Inventory Update: Why The Jump?
A: Because the good folks at Streeteasy.com are doing their job to solve the problem of transparency for Manhattan real estate! Here is the update.
You may have noticed that inventory for Manhattan jumped today by just under 700 new listings, bringing total active inventory (co-ops, condos, townhouses in Manhattan excluding duplicates, FSBO's and open listings) to about 7,659. The reason for the jump is that Streeteasy has expanded their listings database to include "a bunch of new sources in Manhattan". According to one of the tech guys over at Streeteasy, "...this should be the last big change, at this point we have pretty good coverage".
In a housing market without a standardized MLS system, new sites such as Streeteasy have emerged to solve the lack of transparency that is so troubling for many buyers and sellers. Transparency is a good thing, and knowing that the focus is on quality and accurate coverage makes me very proud to have partnered with such a great startup!
Here is the current inventory trend for Manhattan for the last two weeks:
I have spent the past 3-4 weeks working with developers on the new charting system for you guys, and let me say, it is looking sweeeeeeet! Very soon, the landscape will change and you will have a real-time analytical tool to monitor Manhattan total listings inventory, price reductions, new listings, and contracts signed.
The data will never be perfect without a regulated standardized MLS system, but I am extremely pleased with the accuracy of our efforts thus far. Data may not be 100% real-time, but it is accurate and in-line with respected published quarterly reports by Jonathan Miller.
For all those that can't wait, here is another glimpse into what is to come and one reason why I have been discussing the rising trend of inventory since the low in mid-December:
PREVIEW MANHATTAN TOTAL INVENTORY --> 6 Month Chart w/ % Changes Below
I hope it's worth it guys!!
Add to NewsvineYield Curve Steepens / Hoenig Hawkish
A: Amazing how things change. Remember late 2006 all the talk about the bond market and the inverted yield curve predicting a coming slowdown in the economy; forcing the fed to eventually cut rates? Well, the fed did so about 10 months later and cut the FFR by 325 basis points to stimulate the economy and credit markets. Now, the yield curve is steepening again and Kansas City Fed President Thomas Hoenig may have something to do with it.
First, some econ 101 about a steepening yield curve:
Steep Yield Curve: Historically, the 20-year Treasury bond yield has averaged approximately two percentage points above that of three-month Treasury bills. In situations when this gap increases (e.g. 20-year Treasury yield rises relatively higher than the three-month Treasury yield), the economy is expected to improve quickly in the future. This type of curve can be seen at the beginning of an economic expansion (or after the end of a recession). 
Here, economic stagnation will have depressed short-term interest rates; however, rates begin to rise once the demand for capital is re-established by growing economic activity. A steep yield curve is generally a bullish indicator.
StockCharts.com has a great little Dynamic Yield Curve tool that time lapses the yield curve with the S&P 500 Index since 2000! By hitting animate, the yield curve tool will dynamically change as time goes on, and you can see what equities did as the yield curve flattened, inverted, and steepened! Current yield curve snapshot to the right.
The yield curve is not a perfect indicator, so don't go betting your $$$ on it so fast. I have my doubts about the recession ending so soon and a new economic boom coming; in my opinion, the steepening yield curve is pricing in future inflation concerns and not a new economic boom! I'll go on record for that one, as I am still cautious about the strength of the consumer given a tight credit market, correcting housing market, limited equity for withdrawal (spending) from homes, and irresponsible use of debt/leverage for so many years. In short, I just think the consumer is tapped out and this is not something that turns around so fast; lets not forget that 70% of the US economy is driven by the consumer and the reason why the Bush stimulus package was passed to give Americans more money to spend!
However, as someone who loves to learn and understand 'why' things happen the way they do, it's hard to ignore what is going on in the bond market. It signifies a few things:
a) heightened inflation expectations/concerns
b) rates expected to rise in medium term
c) US dollar support
d) economic slowdown/recession expected to be mild
Whether or not this turns out to be the case is the $64,000 question! Future economic data will certainly drive the yield curve over the next few months; if economic data deteriorates, you will see the yield curve flatten (long end come down more drastically than short end flattening the curve) signaling the fed may need to cut rates a bit further to stimulate the economy. In this case, the US dollar will likely fall further and commodities priced in US dollars will rise further, creating more pipeline inflation pressures.
Hoenig's statement is interesting because it has to do with INFLATION EXPECTATIONS! The psychology of living in a world of rising costs/prices may force businesses and consumers to alter their investment/spending patterns! Businesses will get cautious and look to cut costs to retain profits while consumers will cutback on spending and perhaps even save a bit to afford the higher costs of living.
According to Bloomberg:
The dollar strengthened versus the euro as Hoenig of the Kansas City Fed said in a speech in Denver yesterday that "serious" inflation pressure in the U.S. may compel the central bank to increase interest rates.The reference to the 1970's and 1980's is when fed chief Volcker had to raise rates to insanely high levels to give the nation the inflation medicine it needed to fight the disease of 'the worst tax of them all'."There is a significant risk that higher inflation will become embedded in the economy and require significant monetary policy tightening to reduce it," said Hoenig, who isn't a voting member of the Federal Open Market Committee this year. Consumers are gaining an "inflation psychology to an extent that I have not seen since the 1970s and early 1980s."
Below is a chart that Hoenig refers to in discussing the rise of inflation expectation (Federal Reserve Bank of St. Louis via Calculated Risk)
As I said April 15th, by talking tough on inflation we can remove the speculative currency trade in commodities and ease pipeline inflation pressures without action at this point. Thing is, commodity inflation is similar to fed rate cuts; it takes time to funnel through the system! So, $120 oil today, will have a lagging effect on corporate profits down the road! I can see it already!
2009 Fight of the Year: Inflation vs Economic Recovery
Credit Markets / Level 3 Rising / Fed Widening Collateral
A: In the post-Bear Stearns era of a saving grace federal reserve, the risk of a systemic crisis shutting down the financial system was all but removed. So, all those shorts in equities and credit markets had to unwind their bets and buy/bid to cover the very positions that were designed to profit on doomsday; the doomsday that Ben Bernanke will not allow to happen. When I look at the stock market & credit market indexes in the past 5 weeks, I see major short covering rallies and bids. Corporate spreads have narrowed, TED spread has fallen, ABX indices have rebounded, CMBX spreads have narrowed, Investment Grade spreads narrowed, and it seemed as if the credit market distress has eased significantly. Is it truly the end amidst all this new liquidity? If it were, LIBOR would have come in much more, Level 3 assets would be shrinking, capital raising would end, and the fed would not need to continue with TAF's and widening acceptable collateral!
