Real Estate Market Update: Where is the Flood of Foreclosures?

One of the many dire predictions done these past few months by many ‘bubbleologists’ out there – that is all those who indulge in the contemplation of real estate bubbles of all sizes and colors, whether real or imaginary, coming our way – was that by now real estate markets everywhere would be inundated and swept away by a tsunami of foreclosures of apocalyptic proportions.

The general rationale among those specializing in the fine art of staring at crystal balls (or perhaps at several empty bottles of rum) was that the steady increase in interest rates, the consequence of a tightening monetary policy implemented by the Fed since mid-2004, would have led by now to a collapse of the adjustable-rate mortgages (ARMs) market, since consumers could not possibly cope with the increased monthly payments. This, in turn, would dramatically increase mortgage defaults and foreclosures, with the end result that real estate markets everywhere would be flooded with excess inventory at deflated prices, thus causing markets to crash – the tsunami I was talking about.

The Mortgage Bankers Association of America ( does not seem to share this particular vision of the end of the world. In its Economic Outlook update released in May 2006, the Mortgage Bankers Association of America (MBAA) pegs the ARMs share at 27 percent, down from the 36 percent peak of early 2005, an indication that many prudent consumers have locked in already. Likewise, the inventory of mortgages held by banks is virtually unchanged at 1,500 billions (aggregate nominal face value of mortgages, by dollars), the same level of 2005, suggesting that, rather than defaulting, consumers are ‘holding on’. And, finally, the rate of delinquency is at 4.38 percent, down from 4.70 percent in the final quarter of 2005, clearly another measure of consumers financial stamina, and an indication that banks were actually faring worse when real estate markets were doing better.

But that’s not all!

In the Mortgage Finance Forecast released also in May 2006, MBAA highlights that the rate of housing starts nationwide has increased nationwide, up to 2,131,000 units (annualized) for the first quarter of 2006 from 2,059,000 units in the last quarter of 2005 – an increase of 72,000 units representing a robust +3.496 percent overall, although this rate is forecasted to slow down as the softening trend in real estate markets continues throughout the year. Home sales overall are forecasted to decrease by 501,000 units nationwide to 6,574,000 units by December, 2006 from the 7,075,000 of December, 2005. Although this represents an annualized drop in sales of 7.08 percent compared to last year, it can hardly be called a bubble burst!

And here is the most surprising figures of them all – surprising for the bubbleologists, that is. Notwithstanding the increase in interest rates and the toll that many think ARMs will take on defenceless consumers, MBAA forecasts that the average market share of ARMs will remain constant at 27 percent of institutional mortgages for 2006, down only 3% from the 2005 average. The significance of this forecast is twofold: 1) MBAA does not anticipate that interest rates will increase significantly higher for the remainder of the year and 2) MBAA mirrors a Gallup survey conducted in May 2006, which found that only 11 percent of Americans worry about ARMs, down from 20 percent in 2005.

And why should they worry? In the latest release, the Bureau of Labor Statistics, has pegged the Consumer Confidence Index at 109.6 in April, up from 107.5 in March and higher than the 103.8 of December, 2005. The Consumer Confidence Index is now at the highest level since March, 2002, with the average family income up 0.8 percent in March, 2006.

To finish, I would like to spend a few words on how politics are filtering into economics, especially in times of elections. It is a shame that an increasing number of Bloggers and even journalists out there are twisting and interpreting economic data to fit their own political agenda. Although November, 2006 is pretty much around the corner and the battle is on to take control of Congress, the manipulation of economic and statistical data for political ends and means is a great disservice to consumers, no matter the political colors.

For example it is not true, like some Bloggers assert out there, that the recent appreciation in real property values is the direct result of President Bush’s domestic economic policies. Real estate capital growth was largely due to the correlation between capital and employment or, if you will, between income and labor. An increase in levels of consumption has set forth an increase in prices caused by a corresponding increase in demand, in itself generated by a commensurate increase in the income-employment factor. So growth was derived by the equilibrium of capital and investment with labor and employment. And since, furthermore, production is in direct function of consumers spending which increases as unemployment falls, capital accumulation has increased as employment rose steadily. It is as simple as that!

Likewise, it is not true that President Bush is the main culprit for the real estate bubble burst – like many Democratic sources imply and some actually cry out loud. Poor President Bush has absolutely nothing at all to do with real estate bubbles and their bursts, essentially for two reasons: 1) because there are no bubbles in real estate and 2) because there are no bursts either. Like Prof. Bernanke has repeated now several times, far from being a bubble burst the present cooling-off trend through higher interest rates will have the beneficial effect of consolidating market wealth achieved thus far, by allowing the economy to get an even footing through a slowdown of capital appreciation and, at the same time, allowing real wages to catch up, thus reducing the affordability crisis and rejuvenating the pool of buyers.

