CR has an article up on the Philidelphia Fed Map.
Its worth looking at:
http://www.calculatedriskblog.com/2008/12/philly-fed-november-state-coincident.html
Or broken up:
http://www.calculatedriskblog.com/
2008/12/
philly-fed-november-state-coincident.html
Points to make:
1. California isn't leading the pack down.
2. There is a core of 'flyover' states doing 'ok'
3. Virgina is doing well while Maryland is falling apart. Interesting...
4. All of the Automotive production states are dying.
What worries me is that only two high population states are even doing ok. None of the high population states are growing strongly. Most of the high population states are really hurting...
I do wonder how Oregon and Washington turned south so quickly... that has bad implications... Take some time to look at a port. Its scary out there...
Got Popcorn?
Neil
Tuesday, December 23, 2008
Sunday, December 21, 2008
Real Estate Emotions: December, continued Panic
Holiday emotions seem to be blunting the 3rd month of panic. I'm questioning the chance of a quick emotion change. But then again...there are always cycles withing cycles and this could just be the pause before panic progresses on. The credit markets do seem ready to move things along...
What I'm noticing is that no one seems to be willing to say real estate is a bad investment! Too many are itching to buy. Thus... We seem to be getting further from capitulation.
But then we see rates on jumbo and jumbo conforming disconnecting from the standard product. Not to mention the jobs situation. Nothing like a dose of financial reality to splash cold water onto the bare scalp of a Trump wanna be.
As I noted last month, its worse than I expected. I'll repeat what I've been saying: "For those waiting for the crash in house prices in high end neighborhoods, the big drops happen during Capitulation." You have four or five months to wait until the start of Capitulation and then another year for the emotion to do its job.
For the business cycle, let's look into one of the rare forward indicators, the Baltic dry index. Basically, there is very little demand to charter ships.
The above is from Bloomberg
You can now charter a ship for pennies on the dollar compared to six months ago. This is a really ugly forward indicator. Until this index shoots up a lot (say to 5000 from the current 733), it implies an imploding world economy. Yea... things are much worse than I thought they would be.
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. Desperation: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
I wonder if everything falling apart won't correct house prices like the stock markets. Oh... there will be a six month delay (or more). We're on an accelerated cycle. Panic started barely within my fall prediction. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm predicting a short panic (six months instead of a year) that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, there is a chance of a protracted downturn than the last one. I would love it if someone who point out a forward looking indicator that isn't ugly.
To think, the majority of layoffs lie ahead.
Got Popcorn?
Neil
What I'm noticing is that no one seems to be willing to say real estate is a bad investment! Too many are itching to buy. Thus... We seem to be getting further from capitulation.
But then we see rates on jumbo and jumbo conforming disconnecting from the standard product. Not to mention the jobs situation. Nothing like a dose of financial reality to splash cold water onto the bare scalp of a Trump wanna be.
As I noted last month, its worse than I expected. I'll repeat what I've been saying: "For those waiting for the crash in house prices in high end neighborhoods, the big drops happen during Capitulation." You have four or five months to wait until the start of Capitulation and then another year for the emotion to do its job.
For the business cycle, let's look into one of the rare forward indicators, the Baltic dry index. Basically, there is very little demand to charter ships.
The above is from Bloomberg
You can now charter a ship for pennies on the dollar compared to six months ago. This is a really ugly forward indicator. Until this index shoots up a lot (say to 5000 from the current 733), it implies an imploding world economy. Yea... things are much worse than I thought they would be.
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. Desperation: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
I wonder if everything falling apart won't correct house prices like the stock markets. Oh... there will be a six month delay (or more). We're on an accelerated cycle. Panic started barely within my fall prediction. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm predicting a short panic (six months instead of a year) that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, there is a chance of a protracted downturn than the last one. I would love it if someone who point out a forward looking indicator that isn't ugly.
To think, the majority of layoffs lie ahead.
Got Popcorn?
Neil
Sunday, December 14, 2008
Inventory and mania
No mania can end until investors stop thinking it will recover quickly. A conversation at work convinces me that we're not even close. Coworkers seriously believe we're close to the bottom. They're itching to buy. Well actually... more are itching to sell.
Five were grousing that they're having trouble finding renters while at the same time they're talking about buying homes to rent!?!
I've been a little remiss in updating my inventory charts. Still, they are better than once a month data. In general, inventory is at or just below last year. However... sales above $400k are almost universally down as is the situation with foreclosures dominating the market!
I expect credit to continue to tighten in 2009. Too many coworkers have bought 2nd, 3rd, 4th, or 5th homes on credit. They're buying nationally. If you've heard of a city, I'm certain they've bought there. Most consider subsidizing rent the first 3 to 5 years 'normal' and a loss that will easily be made up with appreciation. But the credit keeps tightening and they keep getting surprised by the plummet in rents and sales prices. This isn't over. Heck, most layoffs I know about won't even occur until the 2nd or 3rd quarter of 2009. (Big companies move slowly...)
So I stand by my prediction that 2009 will be the the year of the sharpest declines in US real estate. This is despite certain areas being near their bottom! For its not until about March that the resets even start on the prime loans. Layoffs and the venture capital shortfall will be the news of 2009.
For most of the nation, 2009 will erase that year of appreciation that never should have occured: 2003. We'll be down to 2002 prices by February of 2010 in all but a few areas. No areas will be spared the decline.
But I want to emphasize some areas are very near the bottom. If a cash buyer will make a 7% rate of return... The maket is pretty much done dropping.
Then again... the stock market hasn't even priced in the secondary effects of Davoff... One isn't truly in a recession until the states bring their budgets in line with revenues either. When the biggest donor state in the union gets the 'dry heaves' in about March (California), everyone will feel it.
Note: I still think Florida will get the worst of the economic brunt (Years of inventory and a reverse of migration!), 2nd Nevada, 3rd Michigan or Ohio, then (in no particular order): Arizona, Illinois (auto parts), and then California. But since no state exports money like California to the Feds... the ripple will be felt nationally fast.
To the graphs:
Since the South Bay of LA is where I hope to buy, a more detailed graph broken down by city. Notice the drop in inventory for 2008? Its more than compensated by an EXPLOSION in rental availablity. Fewer homes might be for sale, but that is only because sellers are so far "under water" they are desperate and will rent to cut the monthly loss. (Its been well documented for Pheonix and is obviously spreading nationally):
A comment. The equilvalent sales are the sales normal sellers are getting. In prior years, bank sales were too tiny to matter. This is not the case for SoCal in 2008 and its obvious 2009 will be truly dominated by foreclosure sales. Any further attempts to slow foreclosures will only tighten credit. That would only put things towards the advantage of those waiting with a large down payment.
Got Popcorn?
Neil
Five were grousing that they're having trouble finding renters while at the same time they're talking about buying homes to rent!?!
I've been a little remiss in updating my inventory charts. Still, they are better than once a month data. In general, inventory is at or just below last year. However... sales above $400k are almost universally down as is the situation with foreclosures dominating the market!
I expect credit to continue to tighten in 2009. Too many coworkers have bought 2nd, 3rd, 4th, or 5th homes on credit. They're buying nationally. If you've heard of a city, I'm certain they've bought there. Most consider subsidizing rent the first 3 to 5 years 'normal' and a loss that will easily be made up with appreciation. But the credit keeps tightening and they keep getting surprised by the plummet in rents and sales prices. This isn't over. Heck, most layoffs I know about won't even occur until the 2nd or 3rd quarter of 2009. (Big companies move slowly...)
So I stand by my prediction that 2009 will be the the year of the sharpest declines in US real estate. This is despite certain areas being near their bottom! For its not until about March that the resets even start on the prime loans. Layoffs and the venture capital shortfall will be the news of 2009.
For most of the nation, 2009 will erase that year of appreciation that never should have occured: 2003. We'll be down to 2002 prices by February of 2010 in all but a few areas. No areas will be spared the decline.
But I want to emphasize some areas are very near the bottom. If a cash buyer will make a 7% rate of return... The maket is pretty much done dropping.
Then again... the stock market hasn't even priced in the secondary effects of Davoff... One isn't truly in a recession until the states bring their budgets in line with revenues either. When the biggest donor state in the union gets the 'dry heaves' in about March (California), everyone will feel it.
Note: I still think Florida will get the worst of the economic brunt (Years of inventory and a reverse of migration!), 2nd Nevada, 3rd Michigan or Ohio, then (in no particular order): Arizona, Illinois (auto parts), and then California. But since no state exports money like California to the Feds... the ripple will be felt nationally fast.
To the graphs:
Since the South Bay of LA is where I hope to buy, a more detailed graph broken down by city. Notice the drop in inventory for 2008? Its more than compensated by an EXPLOSION in rental availablity. Fewer homes might be for sale, but that is only because sellers are so far "under water" they are desperate and will rent to cut the monthly loss. (Its been well documented for Pheonix and is obviously spreading nationally):
A comment. The equilvalent sales are the sales normal sellers are getting. In prior years, bank sales were too tiny to matter. This is not the case for SoCal in 2008 and its obvious 2009 will be truly dominated by foreclosure sales. Any further attempts to slow foreclosures will only tighten credit. That would only put things towards the advantage of those waiting with a large down payment.
Got Popcorn?
Neil
Friday, December 05, 2008
It doesn't feel like Peak Season
This is the time of year where its past when a water borne shipment can fill a Christmas shortfall, so the air freight market normally is at its peak. With jet fuel prices plummeting... One would expect good freight profits. But...
" It doesn't feel like peak season here at FedEx. 12 wide-bodies will be parked this month and an additional 8 more in January. No plans to lay-off or furlough any employees. We will decline 15 options for A310 in early 2009.
from airliners.net
:
Note: FedEx declining the A310 (used aircraft converted to freighters) is no surprise with their standardization on 757 based freighters.
How many airline employees are going to be laid off?
Got Popcorn?
Neil
" It doesn't feel like peak season here at FedEx. 12 wide-bodies will be parked this month and an additional 8 more in January. No plans to lay-off or furlough any employees. We will decline 15 options for A310 in early 2009.
from airliners.net
:
Note: FedEx declining the A310 (used aircraft converted to freighters) is no surprise with their standardization on 757 based freighters.
How many airline employees are going to be laid off?
Got Popcorn?
Neil
Monday, December 01, 2008
In Memoriam: Doris "Tanta" Dungey
Tanta, we never really got to know you. But oh did we respect you.
The co-blogger for CR has passed away. We will all mis her 'ubernerd' posts and insight.
http://calculatedrisk.blogspot.com/
Neil
The co-blogger for CR has passed away. We will all mis her 'ubernerd' posts and insight.
http://calculatedrisk.blogspot.com/
Neil
Friday, November 28, 2008
Real Estate Emotions: November, continued Panic
We're two months into panic now. Let's be blunt, its worse than I expected. I'll repeat what I've been saying: "For those waiting for the crash in house prices in high end neighborhoods, the big drops happen during Capitulation." You have four or five months to wait until the start of Capitulation and then another year for the emotion to do its job.
For the business cycle, let's look into one of the rare forward indicators, the Baltic dry index.
