Price reductions in NJ

Nice article from Daily Record about price deflation in NJ. Price reductions are here, but the question is with rising rates, how much further will they fall. It seems to me we have a long way to go. People are still incredibly bullish on real estate, but reality will sink in soon enough. Maybe now that Bernanke has been chosen, AG can end the connundrum by ambushing the bond market with a 50 bp rise. I doubt it, but it would certainly help scare some sense into the bond bulls.

NJ Price Reductions

Median new home prices down 5.7%, in one month.

NYT article about the deflation of new home prices. 5.7% in on month is a very large deflation of prices, it seems to me. Overall, inventory is up 20% from September of 2004. Another sign of the tide turning.

NewHomePricesDeflating

Mortgage Application at 6 month Lows.

The MBA has reported that mortgage applications have hit a 6 month low. All this with still very low interest rates. This is more of a leading indicator than home sales. So one can logically conclude that home sales figures will decrease roughly by the same amount in the data that comes out over the next few months.

Mortgage Applications at 6 Month Lows

Inflation concerns from WSJ

Nice post about inflation fears from the WSJ. The most interesting thing, I think, is the remarkable chart about the Dow. It just looks rediculously inflated from it's trend. Regardless, the article continues to state the obvious. i.e. Rising interest rates and inflation are bad for the stock market. It will be interesting to see over time if valuations ever get back to historical norms.

WSJ Inflation

Today's Open House Experience.

I went to two open houses today in my neck of Bergen County, NJ. The first house was a standard 8/4/2 colonial. Asking price is $865,000. This is the first week the house is on the market, and the realtor said that the response has been very strong. That said, 30 minutes prior to the close of the open house, I was only the fifth person to sign in. The house is $200,000 overpriced in my opinion. The second house I went to see was for an asking price of $890,000. This house had already been reduce by about $50,000, but still overpriced by at least $200,000 in my opinion. There were 3 Realtors greeting me at the house. I could sense the desperation in their eyes. One of the realtors was a real old timer, obviously a very experienced realtor. I asked him how the market is doing, and he told me that it has definitely softened. All the pros know that this is a cyclical business. There is no "new economy" in real estate of never ending booms. The larger the preceding boom, the greater the ensuing bust. Since this is really a slow season in real estate, we won't know for sure until the spring whether this is just a seasonal slowdown, or something more foreboding.

More New Economy

Real Estate is in a "New Economy". Old Rules don't apply, say the builders. Booms are not followed by busts, but rather by further booms. Never ending demand is the new paradigm. Bullshit! The only thing that is new is the degree of leverage that people are willing to accept, and by defenition creditors are willing to give. This will unwind! And when it does, it will not be benign.

New Economy

Another Recession Warning.

This Scripps Howard post nicely describes the guns and butter policies of the current administration. The real tragedy, I believe, is the fact that all this debt will be paid by our children. We spend and they pay, this is not fair.

Bush Recession

Head and Shoulders Top?

Is the Dow Jones forming a head an shoulders topping pattern? It sure looks that way to me. If indeed this is the case, it's is very bearish for the dow.

Head and Shoulders?

The Price To Pay!

Not surprisingly, in a recent survery of the most expensive cities in America to live, New York came out on top. Congrats! Compared to an average family of four in Anywhere, USA who makes $60,000, New Yorkers have to earn nearly $150,000 to have the same purchasing power. Furthermore, nearly 70% of income has to be devoted to housing costs. This is all well and good as prices of your condos are going up 20% a year, but what will happen when prices start coming down. New York is going to be even more grumpy. The glowing facade of asset inflation will give way to the growling frowns of asset deflation. People have been in the fire for so long, they don't realized they're cooked.

I Love N.Y.

INFLATION!!!!!!!!!!!!!!!!!!!

Inflation is rearing it's ugly head. The latest statistics show inflation rising at it's highest pace in 15-25 years. What does this all mean? I think this increases the chances that Greenie will drop a 50 on Nov 1, though this chance is probably no more than 25%. However, if inflation continues to soar, interest rate are going to go much higher than many of the bulls anticipate. This will be a dagger in the heart of the housing market, and probably the stock market as well. Asset deflation + price inflation=Stagflation + Recession. As AG says, "Periods of low risk premium are followed by falling asset prices". We have all been warned!!!!!

