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Posts Tagged ‘Forbes’

[OTS] Foreclosures: From Malaise To Disarray

March 27, 2008 | 12:15 am | |

One of the things I have found particularly aggravating during the past two years has been all the coverage on foreclosure stats. I don’t think consumers (or the media) have much perspective on the stats being produced, mainly by RealtyTrac and their competitor It’s been a groundbreaking effort on their part to collect this data but here’s a sample representing my issue with all this. I actually posted about the foreclosure data perspective problem back in September2006 (I just re-read it and it is relatively coherent) but the communication problem remains.

We see huge percentage increases every single month and yet the typical reader doesn’t really know what these stats mean in the context of all mortgages outstanding other than…it’s getting worse. I don’t think I am alone in getting the feeling that 87.4% of all houses are under foreclosure (left-handed people only, while it’s 92.3% if you include right-handed people).

Here are some examples…

From the New York Times

Statistics on foreclosure are snapshots of a moving phenomenon, and data from the state labor department show 174 foreclosures in Belair-Edison last year, while the Community Law Center, a nonprofit public service group, counted 181; both figures are well below the more than 275 foreclosures in 2001 and in 2002.

From Forbes

In February, Florida trailed only Nevada and California in the percentage of homes in foreclosure. RealtyTrac Inc. said 32,447 homes were in foreclosure statewide in February, up more than 69 percent from February of last year and up more than 7 percent from January.

Back in October 2007, the OTS released the first Monthly Market Monitor (creatively called MMM). It referred to the mortgage problem as the “Mortgage Malaise” (2 M’s if you were wondering) The most recent issue was released on wednesday referring to the mortgage markets in “disarray”. The MMM charts are really useful because they show the pace of foreclosures in an historical context and the amount of foreclosures relative to the amount of mortgages outstanding. The info on these charts are what we need to see more of.

Here’s a housing summary from the March 2008 report:

The slump in the housing market has not only impacted residential construction, but lending and loan performance have deteriorated in concert. Non‐conforming loan originations fell 49 percent in the fourth quarter, as the secondary market for bonds backed by the collateral is still shuttered. According to data collected by Inside Mortgage Finance, approximately $84.5 billion of non‐conforming loans were originated in the quarter ending in December 2007, comprising just 19.9 percent of total loan production. This is the lowest volume of originations ever, and is a far cry from the peak origination period of 2005, when the total reached $1.58 trillion, or 50.4 percent of all production.6 By loan type, jumbo production fell 47 percent in the fourth quarter, plummeting to $44 billion, or less than 10% of all originations. The downturn in Alt‐A and subprime loan production persist, with fourth quarter volume at $27 billion and $13.5 billion, respectively.

In contrast to non‐conforming product, FHA/VA loan production rose steadily in 2007, from a low of $19.0 billion in the first quarter to $31.0 billion at the end of the year. Activity in government‐insured lending was twice that of subprime.

Even Treasury Secretary Paulson is giving us better perspective of foreclosure stats in his speech to the US Chamber of Commerce on Wednesday:

Home foreclosures are also a significant issue today. Foreclosures are painful and costly to homeowners and, neighborhoods. They also prolong the housing correction by adding to the inventory of unsold homes. Before quickly reviewing our initiatives to prevent avoidable foreclosures, let me observe that some current headlines make it difficult to put foreclosure rates in perspective. So let me try to do so.

First, 92 percent of all homeowners with mortgages pay that mortgage every month right on time. Roughly 2 percent of mortgages are in foreclosure. Even from 2001 to 2005, a time of solid U.S. economic growth and high home price appreciation, foreclosure starts averaged more than 650,000 per year.

Last year there were about 1.5 million foreclosures started and estimates are that foreclosure starts might be as high as 2 million in 2008. These foreclosures are highly concentrated – subprime mortgages account for 50 percent of foreclosure starts, even though they are only 13 percent of all mortgages outstanding. Adjustable rate subprime mortgages account for only 6 percent of all mortgages but 40 percent of the foreclosures. So we are right to focus many of our policies on subprime borrowers.

