Rates & Market Volatility

Posted by urbandigs

Thu May 31st, 2007 10:49 AM

A: I feel the need to briefly discuss the resilience of US equities in response to the plunge in Chinese stocks yesterday. When the fed minutes were released yesterday, it showed that the gov't body in control of monetary policy saw less risks to the US economy but inflation remained above expectations. The markets for some reason interpreted this that the fed would still consider cutting interest rates by years end if bad news hit OR that the economy is stronger than expected; both good news for stocks and hence the rally.

Well, when I was a trader I focused more on volatility, short term trends, and which market makers were supporters or dumpers of a particular stock to take advantage of quick movements (if Morgan Stanley had a huge buy order in QCOM, I would see it and follow the leader). Now that I'm out of trading and in real estate, I shifted my focus to understanding the economy, what affects monetary policy, global issues, inflation, etc..One thing that has never changed is there are times where I just don't get what stock traders are thinking?

Now is one of those times. I don't get the rally yesterday. Yes, the fed sees less risks to the US economy via stronger data points (strong jobs & manufacturing) but why would the street interpret this to mean future rate cuts are in the works? If the economy has less chance of going into a recession and fed focus remains on curbing higher inflation, how does that equate to lower rates?

According to CNN Money article titled, "Fed: Risks to Economy lessen":

The Federal Reserve at its May 9 meeting believed inflation was still the main threat to the economy but also said the risk of an abrupt slowdown in economic growth had diminished, minutes released Wednesday show.

"Members continued to view the risks to economic activity as weighted to the downside," the minutes said.

Policy-makers thought turmoil in a segment of the U.S. mortgage market would not spread more broadly and saw signs that sluggish business spending was reviving.

As a result, "these downside risks were judged to have diminished slightly," they said.

At the same time, nearly all of the policy-makers continued to believe that inflation, excluding food and energy, was "uncomfortably high" and should come down more.

What you need to know is that the fed reported a stronger US economy, less risk of a recession, and still higher inflation. All this combined to keep 10YR bond yields higher, providing NO relief on the mortgage markets. The street is now interpreting both good and bad news as GOOD NEWS, a clear sign of a bull market. If the economy starts to slow, then the fed will consider cutting rates: GOOD NEWS. If the economy powers ahead and shrugs of housing and Int'l selloffs: GOOD NEWS. There is always a disconnect with rational thinking and stock market psychology.

What I see is: Record stock prices, Int'l stock bubbles, Housing downturn, GDP growth slowest since '02, High energy prices, and higher rates, tighter loan standards.

What is keeping US stocks hot
: M & A activity, corporate buybacks lower P/E ratio's, weak dollar boosting profits, globalization, corporate management discipline, tons of liquidity, low interest rates starting to rise

In any event, the US shrugged off the China selloff and interpreted the fed minutes as a positive in less chance of a recession. That means higher bond yields. As stocks rise, bond prices fall (yields rise). Expect lending rates to trickle higher with the markets reaction over the past 2 days!

How this ultimately affects affordability and housing remains to be seen but you can bet on one thing: LENDING RATES WILL TRICKLE HIGHER as the 10YR Bond yield moves past 4.917%!

Oh boy, I would really keep tabs on mortgage rates and the 10YR bond yield to see if this upward trend continues past the all-important 5% mark! It's hard to argue the effect higher mortgage rates have on the housing market and heading into the summer months now is NOT the time for lending rates to take a sharp move higher; but it appears to be a good possibility. Unless we get some negative economic news to reverse this course, expect rates to trend higher.

Thursday Links

Posted by urbandigs

Thu May 31st, 2007 09:19 AM

A: You guys have to bear with me over the next few weeks as I deal with my father battling an awful disease. Time is short and I'm trying to post as much as possible to keep content fresh, but most of my free time goes to my buyer/seller clients. So, live chat will be erratic and grammar errors might be more prevalent; yesterday I messed up the see-saw picture because I rushed to get the post up. So, please bear with me. In meantime, here are some worthwhile reads from sites that I consider daily reads to keep me educated on the Manhattan real estate market and the economy.

The Latest Housing Data Suggest the Housing Recession is Not Bottoming (Nouriel Roubini's Blog) - An explanation into why New Home Sales data is flawed and other arguments that analysts seemed to diss when arguing that the national housing market is nearing a bottom.

Housing ATM 'Out of Money'
(Calculated Risk) - Bill's link to a Washington Post article that goes into the lack of funds that are available to homeowners as home prices fall. Less equity in your home means a reigning in of spending and a psychological shift to avoid cashing out what's left in your home equity unless in an emergency. How this might cause sluggish consumer spending reports in the future and be a further drag on US economy.

Housing Freefall Continues Unabated (Big Picture) - Barry Ritholtz's take on the continuing trend of downward national home prices; with a reference to the Case-Shiller Home Price Index showing negative annual returns in US. Barry also goes into Existing Home Sales data and concludes "...the number of unsold properties relative to sales hits a 15 year high". There is an issue with bottom calling in the mass media via so-called experts and this article tries to argue the other side of the coin; the data and the builders.

My Co-op is Growing: More Evidence of Square Footage Lies (True Gotham) - Douglas Elliman superstar broker Doug Heddings take on Jonathan Miller's latest chart showing that condo apt size is decreasing as co-op size is rising? What gives?

Doug argues, "Jonathan Miller attributes some of the skewing of data to the high end co-op sales of the past ten years. Perhaps, but I think it is more a result of overstating square footage. I have witnessed the "puberty" of apartments in most listing databases: The fledgling 1BR that has gone from 620sf to a handsome 750sf "spacious home," and the Classic 7 room on West End Avenue that "sprouted" a few years back from a measly 2000sf to a robust 2400sf."

What A Revolting Development
(NY Mag) - S. Johanna Robledo's take on the rising number of buyer complaints at new development condos. While one would expect top quality by paying top dollar plus the developer's transfer taxes at closing, some developments have to resort to shoddy construction tactics to make the numbers work and the project economically feasible. This article focuses on Brooklyn.

Side Note - Interest Rate's & China

Posted by urbandigs

Wed May 30th, 2007 10:27 AM

A: For all you who signed a contract of sale in the past week or so, or are about to, keep a close eye on US equities in their response to the China selloff. Should US stocks fall but then rally as buyers step in for discounts, then rates will hover around where they are now. But if US equities get hit hard (with a selloff, then small rally, then another selloff towards the close) today and in the next day or two, the 10YR bond yield will fall and provide some relief in Mortgage rates; telling you to hold off for a week or so to lock in your rate. Here's the skinny.

10YR Bond yield fell 3 basis points to 4.851% from a previous close of 4.882% yesterday. The relationship is that of a see-saw. As stocks fall bond prices rise (yields fall). As stocks rise bond prices fall (yields rise). Mortgage rates tend to follow the action on the 10YR bond yield which is why I'm trying to ingrain this train of thought into your heads.


Use this model as a guide if you recently signed a contract of sale and are considering when to lock in your interest rate.

STOCKS FALL / CHINA SELLOFF STICKS --> Hold off locking in your rate as the 10YR bond yield will drop more the harder US equities fall

STOCKS REBOUND / RALLY HOLDS --> Still no rush. If you didn't lock in a rate on May 17th when I said to, then the damage is already done and short term trend might be in your favor right now. Worst case, rates should hover where they are now or drop very slightly in response to China selloff. I'll report to you if this changes.

The bond market is still not predicting a hard landing (if it was rates would be heading lower; but the trend has been higher). In fact, I'm surprised of the muted reaction thus far in US equities and bond yields. Lets see if it holds.

China Taxes To Slow Equity Market

Posted by urbandigs

Wed May 30th, 2007 07:40 AM

A: Chinese government makes a move to stop the rapidly overheating stock market by raising the tax on shares traded from 0.1% to 0.3%. According to CNN Money article, "...In the 16-year history of the modern Chinese stock market, an increase in stamp duty has always caused a market slump over the following few weeks or ended a bull run.". Hmmm...Just thinking out loud. Market corrects, dragging down US equities with it, bringing down wealth effect, sparking a re-adjustment in hedge fund holdings, things get real rocky, traders get conservative, wall street ends 4 year bull run? If stocks fall and wealth is lost in paper profits, how will that affect future Manhattan real estate investments and affordability? Now you know why I talked about China here over the past few weeks!


China shares PLUNGE 6.5% (don't say Jeff & I didnt discuss this weeks ago and it's ultimate effect on US equities) on news that the government raises the tax on shares traded to slow the market's unsustainable growth.

According to Yahoo Finance:

Chinese stocks plunged Wednesday after the government raised a tax on share trades, trying to cool a market boom amid growing concerns about a possible bubble.

"This policy change reveals the government's concern about a possible stock market bubble," said Citigroup economist Minggao Shen, describing the tax hike as Beijing's first formal move to cool the boom. "The market didn't know what the government was thinking until now."
Let's see if it hits home here in the US, via a bad stock market day. I say YES and expect US equities to get a big headache from this. Here are Jeff & my previous posts on this topic raising the warning flag:

Greenspan & Asia: Too Close To Home -

Now this hasn't happened yet, but the warning signs are there. Most just choose to ignore them because they are too concerned with recent stock market strength here and nation wide housing woes (excluding Manhattan) that we are experiencing. Media stays away because they report on what already happened, not what might happen. But now that Greenspan speaks up, the media has a reason to write about it!

As boring as it may sound, these things SHOULD be on any investor's radar even if you only own US stocks and no real estate. US stocks will get pounded if China's equity market collapses! That's for sure. Question is, will you be on the lookout? I certainly hope so. While the effect on Manhattan real estate is more towards the end of the chain of events that would occur with a Asian equity collapse, if it does occur we will lose some fundamental umph that has helped our housing market buck the trend thus far.

Skinny Dipping Anyone? -
While the economic juggernaut that is mainland China is not new news, recent efforts to slow the pace of growth in China has spurred new speculation about how and when this colossus of an investment trend will end and more importantly, will it end badly? The jury is out on these questions and I will argue that it may be out for some time to come. I'll also argue that it will end badly, no ifs ands or buts.
Sometimes it ends up being something like this that ultimately ends a good run for one particular tradable market. Globalization has been the money making theme over the past few years, but I seriously worry about an Asian equity contraction and what effect that has on hedge funds, US equities, and paper profits. We are due for a correction, especially in the Asian markets, and I've been discussing this more and more recently because I think we are very close to one.

Today's news sparks a huge selloff and I certainly will be very interested to see how this plays out. I also worry about how hedge funds maneuvers might make any correction here or abroad even more dramatic. Time will tell. Should the market here get infected by what happens oversees, expect paper profits to fall, consumers to be less confident, and affordability for expensive housing to drop. The latter won't happen until the markets really fall here, and this hasn't happened yet. Again, forward thinking. That is what this site is all about!

New Home Sales Soar: Bye Bye Fed Cut!

Posted by urbandigs

Thu May 24th, 2007 11:03 AM

A: Stocks surge on the just released New Homes Sales which showed the biggest increase in 14 years! Sales volume of single family homes increased 16.2% last month. Adios el cutto in interest rato! On a side note, prices recorded plunged providing insight into the rapid growth in sales volume. It's clear that as prices fall, interest is rising!

10YR Bond Yield Surges from 4.85% to 4.89% on the news pushing lending rates higher!

Personally, I don't buy this New Homes Sales report; it's surprised too much to the upside. I think its an anomaly that will later be revised down. But, whatever. It is what it is.

According to CNN Money:

A big drop in the typical price of new homes spurred much better than expected sales, according to the latest government reading on the battered real estate and home building market.

New homes sold at an annual pace of 981,000 in April, up 16.2 percent from the revised 844,000 pace in March. Economists surveyed by Briefing.com had forecast an 860,000 rate in April.

But the median price of a new home sold in April plunged 10.9 percent from a year earlier to $229,100. The new price reading was also down 11 percent from the March reading.
The national housing slump is arguably 2 years in. Many were expecting more housing woes to be the main reason for the fed to cut rates. Not the bond market. Kiss a rate cut good bye especially if housing data comes in better than ALREADY LOWERED EXPECTATIONS!

