Sunday, December 30, 2007

Update Car shopping

One of the first signs we're entering a recession is that 'big ticket' sales plummet. Cars tend to be one of the first hit items. Our experience buying a new car shows that this seems to really be happening:

What? A new 2007 Honda Odyssey EX-L with rear seat DVD.

MSRP: $33,330
Invoice: $29,604
Current Honda incentives to dealer (per Edmunds): $2,500
Carsdirect price: $27,720
TMV price (on Edmunds): $27,985
Used equivalent with 8,500 miles: $27,778
Used EX (sans DVD & leather interior): $26,900
Our price: $27,100 (Before $2,506.04 of state taxes/fees)

Thanks to advice from my best friend on negotiating tactics! He thought we could get if for $300 less, but I guess they wore us down enough. ;)

Now, Bearmaster was kind enough to send this link on how bad cars sales are. I can tell you on the last Sunday of the year, our Honda dealer was dead. During the few hours we were there, I only saw one other car transaction completed. There were a few other couples there... but they were really no progressing. I've helped quite a few people buy cars and was shocked at how slow the sales were.

First impressions is that its a really nice car. Part of what made it easy to negotiate is that we weren't that excited about buying a mini-van. :) Practical... just not exciting. We did our research ahead of time. Reviewed a few cars and walked out of the dealerships sans negotiation. (Hey, it wasn't the end of the quarter... then.) We almost walked out tonight. Only then did we get under the carsdirect price.

But do we really need eight (yes 8) cupholders for the front two seats? There are 15 cupholders in this vehicle! Nor do we really need 8 seats today... But its going to make a great ski vehicle. :) Its a huge vehicle that's a bit big for our garage, but it fits. We're happy with it. :)

Why the Lexus GS350 photo in the last car shopping blog? Simple, that was our top end car. But the price negotiation never got down far enough to interest us. We also looked at Honda Accords (2008 V6 EX-L), Acura RL and TL, and a few other Lexus/Toyota choices (including their minivan).

But what matters from this blog's standpoint is that the economy is showing strain. All of the car salespeople were unusually hungry. We have an interesting road ahead.

Got popcorn?

Spain: "the secondary housing market has practically stopped."

Why am I posting this? Why, because all real estate is local. ;)

This article really caught my attention as I googled "real estate sales".

Good thing it won't spread. Oh... from the article: The issue is all the more important as the housing market makes up 7.5 percent of gross domestic product, according to figures from the BBVA bank. The construction industry as a whole employs 13 percent of workers. So what fraction of Spain's employment is in the REIC? We have 13% in construction. But what about Realtors (tm), mortgage brokers, and all the secondary services?

I also loved this little quote by the author:

And when sales slump, prices follow. A recent study by Deutsche Bank forecast that the average rise in house prices in 2007 would be identical to inflation, which was around 4.0 per cent in the 12 months to November.

Now what happens when everyone bets on home price inflation and instead Spain gets deflation?

This isn't local. Its not different here (where ever 'here' might be). 2008 will be the awakening that there is a global problem. (Sorry, but 2007 was but a nudge.)

Why is Spain important? Its going to scare all of those German saviors of Florida in hiding. So what? Simple, once Spain starts to dive there will be no 'foreign investors' to save the US market. Its the lynch pin connecting investor psychology to an understanding of the size of this event.

But there will be growth. Ethanol has soaked up US surplus grain production. This is helping the USA gain tremendous bargaining leverage in international food sales. I'm seeing a slow bleed of aerospace manufacturing back to the US (thanks to a weak dollar). And video games... (Get a Wii, they're fun!) Not to mention it looks like I'll be attending a friend's wedding in the middle of India. ;)

So if they can keep the banking system functioning... we'll avoid the worst. (I think it can be done.)

But first the python has to pass this (real estate) pig.


Hat tip Guess who's:
Its on the impacts of speculation in Spain.

Got popcorn?

Friday, December 28, 2007

Car shopping

Something isn't adding up. I went car shopping for the wife and I've never seen so many good deals! Note: I bought in 1993, so I've seen car lots overflowing with inventory.

First, my 'real estate emotions' is the next article down. ;)

What I observed while car shopping:

1. Deals, deals deals! (2007 and 2008 models)
2. How empty the lots were.
3. How many 2007's are still on the lots
4. Cars/trucks of every type are in surplus.

I put in my name at AAA for a ~$50k Lexus GS350 and I've been hounded ever since then by the salesman. So far the offer is $4k below list. When is the last time a Lexus dealer started negotiations there? Today I went to a few dealers and was shocked to find $3k off on Hondas! Wow!

It wasn't like there was one or two cars we could be interested in. The salesmen would wave their hands over vast swaths of cars I had already ruled out by almost arbitrary guidelines (e.g., seat heaters).

I believe we already in a national recession. Car sales in December should prove interesting... More than one salesman commented on how 'gas prices were stopping all sales.' Gas prices? Or the end of MEW? ;)

Got popcorn?

Thursday, December 27, 2007

Real Estate Emotions December Update

Happy Holidays to everyone. As you can imagine, there just isn't much of a change in real estate emotions during December. People shop, eat, and otherwise pay little attention to real estate during this month. Unless they are a seller... but then they know they have to wait. But look at the inventory... Nationally its rather high. So we can expect some rapid transitions in December.

To the Kübler-Ross grief cycle and what fraction of the population seems to be in each emotion.

Stability: 50% (Old homeowners and bubble bloggers)
Immobilization: 24% (Prices dropping? Can't be.)
Denial: 5% (No! Real estate only goes up!)
Anger: 9% (This one must be discussed)
Bargaining: 3% (Ok, we can cut the price and lead the market)
Depression: 3% (We're going to lose our home. Just let them take it...)
Testing: 4%
Acceptance: 2% (Walk away, we're toast)

We're progressing up the stages, but continued buildup at Anger. I see anger everywhere from sellers and the REIC. This month it was easy to deal with (add fake smile and say "Merry Christmas." My that shuts up complainers...)

My timeline is staying constant:

1. Optimism
2. Excitement
3. Thrill
4. Euphoria (market price peak) Peaked in late 2005/early 2006
5. Anxiety (I'm a long term investor, not a speculator.)
6. Denial (Reached in October of 2006 until mid-May of 2007)
****7. Fear (Reached in mid-May of 2007). *****Current state****
8. Desperation: Predicted to start in January/February 2008 late edit
9. Panic: mid 2008 looks to be the start. Exactly when? Depends on the credit markets.
10 Capitulation: Looking like the winter of 2008/2009 through the winter of 2009. Yes... I'm now predicting a one year emotion state!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as 2010. Much more uncertainty here.
12 Depression (end of market price bottom) Not over before summer 2011, probably later. It could be as late as 2014.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (Its almost what I paid for it...) about 2017
15 Optimism (cycle starts again)

Sellers bet the farm (house) on appreciating real estate and those days are gone. Next year (2008) will only begin to shake out the more feeble 'homeowners.' It will also start the cycle of having banks sell REO's at reasonable prices. 2009 is still when I predict the greatest price drops (both nominal and real prices).

Its not yet time to buy. Not even close. Even the MSM is willing to write off 2008 at this point. But J6P is not willing to look out more than a year ahead. Oh... there are areas doing fine (NY, NY which is falling apart) or Portland, OR (one of the few markets I think will only soften). Wait. Sales are approaching 50% of the peak year sales. As noted today on the HBB, there is no smooth transition to a buyer's market. Let's let that transition go through.

January and February are the two toughest months of the year to sell a house. I expect the Case-Shiller numbers from those two months to wake up everyone. Where I want to buy went down 2% in October (latest numbers available). I expect a nice discount after this winter. More after next winter.

edit: I liked this video on the ABC 'defining economic news of 2007'.

WARNING. The ad after the short clip is LOUD.

Got popcorn?

Wednesday, December 26, 2007

Everyone is buying 'a year from now.'

I hope everyone had a Merry Christmas. :)

What I couldn't help but notice is that *everyone* whom is looking to buy is saying they'll buy in a year. Not a month more... not any less. Everyone expresses it as "one year." But not only that, aerospace transplants are coming home and bragging to their friends about their new standard of living; this will accelerate the transfer of people out of the bubble markets.

