Housing Chart of the Day 26 comments
June 12, 2009
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There’s yet another great housing chart from wcw today:
If this line reverts to the long-term mean, the extra evaporation of housing equity would be utterly devastating. But is there any reason to believe that it won’t?
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The author and the commenters are right. The book is far from finished on the real estate meltdown. The government's getting tapped out and so little has been repaired. Now inflation is on the rise and investors are getting the upper hand and demanding higher rates. Bernake, dumping money from a helicopter is not the answer! Please go back and rewrite your thesis.
Commercial that is the next big one, it has not even started. We have seen the previews - GGP, Vegas, Hancock Bldg (Boston).
One caveat, though: this is expressed as proportion of GDP. If our GDP keeps falling, all bets are off.
(1)
On Jun 12 11:47 PM Moon Kil Woong wrote:
> To see where the new problem is always look to where the government
> is dumping money into next.
Are you saying the government is so alert to "new" problems that we can learn what the market is going to do by watching the government anticipate it, better than other indicators? Or do you mean that the government somehow causes, or induces, new problems by spending money?
I agree that there is a problem with CRE, but I can't follow your thought as to how to use government spending as a guide.
(2)
> Now inflation is on the rise and
> investors are getting the upper hand and demanding higher rates.
If inflation is on the rise, we should see this in real estate prices, but quite the contrary: they are DEflating. We should also see TIPs become more valued, but again, the price of the TIP ETF has barely quivered from its long-time mean. So I see little evidence that inflation is on the rise. What evidence do you see?
Thanks for any clarification you can offer.
In my experience, the first best way to profit from this knowledge is liquidating ones exposure to real estate.
In my experience, the Second best way to profit from this knowledge is to fearlessly confront the impact it will have on financial companies. This sort of info (and there is Plenty of this data around) shows us just how valueless the various questionable real estate based 'assets' on the books of BoA, et al, really are.
On Jun 12 06:13 PM JPSmith wrote:
> So... how to make money off this? Is there a good play on falling
> residential RE values?
> Looking at the chart, it clearly shows a trending line, not a flat
> mean, as the attractive center of reversion (1950-2000). If we want
> to predict what happens next, we had best respect what the chart
> says instead of making something up. And what it looks like to me
> is that we have ALREADY reverted to the trendline, or very near.
> Of course, some overshoot is inevitable, but — again, IF we believe
> these statistics — prices should then bounce back to current levels
> and then tend to trend upward.
I agree. The trend line here is housing increasing as a percentage of GDP (logical if you think about it - accumulation occurs as one generation passes on assets to the next etc).
If it reverts to mean, that means it has overshot the trend line - definitely a buy signal.
If people are looking to buy the bottom, they live in fantasy land, but if they want to buy some amazing assets on sale, now is the time.
As an example, the Las Vegas real estate market is down over 70%, I bought a condo for $45,000 that sold for $175,000 three years ago, and rented it for $750.00 a month, a 9.8% return on my cash.
I bought the ICF REIT index three months ago, when it was down 75%, it is now up over 60%. Could it still decline, sure, but I get paid a nice dividend and already have a nice cushion.
The point is, Nothing is a bad as you think it is, and Nothing is as good as you think it is. But if we stay in a mind set from three years ago, we will miss some amazing opportunities.
Without a stable housing market, the economy can't recover (and I'm not the first to say that), and so we had all not only get used to a continuing recession for some years, but also a much below trend price for our homes.
Lu Galasso was involved as the CA.
They say and I agree that without a robust housing market returning it will be slow if not painful road.
There is a false sense of security going on right now due to the TARP infusions and other many Government incentives.
When the 9 houses on a street i saw sell, then we will see some recovery.
Until then, Vic De Zen says wait and see.
All the best to all!!!
By Johnathan Vrozos
johnathanvrozos.ca
Say you own a business, and in 2007 you sold $1,000,000 in products, in 2008 "when the earth was coming to an end" you sold only $250,000 worth of products, a 75% decrease. What do you do? Cut employee's, cut over head, cut inventory, in most cases, cut your own salary and wait it out. "The weakest will close but the majority will be here tomorrow"
In 2009 "once the 90% who have a job, figure out that the world will not end" your sales increase to $400,000, a 60% increase.
Your stock trading in 2007 for $50.00 a share has dropped to $12.00 in 2008. Because of your 2009/10 sales increase, your stock goes up 50% to $24.00. Not up to $50.00, but to a new reality level of $24.00.
Your business will again start buying inventory and maybe hire a new employee, that is how it works guys.
If you folks are waiting for your assets to get back to 2008 levels anytime soon, you should be very sad or hang yourself.
There will be much growth in the next few years from these most dismal levels.
Do you really think that WalMart will close, they pay a nice safe 3.2% dividend, and in five years they will still be here paying it........
Say you own a business, and in 2007 you sold $1,000,000 of products, in 2008 "when the earth was coming to an end" you sold only $250,000 worth of products a 75% decrease. What do you do? Cut employee's, cut over head, cut inventory, in most cases, cut your own salary and wait it out. "The weakest will close but the majority will be here tomorrow" In 2009 "once the 90% who have a job, figure out that the world will not end" your sales increase to $400,000, a 60% increase.
