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economy: posts about local and macro economics that affect housing and mortgages

April 3, 2014

Robert Shiller on investing in the housing market

I never seem to like this man's opinions, but occasionally find myself in reluctant agreement. Enjoy!

Nobel laureate Robert Shiller talks with WSJ.Money contributor David Wessel about the wisdom of investing in real estate and his provocative proposal to arrest the growth of inequality in the U.S.

Courtesy WSJ

April 27, 2012

Design-intelligent urban development

new developmentThis is a fascinating keynote by architect and urban planner Vishaan Chakrabarti, Director of Columbia University's Center for Urban Real Estate or CURE. There are some big ideas presented here about the future of New York City's development built around sustainability, economic return to the city, and unlocking the potential of underutilized land, by creating well-designed urban density and mass transit to service it.

One statistic that jumps out is that there are about 4 billion square feet of unused FAR (development rights) in our city today. This is actually land unused because of regulation which, if intelligently developed, could provide valuable economic growth and infrastructure for future generations of New Yorkers. The proposed creation of LoLo, a new lower Manhattan land mass connecting Governor's island with the Financial district is presented too, giving us a glimpse of what thinking out of the box really looks like, when not being used as a marketing punchline.

From the CURE web site: CURE identifies, shares, and advocates solutions for a rapidly urbanizing world. CURE redefines sustainability as dense, mixed-income, mixed-use, transit-based urban development. From climate change and energy dependence to the socioeconomic and political upheaval they engender, CURE addresses emerging and current global issues through the lens of urbanization.

visit the CURE site »

January 5, 2011

The Global Economy in 2011

Here's a post from our friends at the Wharton School of Business that takes a look at the economy globally, with some cautious optimism. I believe that in our local New York City housing market we've clearly seen some stability and even modest appreciation off the lows. Yet nationally, housing and unemployment are still putting a drag on the economy. Read on to see the perspective of some Wharton faculty on how that may look in the year to come.


The Global Economy in 2011, A Rocky Ride or Smoother Sailing Ahead?

In the United States, most experts are betting that the economy will grow stronger this year, but they warn that high unemployment, a depressed housing industry and other problems could dampen growth. Meanwhile, the fate of the euro is still in question, and the specter of inflation looms large in China, Latin America and India despite their resilience to the recent global downturn. In the Middle East, observers expect renewed growth, but they note that resource constraints will become an increasing problem for the region. Knowledge@Wharton spoke with Wharton faculty and other experts to get their views on what's ahead for the world economy in 2011.

The United States: Housing and Unemployment Risks

In the U.S., "the threat of a double dip [recession] has passed," says Wharton finance professor Richard Marston. The congressional compromise to extend the Bush-era tax cuts for two years should help the country's recovery, he predicts. "With the added stimulus of the tax bill, we will have continued growth in 2011."

Still, "there are some very severe downside risks," says Wharton finance professor Franklin Allen. One main concern is housing: Allen, Marston and other experts agree that the uncertain housing market will continue to be a drag on the economy.

"In the housing market, the data is going in different directions," Wharton real estate professor Susan M. Wachter notes. Some reports show sales picking up, while others show prices continuing to stagnate. "The bottom line is that we're bouncing along the bottom.... We're likely to be in a holding pattern." Fortunately, Wachter says, the weak housing market probably will not do too much additional damage to the economy, as most of the harm has already been done. New-home construction is not likely to go lower, for example.

According to Wachter, the housing market has enjoyed some stability because many lenders have been reluctant to foreclose and sell homes at fire-sale prices. A lender is typically willing to sell when a foreclosed property can fetch as much as the appraisers say it is worth, she says, but appraisers rely on backward-looking data that is quickly out of date in a volatile market, making it hard for the lender to know what a property is really worth.

Another problem, Wachter notes, is the recent rise in mortgage rates, which increases payments, makes homes less affordable and undermines sales. In addition, high unemployment reduces the number of potential buyers, she adds.

"The unemployment situation is still not good, and that's going to take a long time to change," Allen agrees. "There's been some upturn in consumer spending, but until things start looking better on the housing and unemployment fronts, I think [consumer spending] won't drive things forward."

