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Reggie Middleton's Real Estate Rehash - 10/14/09
I read the Real Deal magazine, a NYC real estate rag. Although they
have never quoted me or even bothered to feature my rather dashing
picture in their publication, a reporter or two does keep in touch to
get my opinion on things valuation related. This is some of their
latest stuff:
Manhattan residential market reports
bring good news, experts cautiously optimistic
Third-quarter Manhattan market reports released by the city's residential
brokerages this week paint a grim picture compared to the same period last
year, but show a marked improvement from earlier
this year. "For New York, the worst is over," said Dottie
Herman, president and CEO of the city's largest residential brokerage, Prudential
Douglas Elliman. Still, experts caution that while the pace of decline is
slowing, recovery is not yet imminent. "I'm very pleased with what we saw
this summer and it’s a step in the right direction, but I still think we have a
ways to go," said real estate appraiser Jonathan Miller, the CEO of Miller
Samuel, who prepared Elliman's report.
Well, I wouldn't stake my future on those prices skyrocketing any
time
soon. To begin with, there is a market difference between prices
improving verses prices getting worse at a slower pace. Words, after
all, do have meanings, don't they? Below is the Case Shiller seasonally
adjusted index for Condos, to put things into perspective.
As you can see, it does not appear that the index believes NYC prices
are going anywhere significant. The macro scene of unsustainable and
government suppressed mortgage rate levels, rampant unemployment
expected to increase for at least another year, and the potential end
to government housing subsidies really don't seem to bode well for
prices either. Oh well, what the hell do I know?
When I stroll around NYC (with
unemployment pushing 10% and not looking much better anytime soon), I
see the recipe for lower prices. For those who are not regulars to my
site and particularly those who do not know the NYC real estate market
well, I strongly recommend you read the following two posts thoroughly
in order to get a visual account of what is actually going on and why I
am sure these banks are still hiding TREMENDOUS losses: "Who are ya gonna believe, the pundits or your lying eyes?" (for pictures) and "Who are you going to believe, the pundits or your lying eyes, part 2" (for numbers and a very shaky super amateur video, Spielberg I ain't!),
in order, of course. Hey, why believe your own eyes. I started getting
bearish on NYC real estate in 2004, and liquidated my own inventory in
2005. The market collapse in 2006 (actually, it started getting
difficult to sell in 2005 but brokers will never admit that. I started
placing short positions against the homebuilders in the summer of 2007,
see:
- Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth
- Lennar Insolvent: Enron redux???
-
Lennar, Voodoo & the Year of the Living Dead! - Now, a "Realistic" View of Lennar's Solvency
-
Bubble, Banks and Builders - Yes, I placed these bearish positions even
as corporate management, the Treasury Secretary, the Fed Chairman
and the sell side institutions continuously called a bottom in 2007, 2008, and even now in 2009
(sound familiar?) - see Bubbles, Bank, & Builders - Pt IV: I can't believe this guy and Again, I say, Credibility is the key, Mr. Hovnanian.
BTW, I was quite serious about Paulson, Bernanke and their bottom(s), see:
I also sounded the alarm on commercial real estate in 2007 went
short the sector in November of that same year. One REIT in particular,
GGP, was quite feisty in trying to besmirch me in their conference
calls and in press releases sent out at 9 pm on a Saturday evening.
They called my analysis trash. Well, sticks and stones may break my
bones, but leveraged caused them to file bankruptcy. As it appears, I
was right: see GGP and the type of investigative analysis you will not get from your brokerage house.
Don't get me wrong. I am far from a permabear. As a matter of fact, I
rode the real estate market up on a highly leveraged basis from 2000 to
2005, but enough is enough and math is still math. That's how I knew
how to get out. The way I saw things, 2 + 2 does not equal 49!!! Now, I am being told that
there are new rules to the game and the old fundamentals don't apply, so we should all just ride the momentum wave.
Right, like they didn't apply in 2000, or 2006, 2007? 2008? Here we are
in 2009, and nearly all of the problems extant in 2008 are here with us
in 2009, except for a stock market that has rocketed 60% or so. Oh well, back to the Real Deal...
Case-Shiller: NY home prices improving
New
York metropolitan area home prices have improved, but still haven't seen the
solid increases of some other markets around the country, according to
S&P/Case-Shiller Home Price Index July data released this week. Home sale
prices within a 50-mile radius of New York City declined at a slower pace than
previous months, according to the index, which gauges values in 20 major U.S.
cities. New York-area prices fell 10.3 percent in July from the same month last
year, compared to a year-over-year drop of 11.9 percent in June, and 12.2
percent in May. Since the data does not include condo or co-op units, the
report primarily reflects home prices in the outer boroughs, Connecticut, New
Jersey and Westchester County. New York was one of 13 metropolitan areas
showing at least three straight months of price gains, the data shows. New York-area
prices inched up 0.8 percent between June and July, and 0.7 percent between May
and June after having increased slightly between April and May. Before that,
prices had been falling, including a record decline of 2.5 percent between
February and March.
Again, let's go back to the tape for a blow by blow...
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I tried to post, got blown off the site twice. I enjoy how you grounded your data in photographic evidence. I did not know it was this stupid, this bad. Suburbia, yes. City overbuild? I am speechless.
Thanks for the enlightenment.
I now know in a new, experiential way, why we are sooo screwed.-
thank you Reggie for your great work !
You da bomb Reggie. This article was awesome.
No worries, most of the mortgage debt is not on the balance sheet of the banks, it is guaranteed by Fannie/Freddie/FHA, which is to say, you and me.
Mortgage losses will be covered by deficit spending, which will be covered by money printing.
I would be less worried about housing prices in places like NY Metro, where the Fascists will get their big bonuses this year, than anywhere with a large segment of middle class Americans.
+5
Good analysis, however logical thinking is a liability now and irrational exuberance is an asset in the current environment.