The above is from Bloomberg
You can now charter a ship for pennies on the dollar compared to six months ago. This is a really ugly forward indicator. Until this index shoots up a lot (say to 5000 from the current 818733), it implies an imploding world economy. Yea... things are much worse than I thought they would be.
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. Desperation: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
I wonder if everything falling apart won't correct house prices like the stock markets. Oh... there will be a six month delay (or more). We're on an accelerated cycle. Panic started barely within my fall prediction. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm waspredicting a short panic (six months instead of a year) that blends right into Capitulation; but now I wonder if panic won't persist for a whole year.
Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, there is a chance of a protracted downturn than the last one. I would love it if someone who point out a forward looking indicator that isn't ugly.
To think, the majority of layoffs lie ahead.
We won't be done with the real estate decline until the emotions cycle through. So relax. Its a long time until buying time.
Got Popcorn?
Neil
For the business cycle, let's look into one of the rare forward indicators, the Baltic dry index.
The above is from Bloomberg
You can now charter a ship for pennies on the dollar compared to six months ago. This is a really ugly forward indicator. Until this index shoots up a lot (say to 5000 from the current 818
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. Desperation: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
I wonder if everything falling apart won't correct house prices like the stock markets. Oh... there will be a six month delay (or more). We're on an accelerated cycle. Panic started barely within my fall prediction. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm waspredicting a short panic (six months instead of a year) that blends right into Capitulation; but now I wonder if panic won't persist for a whole year.
Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, there is a chance of a protracted downturn than the last one. I would love it if someone who point out a forward looking indicator that isn't ugly.
To think, the majority of layoffs lie ahead.
We won't be done with the real estate decline until the emotions cycle through. So relax. Its a long time until buying time.
Got Popcorn?
Neil
Thursday, November 20, 2008
End of the Economic world!
Not really...
But the Yugo is exiting production.
I find it ironic that its demise is mostly due to it no longer being the cheapest car in the world. I also feel bad as I've been making fun of Yugos since 1989. ;) I had no clue they were still in production!
The factory is being upgraded to produce "anti-credit crisis car."
Got Popcorn?
Neil
But the Yugo is exiting production.
I find it ironic that its demise is mostly due to it no longer being the cheapest car in the world. I also feel bad as I've been making fun of Yugos since 1989. ;) I had no clue they were still in production!
The factory is being upgraded to produce "anti-credit crisis car."
Got Popcorn?
Neil
Tuesday, November 18, 2008
CA debt projection for next year
I'm amazed at the debt projection trend for 2009 for California. It was planned to be a $9billion dollar debt. I've gone through news articles on Google to see how its growth with time.
Basically, the debt projection is growing $1.2 Billion per month give or take.
late comment: The dates on the x-axes are the projected debt by news article date in 2008. In September of 2007, the projection was ~$9billion.
Anyone who thinks raising taxes needs to talk to someone who employees people. Everyone from my employer to my mechanic will 'suck up' tax increases by reducing head count in California. As much as people like to discredit Reaganomics, the reality is that we've gone too far on the Laffer curve in the state of California. Make fun of 'supply side' economics all you want. But I know of more than a few doctors who will not expand their offices as the added take home revenue cuts their hourly wage. Heck, I was able to see one business study (about a year ago) where taxes pushed an expansion so far into the red, that if the business owner had expanded his take-home would have dropped!
What's sad is economically California is far better off than Florida, Arizona, Nevada, Michigan, and Ohio. Sadly, I think it will take the layoffs of 2Q 2009 and 3Q 2009 to wake people up. :( The layoffs until then will be trivial in California. (Not the case for Michigan and Ohio.) Yes, I called a *really bad* economic year trivial.
Now when will people wake up and realize turning factories into condos and shopping malls is only good if the overall economy is in balance. Oh, I agree with the mills of Connecticut being turned into apartments and condos. Those jobs should have been automated away. But driving out jobs that pay more than the median income for a region? That's just silly.
I'm going to be *very* curious to see how the advertising slump (which has gone past the tipping point) and the Venture capital crunch effect California. I see no way either will reverse within two years; its going to be dot bomb part deux with interest due.
Got Popcorn?
Neil
ps
see the supply/demand curve in my last post to see why the 120 day attempted halt in foreclosures in California is doomed. It might be remembered as the state's Smoot-Hawley.
Basically, the debt projection is growing $1.2 Billion per month give or take.
late comment: The dates on the x-axes are the projected debt by news article date in 2008. In September of 2007, the projection was ~$9billion.
Anyone who thinks raising taxes needs to talk to someone who employees people. Everyone from my employer to my mechanic will 'suck up' tax increases by reducing head count in California. As much as people like to discredit Reaganomics, the reality is that we've gone too far on the Laffer curve in the state of California. Make fun of 'supply side' economics all you want. But I know of more than a few doctors who will not expand their offices as the added take home revenue cuts their hourly wage. Heck, I was able to see one business study (about a year ago) where taxes pushed an expansion so far into the red, that if the business owner had expanded his take-home would have dropped!
What's sad is economically California is far better off than Florida, Arizona, Nevada, Michigan, and Ohio. Sadly, I think it will take the layoffs of 2Q 2009 and 3Q 2009 to wake people up. :( The layoffs until then will be trivial in California. (Not the case for Michigan and Ohio.) Yes, I called a *really bad* economic year trivial.
Now when will people wake up and realize turning factories into condos and shopping malls is only good if the overall economy is in balance. Oh, I agree with the mills of Connecticut being turned into apartments and condos. Those jobs should have been automated away. But driving out jobs that pay more than the median income for a region? That's just silly.
I'm going to be *very* curious to see how the advertising slump (which has gone past the tipping point) and the Venture capital crunch effect California. I see no way either will reverse within two years; its going to be dot bomb part deux with interest due.
Got Popcorn?
Neil
ps
see the supply/demand curve in my last post to see why the 120 day attempted halt in foreclosures in California is doomed. It might be remembered as the state's Smoot-Hawley.
Saturday, November 15, 2008
Why I'm not posting
I haven't been posting as most of the news hasn't been housing related but rather broader economy. I have no intention of starting a stock blog just as we repeat the dot bomb bust.
Naked Capitalism notes how the rates for shipping have plummeted. Too much. The ships are returning to port. Its not worth running them at today's rates:
http://www.nakedcapitalism.com/2008/11/yet-more-trade-finance-worries-not-for.html
There are several instances of letters of credit being refused. In particular, I'm hearing a TON of rumors from people who should know that Russia letters of credit no longer will be accepted and than cargos going to Russia are having to be reloaded as the payment cannot be completed.
Also I expect my readers to also be Calculatedrisk readers. Quite blunty, the commodities crash has created a very simple issue: Customers cannot afford to accept delivery of anything that has substantially decreased in value (copper, lumber, non-precious metals). Every is giving little examples here and there of deliveries being refused as payment would bankrupt the receiving company. Heck, with the reduction in consumer spending, who needs to produce more.
I also expect you to have been reading Calculatedrisk or Nakedcapitalism's articles
California is also trying to slow foreclosures. Basically the market is going from the roaring times at Point A (black dot). Due to job losses and tightening credit, we were moving to Point C via Point B. Why not direct? At first demand dropped while the sellers 'held out' in denial; In English, the demand curve shifted (From Demand1 to Demand2) while we stayed on the Supply1 curve. Thanks to foreclosures and underwater owners, we are now drifting to the Supply2 curve and the Demand2 curve (Point C).
California is tring to artificially limit supply. They think this will increase demand and put us back at A or C'. But...they cannot drive the demand curve, only the supply curve.
So the best case scenario is back to point B. (This won't happen, the economy is too broken.) There is a huge risk to this stupid strategy. 1. Banks go on a loan strike and buyers flee the state. It also could 3) keep housing costs so artificially high that it effect unemployment driving us to a new demand curve. So it will drive us to a new demand curve (Demand 3). So the question is... will we end up at point D or E? Heck, we could get a 'slingshot effect' with more supply and go to F!
Faith is being lost in the system. What I'm seeing with shipping and airline demand is past the breaking point. If the government doesn't stop treating the symptoms and instead offers a cure... we're going to go into Depression. If Obama does too much to bail out the auto industry or airlines... it will create a trade war and that will be Smoot-Hawley II. If the government doesn't stimulate demand... that too is really bad. I vote for infrastructure that will help stimulate business for decades. Other countries will not tolerate it if we become protectionist. Smoot-Hawley was bad as it destroyed import/export jobs faster than the manufacturing jobs it was supposed to create. Heck, it destroyed manufacturing jobs too as our exports were tariffed at the other end. Bailout packages that give our industries too much of an advantage will have the same effect.
Got Popcorn?
Neil
Naked Capitalism notes how the rates for shipping have plummeted. Too much. The ships are returning to port. Its not worth running them at today's rates:
http://www.nakedcapitalism.com/2008/11/yet-more-trade-finance-worries-not-for.html
There are several instances of letters of credit being refused. In particular, I'm hearing a TON of rumors from people who should know that Russia letters of credit no longer will be accepted and than cargos going to Russia are having to be reloaded as the payment cannot be completed.
Also I expect my readers to also be Calculatedrisk readers. Quite blunty, the commodities crash has created a very simple issue: Customers cannot afford to accept delivery of anything that has substantially decreased in value (copper, lumber, non-precious metals). Every is giving little examples here and there of deliveries being refused as payment would bankrupt the receiving company. Heck, with the reduction in consumer spending, who needs to produce more.
I also expect you to have been reading Calculatedrisk or Nakedcapitalism's articles
California is also trying to slow foreclosures. Basically the market is going from the roaring times at Point A (black dot). Due to job losses and tightening credit, we were moving to Point C via Point B. Why not direct? At first demand dropped while the sellers 'held out' in denial; In English, the demand curve shifted (From Demand1 to Demand2) while we stayed on the Supply1 curve. Thanks to foreclosures and underwater owners, we are now drifting to the Supply2 curve and the Demand2 curve (Point C).
California is tring to artificially limit supply. They think this will increase demand and put us back at A or C'. But...they cannot drive the demand curve, only the supply curve.
So the best case scenario is back to point B. (This won't happen, the economy is too broken.) There is a huge risk to this stupid strategy. 1. Banks go on a loan strike and buyers flee the state. It also could 3) keep housing costs so artificially high that it effect unemployment driving us to a new demand curve. So it will drive us to a new demand curve (Demand 3). So the question is... will we end up at point D or E? Heck, we could get a 'slingshot effect' with more supply and go to F!
Faith is being lost in the system. What I'm seeing with shipping and airline demand is past the breaking point. If the government doesn't stop treating the symptoms and instead offers a cure... we're going to go into Depression. If Obama does too much to bail out the auto industry or airlines... it will create a trade war and that will be Smoot-Hawley II. If the government doesn't stimulate demand... that too is really bad. I vote for infrastructure that will help stimulate business for decades. Other countries will not tolerate it if we become protectionist. Smoot-Hawley was bad as it destroyed import/export jobs faster than the manufacturing jobs it was supposed to create. Heck, it destroyed manufacturing jobs too as our exports were tariffed at the other end. Bailout packages that give our industries too much of an advantage will have the same effect.
Got Popcorn?