The good news is that there are certainly signs of easing credit market distress as a result of everything the fed has done. The bad news is that we are NOT out of the woods yet, from those I talk to the credit markets still remain quite challenging, and the fed is continuing auctions and widening acceptable collateral to now include credit card receivables and student loan securities. The credit problem is clearly spreading.
If it weren't, Fannie Mae would not have just announced a $2.2Bln loss, cut their dividend, warn of 'severe weakness', and plan to raise an additional $6Bln in new capital by diluting shareholders further! Either you wake up, or you have your head in the sand. While the worst may be behind us, we are by no way, shape, or form in for a new boom!
Let me start with the positives and show you the credit market indices that have eased:
ABX AAA Index - Easing (up) Since mid-March (via Markit)
Corporate Spreads Narrow (Wachovia HY Corporate Bond vs iShares LEH 7-10YR Treasury Bond Fund via Bloomberg)
TED Spread Falling (via Bloomberg)
The 3 charts above show the following signs of easing distress in credit markets since the Bear Stearns bottom:
a) rising ABX AAA Index
b) narrowing corporate bond spreads
c) falling TED spread
What has not participated in easing significantly is the money markets and LIBOR. Banks are still reluctant to lend to one another at normal spreads, signaling the need for capital to remain on the books. In fact, banks need to raise MORE capital as balance sheets continue to update hard to value assets! This is why many brokerages and banks have decided to shift assets into their Level 3 hideout's on their balance sheets.
Look at what Merrill Lynch said this morning, according to CNN Money's "Merrill Lynch Level 3 assets increase through March":
Merrill Lynch & Co. disclosed Tuesday that highest-risk assets on its books rose 69 percent during the quarter ending March 28.Things that make you go hmmmmmmm!Merrill Lynch had $69.86 billion in so-called "Level 3" assets as of March 28, according to a filing with the Securities and Exchange Commission. Level 3 assets totaled $41.45 billion on Dec. 28. At the lowest end, Level 3 assets are those whose valuation is essentially a best guess by the investor, because there is virtually no active trading market for the product to use as a pricing guide.
Level 3 assets accounted for 15.5 percent of total assets as of March 28 at Merrill Lynch, compared with 9.2 percent as of Dec. 28. Level 3 assets as of March 28 included $9.3 billion of collateralized debt obligations, of which $9 billion were tied to subprime mortgages _ loans given to customers with poor credit history.
Another $20.6 billion of level 3 assets at Merrill Lynch are tied to derivatives of collateralized debt obligations. Within that $20.6 billion, $16.7 billion is related to subprime mortgages. About $18 billion are tied to credit derivatives from corporate and other non-mortgage debt.
No, things are not rosy just yet. Anyone notice how the fed snuck in another $25Bln in its auction to banks on Friday? And what about the little announcement that the fed will now take on credit card receivables and collateralized auto loans, and student loans! Geez Louise! What in the world is the fed doing here and who is still debating that this is contained to subprime?
According to Daily Reckoning's "US Fed Now Accepts Credit Card Debt as Collateral":
First the Fed increased by US$25 billion the amount of money it will auction to banks (commercial and investment) through its Term Auction Facility (TAF). Here banker people, borrow more. Please.When will it end? We have a major moral hazard problem brewing here and you can count on one thing: wall street will invent a new product to generate revenue from dodgy debts that utilize the gray areas of future regulation that will be imposed! The reason why? Because they will always get bailed out by our fed!Second, the Fed expanded the list of collateral it will accept for asset-swapping through its Term Securities Lending (Facility). Remember, that's the one that lets banks and prime brokers swap mortgage-backed securities for Treasury bonds for up to 28-days.
The Fed is now expanding that list of asset-backed securities to include collateralized car loans, credit card receivables, and student loans. It's doing so because the lack of demand for bonds backed by those assets has had a real political impact in an election year. What it really means is that that the Fed has lowered interest rates as far as it can to deal with the bank lending crisis. It still hasn't encouraged banks to loan to each other, or investors to buy bonds backed by various kinds of consumer liabilities.
Must be great to be an American wall street executive!
Inventory Rises Above 7,000; New Charts Coming Soon
A: As most of you probably know by monitoring the Streeteasy.com powered Manhattan inventory widget on UrbanDigs.com, total inventory in Manhattan seemed to rise above 7,000. The trend is clearly rising, and the reason is clearly sluggish demand. As buyer confidence started to decline late in 2007 as a result of the credit crisis and lagging effect on the equity markets, we started to see a consistent rise in inventory trends. The thing to note is that while this bonus season certainly will go down as a slow one, inventory is by no means at levels that would exemplify fierce seller competition.
First off, here is a preview of the new enhanced charting system that I am custom designing for readers of UrbanDigs.com! The chart below is 1 of 3 charts that will be at your disposal, and compares NEW LISTINGS & CONTRACTS SIGNED data.
The chart you are previewing is about 65% complete. You may notice that the line graph is very choppy/spikey. The reason is because Streeteasy updates their data systems during the wee hours of the morning, when web traffic is lightest. UrbanDigs sends a request to Streeteasy at around 8AM everyday to collect the updated information from the day before. So, there is a 24 hour lag, sometimes a bit longer, between when a listing is first displayed publicly and when it is captured by the Streeteasy systems. In an in-perfect world and a real estate market without a standard MLS listing system, this is the best data at my disposal. So far, it has proven to be fairly accurate.
Moving on, very little updating/editing/adding of new listings is done over the weekends. Since there is a 24 hour lag in data collection, the light data of SAT + SUN is collected by UrbanDigs's widget on SUN + MON! That is why you may notice very low data for contracts signed, price reductions, and new listings on Sunday's and Monday's. This is what is causing the spikes on the above graph. Needless to say, we will probably average the data from the week or come up with a different formula to 'smooth out' the line graph so that you can better interpret the trend without sacrificing data accuracy.
Feel free to offer your suggestion on fixing this in the comment section! The entire purpose of these charts is to get a sense of the general trend! Data will never be perfect or 100% real-time w/out a standardized MLS system, so please understand that these tools are for your general knowledge of trends! In this capacity, it really doesnt matter if a contract signed takes an extra few days to get noticed, or a new listing takes 2 days to get captured; as long as it is captured we can get a more real-time sense of what's going on in Manhattan real estate without waiting for lagging quarterly reports!