KEEP AN EYE ON - The US dollar that everyone dissed! As 10YR bond yields rise so will the US dollar! One reason why corporate profits have been so strong recently is because of globalization and profits oversees taking advantage of currency trends. If US dollar surprises and starts a comeback, those currency gains that helped bulk profits in the past will restrict. Interesting topic for another day.

Does Fed Funds Rate Affect Mortgage Rates?

Posted by urbandigs

Thu May 24th, 2007 10:16 AM

A: The short answer: NO. For a more accurate near term predictor of mortgage rates look to the 10YR treasury note. I discuss this often here for those that need to make a decision in the very near term; i.e. days or weeks. Based on the trend of the 10YR bond yield (that's the percentage yield NOT the bond price), chances are mortgage rates will follow shortly thereafter. Here's a great chart I just came by showing you this relationship.

Thanks to HSH Associates Library of Mortgage Information: This graph contrasts the movements of the weekly average Federal Funds rate against the movements of the weekly 10-year Treasury Constant Maturity and those of the average 30-year fixed rate mortgage and 5/1 Hybrid ARM. It covers the period from April 2004 through April 2007.

Does the Federal Funds Rate Affect Mortgage Rates?

The short answer: No.


Conclusion - Look very carefully how the Red & Green lines closely follow the Blue line at a very slight lag. This lag is days but tells you that if you get acquainted with following the bond market and why bonds move one way or another, you'll soon grasp the concept of the relationship between 10YR yields and mortgage rates. Come time for you to buy a home, you'll have a general understanding of whether you should lock in a rate NOW, or wait a few weeks.

Fine tune your observation and knowledge of what affects the bond market; economic growth, jobs, inflation, expectations and risk, etc. The key is to understand on what occasions a slight move in the 10YR yield will turn into a sustainable trend. That way, you have a good idea of whether its a blip or a sustainable trend to make a decision on. On may 17th, the jobs data came in much better than expectations signaling a strong labor market; a good sign the US economy is holding its own. This is a situation where yields will trend higher until a situation arises to disprove the last jobs report.

As I discussed on May 17th in my post titled "10YR Surges: Mortgage Rates Next" -
The 10YR bond yield has been making higher lows and now higher highs for the past 10 weeks or so, which should hit the mortgage market next week. In fact, I would expect lending rates to already have popped a bit on the latest jobs report.
Earlier in the day I commented on the jobs data in my post, "Jobs Market Strong! Rates Heading Higher" -
Wow, this certainly was a surprising jobs report! Jobless Claims fell to the lowest level in 4 months, surprising wall street analysts. The yield on the 10YR surged to 4.74% from 4.7% on this report which will certainly have an effect on lending rates in the near term. Expect mortgage rates to trickle higher as longs as the US economy remains strong.
Finally, here is a chart of New York mortgage rates over the past 4 weeks pointing out when the 10YR bond yield started to surge after the jobs report; savvy buyers recently in contract or very close to being in contract would have locked in their loan rate immediately:


Greenspan & Asia: Too Close To Home

Posted by urbandigs

Thu May 24th, 2007 08:24 AM

A: When I met Jeff Bernstein about 3 weeks ago, a partner at a residential investment & development company, we spoke about the current market and what factors represent warning signs to future growth. Besides talk of inflation the main concern we discussed was China! A few days later I invited Jeff to write on UrbanDigs.com and he did with his first post titled "Skinny Dipping Anyone?" back on May 8th. It was about the froth in the Chinese markets that was the centerpiece of the post and how a correction here could be a very big one that ultimately affects our economy; which then would effect real estate here in Manhattan. Now that Alan Greenspan came into the public eye yesterday about this exact topic, sending jitters to US equity markets, you see why I encouraged Jeff to join this blog and post about what we discussed!


UrbanDigs will ALWAYS be a forward looking blog discussing topics that vary depending on what is going on in the world that might ultimately trickle down to real estate investments. Some of you are just interested in the buyer or seller tips I discuss, while others come to view my thoughts on macro economy or near term interest rate trends. But I feel that discussing what no one is talking about right now that people should be talking about now, as opposed to later when mass media finally gets it, is such an integral part of this blog's goal. Jeff's post on China describes this.

Some of the comments of Jeff's post included:

  • "I really like your site. I bet you probably get a few disappointed visitors from the topic of this post though. Hahaha."

  • "What about mobbing and gangstalking? That affects everyone."

  • No one's laughing now that Alan Greenspan publicly discusses what Jeff talked about almost 3 weeks ago!

    According to CNN Money's article titled "Greenspan Warns of 'unsustainable' Chinese Stocks" -
    Former Federal Reserve Chairman Alan Greenspan said on Wednesday he feared a "dramatic contraction" in Chinese stocks but said the global economy may be able to shrug off a drop in asset prices. The main Shanghai index has nearly tripled in past year and is up 56 percent so far in 2007.

    "It is clearly unsustainable," he said "There's going to be a dramatic contraction at some point."

    "In the last five years, the world as a whole is a growing faster than at any time in the world's history," he said. "It can't last and it won't last because it's a one-shot adjustment."

    Greenspan said asset prices around the world could fall but that the economy may escape unscathed if it were flexible enough to absorb asset price shocks.
    Now, recall what Jeff mentioned in his post titled "Skinny Dipping Anyone" back on may 8th and you see why I wanted to publish this type of forward thinking content that the mass media did not see interest in yet; they do now -
    While the economic juggernaut that is mainland China is not new news, recent efforts to slow the pace of growth in China has spurred new speculation about how and when this colossus of an investment trend will end and more importantly, will it end badly? I'll also argue that it will end badly, no ifs ands or buts. Unfortunately, China has become such a big factor in the world economy that trouble there will reverberate worldwide as it did briefly when the Chinese stock market plunged 8% in one day in February of this year.

    For now, China's economy looks like a runaway train. As Warren Buffet has been said to have commented "when the tide goes out you find out who is skinny dipping".
    Here's how it will play out should Jeff & Greenspan's warnings prove true at the end of the day:


    Now this hasn't happened yet, but the warning signs are there. Most just choose to ignore them because they are too concerned with recent stock market strength here and nation wide housing woes (excluding Manhattan) that we are experiencing. Media stays away because they report on what already happened, not what might happen. But now that Greenspan speaks up, the media has a reason to write about it!

    As boring as it may sound, these things SHOULD be on any investor's radar even if you only own US stocks and no real estate. US stocks will get pounded if China's equity market collapses! That's for sure. Question is, will you be on the lookout? I certainly hope so. While the effect on Manhattan real estate is more towards the end of the chain of events that would occur with a Asian equity collapse, if it does occur we will lose some fundamental umph that has helped our housing market buck the trend thus far. Don't be blind to what is going on in the world as it could very well hit home in the future!

    I (heart) Starck's Gramercy!

    Posted by Toes

    Wed May 23rd, 2007 07:42 AM

    The Gramercy sales office opened two or three weeks ago and apartments have been flying off of the shelves. And they should be! For a new development with a fitness center, steam room/sauna, library lounge, resident's lounge, refrigerated storage and a roof terrace to be offered at $1,200 a square foot, I found myself in broker heaven! Since there are 207 residences and a 10 year tax abatement, the common charges and real estate taxes combined are under $1/sq ft. I might have to buy one of these myself when my studio apartment closes...


    Philippe Starck can be seen wearing some bizarre red gloves on both the website and in the various sales office videos, but his eccentricity brings with it designs that are somehow creative, fun AND practical. His creations (15 Broad, for example) are just spectacular. Sign me up for the fan club!

    As far as the unit mix at the Gramercy, buyers will find studios, 1, 2, and 3 bedrooms on floors 2 - 16. Floors 17 and higher include unique duplex "skyhouses" as well as one and two bedrooms which are laid out like master suites that you would find in a luxury hotel.

    Buyers can choose from three styles of finishes, "Nature," "Culture," and "Classic." My buyer liked "Culture" the most because the white cabinetry makes the kitchen seamlessly blend in with the living area and creates the feeling of a larger space. We both felt that the "Classic" finishes were lovely but might make the apartment seem smaller since the cabinets are walnut and the floors are dark oak.

    Every apartment has a washer/dryer (even the studios, yay!) and the apartment layouts have an efficient use of space. A "niche wall" in each residence cries out for the design-deficient among us to do something with the space by displaying art or other collectibles.


    The building's location on the south side of 23rd Street between First and Second Avenue ensures that north-facing apartments on the mid to high floors get Chrysler and Empire State views, and apartments on the south side of the building above the 10th floor get river and open city views down to Wall Street. The Zeckendorf Building on 14th street is one of the few tall buildings between 23rd street and the Financial District.

    Some may say that 23rd isn't the most glamorous location. For people who want to live downtown, but can't afford the new developments in SoHo/Tribeca, and don't want to live in the Financial District, there is nothing comparable to The Gramercy in the area. If you want something even close, you have to go to the A building on 14th between A and B, you'll pay a higher price per square foot, and personally, I'd rather live west of 1st Avenue.

    Having grown up in Stuyvesant Town and attended P.S. 40, it kills me when people see the tall brick buildings between 14th and 23rd streets and say, "housing project." Stuyvesant Town was recently sold for $5.4 BILLION dollars. The rent stabilized units are diminishing and the market rate tenants just saw rent increases of 20 - 25% - it's not cheap anymore!

    I would move to the Gramercy for the food alone - the best bagels in all of Manhattan can be found at Ess-A-Bagel on 21st street and 1st Avenue and Petite Albeille on the corner of 20th and 1st is delish.

    Overall, I give this new development two very big thumbs up! If you are looking to buy an apartment, get thee to the Gramercy immediately! The building is selling quickly and prices will undoubtedly go up soon. The building will be ready for occupancy in December (so plan for February since winter construction is rarely on time) of 2008. Get ready to break your lease!

    Inventory Trend Check - It's Rising

    Posted by urbandigs

    Mon May 21st, 2007 08:48 AM

    A: After seeing what I saw on Long Island yesterday, I was curious to see the inventory trends of Manhattan real estate on a weekly basis for the past 4-5 weeks or so. I wanted to see if there was a trend. I added Beekman (not sure why I left out Beekman in previous reports) to this inventory check. I also excluded NEW LEADS and only counted the number of NEW LISTINGS that came to market for the specified time period; the first time I did this and something I should have been doing in the past. It's the best data I have access to, so take it for what its worth. Conclusions? New listings inventory trend is rising

    Neighborhoods included: Beekman, Carnegie Hill, Central Park South, Chelsea, Clinton, E. Village, Fin District, Flatiron District, Gramercy, G Village, Little Italy/Chinatown, LES, Midtown, Murray Hill, SoHo, Sutton Area, Tribeca, UES, UWS, W. Village


    I checked the data twice to be sure it was correct before entering it into the chart software. While it may not seem like inventory is rising to all you frustrated buyers out there, according to the central brokerage system that I use since Corcoran bought out Citi-Habitats, the inventory trend line is clearly on the upside.

    For the week of May 6th - May 13th (yes I know its 8 days, but this is how I did it and at least all sets are consistent), the search hit the MAX # of 300 results so I really don't know how many more new listings there may have been. I also subtracted NEW LEADS, since that is all they are, leads and not listings on the market yet, to get a more accurate view of how many new listings actually hit the New York City real estate market during the specified date ranges.

    Draw your own conclusions but what I see is rising inventory hitting the NYC real estate marketplace since April 13th. While prices are still high and demand is still strong, the effect of this rising inventory is yet to be seen. Will the demand absorb the rising supply? Will Jonathan Miller show this same trend in future data reports? I'll certainly be keeping tabs on it. The hope is to give you the inside take on what is really happening in Manhattan real estate so that you can best invest in it.

    PS - Sorry, no live chat today as I have to head to LI for a family visit to the oncologist.

    LI Real Estate - Big Trouble

    Posted by urbandigs

    Sun May 20th, 2007 09:16 PM

    A: Specifically, Suffolk County about 50 minutes east from Manhattan. I was visiting family today, who happen to be selling their house right now, and let me tell you how insane it is in terms of the # of For Sale signs there are. Almost every street off the main street had a 'OPEN HOUSE THIS WAY' sign trying to lure passing drivers down the road. I couldn't even count how many homes I noticed for sale in the area around Commack, Dix Hills, Melville, & Huntington. If this is any indication how it is in markets around the country, we have some serious fundamental issues that need ironing out before any nation wide housing bottom will be found.