Now the 'one year' timeline seems to be the limit of how long the typical J6P can delay their thinking. My wife, god bless her, won't push out buying more than a year. But it keeps sliding. ;) I went over the math on how buying in a year lets us buy in our 3rd choice zip code while buying in two lets us buy in our 1st choice... Oh well, I have a year to work on it. ;)

Friends who were actively bidding on homes (rejected by greedy sellers) have decided to take a year off. Mostly as they're seeing REO's in their favorite neighborhoods. REO's priced to sell! Not many... but enough to make one realize the banks must be needing cash flow. One after another friend/aquantance told me how they'll wait to buy for a year.

But aerospace is going to continue their consolidation. Oh, there will be some counter-consolidation too. What? Well... I'm at the 3rd aerospace corporation that hires heavily from Pen State. We've finally decided to open an office near their campus! Easy recruiting. Less for the work there than to have a large sign advertising our corporate name. Where are the seed engineers coming from? LA and DC.

With how giddy the recent transfers to Denver have been (all are finally selling their old 'home market' homes and accepting they're in Denver for life), I see little resistance to shipping a few thousand more jobs out there in 2008.

My company has bought options on a large chunk of Houston land. Well... it looks like in the 3rd month of the year a few thousand will get marching orders to go there. But expect a delay. Big relocations take a long time to sell the old homes. A person gets the relocation offer, they then usually spend 60 days negotiating. Then the house is appraised and sold to the relocation company. Its generally six to nine months after the first notice that the home gets into the hands of the new owner. So patience... these will be long slow moves that will still be going on in 2009. Heck, the transfers in 2008 will only wet our appetites. In a year, we'll all know about more companies leaving the bubble markets.

So my predictions for 2008? Further slowing in home sales. More people getting fed up paying the bank rent on an underwater asset and thus more keys on the roof. But no bottom in home prices for a long time.

I'll do my real estate emotions later this week.

Got popcorn?

Sunday, December 23, 2007

The forecast is for a longer, deeper home-price slump

CNN Money Tell the World a little of what is happening.

I think its worth blogging when news is getting out to Joe Sixpack. However, this one, while quite bearish, is another one of those "it will turn around soon articles."

In a new survey, Moody's says many metro areas will record losses of 20 percent or more during the downturn, with the national median price for single-family homes dropping 13 percent through early 2009. Factoring in discount offers from sellers, the actual price decline would be well over 15 percent.

Eighty of the 381 metro areas covered by the report will record double-digit losses, according to the report. Most of the worst-hit markets are in once high-flying areas, such as California and Florida.

The article goes on to describe how 'buying for investment' is adding to the flood of inventory. But what it doesn't go into is the change in the credit market.

On the housing bubble blog yesterday a poster was noting a radio add for a Jumbo loan on 'old school rules.'
1. 20% down
2. Required proof of 3 years of reserves (effectively another 20% down kept in the bank).

Wow! Its been since the 1970's since we've seen those rules. I was preparing for 30% down and some reserves. 40% (half down, half in reserves) would knock me out of the market for another year. A year where about two dozen people would qualify to buy in the big 'Jumbo Markets.'

I cannot think of anything that would knock down California or DC harder or faster than a return to strict Jumbo lending.

Enjoy your Christmas. January and February provide the best buyer's schadenfreude of the year. So ask that special someone for a popcorn popper! (Or, do it the 'old school' way, like I do, just on the stovetop in a pot.)

Got popcorn?

Tuesday, December 18, 2007

Oprah and real estate

No, Oprah hasn't done a show on the housing crisis. But when will she? My thoughts behind this are simple; many of the REIC blame the 'NEWS' for housings' woes. Now... what could up the tempo of the News? I think talk shows could change J6P's mind more than anything else.

Now... maybe I should say 'Joe six Pack' but rather 'Jane six Pack.' For whom really pushes the purchase decision? I believe it is the wife. So if we do start seeing episodes on the talk shoes on the sadness of the housing crisis... expect a big shift. The pressure to buy would... evaporate in but a few episodes.

Personally, I think its only a matter of when, not if, Oprah has a foreclosure show. However, the real impact will be when its time for a week long special on housing on Oprah. (Let's face it, she appeals to a HUGE demographic.) However, I'm bearish enough to expect this 'week long special' to occur quarterly. :(

Any predictions on when this will happen? I think spring of 2009.

Got popcorn?

Sunday, December 16, 2007

U-haul index #3

This is my third U-haul index. We continue to see a trend indicating job flow out of California continues.

The last one:
The first one:

I look at the cost of a 26' truck picked up on a Saturday (12/22/2007).

Redondo Beach to Las Vegas: $397 Return: $186

90277 to Phoenix, Az: $692 Return: $179

90277 to Dallas Texas: $1440 Return: $436

90277 to Austin Texas: $1236 Return: $407 (Cost to Austin is WAY down)

90277 to Spokane, WA: $2996 Return:$498

Basically, the conclusions are the same.
1) We have job flow out of California. Texas seems to have job growth.
2) The u-haul dealers in Austin have their act together (finally). The cost to Austin is so much less than it was 8/15/2007.
3) I still cannot figure out the premium for Spokane. Anyone know what's up?
4) Don't forget, this isn't about population growth. Day laborers, students, and others whom have little to no possessions don't rent a u-haul, they pack up the car.

Heck, I bet more than a few SUV owners are taking everything with that 'toy trailer' and otherwise abandoning the furniture.

Anyone else waiting for United Van lines moving survey?

Here is the 2006 survey

Will Washington DC still be high inbound? I expect its long record to be broken.
I was surprised to see California "low outbound" last year. Will it remain that way, or go back to being 'high outbound.' Oh well... last survey was 1/8/2007. It will probably be released on the 7th or 8th of 2008. So again, patience.

Got popcorn?

Tuesday, December 11, 2007

Predictions for 2008 home sales

Its almost the end of the year!

The NAR is estimating 5.67 million homes to be sold in 2007. What is your prediction for 2008?

Calculated risk had a convincing article that based on historical data, 3.0 Million homes would be a VERY deep recession.

WaMu in their little confession noted that they expect 40% fewer mortgages to be issued in 2008. 60% * 5.67 is 3.4 Million. Hmmmm.... But I'm an optimist... Not to mention it takes a while to really slide into a bad recession. So I'll bracket 3.5 Million to 4.0 Million home sales in 2008. Just for the fun of it, I'll predict two years out: 3.0 to 3.5 Million in 2009.

What's your prediction on price declines in 2008? Where I want to buy has dropped about 5%... Those that predicted where we are predicted a 5% to 10% decline in 2007 and a 8% to 20% decline in 2008. Since I think we're only avoiding the pain on a short term basis... I see a 15% to 20% drop in 2008. For 2009 I predict a 20% to 30% drop in home prices.

I'll add graphs and stuff to this article later. Consider it a 'stub' for now.

Got popcorn?

Sunday, December 09, 2007

Blogger party 2

We had the dinner at the Il Fornaio in Old Town Pasadena last night and I call it a success. Eight fellow bearish bloggers showed up and we had a great night! No photos this time.

Discussions covered a variety of topics. TJ kept things going by bring a library of books to discuss. I was one of several who now have a bit of reading to catch up on.

One topic of the evening is other states and why they are getting hit so much harder than California. Its not that its different here, but rather why certain areas had a far more fragile bubble to pop.

Many of us discussed our buying criteria and when/where we might move to. This led to myself once again talking about aerospace job movements.

The topic of recession or depression once again came up. Basically we concluded that we could survive a depression and that certain parts of life should just go on.

Now it wouldn't have been a bearish dinner without talking about other 'non housing bubble people's' opinion on the current market. We all knew someone buying. We also all know people trying to sell. The consensus was wait. Some were already low balling (but having offers rejected). Others are far on the sidelines.

We all agreed this had years to run. How long? That wasn't agreed upon. But it was educational to discuss. As more than one at the table noted, one reason to have the conversation is to see the various sides to the conversation. :)

It was fun! I'll definitely do more dinners in 2008.

Got popcorn?

Saturday, November 24, 2007

Blogger party deux: December 8th

Two weeks notice! I'm going to so a 2nd blogger dinner.

Now, the cheesecake factory worked really well... But I've been asked for a location outside of the south bay.

How is old town Pasadena for everyone? For that's the location! Il Fornaio* is going to be it. December 8th, for dinner (6pm... blogger dinners are long dinners!)

Note: I'm asking on the location, but we'll pick this date! If Old town Pasadena doesn't work...

So either post in the comments, or e-mail Let me know an RSVP (yes/no/maybe), how many, and if you can make old town pasadena. (Also let me know if reverting back to the south bay would or wouldn't work.)
Got popcorn?