INFLATION

Hubris at Refco

Nobody knows the full extent of the fallout from the Refco debacle, but I don't imagine that it will be good. This NYT article chronicles the hubris that the executives displayed. Lack of ethics at the top of a large corporation have destroyed many good businesses. This will be another one. It is so unfortunate that excess greed turns something potentially good into SH#T! A lot of people are going to lose a lot of money. There are rumors that this may effect the bond market, thus possibly the mortgage and housing market. I don't know. Yet again, another financial disaster playing itself out in front of our eyes.

HUBRIS

Something Has Got to Give!

In this Washinton Post article called "Double Whammy", they nicely discuss the squeezing of the American consumer of the past 5 years. Inflation is accelerating at the fastest pace in 15 years, yet incomes are down over the last five years. Something has to give. It is mathematically impossible for prices to go up and wages to go down forever. Only the housing ATM has allowed consumers to continue spending at a fast pace for the last 5 years. What will happen when the ATM shuts down? We are the proverbial frogs in a tub with the temperature rising slowly. Will we be cooked? Obviously with consumer sentiment being so low, people are feeling the pain. Yet, we have no savings to fall back on. How can this possibly end well??

DoubleWhammy

Tough Times Ahead for R/E Gamblers!

In this post from RisMedia, they talk about the potential fall out from an r/e bust. A possible 30% reduction over 5-7 in r/e prices is mentioned. Certain zip codes in Las Vegas have almost a 50% flipper rate. That is quite remarkable. The excesses of the r/e cycle will have to be worked off, and we as a country are in a very bad spot. We have no savings and huge debt, as a country and as individuals. When the next recession comes, I believe it will particularly nasty, as we don't have any resources to get through it. So, we will probably have to go further into debt. It just boggles my mind that countries continue to lend us vast sums of money. How can it end well?

FlipFlop

Mortgage Deductions To Be Reduced!

You can kiss your beloved mortgage deduction goodbye! Well, at least a part of it. As we are so indebted, the government is looking at ways to raise taxes, without raising taxes. Taking away tax breaks is one such way. This will just be more retardant on the fire.

DousingTheFlame

Fed Said pause would have "misled" the Public!

Minutes released from the lated Fed meeting state that Fed felt that pause would have "misled" the public about the "strength and resiliance" of the economy. They can say what they want, but they are in a box. They must raise rates to save the dollar, period!

Can'tPause

Dr. Marc Faber

Inflation/Deflation

In Housing We Trust by Craig R. Smith

In Housing We Trust

10/9/05: My Open House Experiences:

Today I went to see about 10 open houses in my neck of Bergen County NJ. It was interesting to note that there was a lot more traffic than the open houses I saw about 2-3 weeks ago. I think there are a lot of people who are smelling blood, thanks to all the bubble exposure from the media. One realtor was quick to deny any weakness to the market. He said "it's not true, any house priced right still sells". Then I gues the next question really is, what is the right price. As interest rates go up from here, that price will continue to be lower and lower. I believe this is really a make or break weekend for local r/e. If they cannot clear the substantial build up of inventory, they are in for some tough times ahead.

P.S. Many homes had substantial price reductions.

1.2 Million Realtors.

This is a post that tells people not to get cought up in the "hype" of the r/e mania. Interestingly, they quote a WSJ letter that claims there are 1.2 million realtors in America. That outnumbers doctors, lawyers and policemen. How bizarre!

1.2MillionRealtors

Low Demand, High Supply in Ann Arbor.

Ann Arbor, Michigan is seeing a supply/demand mismatch. New construction has put a "cap" on prices of existing homes. Meanwhile, demand is just low. Where are the animal spirits? I guess with the Michigan consumer confidence index being so low, people just don't feel like overspending on real estate. Again, interest rates are still very low. As interest rates rise, the supply/demand mismatch will only worsen, putting increasing pressure on SELLERS!

AnnArborBlues

Bubble Leaking According to U.S. News

In this post, the author point out the rising inventotry in both existing and new houses. Up to 4.7 months of supply. David Rosenberg of Meryl Lynch is quoted as saying "as sure as night follows day, price decreases follow inventory build up". HISS!!!!

