To those who say bearish is the consensus (thus wrong)

rhino, people generally don't like being bearish. you have to slap them multiple times with near-disaster for them to think things aren't doing so well (unless of course disaster has struck at home, such as unemployment or foreclosure).

i think people were generally bullish, forced by really negative events and a new president who hoped to temper expectations to be bearish for awhile, and in their usual resilient fashion have become "catiously" (or so they think) bullish again. although consumer confidence numbers (i don't think they are the greatest of surveys, actually) are quite low nationally. unemployment. NYC is a primary beneficiary of the great reflation experiment.

In calculating what to own, primal concerns like job security and loss of income are more important now than price. Nearly two-thirds of New Yorkers believe that now is a good time to buy, according to a recent study of 2,000 potential buyers who responded to weekly polls conducted by the Corcoran Group on its Web site.

Conclusion:
In calculating what to own, primal concerns like job security and loss of income are more important now than price. Nearly two-thirds of New Yorkers believe that now is a good time to buy, according to a recent study of 2,000 potential buyers who responded to weekly polls conducted by the Corcoran Group on its Web site.

I think I just became a bull now. Clearly this non-biased sample conducted by a disinterested party( double blind study of course) is worthy of publication and reliance.

My point is, if I pretended to think that the consensus was always wrong, bearish is not yet consensus. This is not to say this study is reliable. Its just a datapoint. My general feeling is that the idea that owning real estate 'always works out over 5-10 years' has not yet been worked out of the market. Only when it has will buying present a good opportunity FINANCIALLY. To whoever might be reading, please do not shower me with emotional considerations.

rhino, the idea that owning "always works out over 5-10 years" could be argued to be an emotional consideration.

hopefully, this isn't emotional...

I agree completely...non obsessed, so called normal people (particularly the well off in manhattan) are only vaguely aware (and even that is way too strong) that things have changed with NYC real estate. I think that that majority thinks that real estate purchases always work out period...no need to add a time period.

As I have noted elsewhere, its when we reach the tipping point with this group that things will start to get interesting.

I don't think that it works out over 5-10 years is an emotional consideration. I think a lot of the conventional real estate wisdom was ok until the credit bubble drove prices up creating really questionable and precarious entry points.

Manhattan is also more tricky to apply conventional wisdom. Being stuck in a house that is less than ideal is different than being stuck with a one bed, studio or even two bed with two or more children...because you had an expectation to sell it in five years at a break even or gain.

so...barbara corcoran just told the poor guy that his apartment is worth $925 K but there's an open house today and the asking is $1.3 million. seems to underscore exactly what we're talking about here.

Which place, CC?

I think we should all be glad that people think it'll all work out in 5-10 years. This will encourage people to bleed their losses slowly rather than go belly-up. With the former, they pay. With the latter, we all pay in the form of having to bail out the mortgage holders: i.e., the banks.

Would it be a stretch to call the regulars here the most RE obsessed in the city? While amusing (at least in my case), it does make me wonder where the majority of buyers are getting their information. Those who have had no employment impact through this recession and who might rely on their local RE professional to provide them with market guidance, would surely have feet firmly planted in the bull camp. Maybe they are the source of the 40 or so closings we are seeing every day.

As a reader of Charles Kindleberger, I feel very confident we'll have more Manias Panics and Crashes. With the exception of vulture buyers looking at truly distressed properties and Pollyannas, I doubt HPA will be high on the list of motives when purchasing a residence.

spin, over the last 7 days contract signings are down to 150 or so.

inonada, we're bailing out the banks in the form of zero-interest money daily. and owners are going belly up at incredible rates, and the banks are doing little to nothing to attempt to modify loans because they are "better off" letting the owners go under.

"spin, over the last 7 days contract signings are down to 150 or so." So that's 30 or so per weekday, vs. spinnaker's 40. It is still a notably large number for mid-August. Simple math: 150 per week = 600 per month = a 7,200 annual run rate in mid-August. I guess some of the demand spurred by lower prices must still be working its way though the system, but I can't say that I understand where it is coming from.

Actual market activity seems to be refuting the idea that was floating around SE a couple of months ago that there was some quantum of demand (all from suckers was the implication, because after all a few sideline know-it-alls on an anonymous internet board obviously know a lot more than thousands of individuals making major financial decisions using real money) that was being soaked up by the burst of activity, but that this trend would soon burn out and there would be no more buyers/suckers until prices took another leg down.

looking at the people taking a survey on a real estate site about how they feel about real estate is like going into a seafood restaurant and asking who wants to eat seafood today......

"(all from suckers was the implication, because after all a few sideline know-it-alls on an anonymous internet board obviously know a lot more than thousands of individuals making major financial decisions using real money)"

You honestly think the average buyer is more informed than the average real estate obsessed active poster on this board? No effing way. The average buyer pays what they can afford in a monthly payment because the best investment of the last ten years other than crude oil is real estate.