* oops... edit on spelling.
edit: We're set on Old Town Passadena, Il Fornaio, 6pm Dec 8th.

Wednesday, November 21, 2007

Real Estate Emotions November Update

Is it the holidays keeping the real estate emotions stuck in fear? Quite bluntly, no one but a few of us seems that concerned with real estate this holiday season. Yes, the markets are going down due to real estate and sellers are scared... but everyone knows this is the slow season and that seems to be slipping the real estate emotion timeline to the right. As to the Kübler-Ross grief cycle, just a small shift from immobilization to denial and a bit more into bargaining. No major shift, but a trend that is looking good from the buyer's perspective.

To the Kübler-Ross grief cycle and what fraction of the population seems to be in each emotion.

Stability: 50% (Old homeowners and bubble bloggers)
Immobilization: 23% (Prices dropping? Can't be.)
Denial: 6% (No! Real estate only goes up!)
Anger: 8% (This one must be discussed)
Bargaining: 4% (Ok, we can cut the price and lead the market)
Depression: 3% (We're going to lose our home. Just let them take it...)
Testing: 4%
Acceptance: 2% (Walk away, we're toast)

Here is the text version of the emotions. Changes in bold

1. Optimism
2. Excitement
3. Thrill
4. Euphoria (market price peak) Peaked in late 2005/early 2006
5. Anxiety (I'm a long term investor, not a speculator.)
6. Denial (Reached in October of 2006 until mid-May of 2007)
****7. Fear (Reached in mid-May of 2007). *****Current state****
8. Desperation Predicted to start in early 2008 shifts to right by two month
9. Panic: Mid 2008 looks to be the start. More shifting to the right
10 Capitulation: Moved to start of 2009; that brutal January/February market will get it going.
11 Despondency (start of market price bottom) I've gone from "possibly 2010" to definitely 2010. .)
12 Depression (end of market price bottom) Not over before summer 2011, probably later.
13 Hope (hey, this investment has picked up off its bottom) 2012 is the earliest
14 Relief (Its almost what I paid for it...)
15 Optimism (cycle starts again) 2017

So for this month we again have more anger and a stronger presence in fear. But desperation seems determined to let the holidays happen first. Real estate emotions move slower than you would think; all of my corrections have been to the right. I did some pretty major shifts to the right this month and believe this timeline should hold for a while. The conclusion? Price drops through 2008 and at a faster pace in 2009. The start of the "long flat" in prices in 2010. The end of the flat? 2012. People like to believe real estate will recover in a "V" shape. Nope. This will be like real estate in the 1990's ("L" shaped recovery with a long bottom) or the dot com stocks (years of flat prices before growing).

Got popcorn?

Bankruptcy Rumors At Countrywide

Bankruptcy Rumors At Countrywide

Countrywide Financial Corp shares plummeted as much as 22 percent on Tuesday on speculation the largest U.S. mortgage lender might run short of cash, but recovered most of that loss after the company said it has ample liquidity and will not go bankrupt. In a statement late on Tuesday, Countrywide said it believes it has "ample liquidity and capital" to ride out the U.S. housing downturn, and will benefit from mortgage market consolidation.

"Nobody's got any faith in anyone telling the truth, or knowing what the truth is," said Anton Schutz, a portfolio manager at Mendon Capital Advisors in Rochester, New York.

Wow... read the whole Minyanville article.

News on Fannie, Freddie, and now Countrywide. We're going into the liquidity crunch.

You'll have an emotions article from me in time for Turkey day. :) But this was something that really caught my eye.

Got Popcorn?

Thursday, November 15, 2007

slump is a result of a weakening economy and troubled housing markets

Its not looking to be a merry Christmas. Quite a few retailers aren't doing so hot

Yahoo finance on mid-level retailers

Both Kohl's and Penney reported drops in same-store sales, or sales at stores open at least a year, a key indicator of retailer health. Kohl's reported a 2.6 percent drop, while Penney's fell 3.5 percent.

---------snip out the mid article and continue -----------------

Penney Chairman and Chief Executive Myron E. "Mike" Ullman III was quick to point out that the slump is a result of a weakening economy and troubled housing markets. The company, he said, was not doing anything wrong.

"It's not as if we got dumb all of a sudden," Ullman said.

No, but we (as a country) were dumb to let it go on like it did

Normally ra ra for the sheeple predicts a lousy holiday retail season

With Dec. 25 about eight weeks away, the retail industry is struggling with shoppers’ eroding confidence amid higher daily living expenses and problems in credit availability.
Could it be debt fatigue? Hmmmm???

At this point, there may not be much retailers can do to salvage the holiday season. And it hasn't even officially started.

It was weak across many sectors in October, from mall-based apparel stores like Limited Brands Inc. to department stores like J.C. Penney Co. Even the world's largest retailer, Wal-Mart Stores Inc., posted sales below expectations despite heavy discounting. The few standouts were warehouse club operators such as Costco Wholesale Corp. and BJ's Wholesale Club Inc. as consumers sought

out lower prices than even discounters offered.
(from above link)

The question isn't if we'll have a bad Christmas, but how bad. Since MEW is alive and well, I think it will be a single digit decrease YOY in sales. But I also predicted a stock market correction in October. :( So what is everyone else's prediction?

As far as real estate, I'll do my emotions update next week. Its really slow now. People just aren't that interested in real estate. Projects are coming due or family events are on their minds. In fact, only a few fellow bears and an occasional seller even talk about it. But there will be more discussion on the anger out there. Its the holidays, but quite a few people are not happy. But the mortgage pinch can't be helping things.

I'm thinking most of this winter's decline will be January/February (I know, the historical norm). But not just for the usually reasons. Partially due to a poor Christmas season driving the housing market down further.

Oh well.

Got popcorn?

Tuesday, November 13, 2007

Mortgage Woes to Sink Property Values

WASHINGTON (AP) -- An expected surge in home foreclosures will cause U.S. property values to sink by $223 billion, with the most severe impact in minority communities, a new report says.

Article on Yahoo Finance

This will just start to give J6P some perception there is a problem. However, this "survey" is such fluff it totally misses the problem. But hey, its getting the news out.

We're one downgrade away from Countrywide going under. E-trade is in trouble and need I describe the debacle of the "super-fund" SIV bailout? Prices will go gown a bit in 2008 and a lot in 2009.

I am beginning to wonder if the slow sales rate (seasonal and mortgage driven) is artificially hiding price declines. Oh well. Its not like I didn't know to wait until 2010 anyway.

And California is hurting. "As California goes, so goes the nation." Its just going to be a matter of degree. Even some of the normally "anti-Aerospace/defense" publications are starting to wake up to the job bleed.

I wish I had more information today on aerospace job transfers. I'm unusually in the dark.

Got popcorn?

Wednesday, November 07, 2007

Neighbor's observations

I have a really nice neighbor renting the townhouse next to me. He told me his "renting story" yesterday.

In sum:
1. He was ready to buy in early 2006, but a relative's health problem consumed too much of his down payment.
2. He now recognizes that the home he was going to buy has "lost so much value" that not buying saved him more money than he paid for his realative's health care.
3. He is a J6P (Zero math or forecasting skills. I mean that in the nicest way possible... but its the truth.)
4. He'll renew his lease (yea! Good neighbor) and continue to save for his down payment.

Basically, if this guy knows the market is going to continue to drop for a year, everyone does. Now I should be nicer, his skill set pays more than mine. :) Hey, good for him. No one would buy a script from me! ;) And yes, this conversation came out as he discussed being on the picket lines. But a sad turn of events is all that kept him from being financially ruined. :(

Why does this matter to those of us that are not sheeple? Simple: The sheeple are going to the sidelines. When they do, they camp there at least 18 months. The first six months of their stay on the sidelines results in a moderate price drop. The last 2/3rds of their time on the sidelines? Fast price drop.

Don't buy in 2007. Don't buy in 2008. Heck, if you read my real estate emotions series, you'll see that previous patterns point to the greatest price drops occurring in 2009! Sit back, relax and make sure you

Got popcorn?

Tuesday, November 06, 2007

News always worst at the bottom

Just a thought, the news in the papers is pretty upbeat. Its not doom and gloom. Very little space is devoted to layoffs.

Bearmasters nice articles in three parts

Take some time to read those above headlines and recall, the news is always the worst at the bottom.

We've just begun the slide.

Got popcorn?