There are approximately 7 million outstanding subprime mortgage loans. Available data suggests that 10 percent of subprime borrowers were investors or speculators. This figure is likely higher, as some investors misrepresented themselves to take advantage of a cheaper rate, and others speculated on a primary residence, expecting prices to continue going up.

And if you can’t keep track of foreclosures because it’s too confusing, try something simple like converting your phone number into words.

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The Beige Book Goes Stag

March 6, 2008 | 11:04 pm | |

Stagflation that is.

The Beige Book was released today, an anecdotal description of the economies of the 12 member banks of the Federal Reserve. I’ve always liked it as a way to understand what is going on in the region. It is prepared 8x per year in advance of each FOMC meeting, where financial policy is set.

Here’s a summary graphic of each district’s condition in today’s Beige Book. Here’s a good summary article by the NYT’s Floyd Norris.

Residential real estate was reported to remain weak. Here’s an excerpt of all the references to residential real estate:

Residential real estate markets were generally weak over the last couple of months. Sales were low in every District with very few local exceptions. Sales declines were particularly large in the Boston, Minneapolis, Richmond, and St. Louis Districts; at least some respondents in each of these Districts reported drops in home sales of more than 20 percent year-over-year. Contacts in the Chicago, Kansas City, and Philadelphia Districts cited tight credit conditions as a reason for low sales; each of those Districts either reported or expected stabilization of demand for homes in the low and mid-price ranges.

Districts that reported home prices all saw overall declines; one exception was the Manhattan co-op and condo market, where prices increased 5 percent compared with a year ago. Inventories remained high as demand was still fairly low. A few contacts in the Chicago, Cleveland, and Richmond Districts reported an increase in inquiries, although this increase in traffic had not yet translated into increased sales. Residential construction declined or remained at low levels in most Districts.

Even as loan demand for new residential mortgages remained sluggish or declined, lower interest rates prompted increases in refinancing of existing mortgages in a number of Districts, including San Francisco, St. Louis, New York, Richmond, Atlanta, Cleveland, and Chicago. Cleveland cited a small rise in delinquencies, especially for real estate loans, and Atlanta reported an increase in mortgage delinquencies and foreclosures. New York, on the other hand, saw a rise in delinquencies for all loan categories except residential mortgages, which were unchanged. Tight credit standards were reported in the Atlanta, San Francisco, Kansas City, St. Louis, Chicago, Dallas, Richmond, and New York Districts. Kansas City indicated a worsening of overall loan quality, Chicago reported a deterioration of consumer loan quality, and Cleveland also saw a decline in credit quality for business customers and consumers. By contrast, Dallas reported sound credit quality.

There doesn’t seem to be a lot to cheer about, does there?

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[Rebalancing Act] Always Look On The Bright Side Of Life Housing

February 12, 2008 | 2:12 pm | |

I love that Monty Python song!

Well, the Council of Economic Advisors presented their official forecast to Congress in a report and were optimistic (not surprising when you consider what their function is).

The White House stuck with the same, by now relatively optimistic, economic forecast it made last November when it released the annual Economic Report of the President to Congress on Monday.

‘I don’t think we’re in a recession,’ and the administration is not forecasting one, declared Edward Lazear, Chairman of the Council of Economic Advisers (CEA) and President George W. Bush’s chief economist.

Here’s the actual report.

Their basis is that the weak dollar offsets (higher growth of non-residential investment) offsets housing declines (lower rates of housing investment.) In fact, Treasury Secretary Henry Paulson has consistently stated that a strong dollar is a better scenario as representative of the administration’s view, yesterday the report suggests just the opposite.

I watched Edward Lazear’s appearance of CSPAN last night and he felt that the “1% of GDP” $168B stimulus plan was enough to get the economy moving again. Of course, there is already a second stimulus plan in the works so I don’t see this prediction as reliable. He feels the economy will bounce back this summer once the stimulus kicks in. After reading these excerpts, it doesn’t appear to be consistent with the discussion within the report itself:

Nationally, nominal house price appreciation slowed to a crawl in 2007, and house prices fell when corrected for inflation….

