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Posts Tagged ‘Barry Ritholtz’

[Getting Graphic] Seinfeld Perspective On Homebuilders Sentiment Index

October 26, 2006 | 7:11 am |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Barry Ritholtz , who runs one of the best and most essential econ blogs out there: Big Picture, has a hilarious post (ok, more like humorous to people not excited about numbers in general).



Source: Big Picture

Click here for full post

The chart pokes fun at the trade group, National Association of Home Builders’ suggestion that sentiment has leveled off and we have bottomed out.

When you see the way Barry has presented it, common sense tells you there is a high probability that its like a Seinfeld episode (translation: its about nothing).

Incidentally, this seems to correlate with speculation that national inventory has leveled off and builders stocks have begun to rise as there is an assumption that the worst is behind us.


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300 Million Of Us, 12000 DJIA, Yet Why Are We So Darn Unhappy?

October 18, 2006 | 4:39 pm |

Records are abound lately:

Yesterday at 7:46am EST, the U.S. POPClock Projection reached 300,000,000 as the estimated US population.

  • One birth every…………………………………. 7 seconds
  • One death every……………………………….. 13 seconds
  • One international migrant (net) every………. 31 seconds
  • Net gain of one person every………………… 11 seconds

(in fact 12 new borns just now started screaming)

200,000,000 was passed in 1967 – population doubled in 39 years. I find it amazing that the population was 76,000,000 in 1900 – seems huge to me for that period of time.

Hospitals were having fun with the 300M stat [Chicago Trib] as well.

The idea of a growing population seems to be favorable, especially with growing immigration and their influence on the demand for housing. Harvard’s Joint Center for Housing Studies released their seminal The State of the Nation’s Housing 2006 [JCHS] early this year which projected favorable demand for housing over the next 10 years.

Over the longer term, household growth is expected to accelerate from about 12.6 million over the past ten years to 14.6 million over the next ten. When combined with projected income gains and a rising tide of wealth, strengthening demand should lift housing production and investment to new highs.

In combination with the 300,00,000 number, Forbes did a study on The Average American: 1967 And Today [Forbes] referring to Mr. & Mrs. Median. The Median’s can’t be seen as average can they?

Mr. and Mrs. Median’s $46,326 in annual income is 32% more than their mid-’60s counterparts, even when adjusted for inflation, and 13% more than those at the median in the economic boom year of 1985. And thanks to ballooning real estate values, average household net worth has increased even faster. The typical American household has a net worth of $465,970, up 83% from 1965, 60% from 1985 and 35% from 1995.

Here’s a great summary of the Forbes article stats in Big Picture by Barry Ritholtz who also comments below.

Although we have more, apparently we are not very happy about it. We suffer from Permanent Income Theory.

Milton Friedman dubbed “Permanent Income Theory,” which assumes that people measure where they are relative to where they expected to be a few years ago. They don’t care a bit what the average income was four decades ago.

“If you expect a 3% rise in income and you get 2.5%, you’re disappointed,” says Ken Goldstein, an economist at the Conference Board, a private research group in New York.

And today, the Dow Jones Industrial Average exceeded 12,000 for the first time breaking the October Jinx of 1929, 1987, 1978, 1979, 1989 and 1997.

However, the new high-water mark also was achieved at a time when many economic reports have pointed to slower growth, and suggested to some analysts that a market correction might be more appropriate. For Barry Ritholtz, president of Ritholtz Capital Partners, the market has been on “a mission to get to 12,000 no matter what the data has been saying.” “But I think there is a disconnect between the market and economic reality,” when you bear in mind that earnings are at their cyclical peak and the economy is slowing.

A recap: There are a lot of us, we are making more money, the stock market is active yet we are unhappy. I must need to buy a new house.


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Housing: Giving A Hard Look At A Hard Landing

September 18, 2006 | 7:17 am | |

If you are in a bad mood or are looking to stop drinking coffee, here’s a scary summary of the national housing market by [Comstock Partners](http://www.comstockfunds.com/Commstock via WSJ pointed out by Barry Riholz of BigPicture. I hate to simply present the list again but is a summary of the state of the housing market based on national statistics thats a little disturbing. Each item on its own can be explained but the combination paints a more powerful picture.

Whats important to realize is that the stats are national and represents the worst elements of different markets. You can pick out specific examples of stats on the list that are hyped but even after doing that, the numbers presented in total are a concern (are you reading this Ben?) and builds the argument that we are in the midst of a hard landing.

Warning: viewer discretion is advised (its nationally orientated so it doesn’t apply to all markets).

