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

June 30, 2008

Podcast: the risks of ignoring risk

Wharton finance professor Jeremy Siegel says in this podcast titled "Ignoring risks", that the subprime crisis was both predictable and grossly underestimated at first. 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. Greed and poor leadership contributed to many of the key players ignoring the inherent risks. It perpetuated a sort of Ponzi scheme which was ultimately doomed to fail. National home prices were being fueled by low mortgage rates, relaxed underwriting standards, and easy availability of credit to speculators and people whom were not traditionally qualified. When national home prices reached a peak, it became impossible to sell off the properties for more, to pay off the debt; and the national bubble started to pop.

comitini.commentary: why has Manhattan remained so strong, so far?

marketFrom a local broker's perspective, I think that it's important to note that what caused the pop nationally, did not happen here. Manhattan real estate has remained remarkably insulated to this dynamic, largely because of the dominance of cooperative housing as a form of ownership (80% to 85% of market). It has provided an additional layer of fiscal oversight provided by co-ops' Boards of Directors, which demand full disclosure of an applicant's financial profile, and insure sufficient liquidity to protect the existing shareholders of the co-ops. Owner occupancy is a requirement in almost all cases, so speculative investment is virtually nonexistent.

"Anyone thinking of buying a Manhattan apartment or townhouse that they plan on living in for five years or more, should remain exceedingly optimistic. As a matter of fact, it may just be the right moment to buy"

Condos represent a much smaller (15% to 20% of market) part of the Manhattan market, and are mostly new developments. This segment may experience some short term volatility, as a wave of new inventory hits the market over the coming year or two. Developers are scrambling to meet a deadline for the 421-A tax abatement program that takes effect on July 1st. After that, developers will face stricter guidelines to receive benefits, if foundations for multi-unit buildings aren't started by then. Some of them, unable to meet the deadline, have begun to sell off the sites rather than move forward with building. The pipeline of new developments will start to narrow, and the current inventory will be absorbed. That's the marketplace operating to balance itself. It is interesting to note that were it not for the tremendous amount of new development over the past five years, we'd have a severe housing shortage in Manhattan, and our pricing would have gone much higher. Our population is still growing.

Real estate markets by nature are highly localized ones— even if somewhat influenced by national and global market forces. Mortgage rates are trending upward and consumer confidence in the overall economy is low. People are being careful; but I'd predict that any slowdown in Manhattan would look more like a normal market response, rather than a bubble popping. Anyone thinking of buying a Manhattan apartment or townhouse that they plan on living in for five years or more, should remain exceedingly optimistic. As a matter of fact, it may just be the right moment to buy.

The Manhattan real estate market's exposure to the credit crisis is from a lack of confidence in the overall economy by the threat of a recession, and the loss of jobs in the financial sector— a primary driver of our co-op and condo market. I can't say that I've personally seen the market visibly softening on price that much yet here, although people are being a bit more cautious in their decision making. I noted back in April, in this post when first quarter numbers were released, that it is a more balanced environment, where having the most informed perspective on value, and solid negotiating is critical to closing deals. Sellers need to be realistic, overreaching on price and second rate marketing will kill their chances for a deal. I've been involved in two bidding wars on apartments in 2008. This far from a quiet market. A short list of related entries we've posted on comitini.com follows, as does an edited transcript of professor Siegal's podcast on "Ignoring risks"

related entries:
Is it a good time to buy in Tribeca?
video: How risky mortgages and exotic securities, brought us to brink of recession, while no one looked too closely
video: Todd Sinai on home values
video: Inside the credit crisis
Podcast: Mortgage Crisis Bailout: Relief for Some, Risk for Others
Podcast: Bear Stearns, Rate Cuts and the Threat of Inflation
Podcast: Is the Fed too slow on cutting interest rates?

An edited transcript of the conversation follows, after the jump.

continued »

June 27, 2008

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

video: Susan Wachter on securitizations deregulation
economyReal estate professor Susan Wachter discusses how the drive to securitize mortgages, combined with deregulation, and catalyzed with a little bit of greed, were key triggers of the credit crisis. She 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 global economy at risk.