The deceleration of housing prices along with falling standards for subprime mortgages in 2005 and 2006 has led to a rising delinquency rate for subprime adjustable-rate mortgages (where the rate on the mortgages resets after an initial period), which severely disrupted the secondary market for nonconforming mortgages in 2007. In contrast, the market for conforming mortgages continued to function well.

Every major measure of housing activity dropped sharply during 2006 and 2007, and the drop in real residential construction was steeper than antici- pated in last year’s Report. Housing starts (the initiation of a homebuilding project), new building permits, and new home sales have fallen more than 40 percent since their annual peaks in 2005. The drop in home-construction activity subtracted an average of almost 1 percentage point at an annual rate from real GDP growth during the last three quarters of 2006 and the four quarters of 2007. Furthermore, even if housing starts level off at their current pace, lags between the beginning and completion of a construction project imply that residential investment will subtract from GDP growth during the first half of 2008.

During 2007, as in 2006, employment in residential construction fell, as did production of construction materials and products associated with new home sales (such as furniture, large appliances, and carpeting). Yet despite these housing sector declines, the overall economy continued to expand In addition to incomes and mortgage rates, the number of homes built is underpinned by demographics. Homebuilding during 2004 and 2005 aver- aged about 2.0 million units per year, in excess of the 1.8- or 1.9-million unit annual pace of housing starts that would be consistent with some demographic models for a decade-long period, leading to an excess supply of houses on the market. More recently, the 1.2 million unit pace during the fourth quarter of 2007 is well below this long-term demographic target. The pace of homebuilding has now been below this level for long enough that the above-trend production of 2004 and 2005 has been offset by the more recent below-trend production. Yet the construction of new homes continued to fall rapidly through year-end 2007, with the undershooting possibly reflecting uncertain prospects for house prices as well as elevated inventories of unsold new and existing homes. Once prices become firm and inventories return to normal levels, home construction should rebound, but it is difficult to pinpoint when this will occur. The residential sector is not epositive contributions to real GDP growth until 2009.

In fact, Federal Reserve governor William Poole thinks that our odds of a recession are higher but that we won’t actually enter a recession.

Jan Hatzius, chief United States economist at Goldman Sachs, wrote in a research note on Monday that he was convinced the economy was already in a recession and he warned that losses in the housing market could be even bigger than the $400 billion that Goldman predicted several months ago.

In other words, the credit crunch/housing market issues will be resolved in six months, there won’t be a recession and we won’t need a second stimulus plan.

I think more “rebalancing” is needed.

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[In The Media] Giving Bloomberg, Marketwatch and Forbes A Swollen TV Eye

February 5, 2008 | 5:20 pm | | Radio |

Here’s a series of clips that cover the release of our RPX Monthly Housing Report on Friday. I am recovering from an eye infection (my left eye for those who think I look the same as always) so it looks like the market beat me up.

Radar Logic released the November 2007 RPX Monthly Housing Market Report last Friday at 9 AM. Here is a sample of the coverage:

Bloomberg TV On The Economy interview

Kathleen Hays always does a great job covering the residential housing market while able to dropping the hyperbole that plagues residential real estate news coverage.

MarketWatch TV interview

Its always fun to do an interview on MarketWatch. Besides MarketWatch TV, the clip was posted in the WSJ’s Developments Blog which has become a regular read for me. They are upgrading their control room and did the interview right in the middle of all their reporters. I asked to switch sides with Kelsey so my swollen eye wouldn’t look so obnoxious.

Forbes TV interview

The Forbes TV interview was painful (physically) as my eye condition got worse during the day. Still, I appreciated the opportunity to be on their program and see Malcolm Forbes’ motorcycle in their lobby.

WCBS Radio interview

The WCBS Radio interview was impromptu and done from a corner of the lobby of the Forbes building while there was a torrential downpour occurring outside.

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[List-o-links] 1-27-08 Subprime Cuts: Pets At Risk, Concedes Failures, Presidential, Greenspan

January 28, 2008 | 12:01 am | |

After consuming a 7 ounce steak during at a celebratory dinner with my wife on our 24th wedding anniversary, I was inspired to bring back this Subprime post series (I know, I lead a pretty pathetic life). Subprime, as a topic, has come back strong in recent weeks. Once rationalized just to be the smoking gun, its now clearly more than that.

