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Further Proof Of The Worsening Of The Real Estate Depression
Yesterday I notified, In Case You Didn’t Get The Memo, The US Is In a Real Estate Depression That Is About To Get Much Worse.
Today I will show specifically how things will get much worse. The
numbers came out for new home sales today, and they were atrocious – and
that’s after a downward adjustment for the previous month’s numbers.
Follow the chart with the pretty colors below, keeping in mind that many
economists believe that new housing construction is a pre-cursor to
economic recovery.
New building sales have nearly come to a relative standstill, and
would look like even more so if adjusted for inflation and population
growth. As you can see, the economic sales volume served as a strong
indicator in the downturn in pricing a year later at the top of the
bubble. New home sales growth has just dipped again, as has Case Shiller
prices, which is in and of itself overly optimistic.
Why such a drop in new sales? Well, outside of the macro factors
involving credit, income and employment, there is the big elephant in
the room – Shadow Inventory.
Yes, toxic assets are taking up more activity than healthy assets. This is what it has come to. Again, I request subscribers reference the Shadow Inventory Analysis model
for what I consider to be the elephant in the room. Go through the
whole model, of course, but pay attention to the first chart, “Years to
Clear Shadow Inventory Backlog’, then the tabbed chart Delinquency and
Home sales, then move on to the back of the model to examine the date
behind this chart. It is frightening. At this point, we are actually
digging a deeper hole for ourselves while the media is portraying signs
of a recovery!
Jump across the world, and you see middle east turmoil and EU nations pushing default. To wit:
- ECB
Swallows Massive Portuguese Bond Losses As It Is Clear That The Third
State Will Soon Join The Bailout Brigade – Haircuts, Here We Come!!! - The
Coming Interest Rate Volatility, Sovereign Contagion, Geo-political
Unrest & Double-Dip Recessions: Here’s The Answer To Valuing Global
Real Estate Through This Mess
For those of you who feel these global events are unrelated to your
neighbors foreclosed house across the street on Johnson Street in
Peoria, listen closely. This “Real Estate Depression”
has occurred with the most favorable interest rate environment
possible, due largely to significant manipulation via monetary and
fiscal policy in order to suppress rates – see Buried
Deep Within The Files That The Federal Reserve Released On Thier MBS
Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks! as well as FASB Appears to Have Bent Over For The Final Time & Accuracy In Financial Reporting Dies An Ignominious Death!!!
This fairy tale, Goldilocks rate environment cannot last forever and
will spell very bad words if rates shoot up faster than income. Guess
what… The
Inevitable Has Finally Been Admitted In Europe: The Macro Experiment
Has Ignited Inflation Without Commensurate Growth & Rates Will
Spike.
There are a plethora of nations ready to default/restructure any
minute now, kicking off a rate storm that will cause havoc and spike cap
rates. I even detailed Portugal’s scenario and made it available for
all to see, haircut analysis and NPV losses to investors and all. Anyone
interested in seeing the entire scenario analysis for Portugal should
look here, you will find it nowhere else: The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog
For graphical evidence of what will happen to the housing market when
the fecal matter flips off the fan blades, let’s revisit a topic that
the popular media has forgotten about – Adjustable Rate Mortgages.
Above you have the Case Shiller composite 10 city index superimposed
against the Freddie Mac 30 year and 1 year adjustable ARM historical
rates. Tell me, which has the tightest correlation to prices. You can
see where they dipped and caused a massive bubble, they rose and that
bubble popped, and they were artficially supported and that bubble was
partially reblown. Yes, the bubble was purposefully reblown, reference Buried
Deep Within The Files That The Federal Reserve Released On Thier MBS
Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The
Banks!:
We have conducted analysis on all MBS
sale and purchase transactions conducted by the Fed whose data was
recently released. Of the total 10,058 MBS transactions, 72% were done
at a yield of less than 5% (5% below yield of 4.0%, 32% between
4.0%-4.5%, 35% between 4.5-5.0%) with an average yield of 4.75% on all
MBS transaction. The table below presents the number of transactions
under their respective yield category.