Are we saying August demand is higher than usual? Is inventory continuing to decline or no? Yes I think the activity was a little last gasp of old demand. The problem with the market is wealth accumulation is way way down in the financial industry. Hell the average hedge fund is only 12% into making back its 18% loss from last year. Thats two years of zeros at all but the big funds with a lot of excess management fee to pay out with.

sidelinesitter, we still have over a thousand new listings a month. that's hardly typical for August as well. AND we have a tax credit that purchasers of studios are just falling over themselves to get. The differential in pricing between a 400sf studio and a 750sf one bedroom is a joke.

Hi, just starting to look as I'm wondering if I can find a small one bedroom at a fair price for the long term. No new developments.
Aboutready, do you mean that a studio is well priced or the 750sf one bedroom is well priced? Thx

AR, those zero rates are bailing out the idiot public in the form of lowering ARM resets too. Oh, and it might, just might, have something to do with trying to prevent a deflationary spiral. Banks will modify when it makes sense to them, but a defaulting owner has already stopped drinking the Kool-Aid. What is best for all involved (except maybe the owner) is for the owner to keep sipping at the Kool-Aid.

201 e 36th.. 4c

Yikes, CC. I think you should go in and put an offer at $925K just to see the reaction.

if babs is at $925 K on tv, i think i want to start lower.

babs says $925K, then take 10% off and don't budge.

we're bailing out the banks in the form of zero-interest money daily

A.R. this bail-out is really ticking me off. I payed off my mortgage and it seems only a year ago I got 3% tripple tax free on my money market account(my reward for saving, right?)
My latest statement has the yield @ 0.17%

"You honestly think the average buyer is more informed than the average real estate obsessed active poster on this board?" The question is not the average buyer but several thousand buyers collectively, a.k.a., the market. The two groups are:
1) several thousand buyers, making one of the major financial decisions of their lives, and subject to the discipline of playing with their own money, or
2) several dozen (maybe) anonymous online posters who watch the market and fundamentals, fancy themselves to be pretty smart (I plead guilty to this, by the way) and preach and prognosticate but where in almost all cases their only ante is the time it takes to type their posts, not real $.

If you believe at all in markets, you have to recognize the large number of transactions over the last 3-4 months as demand responding to a decline in price, not as several thousand stupid lemmings committing financial suicide despite the warnings of the self-styled market gurus on SE. I am not a buyer anywhere near today's prices, but at least I recognize that as my own view, which I believe but which I also acknowledge may be proven wrong (or right) with time. What I don't assume is that I am smarter than everyone who disagrees with me and that anyone who buys any property in any Manhattan building in any circumstances in the current market is a pitiable fool who would benefit from paying attention to my anonymous rants on SE.

"Yes I think the activity was a little last gasp of old demand." OK, you can think anything you want to think. I would just point out that self-styled market gurus (of the bear persuasion) were already saying this a few months and a few thousand sales ago and so far it hasn't proven to be true. Since I don't have any idea where all the buyers are coming from, I choose to not to pretend that I know how many more of them there are. Your response would be more credible if it was based on some data about how many willing buyers there are at current prices (in other words, a theory, with some supporting data, about the shape of the demand curve). Otherwise it's just a hunch (or maybe a hope).

One more thing. You imply through your comment about wealth accumulation that the financial industry is important to Manhattan real estate. At least on this point we can agree. If the importance is that financial sector employees make up a large component of the market, then I am a bit confused about your disdain for the financial sophistication of the "average buyer." Are you suggesting that Wall Street buyers also buy based on monthly payment and no market analysis, since they inevitably make up a significant fraction of the "average buyer" sample? Are you really saying that you are that much smarted than everyone else on Wall Street? Only you are so enlightened? Give me a break.

Actual market activity seems to be refuting the idea that was floating around SE a couple of months ago that there was some quantum of demand (all from suckers was the implication,

Sideline sitter,
Previous experience tells me several factors probably at play
1) We're now seeing the effects of summer seasonality(closings now probably were negotiated this past Spring)
2) Some transactions probably got done which could not a few months earlier(for conforming jumbo mortgages things are actually settling down). Plus I imagine some Sponsors have made things a bit easier, by facilitating second liens(Extell/Rushmore?)

The underlying demand is most doubtably still weak. Even if you got your bonus, you are worried about next year's comp and will not spend it as easily. The trough in the cycle has longer to play out, despite the government's attempt to reinflate the bubble. Just like a bicycle tire with a hole, the pump just doesn't work as well until you patch it.

Riversider - Thank you for your thoughtful response. I agree with 2) and the last paragraph. I also agree with 1) as stated, although it does not address the question of continuing strength in contract SIGNINGS, which was my point. We could speculate about how many of the contracts actually end up closing (I would suggest more today than a few months ago because of your point 2) and what the discount to last ask will be (I would suggest not more than the 10-ish% seen in recent months, given continuing price delusion on the part of many owners/sellers), but there is little doubt that quite a few people are still out there trying to buy. Who all these people are is a mystery to me.

sidelinesitter,
With regards to signings, I looked at one block # on the upper west a fair percentage were closings negotiated directly with sponsor from several months ago. Are these new signings or actual closings. I am not aware of any truly accurate way to determine new signings. The ideas that spring to mind, such as mortgage applications could just mean multiple applications, and ACRIS does not report until past closing.