    I know, this blog is supposed to be about Manhattan right? Yes. It is. But how can I not report on this kind of stuff when it is so close to home. Manhattan is a different animal from the other markets across the US, but what I saw today is very troubling. I worry that data released by the government and other organizations is not really telling us the true story. It can't be. I mean, the neighborhoods I mentioned above are so overcrowded that I honestly thought a housing slowdown would be somewhat contained. After all, good school districts and solid homes on 1/2 acre lots should always be in decent demand in this part of Long Island. There are just too many growing families with $$$ looking for homes. Right?

    But the inventory I saw today told a different story. And to boot, I read this story via The Big Picture from John Burns Real Estate Consulting Group.

    According to the article titled, "Message To Fed: The Housing Market is Falling Much Faster than Reported":

    * Closing Data: We purchase and compile actual home closing data for approximately 181 counties across the country, which captures the counties where about 55% of the U.S. population lives and a significant percentage of all of the counties where the large home builders are active. This data shows that sales have fallen 22% if you compare sales over the last 12 months to the prior 12 months. On a straight year over year comparison, the decline is much more.
    * Mortgage Bankers Association (MBA) Data: The MBA Seasonally Adjusted Purchase Application Index, which is a measure of the number of people filling out loan applications to buy a home, is down 18% from its peak in September 2005.1 With presumably more applications being filled out by borrowers who now have to shop around for a loan, how could sales have fallen by less than 18%?
    * Builder Data: The nation's two largest homebuilders, D.R. Horton and Lennar, are reporting that orders have declined 27% to 37%, year-over-year. 2 3 D.R. Horton and Lennar have dropped prices significantly in many markets to generate sales, while the resale market has not. How could their sales have fallen more than the resale market, even if new home communities tend to be in fringe areas?
    * Realogy Corporation Data: Realogy, which is the parent company of Century 21, Coldwell Banker, and ERA, participated in roughly 1.9 million brokerage related transactions in 2006 compared to 2.3 million in 2005, representing a year-over-year decline of 18% nationwide.4
    * 2005-2006 NAR State Data: The National Association of Realtors state data does show sharp year-over-year corrections in major states: 28% drop in Florida, 24% drop in California, and a 28% drop in Arizona. Our data, however, shows the sales have probably dropped by 34%, 27% and 38%, respectively. The national numbers include some large states where sales volumes have not corrected substantially, such as in Texas and Ohio, but we believe these markets are not very healthy for other reasons. Interestingly, our calculations were tracking very closely with NAR data through 2005, as illustrated above. We did investigate NAR methodology and have found absolutely no reason to believe that the NAR is intentionally misleading anyone, as some have suggested.
    * New Home Data: The Census Bureau calculation of new home data does not calculate sales net of cancellations, and cancellations are running much higher than normal right now, which is why the sales numbers overestimate actual sales.
    The article calls for the fed to lower interest rates NOW, and ahead of the curve, before the problems get real bad. I don't see that happening as the fed has a history of NOT messing around with tradable markets using speculation. Rather, they will once again be behind the curve and wait to see the real data hit before pulling the trigger on stimulative rate cuts. But this consulting firm argues that the data is where the problem is in the first place! If the data were real, housing would be showing a much worse performance than we are currently being told.

    The medicine, the rate cuts, will be good but it will take time to kick into effect. Right now, I have a feeling the disease is far worse than people think outside Manhattan real estate, and I wonder how that will ultimately affect consumer spending and the economy and finally, New York City real estate.

    For now, the Manhattan market is 'strong like bull' as it enters the normal cool down season during summer months. Comparing Manhattan real estate to suburban markets on the outside is like comparing apples to oranges. Sure they are both fruit, but fundamentally they are very different.

    Buyer's or Sellers Market? I Need Help?

    Posted by urbandigs

    Fri May 18th, 2007 10:36 AM

    A: This is the first time in UrbanDigs history that I am reaching out to my readers for help! I got great feedback from my posts on whether or not the current Manhattan real estate market is a buyers or sellers market, but I want to take it a step further. I recently posted how I think the current market still favors sellers, and that hasn't changed, but how I go about reaching that conclusion might. I'm working on something here and need your input. Please use comments section! And thanks!


    Everyone interested in New York City real estate wants to know if its a good time to buy. They want to know if the current market favors buyers or sellers. So what better place to discuss this topic than right here. When I think of what type of market it is, I look at certain things. I take into account:

    (a) buyer activity at open houses & private showings
    (b) who has control during bidding process / negotiability
    (c) inventory trends or lack of
    (d) seller willingness to trade below building average
    (e) buyer willingness to pay asking or above / bidding wars

    etc..These five items tell me alot about what is going on right now in the current market. Then I ask my colleagues the same question and based on all opinions, I report back to you guys over here on the digs.

    Some people will think that more fundamental items have to do with whether or not its a buyers or sellers market; such as pricing, interest rates, and sales volume. But 2/3 of these items are lagging and hard to come by. I can not tell what a condo/co-op sells for until it closes and sales volume comes out at a lag as well. That goes against what I want to do here for you guys.

    The ultimate goal of this site is to keep you educated on what is going on RIGHT NOW that can help in your investment decision making. That is why I discuss macro economics in addition to housing related topics. For this topic, we need to figure out WHAT YOU THINK DETERMINES A BUYERS OR SELLERS MARKET HERE IN MANHATTAN SO THAT I CAN BEST MEASURE IT.

    CAN YOU HELP ME? Please speak out even if you never spoke out here before. There are no stupid answers and I encourage you to think outside the box. I know I am missing a few things and want to consider all ideas before proceeding with my idea.


    10YR Surges: Mortgage Rates Next?

    Posted by urbandigs

    Thu May 17th, 2007 03:07 PM

    A: The 10YR bond yield has been making higher lows and now higher highs for the past 10 days or so, which should hit the mortgage market next week. In fact, I would expect lending rates to already have popped a bit on the latest jobs report. Here is some info you need to know if you are active right now in Manhattan real estate as well as some worthwhile takes from the blogosphere.


    For Buyers IN CONTRACT - Did you lock in your rate yet? If not, call your mortgage broker RIGHT NOW and lock that baby in. Chances are if you were waiting for next week or the week after, rates will be higher.

    For Serious Buyers on the Hunt - Adjust your affordability range taking into account likely higher mortgage rates! As lending rates rise affordability goes down especially if you already are stretching your budget looking at property's above your max.

    For Sellers Who Must Sell - Higher rates as we get past Memorial day is just not a good combo for those sellers who MUST sell soon! If you are financially struggling and must sell because you can't afford your home, lower your price NOW and have your broker up marketing efforts to encourage buyers before it slows down. If rates rise 1/4 point or more, buyers will certainly have less incentive to chase purchase prices.

    Here is the 5-Day chart via Yahoo Finance showing the jump in yield from 4.62% to 4.756% today:


    Get educated on what is going on that affects affordability in the housing market! Lending rates, jobs, stock market wealth effect, and high salary's all affect affordability for buyers. So, when rates look like they are going to rise, your buying or selling strategy might need to be adjusted or else you will be left without a chair when the music stops!

    Here are some statements worth reading from the blogosphere on macro economic issues.

    Via The Big Picture -

    Its time to admit that "the notion of price stability requires a broader definition. Various indices, house price inflation and the cost of rents and mortgages should all form part of a judgment about price stability." Failing to do that risk the ire of the public. They increasingly lack belief in the government statistics in general, and there may develop a decreasing faith in Central Bank's credibility in particular.

    To paraphrase Munchau, if we are to judge inflation on a broader scale, we would undoubtedly come to the conclusion that like the rest of the world, the US has an inflation problem.
    Via Nouriel Roubini's RGE Monitor -
    Today's figures on housing starts and building permits show that the housing recession is worsening.

    Other data from the housing market are no better; they all point to a worsening housing recession. Moreover, there is strong evidence that the massive credit crunch in the subprime mortgage market is now spilling over to other near prime and prime mortgages and also more broadly to some non-housing components of consumer credit.
    Via Brandeis Professor Steve Cecchetti on Macroblog -
    My favorite indicator of the medium-term inflation trend, owner equivalent rent (OER), continued to moderate, rising a mere 2.1 percent (a.r.) for the month -- well below it's recent readings that have been in excess of 4 percent. Regular readers of this update may recall last year when I was warning that rises in OER would eventually push core inflation over 3 percent. Well, that hasn't happened and I have a theory about where I went wrong. At the time, my logic went like this: Over the past 5 years, resale prices of houses have risen far faster than rents, opening up a significant gap between the two. My sense was that house prices were likely to languish, perhaps even fall modestly, so that the lion's share of the gap would be closed by a step-up in the rise of rents. What I failed to see was that the combination of a high inventory of unsold new homes, combined with increased mortgage defaults could flood the rental market. It is the glut of rental houses that is holding OER down now and is likely to continue to do so in the foreseeable future. The result will be falling CPI inflation.
    Love that last one. Recall my previous post on 'Inflation & Condo Conversions To Rentals: A Good Combo' where I stated:
    "Time will tell but the conversion of unsold condos to rentals seems inevitable and should help ease inflation down the road, reverse the trend of rising rental costs, and contribute to easing the high levels of unsold inventory."

    Jobs Market Strong! Rates Heading Higher

    Posted by urbandigs

    Thu May 17th, 2007 09:48 AM

    A: Wow, this certainly was a surprising jobs report! Jobless Claims fell to the lowest level in 4 months, surprising wall street analysts. The yield on the 10YR surged to 4.74% from 4.7% on this report which will certainly have an effect on lending rates in the near term. Expect mortgage rates to trickle higher as longs as the US economy remains strong.

    According to Yahoo Finance:

    Newly laid off workers filing applications for unemployment benefits fell last week for a fifth consecutive time, pushing jobless claims to the lowest level in four months.

    The unexpected drop caught analysts by surprise. They have been expecting claims to begin rising as a result of the economic slowdown triggered by a steep slump in the housing industry.

    While businesses so far have resisted laying off workers, many economists still believe the unemployment rate will start rising in coming months, climbing to perhaps as high as 5 percent by the end of the year.
    The biggest increase in layoffs appears to be in the auto sector as layoffs in the construction industry lags what most economists were expecting at this time of the year. In simple words, the steep slump in the nation wide housing market has not yet resulted in the number of layoffs economists would expect. Time will tell if this ever happens, but I think it will towards the end of 2007 bringing the jobless claims data higher.

    So what do we have here?

    Corporate Profits at record highs. The US Dollar near record lows vs. other currencies. A US GDP # that was the lowest in four years. Unemployment rate near a 6 year low. Stocks at record highs. Housing nation wide in a deep slump. Here are some charts:





    So, does anyone have any idea what the heck is going on? I certainly don't. I knew inflation was a concern and continues to be a concern which made me believe rates need to go higher; and according to todays bond market reaction, they will. This latest jobs number will certainly help to keep rates steady. There was even a discussion over at The Big Picture recently about how the government measures of inflation are UNDER-REPORTING inflation over the past 8 years. Here is what Barry Ritholtz discussed:

    In his post titled, "Want To Measure Actual Inflation: See The Core/Headline CPI Spread":
    Whenever I hear the phrase "excluding volatile food and energy" I just laugh. Can a pricing group be considered volatile if it merely goes up each month in an orderly fashion -- for years and years?

    That's not volatility, thats a trend.

    One way to actually measure how absurd the US core inflation measure is to look at what has happened to the spread between headline CPI and Core CPI. If Core CPI is understating inflation, than the spread should be widening. If it is accurate, the overall ratio between the two should be relatively steady.

    What does the data show? The spread has increased substantially since the US adopted an ultra low rate/easy money policy under Greenspan.

    This simply reflects the government's BLS inflation data diverging from reality.
    Very very interesting. Headline CPI includes the very volatile food and energy data in its measure of inflation. Core CPI excludes food and energy due to its volatile nature to get a different measure of actual inflation. Barry points out that the spread between these 2 numbers have been widening proving the disconnect and the errors contained in these measurements. His conclusion is..."But the bottom line is that the US measures of Inflation, especially the core levels, are constructed to diverge from reality, and understate price rises. That is seen in the headline CPI/Core spread."

