Local Sales (DQ)

The latest stats on home sales were released by DQ news (ok, I'm tardy blogging them). Basically the trend is a weak 2Q2009 home sales. Oh, the local REIC is trying to make it sound like its almost a seller's market.

It will be interesting to see how we do this winter. We're unlikely to see 2003 before late next year or early 2011 in 90505, 90274/90275, and 90277. But 90278 is almost there. A little winter weakness and it could be there...




With the huge fraction of California mortgages not being paid... its going to be interesting times ahead.

Got Popcorn?
Neil

DQ news, July

I mentioned before that July and November are two months where the data should be just lumped into the quarterly numbers. Unless something had really broken out, the data for those months can be very noisey.

So I charted data from dqnews.com. Sales aren't great for a July. But nor were they bad.

Price per square foot is back to 2004/early 2005 levels. I notice 90278 is slipping back to 2003 values. This could be interesting.

From my perspective, I find the linear drop in price per square foot in 90275 very interesting. Its a linear trend down. $17/ft^2/MONTH! The trend was for zip codes of interest to be dropping $30/ft^2/YEAR! I will be very curious if this trend continues. Since 90278 and 90274 did not drop as 90275 did... I suspect its a trend that is about to be broken. As a potential buyer. :( But then again, one more month of this trend erases a bubble year, in four months!

Basically, nothing broke the downward trend. We have only August left of the 'sales months' of the year. Overall, the dq data (LA times) showed a lot of areas struggling to sell.

Got Popcorn? (Thanks for the icon on CR Ken!)
Neil

Local Sales Data

Home prices continue to drop. All of the zip codes I plot dropped in $/ft^2 terms. Only 90275 had decent sales volume (of course, where I wish to buy). I set up trend lines months ago on $/ft^2 and have not had any reason to adjust them. The market appreciated about $70 per square foot anually on the way up. Now its dropping at the rate of $30 per square food anually on the way down. Or is it...

May, June, or August are the three critical months of the local sales year. In terms of $/ft^2, May and June have been weak. This implies either buyer resistance/fear or that the market is about to capitualate. I think its the later, but the data does not *yet* prove it. It does look like 90275 has broken below $450/ft^2, but let us wait for August data to confirm that.

I should mention a little about the local selling seasons. I'll post July's data, but I'll warn you there are two months locally that do not deserve to have any conclusions made on their data: July and November. November is due to the holidays. The data could fluctuate any which way that month and it wouldn't tell us a thing. July is a weird month. Sales can spike or plummet in July and it would probably correlate best with vacation packages or the price of steaks at Costco; its certainly not a month that produces numbers of interest (locally). Yes, this July is also impacted by 'Bear Chits' (California IOU's) too. Hence, we'll make conclusions after August's data is available. February is the darkest month of the bad selling season (October-February). However, December does have a spike in closing, but I speculate that is just for tax advantage and does not compare to June-August closings. The exception being December 2007 (with the market turning south).

Another caution: While prices seem to be turning down since April at a faster pace, I would hesitate to make a conclusion before seeing the August data. If you cannot tell, I'm expecting no surprises that waiting buyers wouldn't like to see. But I'm not yet ready to declare a major change.

Note: Some friends & coworkers are noting its tougher to procure a mortgage above $417k locally too. Rumors are that mortgage insurance above $417k loans is tough to find. If that is the case, prices in this region of 10% down payments is going to make a huge belly flop. I suspect everything possible will be done to bring back the 'conforming jumbo' ASAP with 10% down. I do not think that any effort will work out, but the REIC will try. (I'm a fan of *real* down payments to stabilize a society.)

We could see the dollars per square foot drop pretty quickly soon... or it could be a blip. Stay tuned.

Got Popcorn?
Neil

The graphs:
Note that the slopes on the sales trendlines are calculated by excel:

Trends updated

This is an update with the recently released April data for California.

My conclusions are not changing. While the last few data points are above trend, there is no break in the overall downward slope. We should expect a season spike this time of year, but what the CAR is raving about is a really weak seller's season. In none of the zip codes is there anything but noise around the long term trend.