While many U.S. retailers reported a good holiday season, it is not certain that consumers, who are the most important force in the economy, will continue to reverse the tight-fisted habits developed in the past few years, Allen says. Whether they have really loosened their purse strings or did so only for the holidays is unclear.

U.S. economic growth also could be hampered by ripple effects from the continuing debt problems in a number of European countries, Allen notes. In addition, economies are starting to overheat in some developing countries, especially China, he says. China has started to raise interest rates to curb inflation, but that could draw more foreign money into China, possibly depriving other countries of capital they need to speed growth while worsening China's inflation problems.

continued »

December 16, 2009

A snapshot of the Manhattan Real Estate Market today

Corcoran Manhattan market report» download snapshot (544kb) I'm presenting some data published here by Corcoran based on November contracts signed, which leads the sold and closed metrics by 60 to 90 days. This is telling if you are thinking about bringing a home onto the market, or buying one in the first half of 2010. I've met several new customers who will be spending bonus money in the first quarter, but others have been sitting on the sidelines waiting to see what was going to happen before plunking down hard earned, and recently recovered savings. I can feel the momentum to a busy first quarter of the year starting already. It was not unusual to see multiple bids on properly priced homes this December.

In truth, we've seen good activity in the final quarter of 2009. A year ago, amid the uncertainty of the financial crisis, sales activity had slowed to a trickle. This chart shows the number of Manhattan contracts signed market-wide since November of 2007 for some context. Today they are up 193% since January, largely because of improved opportunities for buyers, and consumer sentiment generally feeling better.

click on the chart to enlarge

Manhattan number of signed contracts per month in 2009

The sales activity has a roughly inverse relationship to the chart below, which shows the supply side. A year ago we began to see peaking inventories of apartments. It has today decreased by 25% since November 2008. While there is some "shadow inventory" of new developments (unlisted/unsold) unaccounted for in these metrics; the pipeline of newly developed units, has virtually been turned off. Developers accepted the new market reality and began improving prices as the year continued.

click on the chart to enlarge

Manhattan for sale housing inventory per month in 2009

november 2009 manhattan condo and coop prices

Condos gained in pricing in November compared to a month earlier, amidst strengthening demand for larger homes. The number of contracts signed was roughly consistent with October and about double a year earlier. Coops sales activity was also up a significant 173% over November 2008. Median sale prices increased 18% over the month prior and 12% year over year. They are selling quicker too. The increased activity is due to pent up demand from people needing to trade up to larger units and improved pricing that brings them in line with demand.

If we continue to see the inventory of available apartments going down, and buyer activity remain as strong, I believe that we will be hitting real price equilibrium soon. On a micro scale I know that I've seen pricing in some larger coop buildings actually increasing already off their lows of the year.

click on the charts below to enlarge

Manhattan condo prices in November 2009



Manhattan coop prices in November 2009

» download the manhattan november real estate market snapshot (544 kb)
» download the Q3 2009 manhattan market report (3.9 mb)

March 9, 2009

Making the best of the Manhattan real estate market

selling a manahattan co-op or condoThe NY Times ran an article on the market downturn in Manhattan real estate. Looking for Bottom in N.Y. Real Estate reminded me of conversations I've had recently with buyers, and it gets to the crux of the slowdown. Sellers and buyers simply are entrenched in their mindsets. Buyers are being cautious of paying too much, and sellers are in denial that their values have dropped. The result is that fewer deals are being done. They call this a buyer's market, yet the irony is that fewer people seem to be actually buying.

“What we’re seeing is a big disconnect — sellers need to get more realistic, but buyers don’t even think it’s enough. Buyers are not hesitating to walk in and bid 40 percent off the price, but sellers aren’t taking it.”
PAM LIEBMAN, CEO, CORCORAN GROUP IN THE NY TIMES

It's not like the phones aren't ringing, and properties aren't being shown. Traffic at open houses has been both decent and steady, but when one gets down to bargaining, it is harder to close the gap. The number of transactions taking place are off by 55% since last year by some reports. Values have dropped, and there is a lot of wild speculation at this point about how far. The correction is real, but in the downtown neighborhoods like Tribeca, the Village and Soho where I work, the anecdotal evidence would indicate that the deals are happening well above 40% off asking. It pains me as I read anonymous comments on blogs from people gleefully looking forward to an economic meltdown in which they can profit. No one likes a bottom feeder, and they rarely close a deal since greed gets the better of them. The market is pricing fear into its bidding and it is as hard to justify it, as it is difficult for sellers to accept that they have lost value.

how does a listing broker respond to the new market?