Thursday, November 01, 2007

Now That Housing Has Soured, Renters Are Glad They Didn't Buy

This article's title is the headline from a Yahoo Article.

The best quote:
Now, she says, some of her friends regret making those buys and are funding expensive home repairs a home inspection might have revealed.

Basically, MSM news on how if rent were closer to the cost of owning, more people would own. Since its far cheaper to rent and the rent increases are "manageable" while the mortgage payments are insane, people will rent. I liked the example of one guy being subsidized by a friend.

Got popcorn?

Tuesday, October 30, 2007

Further weakening in home prices according to the S&P Case-Shiller Home price Indices

Now recall. We're only up to August data. That's when the 'mortgage crisis' started. September and October were far weaker markets based on the seasonally adjusted annual rate (SAAR) of home sales. Basically, most markets are dropping at near 1% per month! That's huge. But its accelerating.

If you want to know your city's future, look at Tampa, Miami, or San Diego. Recall that August is traditionally a STRONG sales month! What about the traditionally weak sales months (October through February)? Well... we won't find out about October for sixty days. So be patient. This is a multi-year downturn.

Click on:

SandP-source-Warning PDF!

More info:

Got popcorn?

Wednesday, October 24, 2007

Real Estate Emotions October Update

I *really* wanted to see a transition to desperation. We seem so close to that emotional switch. However, all I've seen is an increase in fear. Fear to a fever pitch, but we aren't yet in desperation. This series will also continue with the Kubler-Ross grief cycle. From what I can see, we're getting a pile up in the anger category. There is quite a bit of venom out there against anyone who isn't REIC or a FB.

To the Kübler-Ross grief cycle and what fraction of the population seems to be in each emotion.

Stability: 50% (Old homeowners and bubble bloggers)
Immobilization: 25% (Prices dropping? Can't be.)
Denial: 5% (No! Real estate only goes up!)
Anger: 8% (This one must be discussed)
Bargaining: 3% (Ok, we can cut the price and lead the market)
Depression: 3% (We're going to lose our home. Just let them take it...)
Testing: 4%
Acceptance: 2% (Walk away, we're toast)

We're progressing up the stages, but mostly a bottleneck at Anger.

1. Optimism
2. Excitement
3. Thrill
4. Euphoria (market price peak) Peaked in late 2005/early 2006
5. Anxiety (I'm a long term investor, not a speculator.)
6. Denial (Reached in October of 2006 until mid-May of 2007)
****7. Fear (Reached in mid-May of 2007). *****Current state****
8. Desperation Predicted to start in November/December 2007
9. Panic: Early mid 2008 looks to be the start. Exactly when? Depends on the credit markets.
10 Capitulation: Looking like the winter of 2008/2009
11 Despondency (start of market price bottom) Not before superbowl 2009. Possibly as late as 2010. Much more uncertainty here.
12 Depression (end of market price bottom) Not over before summer 2011, probably later.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (Its almost what I paid for it...)
15 Optimism (cycle starts again)

So for this month we have more anger and a stronger presence in fear. But desperation isn't far away. But if there is one thing I've learned while doing this series, real estate emotions move slower than you would think; all of my corrections have been to the right. Oh well. We're progressing.

As this winter progresses, I'll get a much better understanding of how will slide into capitulation next winter. Whatever you do, do not buy until we've been in capitulation for a while. This is a world wide event.

update 9:45pm:
This other blog puts us at somewhere between denial and fear:

I think the "anger in the air" puts us at a later state. However, when it doubt, delay purchase decisions during the downturn. There is a reason we have a market. Some think its time to sell, others think it is time to buy. There is no one correct answer. In fact, socioeconomic and geographical differences shift what state each region is in. For example, Seattle and Oregon are back in denial while Florida is up front in desperation. But there is no doubt that we're on the downswing globally. This isn't your father's housing downturn.

As to myself, I believe the risk of depression is constantly growing. (Man did I hate typing that.) Delaying the pain is only causing the seed corn to be expended prior to the planting. I cannot wait for the next rate cut and dive in the dollar.

Got popcorn?

Existing home sales down to 5.04 million

Inventory at 10.5 months!

I'm being lazy as I watch bloomberg news.

How much will this impact the market?

Tomorrow is new home sales data.

Prediction for existing home sales was 5.3 Million (taken from WSJ in a previous post of mine):

Got popcorn?

Tuesday, October 23, 2007

Merrill Loss May Be

From this WSJ aritcle:

Merrill Lynch & Co. is expected to announce its third-quarter losses are more than $2 billion more than first projected, ratcheting up the pressure on Chief Executive Stan O'Neal to demonstrate he has a grip on the firm's risk level.

Merrill announced on Oct. 5 that it expected to write down $5 billion for the quarter that ended in September, the biggest such loss of any Wall Street firm, based mainly on an over-exposure to risky mortgage-related securities.

But the actual write-down is expected to come in far above that initial estimate, with outsiders putting the level at $7 billion or higher.


So the question is, how long until I-bank layoffs?

Merrill Lynch & Co. swung to an unexpectedly deep loss in the third quarter on the back of a $7.9 billion writedown in its fixed-income trading business, a hit that exceeded the Wall Street giant's net earnings for all of 2006.

Merrill posted a net loss of $2.24 billion
Updated WSJ article:
hat tip Calculated Risk

Got popcorn?

Sunday, October 21, 2007

What to expect in coming week

This coming week could be interesting. We're in earning reporting season, a financial crunch, and the NAR reporting on existing home sales. The graph comes from the following link:

WSJ article

Notice one thing from the graph? The plunge in seasonally adjusted home sales only "paused" during the normally really slow January/February months. In other words, the worst months of the year didn't behave horridly, but every other month has been performing far worse than seasonal norms.

Countrywide reporting on Friday should be exciting. Any predictions?

Don't forget to look at foreign stock markets:
All I'm seeing (today 10/21/2007) is red.

I send out my best wishes to those impacted by the fires. The Laguna fires from my days down in the OC left quite a memory (we were the next section scheduled for evacuation prior to containment of the fires). I'm not at my place right now, but one of the fires supposedly stopped 1.5 miles away. Oh joy, lots of ash in my stuff. :( But that is nothing compared to anyone who lost their home. Or might that be good luck for some FB's? ;)

Got popcorn?

Saturday, October 13, 2007

Party photos

Ok, I know I'm late. But they're here! We had a lot of fun. Two dozen attendees. What amazed me is that the whole group was upbeat and the type of people everyone would enjoy hanging out with. None met the stereotype of a "perma-bear."

Edit 3:00pm 10/15/07:

I was asked to go over the conversations and discussions of the event. Quite a bit of the discussion was focused on where to put one's money during the period of inflation that is coming. To say the least, the metals crowd got their word in. ;) We also discussed low cost investments in "sin." E.g., cigarettes, alcohol, and other businesses that do well in downturns.

A side conversation I had during this meeting was about why I still believe recession versus depression. To say the least, I was in the minority. Many thought the banking system and real estate would result in too sharp of a contraction to avoid depression. I debated back why deposit insurance (FDIC), technology growth, and a few other industries would keep us only in recession.

We also talked about how we arrived at this point. How could we have gone away from down payments on homes. I think we talked 45 minutes about the banking system. Probably every aspect of what should be regulated and what shouldn't.

Another side discussion was how long had people been waiting to buy a home. What did people do for a living and why were they safe/not safe from layoff.

I know there were a dozen conversations going on that I couldn't participate in, so I invite the attendees to put their memories in the comments section.

So to the photos! Yes, the eye bars are silly, but I think as this downturn gets momentum... people will be angry. Many thanks to Mike for these photos! If you have photos, send them to I'll happily send photos to participants sans the eye bars.

Good food and good fun:

Hope to see everyone at round 2 in a few months.

Got popcorn?

Friday, October 12, 2007

Random conversations and layoffs

Today was one of those days where you realize "the knowledge" is spreading out to the J6P population. Purely anecdotes, but I believe they represent changes in the economy. The first overheard conversation was during training at work. Technicians were chatting on how their parents had moved to nicer retirement homes, after selling their "work homes," but were 'just renting.' The second was a REIC layoff conversation my lovely wife participated in.

The technicians didn't just note that their parents were renting a home in retirement; they stated point blank that it was smart to wait until they could buy nicer "at the same price as rent." (Ok, these people think in monthly payments...) To have a room all agree that was wise... floored me. Ok, a third of the room was already "in the know," but to hear a whole room agree ("oh yea," "my parents are doing that too," "wait to buy")... just surprised me.