I'm assuming that any potential 90275 buyer looks at that coastal developments that are failing:


http://www.terranea.com/,
Wait... they next a tax break!
http://www.dailybreeze.com/news/ci_12302705

Terranea is locally famous as the reason it was given the go ahead based on the expected tax revenue for the city... hmmm...

or
http://www.trumpgolfcoursehomes.com/

ROTFL. Their own web side points out that out of the first 5 homes constructed, only one is is escrow!?! So Trump sues the city as some of the lots are unstable (the local 'slide zone' that swept the signature golf course hole into the ocean)... sigh. 1 out of a planned 50 sold. Trump, leave the city alone. This is like your Baja, Tampa, and other projects, a failure.

One out of 50 sold... talk about a missing the boat. Its called 'hamburger hill' for a reason. People stretch to get into the good school districts in RPV. The 'flashy money' is in Manhattan beach, various Westside areas, or elsewhere.

The data really says it all:
1. The price per square foot is declining.
2. Sales are slow. Again, only Rancho Palos Verdes, 90275, broke 20 sales in an area where, for this time of the year, pre-bubble sales would break 30 per month for every zip code!























Why am I being harsh on the coastal developments? They are far overpriced for the local market. When that one home closes in Trump National, it will skew the data. How could the only sale above $2 Million out of 20 sales not skew the data? I have no idea where in the $8M to $10M price range that sucker is going to pay. But ouch... RPV is not where people buy estates. Oh, there are a few true ones in 90274. That is not 90275. There simply is not a market for the combined 82 McMansion 'estates' these two developments are trying to sell.

I have not done my real estate emotions lately. Basically, we're still in Panic. Capitualation isn't here yet. But that is next... When these charts turn down, we'll know we hit the next investment emotional state.

Got Popcorn?
Neil

Data and regrets

I'm really regretting not recording the LA Times data from DQ news more often.

My only other snapshot is from July 2008.

http://www.dqnews.com/

Why? I'm comparing $/ft^2 both where I want to live and some 'interesting areas.'
I just captured the Febuary data.

Just a few zip codes of interest on home much the SFR $/ft^2 has dropped:

Lancaster 93534, 93535, 93536 are down 26%, 33%, and 22% respectively
Manhattan Beach 90266, is only down to $702/ft^2. (1% drop)
Malibu 90265 is down $501/ft^2 or a 22% drop
Palmdale 93550, 93551, 93552, 93591 are down 33%, 22%, 28%, and 49% respectively
Palos Verdes Pen (90275), down 3% (but very few sales, 7 SFR homes)
Pasadena 91101, 91103, 91104, 91105, 91106, 91107 is down 20%, 14%, UP 37% to $470/ft^2, and down 4%.
RPV 90275 is down to $410/ft^2! or down 18% from July! (My first choice zip to buy.)
Redondo Beach 90277, 90278 is down 5% and 19% (nicer area down more?!? Wait... only three 90277 sales in February...)
Torrance 90501, 90503, 90504, 90505 area mixed, down 6%, NO SALES, down 8%, and the last two are up 5%

There is much more. I really wish I had taken more data for I do not know the month to month variety (extreme due to low Febuary sales). I would also like to compare with February 2007, 2006, 2005 (ok, before I was blogging here).

What does this tell us? Not much. Without knowing normal month to month variation... I could be makign conclusions off 'noise.' But what about the price increases (numbers in bold above)? That is price increase per ft^2. I'm not sure what to make of it yet.

But RPV (90275, had only 12 Single family (SFR) sales and 4 condos in February with inventory of 148 to 153 during the month... (per snapshots by me of ziprealty inventory on 2/1/2009, 2/23, and 2/26). Hmmmm... 164 on the market today.

but 90274 is more interesting. 8 total sales (1 condo) and inventory of:
PVE: 98
Rolling hills 21
Roling Hills estates: 44

Hmmm... 163/8=20 months of inventory. Me thinks the great squish down continues...