"sidelinesitter, we still have over a thousand new listings a month. that's hardly typical for August as well. AND we have a tax credit that purchasers of studios are just falling over themselves to get. The differential in pricing between a 400sf studio and a 750sf one bedroom is a joke."

All interesting. The listings are further evidence of an active market. Maybe sellers are starting to get the message. Of course not all of them, since many listings have been taken off the market, causing inventory to decline despite new listings comfortably exceeding sales. I am basically taking the view that the combination of the new (or at least current, who knows what's next) price reality still working its way through transaction volume and the summer means that it is hard to say where we really stand and that we should just be patient and take another look around the end of Sept or so.

The tax credit thing amazes me. I ask myself whether people would really risk their $100k+ down payment in order to lock in an $8k credit and while I wouldn't it seems that other would. It also reminds me of another observation, which is that actual closings seem to be very skewed to the sub $1mm segment, and really to $750K and down or even $600k and down. I have not done any analysis on this trend, but looking at the 'recent recorded sales' box on the SE home page a few times a day it is almost always six figure numbers, rather than seven figure ones. It will be interesting to see 3Q median sales numbers to see whether closings of spring 2009 contracts are skewed way to the low/first time buyer tax credit end of the market.

The tax credit is best viewed for homes in the $300-400K range, and not necessarily Manhattan.

Riversider - I agree that there is no truly accurate way. I use the contract signings tool on UrbanDigs and I'm pretty sure that was the source of aboutready's numbers that started this discussion about recent level of activity. This tool relies on brokers to update their listings, so there are surely times lags and all manner of bad data, but to the extent that any biases are largely consistent over time then at least there should be some validity to the tread. And the trend was my point; that is, signings as measured by UD are still relatively high for this time of year and to me a surprisingly large fraction of the level seen during the May-June flurry of activity. Say 250 per week then and 150 now.

Who said I think I am smarter than everyone on Wall Street? You imply that ALL of Wall Street is buying. Do I think I am smarter than the thousands of people buying apartments at these levels? Yes. Don't forget that many of the sellers are also from Wall Street. Many of them are renting now after selling. So try to organize your thoughts better before you take chops at me.

inonada, they are bailing out a certain subset of the public. what do you bet that the majority of the ARM mortgages that were refi'd were for owners who weren't in trouble? those who were starting to sink are pretty much sunk. for a certain portion of the market (low end, particularly on the coasts) FHA loans (which now make up over two-thirds, i believe) are supporting the market to the tune of an 3 or so times increase in loan activity (somewhere around $300 billion a couple of years ago to over a trillion held today), and we the taxpayers will be paying for those soon enough.

riversider, they want your money to be anywhere but a simple interest-bearing account. that's not nearly bubblicious enough. real estate, the stock market, hell, even commodities, the powers that be don't want you to save.

Funniest thing about 201 E 36th 4C and it's nonsense asking of 1.3M is that there is what according to the description could be an identical unit renting in same bldg. for 3,700. Which means that if you calculate both deals at ask, with 20% down and offsetting the tax deduction with the opportunity cost of those 260K down, and assuming you can get a jumbo mortgage of 1,040,000 at 6.5% which is probably optimistic, the purchase is way MORE THAN TWICE the rental (8,225 vs 3700). How crazy is that? A deal only LICC could love!

they want your money to be anywhere but a simple interest-bearing account. that's not nearly bubblicious enough

A.R. perhaps. I do think there is an argument to be made that they are trying to fix the credit problem by using the very policies that got us into the mess(low rates and getting market participants to speculate)

but..

I think reason #1 is to provide Goldman Sachs and JP Morgan the lowest possible cost of funds. The guys in Treasury and the Fed believe Goldman & JP Morgan are vital to the future of The United States. Ironic that Goldman was also Barack Obama's #2 campaign supporter.

http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638
University of California $1,591,395
Goldman Sachs $994,795
Harvard University $854,747
Microsoft Corp $833,617
Google Inc $803,436

You could argue that everyone has a stake in the ponzi scheme that is the credit-funded overspending nature of the American consumer. By everyone I mean EVERYONE.

This is your last chance. After this, there is no turning back. You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland and I show you how deep the rabbit-hole goes. -Morpheus

http://www.youtube.com/watch?v=0_8Zq_iWuFg

Did I skim too many posts in the thread? This isn't Kansas any more.

Riversider, why should you be paid interest during a deflationary period? Hell, if you think you are being ripped off, you can borrow (in a secured manner) at around 1%.