The other was a conversation my wife had with a "REIC layoff survivor." A small escrow company started the day with twelve (12) employes: 3 escrow agents, 4 escrow assistants, 4 title agents, and the receptionist. They now have 3 escrow agents and two assistants. Yes, more than a 50% layoff. This was a COMMERCIAL escrow shop. Note, this shop is tied to a residential company that has been doing rolling layoffs. Note: I think rolling layoffs only destroy morale. If you have to layoff, get 'er done and move on.

My conclusions: Sales are continuing to slow. The market is going from euphoria to depression. I'm not saying we're anywhere close to depression, but rather on the path. The second conclusion is that the REIC is having a bunch of layoffs that we'll never hear about. Layoffs from small shops that will never be reported in the MSM until long after they've happened. Not to mention the MSM will only notice if it impacts the economy. But these stealth job losses will add up. I'm not even sure they'll make the employment report (for many will be fired instead of layoffs).

Got popcorn?

Wednesday, October 10, 2007


I like to look at restaurants to see far out trends. Are people buying fancy alcohol (good times are here for a bit), are price increases being accepted by customers?

At Ruth Cris,

The company said average check increased 3.4 percent, driven by higher bar traffic and higher prices. That was offset by a decrease in entrees.

Ok, a little contradictory, higher alcohol sales is good... less food. Fewer customers... are the few customers going in needing to get drunk? ;)

Ruby Tuesdays

Still in the black but declining profits.

Down analysis on restaurants
Basically, fast food restaurants are offering salads, so family sit down places are suffering as people have neither time and are trying to save a buck.

Perhaps other retailers are suffering because everyone's shopping at Costco.

Not a great article (the title was wasted on it), but a good point. The discount stores prosper at the expense of other retail. Why? People NEED to save a buck.

What about other industries?
Tighter refining margins. Is that less demand? ;)

Food inflation
This morning, your bowl of cereal and milk probably cost you 49 cents. Last year, it was 44 cents. By next year, it could be 56 cents. It's enough to make you cry in your cornflakes.
later in the article:
The big picture, at least in the U.S., is that higher food prices don't hurt like they used to. Today, about 8.5 percent of the American household budget goes to food at home, down from an average of 19 percent of the total budget in 1960, Wyss said. While food inflation is high, it's not hyperinflation, he said.

No its not "hyperinflation," but the grain going into J6P's beer is getting pricier!

I'm bearish on the restaurants. Will one or two chains do well? Sure. Most won't. I'll be curious to see how the better ones adapt.

We'll have to keep doing meals to keep our favorite places in business. ;)

Got popcorn?

Tuesday, October 09, 2007

How to have this Crash get HUGE: 401k

Hattip to Sandman for this link.

From Sandman's link:
Despite potential tax and investment consequences, more individuals have been borrowing from their 401(k) plans or taking hardship withdrawals in recent months, some retirement-plan providers say.

Not all plans have seen jumps, and more-comprehensive statistics won't be available until next year.

In other words, J6P won't know about this until its blown up another part of the credit economy. Sigh...

Later in the article:
Most plans allow borrowers to take money out of their 401(k) accounts to pay tuition, purchase a residence, pay medical or funeral expenses, or to avoid eviction or foreclosure. Borrowers must repay the loan plus interest, which is typically set at one or two percentage points above the prime rate.

20% of Fidelity 401k customers have taken advantage of this... so basically we're going to see 10% to 30% of the 401k funds go "poof" due to this RE bubble.

This is going to be a really ugly recession.

Got popcorn?

Sunday, October 07, 2007

Consumer borrowing up sharply

Consumers have boosted their borrowing at the fastest pace in three months, turning increasingly to their credit cards to replace home equity loans as a source of ready cash.

Whew, good thing they aren't trying to actually save money for retirement. I'm so glad our demographics suggest a negative savings rate is ok. Why, its so 1950's to save up right before retiring. ;)

USA Today article

During the housing boom, when home sales were hitting records for five consecutive years and prices were soaring, many homeowners tapped the rising value of their homes to finance increased spending by taking out home equity lines of credit.

Sadly, J6P will need to hear this again and again before he/she believes it.

Exurban Nation noted that Hawaii hotel vacancies are up YOY. Hmmm...

To think, all that construction is past the point of no return. When we honeymooned in Hawaii, it was non-stop construction everywhere. What the heck will happen to that state's economy when we go into recession?

Good thing all real estate is local! Yea right...

Got popcorn?

Saturday, October 06, 2007

Article in works


I know its lame to put in a placeholder, but I've noticed an abnormal trend this year in the inventory. Normally, there is a National inventory peak on September 21st with a 2.5 day sigma (standard deviation). With inventory climbing again, it looks like we could have a six sigma event pretty soon!

The fact that inventory peaked at the end of september (about 3.5 signma) is too easily explained away by the "hickup" in the mortgage market. However, if we get to the point where a market inventory peaks during October, we have a six Sigma event. There is a reason "Six Sigma" was selected as the name of corporate quality campaigns; a six Sigma event is so out of the norm it only happens if the process is broken.

By broken process, it implies that none of the normal fixes will save the real estate market. We're beyond another Fed 50 point drop. We're beyond freezing option ARMs at the teaser rates. Let's face it, if home construction suddenly stops, we go into recession just from those job losses.

Sadly, about the only thing that can be done now is an emergency infrastructure program. Now I'm biased, I truly believe that "Transportation is the cornerstone upon which a city builds wealth." Its past time to expand the interstate system. Its past time for certain cities to get a proper commuter rail network. Why do none of our major airports have a good bus terminal like the ones at Haneda (Tokyo) or Frankfurt? I'm all for building dedicated bus lanes to said bus terminal (elevated?). And of course, build more runways. ;) (I'm an aviation nut.)

Something should be done to absorb all of the unemployed construction workers. Hopefully with efficient production. No point in wasting money just employing people. I'm most concerned the maximizing the infrastructure.

Edit circa 6:40pm: I'm noticing the "Bulls" are starting to get really nasty. Could it be that the pigs are squeeling due to be spanked by the "Invisible hand" of the free market? Kudos to Adam Smith for writing such an awesome book. (I have a 3rd edition from a used book store.)

Nasty "bulls" are invading most of the bubble blogs. Their #1 concern seems to be our dissemination of accurate information counter to their agenda. The last time I saw this was around when New Century failed. Thus, I speculate that the current "counter-information" campaign is due to economic stress in the REIC. In other words, we are but a short time away from some economic event. But what is it? REIC layoffs? A Realtor branch closure? Countrywide selling out to BoA? When? I'll go on the record and say within October.

But then again, I'm already on the record predicting a stock market correction in October. Note: I have no shorts or puts, but I'm dang bearish.

Got popcorn?

Thursday, October 04, 2007

Home Price Estimates

Basically, the CME futures contracts are point to moderate price drops ahead in LA, DC, and quite a few other markets.


I think we'll see bigger price drips due to the impacts of the credit crunch and overbuilding. If LA drops less than 45%, quite a few industries are "priced out forever." Let's see how they adapt.

Got popcorn?

Monday, October 01, 2007


The dinner at the Cheesecake factory was a success. Later I'll do a proper post (with photos). The crowd was an incredibly upbeat and friendly group. As you would expect, from quite a large varieties of walks of life.

A credit card from our group was left on a table. It is in the Cheesecake factory's safe.

A favor, if you took photos, please send them to Thanks to M. He sent me a review of photos including the "Cash car" that was parked right in front of the place. (We all laughed)

It started early at 5:15pm and didn't end until 10pm when the last of us left the Cheesecake factory. We chatted on a whole variety of topics. Everything from "why will/won't this be another depression" to growth patterns around the world. Quite a bit of discussion centered around the dollar and others on buying a home before the perceived bottom as an inflation hedge.

Thanks everyone! The final count was 23 attendees.

It amused me to be given popcorn at the event. ;)

Got popcorn?

Friday, September 28, 2007

New home sales in WSJ

For the blogger party/dinner this Sunday e-mail or see the previous thread. :)

You've probably heard about the low sales of new homes. The WSJ provides a little more information:

About 68,000 homes were sold last month, down from 74,000 in July, the government said. At the end of August, 531,000 homes were on the market -- and only about a third of them were finished. That means builders could be stuck with large inventories as the market weakens further.

"This is staggering," said Joseph Brusuelas, chief U.S. economist at IDEAglobal, a research firm that advises investors. Further big price declines, he said, are "going to be debilitating."