Your stock trading in 2007 for $50.00 a share has dropped to $12.00 in 2008. Because of your 2009/10 sales increase, your stock goes up 50% to $24.00. Not $50.00 but to a new reality level of $24.00.
If you folks are waiting for your assets to get back to 2008 levels anytime soon, you should be very sad or hang yourself.
Your business will again start buying inventory and maybe hire a new employee, that is how it works guys.
There will be much growth in the next few years from these most dismal levels.
Do you really think that WalMart will close, they pay a nice safe 3.2% dividend, and in five years they will still be here paying it........
The 90% who have lost jobs, realize 5% more lose their jobs. There could be be downward spiral of prices and profits.
On Jun 13 03:11 PM Jeff wrote:
> Lets pretend,
>
> Say you own a business, and in 2007 you sold $1,000,000 of products,
> in 2008 "when the earth was coming to an end" you sold only $250,000
> worth of products a 75% decrease. What do you do? Cut employee's,
> cut over head, cut inventory, in most cases, cut your own salary
> and wait it out. "The weakest will close but the majority will be
> here tomorrow" In 2009 "once the 90% who have a job, figure out that
> the world will not end" your sales increase to $400,000, a 60% increase.
>
>
> Your stock trading in 2007 for $50.00 a share has dropped to $12.00
> in 2008. Because of your 2009/10 sales increase, your stock goes
> up 50% to $24.00. Not $50.00 but to a new reality level of $24.00.
>
>
> If you folks are waiting for your assets to get back to 2008 levels
> anytime soon, you should be very sad or hang yourself.
>
> Your business will again start buying inventory and maybe hire a
> new employee, that is how it works guys.
>
> There will be much growth in the next few years from these most dismal
> levels.
>
> Do you really think that WalMart will close, they pay a nice safe
> 3.2% dividend, and in five years they will still be here paying it........
P.S. So is McDonalds, good bye BurgerKing, the end is near.
I think many of the comments here might come from folks who live in a local market like mine, which has not fully corrected yet. My area is down anywhere between 20% (dreamers) and 0% (dreamers who dream dreams that make no logical sense like they can fly to the moon by flapping their arms and without any sort of breathing apparatus).
In my local market we're seeing prices that haven't corrected yet and near-zero sales volumes.
Sadly the part of the OVERALL market that IS moving (i.e. already corrected) is skewing the trend numbers somewhat and giving folks in not-yet-corrected markets some kind of terminal-cancer-patient hope.
From what I can tell, most of the not-yet-corrected markets are at the high-end where foreclosures are delayed significantly and probably not as common (yet).
The high-end depends on the lower-end to provide the equity spring-board to get to that level, so the net-net effect in the short run is simply frozen sales. That is, there is close to zero demand at these morons-only price levels, but in lieu of significant foreclosure activity there's nothing forcing these sellers to sell. So here we are in a state of suspended animation.
Of course that the wider markets are getting worse and worse and these folks are actually idiots for waiting as they are simply throwing money away... But they don't know that... yet...
OP
On Jun 13 12:39 PM Jeff wrote:
> Three years ago, when I retired, you could not find even one asset
> class that wasn't over valued, "closer to a top than to a bottom",
> today every asset class is on sale, "closer to a bottom than to a
> top".
>
> If people are looking to buy the bottom, they live in fantasy land,
> but if they want to buy some amazing assets on sale, now is the time.
>
>
> As an example, the Las Vegas real estate market is down over 70%,
> I bought a condo for $45,000 that sold for $175,000 three years ago,
> and rented it for $750.00 a month, a 9.8% return on my cash.
>
> I bought the ICF REIT index three months ago, when it was down 75%,
> it is now up over 60%. Could it still decline, sure, but I get paid
> a nice dividend and already have a nice cushion.
>
> The point is, Nothing is a bad as you think it is, and Nothing is
> as good as you think it is. But if we stay in a mind set from three
> years ago, we will miss some amazing opportunities.
Thank you for your words of realism. Everything is not coming to an end, and there are opportunity's available. Is it still horrible out there, yes, but as you said Robert, money can be made when there is blood in the streets.
Optimizer, I am feeling tentatively safe with my Vegas buys, since they are so depressed, the rental markets goes for $750 to $850, in the areas that I am buying, and my monthly nut is in the $245. to $265 range. I feel that I have allot of flexibility between $750 and $245, to lower the rent if need be.
Vegas will hold 20,000 conventions this year, so traffic should hold or improve.
I appreciate honesty in these debates, and your two posts have both caution and hope, what I hate is the one sided dogma of doom, it is very ignorant.
Inflation is starting. We already see the signs in Treasury Bond yields. Already money is fleeing long term fixed rate investments for solace in commodities which will only increase the speed it will hit the market at. The market is already pricing in rate increases. If you wish not to recognize them don't cry a year from now when even the fed who has it's head in the sand decides to acknowledge it.
There is a difference between a typical recession and a government liquidity fueled recession. Regularly you would be right that inflation would not appear while a steep recession is still going on. Only mass government intervention and incompetence can cause this or a commodity crisis (like the 70's oil embargo).