Here's the thing about you and I bailing out the idiots. If we don't do it, we all pay much more in terms of the economy crashing (and I'm not talking about the asset markets, I'm talking Great Depression and a drop in GDP of 50%). So choice A is to artificially support the market and keep the idiots in their homes so they can bleed out their losses over the next decade, and we pay a little. Choice B is to not do anything to support the market, let the banks get hit with the full brunt of losses, and then FDIC guaranty it all to the tune of trillions, and we pay a lot. Choice C is to let the banks fail, depositors lose their life savings, a quarter the country stands in line for soup as we watch GDP drop by half (FYI, it's only down a few to several percent at the moment). So you armchair macroeconomists, what's your solution? I understand that all this could have been avoided, but what do we do now?

Hands were forced. Problem is it doesn't seem to ever hit the agenda to put Americans shit spending habits in check. People cried about oil but the market forces worked to the right solution. High prices cratered demand in idustrialized countries, the most efficient locus of conservation. Money is artificically damping savings and driving spending.

"Don't forget that many of the sellers are also from Wall Street. Many of them are renting now after selling." We must have different networks. Most of the bankers, PE and hedge fund people I know already own (a function of them typically being 15-20+ years into their careers - I'm in year 19), and I don't know a single one who has sold or is currently trying to sell in order to rent. Not as many of the lawyers own and I know a couple who are now looking to buy as prices start to make family-sized space seem more accessible.

Among my banker/PE/HF friends, the majority are doing nothing, something like a quarter, myself included, are starting to think about trading up if (actually when, since it's a certainty) prices fall further and several are closing on new construction condos that they committed to a couple of years ago in decisions that they now regret.

Among my younger colleagues and acquaintances, no one is buying and few are really looking seriously. They see rents continuing to fall and the rent/buy equation strongly favoring renting even before you consider the capital at risk, liquidity, transaction costs, etc. related to buying. Needless to say, absolutely no one sees not buying as a risk because of the opportunity cost of foregone price appreciation. I think more people have got that message than is often suggested here on SE.

Blah blah. Your comment that because I think there is big downside I think I am smarter than wall street made no sense. If wall street already owns as you suggest with your lengthly anecdotal tour de self importance, then you contradict your original logically flawed jibe. Stuff it.

I guess every time I buy or sell stock it's hubris to think I know better than the market.

The industry is bloated with people like you who think youre bright because you've made a dollar. Your poorly constructed logic suggests otherwise. To say the market of thousands must always know better than is of little rhetorical or practical value.

INONADA,
I'm not convinced we are in a deflationary period. My common charges are not going down, my grocery bill is up, my Metro card cost more, my taxes are up, and let's not forget Time Warner who had a slight increase in rates...Only place I see deflation is on CNBC.

"Your comment that because I think there is big downside I think I am smarter than wall street made no sense" But that wasn't my comment. My comment was that you think much of the market is Wall Street buyers and that, further, you are "smarter than the thousands of people buying apartments at these levels", all of which implies that you think you are smarter than a Wall Street buyer.

I have to say that even for a SE poster, you have a particularly high regard for your own views and react particularly poorly to being challenged. I try to keep out of the inevitably inconclusive rent v. buy shouting matches and most of the macroeconomy tea leaf reading, but have I have views on what is happening in the market and have had some pointed exchanges with the aboutreadys and columbiacountys of the world on various topics. These usually lead to both sides gaining some appreciation for the opposing perspective. But I guess that isn't possible in this case, since you already know everything.

interesting point...putting aside TW (who as has been often noted here are quite open to negotiation) the other increases are directly (metro and taxes) and indirectly affected by the government. that's where bush and his so called lowering taxes while property taxes sky rocketed has got to give you a chuckle. now, sales taxes are edging up all over the place and no doubt property taxes will continue to escalate. and, of course, state and local taxes.

CPI says otherwise. Granted, it has its biases, but those biases were there back when inflation was chugging along at 4% and you were earning 5% in your savings account. If you look at housing alone in your market, it's down 20%, and rent / owner's-equivalent-rent make up 30% of the index, so that is pushing your CPI down 6% alone. There's your deflation, right under the couch you are watching CNBC from.

Like transferring from the hardworking ants to the grasshopper, lmao. When did savings become a dirty word to Obama? Get your new hybrid suv here and let me give you that money earmarked from our solar energy earmarks that would've gotten us out of the middle east.

Wow I thought Obama was against special interests? Cars buyers against the rest of us and what the hell is up with the lobbyist making side deals with Obama on healthcare? Same old same old.

Goodpoint about CPI , It looks at rent. And that's deflationary, but for owners irrelevant. The gov't changes how CPI is done all the time.

Riversider. Deflationary for big ticket items, the little things the regular Joe gets,3% annum inflation rate. As aboutready has pointed out forever, if you take out helocs our wages were going down so it's still inflationay for the items that matter day to day, but asset inflation is never added in the statistics if memory serves me. That's why housing inflation 'really' never hit our numbers.

