Some of the experienced agents are the ones the coasted through the boom years and they may have trouble. They were so busy they did not take the time to learn new skills. They will wake up and realize that if they canâ€™t use a computer they may be in for a rough ride.
Iâ€™m surprised the number of people in NYC spending 30% of their income is so low. I certainly spent more than that when I lived on Avenue A. On a side note, I will suggest to the NYT that Boulder and College Station, where nearly 50% of renters spend 50% of their income are both home to large public universities, so the incomes may be skewed. As one who now manages a portfolio of workforce housing communities across the midwest and south, weâ€™re noticing a nice uptick in occupancy and a gentle increase in rents. We donâ€™t operate in markets like DC, where the â€˜conversionâ€™ fad removed a large portion of the managed rental stock (as opposed to investors who will rent individually), so rents are rising because of demand, not a lack of supply. That said, I donâ€™t agree with Mr. Frey that people necessarily stretch to rent as much as they stretch to buy. I think they rent where they feel safe, find attractive amenities, and can make their rent payments without unreasonably stretching.
If inflation continues to be a concern (as it is now, accorsing to fed statements), the Fed cannot cut rates. If it does, long rates will rocket up, making refis impossible. If inflation plummets and allows the Fed to cut rates, that means the economy is heading WAY south next year. I see no good outcome here.