LA inventory (per Zip realty) March 27th update

Its March 27th and Los Angeles Inventory per Zip realty has broken through the highest value I recorded last year. Now... I think I missed last year's peak by a few thousand, so this might not be a true peak. Also, this inventory includes far flung places that many would not consider LA. However, its a repeatable measure and thus one I started to track.


What I find interesting is the slope keeps increasing. I've also been trackign both national on ziprealty and a few south bay cities since September. Hat tip to OCrenter's excellent blog. My data tracking is but a poor copy of his methods. National inventory is also shooting up, but the beach cities... are pretty flat.

But the above graph gives me hope. Even knowing that a few thousand of the growth units have been Palmdale and Lancaster. This downturn has a pattern. Its about to repeat.

Got popcorn?
Neil

WSJ article on Bank loans to home builders

If you have an online WSJ subscription, this is really worth reading:
http://online.wsj.com/article/SB117486258105148385.html?mod=todays_us_money_and_investing

just in case that above link doesn't work:
http://tinyurl.com/2qewus

According to the Federal Deposit Insurance Corp., U.S. banks held $565 billion in real-estate construction and development loans at the end of last year, more than double the $272 billion held at the end of 2003. The FDIC doesn't break out loans for residential construction (read: risky) versus commercial projects (not so risky). But it's a good guess that the bulk of the increase in banks' construction loans came from housing. According to the Commerce Department, residential construction is a bigger business and has grown quicker.

Proportionally speaking, then, it's also a good guess that an increase in late payments on construction loans is coming from the residential side -- especially when considering that it's residential builders, not commercial developers, that are really in the dumps these days. In the fourth quarter, $5.3 billion in construction loans were 30 to 89 days past due, according to the FDIC, up from $2.8 billion a year ago.

ouch.... and further on...

Overall, construction loans accounted for 7.8% of loans outstanding in the fourth quarter, up from 2.9% a decade earlier.

But wait, we learned our lesson from the S&L crisis... not!

Oh, that $5.3 billion in loans overdue... its on a graph going up parabolically.

To add a tidbit, I know of a banker worried about a few billion in construction loans from that banker's employer. (Extra audits, etc.)

Now, what fraction of $565 billion going belly up would create a banking crisis? I'm certain the system could handle $60 billion in losses (~10%); what I doubt is that a 20% loss (about $115 Billion) could be shaken off.

So let's say the system survives but gets a "good scare." How much more will that tighten credit standards? Hmmm??? I think quite a bit.

Got popcorn?
Neil

M. Mouse in on mortgage fraud.

Some things are too funny and have to be shared.

"Around the same time, an examination of a $500,000 California delinquency revealed a daycare worker falsely claiming to make $13,000 a month - out of her home!

The con that will no doubt go down in company history involved a delinquent borrower who signed his loan paperwork as - you're gonna love this - M. Mouse. Yes, that's M as in Mickey.

"The originator bought it back," says Kevin Kanouff, who heads up the surveillance part of Clayton's business. "That would have been a tough one to refute."

ROTFL

From:

http://money.cnn.com/2007/03/19/magazines/fortune/

clayton.fortune/index.htm?postversion=2007032110

(edit: broke above into two lines to allow display on screen).

The whole article is worth reading (note: definately MSM fluff though).

This one deserves a:

Got popcorn?
Neil

Did the dam break?

It "feels like the dam has broken." As of this second, I cannot tell you what changed in the last week... but the conversations and attitudes are different.

Five coworkers have come into my office today telling me how they talked people out of buying. A few even came into my office to be talked out of buying a home today. This isn't normal... One is normally notable. Five?!?

Three coworkers have confided in me they're transfering out of state in the last three work days due to cost of living issues. That's more than normal in a year! (We have a loyal group.)

Maybe its just my company... maybe just so-cal.

But something changed over the weekend.

This actually has me... concerned. The popcorn bucket has been put down. Something just "feels" really different this week.