Why cant you guys accept the FACT that a significant pullback in prices is straight ahead..Take note of major Banks calling for a rising tide of underwater homeownersinto 2011 ! Talk to anyone who owns out in the Hamptons --They are being crushed and there are few buyers.and thousands of empty rentals ..If you own in MAnhattan you are taking a Bath Admit it and move on (or out)!!

sunclaus1, I think you're new here. FYI, almost everyone active on this thread (w67, aboutready, columbiacounty, Rhino, me, apologies to any others whom I missed) are card-carrying bears. There might be disagreement about slope (your "straight ahead" vs. someone else's "over time"), but not direction. Not quite sure how you would have thought otherwise.

w67 & Clause,
I'm from Missouri, these gov't inflation numbers never make any sense to me. Everything I spend money on costs more. The gov't CPI numbers to me is just institutionalized lying. Toyota adds a new doo-hicky to the Lexus, makes it standard and raises the price....Our gov't says that's not a price increase. At the end of the day , if I'm buying the same basket of goods and services and my pay check doesn't stretch as far, I'm calling it inflation.
Feel free to disagree.

You can't have it both ways, Riversider. When home prices were going up, that wasn't considered deflationary for owners whose cost of housing had gone effectively negative, right? By your metric, owners never had inflation since their non-common charges never went up. You gotta be consistent in how you measure.

On savings, isn't the national savings rate now at 7%, a source of the economic "problem" we are now facing?

??home prices going up deflationary?
??common charges always go up?

you lost me

I guess I was trying to poorly state the following. From an owner's point of view, the price you pay for a fixed mortgage does not change. If your measure of inflation is how much this owner pays, there is never inflation nor deflation. The same amount of money buys the same amount of house. Another viewpoint is that you should net price changes. Suppose you are renting something for $60K/year and your buddy is paying the same in mortgage. In the first year, prices are flat and both you and your buddy paid the same for housing. In the second year, Prices go up so that the home is now worth $60K more. Your "cost" of housing is the same while your buddy's went from $60K to zero. I am not saying either of these variations are good, just that you must be consistent over time. If as an owner you want to claim that you are not seeing deflation because your monthly nut isn't going down, then you have to also claim that you didn't experience inflation previously either.

Inonada, this is one advantage of a level pay mortgage. While the nominal payments may be the fixed, the real value of each declines over time as you are paying with dollars that have eroded purchasing power.

http://www.jimrogers.com/content/stories/articles/They_Are_Lying_to_Us_Again.html

Everyone now seems to accept that college tuition rises at generally twice the rate of inflation. Every university in the country complains of experiencing its own cost pressures. The U.S. Postal Service is suggesting an 8.8-percent increase in the price of a first-class stamp this June after 15.6% in increases while we were gone.

The raw materials index fund I started makes me suspicious as well. It is based on an index that tracks the price moves of 35 different raw materials on commodities exchanges. I started it on Aug. 3, 1998 and it has risen about 45 percent through mid-March 2002. There's nothing subjective in the measurement -- it's just a gauge of the jump in prices for items like wheat, cotton, oil, or copper. (It's also an argument for investing in commodities: Over the same period the S&P 500 is up about 4% percent.)

The BLS may quibble over the difference in the price of a tie at Marshall Fields versus one at K-mart but it can't argue with the price of silk on the open market.

Such disparities make me question whether inflation isn't a little more slippery than the government's numbers show. The CPI has been a point of contention for many years, but only one side of the story has gotten much attention. In 1996, a Congressional panel, headed by Michael Boskin, the former chairman of the Council of Economic Advisers, concluded the CPI overstates inflation by 1.1 percent a year. Other studies, typically commissioned in part by the BLS and Department of Labor, came to a similar conclusion. The BLS has since "hedonically" modified the CPI several times during the past six years bringing the CPI down even further.

I'm still not convinced we can trust the numbers -- new or old. Remember the CPI is used to determine cost-of-living increases in things like Social Security benefits and union contracts. A lower CPI obviously means lower increases. So there has been and will be great pressure to adopt the new version of the CPI as the standard.

these numbers are at best a benchmark and more likely an aggregation of guesswork. i have never understood how anyone can make "all else equal." simply put, for virtually every consumer good with the exception of absolute commodities (although there are variations on that as well) there are more and less expensive alternatives.

if i decide to run my car on regular gas, instead of hi test, how does that filter through these numbers.

if i buy the imported parmesan rather than the domestic, etc...etc. etc.

if i walk to work, instead of the subway...if i take the subway, instead of a cab and on and on.

http://www.creditwritedowns.com/2008/04/cpi-understates-inflation.html

Substitution effect
The changes in inflation measurement began in earnest during the Carter administration as inflation began to spiral out of control. In the 1990s, a (potentially false) debate began about whether the CPI actually overstated inflation. The argument was as follows: if the price of beef increases, people will switch to buying chicken in what is known as the substitution effect. In essence, the relative weighting of the basket of goods changes as the price level for individual basket items increases.

Hedonics
The next major step taken in the 1990s was around the issue of Hedonics. As technology advances, items like Computers and Televisions become more sophisticated. This increase in sophistication that consumers enjoy is not taken into effect by the actual price of the goods. Therefore, the CPI must be adjusted downward to capture the hidden price reduction from ‘hedonic improvement’ or so the theory goes. As an example, a Computer in the year 2008 is much more sophisticated than one from the year 2002. Therefore the theoretical price of the computer in 2008 must be adjusted upward to reflect this. Since the actual price is less than this theoretical price, the difference serves to reduce the measurement of inflation.