Back to the current Manhattan inventory data, it seems to me that listing inventory has:
a) risen about 54% since low in mid-December of 4,600 total listings
b) risen about 10% in the past 4-6 weeks or so; when we were hovering around 6,500 total listings
c) risen about 30% since May 2007; when we were at 5,500 total listings
To me, there is nothing wrong with publicly discussing our housing market; even if that means discussing rising inventory due to slower buy side demand. The trend that I consider worth noting is that at this time last year, we were coming off a very active wall street bonus season where total inventory was DECLINING going into the generally slow summer months. Right now, the trend is clearly RISING inventory coming off a slow wall street bonus season heading into the generally slower summer months.
Here is Jonathan Miller's Manhattan Co-op/Condo Listing Inventory Chart that I am basing these observations on:
NOTE: JM's chart was up until March, 2008. So, I added in green bars to plug in April and today's total inventory number; with this data provided by Streeteasy. It will help you visualize where we are at right now, and the trend.
Click on the chart for the larger version. Note how in the past 6 years, total inventory hit a high just below 8,000 in mid-2006. It seems we are on a path to these levels. Now, when I think back to the summer of 2006, I recall it being slow and hard to get top dollar for my sellers; but in no way were prices falling significantly! It was strange, as traffic was slow and listings took longer to sell (days on market definitely rose during summer of 2006), in the end the price paid was pretty strong and didn't dip as low as one might think given the sluggish activity. The reason I mention this is because it seems we will be close to that inventory high in a few more months, if sales volume continues to be light.
In order for asking prices to show a significant move down (as has occurred in many local markets across the nation), you need to see fierce seller competition at a time when buyer demand is very light. That just has not happened yet. I am still seeing buyer demand here in Manhattan, albeit lighter, and inventory is not at levels where sellers are competing with each other via sharp price cuts to move property. Of course you may find pockets of seller competition in buildings that have 15+ listings for sale (the Trump buildings on Riverside Blvd come to mind), in general the competition has not gotten nasty as of yet.
The new charting system should be ready in a week or so, barring any unforeseen programming issues, and should allow all of us to get a much better glimpse into this very mysterious but fast paced Manhattan housing market! I hope you guys like it!
Analyzing The REAL Jobs Report
A: We got some good news this morning on the jobs report between a less than expected loss of jobs, and a ticking down of the unemployment rate. Stocks are understandably rallying on the lack of a doomsday report. While I enjoy seeing the stock market rise, as it provides a positive wealth effect and helps to support confidence in general for other types of investments (i.e. real estate), I do not enjoy being told something that is a bold mis-representation of the truth. For all those that understand the BLS B/D adjustment model, you will see why this report was paints such a misleading bullish picture. You may wonder why this report seems to contradict reality; it does.
I've discussed this before, and Barry Ritholtz has been one of the biggest voices trying to bring the B/D adjustment crapola to light. Here is the quick definition of the B/D adjustment in the jobless claims report, before I go into today's discussion of fantasy (what we are told) and reality (what is really happening):
B/D Adjustment - There is an unavoidable lag between an establishment opening for business and its appearing on the sample frame and being available for sampling. Because new firm births generate a portion of employment growth each month, non-sampling methods must be used to estimate this growth.
Here is the B/D adjustment for April's Non-Farm Payroll's report, directly from BLS.com:
I am NOT making this up, this is REALITY and the report published to the public actually calculated in an ADDITION of 267,000 jobs! Are we really to believe that our economy actually added this many jobs? Let's just look at a few sectors and compare the fantasy vs reality!
CONSTRUCTION
Reality ---> Lost 61,000 Jobs
B/D Fantasy ---> Added 45,000 Jobs
PROFESSIONAL & BUSINESS SERVICES
Reality ---> Added 39,000 Jobs
B/D Fantasy ---> Added 72,000 Jobs
MANUFACTURING
Reality ---> Lost 46,000 Jobs
B/D Fantasy ---> Lost 10,000 Jobs
LEISURE & HOSPITALITY
Reality ---> Added 18,000 Jobs
B/D Fantasy ---> Added 83,000 Jobs
If we only look at these sectors, we will see the following discrepancy between reality and the B/D fantasy adjustments that are added to the report that we see:
REALITY ---> We LOST 50,000 Jobs
B/D ADJUSTMENT FANTASIZES ---> That We ADDED 190,000 Jobs
Right there, we have a swing of 240,000 jobs that was bullishly embedded into the jobs report; using the seasonally adjusted b/d adjustment! AM I MISSING SOMETHING HERE; If I am please do tell me!
This frustrates the hell out of me, and explains why things seem much worse in the real world when stocks and economic reports show otherwise. For the first 4 months of 2008, and using the fantasized data & b/d adjustment model, we STILL LOST ABOUT 260,000 jobs! In a normal growing economy, we should be adding about 150,000 jobs per month. Yet, with all these jobs lost and the smoke & mirrors used to minimize the REAL PAIN that is going on out there, the unemployment rate ticks down to 5%! The reason: the number of part-time workers who wanted to find full-time work but couldn't, surged to 306,000.
I just don't buy it! BR correctly points out:
• Private payrolls have fallen for five straight months. Weakness in the goods-producing sector is intensifying;• Employees working part time jobs is +306k this month to 5.2 million. This increase is either because a) Hours have been curtailed; or B)They cannot find full-time employment. Note that if your hours get cut back, you do not show up in the NFP or layoff data.
• As noted earlier, the Birth/Death model was a major distortion. (in several months, we will get the revisions). Lets look at how the B/D has changed from April 2007 (+262) to April 2008 (+267):
+45k construction jobs v 37k April 2007
+8k jobs were added in financial activities versus 1k last April.
+72k in professional/business services versus 48k last April.
+83k in leisure/hospitality (95k last April).I am certain that some country on some planet in our galaxy is adding more jobs in construction and finance versus one year ago, but it ain't the USA on planet Earth, that's for sure.
Fed Cuts 1/4; Growth Risks Remain
I did NOT read the statement yet, and simply heard the statement read on CNBC...my gut reaction, this is a much LESS hawkish statement than I thought would come out. Still a comment about risk to economic growth and to inflation, but certainly nothing that SHIFTS the focus from growth to inflation. Thats my gut reaction. More to come later. It seems a pause is in the works for a while now!