And that steak was great…

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Thanksgiving Tranches

November 24, 2007 | 12:05 pm | Radio |

I hope everyone had a great Thanksgiving. Its my extended family’s favorite holiday to get together. My kids and I overwhelmingly concur that the best benefit of the post-thanksgiving festivities are the amazing sandwiches comprised of leftovers: turkey, stuffing, cranberry sauce, horseradish/mayo, mashed carrots, turnips, potatoes on fresh bread.

However, in subprime tranches, investors didn’t know what ended up in their sandwiches [?????] so the lesson is… eat them at your own risk.

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Betting The Mortgage Farm On Staffing

August 31, 2007 | 8:40 am | |

Last month, IndyMac announced that it was laying off 4% of its work force or 400 people but now is reversing course and may hire as many as 850 employees. Most of them are former employees of the now bankrupt American Home Mortgage. Countrywide did this in reverse a few weeks ago. IndyMac’s actions have got at least one of the credit agencies nervous.

Last week I was on a conference call with a lender who is doing well. They provided no subprime lending products during the housing boom. They take a contrarian position, much like IndyMac and believe that now is the time to grab market share.

While many lenders are pulling back, I suspect you will see lenders with deep balance sheets and less dependency on secondary market investors to buy paper, move in to fill part of the void. The idea that there is no mortgage money available right now is simply not true although there is definitely less of it.

Contrarian thinking abound.

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[Matrix Skeptic] Please Tell Me What The Real Estate Fundamentals Are?

August 20, 2007 | 12:01 am | |

In this series, I’ll focus on things that look pretty basic, but I need your help.

One of the most overused phrases in residential housing commentary is

Real Estate Fundamentals

as in…

…but the fundamentals are strong… or the equivalent. Here’s an example of its use:

According to the most recent report from the Houston Association of Realtors, sales in July 2007 actually INCREASED from July 2006. With a “credit crunch” or liquidity crisis in the mortgage market, Houston’s strong underlying fundamentals are likely the cause.

or this…

Spreads on commercial mortgage-backed securities have widened with the turmoil in the wider debt markets and the cost of commercial mortgages has risen, even as real estate fundamentals are improving.

But here’s a clue (vacancies and rents):

Commercial-real-estate fundamentals such as vacancies and rents are solid. But lending practices in the commercial sector became aggressive in 2005, 2006 and the first few months of this year, which could lead to more serious problems.

and lately its been more of a commercial real estate phrase than a residential:

the difference between now and 1991 “is that the economy is strong and the real estate fundamentals are great.

Its a phrase that seems to sooth all concerns because those “fundamentals” are pretty basic (er…sorry).

But what are they? And can we all agree?

Wages, employment, economic growth….

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Altitude Sickness: No Such Thing As A Free Lunch

August 1, 2007 | 12:54 am | |

Headed out to San Francisco for the Inman Conference. Ran into a colleague on the plane also going to the conference. According to Jet Blue, I am blogging at an altitude of 35,710 feet, at a relatively sane 532 miles per hour, but a personal record. Out with MapQuest. In with Google Maps. With a thinner atmosphere and faster speeds than my office desk, I anticipate a lot more typos and grammar mistakes.

Bad News for US Housing Market
Prices up? number of sales down? Thats the story as of late for the US housing market. With the stock market roller coaster over the past week, and fingers pointing at housing, the message is pretty clear. Its pretty darn confusing out there.

In Fannie Mae economist David Berson’s July 30th column: Home sales take it on the chin, again, he lays out the ugly housing details.

  • Existing home sales fell by 3.8 percent from the prior month and 11.4% below the number of sales last year at this time.
  • New home sales were down 6.6% from May and down by 22.3 percent from a year earlier).
  • The inventory/sales ratio of existing homes rose at their highest level since 1992, the highest for new homes since 1991.

Good News for US Housing Market (unedited, unsure, unknown version)
* Median sales prices for existing homes increased 0.3% in June, compared to the prior year.
* Median prices for new home sales increased 2.2% in June, compared to June of last year.