We have also analyzed the yield on
MBS purchased and MBS sold, looking for price discrepancies between MBS
purchased and MBS sold. The data points out that the average yield on
MBS purchased was 4.71%, 29bps lower than average yield for MBS sold,
thus implying MBS purchased were at a higher price than MBS sold. You know that old government adage, buy high and sell low!
Yield on sale: 5.00%
Yield on purchase: 4.71%
Difference in bps: 29.1
Now, imagine this artificial suppression, both in the form of MBS
purchases (which are supposed to be over) and QE in the form of Treasury
Ponzi purchases, are overpowered by the market driven rate storm brewing ahead. After, even sales volume is correlated to ARM rates.
For those who haven’t seen the video I went into this in detail
during a recent presentation. Of course, this can all be encapsulated in
a more concise form. You know what they say – a picture is worth a
thousand word… How likely is it that we can have 20 more years of
housing price declines?
Note: There is a typo in the chart below. The 74% figure is carried over from the CRE Japanese chart.
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Come on, it's obvious nobody believes the recovery nonsense because all you have to do is look around. And watch real estate tank even further, thanks to the states with Republicans in charge. They give tax breaks to big business and then cut the budget by firing state workers. It means more people who can't pay the mortgage, more foreclosures, more bankruptcies. They could care less if the whole country goes into the crapper as long as Obama is out and more conservatives get into office...at which point we'll just go into the crapper faster.
Reggie, truly excellent work. Well done.
Where's my "Debt Jubilee" Bitchez
If you get it done this year or next, they won't tax you on it:
http://www.irs.gov/newsroom/article/0,,id=174034,00.html
you a bro†
find my bro, here in rock city. getting my pitchforks together. they all knew something was smelly, from the whip off brown stuff from the fan blades. or fan belts†
If we all keep nibbling the shit sandwich as we're told to do, will that help? Eventually? Ever? Sometime? Never?
Thankfully, Reggie, you have the ballz to call it like it is....a real estate depression.
how can oil prices soar in a depression? how can lumber prices soar in a housing collapse? or the price of copper? boy, I guess you need to be real genius to figure out what's going on here. that's me! "the smartest man in the room"! why else keep telling jokes, right? your only asking me to be stupid when it comes to money! well ALL RIGHTY THEN!
Pretty much what Lew Ranieri, the godm'fer of the MBS said the other day.
the 1st 2 charts I can't read.. the stuff on the right side covers it up...
save energy: single-click.
reduce your finger foot print?
double click and the charts open up on a new webpage. Hit back to return to the article.
Right now you can buy small houses and apartment complexes with a single digit PE ratio if you pay cash. If you are handy with tools and know how to inspect a house this is about the best place for the little guy. Put a bunch of first generation Latinos in it or bring it to HUD standards and you will have a stable income. Net return before depreciation is about seven percent in my area. With depreciation it is even better. It helps to be friends with a.good plumber and good electrician so they wont rip you off for house calls. The rest the Latinos will do for you cheap!
Go in with a buddy or two and make it an LLC structure in any case for liability purposes.
Troll,
You give good advice. I stocked an old barn with lumber, electrical, and plumbing supplies (prices going thru roof!). I'm only buying in the "pays cash in rent market." Not only the PE's strong, but if Fed is successful in pumping RE values, I have appreciation out the ass.
You've got an age group that is no longer buying second homes or larger homes. In fact they are going the other way.
You've got a follow up smaller age group that is in a job market that has less jobs and lower pay overall for most of those jobs. And...they work in a corporate world that would rather pay less for a newbie than pay more for someone that has gained experience.
So we either need to have a LOT more immigration (OOooh my Gawd!) or a sudden influx of high paying jobs (uh..yeah...it could happen).
Other than that, R.E. doesn't have much sun shining in it's direction. For those 'little pockets of Heaven' where [maybe] there is buying and building of upscale houses, they just haven't gotten the memo yet.