Neil
Friday, October 31, 2008
Some Inventory Graphs
Please see my previous article on Real Estate Emotions. We're in Panic.
Basically, inventory is down a bit everywhere. I hear quite a few people talking about waiting (up to 3 years) for when the market improves. Hmmm... could this be one of the reasons real estate recovers after a drop so slowly? ;)
National inventory says that nationally we should expect another year like 2008. However, at this point in the economic cycle one would expect layoffs to be driving home prices. Thus one will feed the other. Everything I look at points to 2009 being the worst year in home prices in US history. Yes... worse than 1931.
So I'll start the inventory with the two cities that should have the least downside risk. Now, we've watched their ex-urbs get hit, so I expect 'substitution' to pull down the center. But I'm not expecting a huge drop in either unless employment does even worse than this bear is being too optimistic. I see a chance of at most a 20% drop for both, with the worst areas being those alleged immune high end areas where we'll find out the poseurs in 2009. Most of the downside for these two areas will be due to the tightening of credit and some job losses.
I'll switch to a city that I think will be in the Running for the worst Real Estate market in 2009. Other contenders are Las Vegas, Palm Beach Florida, and Phoenix. This is my home city of LA. While nominal inventory is going down... Look at the malls. Not just all of the new ones going up, but the empty stores at the existing.
Greater LA is a metropolis that has many industries, but too many are running off advertising revenue. I assume you have been following the trend in that LA is doing fewer movie and TV shoots (minutes of filming) and more advertising. Hmmm... Add budgets are down... and just how much of Santa Monica is employed in internet companies dependent on ad revenue? I still see a 35%+ downside for SoCal.
The South Bay portion of LA is where I wish to buy. Less ad revenue dependent than 'the Westside', but it will be hit by that downturn too. It is also the US home of Aerospace engineering but it is looking at budget cuts and that means salary cuts. Aerospace will lose a minimum of 20,000 jobs in the South bay between now and Christmas 2009. :( It could be as high as 50,000. Yikes! So hang on, there is a bumpy ride ahead.
The housing bloggers have been obsessed with Phoenix for years. Inventory remains persistent above 60,000. It will be healthy again once its below 30,000! Something like 40% of Phoenix's peak employment was working to grow the city. The joke was that it is a city where Plumbers build homes for Roofers and Realtors. Possibly on Las Vegas and Palm Beach truly have as much downside risk.
Part of the reason I'm bearish nationally as too many high population states are going down. No bailout will help. In fact, the bailouts are only keeping the builders building and this increasing the downside potential everywhere there was building (which is... everywhere!).
A little more discussion on SoCal. Over HALF of sales are now foreclosures, yet the banks are still selling foreclosures slower than they are building up on the books! This is a doomsday scenario: Declining jobs and a monster inventory overhang. Oh... If you think your area is immune, what exactly was all the media coverage about 'California equity locusts' about if we weren't driving up prices everywhere! Seriously, every area will drop to where its incomes can support housing.
Oh... to think that the people who know bonds are speculating that during the summer of 2009 the government will lose its ability to keep propping up the economy. Bond buyers are supposed to be skeptical... there is enough momentum to keep things going for a bit. So the transition to Capitulation might not happen until this summer bond event. Cest la vie. Its going to happen. That will put those with savings in a very good space. :)
Got Popcorn?
Neil
Basically, inventory is down a bit everywhere. I hear quite a few people talking about waiting (up to 3 years) for when the market improves. Hmmm... could this be one of the reasons real estate recovers after a drop so slowly? ;)
National inventory says that nationally we should expect another year like 2008. However, at this point in the economic cycle one would expect layoffs to be driving home prices. Thus one will feed the other. Everything I look at points to 2009 being the worst year in home prices in US history. Yes... worse than 1931.
So I'll start the inventory with the two cities that should have the least downside risk. Now, we've watched their ex-urbs get hit, so I expect 'substitution' to pull down the center. But I'm not expecting a huge drop in either unless employment does even worse than this bear is being too optimistic. I see a chance of at most a 20% drop for both, with the worst areas being those alleged immune high end areas where we'll find out the poseurs in 2009. Most of the downside for these two areas will be due to the tightening of credit and some job losses.
I'll switch to a city that I think will be in the Running for the worst Real Estate market in 2009. Other contenders are Las Vegas, Palm Beach Florida, and Phoenix. This is my home city of LA. While nominal inventory is going down... Look at the malls. Not just all of the new ones going up, but the empty stores at the existing.
Greater LA is a metropolis that has many industries, but too many are running off advertising revenue. I assume you have been following the trend in that LA is doing fewer movie and TV shoots (minutes of filming) and more advertising. Hmmm... Add budgets are down... and just how much of Santa Monica is employed in internet companies dependent on ad revenue? I still see a 35%+ downside for SoCal.
The South Bay portion of LA is where I wish to buy. Less ad revenue dependent than 'the Westside', but it will be hit by that downturn too. It is also the US home of Aerospace engineering but it is looking at budget cuts and that means salary cuts. Aerospace will lose a minimum of 20,000 jobs in the South bay between now and Christmas 2009. :( It could be as high as 50,000. Yikes! So hang on, there is a bumpy ride ahead.
The housing bloggers have been obsessed with Phoenix for years. Inventory remains persistent above 60,000. It will be healthy again once its below 30,000! Something like 40% of Phoenix's peak employment was working to grow the city. The joke was that it is a city where Plumbers build homes for Roofers and Realtors. Possibly on Las Vegas and Palm Beach truly have as much downside risk.
Part of the reason I'm bearish nationally as too many high population states are going down. No bailout will help. In fact, the bailouts are only keeping the builders building and this increasing the downside potential everywhere there was building (which is... everywhere!).
A little more discussion on SoCal. Over HALF of sales are now foreclosures, yet the banks are still selling foreclosures slower than they are building up on the books! This is a doomsday scenario: Declining jobs and a monster inventory overhang. Oh... If you think your area is immune, what exactly was all the media coverage about 'California equity locusts' about if we weren't driving up prices everywhere! Seriously, every area will drop to where its incomes can support housing.
Oh... to think that the people who know bonds are speculating that during the summer of 2009 the government will lose its ability to keep propping up the economy. Bond buyers are supposed to be skeptical... there is enough momentum to keep things going for a bit. So the transition to Capitulation might not happen until this summer bond event. Cest la vie. Its going to happen. That will put those with savings in a very good space. :)
Got Popcorn?
Neil
Wednesday, October 29, 2008
Real Estate Emotions: October, Panic it is.
Last month I blogged on start of panic. At the time I thought I could be calling the emotion early. The last 30 days have proven we are definitely in Panic. Only in Panic do we see the shifts we are. For those waiting for the crash in house prices in high end neighborhoods, the big drops happen during Capitulation. You have five or six months to wait until the start of Capitulation and then another year for the emotion to do its job.
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. Desperation: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
We're pretty much right on schedule. Panic started barely within my fall prediction. We're on an accelerated cycle. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm predicting a short panic (six months instead of a year) that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, there is a chance of a protracted downturn than the last one.
Got Popcorn?
Neil
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. Desperation: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
We're pretty much right on schedule. Panic started barely within my fall prediction. We're on an accelerated cycle. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm predicting a short panic (six months instead of a year) that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, there is a chance of a protracted downturn than the last one.
Got Popcorn?
Neil
Thursday, October 23, 2008
Shipping
We're at the time of year where shipping should be ramping up.
We should be seeing raw material shipments ramping up for the Christmas production season. Instead, ships are being parked. Ok, partially due to Brazil and China refusing to sign a new iron ore agreement. But also due to week demand.
Baltic Dry Index at Naked Capitalism
Who quotes bloomberg The Baltic Dry Index, a measure of commodity-shipping rates, fell to the lowest in more than six years in London yesterday as slowing economic growth cuts demand to move coal, iron ore and steel. Commodity shippers will begin to collapse within the next six months and ``significant'' numbers may fail within two years, according to Fearnley Fonds ASA, a specialized maritime investment bank.
``Demand for commodities is definitely slowing down,'' Yu Mengguo, a senior analyst at Jinpeng International Futures Co., said in a phone interview from Beijing today. ``That's being reflected in tumbling prices, which we can't see the bottom for right now.''
Commodity prices are slumping worldwide on speculation a global economic slowdown will reduce demand. The Reuters/Jefferies CRB Index, which tracks commodity futures prices for 19 raw materials, plunged to the lowest in four years yesterday.
The Baltic Dry Index fell 66 percent in the three months to Sept. 30, the largest quarterly drop since the exchange began compiling the data. The measure of commodity-shipping costs is down 62 percent so far this month at 1,221 points, after rising to a record high of 11,793 points on May 20. It fell for a 13th consecutive day yesterday.
Translation: Shipping jobs are disappearing.
WSJ on the shipping decline
TEXT
What struck me from the WSJ article:
On Thursday, package-delivery giant United Parcel Service Inc. said it had "precipitous declines" last month in volume of next-day-delivery products, a high-margin business, a month when shipping normally has begun picking up ahead of the holiday season.
Where are you Rob Dawg? Christmas is looking to be as you predicted it.
WSJ already reported on declining premium airline passengers.
The International Air Transport Association, a global trade group, says that demand from premium airline passengers began to wane early in the summer. After modest growth during the first five months of the year, premium traffic dropped slightly in June and then fell 1% in July, compared with demand levels a year ago. That decline "most likely reflects a fall in business travel, driven by the increasing weakness of major economies," the association says.
Or just look up your favorite airline's ticker symbol and plot its two year graph. :(
Forbes on rail
At least rail traffic isn't too bad. Mostly thanks to coal and grain
Volume rose 0.9 percent in the West, where cargo is primarily carried by Union Pacific Corp. (nyse: UNP - news - people ) and Burlington Northern Santa Fe Corp. (nyse: BNI - news - people ) Volume fell 1.6 percent in the East, where freight is mostly hauled by CSX Corp. (nyse: CSX - news - people ) and Norfolk Southern Corp. (nyse: NSC - news - people ) Hurricanes Gustav and Ike dragged down volumes in previous weeks.
The number of carloads last week was down 0.1 percent from last year to 336,457 cars, AAR (nyse: AIR - news - people ) reported.
Intermodal volume rose 0.8 percent from a year ago. Intermodal involves moving freight from one method of transportation to another, such as truck to rail.
So far this year, shipments on U.S. rails are down 0.2 percent compared with the same period in 2007.
I also find the trend in oil prices very interesting. I predicted oil would get back to $80/bbl, but that was for ~2Q2009. Demand destruction is an indication that both people and product are not being moved.
Great lakes shipmets up just confuses me.
But CR had a chart showing that Texas up is a growing area... Is great lakes cargo being railed to/from those growing areas? I cannot help but notice that the Great Lakes states are falling apart economically...
So transportation is a mixed indicator right now. But I believe strongly that if businesses are not moving ore or flying to initiate new business, its a strong negative indicator. But its not all dark.
I remain convinced this is a reflection of the Bank Panic of 1907 and not 1929. Oh, that was an ugly time. But there are durations of ugly.
Edit 12/24: CR on declining port of LA-Long Beach Traffic
Inbound traffic should be peaking for the year as retailers prepare for the holiday season. Inbound traffic is off from August, and about 12% below last September.