Core Inflation
The last ridiculous inflation calculation is the Core CPI. This measures the rate of inflation minus food and energy. Food and energy are two of the largest components in the basket of goods we buy. But they are excluded in order to see the underlying ‘core’ inflationary trend. The theory goes like this: Because food and energy prices are volatile in ways that have nothing to do with the overall state of the economy and the inflationary pressures resulting from the business cycle, to predict the future path of inflation, they must be excluded.

The problem with the Core CPI is that it has been woefully inadequate in signaling the danger associated with stubbornly high food and energy price inflation. If the cost of milk, rice, OJ, oil, or you name it keeps rising for months or years, the Core CPI becomes meaningless. That is what has happened over the past few years.

Conclusion
All of which is to say: We have a very distorted view of inflation. As a result, we have a very distorted view of the real growth rate of the economy. If the CPI were measured today as it was in the 1970s, we would have seen a much deeper recession in 2001-2002 and we would see that we were clearly in recession today. Like it or not, the present meausure of inflation has deceived the general public into believing the economy has been more robust over the past 15-odd years than it actually was.

http://www.shadowstats.com/article/consumer_price_index

nflation, as reported by the Consumer Price Index (CPI) is understated by roughly 7% per year. This is due to recent redefinitions of the series as well as to flawed methodologies, particularly adjustments to price measures for quality changes. The concentration of this installment on the quality of government economic reports will be first on CPI series redefinition and the damages done to those dependent on accurate cost-of-living estimates, and on pending further redefinition and economic damage.

The CPI was designed to help businesses, individuals and the government adjust their financial planning and considerations for the impact of inflation. The CPI worked reasonably well for those purposes into the early-1980s. In recent decades, however, the reporting system increasingly succumbed to pressures from miscreant politicians, who were and are intent upon stealing income from social security recipients, without ever taking the issue of reduced entitlement payments before the public or Congress for approval.

Now here's the good part. I knew we could blame this on Bill Clinton....

In particular, changes made in CPI methodology during the Clinton Administration understated inflation significantly, and, through a cumulative effect with earlier changes that began in the late-Carter and early Reagan Administrations have reduced current social security payments by roughly half from where they would have been otherwise. That means Social Security checks today would be about double had the various changes not been made. In like manner, anyone involved in commerce, who relies on receiving payments adjusted for the CPI, has been similarly damaged. On the other side, if you are making payments based on the CPI (i.e., the federal government), you are making out like a bandit.

Shortly after Clinton took control of the White House, however, attitudes changed. The BLS initially did not institute a new CPI measurement using a variable-basket of goods that allowed substitution of hamburger for steak, but rather tried to approximate the effect by changing the weighting of goods in the CPI fixed basket. Over a period of several years, straight arithmetic weighting of the CPI components was shifted to a geometric weighting. The Boskin/Greenspan benefit of a geometric weighting was that it automatically gave a lower weighting to CPI components that were rising in price, and a higher weighting to those items dropping in price.

Once the system had been shifted fully to geometric weighting, the net effect was to reduce reported CPI on an annual, or year-over-year basis, by 2.7% from what it would have been based on the traditional weighting methodology. The results have been dramatic. The compounding effect since the early-1990s has reduced annual cost of living adjustments in social security by more than a third.

i have no doubt that cheating is going on; i still think that the whole thing is not measurable to the degree of so called accuracy that we would like to see. and ironically to the extent that COLA adjustments have been too low over the years, that has reduced annual government defecits.

i still think that the whole thing is not measurable to the degree of so called accuracy that we would like to see.

Regardless. When you see your savings earn 1/10 of what they used to and when pay check covers less of your monthly costs than it used to, even if you don't consider it inflation, it can't make you bullish and jump for joy.

i think your point about savings earning dramatically less is yet another unintended (at least i hope unintended) consequence of the current monetary policy.

i think your point about savings earning dramatically less is yet another unintended

RIGHT.......

"I have to say that even for a SE poster, you have a particularly high regard for your own views and react particularly poorly to being challenged."

Is it really a challenge when you tell me I might be wrong or say, thousands of buyers are not all stupid? I think of those as truisms more than challenges. The gist of my response is that thousands of sellers aren't necessarily wrong either. As well, that any time you buy or sell a stock you are forced to run in the face of a consensus built from thousands of market participants. I work on Wall Street, so I have no reverence for those opinions.

By the title of this thread, I did not mean to say everyone who isn't bearish must be wrong. It was to say that bearish has not yet become consensus, and even if it had, it could stay right for much longer. Contrarian is an overrated position in the short and medium term.

"Actual market activity seems to be refuting the idea that was floating around SE a couple of months ago that there was some quantum of demand (all from suckers was the implication, because after all a few sideline know-it-alls on an anonymous internet board obviously know a lot more than thousands of individuals making major financial decisions using real money) that was being soaked up by the burst of activity, but that this trend would soon burn out and there would be no more buyers/suckers until prices took another leg down."

