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January 31, 2009

Regarding Housing Price Decline, You Ain't Seen Nothing Yet
by Reggie Middleton

The NYC metro area has the highest aggregate price index in the country and has declined the least. Many sales people in the area have preached (up until a few quarters ago) that NYC was somehow immune to the laws of economics. Well, BoomBustBloggers are smarter than that. NYC metro has also experienced the largest price decrease on record in the month of 11/2008, and that was before a serious wave of firings and layoffs.

Believe it or not, the aforementioned is the good news. The price index used excludes the vast majority of the most volatile housing stock in Manhattan (coops and condos) and the most ubiquitous housing stock in the outer boroughs (multi-family homes that can provide rental income). It also excludes investment properties and flips - a significant portion of NYC real estate. See "A reminder concerning popular housing indices". The Case Shiller index makes NYC real estate performance look downright rosy in comparison to actual reality!

Wait! Before you walk away from that computer screen all dreary eyed, there's more. Let's not forget that the 6 main employment drivers in NYC have very recently been damaged or utterly destroyed. NYC is a populous and monied city that just so happens to be the world-wide mecca in the following:

Finance via Wall Street - Well, Wall Street still exists (as in the street with that little green sign on it) but the bulge bracket investment bank is now relagated to history and 40% of what was the bulge bracket are literally no longer going concerns. THAT, my friend, is a dramatic change in one year's time. To add misty eyes to misery, everybody that is left is firing, en masse! Relevant research: Goldman Sachs' Bank Holding Company Fundamental Valuation and Forensic Analysis - Professional (267.49 kB 2008-12-18 10:12:37) and Morgan Stanley_final_040408 (1.38 MB 2008-08-30 06:37:54), Is Lehman really a Lying Lemming in Disguise and Is this the Breaking of the Bear?
Media - The MSM (mainstream media) companies are dropping like flies, bankruptcy, restructuing, disappointing results, and yes,,,,, the "F" word - firing or if the PC prefer, "laying off"... See
Marketing: Madison Avenue literally means Marketing. Companies are not thinking about marketing budgets now, they are thinking about SURVIVAL! Madison Avenue Marketing, both large firms and boutiques, are shrinking at a rapid clip.
Insurance - Contrary to popular belief, Omaha and Hartford are not insurance meccas, it is NYC. That is why Eric Dinallo's name is mentioned so often when dealing with insurers and monolines. Subscribers of this blog know that many insurers are f#@$ed, and the insurance industry in general is entering a soft phase in terms of premiums - all insurance sectors - life, P&C and health. To make things worse, insurers are the largest investors in financial company securities Uh Oh! See The Butterfly is Released!) and commercial mortgages (see GGP and the type of investigative analysis you will not get from your brokerage house for a textbook view of a commercial real estate empire collapsing. Relvant research: Hartford Insurance Group Forensic Analysis - Pro (619.29 kB 2008-11-22 06:30:43), HIG Actionable Item (189.75 kB 2008-11-22 06:32:24), HIG Actionable Intelligence Update 8-12-08 (49.96 kB 2008-12-08 08:54:33), Hartford Insurance Group spreads and counterparty/debt holders - pro (149 kB 2008-11-22 06:31:47), and Principal Financial Group Actionable Intelligence Note - Pro version (252.74 kB 2009-01-15 11:18:50). I will be producing a lot more in this space, for I feel the exposure to loss is truly, truly under appreciated.
Residential and Commercial Real Estate - See (again) see GGP and the type of investigative analysis you will not get from your brokerage house and well as Macerich Forensic Valuation - Professional (344.92 kB 2008-11-28 14:47:43) and Forest City Enterprise Peer Comparison (198.98 kB 2007-12-24 15:42:06). NYC has the largest (in dollar terms), deepest, and broadest residential, commercial and office real estate market in the world. It has a long way to fall, and will bring the dependent services sectors along with it, ex. brokerage, law, leasing and agencies, management, construction and development. We're talking a lot of jobs, people!
Municipal employment: As one of the largest and prominent cities in the world, NYC is one of the largest and most prominent employers. Like most other cities in this country, NYC management binged on the free punch that was bubblistic construction permits and property tax revenues, increasing it's budget to unrealistic levels and when the bubble popped, NYC budget went pop along with it. There are now probably over a hundred thousand jobs being reviewed for the chopping block. This was not hard to see coming. See
- Municipal bond market and the securitization crisis - part I
- Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)