Off topic:
I've secured my job, but I will be expected to travel 1/2 time. Certainly not the end of the world, just not my ideal. For example, my lunch today was spent holding my infant daughter on a pony saddle! She loved it. If I'm traveling, such events with 'Daddy' will happen less. One makes choices. Note: New efforts are being done to 'accomodate my preference' to spend more time at our main location. But spring and Summer (at a minimum) will be spent with a lot of road time.

Also, the wife likes the idea of a Macbook. I almost forgot I promised her that our next computer could be a Mac... 'Could be' is becoming 'will be.'

I'll take snapshots more often and I've added Ventura, Orange, Riverside and San Bernadeno counties (its all on the same web page, so why not).

I speculate we are in the last major year of decline. But are we? This doesn't mean rush to buy... (Its best to buy after the bottom.) Late edit: I have posted in the past that, for myself, its best to buy before the bottom for best inventory selection. I still believe this. But its tough to blog with advice for those *really* following and those just reading for the first time. But the trend will be interesting.

I'll restart my 'emotions' series after I travel for a bit more. So do not expect a February update. Overall, people are excited to buy. But I look at those Palmdale $/ft^2 that were once much higher and now are $43 to $94/ft^2. I'd swear I saw it break $300/ft^2, but I didn't save that snapshot of the data.

Oh... notice I never talked median price? Worthless statistic in my opinion.

Got Popcorn?
Neil

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

Old Advice on buying

As we watch the markets go into epileptic seizures, its sometimes a good time to remember the sage advice on when to buy. Now, I'm very focused on buying a home to *live* in, so all of this advice is geared towards that, but could equally well apply to stocks or bonds. Note: Its not time yet to buy any of them. We have to get through 2009 at a minimum. I personally think we'll inflate our way out of this, so invest as you see fit.

The best advice I've been given:

1. "Be fearful when others are greedy and greedy when others are fearful." Warren E Buffett. My comment: I have a few coworkers who screamed "buy now or be priced out forever." In a way, they are perfect investment emotional indicators. Remember, the lowest home prices are during the transition from Despondency (emotion #11) to Depression (emotion #12). We're in mid-Desperation (emotion #8). I do think the people buying now are emotional knife catchers. To buy before Capitulation (emotion #10) is just silly. Note: Some bloggers thing we're only in Fear (emotion #7).
My last emotions article remains current.


2. And also from the Oracle of Omaha: " Price is what you pay, value is what you get". With that is his "Margin of safety." My translation: Never pay value, always assume you've overvalued the asset. If you cannot buy at a discount to par, wait or move on.

3. Buy what you know. This is from a book called The richest man in Babylon I haven't read the newer edition, but I think the old edition is the best seven Americanos you'll ever part with. In Real estate, it means to research the areas you're going to buy long before you buy. I like www.homefair.com to compare areas as a start.

I also think for real estate novices (not the bubble bloggers on year 3+), that the book Home buying for dummies. Me being me... I also read home selling for dummies. :) (Bwaaaahaaaaahaaaaaha!)

4. Buy when its tough to get a mortgage. I first heard this from my grandfather; its old sage advice. For when its tough to get a mortgage, you just do not have to deal with all of those pesky emotional investors. They seem to be afraid of the paperwork. This is when you have negotiating leverage. Note: Its not tough to get a mortgage by historical standards. By 2010... I think it will be tough to get a mortgage.


5. "Its better to buy a year late than a year early." This is also some old advice. Since its been told to me for decades, I'm not sure who to credit with this advice. The last year of a downturn might see prices drop 5%. The first year of an up-tick generally sees a 3% increase. If you're socking the money away, whip out a spreadsheet and figure out how your life would be better waiting. Play with interest rates, down payments, savings rates, unexpected expenses, etc.