And, finally, it is not the President of Iran, Mahmoud Ahmadinejad, that is trying to promote his country’s nuclear programme by putting a stranglehold on North America’s real estate markets through higher crude prices, while attempting to get rid of Secretary Rice at the same time (I know, this is laughable, but I read it in the commentary of a political blog – TIME Magazine should make this particular blogger ‘Man of the Year’).

Consumers and all those interested in an objective evaluation of real estate markets climate, are well advised to go straight to the source of statistical data and economic analysis and evaluation, bypassing all commentaries entirely, especially these days.

Luigi Frascati

Is Proof of Evolution Proof That God Does Not Exist?

The trouble with atheism is that it depends upon an unsafe premise. In order to establish its own belief system, it has only a single tenet: proof that God does not exist! Now as everyone knows, you can’t prove a negative.

Prof. Richard Dawkins, an outspoken atheist, would like you to think that you can. Supporting a campaign by The British Humanist Society (BHA), he funded 800 advertisements, which now adorn London’s bendy-buses, stating There’s probably no God. Now stop worrying and enjoy your life.

I understand that much has been made of that ‘probably’. As Tony McNulty (the UK’s Minister of State for Employment and Welfare Reform at the Department for Work and Pensions) joked on the radio, that’s so wishy-washy a declaration, it can only have been made by the Lib-Dem party. But, apparently, the Advertising Standards Authority objected – presumably on the grounds of probability! – on an absolute statement such as: “There is no God”. 


So what are the arguments for atheism and are they, as a recent TV programme claimed, intolerant?

At odds with the advertisement’s underwhelming statement, is the breathtakingly unsubstantiated declaration which the Professor is reported as having made: This campaign to put alternative slogans on London buses will make people think – and thinking is anathema to religion. He seems to want it both ways. Because the campaign, itself, alleges to be in response to Christian posters – some of which advertise the Alpha Course – where ‘thinking’ is encouraged. The brain-child of Nicky Gumble, Alpha first began in Holy Trinity, Brompton, church to many of London’s professionals and intellectuals. Perhaps Professor Dawkins might do worse than think beyond his obsession with converting the rest of us to atheism, and open his mind to its current slogan “If God did exist, what would you ask?”

Actually, I have some sympathy for the poor old Professor. I mean how can you not? For one thing, atheism is such a negative concept. Your faith (and it is faith!) is entirely to do with denial. There’s nothing positive to put in its place.

Then again, he seems to be so obsessive in his desire to give the world proof that God does not exist. And first among his reasons why God does not exist is the absence of proof that he does. But as one of the audience remarked, on the BBC Radio 4 programme Any Questions, an absence of proof is not proof of absence. It’s a little like asking someone who is profoundly deaf to wax lyrical about a Mozart concerto. Or a person who’s been blind from birth to write a poem about a stunning sunset. The absence of faculties – sad, in the extreme – are not proof of the absence of beautiful music or scenery.

So in my view, if anyone needs to stop worrying and enjoy his life, it must surely be the Professor? I mean, how much money do you see the Archbishop of Canterbury spending on bendy-buses declaring: Charles Darwin might, possibly, have been right. Now go away and worry about ensuring that you’re a survivor.


Personally, I don’t object to Prof. Dawkins – or any other atheist – having his own belief system. But I do take exception to the inferrence that people who believe in the existence of God – be they Christian, Jew, Muslim or any other theocracy – are worriers who are unable to enjoy life. Go to any Jewish wedding and I defy you to point to any lack of enjoyment. Or come along to my church on a Sunday, where the minister cracks jokes during his sermon, the congregation poke affection fun at him, and laughter, harmonious music and joyous singing are the norm.

And this evening – despite the credit crunch; the fact that our future pension is worth less today than it was this time last year; and our savings are providing practically nothing in the way of income – we’ll be be celebrating my other half’s birthday in style at a newly refurbished restaurant. Good food, good wine, good friends and what I know will be a raucous game of Mexican train double dominoes around our dining table on our return home will be ours to enjoy – without a moment’s worry.


But I pity Prof. Dawkins, also, because his enjoyment is limited to this life. Whereas most believers would tell you that they have something to look forward to: an afterlife. A Paradise where old friends and loved ones may meet again. A place where God abides.

The Bible makes statements to the effect that the earth, and everything in it, were made for God’s pleasure. And looking at the joyous antics of lambs in a field, the humour of penguins waddling down a beach, or the gurgle of a baby sucking its toes, can anyone doubt the truth of that?

