Wisest of the crowds

Today, Easter Sunday, the New York Times takes advantage of its prominence in the psyche of the educated and well read by putting Real Estate front and center. The first article sits in the right hand column of the front cover and discusses the impact of the housing contraction on State tax revenues.

Entitled “Housing Slump Pinches States in the Pocketbook”, Abby Goodnough’s article was thorough, some highlights follow:

Florida is projected to have tax revenues drop for the first time since the energy crisis of the 1970’s.

-NJ could have a budget shortfall of $2.5 billion by mid-2008

-California could have a $2 billion shortfall this year and next

-16% of Floridians and 30% of californians use home equity loans to buy cars

The second article, from a NYT regular (and a personal favorite), Gretchen Morgenson, is on the cover of the business section. Entitled “Home loans: A nightmare grows darker”(premium), the article discusses the sub-prime mess and suggests that well intended social engineering led by the Clinton administration is the cause of the mess. Highlights:

• Sub-prime accounts for one-eight’s of mortgages and 60% of foreclosures

• -President Clinton and HUD Secretary Cisneros encouraged the private & non-profit sectors to find solutions to increase homeownership. Outcome: ownership rose to 69.2% from typical range of 60-65% but was built on mis-leading “innovations” such as teaser interest rates that are resetting substantially higher, extending maturities out to as much as 50 years, interest only loans , and discontinued use of escrow accounts to collect real estate tax and insurance expenses.
• -Best quote: “We’ve created a society that loves the term homeownership, yet we can’t allow people to understand that they are being taken advantage of by the term” - Josh Rosner, MD at Graham Fisher.

On a local front, the Real Estate pull-out of the SF Chronicle Examiner’s lead story entitled Boom and Gloom by Marni Leff Kottle

• -Places like San Francisco, Palo Alto, Marin County are doing well while cities further out are doing poor

• -2.2 million Americans could wind up losing their homes to foreclosure over the next several years.

• -Quote: “People are paying a lot for schools and for shorter commutes on the west side of Silicon Valley and up the Peninsula toward San Francisco,” said Mark Burns, president of the Silicon Valley Association of Realtors

Real estate markets are hyper-local and now that the bloom has come off, this will become more and more apparent. Sub-prime versus Super-prime. City center versus suburb. SOMA neighborhood versus SoBe neighborhood. Bush Street versus Jackson Street. The house at148 Jackson versus the house at 156 Jackson. Talk of a “market” needs to be cleaned up and better described because it doesn’t really exist as a market.
Having said all that, there are common touch points that make real estate a market from a macro-economic perspective: Cost of money, local employment and income, demographics, and population changes. Of course one of the biggest is buyer and seller psychology of the future prices.