Where I want to buy, I still come out ahead renting over buying. There is no reasonable scenario, at today's prices, where buying is wiser. After 30 years, assuming reasonable home appreciation rates, wage inflation, investment returns, and such you will see that your lifestyle is ahead renting (for now). Some areas this isn't true anymore. (e.g., Palmdale CA). But is it time to buy there? I think in six months it will be even better. See point #5. ;)

Note: The book reference in point #3 recommends buying your house. I agree. But that book was also written prior to Florida 1925/1926. ;) It was written back when 50% down and a 10-year mortgage were typical too, so wild real estate speculation was less common. (But somehow it missed the 1849 San Diego bubble... hmmm... Hey, its a short book! Very worth the read.)

And if you get all of your investment advice off the internet... I think you're being foolish. My recommendation is to read and understand. Be a wise investor. Do not invest off what I say. Rather, invest when you know you're ready. Step #1, get ready. :) (Save a down payment, know what you can afford, know where you would like to buy and pick alternatives!) Basically, read the books I've recommended. Their advice is pretty good.

Got Popcorn?
Neil

Housing crisis hits the high end

Prices down, foreclosures up

In Palm Beach, Fla. (zip code 33480), median home prices fell 38% during that period, according to the real estate Web site Trulia. Prices in Greenwich, Conn. (06831), dropped 15%, while homes in Wayzata, Minn. (55391), are selling for 28% less.

Prices in other wealthy towns also declined: Gladwyne, Penn. (19035), was down 6%, and Beverly Hills (90210), Lincoln, Mass. (01773), and Ladue, Mo. (63124), each slid 2%.

"What I'm finding is that million dollar plus homes declined 4% or so [over the past 12 months]," said Don Kelly, a spokesman for Zaio, which is building a national data base of home value appraisals.

From this CNN article

Yea... the median is down a little. But we all know every buyer is getting the best home for the money. So its the similar home with the better view or finer fittings that is selling. The undiscounted albatross is sitting. One can now find homes that have been on the market two years in most high end neighborhoods.

As to people being able to wait out this slump... never before has the "upper middle class" put so much of their wealth into real estate. Never before are they so far in debt. Look at the blue book values on used cars. Down a bit eh? In particular SUV's and large BMW's or Mercedes. Oh yea, these immune neighborhoods have tons of occupants piling on the credit card debt. When that means of maintaining lifestyle goes away, so will the home prices.

Nothing will happen quick. But anyone who buys in the next 24 months is being stupid. There is no bottom within that time frame. Where I want to buy will probably bottom in 2011 or 2012. Some areas might bottom earlier, but none will before 2010. Why? Debt, incomes, gasoline, and credit. Its called a deep recession folks. All the small business owners seem to get it right now. Soon it will be the whole population.

Got Popcorn?
Neil

ps
The photo is of a McMansion in Beijing China. This is going to be one interesting global recession.

I doubt we'll keep seeing home prices decline like now.

I've rounded down the current rates of declines and projected future Case-Shiller values. Its scary. We have markets going 25% below my inflation prediction as early as May of 2009. At the current rate, the last of the markets I'm tracking will drop 25% below the inflation (projected as 4% inflation) before the end of 2010!















We've never had a real estate correction proceed at this rate. Ok, Florida 1925/1926 was faster, but that was regional. This is national. This is serious and scary.

By the way, projections we're near the bottom just amuse me. We're about to exit the best season of the year for selling a home. The rest of 2008 should be a better buyer's market. It will not be that obvious in June. Like I've said before, expect the big change in the Fall. Once the kids are back in school, sellers will be faced with very interesting choices.

I think everything that can be done to get suckers deserving families into homes will be done. But everything is pointing to greater down payment requirements. Are you saving for that rainy day?

I'm not sure when the bottom will be. It won't be before 2010 is certain. Its also certain that the recovery this time is going to be slow. Mostly due to lenders having to re-learn old lessons.

Got Popcorn?
Neil

Quiet before the summer storm?

This is the time of year that the real estate market is in a transition from the Spring selling season to the summer selling season. Typically, 'knowledge workers' surge to put their homes on the market starting two weeks before school lets out to a few weeks after school lets out. So there is typically an inventory lull right now. A break if you will and we're seeing that in all of the inventory.

