Real Estate Blog

The New York Times asked me to provide insight and share research and reports I come across (excluding my own) that may help inform readers on the topic of housing. In other words, blog a little for the New York Times.

As a New York Times “online contributor”, I get a byline which is beyond neat.

Here is my latest handywork:

The Federal Housing Finance Agency: Regulators Awaken!

It was my first semi-snarky piece for them and from the feedback, I wasn’t sure they were going to run it, so I posted a similar story here on Matrix. To their credit they ran it with my byline. Happiness ensued.

Suggested bookmark: New York Times Topics: Housing

See the original post:
[NY Times Topics: Housing] 11-19-08: Regulators Awaken!

I have been particularly impressed with the way that the newly created Federal Housing Finance Agency has been keeping us informed on what they have been doing to help with the housing market since the credit crunch began in the summer of 2007.

Organized, neat, outspoken, timely. You only have to read the FHFA mission statement to understand what they are all about:

Promote a stable and liquid mortgage market, affordable housing
and community investment through safety and soundness oversight
of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Sounds like a necessary regulatory agency to me.

The FHFA’s predecessor, Office of Federal Housing Enterprise Oversight (OFHEO) was also responsible for regulatory oversight during the Fannie Mae accounting scandal and the collapse of the GSEs leading to their bailout in September 2008, had a remarkably similar mission statement as FHFA’s.

OFHEO has an important and compelling mission

to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae and Freddie Mac.

Before the global credit crunch and US housing market decline, where was the actual oversight of Fannie Mae and Freddie Mac? Today the new institution replacing the old one is run by the same person (whom I find to be quite well-spoken) and their new web site is nearly identical to the old one yet the mission has now expanded to include the Federal Home Loan Banks.

The implication of promoting liquidity in the revised mission statement isn’t a new concept since that was one of the primary reasons for the existence of Fannie Mae and Freddie Mac in the first place. And OFHEO’s advocacy of affordable housing seemed to morph from low income housing to simply making housing finance costs cheaper.

Still, I have higher hopes for all federal regulators going forward now that they have been lulled from hibernation.

After all, there’s a bear out there.

See the original post:
[FHFA /OFHEO] On A Mission, With Bear Oversight

It started with Tom Friedman’s MacDonald’s Theory of War:

No country with a McDonald’s outlet, the theory contends, has ever gone to war with another.

which was based on the premise that countries with an educated middle class that would sustain a MacDonald’s are less likely to go to war…this theory held since 1996 until Georgia and Russia fought this past summer. Perhaps, they needed more happy meals?

Dan Gross brings us the Starbucks theory of international economics:

The higher the concentration of expensive, nautically themed, faux-Italian-branded Frappuccino joints in a country’s financial capital, the more likely the country is to have suffered catastrophic financial losses.

Gross contends that Starbucks fueled the housing boom as “The Seattle-based coffee chain followed new housing developments into the suburbs and exurbs, where its outlets became pit stops for real-estate brokers and their clients. It also carpet-bombed the business districts of large cities, especially the financial centers, with nearly 200 in Manhattan alone.” Incidentally, the company is named for Captain Ahab’s first mate - Starbuck in Moby-Dick.

Well I’ve got my own (admittedly very thin, but please give it to me, I’ve never had an economic theory before) economic theory/correlation/indicator: Pirate theory of credit crunch aversion:

It’s been exactly two months since Talk Like A Pirate Day and apparently pirates are dominating the high seas (well, it pays better than fishing).

My pirate theory goes like this:

[Take a look at the ICC Commercial Crime Services Piracy Map for 2008.]

Piracy (the boarding of ships to steal their cargo) originates from countries that didn’t participate in the credit market run-up - namely participate in the proliferation of faulty mortgage securities that wreaked havoc on much of the global financial system. According to recent news, poor countries with limited financial sophistication tend to be the source of much the pirate activity.