ADD-ON @ 2:33PM - After reading the statement here, I find this statement to be WAY LESS HAWKISH than I originally thought it would be. I see the following statements that are associated with growth concerns:
*Recent information indicates that economic activity remains weak.
*Household and business spending has been subdued and labor markets have softened further.
..and the clearest statement:
*Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
The 'downside risks' phrase was left out. Take it for what its worth, but this statement coming along with the rate cut, makes me think they will pause, with the full intention of ACTING if economic data continues to come in weak. I think many expected a strong stance in the wording against inflation. The fed still expects the slowing economy to help moderate inflation, so they aren't budging yet in taking the offensive against rising commodity prices and pipeline inflation threats. I think:
a) future rate CUTS are still a very real possibility
b) the fed will be data dependent again on the economic data side
c) the fed just doesn't know if the worst has come in yet, but also knows its way too early to abandon the focus on growth concerns
The street got what they were looking for, I just think is a lot less hawkish than some markets were pricing in. I wouldn't expect that strong dollar induced selloff in commodities just yet!
Manhattan Downshift, Yes or No?.......Let us Know
So someone has finally come out and said it. Business in New York City has slowed down. According to an article in this week's Crain's, Is there a cheaper bottle?, "across the city restaurants and hotels are noticing a significant falloff in what is traditionally a major cash cow: corporate parties and banquets."
Maybe three months ago my partner tells me, "when I take the subway home at night after working late, there's nobody on it, people aren't going out like they used to". He stops me on the street in front of Grand Central as we are walking to lunch last month and says "I used to work around the corner from here, and you could barely get down the block this time of day, there were so many people on the street....take a look around". "You're right," I say, "it's dead" (relatively). I launch into a story (something I'm infamous for...and although they are usually way too long, they often have a point): "So a buddy of mine calls me from San Francisco just after the tech bubble collapsed and tells me, I just drove back from seeing a company in the (Silicon) Valley and there was no traffic in either direction...business is dead." At the time I laughed and said "that dosn't mean anything"......but it sure did.
A couple of weeks ago I hear through the grapevine that a well-trafficked New York eatery, known for its power lunches, that happens to have a diverse clientele representing New York's major industries - Wall Street, media, real estate and supporting professional services like law and accounting - had seen a sharp slowdown in traffic. I stopped by and inquired...So how's business? The answer..."Don't tell anyone else, but it's slow." I contemplated this admission, which only made sense, and thought about trying to gather information for an Urban Digs piece. But let's face it, who would go on the record saying business was rolling over.....unless it was already so bad that everyone knew....sort of like asking brokers about a real estate slowdown or the President about a recession. I shouldn't have let it stop me....mea culpa. But I had trouble finding much corroborating evidence in the media. There was the hotel manager for an unnamed four star brand quoted by the blog HoweStreet.com saying ""business is down across all of our hotels in Manhattan. When the finance industry isn't doing so well, we aren't doing so well either." There was a quote by a manager at Delmonico's "You definitely see a little decline probably in the lunch crowds because I think the companies have cut down on their expenses." Offsetting the slowdown is the obvious surge of tourist money making its way into the coffers of New York businesses.
It's pretty clear, however, that corporations are cutting back on parties and banquets and trying to rein in hotel expenses, and this is impacting lodging and restaurants in the Big Apple. The Financial Times notes that Duetsche bank execs are being told to wash up at the airport frequent flyer lounge after an all-night flight instead of getting a hotel room to use to clean up before a morning meeting.
At the lower end of the economic spectrum, the strains of the slower economy are already being seen. The New York Daily News notes today that people in New York City receiving money from Uncle Sam's stimulus package expect to use it to pay existing bills.
I suspect that even the wealthy, sophisticated and good looking Urban Digs readership....LOL.... may be going out less, springing on fashion items and accessories less and maybe even driving your car/SUV less or generally keeping a lid on expenses. You may also be noticing that there are fewer people frequenting your local watering holes and eateries......although they can't be saving that much grabbing a slice of pizza instead. Anyway, we want to know. Tell us if you perceive that business in New York has slowed, whether it's your business, business at establishments you frequent or just how much money you are spending or plan to spend. Inquiring minds want to know!
Contract Re-Assignments: A Sign of the Times?
A: For all you guys that want front line reporting. I just went through my first contract re-assignment closing for a buyer client of mine; so basically, a buyer goes into contract for a property but for whatever reason CAN NOT close on the deal. Likely culprit is inability to get financing. Instead of going through the headache of litigation over the down payment and who can claim it, the original buyer attempts to assign the contract to a new buyer. The positives for the new buyer include getting a deal that was in a previous pricing amendment or a unit that was in a sold out line. The negative is that the terms of the deal with the sponsor are non-negotiable and will be the same as the original deal; but that doesn't mean you can't work something out with the assigner on incentives for taking on the transaction!
Lets go back 5 1/2 months when I published a post titled, "New Dev Closings: A Potential Problem?", where I stated in an unbiased discussion:
"I want to discuss something that has NOT happened, is not even in the very near term horizon, but very well may impact the Manhattan marketplace at some point in 2008; buyers with expected new development closings amidst the new credit world.The post back in October is a great example of me discussing my true feelings on what could be on the horizon, that was not a trend yet, but due to the macro fundamentals that were building at the time seemed a likely result for our marketplace. Its all about being one step AHEAD OF THE CURVE!What happens to all those new development buyers that are currently in contract, waiting for building completion to close, if the jumbo credit markets continue to be in distress and there is a much different lending world than when the original contract was signed?
What if the buyer doesn't have the doc's to get the commitment, if lending/underwriting standards have tightened so much in the past 3-6 months? What if the buyer gets a much higher interest rate than was originally anticipated? What if the bonus doesn't come in as expected? What if they lose their job? What if the property becomes unaffordable?"
Anyway, back to the assignment. What I discussed back in October is now reality; albeit a rare one at this point in time. There are actually a few other assignment requests in the same building that we just completed our deal for a few days ago. This was confirmed by the attorney who has done a number of deals in this building, and by this different ad in craigslist that I found this morning (all details, building, etc. were not included for privacy):
In an environment of tighter underwriting standards & credit quality based lending rates, contract assignments become a very real option for those that can't secure financing due to the credit crunch. I would expect this trend to continue, especially for those financially borderline buyers & speculative investors who signed new development contracts of sale BEFORE the credit crisis began in July 2007. Quite simply, it was a different world back then.
