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The 4Q 2009 Manhattan Rental Market Overview that I author for Prudential Douglas Elliman was released today.

Other reports we prepare can be found here.

Our data section is being re-built to accommodate rental results but in the mean time you can check out our growing rental chart library.

Press coverage can be found here.

The report tracks new rental activity, not renewals. Over the past three quarters, landlords have been much more aggressive with their efforts to bolster tenant retention. Anecdotal stories of landlords approaching tenants with lower rent offers continue, however the amount of concessions being offered appeared to level off a bit this quarter.

An excerpt

…All rental price indicators, excluding concessions, were below levels seen in the same period a year ago, but showed signs of stability since the prior quarter. Rental price per square foot was $47.02, down 4.6% from the prior year quarter and down 1.7% from $47.84 in the prior quarter. Average rental price fell 4.3% to $3,789 in the fourth quarter from $3,958 in the prior year quarter, but saw a nominal 0.8% uptick from $3,759 in the prior quarter. The smaller price declines and mixed results from the prior quarter suggest near term stabilization in prices…

Download 4Q 2009 Manhattan Rental Market Overview

Here’s a an over view of the just released Manhattan Market Overview for the 4th quarter of 2009. Its all about declining inventory, rising sales, stabilizing prices and a release of pent-up demand.

A solid recovery? Not so fast.

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.

American Casino movie trailer from Leslie and Andrew Cockburn on Vimeo.

I was listening to the C-SPAN Q&A podcast which was an interview with producers Leslie and Andrew Cockburn on their new independent film called American Casino which chronicles the breakdown of subprime lending via Wall Street. The starting point is subprime mortgage lending in poor neighborhoods of Baltimore.

The foil is Phill Gramm, Chairman of the Senator Finance Committee who in a masterstroke of politcal management, on December 15, 2000 at 7pm, appended a 260 page financial de-regulation bill to an 11,000 page appropriations bill just before the holidays, and because it was in the 11th hour, it was likely few read it and Clinton signed it. The bill exempted the financial instruments used in the credit boom from federal and state regulations – free of any supervision.

Gramm is now Vice Chairman of UBS.

This topic is nothing we haven’t heard before but its focus on Gramm is an interesting angle. I listened to the entire C-SPAN interview and while I enjoyed it, the story feels a bit tardy (although certainly very important because the pain is still playing out).

This systemic breakdown will continue to facsinate many for generations to come – hopefully serve as case study fodder at MBA programs as well.

The film credit pronouces:

“AMERICAN CASINO IS A POWERFUL AND SHOCKING LOOK AT THE SUBPRIME LENDING SCANDAL. IF YOU WANT TO UNDERSTAND HOW THE US FINANCIAL SYSTEM FAILED AND HOW MORTGAGE COMPANIES RIPPED OFF THE POOR, SEE THIS FILM.”

-Joseph Stiglitz, Nobel prize-winning economist

A few days after I heard the podcast, a federal judge threw out the lawsuit by the city of Baltimore against Well Fargo:

ruling that the city could not prove that the bank’s lending practices had resulted in broad damage to poor neighborhoods.

Perhaps a case of bad timing for the film makers? But but still a compelling story.

ASIDE: Speaking of film making (sort of) check out my friend Andrea Powell’s home improvement series for Lowe’s.

David Leonhardt had a fantastic front pager in the New York Times yesterday that was such a compelling read, I re-read it to try and absorb anything I missed the first time. The article Fed Missed This Bubble. Will It See a New One? looked at the case made by the Fed to enhance its regulatory power.

David asks the question for the Fed:

If only we’d had more power, we could have kept the financial crisis from getting so bad.

But power and authority had nothing to do with whether they could see a bubble.

In 2004, Alan Greenspan, then the chairman, said the rise in home values was “not enough in our judgment to raise major concerns.” In 2005, Mr. Bernanke — then a Bush administration official — said a housing bubble was “a pretty unlikely possibility.” As late as May 2007, he said that Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.”

I maintain that because of human nature, mob mentality, or whatever you want to call it, all regulators drank the kool-aid just like consumers, rating agencies, lenders, investors and anyone remotely connected with housing. Regulators are not imune from being human.

Once the crisis was upon us, the Fed and the regulatory alphabet soup woke up and began drinking a lot of coffee.

David concludes:

Which is why it is likely to happen again.

What’s missing from the debate over financial re-regulation is a serious discussion of how to reduce the odds that the Fed — however much authority it has — will listen to the echo chamber when the next bubble comes along.

Exactly.

I think this whole thing started with the repeal of Glass-Steagal where the boundaries between commercial and investment banks which were set during the Great Depression, were removed. Commercial banks had cheap capital (deposits) and could compete in the Investment Banking world. But Investment banks could not act like commercial banks. Their access to capital was more expense motivating them to get their allowable leverage ratios raised significantly. One blip and they go under.

Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller

2010-2011 USPAP changes: the need for transparency: it’s for your protection.

Over the past  2 years the “new world” has warranted many changes in the development and reporting of a value opinion:  clarity, specificity, accuracy….among other things.

In 2010-2011 add  “enhanced transparency “.  Like everything else in life that might seem painful at first, but is good in the end, this is the same premise here:  “it’s for your own good”.

Before we get to the “why” of this Ethics Rule change let’s take a summarize look at the other changes from the 2010-2011  issue of USPAP: 

• Definition of “Signature
• Definition of “Jurisdictional Exception
• Definition of “Assignment
• The ETHICS RULE
• The COMPETENCY RULE
• The JURISDICTIONAL EXCEPTION RULE
• STANDARD 3, Appraisal Review, Development and Reporting

Definitions changes are usually the result of the need for additional clarity as a result of words being misused or misunderstood.  In the real estate community, the use of words with presumed meaning, improper or not, is pervasive. Remember the Board only defines words that have different meaning than they do in the standard English dictionary.   The changes to the definitions in the 2010-2011 USPAP are straight forward:  the comment under the definition of “signature” was deleted and new language was relocated to the Ethics Rule, whereby the responsibility of managing one’s signature is discussed (even allowing someone else to sign for you).  The definition of “assignment” was enhanced to specify that it means both the agreement to provide…… and the service itself.  “Jurisdictional Exception” was redefined to reflect that parts of USPAP may be voided when the law or regulation  precludes compliance rather than the law being seen as “contrary” to USPAP.   As such, the JER was re-written in a clear concise way including 4 specific exhortations required by the appraiser when invoking the JER.  This “four-point requirement”  forces one to not only know the law or regulation but cite then and then examine and report the specifics of what  part of USPAP that needs to be voided.  The change to the JER is well done and makes what was a complicated issue, very clear and straight-forward.   The Competency  Rule was rewritten and divided into three sections: being competent, acquiring competency, and lacking competency.   Basically, Competency can be can still be obtained during and assignment, providing the PRIOR disclosure was made to the client as well as the written steps taken to become competent are contained  in the report.   Standard 3,  one of two standards that contain development AND reporting wrapped in one, was expanded and rewritten to meet the practical needs of current practices. Specifically Standard 3 was  expanded to discuss the development and reporting where the reviewer is providing alternate value conclusions including the reporting requirements, including discussion of competence, diligence and scope of work.    

Last but not least, there is a change to the Ethics Rule (as written in the 2010-2011 USPAP)  

If known prior to accepting an assignment, and/or if discovered at any time during the assignment,  an appraiser must disclose to the client, and in the subsequent report certification:

any current or prospective interest in the subject property or parties involved; and

any services regarding the subject property performed by the appraiser within the three year period immediately preceding acceptance of the assignment, as an appraiser or in any other capacity.

Comment: Disclosing the fact that the appraiser has previously appraised the property is permitted  except in the case when an appraiser has agreed with the client to keep the mere occurrence of a  prior assignment confidential. If an appraiser has agreed with a client not to disclose that he or she  has appraised a property, the appraiser must decline all subsequent assignments that fall within the  three year period.

At first glance, this would seem overly intrusive and overkill.  There are certainly arguments for and against it, like any changes. A change like this  is best viewed in the context of today’s real estate world.  A world in which fraud, bias and conflict of interest have become the “flavor of the day”.  And like any change there are always several questions.  This time there were so many questions that the Board created and devoted an entire  Q & A to respond.  This Q and A (April 2009) is also included in the 2010-2011 USPAP Student Manual…a first for the Foundation to include a Q & A in student material.   Rather than address those here, one would greatly benefit from the download of the Q &  A.   I feel it is best to dig a little deeper here.  Note the careful wording by the board… “or in any capacity”…which could mean…that you cleaned the windows…or cut the lawn or even painted the improvements.  While none of these things constitutes “valuation”, they do imply a relationship, or knowledge of the property….and indication that you knew “something”.   Question is how much and will there be another service down the road?  Sometimes the mere perception of a conflict or bias is enough to give one reason to doubt that the appraiser can be objective, independent and impartial.  Until 2010 year it was not a requirement to notify a potential client that the appraiser had a current or prospective interest in the property or parties involved, but it  was a requirement  to indicate that in the certification AFTER the assignment was delivered.  It seems that where there was no mechanism to ensure transparency and objectivity, there is no a sure definitive way to say to a potential client:  “I have been involved with the property…in the following manner_ and I feel I can be objective in solving the appraisal problem you seek a solution for”.  “I just need you to know up front” .  Of course this could lead those paranoid clients to engage another appraiser, but if not the appraiser will be on record should something strange arise in the future.  Either way, this is the new world and disclosure like this is in-line with all the written disclaimers I see flying around in the appraisal world.     