What should you take form this heavily hyperlinked bulleted list? Massive, and I mean MASSIVE unemployment. I am a life long NYC resident, and I see it all around me. Friends in finance are getting laid off faster than Spitzer can apologize about pretty ladies. If you think the real estate market was soft last year, you ain't seen nuthin' yet. Much of the new construction condo market (the bulk of Manhattan inventory this year) was actually dependent on something as fickle and volatile as Wall Street bonuses! Unfortunately, powerful factions of our government are still concerned with maintaining the already popped real estate bubble then addressing the pertinent problems at hand, primarily employment (See I guess I need to go back to DC).

From the Real Deal, the most prominent NYC real estate rags:

City sees record home price drop
New York City posted its largest monthly home-price decline on record in November 2008, according to S&P/Case-Shiller Home Prices Index data released this week. Home prices within a 50-mile radius of New York City fell 1.6 percent between October and November, the largest drop in over 20 years, and 8.6 percent year over year, according to the index. 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. But the New York metropolitan area still has the highest index value, at 186.81, of any of the 20 cities measured by the index. This indicates that homes in the area have held their value better than homes in the other areas. The index was set at a base value of 100 in January 2000, meaning that homes in the New York metropolitan area have appreciated 86.81 percent since then. Of the 20 cities surveyed, seven others -- Atlanta, Boston, Charlotte, Chicago, Dallas, Portland and Seattle -- also posted their largest recorded monthly declines in November. TRD

Now, as usual, I have a lot of "I told you so's" from as far back as 2 years ago. See...

Manhattan Real Estate is Falling. That's Right, I said it!!! And Beware Those with Short Term Memory
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
When the residential real estate market falls hard, it falls. New York (Manhattan, too) is different from many other regions because it is denser, harder to build new supply, and has a generally rich
Thursday, 04 October 2007

Okay, I have just recharged the batteries in my crystal ball: Back tested Home Price Trends - History
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
Thursday, 18 October 2007

Bubbles, Bank, & Builders - Pt IV: I can't believe this guy
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
Apparently, the Citibank analyst that has issued several bullish reports on the builders during their downturn is at it again. Citibank has enormous analytical resources, considerably more so than my
Monday, 24 December 2007

A reminder concerning popular housing indices
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
The National Association of Realtors released results stating sales actually rose .04% (statistically significant?), but were down 20% from last year with prices down across the board. The
Tuesday, 01 January 2008

Straight Talk From the Homebuilder CFO: The Coming Land Recession, Pt I
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
This is actually a two part series within a twenty part series from an anonymous guest blogger. I fully believe we are in a land recession. In part one I am going to walk you through basic land theo
Thursday, 11 October 2007

Straight Talk From the Homebuilder CFO: The Coming Land Recession, Pt II
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
Thursday, 11 October 2007

Reggie Middleton
Reggie Middleton, LLC
Perpetual Interests, LLCTM
http://boombustblog.com/

Who am I?

Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.

I pay for significant information and data, and am well aware of the value of quality research. I find most currently available research lacking, in both quality and quantity. The reason why I had to create my own research staff was due to my dissatisfaction with what was currently available - to both individuals and institutions.

So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.

Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned consumer banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart.

So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities. I have included a more in depth bio at the bottom of the page for those who really, really need to know more about me.

Visit his blog Boom Bust Blog.