MMT: Modern Monetary Theory, or Magical Mortgage Tease?

Originally posted on December 03, 2019 12:47 pm

Updated on December 03, 2019 12:51 pm

For almost 10 years now, experts everywhere have called for rising mortgage rates. Shortly after the financial crisis, everyone everywhere felt bad about buying anything. But as we bounced from the March 2009 lows, slowly the financial gears began ticking again and risk appetite came back.

In the real estate world, some markets recovered much more slowly than others. California and NYC were among the first to stage a comeback, while parts of Seattle and Las Vegas continued to bottom through 2011. The entire time, experts everywhere gave all kinds of excuses why mortgage rates would rise, and very soon!

Dec 2010, NY Times

“The Mortgage Bankers’ Association, a trade group, predicts that 30-year fixed rates will inch up to 5.1 percent by the end of 2011 and reach 5.7 percent in 2012.” How has that gone? Turns out 3 years later, rates were still below 4.0% and stayed there all the way through Trump’s 2016 election.

Benchmark 30-year mortgage rates

After more false starts, does anyone expect to go back to the days where 6% mortgage rates seemed like a good deal? And what does that mean for real estate investors searching for good yields? Cap rates for Manhattan condos still average less than 3% (and that’s on the high end). Condo prices are also flat or dropping. You would get a better deal in many other asset classes, or real estate in other markets.

As we approach 2020, real estate investors seem to be taking a wait-and-see approach. The real winners are those who already own properties and have enjoyed favorable refinancing rates. For example, anyone on a 5/1 ARM set to reset soon will be delighted at the newer low interest rate levels.

As for the Federal Reserve hiking rates, Wall Street isn’t betting on it. New trade war tensions have shaken markets off their all-time highs, with the president now hinting the trade deal might not come until after the 2020 election!

Published at Tue, 03 Dec 2019 17:47:54 +0000

Craigslist, Freshness, Bait and Switch Problems

Originally posted on December 02, 2019 11:44 am

Updated on December 03, 2019 10:12 am

When Lawrence and I gave our original Demo Day pitch in the Summer 2009 Y Combinator batch, we cited Craigslist as a large part of the Beaverton apartment finder problem. Back then, you could not sort by price, location, or photo gallery. The only thing you could do was “grep for text” that suited you (like the word No Fee or Luxury Highrise). Many predicted Craigslist would not last so long, while others, including Harvard Business School professors Peter Coles and Ben Edelman argued the network effect would ensure their survival.

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But the one thing Craigslist got right was their focus on Freshness. By now allowing anyone to sort by seemingly reasonable things such as price, they mimic a real-life bulletin board. As new postings come in, they obstruct older postings. Everyone is welcome to continue browsing the older items, to a point, but savvy renters know that anything old is probably already gone – otherwise the agent would have been reposted it again.

The MOST important component in our HopScore ranking system is the Freshness. Given how quickly the market moves, and how quickly inventory can come off the market or change in price, Freshness measures how likely the listing data is still accurate. Our algorithms can see how many other renters have already inquired on a particular listing, when the agent or landlord most recently updated the listing, and whether the account has a track record of accuracy.

While designing a sorting algorithm for apartment listings, there is a counter-intuitive logic we face. We can use other factors such as Quality and Manager scores to determine whether an apartment will be popular. However, after crossing a critical threshold, the MORE people we have seen click on and inquire about a listing, the LESS likely we should recommend it to others. Either the apartment is no longer available, or there is something wrong with it after 20 renters have scheduled showings and none have taken it.

Published at Mon, 02 Dec 2019 16:44:06 +0000