    If this is true, then we have some trouble ahead! Now I know I got into some stuff here that most of you don't like to see me get into, but I feel its important. The real purpose of this post was to discuss the latest batch of economic data showing a STILL very strong jobs market. This is making yields on the 10YR surge which will ultimately have a tug effect on mortgage rates in the coming week!

    EXPECT rates to trickle higher (read my post "Why Rates Are Going Higher" for more info on the 10YR and mortage rates). For all of you with recently signed contracts of sale, don't risk it. LOCK IN YOUR RATE NOW or hope that a future economic report will show a weakening US economy and help drag down rates again.

    What's UP with Manhattan Real Estate?

    Posted by jeff

    Wed May 16th, 2007 07:35 AM

    Or a better question is……Why is New York Residential Real Estate up? We were recently trying to raise some money for some other developers doing a real estate project in a very desirable southern community that isn’t well known to Yankee financiers. A real estate investment banker we spoke with said “Yeah yeah everybody who needs to raise money has some great project in a real estate market that is still going strong, but you look in the newspapers and residential real estate all over the country sucks”. As a generalization, I guess he’s right. The question becomes for the markets that are still doing well – the Wall Street Journal recently pointed to Portland OR, Seattle WA, Boise ID, Raleigh and Charlotte NC, and Austin TX., is What’s driving it and will it last? At least, Can you feel comfortable as a buyer that you are not making a terrible timing error in these remaining strong markets?

    For Yankees you don’t have to look any further than the Big Apple to find a residential real estate market that is still strong. According to the Real Estate Board of New York (REBNY) – in its just launched quarterly report of citywide residential real estate conditions sales price rose significantly for New York City Apartments in Q1 2007. Average prices rose 23% to $745,000 during the quarter. The median price – a statistical figure which tries to identify the middle of a range without undue influence of $20MM apartments or those sold for $1 – was up 20% to $450,000. By the way, when a mean price is way above the median, sales of super high price apartments are dragging the average price up from what the “middle of the pack” price really is. The average sales price per square foot rose 14% to $733. Condominium prices per square foot were even more robust, up 19% to $791. REBNY has included a bunch of other data on the boroughs, one-to-three family homes, coop sales etc. I’ll cut to the chase…they are all good, with Manhattan condos being the best.

    Explanations? Press articles talk about New Yorkers not being spooked by the sub prime lending market debacle Yada Yada Yada. Irrelevant. Markets are made up of buyers and sellers. On Wall Street on a good day in the market some would slyly opine it was because there were “More buyers than sellers”. But that’s completely wrong. There are always an equal number of buyers and sellers. The question is who wants it more or who is potentially a buyer and potentially a seller. What decides these factors is PRICE. The rest of the country had a great run up in prices, but lots of supply was brought on, satisfying many potential buyers. As real estate got less and less affordable due to increased interest rates and higher prices, bidding wars stopped as people didn’t want the properties as badly. Then potential buyers dropped off altogether at certain price levels. In Manhattan this hasn’t happened yet despite the soaring prices. Why? The market has trouble delivering large amounts of new supply, due to lack of available land, zoning regulations, availability of construction, labor/material costs (which makes new building hard to justify without ever higher prices) and recently tighter construction loan lending standards. As one developer I know likes to say “They ain’t makin any more of Manhattan”. In fact, according to one NYC real estate appraisal firm total housing units in Manhattan only grew 1.6% from 2002 to 2005, while total owner occupied housing grew 3.5%. New York is a unique market in other ways. Interestingly, 67% of New York housing stock is rental property, double the level of the country overall. Free market rentals (non-rent controlled or stabilized), which truly respond to supply and demand constituted only 33.3% of the rental market according to the 2005 New York Housing Vacancy Survey. So the relationship between renting and buying in Manhattan is also a bit dysfunctional. Lastly, for a number of years Manhattan has existed in a “state of housing emergency” with a vacancy rate below 5%.

    Bottom line is Manhattan is a place like no other. It has been perpetually in a tight housing situation. With Wall Street profits continuing to be strong and very active mergers and acquisitions and commercial real estate markets driving the legal and banking businesses, New York City employment continues strong. The strength, albeit more moderate, in the boroughs is a reflection of the tight Manhattan market for rentals and sales. In contrast, it’s not that surprising that the Tri State Area suburbs, where supply is more plentiful, are in the same residential real estate rut the rest of the country is in. That rut will only get worse if employment slackens, which looks like the only thing that will throw Manhattan off its current upward trajectory.

    U.S. Home Prices Fall For 3rd Straight Qtr

    Posted by urbandigs

    Tue May 15th, 2007 04:07 PM

    A: Nothing new here and the trend continues. Outside of Manhattan, housing stinks. According to the NAR, the latest data reveals that the median price of a home in the US fell 1.8% to $212,300. It was the third consecutive quarter of decline. Here in Manhattan, the lag is yet to hit.


    According to CNN Money:

    The home price report revealed a broad but shallow pattern with prices declining over every region but by no more than 2.8 percent, which occurred in the Midwest.

    The first-quarter drop follows an overall 2.7 percent slump in the fourth quarter of 2006, which was the biggest year-over-year drop on record.

    NAR President Pat V. Combs said in a statement that the flattening in home prices is encouraging.

    "It appears the worst of the price correction is behind us," she said. "More stable home prices and declining mortgage interest rates are increasing buying power, which should encourage potential buyers who've been on the sidelines."
    Don't be fooled by the NAR's always optimistic view and the legacy left behind when David Lereah stepped down. Outside of Manhattan, home prices are in the midst of a correction and no one knows what might be the surprise that reveals itself and results in either a turnaround or a downright crash.

    Fundamentally, there is no end in sight and with housing being such an illiquid investment, the market as a whole will take time to turn the corner. Keep an eye on jobs, consumer spending and interest rates to see how both the economy and the housing market will hold up in the near term.

    As far as Manhattan is concerned, the lag is yet to hit. Historically speaking, after Memorial Day the buyer activity tends to die down significantly. I'll report as I see it to see if this summer is any different.

    Inflation & Condo Conversions: Good Combo

    Posted by urbandigs

    Tue May 15th, 2007 09:08 AM

    A: An interesting topic as there is a new trend nationwide that could eventually help drive DOWN inflation, and specifically the CPI #! The trend of existing unsold condos converting to rentals nationwide is helping to add to the supply of rentals on the market (mostly outside Manhattan), which is expected to help ease inflationary pressures in the CPI number. The reason, is that apartment rental costs are a key component to the CPI # and as rental costs fall so does the inflationary pressure on the overall number. Today's CPI # came in at expectations as the very important Core CPI yr-over-yr dropped to 2.3%; a sign that the fed's hold policy is working and inflationary pressures seem to be moderating.


    First, lets pass on to you what today's very important economic data told us and then Ill discuss in more detail how condo conversions will help ease inflation down the road.

    According to CNN Money:

    Prices rose a bit less than forecast in April, according to the government's key inflation report Tuesday, but a closely watched reading showed a pick-up in prices outside of food and energy.

    The Consumer Price Index showed prices at the retail level rose 0.4 percent in the month, compared with the 0.5 percent rise in March. Economists surveyed by Briefing.com had forecast a 0.6 percent increase in the CPI.

    The more closely watched core CPI, which strips out the volatile prices of food and energy, rose 0.2 percent, after edging up only 0.1 percent in March. The reading was in line with economists' forecasts.
    Contributing to the tame CPI number were falling prices for airline tickets, clothing/apparel and tobacco products.

    According to Yahoo Finance:
    Through the first four months of this year, consumer inflation is rising at an annual rate of 4.8 percent, almost double the 2.5 percent increase for all of 2006. The acceleration has occurred in large part because of higher costs for food and energy.

    However, excluding energy and food, core inflation is up at an annual rate of just 2.2 percent through April, an improvement from the 2.6 percent rise in core prices for all of 2006.

    That improvement is certain to be welcomed at the Federal Reserve, where policymakers are hoping that their campaign to restrain inflationary pressures is beginning to show results.
    Expect stocks to remain strong as long as the Fed has less reason to hike interest rates. Moving forward, there is another trend that I think will help ease consumer price inflation; CONDO CONVERSIONS TO RENTALS!

    It's very important to note that this trend is mostly true for markets outside of Manhattan real estate, where inventory is not so much of a problem and therefore won't be included in this theory.

    To understand this theory we must first understand what makes up the Consumer Price Index (CPI) and why it is such a closely watched dataset by the Fed for inflation monitoring.

    According to Wikipedia:

    Prices for the goods and services used to calculate the CPI are collected in 87 urban areas throughout the country and from approximately 23,000 retail and service establishments. Data on rents are collected from about 50,000 landlords and tenants.
    So, rental prices are considered a good portion of the CPI data used to monitor inflation. This is important because with nationwide housing inventory at very high levels contributing to the weak housing market outside of New York City, there is a growing trend of converting condo inventory into rentals to:

    a) avoid taking a loss on the property via selling
    b) help ease overall inventory
    c) take advantage of high rental prices

    As this trend continues, I would expect rental inventory to grow as we head into the end of 2007 and into 2008 causing the supply/demand imbalance to shift in favor of renters, finally! Again this is mostly true for outside of Manhattan. In Manhattan, there are a lot of new development units set to come to market but thus far there are no major inventory issues to speak of. As long as this doesn't change, the # of unsold new condos that convert to rentals should stay at normal levels.

    As rental inventory increases across the rest of the nation prices should ease, helping to further moderate the CPI data that eventually comes out! The chain of events that ends with moderating inflation is already underway. We already have high inventory of unsold condos with reports like...

    Housing is Going to Get Worse (Miami Herald, FL)

    Making It Appealing
    (Myrtle Beach, SC)

    Downtown Condo Sales Down 46% in First Quarter
    (Crain's Chicago Business, IL)

    Washington, DC: Big Condo Supply Brings Prices Down (USA Today)

    Time will tell but the conversion of unsold condos to rentals seems inevitable and should help ease inflation down the road, reverse the trend of rising rental costs, and contribute to easing the high levels of unsold inventory. Something to keep an eye on especially for those looking to time their re-entry into a correcting housing market for most of the nation outside of Manhattan. Fundamentally speaking, all of this should be on your radar so that you can learn the after effects of the biggest bull run in housing recent history ever produced.

    Market Report: Active Transition

    Posted by urbandigs

    Mon May 14th, 2007 08:29 AM

    A: With many of you out on Mother's Day enjoying the great weather, I was still in town working with some buyer clients and holding an open house for my sellers. As much as I would like to take these holidays off, it tends to be a great time to take advantage of marketing a property when most inventory takes a week off of advertising. Those that do show up at open houses also tend to be more serious buyers, helping my chances of procuring a bid for my clients. What I saw yesterday is a still active transition month!

    I browsed 3 open houses, mostly in the Murray Hill area, with some buyer clients of mine and noticed that all of them had pretty active attendance while we were there. Not only that, but the open house for my exclusive at 205 E 78th had about 13 people show up. Not bad for Mother's Day holiday!

    While I still believe we are in the midst of a transition from a seller's market to more of a buyers market, right now I would have to say we are still closer to a housing market that favors sellers. If I were to visualize on a scale where I think we are right now, it would look something like this:


    A few months ago that 'notch' would have been 3-4 ticks to the right as we were in frenzy months with more buyer demand, bidding wars, and very little inventory. Right now the market seems to be fairly similar to that with the only difference being a minor slowdown in buyer demand. I am still seeing tight inventory and even a few bidding wars.

    I can tell you one bidding war situation that happened at 325 E 79th, a classic 6 in the UES, where a good friend of mine went $100,000 over ask and still didnt get it at the best and final deadline of 12 NOON on Saturday. While I am upset that my friend didn't get the property they went for, I am relieved that they didn't end up paying such a premium (over $1085/sft for a unrenovated low floor unit) in a building whose last few sales were about $775/sft (for higher floor 2BR units that were smaller than this one).