However, its all about the mix. To all those who see the US housing market as reaching some sort of bottom, its a good idea to drill down a little further.

First of all, the tightening credit at lending institutions, espcially subprime products has restricted the number of sales of lower-priced housing.

Secondly, the upper end of the market seems to be outperforming the balance of the market both in the number of sales and housing prices trends.

With a lower number of lower priced sales and more higher priced sales with rising prices are skewing the overall prices upward.

Berson provides some perspective to the low level of sales:

If sales over the second half of the year average what they did in June, then the total for the year would be very close to the 6.05 million units that would bring the magnitude of this downturn down to that of 1989-91. At this point, the odds of this occurring are pretty good.

Lessons learned
* US housing statistics have no reliable application whatsoever to local real estate markets. (ie: The NAR’s Metro Housing Study [pdf] showed a wide range of falling and rising markets.)
* Don’t rely on market statistics at face value without understanding the methodology and data behind them. (aka run, don’t walk, from black box approaches to measuring market value.)

Milton Friedman, the noted economist, popularized the saying “There’s no such thing as a free lunch.” The US housing market has a ways to go before it regains its footing in the aftermath of the era of nearly free credit, and more importantly, I didn’t get fed lunch on the airplane.

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[List-o-links] 5-14-07 Subprime Cuts: Boiler Room, Bailout, Toll, FICO & IPO

May 15, 2007 | 9:18 am | Radio |

With a bunch of USDA acronyms like FICO and IPO, 4-letter builder names and Boiler Room sales pitches, this cow has chewed more CUD than it can swallow.

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Book ’em Dano: Real Estate Reading List+

May 10, 2007 | 7:50 am | |

With 4 kids, 3 businesses, the Yankees and a lot of things going on in between, I still wonder why I haven’t been reading as many books as I used to. My wife is a voracious book reader, but over the past few years, I haven’t kept pace.

I took on this self-loathing view point after attending Daniel Gross‘ book launch last night for Pop! Why bubbles are good for the economy. I spoke with him at his book launch party last night as well as met Barry Ritholtz, who, along with Dan, are among the smartest and most acessible writers and interpreters of economics out there.

I read a large portion of Dan’s new book on my train commute home. Really good…enjoyable. When I got home, I decided to take a look at my magazine and newspaper subscription list and I realized how large it has become. To examine my list…

I am not including papers I pick up for my commute home including the NY Post, NY Sun, NY Daily News or Newsday, or count copies of Metro or AM New York for the subway.

I am not includimg the 119 rss feeds coming into my bloglines account, the email blasts I subscribe to, nor the sites like Slate, Salon, CNN/Money, Curbed,, Inman,, (SF Chronicle),, PIMCO,, Seeking Alpha and quite a few others I like to check in with every day.

Now there are a few on the list that are simply impossible to read everything or I choose not to (namely the New Yorker and The Economist because they are weekly and chock full of stories although I admit I look at every cartoon in the New Yorker.) I definitely don’t read all of these publications front to back. I included non-real estate subscriptions because, well, you never know.

Its apparent that anyone can get so involved in reading news, it could become a full time job. Where’s Evelyn Wood when I need her?

I feel like a sieve, with a slew of these publications going through my brain and the parts that stick, end up in my blog and in my understanding of the real estate market, the economy, and of course, make intelligent picks for next year’s March Madness tourney.

I suspect I am missing a few but don’t have time to check…too many to things to read. Here are the subscriptions I can think of and these are in no particular order.

new york times
wall street journal
financial times
new yorker
city journal
new york observer
the economist
new york magazine
new york living
time out new york
the real deal
sports illustrated
hemmings muscle car
excellence (porsche)
panorama (porsche)
american banker
valuation review
real estate weekly
yankees magazine
2 local weekly newspapers

The quantity has cut into my book reading time, that’s for sure. Its a good thing I have invented more time in the day (no time to explain). Suggestions for additions are welcome (no lesson learned from this exercise).

Hey did you hear about that new magazine that came out the other day….?

UPDATE: Here’s a few I forgot to mention:
rolling stone
haute living
new york home
appraisal today
real estate valuation magazine
appraisal journal

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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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