As I have stated several times in the last two months, the real market value equals the cash bid of Fannie home auctions. Depending on geographic area, auctions that close are now 42-45% of "previously stated value" (the Fannie appraisal after foreclosure and prior to sale). Now, 93% of home auctions, subject to financing, aren't closing and going back on auction calendar. Thus, if you put down a deposit to bid, subject to financing, there is a 93% chance you will LOSE your deposit. Things are bad, folks, real bad.
Depends on where you live. RE property taxes in affluent communities are about to explode because so much goes into education demanded by PTA boards and other building programs with high public union costs . Gold costs little to store other than lost interest. Property tax can kill you over time if house unoccupied and detiorrating, especially if mortgaged excessively. The latter is current situation for most of America which is what Reggie is describing. Only deep pockets can speculate in residential RE , even in affluent communities loaded with zombie banker types. It will not save America. I also live in area you describe and am stunned by absolute denial of what is going on in most outside of "little pockets of heaven "and those who hide their real financial situation until one day they go belly up. Go figure---government is doing the same !
In Bethesda, MD they are still doing tear-downs and spec houses!!!!!
In SW Florida, people are holding signs up on Rt 41 offering their waterfront
homes at 60% off peak prices!!!!!
What gives here?
SW Florida waterfront is boned by Corexit and oil, 4eva.
Bethesda, MD is the same but on a longer timeline.
Deepwater Horizon, the gift that keeps on giving.
We are having a bubble in government.
Simple. In MD, O has created 350,000 high paying jobs.
In SW FL, retirees getting crammed down with no interest income, soaring medical, property taxes, and insurance.
Reggie, great as usual, and why can't you be wrong once in awhile? RE agents here in Tulsa are freakin out. Whent to one house, 225K, 4br, 3 ba 3K square foot, theyweretrying to get 200K, short dale, on a property that need 100K to make it worth 175K. It was like going to a car lot, the sales people were on us like SOS. BBBBBarely got out with my life, and my sanity.
IYR relentlessly upwards and not that far off 3 year highs. You would have lost money being short over any period in the last 2 years. So come on Reggie where's the money ?
your comparing an "index" to an actual house? you show me the money moron! that's called a MULTI-TRILLION DOLLAR DEFICIT phuck head.
Same with RMZ. SPG now at completely assinine levels, as well, with the complimentary 'upgrade' by the major i-banks to $120. VNO, BXP, GGP, all ripping the head off of anyone that attempts to take a short or put position.
The fraud will not stop, ever. It can't. It won't.
Okay I'll bite as your track record does indeed speak for itself (even though I think your posts here are to generate new subscribers) in the end I guess there is nothing wrong with that
If the big elephant is shadow inventory, would the other elephant in the room be demographics?
With QEII coming to an end soon and all the talk focusing on III - would not an option for Benny and the jets be to cut a deal with the banks, fannie, freddie et. al. to address those undewater on the one side and (not related to housing announce the tax holiday for coprorations to repatriate all those trillions held off shore?
In my neck of the woods those in the bankster class along with 1st and 2nd generation entrepreneurs are snapping up high end real estate for personal and investment use and custom builders order books are filling up. Could prime real esate be a gold surrogate?
the problem of course is that real estate is a liability not an asset as anyone who owns and maintains property knows. it also goes a long way towards why the "bailout class" keeps hounding us about "what a great deal a house is." can you blame them? it's not just the Glengarry Glenross set that's getting mauled here. i believe the technical term is "policy makers." obviously the cost of ownership continues to soar as taxes, fuel, education, food...am i missing something?--continue to "go right up your ass" while "your income has collapsed." oh, yeah..."medical costs"...always forget that one. that's just "a couple of trillion." i'm sorry..."hard choices await"? of course they do--didn't they even in the 90's? Great stuff Reggie--keep up the fire. I recommend humor--sick tho it becomes. Saves a lot of the "common sense" thing as they say.
