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 K├╝bler-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?