    Recall my post I wrote on "how to handle a bidding war" and if you are a buyer keep in mind one very important thing:

    UrbanDigs Says: It's encouraging to see the Manhattan real estate market as strong as it is. While there has definitely been a slight slowdown since earlier in the year, for the most part the market is still healthy as inventory remains tight and prices remain high. I would expect inventory to remain tight in the coming months and buyer demand to slow more, especially as we hit late July and August. This is when a seller's true colors should reveal itself in either price reductions or more negotiability during the bidding process!

    Inflation Moderating Yet Bond Yields Up?

    Posted by urbandigs

    Fri May 11th, 2007 01:42 PM

    A: What gives? In a perfect world, the inflation data that came out this morning via a mild PPI # told the street that the fed would have an easier time cutting interest rates since inflation seems to be moderating? Right? Not exactly. If this were true, the yields on most bonds would be falling to anticipate future lower interest rates. But that is NOT what is happening? So what is really going on?

    The pipeline is what is going on! While the PPI report came in ahead of expectations in terms of inflation worries, its what is yet to come that is still worrisome; there are still signs of trouble in regards to inflation and a few moderate reports does not a trend make. Let the street applaud the temporary relief in inflation with higher stock prices, but I'm not convinced yet and neither should those expecting lending rates to dip on this news!

    According to CNN Money:

    The Producer Price Index, which measures the price of goods at the wholesale level, rose 0.7 percent last month, down from a 1.0 percent gain in March, the Labor Department reported. Economists surveyed by Briefing.com had forecast a 0.6 percent rise.

    But the more closely watched core PPI, which strips out volatile food and energy prices, showed no rise after also coming in unchanged in March. Economists had forecast a 0.2 percent increase.

    The report showed that energy prices jumped 3.4 percent in the month, while food prices rose 0.4 percent. Both were down from the increases posted in both February and March.

    The overall PPI is now up 3.4 percent over the last 12 months, while the core PPI is up only 1.6 percent over the same period. The Federal Reserve is generally believed to want to see core inflation readings in the range of a 1 to 2 percent increase on an annual basis.
    But here is the real good part...
    Mark Vitner, a senior economist with Wachovia, said the PPI report has some readings that justify the Fed's concern. The overall and core PPI is for finished goods such as bread but prices for crude goods such as wheat and intermediate goods like flour are also measured. Prices for intermediate goods jumped 0.9 percent, while prices for crude goods excluding food and energy climbed 0.4 percent, pointing to inflation pressures in the pipeline.

    "The Fed is not going to say 'We have to cut rates because consumer spending was weak in April,'" Vitner said. "They're right that inflation is still higher than they'd like. The best way the Fed can keep higher energy prices from spilling over is to hold the line on rate cuts."
    Fact is, we are far from easy street in terms of inflation and as long as this is the case, you MUST NOT count on easing interest rates in your investment decision making. Keep in mind that inflation pressures have been dogging around for almost 2 years now, so don't think for a second that a couple of moderate reports such as this last one is going to solve everything!

    While short term bond yields dipped on this latest inflation news, the 2YR / 3YR / 5YR / 10YR / 30YR all rose a bit signaling that the bond market is not buying into an easing inflationary world. If it was, all yields will be falling as expectations that the fed can lower rates take hold. You see, the main reason why the fed CAN'T lower rates right now is because of inflation. High energy prices, high food prices, high commodity prices are all contributing to this dynamic. As long as these fundamentals stay at these levels, all the fed can do is HOPE that an economic slowdown resulting from these higher costs in itself eases inflationary pressures. If it works out this way, you will see energy, food prices, and commodity prices all fall. This has not yet happened.

    Stocks still seem to be the market of choice for investments although short term CD's and even some online savings accounts are offering no risk 5% returns. With a continuing weak US dollar, the fed is stuck with leaving rates unchanged. The only thing that will change this is if the housing market gets so bad that consumers stop spending and the economy completely derails; which will force the fed to cut rates to settle things down. If this should happen, I don't see how stock prices will hold onto their recent gains given all the uncertainty that is to come with this scenario playing out.

    Time will tell. For now, you need to know that inflation STILL EXISTS and the fed will keep rates unchanged. Don't bet on lower rates yet to bail out out housing market. Perhaps towards years end.

    Expect lending rates to see-saw around current levels heading into Tuesday's CPI report, which will tell us more detailed information on the inflation front. Looking back, I cannot recall a more confusing time in terms of future monetary policy direction than what we are in right now. I have been following this stuff obsessively since 1992 or so and right now we seem to be in a war between those that think the US economy is in the midst of a serious slowdown mostly from housing woes, and those that think the US economy is still strong but inflation is hiding and waiting to attack. Where interest rates go depend on how the ivy leaguers at the fed interpret the data, so that is our best chance of making the right bets and investments in the near term. Don't fight the fed.

    Keep in mind one very important factor, that monetary action lags by a good 12 months or so! We are still waiting for the FULL EFFECTS of monetary action to funnel through the economic system. In my opinion, the fed is waiting to see the full effects of what they have done so far. In the coming months either the US economy will slow enough to ease inflation OR it won't. It will be the answer to this question that I think will dictate the next move. The jury is still out on whether Bernanke & Co. are true inflation hawks, and the next 3-5 months should reveal the hand they have been playing since pausing with their 2+ year interest rate hike campaign. You would be wise to keep tabs on this!

    Serious Buyers Get Ready: Summer Control

    Posted by urbandigs

    Thu May 10th, 2007 12:07 PM

    A: This is a post for all you serious buyers out there that know for a fact you will be buying a Manhattan apartment in the next 4 months or so. Get ready! As we head into the summer months, you should be able to determine those that really need to sell. Here is what to look for.

    Now that the frenzy months of JAN - APRIL are over and things seem to be cooling a bit, those buyers that are not just browsing for fun or looking to learn product knowledge for a purchase sometime in 2008, should wake up and get to work!

    But what happens if you finally found your desired property but there have been NO price cuts in the past 3+ months on the market? Well, chances are this seller has no pressure to move the property and is waiting for their price. In the real world, their is little you can do other than to test it out by submitting a bid that you are comfortable with. Have your buyer broker educate you on what the building is trading at and place a bid based on these comps with an explanation why so that the seller sees it; explain that anything over your price is out of whack with building past solds and might result in a failure of the property to appraise by a lender. Then hope for some type of reasonable response.

    However, if you do find a property that has had multiple price cuts in the past month OR one really big price cut recently, you might have a ripe situation for getting a great deal. Unfortunately in real estate, one man's misfortune is another man's reward!

    In addition to the buyer broker you may be using, you should be searching sites like Streeteasy.com & PropertyShark.com to learn product knowledge and educate yourself on past solds in the building and neighborhood you might be looking into.

    The goal should be to find a seller who MUST sell and decided to overprice their property and test the market heading into the summer months. These sellers will be pushed against a wall come July & August, after months on the market and a stale listing, leaving them only with a price reduction strategy to re-stimulate interest. Questions that remain are whether or not you can find these property's and if they meet your desired criteria for your new home.

    Finding a distressed seller will be much easier with the help of a buyer broker. The system should be:

    What you are looking for is multiple price cuts in a short period of time OR one really big price cut in the past week or so. Once you see 2+ price reductions in a 4 week period, you know the seller is either getting nervous and needs to sell soon OR was ridiculously overpriced to begin with and is choosing the small but more frequent price cut strategy to stimulate interest (not a good strategy heading into the summer!). When you see one real big price cut in the past week or two, you get that same feeling. Here are some examples.

    251 West 19th - Price Cut $650,000 Yesterday!


    First Came on Market: 3/02/2007
    Original Asking Price: $3,400,000
    Asking Price Reduced From: $2,750,000 on May 9th, 2007
    maintenance: $785
    RE Taxes: $990
    Size: 1,822 SFT
    PPSF: $1,153
    Marketed By: Elaine Claymen & Daniel Ruiz of BrownHarrisStevens

    430 West 34th - Price Cut $80,000 2 Days Ago!


    First Came on Market: 1/19/2007
    Original Asking Price: $875,000
    Asking Price Reduced From: $875,000 on May 8th, 2007
    maintenance: $1,560
    Size: 1,200 SFT
    PPSF: $662
    Marketed By: Michael Johnson & Tami Solomon of Corcoran

    UrbanDigs Says - You really need to be educated and willing to risk losing the deal during negotiations to get a very attractive price on a property (when your low bid is countered to but not accepted, you might have to back off for a day or two to see if the seller comes back to you to get a deal done). First off, you need to find an apartment where the seller is still willing to come lower on price. Second, you need to know how to negotiate. Third, you need to be able to get the deal done quickly before more buyers realize the value being offered. Losing a deal because you are not ready is a horrible feeling.

    As you head into summertime, be sure to have your attorney already picked out, your lender fine tuned down to the 2 most competitive offers, and your eyes open. Working WITH your broker instead of against them will only help you in getting the best deal possible. With my clients, it is not uncommon for them to spot a deal before I do and send it over to me for review. I will then send them the info they need on the building and last sales so that together we can valuate the property properly and devise a bidding strategy when necessary. Are you doing the same with your broker?

    Sellsius Launches Classified Site

    Posted by urbandigs

    Thu May 10th, 2007 10:42 AM

    A: My friends Rudy & Joe over at Sellsius launched a new real estate classified site a few weeks ago and I just wanted to help them in spreading the word! These guys are all about people and providing a service to help the consumer. Here are the details.



    About - Sellsius is an all-inclusive real estate classified site----sales, rentals, res, commercial, biz for sale, getaways + classified ads for real estate products and services & job and wanted ads + directories of professionals. We are more than a place to list property---we list professionals too.

    Search Capabilities
    - Search functions include:

  • Niche Search (penthouses, studios, timeshares, etc)

  • Exact match (find a duplex penthouse fixer upper with a southern exposure---no fuzzy search results---will become more valuable as data is added)

  • Open House search

  • Professional Directories search

  • User-Generated Content
    - Members are free to add tips and articels (comment permitted). In this way other pros or agents who dont have blogs can get the google juice benefit by adding content on sellsius. Links from the tips & articles go to member. We are big on this aspect too.

    Wanted to wish you guys the very best with your new venture!!

    Congress Debates Lending Reform

    Posted by urbandigs

    Tue May 8th, 2007 02:58 PM

    A: Nothing new here, just passing on the latest. As you know, the Fed is holding a hearing on May 14th to discuss placing standards on the lending industry to prevent abusive lending tactics. This is in addition to that meeting.


    According to Yahoo Finance

    Congress is looking at potential reforms to risky home lending practices, but a Tuesday hearing at a House subcommittee suggested many lawmakers are still sorting out the complex workings of the mortgage market -- and some are unsure whether reforms will necessary in the short term. "There is a very complicated web of contributors to this issue that makes it very difficult and unwieldy to unwind," said Rep. Melvin Watt, D-N.C...

    Watt and other committee members said Congress needs to be careful about unintended consequences of potential reforms.

    "It's kind of like the Pillsbury dough boy," Watt said. "If you push in one place, it juts out someplace somewhere else."

    Rep. Carolyn Maloney, D-N.Y., the subcommittee's chairwoman, did not say whether legislation is needed, but suggested that it could be necessary.

    "This committee is by no means waiting for the private sector to do what it thinks is right to solve this rapidly growing crisis," she said.
    My last post discussed how the fed is meeting next week to discuss this very same issue to protect the consumer. Problem is, as Congressman Watt said, if you push in one place, it just comes out somewhere else. In this case, if they enact lending reform, fewer buyers will be able to afford a home and that could be disastrous to the national housing slump already searching for a bottom.

    Market forces are working right now as companies are self-correcting a major part of the problem in the face of the hole they dug for themselves. The question that remains is whether or not the federal government feels the need to step in and regulate. Time will tell but speculative investors and homeowners looking to sell soon are certainly hoping for NO REGULATION! In their eyes, we need as many options available for potential home buyers so that affordability stays high enough to pay asking prices!

    The Legacy: On Market For $8M+

    Posted by urbandigs

    Tue May 8th, 2007 11:58 AM

    A: The new development called The Legacy over at 157 East 84th street had its offering plan approved and now has 3 units on the market for the low low price of $8,000,000+! Actaully, I have to admit that these full floor units look sick and being that there are only 3 of them on the market I'm sure someone with the luxury of tons of $$$ will be interested in taking a serious look! Here are the details.