This is what I took personally. I neither think that idea has been refuted by your datapoint, nor do I think people you use real money to buy today are any more informed in their action than I am informed in my inaction. It would be interesting to look at a chart of inventory and see if the uptrend has been broken by the recent absorption of a few thousand units from a record level...to rest at a still unusually high level. Really, I don't think the premise that the rush of demand was a bleed off of pent up demand can be disproven if and until we have an active fall season and see inventories draw to something closer to the bull market medians.

Thousands of buyers are not all stupid? I think of those as truisms more than challenges. The gist of my response is that thousands of sellers aren't necessarily wrong either. As well, that any time you buy or sell a stock you are forced to run in the face of a consensus built from thousands of market participants. I work on Wall Street, so I have no reverence for those opinions.

Rhino, sounds like "Efficient Market Hypothesis"
http://www.nytimes.com/2009/06/06/business/06nocera.html

These days, you would be hard-pressed to find anybody, even on the University of Chicago campus, who would claim that the market is perfectly efficient. Yet Mr. Grantham, who was a critic of the efficient market hypothesis long before such criticism was in vogue, has hardly been mollified by its decline. In his view, it did a lot of damage in its heyday — damage that we’re still dealing with. How much damage? In Mr. Grantham’s view, the efficient market hypothesis is more or less directly responsible for the financial crisis.

“In their desire for mathematical order and elegant models,” he wrote in his firm’s quarterly letter to clients earlier this year, “the economic establishment played down the role of bad behavior” — not to mention “flat-out bursts of irrationality.”

He continued: “The incredibly inaccurate efficient market theory was believed in totality by many of our financial leaders, and believed in part by almost all. It left our economic and government establishment sitting by confidently, even as a lethally dangerous combination of asset bubbles, lax controls, pernicious incentives and wickedly complicated instruments led to our current plight. ‘Surely, none of this could be happening in a rational, efficient world,’ they seemed to be thinking. And the absolutely worst part of this belief set was that it led to a chronic underestimation of the dangers of asset bubbles breaking.”

“There are incredible aberrations,” he told me over lunch not long ago. “The U.S. housing market in 2007. Japan in the 1980s. Nasdaq. In 2000, growth stocks were three times their fair value. We were quoted in The Economist in 2000 saying that the Nasdaq would drop by 75 percent. In an efficient world, you wouldn’t have that in a lifetime. If the market were truly efficient, it would mean that growth stocks had become permanently more valuable.”

cc, i have to say that i don't think it's unintended in the slightest, and hasn't been since Greenspan started his low interest rate spree. they WANT you to spend, not save.

Riversider, I don't believe in efficient markets. Feedback loops spoil efficent markets. If you bought or sold in a vacuum in which market price and recent trajectory didn't influence the individuals, it could work. Like a blind silent auction. However, neither stock nor real estate markets work this way. I just never called all buyers "stupid by definition". They just disagree with my view of the market or have other considerations. My accuser suggested that I believe all people who disagree with my bearish view are suckers or stupid.

Rhino, have you considered that if you didn't too often tell people to stuff it or frequently curse at people who disagree or refer to people who frustrate you as homos, or make paranoid statements like "have other considerations" you might get your point across better?

Honey attracts

Well, Steve didn't frustrate me as a homo. He frustrated me as an accountant. I think calling 'have other considerations' a paranoid statement is actually the paranoid statement. Yes, I am pushing my aggressive, paranoid, anti-gay agenda with inflammatory catch phrases like "have other considerations."

Hmmm, all this said, I think it can be argued that current buyers are definitionally incorrect. There is no math that justifies a 4% cap rate against a 6.5% mortgage rate in a world where rents are falling, commercial real estate REITs yield 8%, and the mortgage interest deduction is under active consideration. Therefore they are buying on emotion, which is usually wrong in markets.

"I just never called all buyers "stupid by definition"."

Umm, you did say this: "Do I think I am smarter than the thousands of people buying apartments at these levels? Yes." So you didn't say that all buyers are stupid; you just said that you are smarter than they are. So what you must have meant is that buyers are smart but you are simply smarter, which is obviously so very different from saying that they are stupid and you are smart. At least we got that cleared up.

I am smarter for waiting to buy then they are for buying. This is obviously my opinion; I obviously understand that opinion is opinion, not fact...Only a moron hung up on literal interpretations of casual language would interpret this as that I think I am more intelligent than all of them. From the way you formulate your views in this sitting, I think I am more intelligent than you. Maybe that's clear from context, but given your prior interpretations of my statements, I wanted to make sure you understand.

Are you bright enough to understand that for every buyer there is a seller...and that if there so many more smart buyers than stupid sellers, inventory would be much lower than normal rather than much higher than normal...or am I going to quickly?

I am still trying to understand how pent up buyers (from 2004-2007 wealth accumulation + 30% discounts) have been disproven as a primary explanation of the May-June activity flurry because August has also been more active than normal. I just think I am smarter.