Maybe its because I've heard of a few more acquantances being laid off. :(

Maybe because one co-worker had three neighbors laid off last week?

Something has changed... or has it? I think a big change... But I cannot tell you exactly what.

Neil

#39 on the Implode-o-meter

A friend of mine received notice from Ameriquest on Thursday that "his services were no longer required." Now, anyone reading my posts knows that I was not in the least in favor of the loans being offered. But I do wish this individual well.

He's located in OC where the job market has developed quite a chill. So if anyone needs a good IT project manager, let me know and I'll pass it on.

Sadly, this is only the tip of the iceberg. I have very mixed emotions right now about all of the people getting laid off. Ok, the brokers who sucked FB's into loans that were financial death traps... I have no pity. For those doing back office work just trying to get by... some pity.

But emotions don't matter. The job market is going to get colder. Its going to become more desolate. Aerospace has almost completely shut down hiring here in So-Cal for experienced talent. Oh, students are still getting hired and there certainly are positions being filled on an exception basis... But normally I know of 3 to 4 openings for every acquaintance I have looking to job hop. Right now I know a few people about to see the pay checks halt... and yet I know of only two unfilled positions that could be filled by external applicants. In other words, the ratio hasn't reversed, but instead of applicants to jobs being 1:3 its now 2:1.

No claims are made that this is a scientific survey...

I'm also hearing about job transfers. A friend whom I work with just confided to me that he and his girlfriend will decide where to live within 60 days. Due to so-cal house prices... he's thinking elsewhere. She really wants to buy at level to at least match the standard of living of the east European country they left. Since that is out of reach in so-cal... they'll move again. :( This scenario, by rumor, seems to be most common at Raytheon right now. (solely due to the age demographics of their workforce. The other aerospace companies seem to have a large "hole" in the 30 to 39 age range.)

I'm hearing rumblings about Raytheon, Boeing, Northrop, and Lockheed all considering a decent size move. Now... Lockheed has already committed to moving 1,700 out of state and Boeing 1,000... so this could be a small follow on wave or something more. Boeing would do the most damage (largest employer in LA) if anything big happens (e.g., lose the C-17, Boeing satellites cuts head count/relocates some work, etc.). Northrop? If they will the KC-33, expect a few thousand to head to Houston and Mobile. I wish I could tell you specifics on Raytheon... but nothing but the rumblings.

The big unknown (to me) is when will the music companies start laying off. They have to, their books just aren't looking right. Ok, no need for a 2nd implode-o-meter. This mature "cash flow" industry just isn't meeting the numbers.... Somehow I don't think that CD sales are going to spike in 2007 or 2008.

So the summary is that so-cal is about to lose a bunch of jobs. OC is about to get "hammered." But everywhere will feel the pain. Those out of work had better be willing to be a little flexible. We'll get through this... but its not going to be fun for several hundred thousand southland families.

Got popcorn?
Neil

Co-workers stock predictions

First, this blog is for entertainment only! Do not make investment decisions based on some loon posting on the net.



I have a co-worker who has been pretty good predicting short term bounces in the market. His predictions?

3/14/07 Climb back up to ~12,400 on the Dow.

End of week... Due to noise, not as tight of a prediction, but most likely 11,700. However, due to market noise, he is giving a window of 10,900 to 11,900. In other words, down for the week from today's close, but a range of possibilities.

This is only fun and games. What's your prediction?

Fair use of Yahoo stock quote.

Got popcorn?
Neil

Edit 9:23 PST The Nikkei is down 2.98%... so I'm beginning to think this was optimistic.

Neil

Stop shopping for homes and get your house in order

This has been quite a bearish day on the WSJ. Two articles came to my attention.







1. http://online.wsj.com/article/SB117252218857019738.html
2. http://online.wsj.com/article/SB117329581356629863.html?mod=todays_us_the_journal_report

Yes, its a paid subscription, so here are some "fair use" quotes.