Only about 6,000 new homes priced at $500,000 or more were sold in August, down from 9,000 in each of the previous three months and 11,000 in August 2006.

WSJ Article

What struck me was the strong drop in home sales above $500k. I would like to know how sales at higher brackets are doing. Does anyone have such information? Its interesting enough to see August, a strong sales month, weaker than July. I'm curious to see September sales. This credit crunch is definitely taking on a life of its own.

I still haven't heard a single proposal on how the commercial paper market will be saved. That's about $400B worth of paper that is looking for a home within 60 days. Oh... I have no doubt they'll be able to partially dodge the bullet... but not fully. Those pier loans are weighing down the I-banks a wee bit, so the normal relief channels are constrained.

Got popcorn?

Tuesday, September 25, 2007

Blogger party: ITs happening!

Want to meet up for some bearish fun?

Please RVSP in this thread or e-mail

Cheesecake Factory
605 N Harbor Dr
Redondo Beach, CA 90277

When: 6pm on 9/30/2007 (Sunday).

Count: 34+
Neil +2
Bearmaster +1
John ? (please verify)
M.B.A (+2)
Cereal (from HBB)
SpeedingPullet +1
Mike (maybe)
Lorna (+ Mike)
larenter +1
Houseless +1
Captain Crunch +1
Sunrise +1
oc-ed + 1
OcInvestor + 1
Redondo Beach dude +1
Nightowlsix +1?

Please let me know if there are any changes. For two days all of gotten is span on the e-mail. ;)

But this will be so much fun!!!

We've had a few dropouts, but not many. :) Please let me know if anything's changed. Want to show up early? I'll be there. It apparently is required to show up early to get a table for a big group.

Got popcorn?

Monday, September 24, 2007

GM on strike

"This is horrible, but we're die-hard union, so we have to," Ahrens said. "We got a mortgage, two car payments and tons of freaking bills."

That is the quote that struck me. You have 73,000 people striking because GM cannot afford the health costs for 339,000 retirees. Ouch. 73,000 trying to pay for 400,000. No wonder GM and Ford are losing market share. :(

But look what the stock market did as soon as the strike was announced. The cause or coincident? I don't know.

GM on strike

Its going to be interesting when the house sales and Case-Shiller come out tomorrow for August. Since only two weeks of August were part of the credit-crunch, I'm expecting a 3% to 15% decline in sales over July. August should have stronger sales than July... From what I'm hearing September is down, but not enough to calibrate.

We're in a cycle of moderate price drops. I expect the peak rate of drops to match the peak rate of price increases: 2.5% to 4.0% per month. The question is when do we get to that accelerated rate (we're at 0.5% to 1.5% per month now) and for how long?

Got popcorn?

Sunday, September 23, 2007

WSJ on weakening dollar

Please go to two posts earlier for the blogger dinner/party RSVP's for September 30th.

Its a very real world example that makes sense, but I never expect the WSJ to use strippers as an example of how a weakening dollar can effect a US 'industry.'

or a more direct link:

Canada Is Giddy

The owner of five strip clubs in Detroit and Windsor, Ontario, says American dancers are heading to Canada to earn the strengthened Canadian currency, and Canadian customers are heading to Detroit because their dollars go further there.

Later in the article:
Economists fear that Canadian exporters will face an uphill battle since their goods just became more expensive. For Canadians living in the U.S. who are paid in U.S. dollars, it's also not such great news.

and still later:
Mr. Katzman, the Windsor strip-club owner, is philosophical. He says that, last year, 90% of his dancers were Canadians. About 200 of them drove down from Toronto and Montreal to take advantage of the U.S. dollars American men typically paid with.

This year, he has more American women dancing in his Canadian clubs -- about 160 -- than he has Canadians.

Umm... yea... this could be impacting immigration trends. ;)

So let's see... weaker dollar means higher cost services in the US, 'workers' leave the US and probably smaller imports. And people who export to us are going to have a much tougher time. And my wife wonders why I agreed so readily to buy her imported Christmas gift... today.

Not if we can get the Yuan to float. Cest la vie. Either way, I'm predicting a drop in the imbalance of payments in 2008.

Got popcorn?

Friday, September 21, 2007

Real Estate Emotions September Update

For the blogger party/dinner on September 30th (6pm), please RSVP on the previous thread.

I'm going to add to my real estate emotions column. I'm also going to start tracking where we are in the The Kübler-Ross grief cycle. I'm not going to say which Kübler-Ross emotion we're in, but rather the fraction of the population in each emotion. Most of the discussion skips three of the emotions, but they are important. Don't worry, I'm also keeping with my "investment related emotions," but as its going on a timeline that's been there for months. The only change is I've moved a chance of desperation starting earlier than what I predicted a month ago. I'm less confident of my further out emotions now. But I'll discuss that later.

To the Kübler-Ross grief cycle and what fraction of the population seems to be in each emotion.

Stability: 50% (Old homeowners and bubble bloggers)
Immobilization: 30% (Prices dropping? Can't be.)
Denial: 5% (No! Real estate only goes up!)
Anger: 5% (This one must be discussed)
Bargaining: 2.5% (Ok, we can cut the price and lead the market)
Depression: 2.5% (We're going to lose our home. Just let them take it...)
Testing: 3%
Acceptance: 2% (Walk away, we're toast)

The dangerous ones are the ones in the "Anger stage." Notice on many blogs the counter is brutal? They are practically screaming real estate "facts" that have never been true. For example, I loved a comment "No market has ever dropped 40%." Oh... how about 90275 in the 1990's downturn? Hmmm... ?

Notice most people are in stability. If you bought a home pre-2003 and didn't HELOC, there isn't much reason to worry outside of flipper havens. Expect this group to shrink; but note that a majority of the people in stable group will remain stable. e.g., my folks live in a neighborhood of homes bought in the early 1970's. Unless medical problems crop up, they'll be living in a neighborhood of homes mostly bought in the early 1970's a decade from now.

The "Immobilization" group is interesting. Expect them to play quite a role during the spring selling season as they go from passive to active emotions. They'll be forced to transition through their emotions fast. But fast means an emotion a month; don't expect anything more. This is a slow process.

This feeds the overall investment emotions:

1. Optimism
2. Excitement
3. Thrill
4. Euphoria (market price peak) Peaked in late 2005/early 2006
5. Anxiety (I'm a long term investor, not a speculator.)
6. Denial (Reached in October of 2006 until mid-May of 2007)
****7. Fear (Reached in mid-May of 2007). *****Current state****
8. Desperation Predicted to start in October/November 2007
9. Panic: Early mid 2008 looks to be the start. Exactly when? Depends on the credit markets.
10 Capitulation Could it be summer 2008 2009?
11 Despondency (start of market price bottom)
12 Depression (end of market price bottom) Not over before summer 2011, probably later.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (Its almost what I paid for it...)
15 Optimism (cycle starts again)

Basically I've lost confidence in my predictions post 2009. :( Why? As I look back over my bubble blogging history, I notice a trend that I'm always expecting things to happen faster than they do. But that doesn't change the overall conclusions:

1. Do not buy today. Heck, unless you can bargain well, do not buy in 2008 or 2009. When to start buying? Let's discuss Fall 2009. ;)
2. Preserve your cash. I'm not an investment expert, so pick your own strategy (goldbug, foreign currency/stocks, "sin stocks", etc.)
3. Sales will continue to slow (buyers doubt/calculation, tighter credit)
4. Prices are getting primed for a sharp drop world wide. Yes, world wide. There are no markets left where "its different here."
5. Whatever you do, don't listen to a salesperson on what to do.
6. Remember, real estate occurs in the margins. It doesn't take even 20% of the people panicking to tank a market. So don't worry about my low predictions. Its going to take 18 months to move a large fraction of the population over.

Got popcorn?

Thursday, September 20, 2007

Blogger social season

We're still at 34+ for Sunday September 30th, 6pm at the Redondo beach cheesecake factory. (I double counted as other RSVP's came in. Oops.)

Please RVSP in this thread or e-mail

Cheesecake Factory
605 N Harbor Dr
Redondo Beach, CA 90277

Who's going (I'll update this)
Time: 9/20/2007 9:30am

Count: 34+
Neil +1
Bearmaster +1
John ? (please verify)
M.B.A (+2)
Cereal (from HBB)
SpeedingPullet +1
Mike (maybe)
Lorna (+ Mike)
larenter +2
Houseless +1
Captain Crunch +1
Sunrise +1
oc-ed + 1
OcInvestor + 1
Redondo Beach dude +1
Nightowlsix +1?