(the map shows the locations of the activity, not the source)

What does this all mean? Well for starters, pirates are not likely eating at MacDonald’s for lunch while sipping a mocha frappuccino grande with enough whipped cream to be esthetically pleasing, after boarding a container ship full of tanks and guns.

And they don’t have a 2/28 subprime ARM with a 2% teaser rate about to reset to a fully indexed rate of 11% with a significant pre-payment penalty. They merely get paid the ransom for the crew or get shot.

And of course, Somalian coffee served at Starbucks is quite good.

arrgh!

Continued here:
Pirate Theory Of Credit Crunch Aversion

In many ways, the free market financial/mortgage system, without regulatory oversight could be described as Nasty, brutish and short:

Nasty, brutish and short aren’t a firm of particularly unpleasant lawyers but a quotation from Thomas Hobbes’ Leviathan, or the matter, forme, and power of a commonwealth, ecclesiasticall and civill, 1651. The fuller quotation of this phrase is even less appealing - “solitary, poor, nasty, brutish, and short”. Hobbes described the natural state of mankind (the state pertaining before a central government is formed) as a “warre of every man against every man”.

I was struck by a recent case of massive number numbness that was inflicted upon me when I saw the Fannie and Freddie losses for the 3rd quarter:

Fannie Mae: ($29B)
Freddie Mac: ($25B)

For perspective, Fannie Mae and Freddie Mac each averaged a $2B loss per quarter in the preceding three quarters. The GSEs were bailed out in early-September and represented the last 3 weeks of 3Q. I know the Freddie loss just reported included a $14B non-cash charge so it lost about $12B cash-wise.

The current administration is leaving still advocating free markets, which a disconnected concept when compared to the situation we find ourselves with - day late and a few trillion short. Dismal Scientist calls it right.

I remember when President Bush decided to call a summit 3 weeks ago, during a crisis which needed daily attention:

The first decision I had to make was who was coming to the meeting. And obviously I decided that we ought to have the G20 nations, as opposed to the G8 or the G13.

hmmm…what flavor of free market thinking will work going forward that didn’t work before?

One of the things we did, we spent time talking about the actions that we have taken. The United States has taken some extraordinary measures. Those of you who have followed my career know that I’m a free market person — until you’re told that if you don’t take decisive measures then it’s conceivable that our country could go into a depression greater than the Great Depressions. So my administration has taken significant measures to deal with a credit crisis. And then we worked with Congress to deal with the credit crisis, as well.

Call me crazy, but how about simple common sense oversight? Despite the actions of the administration, I find that Congress is finally starting to make some sense.

Here’s a series of plans to fix housing summarized by Capital Commerce.

What worries me about much of this is that government has a hard time “thinking big” which should not be confused with “spending big.” Evidence of this is found with Treasury’s foreclosure plan versus FDIC’s Blair. Bair wants to think big.

Read more:
[Government Bailout Leviathan] Short Huge, Brutish, Nasty

With a crush of visitors expected this Inauguration Day, hundreds of area residents are advertising their homes as temporary — and top-dollar — rentals over the four days leading up to Jan. 20. It’s a brilliant solution to the lodging shortage, but let’s pause a moment to examine the potential …

Excerpted from:
Make a Quick Buck Renting Out Your House on Inauguration Day, but Be Careful

There are lots of creative stories emerging in this down real estate market such as the woman in Florida who is using a word jumble contest to try to sell a handful of homes and now, a video story on CNN that highlights a guy in Haslett, Michigan, who is trying to swap his lakefront house for a “metro Detroit home,” or get his asking price of $379k. Chris Recktenwald is using Craigslist to advertise the home with a link to the details of his swap idea. His home is right on Lake Lansing and is close to Lansing, Michigan State University, and the hub of auto manufacturers.

He loves his home on the lake (who wouldn’t), but would like to relocate to Detroit for job reasons. “I thought it would move fast, but there’s lots of uncertaintly in the market. People are interested, but can’t do it because their house can’t sell.” He is willing to trade up or trade down for a Detroit home.