I like that but then again holding an asset such as copper could be viewed as a liabililty e.g. storage costs, opportunity cost etc. and the offset at least as far as real estate is concerned is shelter and depending upon your tastes with or without marble floors
I've been looking at RE as well from an investment angle. The "high-end" market is laughable, properties half-finished, others falling apart after 2-3 years of vacancy, but the asking prices still reflect wishful thinking, not reality. Most still believe some investor angel (aka fool) will come along to buy their shitbox and rescue them.
We looked at some vacant land last week and the desperation in the agents was palpable. One guy actually followed us out to the car after his sales pitch failed to produce any commitment from us.
Roger, same here in Tulsa, the sales peole are worse than car lots, desperation is in the air.
BRING IN THE BIG BAD WOLF AND HUFF AND PUFF THOSE HOUSES DOWN!!
They built so many houses in surplus to actual needs in both the USA and Japan, so why would the prices be anywhere near that previously experienced prior to the run-up.
Beanie babies were once expensive. The market was flooded, and wham, the cost came down. Same with computers. Housing is nothing but an engineered good, and whenever you have a surplus of those, the price goes nowhere but down in real terms.
Great as usual Reggie..........Don't know whether to cry or laugh. Thank God I own 2 homes, paid for, and really don't give a shit what their value drops to. That's not what I own them for. On the other hand, fucking property taxes are going up and that is a crying shame......
>paid for, and really don't give a shit what their value drops to.<
Same here, but with property taxes and insurance ripping me a new one, I feel like a renter.
>> and really don't give a shit what their value drops to.
I was in the same situation, in Florida. I sold both properties for what the market would bear at the time (just closed on the last one 11/30). I did care what the market would value them at, so I took current value. I bought cheap acreage in the country and retired. Taxes went from $9K a year to $350. Insurance? went to zero. Three cops have been killed "this year" where I left from. High crime here is a cow reaching through the fence to get grass on the neighbors lawn. Retired to l life of travel and quiet farming. To each his own.
Property taxes even on farm land is not cheap. Have farm acres in Fl (80 acres) and NY (250 acres) property taxes run about $6,000 per year on each property. Fl farm property taxes are more expensive than NY on a per acreage basis... who would of thunk?
Sodbuster-Just curious, why haven't your property taxes gone down?
Counties need X amount of dollars, and the quickest and easiest place to got them is property owners and license fees. Autos and pickup licenses keep going up where I live. My property taxes have also continued to rise.
You can't appeal the taxes to the lower market value?
Everyone should appeal and starve these bloated state governments.
I've talked to guys that have appealed- you get a polite smile and a- we'll look into that- thank you very much- good-bye!
What state are you in? There should be a formal/legal process to engage in. You will need to demonstrate the comps in your area and that their recent sales or listings are far below the appraised value of your property. Every state has a process and eventually you can appeal to the state supreme court if your lower level appeals are not to your liking. A "verbal" inquiry will get you a polite smile only- they are counting on you to not spend the energy to pursue.
I saved $4000 on my properties this year alone.
reggie, the sharpest tool in the shed.
you've been calling this for 4 years now.
would love to read how you envision what will happen 6 12 and 18 months out.
Again, as the IYR and the REITs soar into outerspace again today.
Being right doesn't have anything to do with getting your face ripped off as the equities market continues it's blatant faud-fest higher.
Here in Central FLA, we are still seeing prices decline as the Foreclosure (REO) inventory increases. The shadow inventory (PPO) continues to climb as people lose their jobs and make the decision to preserve whatever capital they have left. The graphs above are just visual references to the reality on main street.
DaddyO
IYR new highs bitchazzzs
Exactly, they are going to cut the throat of ANYONE that DARES play this short.
It doesn't matter how overvalued (massively) the REITs are. They are going to gun this shit until the final minute.
SPG VNO AVB
the market says that commercial real estate is doing fine, thank you.
I think you might have missed the point.
Thank you, Reggie! "when the fecal matter flips off the fan blades"- I like that!