HissingAir

Prices stabilizing in Turlock, CA

TurlockDrop

Santa Cruz Prices Dip

Santa Cruz values dip, inventory up. Mean and Median house prices have decrease, and inventory has swelled. The market has passed it's apogee, and is heading back to planet earth. Question? Slow decent or crash landing? That is the 2 trillion dollar question. The distance will have to be travelled, the question is at what pace. Obviously, a certain portion will have to come quickly, the rest more slowly. As I have stated earlier, Greenspan is in a box regarding interest rates. To defend the dollar, and thus the whole US economy, he must continue to raise rates. This will either invert the yield curve and kill the banks, or raise long term rates and kill the mortgage/housing market. Watching closely.

SantaCruzDip

More about Commercial R/E Bubble from Barrons

Barrons chronicles the commercial r/e bubble in this very interesting piece. Big money left the stock market and entered the commercial r/e market in droves, bidding prices to lofty heights. However, it seems prime office space peaked in 2003 and has already had a substantial decline. Furthermore, a lot of smart brokers are selling into the madness, not buying.

CommercialBustComing

The Music Has Stopped, But....

In LA, the music has stopped, yet people are still dancing. In this article, point to the obvious fact that insiders are selling and inventory is rising, but prices continued to escalate over the past year. I think fifty more bp's, and the dancing will stop as well.

StopTheMusic

More evidence of slowdown from NYT

Another NYT detailing the slowdonw in Manhattan prices. As reported earlier this week, the biggest hits came in the luxury market. In general, traffic is slow and inventory sits about a month longer. This is interesting, because mortgages are still quite cheap. I guess we have finally reached prices that even cheap money can't help.

ManhattanPriceExhaustion

FT House Price Index!

The vaunted "soft landing in U.K. Here is the FT house pricer Index. Notice that prices of homes have decreased from March to September, though Real Estate Never Goes Down!



FT House Price Index
Published: October 6 2004 17:34 | Last updated: August 12 2005 11:15

The new FT House Price Index MA is now calculated on a mix adjusted as well as a seasonally adjusted basis. It shows that house price inflation in September has slowed to 3.2%, its lowest level since June 1996.

The FT House Price Index MA is calculated by Acadametrics and is designed to provide the most accurate guide to the real trends in residential property prices using Land Registry data (the only complete data source for domestic property prices in England and Wales).

We estimate the FT House Price Index MA, on a seasonally and mix adjusted basis, as follows:

House Price Index Monthly Change % Annual Change %
Sep 2005 £192,804 192.8 0.1 3.2
Aug 2005 £192,581 192.6 0.0 3.9
July 2005 £192,588 192.6 (0.2) 5.2
June 2005 £192,901 192.9 0.2 6.5
May 2005 £192,476 192.5 (0.5) 7.3
April 2005 £193,450 193.5 0.0 9.0
March 2005 £193,480 193.5 (0.1) 10.3

How the index is calculated

Figures for the most recent months are produced using the latest information from the Land Registry’s database of monthly property transactions and a statistical model to collate information from other published house price figures.

The FT index weights information from the Halifax, Nationwide and Office of the Deputy Prime Minister according to their past reliability in predicting Land Registry figures. The outcome from the modelling process is smoothed to avoid the erratic month to month fluctuations observed in some other indices.


Some Links:

news.ft.com/cms/s/1d089640-fb60-11d8-8ad5-00000e2511c8.html

news.ft.com/cms/s/fac2e51a-3667-11da-bedc-00000e2511c8.html

news.ft.com/cms/s/5879b016-30ba-11da-ac1b-00000e2511c8.html

news.ft.com/cms/s/7f0134ce-2972-11da-8a5e-00000e2511c8.html

Twin Deficits Threaten American Supremacy!