Outbound traffic fell off a cliff in September, and is 17% below August 2008, and at about the same level as a year ago.
So bad... but not yet ugly at the ports.
Got Popcorn?
Neil
We should be seeing raw material shipments ramping up for the Christmas production season. Instead, ships are being parked. Ok, partially due to Brazil and China refusing to sign a new iron ore agreement. But also due to week demand.
Baltic Dry Index at Naked Capitalism
Who quotes bloomberg The Baltic Dry Index, a measure of commodity-shipping rates, fell to the lowest in more than six years in London yesterday as slowing economic growth cuts demand to move coal, iron ore and steel. Commodity shippers will begin to collapse within the next six months and ``significant'' numbers may fail within two years, according to Fearnley Fonds ASA, a specialized maritime investment bank.
``Demand for commodities is definitely slowing down,'' Yu Mengguo, a senior analyst at Jinpeng International Futures Co., said in a phone interview from Beijing today. ``That's being reflected in tumbling prices, which we can't see the bottom for right now.''
Commodity prices are slumping worldwide on speculation a global economic slowdown will reduce demand. The Reuters/Jefferies CRB Index, which tracks commodity futures prices for 19 raw materials, plunged to the lowest in four years yesterday.
The Baltic Dry Index fell 66 percent in the three months to Sept. 30, the largest quarterly drop since the exchange began compiling the data. The measure of commodity-shipping costs is down 62 percent so far this month at 1,221 points, after rising to a record high of 11,793 points on May 20. It fell for a 13th consecutive day yesterday.
Translation: Shipping jobs are disappearing.
WSJ on the shipping decline
TEXT
What struck me from the WSJ article:
On Thursday, package-delivery giant United Parcel Service Inc. said it had "precipitous declines" last month in volume of next-day-delivery products, a high-margin business, a month when shipping normally has begun picking up ahead of the holiday season.
Where are you Rob Dawg? Christmas is looking to be as you predicted it.
WSJ already reported on declining premium airline passengers.
The International Air Transport Association, a global trade group, says that demand from premium airline passengers began to wane early in the summer. After modest growth during the first five months of the year, premium traffic dropped slightly in June and then fell 1% in July, compared with demand levels a year ago. That decline "most likely reflects a fall in business travel, driven by the increasing weakness of major economies," the association says.
Or just look up your favorite airline's ticker symbol and plot its two year graph. :(
Forbes on rail
At least rail traffic isn't too bad. Mostly thanks to coal and grain
Volume rose 0.9 percent in the West, where cargo is primarily carried by Union Pacific Corp. (nyse: UNP - news - people ) and Burlington Northern Santa Fe Corp. (nyse: BNI - news - people ) Volume fell 1.6 percent in the East, where freight is mostly hauled by CSX Corp. (nyse: CSX - news - people ) and Norfolk Southern Corp. (nyse: NSC - news - people ) Hurricanes Gustav and Ike dragged down volumes in previous weeks.
The number of carloads last week was down 0.1 percent from last year to 336,457 cars, AAR (nyse: AIR - news - people ) reported.
Intermodal volume rose 0.8 percent from a year ago. Intermodal involves moving freight from one method of transportation to another, such as truck to rail.
So far this year, shipments on U.S. rails are down 0.2 percent compared with the same period in 2007.
I also find the trend in oil prices very interesting. I predicted oil would get back to $80/bbl, but that was for ~2Q2009. Demand destruction is an indication that both people and product are not being moved.
Great lakes shipmets up just confuses me.
But CR had a chart showing that Texas up is a growing area... Is great lakes cargo being railed to/from those growing areas? I cannot help but notice that the Great Lakes states are falling apart economically...
So transportation is a mixed indicator right now. But I believe strongly that if businesses are not moving ore or flying to initiate new business, its a strong negative indicator. But its not all dark.
I remain convinced this is a reflection of the Bank Panic of 1907 and not 1929. Oh, that was an ugly time. But there are durations of ugly.
Edit 12/24: CR on declining port of LA-Long Beach Traffic
Inbound traffic should be peaking for the year as retailers prepare for the holiday season. Inbound traffic is off from August, and about 12% below last September.
Outbound traffic fell off a cliff in September, and is 17% below August 2008, and at about the same level as a year ago.
So bad... but not yet ugly at the ports.
Got Popcorn?
Neil
Monday, October 20, 2008
DQ reports California Sales
DQ news link
Let's see...
SoCal Home sales are now ~50% foreclosures.
At the county level, such foreclosure resales ranged from 36.8 percent of September resales in Orange County to 68.9 percent in Riverside County. In Los Angeles County foreclosure resales were 39.1 percent of all resales; in San Diego 47.3 percent; San Bernardino 63.1 percent and in Ventura County 44.0 percent.
SoCal mortgages:
Before the credit crunch hit last August, 40 percent of sales were financed with jumbos, then defined as over $417,000. Last month just 13.2 percent of purchase loans were over $417,000.
Wow... 13% over $417k. Folks, that is a lot of homes for sale with no qualified buyers. This report is the most qualified ever.
Oh, sales were up. Higher than August. But its also evidence that the only buying is extreme bargain hunting. Several internet companies announced layoffs recently (redfin, Zillow, and a few minor ones). Anyone know the concentration of jobs in the Westside? I've seen some very poorly written articles on job losses from Santa Monica, but they are not of the quality worth linking to. Is there a real trend? Or is it just fear?
To think, all of the layoffs I have foresight into do not start until 2Q2009 and really do not get going until 3Q2009 (per current plan). I'm not thinking this will be a big Christmas season. Oh... quite the opposite.
Got Popcorn?
Neil
Let's see...
SoCal Home sales are now ~50% foreclosures.
At the county level, such foreclosure resales ranged from 36.8 percent of September resales in Orange County to 68.9 percent in Riverside County. In Los Angeles County foreclosure resales were 39.1 percent of all resales; in San Diego 47.3 percent; San Bernardino 63.1 percent and in Ventura County 44.0 percent.
SoCal mortgages:
Before the credit crunch hit last August, 40 percent of sales were financed with jumbos, then defined as over $417,000. Last month just 13.2 percent of purchase loans were over $417,000.
Wow... 13% over $417k. Folks, that is a lot of homes for sale with no qualified buyers. This report is the most qualified ever.
Oh, sales were up. Higher than August. But its also evidence that the only buying is extreme bargain hunting. Several internet companies announced layoffs recently (redfin, Zillow, and a few minor ones). Anyone know the concentration of jobs in the Westside? I've seen some very poorly written articles on job losses from Santa Monica, but they are not of the quality worth linking to. Is there a real trend? Or is it just fear?
To think, all of the layoffs I have foresight into do not start until 2Q2009 and really do not get going until 3Q2009 (per current plan). I'm not thinking this will be a big Christmas season. Oh... quite the opposite.
Got Popcorn?
Neil
Thursday, October 16, 2008
WSJ: Downey Curtails some lending
http://online.wsj.com/article/SB122417946627541287.html?mod=rss_Business
Downey Curtails some lending at the WSJ
Downey Financial Group Inc.'s savings and loan unit will close its wholesale loan department and shrink its retail operation, affecting about 200 employees, as it said fewer borrowers are able to qualify for loans amid the ongoing credit crisis.
Downey has been on the bank watch list forever. If it wasn't for their parent company trying to rescue them... they would already be done.
What is really telling:
Of all the large lenders that wrote option-ARMs, in particular so-called Pick-A-Pay mortgages, Downey is one of only two -- along with BankUnited Financial Corp. -- that remain independent. Wachovia Corp., Countrywide Financial, Washington Mutual Inc. and IndyMac Bancorp were among the top five issuers of the failing loans. All of them have been forced to sell themselves at fire-sale prices to healthier banks -- or, in the case of IndyMac, to be liquidated after being seized by regulators.
Easy credit is not going to resume shortly. Too many companies are having trouble rolling over their debt.
FYI, I'm reading a book titled "The Panic of 1907" by Robert F. Bruner and Sean D. Carr. I've changed my mind on which recession we're imitating. Why? Parallels to 1907:
1. Over investment of capital in real estate.
2. Liquidity crisis. In particular, the inability of governments and companies to roll over debt.
3. Government (treasury) and banks wasted their remaining capital on treating the symptoms and not the issues.
4. Much denial and mockery of the bears, but 'sophisticated money' left the troubled banks and trusts early (often six+ months before these institutions failed).
5. It was an interconnected bank crises that fell apart when member banks called in their loans.
6. The role of President Theodore Roosevelt will apparently be played by a new president...
7. Other governments are putting in place laws to restrict the flow of capital to the US.
I'm sure there are more... But I also believe in Mark Twain's quote, “History doesn't repeat itself - at best it sometimes rhymes”. We're seeing a pretty bad rhyme of 1907 in 2008. I'll blog more on this as I'm fascinated by this book and the historical similarity.
Got Popcorn?
Neil
Downey Curtails some lending at the WSJ
Downey Financial Group Inc.'s savings and loan unit will close its wholesale loan department and shrink its retail operation, affecting about 200 employees, as it said fewer borrowers are able to qualify for loans amid the ongoing credit crisis.
Downey has been on the bank watch list forever. If it wasn't for their parent company trying to rescue them... they would already be done.
What is really telling:
Of all the large lenders that wrote option-ARMs, in particular so-called Pick-A-Pay mortgages, Downey is one of only two -- along with BankUnited Financial Corp. -- that remain independent. Wachovia Corp., Countrywide Financial, Washington Mutual Inc. and IndyMac Bancorp were among the top five issuers of the failing loans. All of them have been forced to sell themselves at fire-sale prices to healthier banks -- or, in the case of IndyMac, to be liquidated after being seized by regulators.
Easy credit is not going to resume shortly. Too many companies are having trouble rolling over their debt.
FYI, I'm reading a book titled "The Panic of 1907" by Robert F. Bruner and Sean D. Carr. I've changed my mind on which recession we're imitating. Why? Parallels to 1907:
1. Over investment of capital in real estate.
2. Liquidity crisis. In particular, the inability of governments and companies to roll over debt.
3. Government (treasury) and banks wasted their remaining capital on treating the symptoms and not the issues.
4. Much denial and mockery of the bears, but 'sophisticated money' left the troubled banks and trusts early (often six+ months before these institutions failed).
5. It was an interconnected bank crises that fell apart when member banks called in their loans.
6. The role of President Theodore Roosevelt will apparently be played by a new president...
7. Other governments are putting in place laws to restrict the flow of capital to the US.
I'm sure there are more... But I also believe in Mark Twain's quote, “History doesn't repeat itself - at best it sometimes rhymes”. We're seeing a pretty bad rhyme of 1907 in 2008. I'll blog more on this as I'm fascinated by this book and the historical similarity.
Got Popcorn?
Neil
Thursday, October 09, 2008
Dubai: WSJ
In today's panic-stricken debt markets, the uncertainty means higher costs for big and prudent borrowers. The cost of insuring $10 million worth of Dubai debt for five years has risen to $247,500 a year, up more than fivefold from the beginning of the year, according to CMA DataVision, a price-discovery service.