Now this is very important, I do NOT view this as anything that will take down our market; and is likely to be more of a rising 'pockets of distress' trend since contract assignments occur in strong markets too. It is just another sign of the times and tells you that the world we live in today is quite different than the world that existed during the boom times. For my client, they got to purchase a desired unit that was part of a sold-out line as of many months ago in a nearly sold out desirable building; plus a minor incentive by the original buyer to take on the assignment.
Anyone else hearing about contract re-assignments in their neighborhood/building? I would be interested to see how widespread this trend is at this point in time.
Fed Set To Reveal Poker Hand; LIBOR vs FFR
A: With the fed meeting this week and announcing their next move on Wednesday, plus the first glimpse of Q1 GDP, it seems the fed is set to reveal their hand and let us know if rate cuts are in fact ending soon! The current consensus on the street from people I talk to tends to be a 'one & done' move, with a change in the issued statement. With 3-Mth LIBOR still 65+ basis points above the fed funds rate, we are left to wonder whether the credit crisis is over or just in a the so called 'eye' of the storm.
Lets start with the fed. We will get a glimpse of Q1 advance GDP on Wednesday, before the fed announces their decision; so clearly that information is playing into the next fed move. However, with oil trading at $120/barrel, and other commodity prices surging to the 'weak-dollar' policy we have seen in the past, consensus is for a change in bias! I doubt the fed will disrupt market expectations, so instead of looking at their action (I'm expecting a 1/4 point cut, along with the street's expectation) focus on the issued statement for changes to the following passages from the previous statement:
a) 'inflation has been elevated and some indicators of inflation expectations have risen'
b) 'outlook for economy activity has weakened further'
c) 'financial markets remain under considerable stress'
Personally, I expect an increase focus on inflation and a decrease focus on 'considerable stress' in the financial markets; thinking this way since April 18th when 2YR treasury yields were about to go above the fed funds rate:
"Take a look at the 2-YR treasury yield over the past month (chart on right), up almost 70 basis points. In fact, yields are up across the board for treasuries, as the stock market rallied over 4% this week. The most dramatic action in the bond market was in the short end; 3mth, 6mth, 2yr & 3yr yields causing the so called 'flattening' of the yield curve. This gives investors more incentive to cash out of longer term treasuries, and put that money to work elsewhere (stocks?). It also could be a sign that expectations are rising for less action from our fed, probably resulting from pipeline inflation pressures."It's highly possible the markets rally on a positive fed statement in the sense that considerable stress is no longer seen! Time will tell. Certainly, there are signs of easing in a few sectors of the credit markets. Specifically:
1) spreads in CDX indices have narrowed
2) spreads in CMBX (commercial re mbs) have narrowed
3) investment grade corporate debt spreads narrowed
What isn't improving is:
1) money market rates
2) LIBOR rates
3) ABX indices
These are just a few sectors that I follow and discuss with friends I know on front lines. There are many other areas that I am not as real-time updated on. Lets focus on LIBOR for a moment. LIBOR, the London Interbank Offered Rate, is the most active interest rate market in the world. It is determined by rates that banks participating in the London money market offer each other for short-term deposits. LIBOR is used in determining the price of many other financial derivatives, including interest rate futures, swaps and Eurodollars. So, it's a worthy indicator of stress amongst the banks; are they aggressive or reluctant to lend to each other?
One way we can determine this is by comparing the LIBOR rate to the fed funds rate, and looking at the spread between the two rates. In normal markets, 3-MTH LIBOR is within about 15 basis points, or 0.15%, of the fed funds rate, which currently stands at 2.25% going into Wednesday's meeting! Below is a chart (courtesy of Financials.com) showing you the spread between 3-MTH LIBOR and FFR for the past 30 days; notice the widening of the spread in mid-April!
This is the simplest way to show you, what I like to look at for a glimpse into bank's willingness to lend to each other. Now, there could be a number of reasons for this abnormal spread of about 65 basis points:
1) credit worries remain
2) banks are capital constrained as they correct balance sheets
3) recent concerns about LIBOR reporting
4) expectations of rising fed funds rate in near term
I'm sure there are more. But fact is, this wide spread tells you that banks are still reluctant to lend to each other! It's a signal of continuing distress. Which leaves us wondering, who is right? Is LIBOR lagging and behind the curve in its behavior to narrow closer to the fed funds rate OR is LIBOR leading and telling us that more stress is yet to come in the credit markets?
One thing is for sure, and that is by end of day Wednesday we will know a lot more information regarding our economy, the potential recession's beginning, and what the fed is likely to do with rates over the next few months!
Renovating In A Cooling Market
Very busy right now with clients & the new urbandigs charting system. Postings will be light for next week or so, when enhanced chart system will be launched. Please bear with me! For now, here is a quick renovations tip for a seller looking to spice up their property for resale, in a tough marketplace; dollars & sense!
A: If you bought a wreck for a discounted price or just found an apartment in good, but not great condition, then you'll probably want to renovate. But what if you are looking to flip the property or sell it within the next 2 years or so? What renovations are worth it and what aren't in a cooling housing market? Let's try to answer this common problem! Originally Published July 31st, 2006
Past history tells us that money spent on kitchens, bathrooms, and floors get you the most money back at resale! But thats in a booming housing market, not a cooling one. To find out what renovations pay off in a slowing market, lets try to go into the minds of a buyer who is dealing with less affordability due to higher lending costs (like today), and may have some uncertainty about the market in general. In short, the buyer is very cautious how they spend their money!
Bobby Buyer makes $150K a year, has $150K in cash in banks, and wants to buy a $500K condo with 10% down. OK. Right off the bat he will need about $70K to close on the deal ($50K for down payment + $20K or so for closing costs). That leaves him with about $80K AFTER closing to do what he wants with the property. Chances are he is NOT finding a fully renovated condo for this price so lets assume the apartment needs work! Should he:
A: Renovate the kitchen
B: Renovate the bathroom
C: Renovate the floors
D: Renovate ALL OF THE ABOVE
Tough question. Now lets assume that Bobby Buyer intends to sell the apartment in 2 years, once he satisfies the tax code for primary resident tax exemption of up to $250K. Lets be conservative and assume the Manhattan real estate market will stay flat to down over the next 1-2 years, what renovations would make sense to you?