    About The Legacy - Core's the Legacy at 157 East 84th Street is a seven-story, seven-unit conversion of a former garage. "It cost us over $1 million just to create the façade," said Josh Guberman, Core's president. Residences at the Costas Kondylis- designed condo will include two duplex townhouses, three floor-through units and two duplex penthouses. The units range in size from 3,300 to 5,500 square feet and all come with terrace space.

    The Legacy will boast a 24-hour doorman, a landscaped rooftop garden and a host of high-end finishes and features, said Gurberman, including "computer brains" that control each unit's audio-visual components.

    Here are a few pictures of one unit:



    Here are apartment listing details:

    APT - 2nd Floor

    First Came on Market: 5/07/2007
    Asking Price: $8,299,500
    maintenance: $4,576
    RE Taxes: $3,931
    Size: 5,175 SFT
    PPSF: $1,604
    Marketed By: Loy Carlos & Carrie Chang of Corcoran

    APT - 3rd Floor

    First Came on Market: 5/08/2007
    Asking Price: $8,399,500
    maintenance: $4,702
    RE Taxes: $4,039
    Size: 5,175 SFT
    PPSF: $1,604
    Marketed By: Loy Carlos & Carrie Chang of Corcoran

    APT - 4th Floor

    First Came on Market: 5/07/2007
    Asking Price: $8,499,500
    maintenance: $4,825
    RE Taxes: $4,145
    Size: 5,175 SFT
    PPSF: $1,604
    Marketed By: Loy Carlos & Carrie Chang of Corcoran

    New Listings Week of 5/1 - 5/8 = 282

    Posted by urbandigs

    Tue May 8th, 2007 11:20 AM

    A: New Listings inventory for the first week of May totaled 282, a slight rise from the last report I did on the subject. Not too many good deals out there but here are some notable new listings that may be worth a visit if they fit into your criteria and price point.

    Neighborhoods included: Carnegie Hill, Central Park South, Chelsea, Clinton, E. Village, Fin District, Flatiron District, Gramercy, G Village, Little Italy/Chinatown, LES, Midtown, Murray Hill, SoHo, Sutton Area, Tribeca, UES, UWS, W. Village

    61 West 62nd Street; Apt: 5F


    First Came on Market: 5/02/2007
    Asking Price: $650,000
    maintenance: $1,448 (high, keeps price lower)
    Size: 750 SFT
    PPSF: $867
    Marketed By: Jessica Cohen & Robin Greenbaum of Douglas Elliman

    340 East 74th Street; Apt 4C


    First Came on Market: 5/07/2007
    Asking Price: $1,200,000
    maintenance: $1,469 (low monthly's for size)
    Size: 1,250 SFT
    PPSF: $960
    Marketed By: Stacy Froelich of Corcoran

    158 Chambers St; 5th Fl PH - Walkup w/ 700 Sft Roofdeck * Roof Rights


    First Came on Market: 5/08/2007
    Asking Price: $1,485,000
    maintenance: $2,050 (not bad for size + roof deck and rights)
    Size: Aprox 1,700 + 700 SFT Roofdeck
    PPSF: Aprox $874
    Marketed By: James Attard of Tabak of Tribeca

    Skinny Dipping Anyone?

    Posted by urbandigs

    Tue May 8th, 2007 09:39 AM

    A: I would like to introduce a guest writer to UrbanDigs.com. His name is Jeff Bernstein is a partner at Guild Partners; a residential investment and development company. I met Jeff the other day and we had some great conversations about what is happening in the macro world today and how we can best take advantage of them with our investments; which is the ultimate goal of this blog with a focus on Manhattan residential real estate investment. So, here is Jeff's first post discussing the rapid growth experienced oversees in China, and whether another financial crisis such as the Asian financial crisis that occurred back in mid 1997-1998 will happen again. A topic worth reviewing.

    East Asian Financial Crisis -

    The East Asian Financial Crisis was a period of economic unrest that started in July 1997 in Thailand and South Korea with the financial collapse of Kia, and affected currencies, stock markets, and other asset prices in several Asian countries, many considered Four Asian Tigers.
    When two ex-Wall Street stock jockeys sit down for a cocktail the conversation inevitably turns to.......China? Well the conversation inevitably turns to investments fads and bubbles that are or may be brewing. By these earmarks China probably ranks as a subject worth discussion. While the economic juggernaut that is mainland China is not new news, recent efforts to slow the pace of growth in China has spurred new speculation about how and when this colossus of an investment trend will end and more importantly, will it end badly? The jury is out on these questions and I will argue that it may be out for some time to come. I'll also argue that it will end badly, no ifs ands or buts. Unfortunately, China has become such a big factor in the world economy that trouble there will reverberate worldwide as it did briefly when the Chinese stock market plunged 8% in one day in February of this year.

    Just to re-cap some very well known history. Mainland China's growth has been on a tear driven by industrialization in its coastal regions. This has drawn literally billions of people from the rural hinterlands to the cities seeking their fortunes. Recent commentary also suggests that they are now fleeing under-investment in the countryside particularly as far as social services go. But just to hit a few data highlights - in addition to some "up and to the right" charts shown below:

    China Current Account Surplus


    Direct Foreign Investment in China



    China has been growing its GDP at over 8% per year for 20 years. According to Jim Jubak, of Jubak's Journal "China's government wanted to slow the economy's growth a bit from the 10.7% rate turned in for 2006. A rate near 8% would be ideal, Beijing's planners said at the beginning of 2007, because that is high enough to generate the jobs the country needs to stay even with its population growth and low enough to keep the economy from further overheating. Instead, what they got was 11.1% growth in the first quarter, the National Bureau of Statistics announced April 19. And now the Chinese Academy of Social Sciences is predicting 10.9% growth for all of 2007."

    This GDP result for 2007 is actually expected to exceed the forecast on the chart above as growth has seemed to re-accelerate. As a result of the many years of growth, China's current account surplus (roughly how much they sell overseas vs. how much they buy) has exploded as has its foreign currency reserves. Not only has China become "rich", but almost everyone wants to invest there - as show by the Foreign Direct Investment chart. Although I couldn't find a good chart of fixed investment (manufacturing plants and other big stuff being built), suffice it to say that Chinese are equally bullish on their own prospects as foreigners and are "building big stuff" to beat the band. Fixed investment has been growing at rates over 15% per year for years and grew 25% in the first quarter of 2007.

    So it's all good, right? Well, not exactly. Each country has its own potential to grow driven by a multitude of factors, which are hard to calculate and estimate. They are basically unknowable with any precision. If a country grows "above its potential" something eventually has to give, usually in the form of higher prices or "inflation" or other imbalances including social problems and pollution. However, if a lot of the investment in stuff is not investment personal consumption (things people buy and consume or put on a shelf), but rather investment in productive equipment (manufacturing plants) like in China, inflation can stay low as the productive equipment churns out tons of new goods, keeping a lid on pricing.

    Although inflation in China appears to be under control, the government still seems to be concerned. This may be out of real worry or possibly to assuage foreign governments and investors who believe that growth above potential is dangerous. Regardless of the motivation, China has been raising interest rates ever so slightly and tightening its bank reserve requirements. The half-hearted interest rate increases and refusal to let the currency appreciate much, beg the question of whether the government really wants a slowdown. But most recently the deposit-reserve ratio was boosted by the biggest amount in years, 50 basis points, to 10.5%. Many argue that even this will be of minimal impact as most banks reserves are already well above the 10.5% level.

    For now, China's economy looks like a runaway train. Some, including The Economist magazine have pointed out in the past that poor measurement of economic statistics make the fixed investment boom in China look bigger than it really is etc, etc. But one thing that's clear as day to a couple of guys sitting on a barstool is...Nothing grows to the sky and when something appears to be half way there, start to worry, the downsides of unfettered growth, be it at an individual company or a country are usually ugly as the warts that were previously hidden by the growth dynamic come to the surface. As Warren Buffet has been said to have commented "when the tide goes out you find out who is skinny dipping".

    Interestingly, over the years when foreign economies have become especially strong companies and individuals in those countries have tended to go on "trophy hunting" expeditions, buying famous brands, companies and real estate in far away lands. These trophy hunting expeditions have often marked the top in their economies and stock markets. Recall when Japanese investors bought Rockefeller Center and Pebble Beach, just before their economy tanked. I recently heard a big New York Real Estate investor talk about the continued potential appreciation in the unique New York market and the huge impetus it would be for prices if the Chinese ever decided to invest 1/10 of a percent of their foreign currency surplus in New York real estate. Be careful what you wish for.

    How To Handle A Bidding War

    Posted by urbandigs

    Mon May 7th, 2007 09:45 AM

    A: I got an email from a FSBO (for sale by owner) the other day asking me for advice on how to handle a multiple bid situation. She knows about bidding wars and priced her property low enough to produce one, but she didn't know the best way to handle a bidding war. Very understandable given this seller is on her own and without a broker to advise her on how to proceed. Here you go.


    First off, you must know how to interpret when a bidding war exists (especially if you are selling a co-op with board requirements)! It is NOT as simple as getting 2 verbal offers. A bidding war should arise when you receive COMPLETE BIDS IN WRITING (see Brady's post titled, "The Art of the Offer: How To Submit A Bid" for details on how to submit a complete bid) that are:

    Within the ACCEPTABLE PRICE RANGE / TIMING FOR CLOSE of the seller AND Financially Qualified to buy and pass the board
    Assuming that two or more bids are received that meet the above mentioned criteria, you could create a bidding war situation. It is very important to note that the intended seller strategy of a bidding war is to encourage a sense of urgency via potential property loss and NOT to install fear into the prospective buyers. I can't begin to tell you how important this is. By installing fear into the bidders rather than encouragement to participate in the bidding war, chances are you will 'scare away' and lose one of the bidders messing up the entire goal of the war.

    The ultimate goal of the bidding war is to procure the highest & best bid that generates a signed contract for the seller! Let me repeat that so as to keep the ultimate goal very clear!
    The ultimate goal of the bidding war is to procure the highest & best bid that generates a signed contract for the seller!
    If you get a great bid because of a bidding war that fails to produce a signed contract, than you got nothing out of the deal and are back to square one with only 1 bidder who may feel questionable about why the first deal fell through. So, here is your step by step guide as to how to handle this situation that is in the best interests of the seller and the prospective buyers that are participating in the bidding war.

    Step 1: Confirm A Bidding War Could Exist - Did you receive multiple bids in the acceptable range of the seller that are financially qualified to purchase the apartment and pass any board requirements? If a bidder fails to meet one of these criteria than you don't really have a bidding war situation since one of the bidders is meaningless.

    Also, make sure both bidders don't have any restrictions on the time line to close the deal that may conflict with the seller's time line for closing.

    Step 2: Announce the Bidding Procedure & Deadline - Announce to ALL parties the bidding procedure plus deadline for submitting their final bids. It may look something like this:
    "Due to the high level of interest the seller has decided to give all interested parties the opportunity to present them with their "Highest and Best" offer by 11 AM Friday May 11th. The seller will accept the winning bid by 12 noon Friday and the contract of sale will be delivered to the buyer's attorney shortly thereafter."
    You will also want to include the items expected with any bid in writing. You could say something like:
    "All offers must include the following information.

    1) Offered price with financial analysis. Please specify if it's contingent upon financing or not and how much. Pre-approval letter should be provided from Manhattan based lender.
    2) Proposed closing date.
    3) The buyer's full names, address and social security numbers.
    4) The buyer's attorney details. (Name, address, phone and email)"
    Step 3: Announce Expectations For Winning Bid - Announce to ALL parties before hand what the expectations are for the winning bidder. The reason you do this is to ensure all bidders that the winner will be given X amount of time to have their attorney complete diligence and generate a signed contract. It could look something like this:
    "The winning bid will have until 12 noon May 18th to deliver a signed contract with 10% down payment to the sellers attorney. If the sellers attorney is not in receipt of the contract by set time the seller will move forward with the back up offer immediately."
    Lets not forget the meaning of 'BEST & FINAL' and that a deadline was presented to the bidders. You must honor this deadline and give the winning bidder a chance to generate a signed contract. Should the winning bidder NOT produce a signed contract by the previously disclosed timeline, the seller can move on to the other offer. In the real world deals fall through and buyers get cold feet. There is nothing you can do about this other than be prepared to move on to the next qualified bidder.