CMA, which calculates a "cumulative probability of default" for sovereign borrowers, estimates the likelihood of Dubai defaulting over the next five years is just shy of 20%. That's up from 4.3% at the beginning of the year.
So... Someone besides Iceland might default on their Sovereign debt. Now, a 20% risk of default really isn't that bad. One has to look at it in order of magnitude (Factors of 3). That could be as low as a ~6% risk or it could be as high as a 60% risk.
Either way, it looks like a huge fraction of the world's cranes might suddenly become available... just as no one else wants them. :(
WSJ on Dubai
But wait... Dubai is among the most heavily indebted governments in the wealthy Persian Gulf. Standard & Poor's estimated at the end of last year that Dubai government debt represented 41.8% of gross domestic product, compared with 22% in Bahrain and 2.9% in Abu Dhabi.
Ok, this isn't Iceland's 1200% of GNP debt by any means. But one of the things that awoke me to the global nature of the bubble was a reader by the handle of SMF alerting me to look into the bubble in Dubai. Heck, I argued with him that Dubai wasn't really a bubble at the time. (Oops... Point SMF.) This credit crunch is brutal. To have have a nation with a large wealth fund in a cash crunch... is interesting...
Got Popcorn?
Neil
CMA, which calculates a "cumulative probability of default" for sovereign borrowers, estimates the likelihood of Dubai defaulting over the next five years is just shy of 20%. That's up from 4.3% at the beginning of the year.
So... Someone besides Iceland might default on their Sovereign debt. Now, a 20% risk of default really isn't that bad. One has to look at it in order of magnitude (Factors of 3). That could be as low as a ~6% risk or it could be as high as a 60% risk.
Either way, it looks like a huge fraction of the world's cranes might suddenly become available... just as no one else wants them. :(
WSJ on Dubai
But wait... Dubai is among the most heavily indebted governments in the wealthy Persian Gulf. Standard & Poor's estimated at the end of last year that Dubai government debt represented 41.8% of gross domestic product, compared with 22% in Bahrain and 2.9% in Abu Dhabi.
Ok, this isn't Iceland's 1200% of GNP debt by any means. But one of the things that awoke me to the global nature of the bubble was a reader by the handle of SMF alerting me to look into the bubble in Dubai. Heck, I argued with him that Dubai wasn't really a bubble at the time. (Oops... Point SMF.) This credit crunch is brutal. To have have a nation with a large wealth fund in a cash crunch... is interesting...
Got Popcorn?
Neil
Tuesday, September 30, 2008
Real Estate Emotions: September, Start of Panic
Last month I blogged on how the bank situation and how it would push the emotions. How many banks failed this month? I'm still a bit in shock with that. So while there is a risk of calling it a few weeks early; I'm calling the emotion Panic.
The real estate market is very seasonal. I thought it would take the poor sales of Fall/Winter to get us into Panic. Instead... The 'Invisible hand' did its job.
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. Desperation: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
We're pretty much right on schedule. Panic started barely within my fall prediction. We're on an accelerated cycle. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm predicting a short panic that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
I'll blog Case-Shiller later in the week. You'll see that the seasonal 'gravity' on prices is increasing. This is the derivative. Its going in favor of buyers waiting. Think about what this will do to mortgage defaults. Heck, the Alt-A resets in Miami alone will clobber Jumbo loan default rates. Add in Phoenix, Las Vegas, and...
Yea. Capitulation sometime in 2009. We can ignore the emotions and come to the same conclusion. Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, this is more likely to be a more protracted downturn than the last one.
Got Popcorn?
Neil
The real estate market is very seasonal. I thought it would take the poor sales of Fall/Winter to get us into Panic. Instead... The 'Invisible hand' did its job.
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. Desperation: since mid/late February 2008 to late September 2008 (~8 months)
9. ****Panic*****: Current state, started Late September 2008.
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
We're pretty much right on schedule. Panic started barely within my fall prediction. We're on an accelerated cycle. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm predicting a short panic that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
I'll blog Case-Shiller later in the week. You'll see that the seasonal 'gravity' on prices is increasing. This is the derivative. Its going in favor of buyers waiting. Think about what this will do to mortgage defaults. Heck, the Alt-A resets in Miami alone will clobber Jumbo loan default rates. Add in Phoenix, Las Vegas, and...
Yea. Capitulation sometime in 2009. We can ignore the emotions and come to the same conclusion. Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, this is more likely to be a more protracted downturn than the last one.
Got Popcorn?
Neil
Thursday, September 25, 2008
Wamu Failed!
Its only Thursday and Wamu just failed. This is easily the largest bank failure in US history.
FDIC Link
$310 Billion in deposits! Absolutely dwarfing Continental Illinois Corp.($40 Billion, estimated $83 Billion in today's dollars) and Indymac ($32 Billion)(the two previous largest failures).
So JP Morgan gains a significant West Coast presence. How many jobs will be lost out west?
I'm glad I haven't done my September real estate emotions yet... this could be sending the market into panic. I'm not sure if its there yet... In some areas, oh yea... But Nationally?
Calculatedrisk.blogspot.com is doing the best coverage.
4X the size of the previous largest bank failure! There is an electronic bank run going on right now. If people withdrawl their cash and buy gold (and 'bury it in the back yard') there is absolutely nothing the government can do from this being the worst recession of our lifetime. This is going to kill the velocity of money. How many airlines will fail? How many states will see middle class flight as they cut services to the people who actually earn money?
Oh... I'm already predicting that. (Unless you survived the Great Depression...)
Edit: Wamu *never* made the Fed's troubled bank list! (If it did, it was on the same day as its failure.) Statistically, it did such a fine job of cooking its books, it wasn't even on the 'troubled bank' list. Oh, most bloggers were wondering why it wasn't failing...
Edit2: Notice the ads are now stating 'times are tough' (Home Depot), 'Saving the planet from high gas prices' (Mitsubishi), and otherwise are selling to people trying to save money?
WSJ says drinking spending less
Top executives at Pernod Ricard SA said Thursday that Americans are cutting back on purchases of its liquor products in bars and some are seeking cheaper brands when buying alcohol at stores, in a sign of a worsening economy.
"There's no question there are some negative numbers" in the bar and restaurant segment, Paul Duffy, chief executive of the French drinks titan's U.S. arm, said at a New York news briefing.
Sales at grocery stores and other retail outlets continue to grow at healthy rates, but there has been "some tick up in trading down" to less-expensive brands, Mr. Duffy said. In an interview, he added, "We wouldn't characterize [the shifts] as a crisis."
Much more in the article worth reading.
As Scoobie says: Rho Rho
Edit #2: Link on 32 banks about to fail
Got Popcorn?
Neil
FDIC Link
$310 Billion in deposits! Absolutely dwarfing Continental Illinois Corp.($40 Billion, estimated $83 Billion in today's dollars) and Indymac ($32 Billion)(the two previous largest failures).
So JP Morgan gains a significant West Coast presence. How many jobs will be lost out west?
I'm glad I haven't done my September real estate emotions yet... this could be sending the market into panic. I'm not sure if its there yet... In some areas, oh yea... But Nationally?
Calculatedrisk.blogspot.com is doing the best coverage.
4X the size of the previous largest bank failure! There is an electronic bank run going on right now. If people withdrawl their cash and buy gold (and 'bury it in the back yard') there is absolutely nothing the government can do from this being the worst recession of our lifetime. This is going to kill the velocity of money. How many airlines will fail? How many states will see middle class flight as they cut services to the people who actually earn money?
Oh... I'm already predicting that. (Unless you survived the Great Depression...)
Edit: Wamu *never* made the Fed's troubled bank list! (If it did, it was on the same day as its failure.) Statistically, it did such a fine job of cooking its books, it wasn't even on the 'troubled bank' list. Oh, most bloggers were wondering why it wasn't failing...
Edit2: Notice the ads are now stating 'times are tough' (Home Depot), 'Saving the planet from high gas prices' (Mitsubishi), and otherwise are selling to people trying to save money?
WSJ says drinking spending less
Top executives at Pernod Ricard SA said Thursday that Americans are cutting back on purchases of its liquor products in bars and some are seeking cheaper brands when buying alcohol at stores, in a sign of a worsening economy.
"There's no question there are some negative numbers" in the bar and restaurant segment, Paul Duffy, chief executive of the French drinks titan's U.S. arm, said at a New York news briefing.
Sales at grocery stores and other retail outlets continue to grow at healthy rates, but there has been "some tick up in trading down" to less-expensive brands, Mr. Duffy said. In an interview, he added, "We wouldn't characterize [the shifts] as a crisis."
Much more in the article worth reading.
As Scoobie says: Rho Rho
Edit #2: Link on 32 banks about to fail
Got Popcorn?
Neil
Monday, September 22, 2008
Eating the Seed corn: Short Selling
This is an opinion piece. I haven't seen anyone put together the numbers yet to fully quantify what I'm speculating on. Naked Capitalism estimates that $200 Billion has been transfered from shorts accounts to closing those shorts.
Normally the role of short selling keeps a 'hot stock' from overshooting. As the stock becomes over-bought to its fundamentals, short sellers step in. Once the stock dives back down to supportable levels, the short sellers "take profits" and buy up the stock. This helps keep a stock from becoming too over-sold. There is a natural group ready to party with their profits.
With short selling on financial stocks banned:
1. It created a short uptick as shorts were closed.
2. Those shorts are gone. There is no downside protection. The $200 Billion (estimated) buying pool is gone.
If we start a new downward bearish stock trend there will be no quick recovery bounce. Normally short sellers jump in when there is an uptick to close their shorts. Now they'll be on the sidelines (maybe with put options, but that doesn't have the same stabilizing effect).
Healthy companies have cash and can penalize undue short selling with a stock buyback. It takes a company short on cash to be a short target. Those companies probably had overpriced stock anyway... I consider short selling a stabilizing effect on the market.
The law of unintended consequences will now come into effect. October is a scary stock month. Will we make it though ok?
Most of my competition has too much of their portfolio in stocks. So...
Interesting times ahead.
Also, printing money is going to really drive import inflation. I still predict domestic deflation combined with import inflation. The US standard of living is about to take a hit.
I've been asked by a relative to look into the effect of today's economy on medical spending. So that will be my next blog (unless I get to my emotions article first).
Got Popcorn?
Neil
Normally the role of short selling keeps a 'hot stock' from overshooting. As the stock becomes over-bought to its fundamentals, short sellers step in. Once the stock dives back down to supportable levels, the short sellers "take profits" and buy up the stock. This helps keep a stock from becoming too over-sold. There is a natural group ready to party with their profits.
With short selling on financial stocks banned:
1. It created a short uptick as shorts were closed.
2. Those shorts are gone. There is no downside protection. The $200 Billion (estimated) buying pool is gone.
If we start a new downward bearish stock trend there will be no quick recovery bounce. Normally short sellers jump in when there is an uptick to close their shorts. Now they'll be on the sidelines (maybe with put options, but that doesn't have the same stabilizing effect).
Healthy companies have cash and can penalize undue short selling with a stock buyback. It takes a company short on cash to be a short target. Those companies probably had overpriced stock anyway... I consider short selling a stabilizing effect on the market.