Sales data comes out next week and the week after. So I'm not going to discuss that as much as I planned. Basically, the forward looking indicators are up compared to a month ago. I still believe the stats are not pretty... But as best I can tell we're taking a few branches off the fall from the ugly tree; in other words, the market isn't pretty, but the fund injections seem to have delayed the day of reckoning from the inventory side.

Can we afford homes by historical standards?
Let's start by looking at afford ability. Wells Fargo has been calculating this the same way for an extended period of time. Search through their archives and you can find data going back decades:
http://www.nahb.org/page.aspx/category/sectionID=135







Some areas are improving in the sustainability of homes. But none are back at the historical norm. If you look at the link, median incomes have gone up only gone up a bit since 2000.

Now what about Case-Shiller?







You can see that by historical measures, prices are still high but as a group everything is falling. There is not one city in the 20 monitored that hasn't lost value in the last six months. Only three remain at 200% or more of their January 2000 prices. To think, incomes have only gone up by ~20%... That implies more correction is required. Some of the 'less bubbly' areas saw incomes remain flat, so that isn't necessarily good.

I like to plot the trend of price drops per month in a number of markets. What we see is a flattening off in the price drops. Basically in the 2.0% to 4.0% range with two outliers in Las Vegas and the Bay Area. I could only speculate on the SF Bay Area at this point. Las Vegas is so overbuilt that it was doomed to an extraordinary collapse.

But notice something about DC. Of the large markets identified as bubble markets, it looks like it is having the least pain. Its quite possible that it has matured into a large enough urban area that the fraction of the population that can afford a home has dropped (a la LA, NYC, and the bay area). I could only speculate on where its final affordability plateau will be; but I do not expect it to ever hit 80% again! (Yes, a bear stating a city might have moved to a new threshold.) Where? Its not ready to hit LA's 50% upper bound. Not this cycle. Perhaps prices will stop their decent at 60% to 70% affordability.

But then consider LA... If any city has a risk of breaking the pattern and going to very fast price declines, it would be the least affordable city in the nation (world?).















National Inventory

Its ugly, but it hasn't yet broken into uncharted territory. Its unseasonal... and scary. Note: Ziprealty only covers about 1/3rd of the homes for sale.













LA, in the south Bay



Inventory isn't break away... but its high. This is a classic area where traditionally the inventory builds up pretty quickly as the kids are about to leave school. So now that I know to look for that phenomenon... I'll make sure to get a few data points a week this year! I'm amazed at how fast home prices have been dropping despite inventory not being as super high levels. I think that single digit affordability and banks now having to verify loan qualifications might just be doing the damage. Probably the same effect is being seen in the SF Bay Area.








DC and Houston

Houston is easier: Its income has been flat for 7 years, but so were prices (ok, Dallas is up 20%... Nearest city in Case-Shiller)

DC has high inventory too. But the distribution is interesting. I project that 2.5% to 3.0% price declines per month will be standard for a while until afford ability breaks 50%.












Arlington

What about that distribution of inventory? Its still high inside the beltway. I pick Arlington because ziprealty data and MRIS data align (they do not for Alexandria city).









The inventory would be high on its own, but not extreme. But there is that large outside the beltway inventory that is becoming attractively priced. This is worth watching.

Phoenix

Phoenix was late to the game, shot up quickly, and is now plunging back down to earth. While the mega inventory is no longer flirting with multi-year levels, until Phoenix can pull inventory below a year, its price declines will continue to hover at high levels. But afford ability is lurking. The big unknown with Phoenix is that so much of its employment is tied to growth. With another year of slowing growth ahead... do we have a death spiral a la Las Vegas?










That's it for this weekend. (Ok, 00:20 Monday...)

In quick summary, inventory remains high, but below record levels. We're seeing the normal early May drop in inventory but we should expect to see a ramp up of inventory until the end of the summer selling season in most areas. Case-Shiller is pointing to rapid declines in similar home prices. I'll be very curious to see if there is any 'spring bounce' break in the price declines.

Overall, its a waiters market.

We're not seeing any signs of a turn around. If anything, its only evidence that the rate of pain increase has halted.