"we have been in an extreme deregulated environment, where basically anything goes. And in that environment, even the competitors can race to the bottom"
— Susan Wachter, Wharton School

related entries:
video: Inside the credit crisis
video: Todd Sinai on home values

An edited transcript of the conversation follows, after the jump.

continued »

June 23, 2008

video: Todd Sinai on Home Values

economyIn our second installment of "Inside the Credit Crisis" from the Wharton School, real estate 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". Yet, some of his comments about the sub-prime mortgage mess contrast sharply with today's conventional wisdom. When asked if this has been a failed experiment to make capital available to people who might not otherwise qualify for conventional mortgages he answers...
"Oh, I hope it's not a failed experiment.
I think this is a market that's terrific...the jury is still out about what has actually happened here"
— Todd Sinai, Wharton School of Business


related entries:
video: Inside the credit crisis
video: How risky mortgages and exotic securities, brought us to brink of recession, while no one looked too closely
Unconventional wisdom on housing and the credit crisis

An edited transcript of the conversation follows, after the jump.

continued »

June 20, 2008

video: Inside the credit crisis

economyToday we're introducing the first in a series of selections from a special report "Inside the Credit Crisis: Why and how it happened— and what's next"; produced by our friends at the Wharton School and writer Jeff Brown. It investigates how the credit crisis was triggered when "Wall Street alchemists, overeager borrowers and aggressive lenders, let their eye for opportunity, trump their nose for risk". As a result, mortgages are harder to get. In the Manhattan real estate market, Wall Street employees are cautiously assessing their future prospects and adopting a wait and see attitude. We'll be posting several videos and transcripts in the coming days, so stop by again soon, or better yet, subscribe to our RSS feed to stay connected with the latest postings on comitini.com. Your comments are always welcome too.



whartonrelated entries:
video: Todd Sinai on home values
How risky mortgages and exotic securities, brought us to brink of recession, while no one looked too closely
Its a real estate market
(includes the Q2 2008 corcoran report download)
Mortgage crisis bailout: relief for some, risk for others

March 24, 2008

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

Today's podcast from The Wharton School covers the past week's news developments on Wall Street and features a video interview with Professor Jeremy Siegel, as well as the usual audio versions. The Slatin Report also has a good read on it from a bit more of a NYC real estate perspective in Bear Bites Bear

Jeremy Siegel on Bear Stearns, Rate Cuts and the Looming Threat of Inflation

economyThe ongoing credit crisis in U.S. financial markets has claimed a huge and high-profile victim: Bear Stearns, the Wall Street investment bank and securities brokerage firm. After being slammed by what amounted to a run on the bank during the week of March 10, Bear Stearns was pushed to the brink of bankruptcy and then agreed to be acquired -- for $2 a share -- by JP Morgan Chase over the weekend. Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson played an active role in the transaction, largely because of the potential impact that a major bankruptcy might have on confidence in the financial markets. That same day, the Federal Reserve lowered interest rates -- as it did again on March 18, by three-quarters of a percentage point.

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? Finance professor Jeremy Siegel, author of The Future for Investors, discussed these questions and more with Knowledge@Wharton.

A transcript of the conversation follows:

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 »

August 23, 2007

Subprime skittishness settling down?

I'm back from vacation and hit the ground running this week. I'm catching my breath and catching up on my reading about the credit crisis and it's effect on the Manhattan real estate market. I'll have more to say about that in an upcoming post, but for now I want to share with you an article from our friends at the Wharton School of Business, "What's Ahead for the Stock Market and Quant Funds" about the recent volatility in the capital markets. The New York City real estate market is inevitably tied to the fortunes of Wall Street and the availability of mortgages#151; which from all indications will be more closely scrutinized in the underwriting process moving forward.

continued »

April 23, 2007

Subprime Meltdown:
Who's to Blame and How Should We Fix It?

Troubles in the subprime mortgage industry seem to be spreading. The stock market is in turmoil. Alan Greenspan and other economists say the economy is being hurt. Consumer groups predict that up to two million Americans will lose their homes.

continued »

March 1, 2007

Follow the bouncing globe

What I'm being asked by my clients is, "how will this will affect the real estate market"? Well I haven't got the answer, and from what I've read neither do the "experts".

continued »

December 22, 2006

NYC housing stable and positioned favorably

{download-able market report} The local housing development has remained more positive than the rest of the nation, with flat inventory growth from Q2 to Q3 and stable home prices.

continued »