Great research by Menzie D. Chinn of the Council of Foreign Relations. (I recommend you read the entire report in PDF file). The gist of the paper is that the huge current account and budget defecits are threatening the dollar, and thus American influence in the world. Similar to what happened to England at the turn of the last century when they became net debtors. If the world gets tired of supporting our hedonistic lifestyles, and pull the plug on buying treasures, our yields will soar leading to a severe recession, dollar decimation and loss of our world status. Also, if we go into recession, whether lead by housing bust, or followed by a housing bust, the world will stop buying our treasuries leading to the same result. The bottom line, in my opinion, is that Greenspan is in a box. He cannot lower rates. PERIOD!!!!!!!!!! He cares less about the overly indebted house "owner" than about defending the dollar. If the dollar is destroyed, the game is completely lost.

AG Must Defend Dollar

Commercial R/E Bubble

At a conference in Las Vegas, yet again the topic of a commercial r/e bubble came up. There is evidently a huge amount of capital chasing r/e investments. 1031 exchanges, which seek to avoid capital gains taxes, are flooded with money from r/e profits and are looking for a new home. But of course, Las Vegas is different. It will be effected less than other parts of the country, said one participant. Too much money chasing too few bricks!

VivaLasVegas

The Wisdom (Madness?) of Crowds.

Nice post in Philadelphia Inquirer about expectations of real esate. 25% of Americans are anticipating 10% a year of appreciation in their house. Only 3% believe there will be a decline. I have one small question for the real estate bulls. What are your kids going to buy? If your house appreciates 10% at infinitum, and income growth is effectively 0%, that is not a recipe for your children to reach the American Dream. That is why I say this is really a nightmare. Everybody is looking at the houses through some bizare prism glasses (or bloated fun house mirror). When the reality will hit, Pain! Pain! Pain!

10%PerYear

Another link to same article:

www.dailynewstranscript.com/localRegional/view.bg?articleid=64875&format=&page=1

California at record low for affordability

Only 14% of Californians can purchase the median home. How stupid is that? More and more people are dedicating and ever increasingly large share of their income for housing. Alan Greenspan states that our biggest problem is lack of net national savings, yet here is one of the largest culprits, the housing bubble that he created. How can you expect people to save for the future if they are spending so much on shelter. This is just stupid!!!!!!!

StupidlyExpensive

Higher Rates to Hurt US more than Europe

Post from Reuters again sounding the alarm of potential bust of US R/E resulting in bust of US consumer economy, the engine of growth for the world economy. It seems like the whole world has a stake in this bubble.

ConsumerBust

Rising Inventory in Pensacola

A tripling of inventory in Pensacola, along with rising interest rates are really dampening the market. "Buyers Market" is beeing thrown around. Obviously, this is just the early stages of inventory spikes. Once the speculators rush to market en masse, along with further cooling of demand, the market is MEAT!

Pensacola is Cooling

Tulip Mania!

A very apropos post talking about The Donald building a tulip-shaped hotel in UAE. Of all the forms that could have been selected, one can not escape the symbolism of the tulip form. The Dutch Tulip Mania was the first described financial mania, and the latest r/e mania is probably the biggest. Pehaps we will all laugh about it in 5 years or so.

TulipManiaHotel

Australia's MacFarlane says debt sustainable.

Australia's central banker, Ian MacFarlane, puts himself in the sustainability camp regarding our huge debts. A world savings glut, from lack of a safe place to invest domestically, is easily financing our spending bindge, including real estate. He points to the supposed soft landing of r/e bubble in Australia, no doubt which has been helped by the commodoties boom. I would just like to point out one thing in this rosy senario. It will only take one recession to wipe out the heavily leveraged homeowner. All these thing look good, as long as everything in the economy goes your way. But to quote Alan Greenspan, long periods of low risk premiums are invariably followed by falling asset prices.

ShrimpOnBarby

IMF weighs in on American Consumer

The IMF is again weighing in on the American Consumer. The article states that the "greatest danger" to the world economy is slowing of consumption by Americans, as there is no other engine of growth in the world. So evidently, we must continue on our spending binge, going deeper and deeper into the hole, so that there can be "growth". So I guess for every hour of work that I do, 10% goes to Asia, 10% goes to Europe, 5% goes to emerging markets, 35% goes to Uncle Sam. It's nice to know that I have so many business partners. I take great comfort in knowing that my fellow countrymen are taking on trillions of dollars in debt for the cause.

BeastOfBurden

Mortgage applications fall

Higher rates are starting to bite a little bit as mortgage applications fell last week.