I also received this e-mail on another blogger gathering:
Not to be outdone by Neil or by Big V,
az_lender and NYCityBoy kicked off the HBB social season today, September 19, with a lunch at Gente near Grand Central Station. Others present were NYCB's wife and a couple of his banking colleagues. A certain amount of the conversation naturally revolved around yesterday's Fed rate cut and our various foreign-currency investments. Another hot topic was (of course) all the HBBer's we've never met -- which means, ALL of them except az_lender and NYCityBoy. The only negative things we had to say were about the extremists who are buying mainly guns and ammo. Popcorn was not on the menu at Gente, but we send our regards to Neil and hope that his party is as much fun as ours. I have to admit I poked fun at NYCityBoy's Minnesota accent. Even though I knew he was from MN, I had automatically supposed he would talk like a New Yorker. (I'm from Phila and don't sound much like Maine or AZ.)

Got popcorn?

Sunday, September 16, 2007

Don't be afraid to sell home alone

If you are here to RSVP for the blogger party/dinner, please go down to the previous article. :)

Funny thing, the online article is much more pro REIC than the "dead tree" article.

A quote: "Even better, in Grant's view, was the fact that he didn't have to pay a real estate broker's commission, which typically runs 5% to 6% of the sale price and is split between the buyer's agent and the seller's agent. Grant ended up saving $80,000 to $96,000."


What happens when more people realize how expensive it is to go through a realtor? That 6% commission is outrageous!

"Yet, even when home sellers do it themselves, there is no free lunch, the DiMassas learned. When they arranged to list their condo on the MLS, the DiMassas had to abide by an MLS rule that requires paying a commission to any agent who brings a buyer. In their case, they offered 2.5% of the sale price and ended up paying about $20,000."

Ok, if there is a buying agent, pay 2.5%. That's fair. If there isn't one, the buyer should demand a 2.5% discount.

This is going to take a long time. But if the LA times is publishing it, J6P already has heard a little about it.

Got popcorn?

Friday, September 14, 2007

Bubble blog meeting! Sunday 9/30/2007

The date and time are fixed. Yes, I'll keep doing minor edits to the post.

Current count: 34+

I've received quite a few e-mail RSVP's, so I'm behind on updating and other duties call. So expect an update by 10pm PST

No reason why more couldn't be merrier!

Note: I'm changing the sign to say "Blogger Party." :)

I'm certainly getting excited about meeting fellow bloggers.

Where: Cheesecake factory in Redondo Beach at 6pm.
It will be fun!

Please RSVP. I'd love to put names with faces. Maybe even learn real names!

Bring significant others, friends, etc. Just give me an idea of how many.

Cheesecake Factory (It was a REIC hangout during the boom, so schadenfreude)
605 N Harbor Dr
Redondo Beach, CA 90277

From the IE, take your favorite freeway to the 405N (say 91, cut over to 405N)
Exit Hawthorne Blvd. You will take a left off the exit and another left to actually get onto Hawthorne. Right onto 190th street and a left onto Beryl (west). When Beryl ends turn right. If you cannot see the Cheesecake factory, get a new optometrist. ;)

Or... use google/maps, mapquest, or whatever your favorite mapping software is. If you can find this site you can probably do a printout of a map. ;)

How to recognize me... I'm 6', brown hair... forget it. I'm make a sign that says "HBB". :) For those that prefer e-mail: or leave a contact, I'll give more info. If you are e-mailing, I'm assuming its because you prefer not to broadcast on the WWW, so leave me a name you're ok with me posting. (Or it can be anon#4 +1, anon#5, anon#6, etc.) I'd prefer a name so that I can track cancellations. (They'll happen and that's cool. I'm just trying to keep everyone informed.)

I'll try to show up early and be in the bar patio. Why there? You can see people entering and I'll try to have the "HBB" sign obvious from the entry (turn a 180 from the entry doors and I'll try to sit in a visible area).

Deep though, think how much the markets are going to change between now and the party/dinner. Where will the stock market be? Will the commercial paper market be in a more publicly obvious decline that even J6P understands?

If you want to bring things to discuss, please make copies! For example, I have a series of excel files with graphs that might be interesting to discuss in person, but I do not consider a long enough timeline to post on the web. (You've seen small portions on the blog.) Or... just bring yourself! I envision this to be a mostly relaxed meet and greet, not a stockholders meeting. ;)

Got popcorn and some time?

Inventory everywhere

Quite a while ago I predicted inventory, per Ziprealty, would peak at 1.3 to 1.4 million homes in 2007. We are already there! 1,366,352 homes are on the market this morning; that is a new record. Note that it is only 6,000 above 8/28/2007, so we are growing slowly. However, as I predicted in the previous article, we're not done yet in 2007. The peak should be later (partially due to the credit crisis). In a way its comforting to see things unfold in a predictable manner. Do note how I split 2006 and 2007 in the chart above in order to more clearly show the YOY (year over year) difference.

Due to the credit crisis, home sales should continue to drop in a YOY basis. If you haven't read OCrenter's excellent Bubble Market Inventory blog (in links), you should. Hattip for providing to the public domain the data for all the bubble markets, including LA, for years; the public service is beyond value. I've taken the end of month inventory and divided it by each month's sales to create the inventory in months of sales. As you can see, during crazy 2005, there really wasn't much inventory. In 2006 the inventory to sales started in a normal range and then went a little high. Now in 2007 we have just gotten into break away inventory. Instead of August competing with June to be the best sales month of the year, August was the weakest sales month (so far) of 2007. Gulp.

When I do the market emotions in a week, I fully expect us to continue being in "fear." Yes, some regions are far worse. When will people wake up to all of the empty homes that are flips? 90277 is absolutely littered with them. I wish 90275/90274 were also, but I'm not seeing that... yet.

My wife's latest concern is that we won't be able to get a mortgage for the amount we could have six months ago. I'm not sure my response of "that would be the best thing for us" has convinced her.

Last thing:
HBB meeing in the South Bay on Saturday 9/29/2007.
Anyone interested? I was suggesting the Cheesecake Factory in Redondo Beach. Nice location, good schadenfreude. I'd like to put a face with some of the names. Please responds in the "weekend topics" of HBB.

Got popcorn?

Thursday, September 13, 2007

Hovnanian home sale this weekend

or piece together:

These discounts are pretty impressive. (Not that I'm tempted). Any bets on how many they sell? I'm guessing a nice round 100 units.

My favorite quote from the article: "Skea said the sale would not be repeated, but an industry observer was not so certain."

As much as it is cheesy marketing tactics, do understand builders have to try to survive. If this marketing helps... so be it. I'm tired of trying to warn the sheeple; just good luck finding enough who qualify for the mortgage! ;)

This is just more knife catching.

Read this article (hat tip Sacramento landing):


Look at the last table. Of the New Jersey/New York/Long Island home owners 21% are paying over 50% of income towards their housing. That is unsustainable.

Then look at the bay area at 23% and LA at 24%. Look at how much money the central banks are pouring into the banks (per below $383 Billion in August, an unprecedented amount).

Upping Freddie and Fannie's limits just will not do much. Foreign banks/hedge funds/governments are going to want reasonable security in their investments. We could make it bad enough that the GSE's cannot sell bonds... Oh wait... now when was Fannie's last Auction... Hmmmm...

And I'm sure J6P is happy oil is now over $80/bbl. Good grief! How are the airlines (an industry I love to follow) going to survive? Sigh... :(

Got popcorn?

Wednesday, September 12, 2007

Tire shards

I've been having to go up to Palmdale a bit lately (thankfully counter-traffic). What I cannot help but notice is the huge quantity of tire fragments on the road. Is this due to the heat? Those malfunctioning Chinese tires? Or are people trying to save a buck and riding on worn out tires for a mile too many? I do not have a direct YOY comparison, so I'll have to withhold judgment. But if anyone has a link to a web page describing any trend on vehicle safety due to people being stupidly cheap on tire replacement, I would love to peruse.

Got popcorn?

Monday, September 10, 2007

How to talk with your realtor

Remember, in their own mind, they make sense.

For my niece and nephew (Yes, they would get it):

Why the change? I just cannot take the same counter arguments!
Its different here.
RE always goes up.
But all of the baby boomers wan to live here.