Got Popcorn?
Neil

The American love affair with the shopping mall is undergoing a trial separation

Sometimes it take a foreign perspective to really capture the moment. Basically, with news of investment properties losing 2/3rds of their dollar value, I'm not expecting foreign investors to come in and save any market.

One blogger asked how to make graphs of Austin.

I've been playing with www.Trulia.com and the graphs seem ok. Not 100% accurate (e.g., others are posting far more researched price/ft^2 data, but its a great start). It shows that most areas still haven't found their market clearing price. However... some areas are into the next stage of the trend. As prices drop sales accelerate. Its a self feeding trend that brings those areas to a bottom fairly quickly. However, due to the substitution principle in housing, this will only create a price drop wave that will go through those communities still holding onto wishing prices.

Here is an Austin Example. Note how harshly the credit crisis hit the city during the winter. Can they maintain the newly re-found momentum into the summer? I doubt it with the credit crisis:




















How What about prestige communities? We've been reading for a year how only the cleanest and nicest homes are selling. I've seen a 15% BETTER trend than these graphs suggest. Basically, the owners of the less nice homes are trying to price up against the nicest homes. Only a few sell... With four or more months of inventory on the market, those willing to discount for a sale can always undercut the stubborn.

Palos Verdes, CA:




















Alexandria, VA:























But but but... "Its different here." Yes, there are worse selling locations. e.g., Ashburn VA is now selling for a more than a quarter off discount and the trend is the buyer's friend:




















Its worth looking at Corona, CA. Why? Now that large homes are available at conforming mortgage prices, sales have spiked up again! Now, these are only knife catchers, but this is a clear demonstration that at the right clearing price, there is a market. With most buyers locked out of jumbo mortgages, expect to see this trend continue everywhere. Every market has a floor under which sales will be stimulated again. Once that floor is found... it only accelerates the price drop! In this case, getting down to circa 2007 era conforming loans appears to dramatically open up the qualified buyer pool. Ouch at that 1/3rd off price...








Rumor mill from my sources is that jumbo loans are drying up in April; we're in a state worse than the October credit crunch per word off the street. Doubt me? Go to the .mortgage broker forums If true, we should see even further reduced sales from March in markets that require them. The same rumor mills say that in many jumbo markets, prices have had to be discounted 5% to motivate *any* buyers to act. We won't see the data for a bit. I really wish Case-Shiller was available on a zip code basis.

For those looking to buy, the consensus over at the HBB is that we're in the bottom of the 3rd inning. Its the spring selling season so the 'Home team' is up to bat. I'll let the graphs speak to how they're doing. Everyone knows that US real estate is being discounted. Even the BBC. Can you imagine what the headlines will be like once the kids have finished going back to school? I'm still amazed the government is implementing policies that will only increase the overhang of surplus housing rather than letting it be soaked up quickly. Credit isn't done tightening. The Fed can help liquidity, they cannot legislate it.

The number of sellers on the sidelines is mind boggling. For every person I know who is waiting to buy, there are two I know of trying to sell their 2nd or 3rd homes... Eventually those surplus Florida condos will fill up. There will be enough inventory to drive prices back to sane price/Income ratios.

Got Popcorn?
Neil

Why we need Case Shiller

This is an LA Times Article has been getting a lot of attention on the mortgage broker blogs.

Why? Look at this graph:





Holy cow! Yes, the Southern California real estate market has hit the skids. Why? Jumbo loans are tough to get and it looks like not that many qualified buyers really have enough money for down payments... at today's prices (e.g., drop the prices!).

This credit contraction is spreading fast. The total dollars being transacted are dropping fast. California recessions tend to spread... (Its a big state.) Consider that Florida, Phoenix, Las Vegas, and DC are also pulling the market down...

Calculated risk has some great charts up today. I recommend reading.

Got Popcorn?
Neil

Foreclosures running at 2 million per year

I'm sitting watching Bloomberg this morning and they had a Boston Economist (Zuckerman?) saying we're heading towards a perfect storm.