The law of unintended consequences will now come into effect. October is a scary stock month. Will we make it though ok?
Most of my competition has too much of their portfolio in stocks. So...
Interesting times ahead.
Also, printing money is going to really drive import inflation. I still predict domestic deflation combined with import inflation. The US standard of living is about to take a hit.
I've been asked by a relative to look into the effect of today's economy on medical spending. So that will be my next blog (unless I get to my emotions article first).
Got Popcorn?
Neil
Wednesday, September 17, 2008
Resurrect the Resolution Trust Corp. (WSJ)
I've been arguing for two years to bring back the RTC. I'm happy to see this WSJ article (hattip Calculated risk) with Volker recommending it too!
Can we have Volker back as the Fed chair? Please!
here is something we can do to resolve the problem. We should move decisively to create a new, temporary resolution mechanism. There are precedents -- such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.
What isn't mentioned in the article is one of the RTC's best functions: To seize foreclosures, clean the title, and get them back out onto the market at 'market prices.' What they do is demand a roll call of who has claims on a property (taxes, repairs, 1st and 2nd mortgages, etc.) They then award each claim shares based on the dollar amount of the claim and the type of claim. e.g., For every $ of a 1st mortgage, one share. For a second, every $10 is a share... The house sells and after fees the shareholders split the proceeds on a per share basis. The new owners have the home free and clear and all claims that predate the deed transfer from the RTC must go through the RTC.
Bring back the RTC! Too many cities are in purgatory without it: Sacramento, Las Vegas, Phoenix, Palm Beach, Miami, Orlando, Tampa, Los Angeles (and suburbs, including the OC), San Diego, DC ex-urbs, and most likely a dozen other places (or more). I'm not for big government; but the RTC did its job well last time and is overdue.
It looks like my prediction that the RTC would be reformed 1Q08 was a bit premature... How do I know its needed? All of my wife's talk shows are about the economy. I think its funny how they're pointing out how those that 'live on a budget are ok.' ;)
Coworkers are in trouble and DOZENS (perhaps more) are staring to look into short sales; this isn't trivial. Let's just say our employer can determine that this breaks the terms of employment... But there are ways to work this out.
Got popcorn?
Neil
Can we have Volker back as the Fed chair? Please!
here is something we can do to resolve the problem. We should move decisively to create a new, temporary resolution mechanism. There are precedents -- such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.
What isn't mentioned in the article is one of the RTC's best functions: To seize foreclosures, clean the title, and get them back out onto the market at 'market prices.' What they do is demand a roll call of who has claims on a property (taxes, repairs, 1st and 2nd mortgages, etc.) They then award each claim shares based on the dollar amount of the claim and the type of claim. e.g., For every $ of a 1st mortgage, one share. For a second, every $10 is a share... The house sells and after fees the shareholders split the proceeds on a per share basis. The new owners have the home free and clear and all claims that predate the deed transfer from the RTC must go through the RTC.
Bring back the RTC! Too many cities are in purgatory without it: Sacramento, Las Vegas, Phoenix, Palm Beach, Miami, Orlando, Tampa, Los Angeles (and suburbs, including the OC), San Diego, DC ex-urbs, and most likely a dozen other places (or more). I'm not for big government; but the RTC did its job well last time and is overdue.
It looks like my prediction that the RTC would be reformed 1Q08 was a bit premature... How do I know its needed? All of my wife's talk shows are about the economy. I think its funny how they're pointing out how those that 'live on a budget are ok.' ;)
Coworkers are in trouble and DOZENS (perhaps more) are staring to look into short sales; this isn't trivial. Let's just say our employer can determine that this breaks the terms of employment... But there are ways to work this out.
Got popcorn?
Neil
Tuesday, September 16, 2008
Banks trying to unload commercial property debt (WSJ)
Last spring, securities firms and banks were able to sell commercial real-estate debt for discounts ranging from 5% to 20%, small compared with many residential mortgage securities. But that discount has been widening.
In other words, the smart money long ago 'cut and ran.' This real estate mania is over. Now we, unfortunately, have to deal with the downside.
late in the article:
It was in this climate that Lehman tried to save its neck by putting its $30 billion portfolio on the block last week. Lehman was hopeful because more than 70% of its whole loans were used to finance the relatively strong part of the real-estate market, such as offices, hotels, apartments and retail properties.
But the firm also had large amounts of debt tied to residential land, where values have been decimated. The firm negotiated into the final hour to sell the assets, but never reached a deal because it wouldn't cut its price enough, according to people familiar with the matter. And now comes the expected liquidation.
In other words, land loans are now being recognized as financing the derivative of real estate. In too many areas, homes are selling for less than the cost of construction. So land... is going to be a tough sell. But wait... CR has been blogging on the overbuilding of offices, hotels, and retail. Apartments are in that no-mans land. Not as overbuilt as other real estate, but having to compete with all of the FB's trying to rent until the "V recovery" that won't be.
If everyone is trying to get out... no one is trying to get in. This is going to further tighten the real estate noose. In other words tight credit will persist for years. So much for a quick job recovery...
Got Popcorn?
Neil
In other words, the smart money long ago 'cut and ran.' This real estate mania is over. Now we, unfortunately, have to deal with the downside.
late in the article:
It was in this climate that Lehman tried to save its neck by putting its $30 billion portfolio on the block last week. Lehman was hopeful because more than 70% of its whole loans were used to finance the relatively strong part of the real-estate market, such as offices, hotels, apartments and retail properties.
But the firm also had large amounts of debt tied to residential land, where values have been decimated. The firm negotiated into the final hour to sell the assets, but never reached a deal because it wouldn't cut its price enough, according to people familiar with the matter. And now comes the expected liquidation.
In other words, land loans are now being recognized as financing the derivative of real estate. In too many areas, homes are selling for less than the cost of construction. So land... is going to be a tough sell. But wait... CR has been blogging on the overbuilding of offices, hotels, and retail. Apartments are in that no-mans land. Not as overbuilt as other real estate, but having to compete with all of the FB's trying to rent until the "V recovery" that won't be.
If everyone is trying to get out... no one is trying to get in. This is going to further tighten the real estate noose. In other words tight credit will persist for years. So much for a quick job recovery...
Got Popcorn?
Neil
Readers input on down payment requirements
With all of the current turmoil in the financial markets, what is your guess on the change in down payments for 2009 and 2010? This isn't a stock market blog nor should it try to be one; but the current turmoil should have an impact on credit availability. So narrowing that down to mortgages, what do you think the impact will be?
Got Popcorn?
Neil
Got Popcorn?
Neil
Saturday, September 13, 2008
Knife catchers
Every few months at work some coworker taunts me for not buying. Invariably, its when they've called a bottom. So far, the best in this group has had to watch a comparable house sell down the block for $80k less than they bought. Only one has listened to me and accepted that real estate bottoms are not "V" bottoms but rather long flats. That decision saved him $50k in two months. (The home is still for sale, but that much cheaper.)
At some time there will be a bottom. I'll buy when I'm certain that the total downside risk is less than $100k. Where I want to buy... isn't there yet. But I've seen quite a bit of my competition buy in suburbs that, to me, are less desirable than where I'm going to buy.
Demographics are in my favor. Most baby boomers cannot retire without cashing out their real estate (primary residence and investments). This year was the first year of accelerated retirements. Next year, at my company, the retirement rate is set to double.
Its going to be interesting next year to see how the credit crunch progresses. Heck, its interesting this weekend! (Go to calculatedrisk.blogspot.com to see the discussion.)
Got Popcorn?
Neil
At some time there will be a bottom. I'll buy when I'm certain that the total downside risk is less than $100k. Where I want to buy... isn't there yet. But I've seen quite a bit of my competition buy in suburbs that, to me, are less desirable than where I'm going to buy.
Demographics are in my favor. Most baby boomers cannot retire without cashing out their real estate (primary residence and investments). This year was the first year of accelerated retirements. Next year, at my company, the retirement rate is set to double.
Its going to be interesting next year to see how the credit crunch progresses. Heck, its interesting this weekend! (Go to calculatedrisk.blogspot.com to see the discussion.)
Got Popcorn?
Neil
Wednesday, September 10, 2008
Inventory Calm before the storm
We're in the inventory dip before the annual peak. Last year's inventory (2007) peaked nationally and in most areas about on September 27th. The year before it was a bit earlier, on September 20th. Yet there is, for some reason, always a step down at the start of September.
This inventory is incomplete. DQ news will take ~10 more days to put out there results, so I'll do an update with California by country, Las Vegas, and a few other areas I've been letting others collect the data on.
In general, inventory is at about last year's levels. It will be interesting to see sales going forward. Inventory is high. Some areas are holding up better than I thought they would at this point. But... with this week's news on Lehman, Fannie, Freddie, and the concerns with every major bank that was a leader in mortgages... I'm sticking with my previous real estate emotions predictions. We haven't jumped off that roller coaster by any means. But... LA's and in particular the south bay's inventory is dropping by the numbers... but not the number of signs one drives by. Not to mention the foreclosure process is over a year behind the curve.
And I'll let CR blog retail (empty stores). Shudder... Its ugly out there.
Without further comment, the graphs:
This inventory is incomplete. DQ news will take ~10 more days to put out there results, so I'll do an update with California by country, Las Vegas, and a few other areas I've been letting others collect the data on.
In general, inventory is at about last year's levels. It will be interesting to see sales going forward. Inventory is high. Some areas are holding up better than I thought they would at this point. But... with this week's news on Lehman, Fannie, Freddie, and the concerns with every major bank that was a leader in mortgages... I'm sticking with my previous real estate emotions predictions. We haven't jumped off that roller coaster by any means. But... LA's and in particular the south bay's inventory is dropping by the numbers... but not the number of signs one drives by. Not to mention the foreclosure process is over a year behind the curve.
And I'll let CR blog retail (empty stores). Shudder... Its ugly out there.
Without further comment, the graphs:
Monday, September 08, 2008
Remember when?
Do you remember how a year ago the trolls on the housing blogs were saying how Fannie and Freddie entering the jumbo market would sent prices back on their upward spiral?
I wonder how much longer the GSE's (or whatever they're called now) will be able to offer loans above $417k. There never was an appetite for the bonds backed by this toxic debt. There are really two choices:
1. Put in new rules that apply to mortgages between $417k and $729k that reduce the risk to bond buyers. I would propose that it will take larger down payments (25% or 15% plus PMI), lower DTI (35% maximum), and proof of reserves. Obviously something that would create a "V-shaped recovery."* ;)
Got Popcorn?
Neil
* There is no V-shaped recovery. This downturn will be 'in the bog' as other bloggers called it. For 2 to 3 years prices will be sticky on the downside.
I wonder how much longer the GSE's (or whatever they're called now) will be able to offer loans above $417k. There never was an appetite for the bonds backed by this toxic debt. There are really two choices:
1. Put in new rules that apply to mortgages between $417k and $729k that reduce the risk to bond buyers. I would propose that it will take larger down payments (25% or 15% plus PMI), lower DTI (35% maximum), and proof of reserves. Obviously something that would create a "V-shaped recovery."* ;)
Got Popcorn?
Neil
* There is no V-shaped recovery. This downturn will be 'in the bog' as other bloggers called it. For 2 to 3 years prices will be sticky on the downside.