In comparing Detroit home values to Lansing home values, Detroit has a Zillow Home Value Index of $85k, while Lansing is $107K. It’s not every day that you see someone who wants to move back into Detroit from a pristine, lakefront home in Lansing. Good luck, Chris.

See the rest here:
Michigan Man Using House Swap Idea

After my post volume was “listing” for my Three Cents Worth column on Curbed, I feel I finally got my groove back, but it doesn’t look like the market did.

Click to view post.

Check out previous Three Cents Worth posts.

Continued here:
[Curbed] Three Cents Worth: Listings In The Zone, Barely

The New York Times asked me to share research and reports I come across (excluding my own) that may help inform readers on the topic of housing.

Here is my recent handywork as a New York Times “online contributor”:

Subprime Finance: High Prepayments, High Defaults

Think “exit strategy.”

Source:
[NY Times Topics: Housing] 11-12-08

In Kenneth Harney’s column this week “In Times Like This, Only the Freshest Comps Will Do” he discusses how lenders are requiring appraisers to use more recent comps in their appraisals.

Wow! Shocking!

• Can you believe that appraisers should be using comps that are more recent to reflect the current market?
• How will we “make the number” for the lender so the deal will work?
• What an incredible inconvenience to everyone involved in the transaction!

Last night I was the speaker at an event and a loan officer came up to me beforehand and said (I am paraphrasing):

“It’s a pain these days to get deals done, not like the old days. We have no access to the appraisers anymore. It’s crazy!”

How do you respond to this?..other than: Are you out of your &*%$#% mind? That’s the kind of thinking that got us in this mess. Good grief.

A “comp” or comparable is a piece of evidence that reflects market value of the subject property by comparing it to and making adjustments for differences. The older the “comp” relative to current value and the more adjustments that need to be made, the more diminished its relevance is to estimating market value.

Major lenders and investors such as Fannie Mae and Freddie Mac are “beating down on the appraisal” by demanding 90-day comps or fresher

Lenders shouldn’t need to require more current comps to be used if the appraiser is on the ball, especially in a declining market area.

Here’s a classic example in Ken’s article:

“Some sellers are taking a beating,” he said, citing a recent transaction where the appraisal came in thousands of dollars below the signed contract price. Had the seller not agreed to eat the difference — take a lower price than the buyer had agreed to in the contract — “the whole deal could have fallen through”

Duh! That’s simply the process of finding the market. The seller was willing to take a lower number. Don’t lay it on the appraiser, who has to prove the market value to the lender empirically.

Here’s a problem though. In weaker real estate markets, there are fewer sales to select more recent comps from. Contracts are the guiding light even thought closed sales are required.

An appraiser colleague of mine told me this many years ago:

Everyone’s smarter than you. The buyer, the seller, the buyer’s real estate agent, the seller’s real estate agent, the mortgage broker, the lender, the buyer’s real estate attorney and the seller’s real estate attorney. They are all looking at you as the final step in the deal.

They already know the “number”.

Another problem, is the education of sellers on the value of their home.

The housing market may have gone bust, but many homeowners are still living in a bubble.

Despite dismal housing headlines and reports showing falling prices nationwide, owners in some once-hot areas still believe their home is gaining value or at least holding its own.

In other words, everyone else’s property values are weakening except their own.

It took John Cicero [no relation to my business partner in our firm Miller Cicero] and his wife an appraisal, some convincing by their real estate agent and some hard-to-swallow facts to get them to lower the $525,000 listing price on their five-bedroom home in Valrico, Fla. They closed two weeks ago for about $380,000.

“We didn’t really understand the severity of the market,” Cicero said. “We lost close to $100,000 in equity so we were walking away from real money.”

Ok, so this isn’t rocket science.

The value of a home isn’t in a vacuum (even though vacuums literally suck). The value of home is in relationship to others that would compete for the same buyer using the principle of substitution.

See the original post:
[Crazy Inconvenient] Appraiser Should Use Recent Comps

Just a little ditty that I have noticed is making the rounds again after being released back in August 2008. David A. Rosenberg, the often quoted bearish economist at Merrill Lynch released this terrific collection of charts.

