Sunday, August 27, 2006
You've probably already heard about Lereah's new powerpoint at the Leadership summit in chicago. If not, please read it as the cheerleader of realestate is now a bear. In particular, a polar bear.
Now for the simple math. From the presentation 28% of home sales were to investors in 2005. *Assuming* investors stop buying (they will), and sales don't slow further (they will):
(investor sales * 12 months) divided by (100%-investor sales)
is equal to the number of months it will take to sell the flipper inventory if only flipper inventory sells.
Or (28% * 12 months)/(100%-28%)=4.7 months.
I cannot imaging flippers can command more than 30% of total sales. So that gives us a minimum "time of falling home prices" of 15 months if everything goes well for the flippers.
A shorter version was first published on David's excellent bubblemeter blog.
Tuesday, August 15, 2006
The “U-haul index” is supposedly an accurate indicator of job flow. What does this mean? Quite simply this, if you can rend a U-haul from city X to city Y and vice versa, which way is cheaper? The jobs are flowing in the *expensive* direction.
Now, one has to be careful in the interpretation of the results. For example, if I pick
But if we look at a costal start, we minimize the impact of this. However, the longer the drive we experience a greater chance of price interactions. Thus, we must look at multiple destinations and forget trips to
So what are the U-haul costs from
90277 to Austin Texas: $6,439 Return: $575 Yes, over 10X more expensive!
What can we conclude?
1) In every instance, its cheaper to go to
2) U-hauls are pilling up in Austin Texas. Wow! Its not that far from
5) This says nothing about population growth! Nothing! Why? If someone is not affluent enough to be middle class, they don’t hire a U-haul, they just fill up their one car and go (e.g., students, illegal’s, etc.)
6) This index says nothing about the upper middle class or big corporate moves. However, I’ve participated in enough corporate moves to know that with every campus shutdown, there are those who treck out on their own. So while the U-haul index will miss the magnitude of a large corporate relocation, it won’t miss the entire effect.
Basically, Los Angles from a middle class housing and employment perspective… is going to get hammered. We’re not looking at a subtle downturn what so ever. Expect
This is but one more indicator to show that the market is heading downhill for
So what does this have to do with a blog about buying a house? Simple. One strikes when the iron is hot, not when its at a temperature that would make an eskimo proud. Wait before buying in Southern California. Your wait will probably extend into 2008 or even 2009, but don’t buy in 2006 and beware the falling knife 2007. For home buyers, the iron is frostbitten right now.
How many people do you know whom own investment property? If you take a little time to ask, its amazing! You cannot turn around at any event without bumping into a real estate “investor.” Ok, I’ve always known quite a few prosperous families who had their vacation home; but in the past it was people whom could afford vacation homes. Now I’m going to tell you why the housing market will crash and crash hard.
You see, its all about the Alligators. Many have heard that an investment property is often called an “Alligator.” Why? As soon as you cannot afford to make the payments, it eats you. ;) How many people own “Alligators” that will soon be chomping away?
Drive around North Redondo Beach in the
Then take a bit of time to tour homes in South Redondo Beach (say “
I’ve been through too many open houses with my fiancé where the realtors were afraid we wouldn’t be interested in the house (we weren’t).
Other real estate blogs have noted that if there is appreciation greater than nominal interest rates, home “owners” can extract equity every year. In fact, in a fast appreciating market at absurdly low interest rates they can do so “pain free.” At some point they just sell their
Well the musical chairs have stopped. The economist Thornberg has finally put out a shingle so that he can speak about housing as the bear he currently is.
“A hard landing could come if housing prices begin to fall, Thornberg said, in large part because that would scare consumers accustomed to watching their net worth rise on paper. Their spending pullback and a corresponding drop in construction could push the economy into recession.”
Folks, real estate investment is the most margined investment of our lifetimes. Gee… Almost like
Those Alligators are hungry and they’ll drive the market for the next few years. I once read (sorry, I forgot where) that a real estate investor is a real estate speculator who has lost money. How long can flippers feed the alligators?