Saturday, September 06, 2008
Federal highway trust fund running out of FY2008 Cash
Funds low for gas tax funded highway fund
While the other blogs talk about the largest bailout ever!
John Horsley, executive director of the American Association of State Highway and Transportation Officials, said the funding delays proposed by Peters will "have grave repercussions for the states, for hundreds of thousands of workers in the construction industry, and the driving public."
"It will worsen the financial crises many states are already facing, and it will delay or halt needed transportation projects and leave contractors and suppliers with IOUs instead of cash to pay their workers," Horsley said in a statement.
This is the scary time of the economic cycle.
Got Popcorn?
Neil
While the other blogs talk about the largest bailout ever!
John Horsley, executive director of the American Association of State Highway and Transportation Officials, said the funding delays proposed by Peters will "have grave repercussions for the states, for hundreds of thousands of workers in the construction industry, and the driving public."
"It will worsen the financial crises many states are already facing, and it will delay or halt needed transportation projects and leave contractors and suppliers with IOUs instead of cash to pay their workers," Horsley said in a statement.
This is the scary time of the economic cycle.
Got Popcorn?
Neil
Friday, September 05, 2008
Another Bank Failure... Well its Friday!
Silver State Bank, Henderson NV
As of June 30, 2008, Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3 percent. At the time of closing, there were approximately $20 million in uninsured deposits held in approximately 500 accounts that potentially exceeded the insurance limits. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers.
Note a huge bank.
This is #49 on the Troubled bank List but is 170th in size of the banks on the list. It is about 6% of the size of Indymac when they went under. Edit: FFDIC over at CR commented that any bank over a billion taxes the already stretched staff of the FDIC.
Are we at the point where this is a failed bank every Friday?
Got Popcorn?
Neil
As of June 30, 2008, Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3 percent. At the time of closing, there were approximately $20 million in uninsured deposits held in approximately 500 accounts that potentially exceeded the insurance limits. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers.
Note a huge bank.
This is #49 on the Troubled bank List but is 170th in size of the banks on the list. It is about 6% of the size of Indymac when they went under. Edit: FFDIC over at CR commented that any bank over a billion taxes the already stretched staff of the FDIC.
Are we at the point where this is a failed bank every Friday?
Got Popcorn?
Neil
Monday, September 01, 2008
Tardy August real estate emotions
Please see my last article for a list of troubled banks. Note: I expect a few bank failures that didn't make that list. God bless creative accounting. ;)
Why are the banks important? It would take an Indymac sized bank to push us through an early emotional transition or enough small banks to add up to that level of uninsured deposits. Right now... I consider that unlikely before the next chronological shift.
The real estate market is very seasonal. The poor sales of Fall/Winter will drive us to the next emotional level (Desperation to Panic). This will be the toughest emotional call for me. Why?
1. I'm not traveling like I was. No more 3+ states every month (New Baby, I'm staying grounded through 2008).
2. The local emotions are no longer the quiet passive emotions. FB's are no longer suffering in silence. Yea... this is an artifact of the later states of desperation. But it does mean that while my work site has employees from 12+ states... its tougher to separate the local emotions from the visitor emotions and keep a national perspective.
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. ****Desperation: Current state ***** since mid/late February 2008
9. Panic: Fall 2008 looks to be the start. Late Fall without a trigger
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
Last Month I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
We're pretty much right on schedule. The only new bit is that one or two more trigger events will put us into panic. But most likely, it will happen seasonally at the end of Fall. That is unless some of the large banks we're concerned about are taken over by the FDIC or the stock market tanks. Neither can be ruled out... We're on an accelerated cycle. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm predicting a short panic that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
Late Edit: Why are SoCal emotions starting to become overwhelming,
From Mish
Notice something? For SoCal, the 'gravity' on prices is increasing. This is the derivative. Its going in favor of buyers waiting. Think about what this will do to mortgage defaults. Heck, the Alt-A resets in Miami alone will clobber Jumbo loan default rates. Add in Phoenix, Las Vegas, and...
Yea. Capitulation sometime in 2009. We can ignore the emotions and come to the same conclusion. Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, this is more likely to be a more protracted downturn than the last one.
Got Popcorn?
Neil
Why are the banks important? It would take an Indymac sized bank to push us through an early emotional transition or enough small banks to add up to that level of uninsured deposits. Right now... I consider that unlikely before the next chronological shift.
The real estate market is very seasonal. The poor sales of Fall/Winter will drive us to the next emotional level (Desperation to Panic). This will be the toughest emotional call for me. Why?
1. I'm not traveling like I was. No more 3+ states every month (New Baby, I'm staying grounded through 2008).
2. The local emotions are no longer the quiet passive emotions. FB's are no longer suffering in silence. Yea... this is an artifact of the later states of desperation. But it does mean that while my work site has employees from 12+ states... its tougher to separate the local emotions from the visitor emotions and keep a national perspective.
I've been using the following graph to illustrate the emotion changes versus the ARM resets. The missed payments have put us into quite the credit crunch. Alt-A is only two seasons away!
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. Lasted ~10 months)
6. Denial (Reached in October of 2006 until mid-May of 2007, ~8 months)
7. Fear (Reached in mid-May of 2007 to mid/late February 2008, ~9 months).
8. ****Desperation: Current state ***** since mid/late February 2008
9. Panic: Fall 2008 looks to be the start. Late Fall without a trigger
10 Capitulation: Spring 2009 through the winter of 2009. Yes, basically 2009!
11 Despondency (start of market price bottom) Not before winter 2009. Possibly as late as end 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. Don't let anyone BS you into buying soon. There will be a long market bottom.
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (The worst is over...) about 2017
15 Optimism (cycle starts again)
Last Month I created this graph on emotions and value, for its not really a sin wave, its much more of a rounded sawtooth...
We're pretty much right on schedule. The only new bit is that one or two more trigger events will put us into panic. But most likely, it will happen seasonally at the end of Fall. That is unless some of the large banks we're concerned about are taken over by the FDIC or the stock market tanks. Neither can be ruled out... We're on an accelerated cycle. Each emotion is supposed to be for a year in a normal environment. Well... The housing bubble overshot the normal levels, so the downside will be more severe and is happening fairly fast. At most 9 or 10 months per stage (on the way down).
I'm predicting a short panic that blends right into Capitulation. Remember, Capitulation is the time of the greatest price drops. At least in the markets that survive until then.
Late Edit: Why are SoCal emotions starting to become overwhelming,
From Mish
Notice something? For SoCal, the 'gravity' on prices is increasing. This is the derivative. Its going in favor of buyers waiting. Think about what this will do to mortgage defaults. Heck, the Alt-A resets in Miami alone will clobber Jumbo loan default rates. Add in Phoenix, Las Vegas, and...
Yea. Capitulation sometime in 2009. We can ignore the emotions and come to the same conclusion. Note: Some blogs have the emotions tracking about a year behind mine (Irvine housing blog.) If anything, this is more likely to be a more protracted downturn than the last one.
Got Popcorn?
Neil
Friday, August 29, 2008
Troubled Banks
Finally!
A blogger has gone to the trouble of quantifying which banks are in trouble.
This list is unofficial. I also like how the author has composed a list of banks that have reserves that far exceed FDIC guidelines. The author 'tubeguy' calls them nice banks. Those could be called safe havens.
Nicebanks part 1
Nicebanks part 2
Largest watch banks are Westbank (Puerto Rico), AM trust of Georgia, and Chevy Chase. In other words, banks that are a fraction of the size of Indymac. (Whew!) I think some large banks will get into trouble, but if that's more than a year away... they will have the time to earn a bit of income decreasing their chance of trouble.
Black backgrounds are banks that the FDIC has already started to play their role.
The first seventy are colored red (if not black) due to 'an effective tier 1 leverage ratio less than 4%' (below FDIC guidelines, but not officially) In rough numbers, every bank colored red would need to fail to create the impact of Indymac's failure. This is good news. It implies that there is a less chance of a premature shock to the financial system. (Assuming stocks hold up, we do not have another Indymac that went from 'officially healthy' to receivership in two weeks, etc.)
Do note that there are about 6000 banks in the US (I think that number includes credit unions). So most banks are healthy and thus can be skipped in this discussion. I'll be following this list to see how it grows.
Every Friday one has to look to see what (if any) banks failed:
Today's failure,
Note: West coast failures could still happen. Its a 3 day weekend... a typical time for the FDIC to clear house. But lookie... 100% coverage of all deposits. So head to the new bank and just order checks (a 'no biggie') :)
http://www.geocities.com/tubeguy@rogers.com/troubledbanks.htm
Please also look at gasoline deliveries. We're in a bad recession if those numbers are not revised up:
http://tonto.eia.doe.gov/dnav/pet/hist/a103600001m.htm
Next day edit:
Economist article on American Banks
From the above: The trajectory is steep: Institutional Risk Analytics, which monitors the health of banks, expects more than 100 lenders—most, but by no means all, tiddlers—to fold over the next year alone. Alarmingly, the ratio of loan-loss provisions to duff credit is at its lowest level in 15 years.
.....
Ms Bair has indicated that banks with risky profiles—which already pay up to ten times more than the typical five cents per $100 insured—will be asked to “step up to the plate” with even higher premiums. This would ensure that safer banks are not unfairly burdened. But it will heap yet more financial pressure on strugglers. Bankers’ groups have already started to protest loudly.
How much will be needed? Possibly far more than the FDIC is letting on, reckons Joseph Mason of Louisiana State University. Extrapolating from the savings and loan crisis of the early 1990s, and allowing for the growth in bank assets, he puts the possible cost at $143 billion.
Got Popcorn?
Neil
A blogger has gone to the trouble of quantifying which banks are in trouble.
This list is unofficial. I also like how the author has composed a list of banks that have reserves that far exceed FDIC guidelines. The author 'tubeguy' calls them nice banks. Those could be called safe havens.
Nicebanks part 1
Nicebanks part 2
Largest watch banks are Westbank (Puerto Rico), AM trust of Georgia, and Chevy Chase. In other words, banks that are a fraction of the size of Indymac. (Whew!) I think some large banks will get into trouble, but if that's more than a year away... they will have the time to earn a bit of income decreasing their chance of trouble.
Black backgrounds are banks that the FDIC has already started to play their role.
The first seventy are colored red (if not black) due to 'an effective tier 1 leverage ratio less than 4%' (below FDIC guidelines, but not officially) In rough numbers, every bank colored red would need to fail to create the impact of Indymac's failure. This is good news. It implies that there is a less chance of a premature shock to the financial system. (Assuming stocks hold up, we do not have another Indymac that went from 'officially healthy' to receivership in two weeks, etc.)
Do note that there are about 6000 banks in the US (I think that number includes credit unions). So most banks are healthy and thus can be skipped in this discussion. I'll be following this list to see how it grows.