If on the REIC could put as much thought into their pitches as Monte Python. Sigh...
Got popcorn?

Friday, September 07, 2007

Proverbial invisible hand

What we're seeing is a delayed implementation of Adam Smith's invisible hand. While the American consumer has been resilient, I'm expecting that to slow. Credit will continue to tighten.

So the question is, with all of the trouble in the commercial paper market, how long can the "no payment until 2009" promotions last? J6P is up to his eyeballs in debt. Soon that negative savings rate has to be paid off.

From what I've read, our current demographics suggest a 3% savings rate would be the minimum for a healthy long term economy. Cool... Now what does it have to go up to? We have years of negative savings that must be made up. We also will be seeing the land barrons' retirement plan of stiffing the next generation for a home isn't working out... So how much must spending contract?

What won't be hit? I'm sure sporting goods will be very hard hit (how many people do not have three rackets in the garage?). Cars sales are one step away from the critical list. Yes, retirees will spend more time on leisure, but do we really need that many golf courses?

What will it be like on the ski slopes this year? Will people nurse an extra year out of their old skis? Not by as many day passes? Go with cheaper lodging if they have a season pass? (Its a damn expensive sport.) Not to mention, what are the bar sales going to be like at Mammoth this year? Quite bluntly, the realtors (tm) and mortgage brokers were the lushes for 2003, 2004 and 2005. You're going to get a few blog posts on this during the winter from yours truly. ;)

I have a feeling that the election focus will shift to health care, pensions, and 401k reform. The boomers are getting ready to retire and are not ready to accept the losses their portfolios are about to take. How many hedge funds haven't yet halted dispersals yet are effectively broke? Yes, I'm sure some will do well. But not all.

Closer to my heart, will business jet sales bonanza continue? Heck, even single engine prop jobs were selling well. But I cannot help but notice how many older Cessnas, pipers, and Commanders are on the market. But no flood of jets... yet. I think we're just seeing the normal time lag; the rich don't notice we're into a recession until about a year after the working class.

Overall my predictions are that we're going to see a bit of layoffs between now and just before Christmas. Nothing too severe, but enough to get people worried. That won't happen until 2008.

Bubble bloggers have been frustrated for years why the laws of economics were no longer applying. We're about to find out why people still read Adam Smith. May I recommend an earlier printing? One with the chapter on slavery (its really a good overview on how treatment of workers and their motivation affects productivity). For some reason the newer printings cut out that section. Also spend some time on the chapters on how regions do best focusing on specialized industries (e.g., so-cal and banking/aerospace/media). Yea... he uses lace production as an example, but no reason you cannot think software, health care management, or microchips. ;)

The WSJ has a pretty bearish video:

"Value of a home depends on the employment around it." Naaaa... couldn't be.

"Unless we have see some pronounced evidence of firming of the labor market, of which there is no evidence, consumer spending is likely to slow."

In other words, Goldilocks is about to suffer a bit of abuse.

Got popcorn?

Monday, September 03, 2007

Weekend conversations

There were several weekend conversations that are worth blogging.

First, it was the opening weekend for USC football!

The organizer of our football group has now had his home on the market 9 or 10 months. (It was on the market a month or so before the Rose bowl!) He's holding off moving for a great promotion trying to sell. (Internal transfer.)

Another bought a condo (townhouse?) in Silver lake. She's renting that out (obviously a loss) but was able to find a rental on the east side of PCH in Malibu for less. So she brags about the rent difference but ignores the mortgage.

We sat across from a builder "marketer" at the beach cities tailgate (my favorite). He was noting how prices would continue to go down a little. He did gripe about a bunch of $4.6 million homes in the bay area with boat docks (for 46' boats, I guess they expect $100k/foot for the dock) that no one is looking at. He's worried; with a recently purchased Marina Del Rey condo, where is the income going to come from? He's fine today... but tomorrow?

Breakfast at my favorite diner is always fun. Next to us was a baby boomer bragging about his home sale and how cheap it was to rent by the beach. "I probably won't ever buy a home again" was heard by at least half of the restaurant. He was excited about a possible low cost Hawaiian rental too; he was trying to figure out a way to rent it in his name and "time share" it between his buddies at the table.

Dinner with family was fun. Lafite Rothschild (1975) wine also helped lubricate the conversation. One uncle listened and determined no area was safe from the downturn (the one who could afford to bring the name brand wine). Another uncle was arguing vigorously how prices will, at most, go down a little. (I decided to let it drop until his bought of unemployment goes away...) The first uncle understood job migration (he cannot hire staff for his office due to migration out of CA). The second was "people will always want to live here." The first uncle agreed with my comment that "we have to undo and redo three years worth of sales." The 2nd uncle just wasn't willing to accept any such possibility.

Basically, buyers have written off buying. Sellers... hope but fear. People whom consider their equity their pride and joy... will take a hit. I should note that the 1st uncle's home is a custom job designed for one purpose: sunset views during retirement with an elevator for when the knees go. Market price to him is something his executor will worry about. The 2nd uncle... I think his retirement planning is based on "cashing out" of high home equity...

I keep reading predictions of single digit declines in 2007, 10% to 20% in 2008, and then the floor falling out in 2009. We seem to be on track for that. At least emotionally. But I wonder, when will all the flips in bubble areas soak up too many funds for the mother markets? Not to mention, am I the only one noticing the number of retail and commercial "for lease" signs is abnormal?

Got popcorn?

Friday, August 31, 2007

Housing bailout

I've been watching Bloomberg TV on the President's speach on the housing mortgage bailout. (Yea... they won't call it that.) In my opinion, this is a non-starter.

Oh, they'll start the program, throw money into it, and save a few FB's. But let's put this into perspective.

Last year ziprealty never broke 1 million homes for sale. Now, I know they've added more "territory" to their listing, but go look at their national inventory. But today there is 1,365,705 homes 08:21am PDT. They'll try to save 80,000. Ok, 80,000 people who were idiots but are staying in their home can have loan forgiveness from their banks and not be taxed for it. Now the other 400,000 additional homes? And only 100,000 can be explained away that ziprealty expanded territory...

So this is curious. It only helps loss mitigation. I'm actually ok with that. Why? It effectively lowers the price of homes out there!

Not to mention, this is a FHA bailout. Exactly what does a FHA bailout mean for California? Yep. Exactly NOTHING! What does it do for people who inflated their income with fraud? You got it, NOTHING! Ski lodges at Mammoth? NOTHING! And how does this help the credit markets? Bwaaa ha ha!

Got popcorn?

Tuesday, August 28, 2007

Home Prices Post Steepest Drop in 20 Years

Yes, that was the title on the front page of Yahoo! Finance. :)

U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, the research group said Tuesday.

The decline in home prices around the nation shows no evidence of a market recovery anytime soon, one of the architects of the index said.

MacroMarkets LLC Chief Economist Robert Shiller said the declining residential real estate market "shows no signs of slowing down."

later in the article:

The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.

The rest notes how the problem is still spreading.

In some ways this is just more of the same... what we expected. On the other... its driving it in that this isn't a short term problem. 12 months of national should start to wake people up. But don't think this is even close to being done.

Got popcorn?

Sunday, August 26, 2007

Temp labor demand down: WSJ

" Add another item to the economic worry list: Employers are shedding temporary workers.

Temporary employment, long a buffer that gives companies flexibility, has fallen each of the past six months, and in July was down nearly 2% from the start of the year, according to the Bureau of Labor Statistics. U.S. revenue at Manpower Inc., the world's second-largest staffing firm after Adecco Group, dropped almost 9% in the second quarter, as demand fell.

In case it doesn't fit on one line, I've split it into three:

but the most interesting bit:
" The Background: Use of temps is often viewed as a leading indicator for the overall job market, as companies cut temps before full-time workers on their payrolls.

If you have an online subscription to the WSJ its worth a read. It goes into how this is a slow drop in temp demand and is not a severe drop as happened in the last recessions.

But don't miss two of the last three paragraphs. I'll only paste one to keep within "fair use" guidelines:

Because the temp and overall job markets haven't tracked closely in recent months, the weakness in temp hiring could be a false indicator. "Nobody has ever seen this type of a pause in temp employment growth," Mr. Camden said. "This is just an unusual array of numbers...In general when you've had a long flat period, it's followed either by a sharp increase or a sharp decrease."

To me it implies we are about at the sharp decrease. I honestly thought we would ease our way into this recession. Instead, we seem bound and determined to hit the wall as fast as we can.

Got popcorn?