Update Car shopping

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



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

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



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

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

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

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

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

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

Got popcorn?
Neil

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

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

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

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

I also loved this little quote by the author:

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

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

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

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

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

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

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

edit:

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


Got popcorn?
Neil

Car shopping

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

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

What I observed while car shopping:

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

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

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

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

Got popcorn?
Neil

Real Estate Emotions December Update

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


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



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

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

My timeline is staying constant:


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

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

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

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



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

WARNING. The ad after the short clip is LOUD.


Got popcorn?
Neil

Everyone is buying 'a year from now.'

I hope everyone had a Merry Christmas. :)

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

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

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

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

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

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

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

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

Got popcorn?
Neil