So as you digest these changes and there are more ( we have just reviewed the major ones here)  think about all those things in life that you felt where, unfair, wrong or just plain nonsense. Think about how many of them later in life turned out to be for your own good.   

Happy New (transparency) Year

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

Three Cents Worth: Manhattan Sales/Time Continuum Broken in ‘09

After releasing the Manhattan Market Overview this week and talking about the “release of pent-up demand from below-trend sales activity in the first half of 2009 as the cause for the surge in sales in the second half of 2009,” I wanted to show how much sales activity was skewed higher in the second half of 2009. As an aside, I wanted to look at whether the credit boom impacted Manhattan seasonal sales patterns (that’s a stretch, I admit)…

[Click to expand and read full post on Curbed]

Check out previous Three Cents Worth posts.

Absorption defined for the purposes of this chart as: Number of months to sell all listing inventory at the annualized pace of sales activity.

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The absorption rate continues to improve from a bottom up, but now there seems to be some build up of studio inventory.

View archive

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 to thin for a reliable Uptown presentation.

In this podcast I get to speak with Ben Jones, founder of The Housing Bubble Blog. With a background in business, economics, and accounting, he’s been a prolific blogger/analyst of the housing bubble and crash since late 2004 and is considered the go to reference source for bubble conversation. His site continues to draw a rabid readership who come there to lurk, exchange ideas, vent, call out spin and identify those in the real estate industrial complex.

In 2009, Mr. Jones was recognized by Inman News as one of the 50 most-influential people online in real estate. He also owns a property preservation, management, and investment company in Northern Arizona.

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.

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NAR released their November 2009 Pending Home Sales Index which ended a 9 month string of increases.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 16.0 percent to 96.0 from an upwardly revised 114.3 in October, but is 15.5 percent higher than November 2008 when it was 83.1.

NAR attributes the drop as a pullback during November related to the uncertainty surrounding the extension of the first time home buyers tax credit which expired November 30th. However it was subsequently extended and expanded to include existing home buyers who have until the end of this April to sign a bonafide contract. We may trivialize the tax credit’s success in the NYC metro area because of the higher housing costs relative to $8,000 and $6,500 tax credits respectively but from my discussions with real estate agents around the country, it did appear to trigger a large portion of home sales in 2009.

What does the 16% drop suggest? More weakness to come?

Yes, but not in the coming months (remember this is a seasonally adjusted stat).

It signifies that the US Housing market doesn’t yet have its own set of legs. No credit = drop in sales.

The credit extension ends in April, the Fed begins their pullout from the purchasing of Fannie Mae mortgage paper, perhaps influencing mortgage rates higher.

The combination of high unemployment, rising mortgage rates and the expiring tax credit in the spring, combined with the elixir of rising foreclosures causes by sustained unemployment at high levels suggests housing sales will fall in second half 2009.

Housing in 2010: Stability in the first half, with more concern for the second half.

In Bernanke’s speech to the American Economic Association on Sunday he suggested that it was regulatory failure, not keeping rates too low for too long, which caused the housing bubble.

Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates.

This seems to be splitting hairs, doesn’t it?

Low rates triggered the housing bubble as money became cheap and easy to get. If the Fed hadn’t kept rates too low for too long, the bubble would not have happened. The regulatory system was ill prepared for the insanity that followed. House prices rose so fast that underwriting had to evaporate to keep the mortgage pipeline full. Regulators hadn’t seen this before and with the removal of Glass-Steagal and Laissez-Faire mindset, everyone in DC, including Congress and regulators, drank the Kool-aid.

Actions Taken Too late

Mr. Bernanke has pointed to the Fed’s extraordinary efforts to stem the crisis, including the creation of new lending vehicles to banks and a reduction of bank-to-bank interest rates to virtually zero, as evidence that the Fed has a firm grasp of what the economy needs. The Fed’s handling of the crisis has been widely praised by economists.

The Treasury and other government agencies already have supervisory power over parts of the financial system, but so, too, does the Federal Reserve.

In his talk on Sunday, Mr. Bernanke acknowledged as much, rattling off a list of regulatory efforts the bank made to address nontraditional mortgages and poor underwriting practices.

But, he said, “these efforts came too late or were insufficient to stop the decline in underwriting standards and effectively constrain the housing bubble.”

All regulators are human and subject to mob mentality just like politicians and consumers were. Everyone is awake now. That’s why I think a “bubble czar” type position is silly. I’m not blaming the Fed or Bernanke. Now about Greenspan….

In fact I think the Fed has done an excellent job keeping our financial system from the brink. Lets recognize Bernanke’s comments for what they are – dodging the minefield of Congressional approval. God help us if Congress is able to audit the Fed. Its not the audit I object to – its the politicalization of it. We need to keep the Fed neutral (in theory).