Here are my thoughts, one by one.
A. Renovate the kitchen - DEFINITELY NOT! It will cost about $20-$25K (min for gut renovation on most kitchens - add 10-15K easily for high end renovation on kitchen) or more to redo your entire kitchen, plus 1-2 months of contracting work that you have to deal with. In addition, kitchens are a very personal room that most buyers like to fit into their own taste. If your renovations conflict with the potential buyers taste, you may NOT get any premium when you go to resell.
Now, given current market conditions and our quick prediction on what the market might be like in 2 years, how are we to expect top dollar for this type of renovation where we cant guarantee the buyer will even like it? We can't! Pass on this given the situation at hand as to me it looks like a high risk (due to high cost), low reward (premium not guaranteed) scenario.
B: Renovate the bathroom - POSSIBLY! You can get away with cosmetic work to the bathroom for relatively cheap. Options include re-glazing the tub, re-tiling the floor, a new medicine cabinet, and a paint job. You don't have to spend $10K on a bathroom if you don't want to and being stingy on this work might make for a good investment at resale. Buyers HATE disgusting bathrooms and showing a nicely refinished bathroom could mean the difference between a bid of $425K and $440K. Dollars & Sense; if you can spend $5K and make a bathroom much nicer than it is now, then DO IT!
C: Renovate the floors - DEFINITELY! I'm huge on hardwood floor resurfacing because of the risk/reward ratio that this renovation offers. I know, you hear risk/reward and you think of gambling or stock trading. Well, thats how I view things. If you can spend $1000-$1250, or $2-$2.50 a square foot for a 500 sft surface area of hardwood flooring (whose apt size probably totals 650 sft), and get a newly finished floor that just shines back at you, THEN DO IT! Trust me, it is night and day for such a little amount of money. When you go to resell, buyers will have a great first impression when they open the door to a bright floor that shines in their face! A good first impression for the buyer is critical when selling a home and equates to a higher bid at resale.
D: Renovate ALL OF THE ABOVE - NO! If it was up to me, I would spend $6,000-$7,000 total on refinishing the floors and re-doing the bathroom as much as possible with the remaining funds. Adding in the kitchen renovation will boost your expenses to almost $30,000 and force you to get $585K or so at resale to break even (taking into account seller fees). It just doesn't add up.
The SKINNY: IN A SLOWING HOUSING MARKET YOU WANT TO DO THE LOW RISK HIGH REWARD RENOVATIONS THAT COULD PAYOFF AT RESALE. THESE INCLUDE FLOORS & BATHROOMS, NOT KITCHENS!
Of course, its entirely up to you and the money you want to spend on your new home. To each his own. Just before shelling out $20-$25K on renovations, ask yourself if you will want to sell in under 2 years. If you do, I strongly suggest cutting this expense down to $7K or under and that to me means floors and bathrooms! After all, spending more money than you want to will only worsen your financial situation and might force you to sell down the road sooner than you would otherwise want to. Not a good recipe should the housing market remain slow and you need to find a buyer fast!
LOST: Time Loop Theory
It's my birthday tomorrow and so today is a day off! I kind of wanted to talk about something totally unrelated to the economy and Manhattan real estate for once, but still provoke some thinking. So, I wanted to talk about this LOST theory that someone told me about.
WARNING: This theory is just some guy's, (Jason Hunter) opinion on what is going on in the show LOST. For me, this is it. While I don't think it spoils anything, some people may want to continue watching the show with as little info as possible, so they can figure it out on their own. So, if you are one of these people, you may not want to read this.
Below is a visual courtesy of TimeLoopTheory.com, here are the links if you want to understand this theory. It's pretty damn cool.
THE TIMELINE (READ THIS FIRST)
Q & A
REBUTTALS
SUPPORTING EVIDENCE
That's it, that's the end of the story. Anyone know a physicist to elaborate on this theory, and where the holes are?
Pizza Inflation Drives Brokers Crazy
A: Lets change it up a bit. When I'm out all day with clients, and very little time in between appointments, pizza is the way to go! Which is why I get reminded of food inflation daily, and don't need the gov't to tell me that its under control because the core datasets are not showing anything yet. Passing my favorite UES pizza joint (Patsy's on 118th & 1st still is my all time favorite), Anna Maria's on 83rd & 1st, shows me how they are passing on rising flour costs to customers! $2.75 a slice, talk about dough!
The price you pay for living in Manhattan! What's a slice going for around you guys?
A Different Recession?
On the Jewish holiday of Passover one of the highlights of the seder meal is when the youngest child capable of doing so asks the four questions. The first question has become world famous (at least in New York...and probably Miami.) Why is this night different from all other nights? And so it only seems appropriate this week to ask a similar question about the economy, with the general consensus having become that the U.S. has tipped into recession. Why may this recession different from all other recessions?
The current downturn was not sparked in the usual way that economists have thought about business cycles since World War II. The standard model, if there is one, is that the economy gets up a good head of steam, causing inflation pressures to build, and causing hoarding of some goods, over-production of others and over-investment in production equipment. The assembled excess inventories become fuel for the downturn, once a slowdown hits. The slowdown is usually catalyzed by the fed raising interest rates and thereby crimping growth at the margin. It may also be accompanied by a negative wealth effect of a declining stock market, also catalyzed by higher rates. As businesses start to realize that they have too much inventory, they cut investment and production, which hits both jobs and wages and we start the vicious downward cycle of a recession. This continues until inventories are cleaned up and incipient inflation pressures have abated. By then easier credit conditions begin to start an expansion again. Okay, so much for the perfect world. Of course recessions never happen exactly this way as there are always more secular business and social as well as political factors at play as well. It is still instructive to think about the current economy from the perspective of this model. Let's take a look at inventories.
As you can see from the table above, which comes courtesy of the U.S. Census Bureau, the ratio of inventories to sales in the economy was creeping up from late 1999 to late 2000 and by mid-2001 it peaked. There was a strong downturn in this ratio in both 2002 and 2003 as businesses cut back on inventories even faster than they saw their sales decline. Note that the inventory to sales ratio continued to fall until late 2005. Part of this is due to a very strong secular trend toward better management of inventory. Technology employed in the late 1990s really allowed this so called "collapsing of the supply chain" to where the Wal Mart's and Target's of the world have become so efficient that they rarely have inventory pile up on their shelves and even their suppliers are able to run very lean. Also note, that while the stock market was declining by the second half of 2000, signaling the upcoming recession, inventory to sales was still climbing. In fact the official beginning of the recession did not arrive until March 2001, according to a chronology of the recession from the U.S. Office of Management and Budget. It was only after 9/11 that the inventory disgorgement really hit. So unlike, the economic model mentioned above, in the 2001 cycle inventory cutting and slowing production didn't kick off the downturn. Importantly, there was never any real build in the inventory to sales ratio in the current economic cycle. There was a bounce off the bottom in late 2006, but that quickly was brought back down. 