  • 32.6% of new mortgages and home equity loans in 2005 were interest only, up from 0.6% in 2000.
  • 43% of first-time home buyers in 2005 put no money down.
  • 15.2% of 2005 home buyers owe at least 10% more than their home is worth.
  • 10% of all home owners have no equity in their homes.
  • $2.7 trillion in loans will adjust to higher rates in 2006 and 2007.
  • 70% of borrowers who took out pay-option ARMS in the past year have loan balances larger than their initial loan.
  • Homeowners face higher payments as mortgages are reset. Generally, monthly payments rise between $200 and $500 depending on the size of the mortgage.
  • According to Reality Trac, August foreclosures were up 23% over July and 53% over a year ago.
  • The number of homes for sale is at record highs, and inventories are 59% higher than a year earlier.
  • New home sales are down 22% and existing home sales down 11%.
  • The NASB housing market index has recorded an all-time decline.
  • The housing affordability index is at a 15-year low.
  • The house price-to-income (rents) ratio is off the charts. According to HSBC, in 18 states accounting for over 40% of national home values, the price-to-income ratio is 3.6 standard deviations above the mean.
  • The OFHEO index of house prices deflated by the consumption price deflator has soared to a record high of 350 from 250 in 2001. From 1976 to 1996 it never was above 220.
  • According to the NAR the year-to year prices of existing homes are now flat. A short time ago they were rising at a yearly rate of 16%.
  • Nationally, home prices have not declined on a year-to-year basis since 1933. Recently, however, prices have been dropping in the North East, West and Mid-West.
  • Sales incentives are now estimated at 3% to 7% of selling prices.

Maybe I will get that cup of coffee.

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Builders Build: New Home Sales Are Not A Leading Indicator, Got It?

December 23, 2005 | 12:01 am | |

The stats for new home construction showed more brisk activity than was expected [WSJ].

According to the Commerce Department:

  • Housing starts increased 5.3% to a seasonally adjusted annual rate of 2.123 million units.

  • Permits for future building rose 2.5% last month to a 2.155 million annual rate.

“I was a little surprised by the strength” of new construction, said David Seiders, chief economist at the National Association of Home Builders. However, he said much of the activity was tied to new housing permits and sales orders placed several months ago.

NAHB reports that builders are becoming more dependent on sales incentives versus last spring.

This seems to be a contradiction. I had a prominent real estate broker call me yesterday after this report was released and tell me her listings were not selling as quickly as before and yet the NAHB stats were so positive.

My response:

Builders know how to build and they keep doing it ’till they can’t build anymore.

So new construction stats do not immediately relate to housing demand.

Barry Ritholtz of The Big Picture, one of my favorite blogs, agrees. In his post Howz Real Estate Doin’? he concludes:

Bottom line: New home starts and permit apps are not a leading indicator of the housing cycle.

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Greenspanspeak Nears Peak: Fed Moves Toward Neutral On Rates

December 14, 2005 | 12:01 am | |
Source: WSJ

The Fed increased the Federal Funds rate to 4.25% [WSJ], the 13th increased since June 2004. However, for the first time since 2002, it omitted the word “accommodative” which means that rates are nearing the point where they neither stimulate or deter economic growth. The less restrictive wording will give Bernanke. Greenspan’s replacement, a little more flexibility.

For housing: If inflation is in check, then mortgage rates may be less likely to move a whole lot higher making the transition to a less frenzied housing market more attainable.

However, its not clear whether inflation really is in check. Barry Ritholtz of the Maxim Group and webmaster of Big Picture clearly disagrees with this assessment:

“Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained.” Quite frankly, we do not believe them. We know that beyond the rises in food and energy prices, nearly everything — from healthcare to building materials to education costs to insurance to commodities — costs more. And gold, the world’s best inflation indicator, is well over $500 per ounce. Where ever we look, we see evidence that prices have limited stability and an upward bias.”

Barry adds in a comment:

Microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things economists are wrong about generally.” – P.J. O’Rourke

The WSJ summarizes:

“Overall inflation recently topped 4%, at an annual rate, because of soaring energy prices. Excluding food and energy, it is only about 2%, but Fed officials worry that higher energy prices will eventually lead to higher wage demands and prices for other goods and services. Although gasoline prices have fallen back from their levels reached just after Hurricane Katrina struck the Gulf Coast, natural-gas prices have climbed, hitting a record yesterday as cold weather blanketed the Northeast.”


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Conflicting Housing Statistics: Which Way Are We Going?

December 1, 2005 | 12:02 am |

Here’s a good summary article by columnist Andrew Cassel about the conflicting statistics that have been released this week called The Economy | Volatility telling us something? [Philadelphia Enquirer] It lays out all the arguments pro and con. He says:

I tell you, some weeks you risk whiplash just reading the economic news.

“Such discordance isn’t uncommon in economic statistics-gathering. Data can appear out of whack for a month or two because of reporting problems, or because something – a holiday, say, or bad weather – disrupts the normal flow of sales for a few weeks.

That’s why economists like to focus on longer-term trends, averaging changes over three months, six months or a year.”

The increased volatility, he suggests, could either mean that buyers are rushing to lock in on low mortgage rates so this could be a short term improvement or this is the sign of something far more severe since housing is connected to a large portion of the economy.

For a detailed analysis on why the New Home Sales data is statistically flawed, then a must read is Barry Ritholtz’s Big Picture blog post: New Home Sales Data: Don’t rely On It Either

It seems to me that everyone is so honed in on anything that has to do with housing, that every month we go through this scenario, trying to recognize the inner meaning between the existing home sales stats and the new-home sales stats that we don’t know which end is up. I for one have been very leery of these stats for a while, especially when reviewing them on a month by month basis. New home sales are a small sample size and existing home sales are about 60 days behind the market. The two mixed together make for strange results.


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