No city above 200 on Case Shiller

Every city in the case Shiller is now declining-except Denver. There is no "its different here" anymore. These results are for May, possibly the strongest month of the year for SELLERS! Yet prices declined in all areas measured by Case-Shiller. This is before the July tightening of credit. Its a bummer Case-Shiller lags so much... but for such good data, we must be patient.



Here are cities I've been tracking. Now all indications are that prices are continuing to decline since May. Previously, I've predicted about a 25% under-run of the long term trend line. I still predict 2009 will be the year where the nation has the greatest price drops.



These are the derivatives. I graph what fraction of the homes value is being lost per month. Despite how weak this spring/summer selling season was, price declines slowed. However, do not forget, we are exiting the best time of the year for SELLERS! The traditional time of the year for price corrections is October through February. With the integral of price declines to date, I think the market is close to breaking.

I see this fall as the transition to the real-estate emotion of Panic. I see the spring being a switch to Capitulation. Capitulation is the time of the greatest price drops. I think we are in the process of witnessing a "bear market rally." Next month's data will probably show some further improvement in the loss rate (June). I'm sure the NAR will tout that.

A comment on Denver: I'm hearing about pretty brutal price drops now. So they've dropped enough to have a minor "spring bounce." Ok. They'll be giving that back up this Fall with interest. Yawn.

I plot the MONTHLY price drops. My final conclusion is to note that a 4% per YEAR drop is the equivalent of free rent. With credit tightening further, I see the slight "bear market rally" ending in August and starting a faster drop starting in the Fall.

Here are a few individual city graphs:

More Bank Failures. Well... its Friday!

http://biz.yahoo.com/ap/080726/bank_takeover.html


The 28 branches of 1st National Bank of Nevada and First Heritage Bank, operating in Nevada, Arizona and California, were closed Friday by federal regulators.

Oops. Nothing to See here, move along.


But what struck me was this quote:
"It's very important that Arizonans know that their deposits are secure," said Felecia Rotellini, superintendent of Arizona Department of Financial Institutions. "They are well-managed and the 1st National Bank of Arizona issues should not cause any panic in Arizona."

Whiskey Tango Foxtrot?!? Ok, its one thing for us bloggers to speculate on the next bank failures, but its another for a government official to express worry in such a fashion! I'm sure the Arizona Department of Financial Institutions is always on the look out for financial panic (bank runs). But to mumble that off to a reporter? The FDIC should stop wasting time looking at blogs and instead look into the state agencies... and when they get around to it, the reserves of their member banks.

http://www.fdic.gov/bank/individual/failed/banklist.html
That is seven failed banks in 2008. Its funny, on Calculated risk there are a few Trolls making fun of how we bloggers look for Friday bank failures. Well... Two banks failed today.

Note: This is no Indymac. That failure was a big one. 28 branches... yawn. Although only 70% of deposits were insured (the rest, I assume, were above the $100k limits.

Comment on Indymac: For those with insured accounts (joint accounts) over $100k, its almost random who is getting paid and who is having to wait. I know of someone having to go back for a third time to try and get out their excess funds.

Got Popcorn?
Neil

California wage proposal

Ok, it was probably stagged to get headlines. The Governator is proposing cutting state wages in CA to $6.55/hour until a budge is signed. LA Times article . I do not take this proposal seriously.

But a scary thought, the state needs to raise $10 Billion quickly during tough credit times. Otherwise its not going to function until the April tax collection time. I'm thinking this budget will not get resolved for a while.

During the Great Depression, Federal wages were twice cut. Will California have to lead off with a government wage cut? I'm serious. The crisis is that bad.

Any which way, this state will have affordable housing by 2011.

Got Popcorn?
Neil

California Sales

DQnews recently posted California sales. What struck me is that 41% of Southern California Sales were foreclosures! That means only 1/3rd as many owner-owned homes traded hands in June of 2008 versus 2006!















Think about that for a minute. Considering how much tighter credit is going to become and how there are more foreclosures waiting to happen in the backed up system than their are buyers for the next 12 months... Consider the implications. Southern California, combined with Florida, Ohio, Michigan, Nevada, and Arizona are really hurting economically. All real estate is local, but all credit is national. Heck, their have been a few articles on how banks will no longer loan against bonus income as that is too variable. One must now save the bonus checks and use them as part of the down payment. How un-American. ;)

California sales in general were so-so. Notice the trend line going forward? Every year has a drop in sales from June on. There is no month later in the year that would be expected to be better than the month we just went through.













LA sales started the year anemic and have grown to weak. LA inventory is at 120,000+ units per zip realty! With over 21 months of inventory, do not expect this city to turn around in 2008 or 2009. There has never been a case post WWII where New York City or LA has had a recession and the rest of the nation didn't follow.














San Diego is the lead lemming. With the shear amount of construction, employment flight, and misguided policies, this city will be hit hard. Only Miami rivals in the number of condos being constructed. Both with have to become far more affordable to end the current glut.











The recent trend in the SF Bay Area sales should give an indication of where that over-hyped market is going. Yes, this is one of the strongest economic areas of the US economy. However, as the rest of the nation weakens, it cuts IT spending which hurts the Bay Area. This area will be worth watching. I can see prices dropping 40% from the peak (per Case-Shiller).













There are only about six weeks left in the California home sales season. Every single graph I've plotted shows that September has very weak sales in a normal year and that the next strong sales month is March. This time, there is too much in the foreclosure pipeline to create a strong spring selling season for 2009.

My last article was my real estate emotions article. Due to the economic pain in California, we are one major event away from Panic. I think we'll hold on until the Fall, but if a big enough even rolls through... it will happen earlier. Since California does more to fund the Federal government than any other state... there is no "its different here." Quite bluntly, the economy is not in a position where it could handle California contributing 10% less to the Federal coffers.

Got Popcorn?
Neil

July Real Estate Emotions

This aricle is early. Why? The emotions due to the Indymac closure. I believe we are one to two major bank failures away from an acceleration to the next emotional state. Even without the bank failures, we're going to hit panic by the late Fall. The economy is that bad! We're still in desperation... but its only going to take one or two more trigger events to send us into emotion #9: Panic.

This is a photo of what the lines are like at Indymac. Its not ust this Pasadena location, I've seen it at several others. People are moving their money around... its not normal. If Indymac had failed in the fall, it would have sent us into panic. Since if failed now... its wait and see if another big bank sends the real estate emotions forward. Note: I always expected bank failures. Its just odd watching them be the drivers.










I'm halting doing the Kubler-Ross scale. I haven't found it to be a good predictor of anything... Not when all of the lemmings are going towards the cliff together...


I've been using the following graph to illustrate the emotion changes versus the ARM resets. At this point, it might be better to graph versus something else... or maybe I'll keep it; the missed payments have put us into quite the credit crunch.

















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.
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've decided to redo the 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. We could be into panic as early as August (I think we've survived July). But most likely, it will happen seasonally. That is unless some of the large banks we're concerned about are taken over by the FDIC. We're on an accelerated cycled. 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 Capitualation. Remember, Capitualation is the time of the greatest price drops. At least in the markets that survive until then.