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:

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.

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

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

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