The Frugal Future - Get more Docstoc Buzz

Here’s a few of my faves:

Apparently no one at Merrill listened to their own outspoken economist.

Read the original:
[Timeless Chartology] The Frugal Future

A survey found that despite all the gloomy economic news, 1/3 of Wall Street think their compensation will exceed last year’s levels.

If people think that, it’s a combination of human nature and the Lake Wobegon effect,’ he said — a reference to the mythical town in Garrison Keillor’s “Prairie Home Companion,” where “all children are above average.”

Don’t forget that “all the women are strong and all the men are good looking.” (I am long time podcast devotee of Lake Wobegon.)

One of the key reasons that the New York City metro area was one of the last residential housing markets to be impacted by the housing market slow down was the financial might - that is Wall Street bonus compensation. Last year bonuses accounted for just under 50% of total wages paid out in the financial services sector. It’s a long time annual economic ritual in New York.

It’s going to get painful for many in NYC over the next few years. I have many friends on the Street who work hard and make a decent living, but have or will lose their job as a result of a sector of Wall Street that went haywire. It’s simplistic reasoning to lump all segments of Wall Street all together. However, we do like to do that, especially when pointing fingers. Lower bonus compensation will impact the housing market in the New York region over the next few years with less income making it’s way toward mortgage payments.

Bonuses, which soared to record heights in recent years, could drop by 20 to 35 percent across the industry, according to a private study to be released on Thursday. Bonuses for top executives could plunge by 70 percent.

If 50% of your total compensation drops 50% or more, that’s a major decline in spending power. It’s very easy to be generic about all of this. The message given out is: Wall Street is BAD and all Main Street is GOOD. Yet, they are not mutually exclusive.

Is some of the logic for compensation crazy? You bet (no pun intended).

Should New York Attorney General Cuomo go after financial abuse and fraud? You bet. Of course it furthers the notion that bonus compensation is somehow criminal so he needs to walk the path very carefully. Judging by how Cuomo handled appraisers’ role in the mortgage crisis, I suspect he will do it right.

Somehow along the way, the word “bonus” has become another word for “greed”. Sure, there are upper bracket wage earners who make mind boggling compensation. But that is not the masses.

Main Street was pitted against Wall Street as an election theme (just like small town America was presented as the ‘Real America’).

Greg David, editor of Crains New York writes in his post “In defense of Wall Street Bonuses” He makes the case that:

The mayor gets 9% of his revenue from Wall Street, and the governor relies on it for 20%. Bonuses are key to spending on education, health care and police.

One of Greg’s students at the CUNY Graduate School of Journalism gives a more ground level perspective:

So, every time I hear about Wall Street cutting jobs or cutting salaries, all I think of is Eddie. A 25-year-old guy who works his tail off about 50 hours a week–and even more since the financial crisis made its landfall.

Here is the original:
[Bonus Thinking] All Children Are Above Average

The Federal Housing Finance Agency (FHFA) announced that the conforming loan limited for mortgages will remain at $417,000.

The Federal Housing Finance Agency (FHFA) today announced
the conforming loan limit will remain $417,000 for 2009 for most areas in the U.S. but
specified higher limits in certain cities and counties. The conforming loan limit is the
maximum size of loans that Fannie Mae and Freddie Mac can purchase in 2009.

According to provisions of the Housing and Economic Recovery Act of 2008 (HERA), the
national loan limit is set based on changes in average home prices over the previous year,
but cannot decline from year to year. Loan limits for two-, three-, and four-unit properties
in 2009 will remain at 2008 levels as well: $533,850, $645,300, and $801,950
respectively, for homes in the continental U.S.

In theory, if housing markets continue to fall sharply in certain parts of the country, the implied mortgage risk will actually increase because the cap on the mortgage limit can not be reduced. Of course we are in the middle of a financial crisis caused by throwing risk out the window so it’s ironic that it’s actually against the best interests of the financial market to be more conservative in this regard. Probably because that’s not really the problem.