Every Friday one has to look to see what (if any) banks failed:
Today's failure,
Note: West coast failures could still happen. Its a 3 day weekend... a typical time for the FDIC to clear house. But lookie... 100% coverage of all deposits. So head to the new bank and just order checks (a 'no biggie') :)
http://www.geocities.com/tubeguy@rogers.com/troubledbanks.htm
Please also look at gasoline deliveries. We're in a bad recession if those numbers are not revised up:
http://tonto.eia.doe.gov/dnav/pet/hist/a103600001m.htm
Next day edit:
Economist article on American Banks
From the above: The trajectory is steep: Institutional Risk Analytics, which monitors the health of banks, expects more than 100 lenders—most, but by no means all, tiddlers—to fold over the next year alone. Alarmingly, the ratio of loan-loss provisions to duff credit is at its lowest level in 15 years.
.....
Ms Bair has indicated that banks with risky profiles—which already pay up to ten times more than the typical five cents per $100 insured—will be asked to “step up to the plate” with even higher premiums. This would ensure that safer banks are not unfairly burdened. But it will heap yet more financial pressure on strugglers. Bankers’ groups have already started to protest loudly.
How much will be needed? Possibly far more than the FDIC is letting on, reckons Joseph Mason of Louisiana State University. Extrapolating from the savings and loan crisis of the early 1990s, and allowing for the growth in bank assets, he puts the possible cost at $143 billion.
Got Popcorn?
Neil
Wednesday, August 27, 2008
CR chart on seasonality of home prices
Just a short time ago the question was raised in the comments if home prices were that seasonal. CR brings it up at the end of this post:
Please see the graph at the bottom of this CR article and the comments below the graph.
By the way, the book "Home buying for Idiots" and the book "Home selling for idiots" also bring up how during certain months of the year you will get more (or less) selling a house.
Interesting BBC video on Spain's housing meltdown (planned ex-urb):
http://news.bbc.co.uk/2/hi/business/7584047.stm
Its global folks.
Got Popcorn?
Neil
Please see the graph at the bottom of this CR article and the comments below the graph.
By the way, the book "Home buying for Idiots" and the book "Home selling for idiots" also bring up how during certain months of the year you will get more (or less) selling a house.
Interesting BBC video on Spain's housing meltdown (planned ex-urb):
http://news.bbc.co.uk/2/hi/business/7584047.stm
Its global folks.
Got Popcorn?
Neil
Bank Issues
Minyanville on Bank Health
I'm struggling to understand how the FDIC can first put a bank on its problem list just 2 weeks before it becomes the third largest bank failure in US history. (Indymac)
I'm going to have to concur with Minyanville. How could a bank with more assets/liabilities than all of the other 1Q2008 'troubled banks' combined not be added onto their troubled lender list until 2 weeks before it failed (and long before the FDIC reports the quantity of banks on the list)?
The FDIC needs to speed up the process. Yes, yours truly is advocating a government department speed up hiring! Sit down, breath deeply. You won't see that advice from me often. ;) The best thing for the economy is to shake out this issue and get it over as quick as possible.
The greatest danger to the economy is to small businesses. For a small business to function, its too common for them to need more than $100k in their accounts (or $200k for a 'mom and pop' business) to function. The FDIC limit must become inflation adjusted and take into account the impact on small businesses. $250k/individual or $500k for a mom and pop operation seems a reasonable level of insurance.
CR didn't miss that the FDIC's fund is running low
Indymac to cost FDIC more than predicted
So now the healthy banks are going to be required to pay more for the mandatory insurance. Gee... that won't do anything to exacerbate the current credit crunch... or could it? ;) Yes, my proposal would put more accounts into the insured category. Sadly, that should have been the case for years.
Oh... and put the reserve limits back at the old standards. That would tighten credit short term, but would allow for 'flexibility' during the next credit shock. Sigh... why were the old lessons so thoroughly forgotten?
Late edit:
Bankruptcy filings up 29%
Business filings were up 41%. Ouch.
Got Popcorn?
Neil
Tuesday, August 26, 2008
Case Shiller for June Released
I speculate we're season a seasonal effect in the reported Case-Shiller numbers. The rates of decreases are dropping with a few cities flat (+/- .25%/month) and we're even seeing Boston, Denver, Atlanta, and Minneapolis having healthy price increases! All of the cities that broke a Case-Shiller of 200 are still declining.
Most of the cities that broke 200 will continue to drop. The best months of the year have yet to be reported on and it looks like DC will go flat for August with a small chance of it going positive.
Notice that the large drops started last year in September and reached their peak in January/February. It wouldn't be that surprising to see a seasonality in the rate of losses.
One thing that annoys me about predictors is when they won't admit the data isn't supporting an earlier predictions. One should of course update predictions based on new data. While I've been avoiding making predictions for this time of year, I must admit that the strength of what I believe to be the seasonality is doing much better than my expectations. So we need to look at the data going forward to see if:
1. This is a seasonal slowdown in the pain or...
2. Home prices have dropped enough to regain "stickyness"
I believe that the securitization rate of mortgages points to #1, but one must always consider all of the alternatives. Even alternatives that didn't seem to make sense six months ago.
My prediction remains that we'll enter the 18 months of the greatest home price drops starting this Fall (late Fall?). If I sum it up, about 1/3rd of the cities are still dropping quickly. About 1/3rd of the cities are near flat (within +/- .25%/month), and a third of the cities are seeing good appreciation. Yes, the cities dropping are dropping far faster than those appreciating.
Further note on Seasonality: Traditionally August and June are the two strongest selling months of the year. So if this is not seasonality, we would expect July to be stronger than June. If July is weaker than June its still possible to have August the strongest sales (by prices) of the year.
But then there is that pesky credit crisis. ;)
Got Popcorn?
Neil
Most of the cities that broke 200 will continue to drop. The best months of the year have yet to be reported on and it looks like DC will go flat for August with a small chance of it going positive.
Notice that the large drops started last year in September and reached their peak in January/February. It wouldn't be that surprising to see a seasonality in the rate of losses.
One thing that annoys me about predictors is when they won't admit the data isn't supporting an earlier predictions. One should of course update predictions based on new data. While I've been avoiding making predictions for this time of year, I must admit that the strength of what I believe to be the seasonality is doing much better than my expectations. So we need to look at the data going forward to see if:
1. This is a seasonal slowdown in the pain or...
2. Home prices have dropped enough to regain "stickyness"
I believe that the securitization rate of mortgages points to #1, but one must always consider all of the alternatives. Even alternatives that didn't seem to make sense six months ago.
My prediction remains that we'll enter the 18 months of the greatest home price drops starting this Fall (late Fall?). If I sum it up, about 1/3rd of the cities are still dropping quickly. About 1/3rd of the cities are near flat (within +/- .25%/month), and a third of the cities are seeing good appreciation. Yes, the cities dropping are dropping far faster than those appreciating.
Further note on Seasonality: Traditionally August and June are the two strongest selling months of the year. So if this is not seasonality, we would expect July to be stronger than June. If July is weaker than June its still possible to have August the strongest sales (by prices) of the year.
But then there is that pesky credit crisis. ;)
Got Popcorn?
Neil
Monday, August 25, 2008
National July Sales/Ineventory news out
July Existing Home Sales: Record Inventory
The best graphs, as always, are at the above link.
What struck me is this: July sales 501k
Fraction of July sales Foreclosures or Short Sales: ~1/3rd.
In other words, normal resales are at less than half of the peak! (2005)
Also notice something from the curves, 2008 is constantly a lower fraction of 2007 than 2007 is of 2006. In plain Englinsh: The downside is accelerating.
August normally will vie with June to be the strongest sales month of the year Nationally, and for most places that will hold true. But not for Florida and a few other areas that have their best weather at other times of the year.
The WSJ has its take on the data:
The slight increase in the headline will provide some support to claims of a bottom in the market forming. However, the fact that 40% of sales activity came from banks selling foreclosed homes tends to suggest that absent a fire sale in housing sector, we have some ways to go before things truly stabilize. More troubling was the continued increase in inventories. … The data supports our call of the housing sector not seeing anything resembling stabilization until mid 2009 at the earliest. – Joseph Brusuelas, Merk Investments
Whoa... in California foreclosure sales are still happening slower than properties entering foreclosure. Yikes! I believe the ~33% value versus the 40% number. I'm bearish... to a limit. Real estate cycles are slow. Once the California foreclosures really pick up speed, good luck restarting the jumbo market. That is when we'll see the 25%+ down payment requirements. Not for months... But probably sometime in 2009.
Inventories are very high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of weak demand and eroding prices. … [T]here is still a considerable distance to travel before prices sink to levels necessary to balance supply and demand in the housing market. By our estimation, the national home price measure as calculated by S&P/Case-Shiller, which shows a cumulative 18% drop through May from the July 2006 peak, is roughly two-thirds of the way through its ultimate total decline in this cycle. – Joshua Shapiro, MFR Inc.
I agree with everything in the above except the 'two-thirds of the way through' bit. I think we're about 40% of the way through to as much as 50%. No more.
We're also still in the seasonally best time of year to sell a home. As I noted above, August and June vie to be the peak selling months of the year normally (see CR's graphs). CR thinks we'll peak at 12 months of inventory, I think we'll pass that this Fall/Winter. Not by a lot though. (I hope... the alternative is rather scary.)
Got Popcorn?
Neil
The best graphs, as always, are at the above link.
What struck me is this: July sales 501k
Fraction of July sales Foreclosures or Short Sales: ~1/3rd.
In other words, normal resales are at less than half of the peak! (2005)
Also notice something from the curves, 2008 is constantly a lower fraction of 2007 than 2007 is of 2006. In plain Englinsh: The downside is accelerating.
August normally will vie with June to be the strongest sales month of the year Nationally, and for most places that will hold true. But not for Florida and a few other areas that have their best weather at other times of the year.
The WSJ has its take on the data:
The slight increase in the headline will provide some support to claims of a bottom in the market forming. However, the fact that 40% of sales activity came from banks selling foreclosed homes tends to suggest that absent a fire sale in housing sector, we have some ways to go before things truly stabilize. More troubling was the continued increase in inventories. … The data supports our call of the housing sector not seeing anything resembling stabilization until mid 2009 at the earliest. – Joseph Brusuelas, Merk Investments
Whoa... in California foreclosure sales are still happening slower than properties entering foreclosure. Yikes! I believe the ~33% value versus the 40% number. I'm bearish... to a limit. Real estate cycles are slow. Once the California foreclosures really pick up speed, good luck restarting the jumbo market. That is when we'll see the 25%+ down payment requirements. Not for months... But probably sometime in 2009.
Inventories are very high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of weak demand and eroding prices. … [T]here is still a considerable distance to travel before prices sink to levels necessary to balance supply and demand in the housing market. By our estimation, the national home price measure as calculated by S&P/Case-Shiller, which shows a cumulative 18% drop through May from the July 2006 peak, is roughly two-thirds of the way through its ultimate total decline in this cycle. – Joshua Shapiro, MFR Inc.
I agree with everything in the above except the 'two-thirds of the way through' bit. I think we're about 40% of the way through to as much as 50%. No more.
We're also still in the seasonally best time of year to sell a home. As I noted above, August and June vie to be the peak selling months of the year normally (see CR's graphs). CR thinks we'll peak at 12 months of inventory, I think we'll pass that this Fall/Winter. Not by a lot though. (I hope... the alternative is rather scary.)
Got Popcorn?
Neil
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