Some agents would have you believe that the market has absolute control over pricing and that their contribution to marketing the transaction is irrelevant. They will approach this market as a an exercise in financial analysis, and drown in a sea of data. Where is the value of what they bring to the table in that? It does require an approach that is different from a year ago when the market was still climbing. To close a deal today it takes better brokerage, advice on pricing that understands the realities of pricing in the marketplace, and uses the best approach to marketing it available. With less money chasing more listings, can a seller really afford to not have their property stand out? I see the broker's job in the context of market forces (macro influence), and using tactical promotion + pricing + negotiation (my influence). Striking the right balance is crucial to closing a deal in which everyone wins.

marketplace.gif

It is painful to see some sellers making decisions which will hurt them in the short run. Pricing their homes too high, in a declining market, and not closing the deal, means that you are going to be chasing the market down and quite possibly selling even lower in a few months. I wouldn't be the first agent who lost an exclusive to another firm that pitched an unrealistically high selling price to get the business. Agents get to meet buyers by "buying" listings this way. It is a huge disservice to their clients, who will sit and watch their values decline, and reduce their price eventually to a level that they will be pitched on later. The real rub is that level may be lower than it would have sold for if they had listed at a proper go to market price in the first place. I had an unusual year in 2008 in that almost all the properties I listed were taken over from other agents after their exclusives expired, then turned around and closed by me.

A good broker will lay out the hard and soft data that supports asking price, and will actually want to get paid for representing you. The one who walks in with inflated figures, and sells a discounted commission is often someone to be wary of. If you can't sell the property, you'll try to sell the fee, and get the customers. It's the oldest trick in the book. We will have real 1Q/2009 data next month, and while I don't expect it to be pretty, it will be better for the marketplace to know where it stands.

can sellers be successful in this market?

I believe that a professionally represented property will still sell for it's highest price possible, most will trade within a range that will vary and in relationship to it's features, and how well the marketing highlights them. This can still be a surprising market. I had a conversation recently that summed it up. I got a phone call from a colleague who was looking for some advice on pricing an apartment at the Cielo on East 83rd Street, which is a building that I've done some business in. The conversation went something like this:

"Peter, I see you're in contract with your exclusive at the Cielo, I have a friend in a similar unit in the building. Can you tell me what the negotiated price was?"

"Not until after until it closes, but it was not that far away from asking."

"Incredible! The market's is really sputtering, there are 17 apartments listed for sale in the building, but yours is the only one that's gone to contract. Why is that?"

"Since you're asking, my practice operates a bit like a boutique advertising agency. The quality of the graphic design, photos, and overall presentation are things I spend a lot of effort on— I think it makes the difference. We actually had simultaneous, multiple offers, for all cash on it, within just a few days of each other."

Her line of questioning was actually going to "did you have a fire sale?". We did not. It was sold within 5% of asking. Within that conversation are mentioned each of market forces that every real estate deal has in common. Pricing, promotion, and negotiation; subject to the environment of the marketplace. The first three being the levers which a broker can use skillfully to produce results. When your broker gets them right, you will get a closed deal. They work in every market. In this one in particular they are of more value than ever.