Mortgage Applications Fall

"Soft Landing" for Housing Bubble

In this rosy senario article in Business Week, they believe that housing market will just "soften". Affordability is at 15 year lows, still with historically low interest rates. "Fundamentals" are still good, say the r/e pros. This is just a bunch of b.s. Once r/e cools off, there will large amount of lay offs which will, in a self perpetuating cycle, put even more pressure on housing. This is just a disaster waiting to happen, especially in some of the bubble states.

R.E.Softening

Recession Looming.

Another nice post about the looming recession that was forestalled by the housing bubble. Nice read.

RecessionLooming

Yet some more Fleckenstein.

Fleckenstein is singing Alan Greenspan praises. NOT!

FleckLovesAG

Getting Fatter.

Is this one of the side effects of the "Consumption Society"? I believe it is.

WeMustConsume

New York Post

Similar post to the New York Times, The New York Post goes over the sales report and quotes some opinions. It seems there is a combination of decrease selling of trophy properties, and increased number of "entery level" properties, which nobody can afford. If the first rung of the ladder is overpriced, the Ponzi scheme must end.

Start of the Decline

Homebuilders dumping more shares.

Another post from the NYT discussing how some major HB's are dumping shares. It really doesn't matter what they say, they know the jig is up. These are very smart people who obviously see the writting on the wall. However, you still see these guys on tv pumping their stock and sector. The old pump and dump. I really hope the SEC investigates all these shenanigans at the conclusion of this mania. For all the regular people that are going to get burned, I don't believe these guys should enjoy such riches.

PumpAndDump

Manhattan median price down 13%

In this post in the New York Times, they discuss the cooling r/e market in NY. Median prices have decreased 13% from the peak, and houses are starting to sit a little longer. I think it's remarkable that this had made it to the front page of the NYT. If some of the speculators start to get a whiff of an impending downturn, they may rush supply to the market. Furthermore, as rates rises and people become more cogizant of a potential slowdown, there will also be less demand. Increasing supply and decreasing demand is the obvious necessary recipe for a housing correction.

NYC down 13 %

Bill Gross

Bill Gross's October commentery is almost all about the ending of the housing bubble.

Bill Gross

Real Estate and your porfolio.

Nice article in BW about the possible effects of a r/e bust on your stock holdings. The credit markets/hedge funds plus finance/consumer sectors may take the biggest hits.

ChangeYourPortfolio

More Fleckenstein

Nice post by Fleckenstein.

Fleckenstein

Middle Class Squeeze in Florida

Nice article from Florida highlighting the difficulties that middle class people are having buying a starter home. Two college educated people, both making decent salaries, are priced out of the community they serve. Now, they are saying, middle class people need subsidized housing. I think this argument is ridiculous. All that has to be done is to break the speculators hold on properties. This will release all the necessary supply for the middle class, as well as lower the demand. AG must break the demand so that regular people can live their lives.

MiddleClassWoes

FDIC forcing small banks to decrease their real estate loans.

FDIC in Florida is forcing a small bank to decrease their exposure to construction loans. Evidently, they believe their loans are too concentrated in one sector, thus proving too risky for the bank. This may be one of the major fallouts of the r/e bust. Banks going belly up. I am sure Florida has more than it's share of banks who have made risky loans to help drive this bubble.

FDIC

IMF and housing

In this speech by the president of the IMF, he mentions the risks of housing prices twice. It's quite bizarre that the IMF is so concerned about U.S. asset prices. Obviously they understand that the world economy is being pulled along by the American consumer, who is getting his purchasing power from leveraging his rising asset prices. Logically, they are concerned that falling asset prices will have the opposite effect.

IMF

Iran and Oil.

This AFP post is about Oil. The reason I am posting it is because any kind of oil embargo by a major oil producer, such as Iran, could have devastating effects on our economy. The whole thing just makes me pretty nervous.

CrazyIranians

Cooling REITs.

Nice AP post about REITs cooling off. Obviously with the huge run up in real estate, REITs have enjoyed phenomenal success of the last 3 years, way overperforming the S&P. However, they are now historically very expensive, and pay a historically low dividend. Seems like a good time to cash in.

REITs