Per CalculatedRisk (Great Blog, if you're not reading it, why?) new home sales are below a SAAR of 600,000 homes per year. In other words, foreclosures will add more homes onto the market than new build.

Also, think about how many rental units were removed from the market in the last seven years due to condo conversions. Over the next two years the vast majority of those units will re-enter the market. New build condos will also enter the market. In some areas, like Phoenix, this has already broken the rental market. In other areas, e.g., DC, its going to create a three year deflation on rents.

January sales show a SAAR of existing home sales of 4.89 million. I doubt that rate will be maintained. Most likely existing home sales will be below 4.5 million. Most likely the foreclosure rate will increase too. What happens to home prices when foreclosures are half to 2/3rds of the market?

If you are a buyer, realize that 2009 should bring down prices in the "elite markets" more than 2008. The power is in the buyers hands. Remember, as a buyer, you have the money that everyone else wants. No one is entitled to your money. Get the most for it.

Got Popcorn?
Neil

GSE's having trouble selling Mortgage Bonds

Scary article on CNN

Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart.

There is no making this pig fly again. This is going to tank the home price market.

Got Popcorn?
Neil

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

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

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

Click on:

SandP-source-Warning PDF!


More info:
www.homeprice.standardandpoors.com

Got popcorn?
Neil

Home Price Estimates

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

WSJ ON HOME PRICES


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


Got popcorn?
Neil

Hovnanian home sale this weekend

http://tinyurl.com/2ua5ye

or piece together:
http://money.cnn.com/2007/09/13/
real_estate/hovnian_discounts.ap/
index.htm?postversion=2007091317

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

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

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


This is just more knife catching.

Read this article (hat tip Sacramento landing):
http://www.usatoday.com/money/economy/housing/2007-09-12-affordability_N.htm

Or http://tinyurl.com/2mzprw


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

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

http://www.minyanville.com/articles/
banks-chavez-cents-risk-debt-credit/index/a/14089
or
http://tinyurl.com/2rvdsp


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


And I'm sure J6P is happy oil is now over $80/bbl. Good grief! How are the airlines (an industry I love to follow) going to survive? Sigh... :(
http://biz.yahoo.com/ap/070913/oil_prices.html?.v=23


Got popcorn?
Neil

Home Prices Post Steepest Drop in 20 Years

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


http://biz.yahoo.com/ap/070828/home_price_index.html?.v=10


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

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

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

later in the article:

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

The rest notes how the problem is still spreading.

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

Got popcorn?
Neil

Market Cycles: Time to buy 2008 or 2009?

There is an emotional cycle to a market:

1. Optimism
2. Excitement
3. Thrill
4. Euphoria (market price peak)
5. Anxiety (I'm a long term investor, not a speculator.)
6. Denial
7. Fear
8. Desperation
9. Panic
10 Capitulation
11 Despondency (start of market price bottom)
12 Depression (end of market price bottom)
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (Its almost what I paid for it...)
15 Optimism (cycle starts again)

Judging from the press, home prices, and advertisements out there. I'm going to declare us in Denial. It took 10 months to go from Euphoria to Denial. Does this mean that in July or August of 2007 we'll be in Desperation? Probably, assuming the time scale stays constant. That means Capitulation won't happen until May of 2008 and Despondency through Depression might be summer and fall of 2008; that would be the best time to buy.

Warning: It could be a much slower cycle. But we seem to be progressing much faster than the Japanese recession. Why?

1. The Japanese had an amazing savings rate. They could ride out almost anything. We have zero to negative savings.
2. The internet is spreading information much faster than in the past. Economic cycles are very accelerated.
3. The Japanese economy falling wouldn't impact anyone else's economy. Any guess what American luxury buying habits do if we go into a recession? ;) Look at the Japanese economy, for the first few years luxury sales were down. We import most luxuaries.
4. The US market is far more overbuilt than the Japanese market

Now this speed of the downturn is slower than previous predictions of mine. Cest la vie. However, its pretty obvious that we have to write off 2007 as having no chance of a home market recovery. The only question is when do we hit bottom?