January 21, 2009

podcast: Economists to Obama; Get the Government out of the Banking Business

From our friends at Wharton comes this interview with professor Richard Herring who serves as a co-chair on the Shadow Financial Regulatory Committee, a group of economists, former regulators and lawyers. It contains astute observations about the problems with transparency among the financial institutions that have failed, had shotgun marriages, or are teetering on the brink.

continued »

December 31, 2008

That resilient New York City

Harvard economist Edward Glaeser focuses on the historic resiliency of New York City in hard economic times, which he attributes to its ability to attract talented people, and the density in which we live. He puts his faith into the free exchange of ideas and the process of reinvention through innovation.

continued »

November 28, 2008

The Fairness Issue: Coping with the Flood of Foreclosures

Is the cavalry coming to rescue troubled homeowners? Despite soaring foreclosure rates, President Bush and other Republicans have not made this a top priority. But this could soon change: President-elect Barak Obama and fellow Democrats say reducing foreclosures is crucial to attacking the financial crisis. As one expert notes: "The financial sector weaknesses all originate in the housing market. If we don't solve the housing problem, then the weaknesses in the financial sector are going to continue to multiply."

continued »

October 16, 2008

podcast: Will the Bank Plan Revive Global Markets?

With stock markets in freefall, U.S. Treasury Secretary Henry Paulson announced on Tuesday that the government's effort to unlock credit markets would include direct investments of $250 billion in bank equities. He also warned bankers not to hoard the money, but to use it to make the loans that lubricate the nation's economy. Similar moves announced by European governments over the weekend, along with anticipation that the U.S. would follow suit, sent global stock markets rocketing upward on Monday. But the moves signal significant changes in the financial landscape, moving leverage and power from Wall Street to Washington. In separate interviews, Wharton finance professors Richard Marston and Jeremy Siegel tell Knowledge@Wharton that while the investment is not without risk, it appears to be the best hope for restoring confidence in credit and stock markets— and reducing the severity of a recession that is all but certain to come.

continued »

September 25, 2008

Consumer sentiment poll

Here's an unscientific poll about how people might feel about the short term prospects of Manhattan real estate. We have had an exceptionally strong real estate market here for the several years, but we are not immune to market forces. I'm basically an optimist about our city. The crisis is one of momentary confidence, not of fundamentals. What do you think?

continued »

September 22, 2008

The Fannie & Freddie Bailout

Six current and former Wharton faculty members are nearly unanimous on one point: The government had no option but to keep Fannie and Freddie afloat. Mortgage-backed securities sold by the two firms are so widely held that to allow their prices to collapse would have caused a worldwide financial disaster.

continued »

September 21, 2008

20/20's astigmatism

ABC's 20/20 was quick to run with a story last week, "The Fall of the Gilded Age". No doubt that Manhattan real estate, which has been largely spared from the real estate downturn, and fueled by Wall Street salaries, would be looked at in this segment. A well known NYC agent was on camera saying, "Because a month from now, that same $5 million apartment may be lucky to achieve $3.5 million" and that the average $5 million apartment has already lost 20 percent of its value. But no matter where you stand, buyer, seller, broker, or even bubble blogger, the claim simply doesn't hold up.

continued »

September 19, 2008

economic meltdown averted?

This has been just a flabbergasting week of news, with the global financial markets showing unprecedented volatility and fragility. Clearly the current administration's narrowly focused dogma of deregulation and tax cuts as the answer to wealth creation, has lead us to a cataclysmic failure; and a government intervention which so far benefits those most responsible for the failure. The fate of the ordinary homeowner who may be facing foreclosure remains largely unresolved and has been virtually unspoken about this week.

continued »

June 30, 2008

Podcast: the risks of ignoring risk

Wharton finance professor Jeremy Siegel says in this interview that the subprime crisis was both predictable, and grossly underestimated at first, in its impact on the economy. He also says that bubbles are something which cannot be easily avoided from time to time in a free market economy; and that we are nowhere in the kind of free fall which produced the Great Depression. With commentary from Peter Comitini on the Manhattan marketplace and why it has remained largely insulated so far.

continued »

June 27, 2008

How risky mortgages and exotic securities, brought us to brink of recession, while no one looked too closely

The drive to securitize mortgages combined with deregulation were key triggers of the credit crisis, says Wharton finance professor Susan Wachter. he explains how complex securities products with a lack of standardization, and where the profits were based on fees rather than trading on the inherent risk in the products themselves, has put the health of the economy at risk.

continued »

June 23, 2008

video: Todd Sinai on Home Values

In our second installment of "Inside the Credit Crisis" from the Wharton School, professor Todd Sinai talks about changing consumer attitudes. he says "Don't think of your house as an investment comparable to savings or a stock portfolio".

continued »