    Step 4: Announce Any Unit/Bldg Info - Now is NOT the time for surprises! Be sure to announce any assessments, delayed/expedited closing dates, inclusions, or any other matters of fact that will ultimately come out when the winning bidder's attorney does diligence.

    Step 5: Announce Complete Marketing Until Signed Contract - Announce to all parties that the property will continue to be shown and marketed until a signed contract of sale is provided to the seller's attorney with 10% deposit! This does not mean you will go behind your word of giving the winning bidder a chance to produce a signed contract! It just means that the apartment will be considered ACTIVE & ON THE MARKET until a fully executed contract of sale is reached.

    The rest is up to you!

    UrbanDigs Says - Bidding wars are a very desirable situation for a serious seller. However, you can mess one up if you don't know what you are doing! By being too demanding and fearsome in your demeanor you may scare away potential bidders. By being too lax, you may open yourself up for a confusing and troubling situation should one party fail to act accordingly. You must find the middle ground to encourage participation by the prospective buyers and at the same time lay down the rules that are in the sellers best interest and fair to the bidders. In the end, if you stick to this method you should do just fine!

    Fed To Hold Hearing on Lending

    Posted by urbandigs

    Fri May 4th, 2007 09:16 AM

    A: Here it is! Thanks to Calculated Risk for showing me the way to this one. I've been saying for the longest time that the two biggest threats to housing were tighter lending standards and regulation and weaker jobs. While the subprime mess led to in-house adjustments in lending standards, now it seems the fed is about to chime in!


    According to MarketWatch.com -

    the Federal Reserve will hold a public hearing June 14 to consider adopting new rules to combat abusive lending, especially in the subprime market, the Fed announced Thursday. "The goal is to find ways to promote sustainable homeownership through responsible lending, informed consumer choice, and effective guidance and regulation," said Fed Gov. Randall S. Kroszner in a statement. The Fed said the hearing would "focus on how it might use its rulemaking authority to address concerns about abusive lending practices in the home mortgage market." The Fed has authority to issue regulations that cover all lenders, not just banks.
    According to the Fed's Press Release -
    The Board held four hearings in the summer of 2006 under HOEPA. Those hearings addressed three topics: (1) predatory lending and the impact of the existing HOEPA rules, and state and local anti-predatory lending laws on the subprime market; (2) nontraditional mortgage products such as interest-only mortgage loans and payment option adjustable rate mortgages, and reverse mortgages; (3) and, how consumers select lenders and mortgage products in the subprime mortgage market.

    Based on testimony and public comment from the 2006 hearings, and in response to increased subprime mortgage foreclosures, the Board plans to hold a fifth hearing that will focus on how it might use its rulemaking authority to address concerns about abusive lending practices in the home mortgage market.
    As I said before, if the fed puts regulations on the lending industry to protect the consumer from abusive lending tactics, the following will occur:

    1. Weak Credit Buyers Will Lose Loan Options That Otherwise Would Make A Home Purchase Affordable - such as a I/O 3YR ARM for someone with no credit history

    2. Purchasing Power Will Be Restricted With Less Loan Options

    3. Home Affordability Will Be Tested Before Loan Commitment Issued

    4. Buyer Pool Will Restrict As Purchasing Power Restricts

    So that we are clear...
    Fed regulation on lending standards is meant to protect the consumer from abusive tactics that otherwise would provide a buyer with a loan who should have never got one in the first place! If regulation is placed on the lending industry to protect the consumer, less options will be available to the purchaser and more stringent guidelines will have to be met to underwrite the loan. Put this all together and that means a restriction of purchasing power and the number of buyers that could ultimately afford the home.

    Here are a few of my past articles on the topic:

    Regulations on Lending? You Bet Ya! (Jan. 18th, 2006)

    Credit Crunch: Tighter Loan Standards?
    (Jan. 30th, 2007)

    Lenders Starting To Tighten..! (Feb. 13th, 2007)

    Economy Still Strong / Yields Rise

    Posted by urbandigs

    Fri May 4th, 2007 08:42 AM

    A: A bit of a macro economic update for you here. The US economy, while showing signs of a slowdown in consumer spending, for the most part is still strong! The service sector expanded at a faster than expected pace in April which represents the 49th consecutive month of expansion in the non-manufacturing industries. At the same time, US business productivity also grew at a faster than expected pace and jobless claims came in lower than expected. All signs that the US economy continues to chug along. The only dataset of concern is the consumer and whether the sluggish spending report continues.

    Lets get right to the economic reports.

    ISM Service Sector Growth Exceeds Forecast -

    The U.S. service sector expanded at a faster rate in April after hitting a four-year low in March, a trade group said Thursday, with concerns about energy costs persisting.

    The index was above Wall Street's expectation of 54, according to Briefing.com, and April represents the 49th consecutive month of growth in the non-manufacturing industries.

    Indeed, a wide range of commodities increased in price, including airfare, aluminum, diesel fuel, gasoline, and hotel costs, the report said. The prices paid index, a potential inflation indicator, increased in April to 63.5, up from March's 63.3. The index jumped almost ten points in March.
    Productivity Jumps in First Quarter -
    U.S. business productivity grew a greater-than-expected 1.7 percent in the first three months of 2007, but labor costs rose far less than forecast, a Labor Department report showed Thursday. Analysts expected business productivity, a measure of how much any given worker can produce in an hour, to rise 1 percent in the first quarter.

    Federal Reserve officials have been concerned slowing productivity could push up wage inflation amid tight labor markets. But they also have said the slowdown in productivity is likely to be temporary rather than a sign that U.S. workers have lost their competitive edge.
    Jobless Claims Post Surprise Drop -
    The number of U.S. workers filing new claims for jobless benefits fell unexpectedly by 21,000 to the lowest level of claims since January, a Labor Department report showed on Thursday.

    Analysts polled by Reuters were expecting a 4,000 rise in claims from the previously reported level of 321,000 in the week ending April 21.
    In short, the economy seems strong which is not surprising given the stock market hitting new record highs with corporate profits coming in at or above wall street estimates!

    Forget a rate cut in the near future as there is no way the fed will ease with the US economy producing these types of numbers and stocks at record highs. The fed eases in the face of an economic slowdown and the only sign of slowing right now is from the consumer in spending. The last report on consumer spending showed that growth in spending was the slowest in 6 months; most likely a result from higher gas prices and the national housing slump. Whether or not that becomes a trend affecting the overall economy is still yet to be seen.

    What you need to know is that lending rates will stay where they are or likely trickle a tad higher
    with the latest signs of strength in the US economy. The 10YR yield already popped a bit to 4.68% and as you know, lending rates tend to follow the yield on the 10YR for those interested in the short term movements of mortgage rates.

    Those planning on lower rates in the near future because of a fed ease might have to hold out a bit longer, unless future economic data reverses course and shows a sharp turnaround towards slowing growth on multiple levels. This has not happened yet. While inflation is moderating, it is still a threat to future growth and that puts the fed on hold for now until more trends can be seen.

    Some fundamentals that are keeping the US economy and corporate profits at these levels include:

  • Liquidity - tons of it

  • Weak Dollar - pumps up profits oversees

  • Foreign Investment - strong

  • Management - since dot com collapse, corporate management has excelled from past errors

  • Low Interest Rates - still allow for profitable leveraging

  • WILD CARD - Jobs! While the labor market is still strong I still wonder if it will be sustained throughout the year. As long as the jobs market is strong, the economy should keep chugging along. I worry that a slowdown in the jobs market might be the third leg in the housing slump heading into 2008.

    How Brokers Sell Their Own Apartments

    Posted by Toes

    Thu May 3rd, 2007 08:22 AM


    I bought my Village studio with help from my grandfather in 2003. After living there for 2.5 years, I've been subletting it out for 1.5 years and making positive cash flow. I would have kept it forever but the building only allows subletting for 2 years out of every 5 years in one year lease periods. When it was time to sell, I didn't want to annoy my tenant with constant showings. She was planning to move out May 1, so I put my apartment on the market April 1 with the plan to sell it quickly so that it wouldn't sit vacant for too long. Here is some insight on how a broker sells her own home. I hope you find it helpful!

    1. Looked at comps in my building. The last studio in my line went for $365K, but it was a sponsor unit and didn't require board approval, which commands a higher price. Still, the market is a little hotter now than it was in the winter, and I'm on a higher floor, so I determined that my apartment was worth $369K. The highest price ever received for a studio in my building is $380K. That apartment was completely gut renovated with a new wall mounted plasma TV and surround sound and it had a much nicer view than my own, so I knew I wasn't getting $380K.

    2. Price the apartment $10K lower than it is worth, $359K, to get lots of people in the door, multiple offers, and a price above the asking price. TIP: If you want to sell your apartment quickly, price it 2 - 3% below market value and you will generate so much interest that you end up getting what you wanted in less time, or you will get more than you were hoping for. Every time an owner has allowed me to price an apartment below the market price, this has happened. When New Yorkers see that a dozen other people are interested in an apartment, they get competitive and they want the apartment more. Once someone has offered $359K for an apartment, it isn't much of a stretch for them to offer a few thousand dollars more to out bid someone else. If you have a 30 year fixed mortgage, it is only $30 a month to finance an extra $10K.

    3. I believe in "the system." A property gets the most exposure when it is on the market at a 6% commission. Even though I'm a broker and I could try to market my apartment without my company in order to "save" money, I know that the way to get top price for a property is to use a brokerage firm. 85% of apartment sales are co-brokered deals, not broker direct to buyer or owner direct to buyer. To bring in the most *qualified* buyers in the shortest period of time, I fill out an exclusive agreement with my company, Citi Habitats. It is worth paying the extra money - you get what you pay for.

    4. Luckily, my tenant attends Parsons School of Design and the apartment looks better than when I lived there. The paint colors and furniture are fantastic and appeal perfectly to someone looking for a Village studio. No need to paint or stage the apartment, SWEET! (If the apartment needed a coat of paint, or if her furniture was horrible, I would have waited for her to move out and then I would have staged the apartment in order to get top dollar).

    5. Line up cleaning service, virtual tour and professional photos (which my company pays for when we have an exclusive listing) for the week before the apartment will go on the market. That way the listing is perfect when it hits the market - great description, quality photos, and a virtual tour. Allows me time to prepare a postcard mailing to the building announcing the listing (Citi Habitats also pays for this).

    6. Call the mangement company to confirm the building open house policy. Building doesn't allow them. Damn. It is so much harder to sell an apartment when you have to show by appointment. I can only show 8 people an apartment in 15 minute intervals on a Sunday between 12 and 2pm by appointment, whereas I always get 20 - 35 people at my first open house for a new listing. Some people only search open houses, or they sit down with the NY Times in the morning and circle all of the open houses. Apartments not having an open house can easily be forgotten, simply because of the inconvenience of having to make an appointment when a buyer can just drop in to 10 other apartments. Confirmed the maintenance, assessments, sublet policy, financials, planned capital improvements, etc, with the managing agent.

    7. Spent two hours making sure every detail about the apartment and building were accurate in our database, which we share with our sister company, Corcoran. Wrote and re-wrote the description for the apartment so it would be perfect the first time. Otherwise, we have to change it in the database and show sheets and send a separate email to our sales department to get it fixed on our website. Better to get it right the first time.

    8. Got the photos within three days of the shoot, upload them to the website, database, and postcard mailing and send them to our marketing department so they can create show sheets. It takes them a few days to prepare the sheets and I want to have them for the first showing.

    9. Contact my mortgage guy to do a handout with different mortgage rates and what the monthly payments would be at various rates before and after tax deductions. It helps buyers to see in print exactly what they are going to be paying.

    10. Sign the exclusive agreement and send it to our sales department to put it into the database on a Monday. It takes about 48 hours for the listing to make it through the various database feeds and show up in the databases used by all 200+ member firms of the Real Estate Board of New York. By putting it in on Monday, everyone should see the listing on Wednesday, giving them plenty of time to work me into their Sunday schedules.