Secularists would have us believe that there is proof of evolution. And indeed, there is. But this is not evolution to the exclusion of creation. Animals do adapt to their environment. But try to show me evolutionary proof that somewhere there was a creature that was half-ape half-man – and you’ll find you can’t. As George Pitcher writes, quoting Clifford Longley, in The Daily Telegraph:

According to growing numbers of scientists, the laws and constants of nature are so “finely-tuned,” and so many “coincidences” have occurred to allow for the possibility of life, the universe must have come into existence through intentional planning and intelligence. In fact, this “fine-tuning” is so pronounced, and the “coincidences” are so numerous, many scientists have come to espouse “The Anthropic Principle,” which contends that the universe was brought into existence intentionally for the sake of producing mankind. Even those who do not accept The Anthropic Principle admit to the “fine-tuning” and conclude that the universe is “too contrived” to be a chance event.

Any chance that we might retaliate with bendy buses advertising: There is probably no Dawkins. Now stop worrying about him, and just enjoy the joke. Does God really exist? Hang on a minute. I’m sure I can hear Him laughing.

For Alpha courses see

Critical Mass on the Russian Internet

The Internet holding Rambler Media is known to every Russian-speaking user of the World Wide Web. It’s the first and the oldest Russian search engine. Search, news, an introductions service, mail on, the famous, the goods catalogue on – for many years all these maintained Rambler as the market leader on the net. However, in the last few years, the company has been losing turnover. Certainly, the company has remained in the top three companies on the Russian net – Yandex, Rambler and – but reliance on old projects has become harder and harder to sustain, and fireworks from new ones – except the purchase of a block of shares in the contextual advertising company Begun – have not been remarkable. Their TV channel brought a series of losses, and was consequently sold. Mobile content initially generated decent profits, but then also began to stagnate. This spring, the company witnessed a change of all its top management. We invited one of the new team, Artur Akop’yan, Financial Director for the Rambler Media Group, to an online interview.

1. Can Rambler at last become competitive and marketable? Will it at last be possible to be proud of the company? Why does Rambler, unlike Yandex, not sell a full range of contextual advertising? How are you going to position Rambler?

– Rambler is a multi-service information Internet-portal offering a wide range of opportunities for work, information searching, communication and entertainment in the modern world. Rambler should be a portal that’s convenient and interesting to use every day. As for marketability, the company’s core business, its Internet division, has been profitable for several years already. In the future, we hope to bring you a number of pleasant surprises, so that you can be genuinely proud of us. We see our task as being to retain Rambler’s market position. Our priority is to increase traffic and the number of users, and also to improve the quality of our services.

2. How successful do you consider the existence of the Rambler-TV television channel? Has the investment justified expectations?

– From a purely financial perspective, Rambler-TV was very successful. We sold it at a significant profit (in January 2007 a deal was finalized for the sale of the channel to Prof-Media Holding for $23 million, the initial investment was considerably less). The question of expectations in terms of audience ratings is not so relevant for us now. In 2006, Rambler’s board of directors took the decision to focus exclusively on Internet development and, in that context, the sale of non-core business has been very successful.

3. Right now, hundreds of new companies are trying to “catch the spirit of Web2.0”, to “create a social network”, and are generally full of hope that a start-up in this field is going to garner then success. As a financial expert, and as a representative of one of the leading Internet companies in Russia, could you give your considered opinion on the prospects of such start-ups?

– As far as source of income goes, in a market like Russia’s, the preference for business models connected with profit from advertising is going to be with us for a long time. For Rambler, and for other major players, it will be a long time before other means of attracting income (including direct provision of services), play more than an utterly insignificant role in our financial results. As a financier, when I hear of yet another plan to “create a social network”, the main question that I want to ask is: how deep are the investors’ pockets for this project?

4. I’ve got an idea for an Internet project, but surely if I take it to web-development specialists there’s a good chance that they’ll develop my idea without me, or work with me, but then create a clone, a perfected version, already knowing all the plusses and minuses of my project. How can I protect myself from outcomes like this? What is the minimal sum needed to create an Internet portal from nothing, and are there financial structures that might actually be interested in start-ups?

– As I see it, at the current stage of market evolution, to create an Internet portal from nothing, especially a portal for a large public with a horizontal line of services, is practically impossible, or at least demands the investment of tens of millions of dollars. On the hand, it’s possible to develop a specialized service with the outlay of only a few tens of thousands of dollars. There are investors of that type right now, but, as far as I can tell, there are far more people interested in investing than there are realistic projects. As to your question about the protections of ideas: certainly there is that type of risk, and it all depends of the choice of partner. I should add, however, that it’s very rare to find a project that is genuinely unique, and that offers something that can’t be found anywhere else or can’t be realized by other people.