June 20, 2008

video: Inside the credit crisis

We'll be featuring selections from a special report "Inside the Credit Crisis: How Wall Street alchemists, ambitious lenders, overreaching consumers, and enabling lawmakers pushed the economy to brink of recession and how to avoid a repeat"; produced by our friends at the Wharton School and writer Jeff Brown. This is the introduction and overview.

continued »

March 24, 2008

Podcast: Bear Stearns, Rate Cuts and the Threat of Inflation

As the credit crisis shows no signs of easing, are other Wall Street firms likely to follow Bear Stearns into oblivion? Will the Federal Reserve's efforts help to boost confidence in the financial system among U.S. and international investors? Wharton Finance professor Jeremy Siegel, author of The Future for Investors, discussed these questions and more in today's podcast.

continued »

March 21, 2008

Unconventional wisdom on housing and the credit crisis

Amid all of the dire economic news, there were also a couple of articles which offered some unconventional wisdom abut the credit crisis and housing. They talked common sense rather than fear. I personally see a healthy market in the coming year for Manhattan. People do buy location, and New York City is still one of the most desirable on the globe.

continued »

March 13, 2008

Mortgage Crisis Bailout: Relief for Some, Risk for Others

Today's podcast about the credit crisis is from our friends at the Wharton School of Business. Despite the negative news about the national housing market, Manhattan's is still quite healthy. Agents at my office are reporting terrific turnouts at open houses, available inventory is shrinking, sales volume is roughly on par with a year ago, and I personally participated in a 'best and final' bidding on a property this week; which sold at over asking price. In contrast to that, the housing market as whole in our country is experiencing pain. As insulated as Manhattan's housing market seems, we still need to keep an eye on the market forces shaping the national economy surrounding our island. The podcast and transcript below, talks about what the most fair and effective approaches might be for government policy, to help relieve the pain nationally.

continued »

February 21, 2008

The Economic Stimulus Package:
Will It Work, and for Whom?

Congress and the White House recently settled on an economic stimulus package with unusual speed, pushing the throttle to pull the economy out of a nosedive. Is this just election-year grandstanding, or does economic stimulus really work? And if it can work, what works best?

continued »

January 24, 2008

podcast: It's a Bird...It's a Plane...It's a Recession, or Is It?

It's been quite a week. Stock markets around the world showed sharp declines on Monday; on Tuesday, the Federal Reserve cut its benchmark interest rate by three-quarters of a percentage point. The rate cut helped stem the losses on some indexes, but by January 23, the volatility had returned. The obvious fear is one of recession— a possibility that the White House and Congress are trying to avert by coming up with a stimulus package that will keep the economy off life support. Are we headed into a recession?

continued »

December 13, 2007

Podcast: Is the Fed too slow on cutting interest rates?

We take a look at the broader economy in this timely interview and podcast with The Wharton School's Jeremy Siegel, on Tuesday's .25% discount rate cut. Professor Siegel questions if the Federal Reserve is possibly not being aggressive enough on lowering interest rates; plus commentary on Ben Bernanke's performance, Wall Street's reactions and the Presidential candidates.

continued »

December 3, 2007

Podcast: The Subprime Drama Continues, but for How Long?

Here is an interview with professor Richard Herring, co-director of Wharton's Financial Institutions Center about the subprime mortgage crisis. I'm not sure that the question is definitively answered, but its a detailed explanation about what happened. He questions at one point, the metrics that have been widely publicized from the Case-Schiller Index on the national housing market. Mr. Herring also cites less of a relationship between the national market, and local housing markets. Right now in Manhattan, I still see a healthy amount of property trading, with year to date numbers showing growth and relative stability. Its a market in which subprime loans are practically non-existent. Our local interest is in evaluating the drag that the subprime effect might have on the overall U.S. economy.

continued »

September 13, 2007

Podcast: discussing the national housing market

The experience of the rest of the country is a bit different from ours in Manhattan, which continued to see strong demand, declining inventory, and rising prices, in the second quarter of 2007. Today's podcast is a thought provoking discussion of the national housing market from our friends at the 'Wharton School of Business'. Listen-in, download a copy for your ipod, or read a transcript here.

continued »

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