It has since crept up a little in 2008, as inventory grew .9% and .6% in January and February, sequentially, while sales grew 1.3% from December 2007 to January 2008, but fell 1.1% in February. So basically, like the last recession, this one was not started by an inventory cycle. Importantly, and in contrast to the last recession it seems very unlikely that this recession will be pushed along to any great degree by a future inventory disgorgement cycle.
In the last economic cycle, capital investment did appear to peak right at the economic peak in 2000. What is fascinating is that information technology spending, which one would have expected to plunge, merely slowed. However, the prior rise in capital expenditures was more than 100% accounted for by high tech spending. Cap ex for all other industries had already been declining significantly, way before the economy peaked. So it looks like the slowdown in high tech capital investment was one of the triggers of the recession last cycle....no duh. But it took a while for this decline to result in job losses, as is evident from the chart below. Note that overall employment did not begin to fall until the economy was already "in recession".
The contrasting pictures of employment across sectors after the last economic peak are also informative.
Despite the Wall Street job losses associated with the last recession, overall financial employment (including banks, leasing companies, money managers, mortgage brokerage, insurance), didn't even flinch in the downturn and powered ahead through to the recovery. Little did we know that the emerging housing bubble significantly supported financial employment. In contrast, manufacturing employment was in a downturn going into the recession and never had an up tick. Business services and trade, transportation and utilities areas saw job trends closely track the overall economy as did jobs overall.
Perhaps most telling of the employment data I looked at with regard to the current downturn was construction employment. It peaked in the last economic cycle, about when employment overall did. Interestingly, despite a supportive residential real estate market, construction employment didn't really take off until 2004, at which point it really flew. It is instructive to note that construction employment peaked last summer and started to roll over with the financial markets. Just like capital spending did in the last cycle.
So let's review. Inventory liquidation was a lagging factor in the last downturn, and may not be a factor at all in the current recession. Employment declines overall lagged the peak of the stock market last time and didn't get going until the actual recession started. Employment in most sectors turned up co-incident with the stock market recovery of early 2003.
Ground zero for "over-activity" in the last economic cycle was capital expenditures. It peaked as the stock market peaked. This time ground zero for "over-activity" was in construction. Construction employment peaked with the financial markets and is now headed down.
With these observations in place, I will make a couple of guesses about what the future might be. I think construction activity and employment will get worse as commercial real estate activity cools in addition to residential. Interestingly, employment in the financial sector has been in a secular uptrend in this country and the 2000 recession did not even touch employment growth in the financial arena. I believe that that is due to the longer-wavelength credit cycle, which drives financial employment(see my piece The De-leveraging Cycle Will be Televised). With the fed still easing, in financial institutions may hang in there for a little while. However, as the debt cycle turns down, I expect this sector to be a source of job losses for several years to come. The good news is that manufacturing employment is about 70% bigger than financial services employment (according to the data I looked at), so although wages are probably lower, there should be some cushion to the overall economy here. In the last cycle, construction growth replaced tech investment growth as an economic driver....just when everyone thought all new jobs would be outsourced to India or China. This time the deleveraging cycle seems likely to be a drag on employment in the financial and construction areas for some time to come. Manufacturing, agricultural and energy related work, seem likely to be a cushion, but what will the big motor of an employment recovery be? That's still an open question. From the looks of it, we may wander in the desert for some time before we are led into the promise land of growth again - be sure to bring some Matzoh along for the trip!
Employment Charts Courtesy of the US Bureau of Labor Statistics and Guild Partners
Yields Rising: Fed Expectations Changing
A: Follow up, from my post last week on Fed nearing the end of rate cut cycle. It's one crazy world we live in, and the coming months and quarters will certainly be very interesting indeed when looking at how the Fed handles runaway commodity pipeline inflation threats at the same time they navigate through the credit crisis. I told you guys last November that mortgage rates were "...no longer tied to bond yields" as the markets re-priced risk and the bond market started to price in a slowdown and bring down yields; which didn't bring down mortgage rates! But now, the bond market seems to be pricing in a near term end to fed rate cuts! My question is, if lending rates rose while the fed eased because of the re-pricing of risk in the mortgage markets, what happens when bond yields rise on expectations of a more hawkish fed?
According to Bloomberg:
Yields on Treasury two-year notes rose to the highest level relative to the Federal Reserve's target rate in almost two years as traders pare expectations for additional reductions in borrowing costs by the central bank.This is a very important dynamic to watch for in the coming quarters: will the fed shift their focus from growth to inflation? We know that fed policy is lagging and takes time to work through the economic system; so, we have 300 basis points of cuts yet to fully show their effects! The fed clearly is noticing the stimulatory effects of these cuts on commodity prices and its debasing effects on the US dollar; it may be time for a change!"Stocks are down, and no one wants to buy the front end if the Fed is done," said Ian Lyngen, an interest-rate strategist in Greenwich, Connecticut, at RBS Greenwich Capital, one of the 20 primary government security dealers required to bid at Treasury auctions. "The market is clearly thinking more about a 2 percent fed funds than a 1 percent fed funds rate", said Jason Brady, a managing director in Santa Fe, New Mexico, at Thornburg Investment Management, which oversees $4 billion in fixed-income.
Traders see an 18 percent chance the Fed will keep its overnight rate unchanged on April 30, up from no chance a week ago, futures on the Chicago Board of Trade show.
Because of the credit crisis, fed rate cuts did NOT have any effect on jumbo mortgage rates over the past 7-8 months or so. The chart on the right, courtesy of bankrate.com, shows the relationship between Fed Funds Rate (red) vs 30YR Jumbo Mortgages (blue) & 30YR FHA Mortgages (green) over the past year. Notice the separation between the jumbo rates in blue and the conforming rates in green since the start of the credit crisis: this shows you the re-pricing of risk in the mortgage markets for non-GSE backed loans and the rise in jumbo rates even as the fed eased.