5. It’s often said today that there’s more money in the Internet than there are interesting ideas, and that all more or less interesting projects are snapped up. If that’s true, then what types of buyer are there around? What kinds of site generate buyer interest? Do the current profits of a project have decisive significance, or are the idea itself and the prospects for development more important?

– It’s almost impossible to give a clear classification of the types of investor. Individual investors can be swayed by current profitability or by future prospects. To answer that question would require separate research. I’d like to warn against following general trends. There has been a lot of talk recently about social networks, about blogs, about instant-messaging systems and Internet messengers. In fact, the market for such resources is already saturated. The pioneers in that market have already had the chance to take the pickings, or to sell out to the biggest players, and further new investment in that type of project is pointless.

6. What do you think about SEO (search engine optimization)? How long will it take for search engines to come up with a personalized information search on the Internet, which will take into account individual requirements, search history, etc. And will that not spell the end for SEO?

– There have been several estimates given recently for the size of the market in search-result optimization. According to some of them, it has reached $50 million dollars per year in Russia and the CIS. It’s a big industry. The battle between the human intellect and search engines reminds somewhat of the chess games with artificial intelligence (the battles between Kasparov or Kramnik and Deep Fritz or Deep Blue). Obviously, search engines are going to get more intelligent and more relevant through personalization (through narrower settings around users’ interests), through more intelligent setting of parameters, through better quality filtration of spam (doorways), and through a host of other algorithms. But it’s a little too optimistic to predict the end for search optimization. It’ll get harder for them, but there will still be opportunities for flashes of human intellect.

7. What do you think of advertising on blogs, and how good are the prospects for this sector?

– It is possible to make money from your own blog, but not much. I would point to three basic means: contextual advertising, hidden marketing and sponsorship. For personal blogs in Russia, as a rule we’re talking about tens or, in the best case, hundreds of dollars per year. As an example, take the recent noisy announcement of a contract between Soup Fabrik and Alfa-Bank ($50,000). Obviously, the commercial potential for that type of project can’t be compared with the opportunities or budgets for media, banner or contextual advertising. There is only really potential for projects that have existed for more than a few years and have a strong original concept with specific content. Good examples are Alex Eksler’s original project, where there are always numerous commercial advertisements. Also, Internet Things, the authors of which are looking for “favorite sponsors”. Secret marketing is, of course, secret, so it’s impossible to point to definite examples of its successful use. Although you could use the example of the recent post on the Norwegian Woodsman’s blog about the Macdonald’s factory. Most bloggers think of him as a hippy. There is an enormous public living in the blogosphere and, undoubtedly, that public is interesting to advertisers. But it’s still questionable whether or not there exist the tools or even the spaces to meet the requirements of those advertisers.

8. How much longer are the prices for banner advertising going to continue rising?

– The Internet in Russia is only just beginning to develop, growth for Internet access penetration is forecast for the next five to six years, but it’s already realistic to talk about the Internet having reached a critical mass to be of interest to advertisers. For now it is only 1.6% of general advertising budgets, while in developed countries that figure is closer to 5-6%. That suggests great potential for growth. Rambler is trying to unbalance the market by unnecessarily increasing prices for advertising. Nonetheless, thanks to the growth in our audience and the increase in interest in our advertising users, we have been able gradually and slowly to increase the price for a thousand displays.

9. What is the growth potential for regional and highly specialized segments on the Internet? Will they be able to escape from the shadow of big-budget projects like yours? As far as I can tell, they have two possible paths of expansion – to stop being targeted or to come under the umbrella of the strongest players on the Russian Internet.

– Highly specialized projects can live very well in their niche, if their concept is in demand. If the project is a copy of some competitor’s and there is a strong desire to beat them, then the deciding factor is really the support of the portal. Regional projects are a different matter. In many respects, they exist in a different world. In fact, it’s less that they need the portals, and more that the portals need them to increase their penetration in the provinces. From an economic point of view, access to regional and to national traffic in the regions is slowly leveling out, although nothing is going to change the fact that local resources know their area better, and that makes them more interesting to local users. The local listings business (a good American example would be Craigslist), undoubtedly has a definite potential. Neither Rambler, nor Microsoft, nor Yahoo! are capable of, or interested in, providing an information resource for the timetable of turning off the hot-water supply in Ussuriysk. And there are users who want not only to take pride in Olympic Games in Sochi in 2014, but also to find suburban train timetables for their local station, and cinema listings for their neighborhood. A resource like Rambler should consolidate those resources – through searches, through special projects, and through promotion. But we don’t want to swallow up all regional resources and, what’s more, we can’t.