    11. Sent out postcard mailing.

    12. Drafted the NY Times ad (Citi Habitats pays for a NY Times ad every weekend). Deadline is Tuesday for the next Sunday paper.

    13. Decide to run a potentially controversial "open house by appointment only." Make it VERY clear in our database and on our website that all showings are by appointment. Give a list of everyone who has an appointment to my doorman as proof that I am showing by appointment and not through a true "open house" in case someone balks.

    14. Advertise the apartment on Craigslist to get some direct buyers. Especially with studio sales, buyers don't always have a broker yet. The target market for a studio in a building that doesn't allow pieds-a-terre is a 22 - 27 year-old first-time buyer. This generation uses Craigslist for everything. Additionally, our website ads feed into the NY Times on-line version on Thursdays, so to reach out to buyers early, Craigslist is a good place to start.

    15. Before posting the ad, I draft an email explaining the financial qualifications buyers needed in order to purchase in the building. My building requires 25% down, doesn't allow students or pieds a terre, and isn't kind to freelancers or others who don't have a steady, fixed income. They also require 2 years of mortgage and maintenance payments in reserve after the down payment. I determine that my buyer must have at least $145K in the bank and must make over $105K. This is a ton of money! There are a LOT of unqualified buyers on Craigslist, so an email spelling out the financial requirements eliminates my wasting my time showing the apartment to unqualified buyers. Despite my disclaimer email, there is a ton of interest in the apartment, and I quickly line up 6 appointments for Weds night and 6 for Thursday night in 15 minute intervals. I make sure to casually mention which appointments are already taken so buyers know how desirable the apartment is. About 50% of the total inquiries that I receive realize that they aren't financially qualified for the apartment after they receive my email. Such is the nature of Craigslist buyers.

    16. I advertise my apartment in my e-newsletter, which goes to over 2,300 friends, former co-workers, clients, and other agents. Basically, everyone who has emailed me since I started in this business goes in my e-mail list. They can remove themselves by the simple click of a button so I don't feel guilty for spamming.

    17. Brokers and buyers start calling and emailing, so I know the apartment has officially hit the market. So exciting! I schedule 10 appointments for Sunday between 12 - 2pm. I receive an very unhappy call from the management company regarding the "open house," even though it clearly states that ALL viewings are by appointment only. I take down my "open house by appointment" ad, and try not to sweat it too much because all of the appointments are already full. I am still annoyed because it is very clear that this isn't a "free for all" open house. I have a list of everyone coming, what time they are coming, and I am escorting them to and from the lobby, so there is no security concern of people wandering the building unaccompanied. Either someone on my board is so bored that they scour the NY Times weekly to catch brokers having open houses in our building, or the other real estate agent who lives in my building tattled on me. The managing agent chuckles when I mention said broker's name, essentially confirming that she was the narc. I decide she is just bitter and must have nothing better to do so I go back to what I love most and do best... Selling and marketing apartments!

    18. On the second Sunday, there is so much demand to see the apartment that I can't fit everyone in. I have a brief panic attack when I envision someone on the board seeing 5-10 people in the lobby backed up waiting for their appointments, but my problem solving skills kick in. I enlist two agents from my office so we can double up showings between 12 and 2pm. If they see people in 5-10 minute increments, I can get in at least 16 people.

    19. Showings are a tremendous success and offers are coming in. I schedule "best and final" offers. In 10 days on the market I have 4 offers at or above the asking price. Two offers are from buyers who aren't really qualified, one who doesn't have a social security number and one who the board might consider a pied a terre. I choose the most qualified buyer. His broker was also smart enough to offer an odd numbered price, beating out the other offer by $1,200. Three hours later, I have already accepted the offer and sent out the deal sheet to the other broker when another offer comes in that is even higher than the "highest and best." I struggle with what to do, but I can't help but consider this other offer - the broker swears she didn't realize the offers were due by noon, she thought it was just sometime that day. I go back to the original buyer and ask them if they will match the new offer. They do! YAY!

    The contracts are signed in under a week and the board package is being assembled as we speak. The buyer has better than a 25% debt to income ratio and has more than 2 years of mortgage and maintenance payments in reserve. He just started his job in September, so I ask the buyer's broker to let the buyer know that he may have to put maintenance in escrow since the building can be tough on new hires.

    Toes says... Pricing is KEY, but planning and strategy is also very, very important. All your ducks should be in a row before formally putting an apartment on the market. The way you time your marketing pieces and advertising is critical to a successful first week on the market. The serious buyers all come in the first two or three weeks on the market, so you want to sell the apartment in less than 30 days or buyers will wonder what is wrong with it and why it has been on the market for so long. An apartment should come onto the market with a bang, not a whimper!

    The 1-2 Punch: When A Deal Falls Through

    Posted by urbandigs

    Wed May 2nd, 2007 11:45 AM

    A: Very interesting topic for a post that comes straight from the field. You have a new product on the market, priced right, that procures an accepted offer near ask within the first week. The deal eventually falls through. Then, a new bidder comes in with a strong bid, but not as strong as the first, and gets very little response. The 1-2 punch for the seller takes control right out of the 2nd bidder's hands leaving a situation to deal with. What to do?


    Its hard enough being a buyer of Manhattan real estate these days without having to deal with lack of negotiability because of a previous deal falling through. How is a broker to advise their client?

    On the one hand, the seller must be ready to go after experiencing a deal slip away. But on the other hand, being that the first offer was slightly under asking it makes any future offers that may be lower but still strong, seem not worthwhile! The seller broker is clearly doing their job and bringing in offers left and right for their client, but in the end they need to generate a fully executed contract of sale to get credit and move forward to closing.

    When a deal falls through, the psych of the seller changes a bit. First off, they get a taste of what their property might sell for. Second, they get more confident and patient when it comes to future bids. Third, they keep the ball in their court and play hardball especially if the two bids come in within the first 4 weeks of the listing. All of this doesn't bode well for the buyer in terms of control during the negotiating process. Not such a bad thing if the property is priced right to begin with.

    So, how does a buyer broker advise their client in this situation. Certainly you can advise them to go just under ask and get the deal done on the premise that bids are coming in quickly on the property in question which obviously means the product is getting traffic and is priced properly. Or, you can play hardball back and stick with the lower bid in and see how time changes the mind of the seller.

    The only way to be sure is to put the seller into a situation where they might lose the 2nd deal! Question is, does the 2nd bidder want to risk losing the property? So, here is what I would advise my clients to do based on the economic and emotional status of the buyer:

    Buyer Loves Property & Can Afford It
    - A property is worth what a buyer is willing to pay for it. If the deal is only $10,000 away or so and it is economically feasible for the buyer to pay that amount, go for it! Obviously the property is priced properly which is why the buyer loves it (assuming they did their homework and has product knowledge) and multiple bidders have made a play for it. So whats the problem. Taking into account past comps and current products in the price point, if the deal is within striking distance I would say to my client to up their bid and end the ping pong game now before a third bidder comes in and they lose the property they love.

    If it does get you an accepted offer, don't waste time! Tell your real estate attorney to do their diligence promptly so that you can sign the contract and send it over to the seller attorney with your 10% deposit. A deal is never done until the seller countersigns the contract and the seller broker is wise to fully market the property until this happens. As you can see, deals do fall apart and the fact that the property was almost lost creates a sense of urgency to other interested buyers.

    Buyer Likes Property & Will Have To Stretch To Buy It
    - Here is where I don't like my clients going. Its never a good idea to stretch far above your intended budget to get a property you love! That is allowing emotion to take over the investment decision.

    If the buyer (2nd bidder in this case as first bidder deal fell through) already put in their MAX amount they can afford and anything over this amount leads to a sacrifice in quality of life, then your decision is clear! KEEP THE BID IN & PUT A DEADLINE ON IT!

    In the end we must not forget what buying a home is all about beyond the investment value. When making the decision to buy, you need to:

    A: Love the home
    B: Can afford the home; job is stable & salary is high enough
    C: Look to stay for at least 3-4 years
    D: Know product knowledge and how to bid properly

    Most sellers want to sell their home and those that price their homes high and dont get any bids for months, tend to react more aggressively when one finally comes in. However, on the flip side, those sellers that price right and get multiple bidders in a relatively short time period tend to get more stubborn. As a buyer you need to decide which strategy you want to take once that first deal falls through because chances are the seller will not be that accommodating!

    Do the right thing. Sleep on it, take into account how much you love the property and the happiness it will bring to your lifestyle without sacrificing quality of life financially, and make your decision with a clear mind!

    Market Report: Transition To A Buyers Market

    Posted by urbandigs

    Tue May 1st, 2007 08:33 AM

    A: Its already starting to happen folks! Its May 1st and already I am noticing the beginning signs of a slowdown in Open House activity! After being on record since January 10th for stating that market activity has begun to surge, I am now going to go on record for stating that market activity is beginning to wane at public open houses. What we are seeing now is the transition in the Manhattan real estate marketplace from the sellers market of January - April to what will eventually be a buyers market as we get closer to the months of July & August. Sellers, its time to pass the torch back on to the buyers!

    Brokers, Buyers, & Sellers
    - After reading this post I would love to hear your comments on what I am seeing as this is really only the 2nd week I have noticed things starting to slow a bit! Are you noticing the same thing?

    Its important to note that media outlets differ from blogs because they usually lag in their reports to the readers after waiting for the event to happen and data reports to show a trend or surprising number. In the blog world such as UrbanDigs, I'm doing my best to tell you what I see right now!

    And what I see right now is slowing open house activity! I went to three open houses this past Sunday and the most traffic out of any of them had only 2 other people there at the same time we were. The others we were the only ones there for the 10 minutes or so we stayed. Compare that to what I said back on January 10th:

    After spending a few of the past 3 Sunday's with her going to Open Houses, I can tell you firsthand that most of them had very good traffic; by that I mean at least 4-5 different buyers were there at the same time we were. And that was ONLY 15 minutes or so of a 2 hour open house!

    I've also had talks with a few other agents holding OH's and they report to me a noticeable, 3x or so, pickup in activity and this is across a range of price points across the city! This is the kind of reporting that you can take advantage of if your in the hunt to buy in the very near future! I'm not making this stuff up. If I had to estimate, I would say my own business has picked up about 4-fold in the past 3 weeks alone; most of it in the past 7-10 days!
    As for my own business, I am noticing continued activity from brokers via appointments scheduled during the week. Most of my deals are co-broke and I usually rely on the Manhattan brokerage community heavlily to bring to the table the most qualified and highest bidder for my sales clients. Once this starts to slow I know I am in the dog days of summer.

    My last open house was two Sunday's ago and we actually had a decent showing with about 12 people stopping by; not uncommon for the first open house of a new listing. I'm certainly curious to see how my first open house for my other new listing goes this coming Sunday; I'll report on that one next week although first open houses are not the best gauge to notice any new trends.

    If I were to visually design for you how the NYC real estate market is seasonal, it would look something like this, for months JAN - SEPT. I left out OCT-DEC because those months seem to me to be very erratic; sometimes hot and sometimes cold. The months of JAN - SEPT have market characteristics to them that are easy to notice and eventually take advantage of:


    To prove this, recall Jonathan Miller's chart breaking down the AVG Price Per Square Foot per quarter by clicking here. I wrote about his findings in my post titled, "Data Shows NYC Real Estate is Seasonal", and stated:
    I talk often how buyer demand in the months of JAN - MARCH are normally much more active than any other 3-month consecutive range of the remaining calendar year. The months of MARCH - MAY are transition months where activity from buyer demand tends to move from very active --> to active --> to good ---> to slow. Once we get into the months of JUN - AUG, the market is typically significantly slower with only a few serious buyers coming to open houses and much fewer appointments during the week!
    UrbanDigs Says: During the month of May I expect brokers to start noticing a gradual slowdown in total buyer activity; mainly buyers working on their own. If brokers were getting between 20-30 buyers at an open house during the months of JAN - APRIL, I would think that number will shrink down closer to 10-15 towards the end of this month; a noticeable 50% reduction in traffic. As we head into the months of July & August, expect that traffic to shrink closer to 7-10 people per open house with the overpriced listings getting more like 5 people to show up! For all you sellers out there who are under a time pressure to sell, I discussed your 5-week warning last week with thoughts of what to do based on your strategy!