Thinking you are smarter is one thing, saying it is another.
It just makes one seem arrogant. No point.

This was for emphasis of the original point, which was that thinking the market is going down is not the same as calling all buyers stupid. Its just called having an opinion. Also, the fact transactions are happening is of little informative value...nor does it prove buyers are smarter than real estate obsessed bloggers because they are using 'real money'. There was no point to sidelinesitters original attack. That's the point.

"I am still trying to understand how pent up buyers (from 2004-2007 wealth accumulation + 30% discounts) have been disproven as a primary explanation of the May-June activity flurry because August has also been more active than normal. I just think I am smarter."

Actually, what I pointed out was that in May-June people were saying that all the buyers had been soaked up and it would take another leg down in prices to bring more into the market. Then I noted that this isn't what seems to have happened, since contract signings are still chugging along at much higher than typical seasonal levels a couple of months and maybe 1,500 signings later. I actually think this is pretty good evidence that the premise that all the buyers were gone in late spring/early summer is, at best, questionable. Note that at no point did I suggest that you specifically had put forth the "all the buyers are gone" hypothesis, so I'm not really sure why you are so wound up about it. So does that help...or am I going too quickly?

By the way, for someone as smart as you believe yourself to be, you have some real reading comprehension issues. You might want to work on that.

"Also, the fact transactions are happening is of little informative value" Good point. I mean, for God's sake, let's not let data get in the way with a good preconceived notion.

"Also, the fact transactions are happening is of little informative value" I happen to disagree, but, as you say, its[sic] just called having an opinion. What I don't understand is why you are the only one who's allowed to have an opinion.

I didn't realize that the argument that these were sideline buyers was so narrowly defined to may and June. Nothing like exagerrating the counter argument to make a point. I have comprehension issues? Your claim I think that I'm smarter than all of wall street because transactions have happened is a piece of doo doo argument and you probably know it by now.

"I didn't realize that the argument that these were sideline buyers was so narrowly defined to may and June"

Let's go back to the beginning, shall we? Here is my original post (with the part you found offensive redacted and replaced by ...): "Actual market activity seems to be refuting the idea that was floating around SE a couple of months ago that there was some quantum of demand...that was being soaked up by the burst of activity, but that this trend would soon burn out and there would be no more buyers/suckers until prices took another leg down."

So let's see, I started with "a couple of months ago." You restated this as May/June about six posts up and in my response I used May/June instead of "a couple of months ago", which you then attacked. And you were ranting about literal interpretations? Rest assured, oh literal one, that in future I will be sure to say "two to three months ago" instead of "a couple of months ago" so that there is no misunderstanding.

Rhino, are you smarter than all homosexuals?

seems like you're another creep coming out of the swamp...go back.

Haha. That's actually witty.

i'm not supposed to do witty. only rotten.

Sideline sitter you can have an opinion. Your idea that buyers kno something more than bloggers because they use real money is just pretty weak. I am sure many of us bloggers have real money in the bank we choose to sit on.

I meant the other guys dig on me was witty. I deserve it. I am like a Greek figure of tragedy though. I am always right but it gets lost when I indulge in pistol whipping people.

Sounds like Cassandra....

I think it ends where I decide its cheap enough to buy and then prices tank another 50% into a hyperinflation.

"I agree completely...non obsessed, so called normal people (particularly the well off in manhattan) are only vaguely aware (and even that is way too strong) that things have changed with NYC real estate."

I agree 100%.

I said it few times and got shouted down by the remaining bulls.

The majority of the city doesn't know. Their response was something like "but potential buyers/sellers" know... forgetting that includes most of the city. Everyone lives somewhere.

Rhino can't even have a civil discussion with someone who shares his views on the markets - truly a class act.

just please don't get in an argument with AR. I'm still dealing with Jon & Kate getting divorced, I can't handle the breakup of another of America's sweetheart couples.

said by the guy who jumps on a thread and offers nothing constructive... interesting...

Printer is my new Alpo. He was revealed as a fool with regard to markets and economics in prior exchanges; now he is reduced to taking random pot shots at me in mature threads where he has had no earlier involvement.

i prefer alpo. once in awhile he comes up with a decent line.

I think the non-obsessed normal people think this. They think the market is down 20% not 30%. They think that its only the stock market that can fall 50 or 60%. Therefore, if you have the money, the job security and currently rent, this is a good time to buy because it can only fall another 10% or so from here. And in the long term, they aren't making more land in NYC, so you will be ok.

What they do not understand, as many posters here see, is the role of financing and the financial industry bubble in the price highs they are measuring 20% reductions. They are not aware per se that prices fell 40% or more in the early 1990s or have devised reasons why that should not be considerated possible here and now.

> i prefer alpo. once in awhile he comes up with a decent line.

Yes, but 100% unintentially. He doesn't mean them to be so funny.

"Manhattan is NOT down 20%! Show me just ONE EXAMPLE"

I still get a smile from that one.