"If you don't qualify for a loan because you have no down payment, stop shopping for homes and start getting your house in order. To save more, spend as if you've already bought a home. If your mortgage payment would be $2,500 and your rent is $1,500, deposit the $1,000 difference automatically into a high-yielding savings account each month."

But but but... that's what I'm already doing! ;) But a mortgage payment of only $2,500... how I wish. This used to be common old advice. Click on my $2,859/month article from last month if you want to know more on what I'm doing.

"

Q: But I have to live somewhere! And I have to pay something for a place to live. Certainly it's better to pay "deductible" mortgage interest than rent.

A: Buying a house with a long-term mortgage is just another form of renting.

Mortgage interest is rent that you pay to your lender for the use of its money rather than to a landlord for the use of his house. Yes, the government picks up a portion of that with the tax deduction, but most of your monthly payment neither builds equity nor is deductible. It just goes down the same black hole that sucks up any other renter's money. And it takes 20 years before a typical borrower pays more principal each month than interest.

"I have to pay something" is a rationale that home buyers use for going deeply in debt and paying tens or hundreds of thousands of dollars in interest to buy a house that, they mistakenly believe, will make a big profit for them down the line."

Ok, which of you secured a job at the WSJ? ;)

I'm thinking the lead Sheeple are noticing that their is a burning smell in the theater. They're quietly slipping out the exits. Pretty soon a lot of people are going to be walking away from their investments and that won't be pretty.

Got popcorn?
Neil

Houston, we have a problem. A million of them.

Notice something? The national home inventory spiked over a million. Inventory growth was already on that path, but it just cossed the mark on March 8th, 2007 (I noticed at 4pm PST). Yes, this only cut about two and a half weeks (18 days, to be precise) over when it was trendlining to break a million...

But what caused the spike? ziprealty error? New areas in Ziprealty? Panic and Mehem? (I doubt the last... but wait for it. That will eventually come.)

The red dot is my predicted maximum inventory for the year (previously blogged). It hasn't changed much. (Any good regression shouldn't be effected much by one data point.) Actually, it was a little down... we're still in the 1.3 to 1.4 million target range.

Edit:
Some grammer and noted ziprealty, at 8pm, is at 1.01 million homes for sale nationally! So this wasn't a one minute fluke...

Got popcorn?
Neil

Knowledge of downturn is growning

My sister in law's sister gave me a ring today. Out of the blue she wanted advice. You see, she is selling her townhome in the mid-Wilshire district and wanted to know if she should:


1. Put money in the bank or

2. Buy a new home immediately in the beach cities.

This shocked the heck out of me. Both my sister and law and her sister both believe "real estate only goes up." Thus... I left the room when they talked real estate. However, my sister in law's sister (MSILS) asked a bunch of relatives about the state of real estate.

Apparently, one after the other went quite and said "ask Neil, he's the one who knows what's happening in real estate." That surprised me... most of my relatives were "buy now" types... so something has changed. Either that or they agreed with me and just played "devil's advocate" when talking real estate with me (my family is known to do that).

So she called and we talked. I warned to put the money away for two years and then buy. She liked the idea (THUD, Neil was on the floor in shock...). But then the kicker.

The home is for sale... She has an offer for $25k under her list price. She even has a 2nd lowball offer (ok, who was it?). So MSILS wants to hold out. I argued. She went "you are too anxious to have me sell." I noted the first offer is often the best offer... five minutes later I could put the phone back to my ear. Last words were something like "you know I'm bearish, but its your home and your money." I do wish her luck... I hope I'm wrong for her sake (this month).

Sigh... I guess partial recognition. But where is the disconnect... prices can go down in the beach cities but not mid-Wilshire?!? Yes... "its different here."

I've already said my piece... so now its going to be interesting.

Oh, only my fiancee, sister, and dad have a link to my blog among family. So I'm safe blogging this. ;)

Speaking of my dad, he shorted Fremont... So I know I'll hear the bragging for a bit. ;)

Got popcorn?
Neil