So we keep the loan limit the same again despite:

• declining market conditions
• change the name of the agency to FHFA from OFHEO (OFHEO was responsible for oversight of Fannie and Freddie before they needed to be bailed out)
• run by the same person as before who now suggests FHFA has plenty of ammunition (no offense intended to Mr. Lockhart).

From the contrarian department…

Yet here’s something new (hat tip to Holden Lewis of Mortgage Matters) that definitely doesn’t conform to longstanding rhetoric from someone who reported last year at this time about 5 months in a row that the problem with credit was temporary…

[NAR Chief Economist Lawrence] Yun says, without giving specifics, that the federal government should step in to stabilize house prices. That’s quite a plea, coming from a representative of an organization that’s usually all for hands-off government. There’s nothing like a severe recession to make free-marketers abandon their principles with alacrity.

And the contrarian-contrarian department…

Here’s an opinion that’s contrarian to those who claim to be contrarian: lowball offers in a weak real estate market don’t work according to accomplished real estate author, writer, agent, speaker Ali Rogers, well-known for her book “Diary of a Real Estate Rookie“

Some real estate gurus would argue that that’s okay, you should go ahead and make ridiculous offers, because if you’re willing to ask a gazillion people you’ll finally run down one exhausted one who will capitulate. Then, hey, it’s like you won the lottery.

One problem with that strategy: I don’t generally think it works.

Credit:
[Conforming Defined] The More Things Change, The More They Stay The Same

I have long believed in what I call the “theory of negative milestones.” There are seminal events that mark new periods of real estate activity.

This weekend’s New York Times real estate cover story was based on my firm’s ongoing research of the Manhattan housing market. The content in the article was thoroughly fleshed out by my friend Noah over at Urban Digs so I won’t elaborate.

In 2008, the influence of the credit crunch has been characterized by various levels of impact on segments and a lower level of activity. Everyone who lives in Manhattan can feel it, especially those in the real estate brokerage business. The events of the past two months have marked a new milestone with the bailout of Frannie, the $700B stimulus package, collapse of Lehman, the purchase of Merrill, the reclassification of Morgan and Goldman to commercial bank status, aggressive actions including cutting rates by the Fed, a culmination of 22 months of campaigning, a new party taking over the executive branch and gaining power in Congress. In other words, change.

The promise or anticipation of change makes people in real estate pause and reflect.

Still, there is real estate activity, albeit at a slower pace. Informed buyers are signing contracts. Many participants are optimistic about the new direction promised by the new administration, and in the short term, that may cause a slight bump up in activity. However, the credit crunch continues to overshadow housing markets in the US.

Stabilize credit, then and only then, can the housing improve.

Speaking of wolves at the door…

Originally posted here:
[In The Media] Theory Of Negative Milestones Means A New Beginning

Well, I would have never been admitted back in the day (or even now), so it was an honor to be invited to speak in front of alumni from the Harvard Business School. (Love the nautical references in the headlines)

Navigating the New York Residential Real Estate Market

The housing crisis has gripped the nation. How well is the New York residential market weathering the storm? Join Jonathan Miller, a renowned expert in Manhattan residential real estate, to find out.

Location: JP Morgan Chase, 270 Park Avenue (Between E. 47th & E. 48th), 3rd Floor
Time: 6:30pm Registration/7:00pm Program
Cost: $25 Members / $50 Non-Members & Guests

To make a reservation

It’s been an Ivy year for me at Cornell, Yale, Penn and Harvard. Anyone from Princeton?

View original post here:
[Public Speaking] Harvard Business School Club Of New York

All the stockmarket gyrations of the week gave me inspiration for an unheard of second Three Cents Worth column on Curbed this week. This time look at the new, new re-sale thing.

Click to view post.

Check out previous Three Cents Worth posts.

Go here to read the rest:
[Curbed] Three Cents Worth: New v. Used