Right now, the fed is nearing the end of their rate cuts but jumbo rates are still high! The point of acknowledging this is the very fact that the bond market is now pricing in a 'nearing of an end' to rate cuts due to commodity inflation pressures, bringing yields higher!
KEEP AN EYE ON HOW HIGHER BOND YIELDS MAY AFFECT LENDING RATES IN THE NEAR TERM!
I'm thinking they will. What if 10YR yields rise from 3.8% to 5% in 6-8 months time? In the world of 'repricing of risk', it was possible for bond yields & fed funds rate to come down WITHOUT lending rates following; it was because of the dysfunctional secondary mortgage markets at the time and the higher risk associated with larger non-guaranteed loans. But, if bond yields & fed funds rates start to rise in response to a more hawkish fed, it will be highly unlikely that lending rates will not follow suit higher as well!
Hence, the importance of discussing this. We never got the drop in lending rates after all the fed's actions, but will likely see the rise when rate cuts are taken back!
Timing The Market: The Wait & See
A: Real estate is a personal decision. Timing the market is a fairyland. In a perfect world, one could buy Manhattan real estate at the bottom, sell at the top, rent for a few years, and upgrade after the market corrected a bit and some deals popped up. Now wake up! Timing the market is impossible to do, so don't even try it. It will make an already complex investment decision even more complex; yes, I view your house as an investment that you live in, and that should be a part of your portfolio. If you don't like the investment, rent. If you prefer to own, build wealth, and take advantage of tax benefits, then buy. But don't try to perfectly time it as that will cloud the overall decision. Instead, focus on what works for you and finding the best product in the price point that is out there and getting it for the best price possible! Originally Published January 28th, 2008.
This is for those that are looking for a new home to use as their primary residence. While I discuss what interests me here on UrbanDigs, including what is going on outside our walls, I don't want that to cloud your investment decision. Just because I made it my point to focus on the credit crisis since last July, and hopefully now you understand why, doesn't mean I expect Manhattan housing to crash 50%, I DON'T! Lord knows there are enough people out there that are making this assumption for me.
Deciding whether to pull the trigger should be a clear decision. A decision that is made after assessing four very important personal criteria:
a) Liquid Assets After Closing Costs
b) Salary / Debt-to-Income Ratio
c) Job Security
d) Timeline To Hold/Own
Assuming you made the decision to seriously consider buying, you must now figure out if you can afford it with your total salary, if you have enough liquid assets leftover after the transaction, if your job is secure, and if you intend to own/hold the asset for at least 4 years. Let me just briefly go into each one:
Liquid Assets After Closing Costs: Do you know what the buy side closing costs are going to be? Many brokers don't discuss this with their clients until they get very close to bidding, and for some buyers that # comes as a shock. So, better off knowing before hand how much OUT OF POCKET you will be to actually buy the condo or co-op. A rough estimate is about 4.25% of purchase price for a Condo, 5.75% of purchase price for a new-dev Condo (assuming pass down of sponsor costs), and about 1.75% of purchase price for a Co-op. This does not include points and is dependent on how much you are putting down as well so use as a very general guide.
Now, the down payment. After you add up the down payment + estimated closing costs, how much money do you have leftover in your liquid accounts; 401K/Retirement accounts not included. You can convert some retirement money into liquid money, but there likely will be a penalty for doing so.
QUICK TIP FOR USING ROTH IRA FUNDS PENALTY FREE: For those with a ROTH IRA account over 5 years old & plan to purchase their first home, you may use up to $10,000 penalty free for the down payment. Click the link for more details on qualifying for this distribution incentive.
Generally, you want at least 8-12 months of MORTGAGE + MAINT/TAXES leftover in liquid assets to buy a condo, and probably more to pass a co-op board. You can do it with less liquid for a condo, say 6 months total payments in liquid, but you really do want to leave yourself some security just in case when the deal is done.
Salary / Debt-To-Income Ratio: Now, take your total expected monthly payments and add in any minimum debt payments you currently have. Divide this total monthly expense by the total gross income you are bringing in each month (I usually add in bonus if its set in your employment contract, but acceptance of this trend is likely to change).
Here is a hypothetical to give you an idea:
TOTAL MONTHLY PAYMENTS ---> $4,000
TOTAL MIN DEBT PAYMENTS ---> $650
TOTAL GROSS INCOME ---------> $15,000
=================================
$4,650 / $15,000 ---> 0.31 or 31%
This person's debt/income ratio is 31%. Generally, you want to keep your debt/income ratio UNDER 28%! Anything over that may become a problem either for the lending gods or the board gods! If you do go over 28%, you may be able to still do the deal if you can offset this with bulky liquid assets leftover after closing. But, anything over 33% is probably going to be a problem for any co-op board. Condo's of course are less stringent leaving the buyer to gauge their own comfort level as opposed to the board's/lender's comfort level!
Job Security: Please make sure your comfortable with your job; both in keeping it and staying in this location. One of the biggest destroyers of wealth, besides divorce, is being forced to sell your largest asset because of job loss or relocation! If you have to sell quickly, you will have to be flexible on pricing!
Make sure your job is secure before making such a big investment decision!
Timeline To Hold/Own: General rule of thumb is 5 years. Its a good rule, although I can live with one less. If you are going to hold the property for at least 4 years, and you meet all the above criteria AND YOU WANT TO BUY AND OWN YOUR OWN HOME, then you have very compelling reasons to pull the trigger!
Since buying & selling real estate incurs transaction costs, you want to have time on your side to both build wealth and take advantage of tax benefits! Ideally, you want to be able to sell the asset when YOU choose to, not when you have to. A longer timeline to own gives you the freedom to pick & choose your exit points.
The wait & see attitude generally comes from those concerned about the economy, asset deflation, buying more then they can afford, or just putting most of their eggs into one asset class. For these people, buying may not be the best decision if it will result in large amounts of stress and a negative effect on the quality of your living standards. The last thing you want is to argue about the new apartment you bought that caused you to not enjoy life as much as you did before. If you don't qualify for the above 4 criteria to buy, then you shouldn't be buying in the first place! If you think you'll need a bigger place in 1-2 years and can't afford that larger property now, then you shouldn't be buying!
Happiness is still more important than money, so be sure you can find a place that not only you can afford, but one that makes you happy and hopefully is scalable so that you can grow into it should your family grow in the future!
