Long/Short Equity, Deep Value, Value, Special Situations
Contributor Since 2007
I know, I shouldn’t say I told you so but those perma-bullish, green shoots smoking pundits who have been saying for three years that we are nearing the bottom in real estate either have an agenda or really don’t know much about real estate cycles. It really gets under brother’s skin… From CNBC:
Sales of previously owned U.S. homes dropped more steeply than expected in July to their lowest pace in 15 years, an industry group said Tuesday, implying further loss of momentum in the economic recover
Rates as close to zero as they have ever been, yet close to no demand while supply is piling up in droves as banks sell more homes (out of foreclose) than homebuilders do, yet developers keep building! If you look around in NYC, banks are STILL funding developers who are STILL building stuff right next to stuff that they STILL can’t sell! This is video from a little more than a year ago that shocked many, even those who live in NYC: Who are ya gonna believe, the pundits or your lying eyes?. If you take a trip down the same strip today, you will still see empty lots with tractors, cranes, for rent signs in the commercial ground space and a whole lot of empty apartments looking for a home owner or renter, dusty from the construction right next to it.
Way back in 2007, I predicted that banks would handily outstrip homebuilders in terms of property sales due to rampant REOs and foreclosures. I issued a reminder last year since the synthetic and contrived equity rally on vapor volume seemed to have had everybody forgetting that we were in a real estate depression: Back to the Homebuilders vs. the Banks, as excerpted…Back to the Homebuilders vs. the Banks
In 2007 I put out a lot of research and opinion on the home builders and attempted to portray them in a light that the sell side analyst community and apparently the buy side investors failed to notice. See
In December of 2007 I predicted that they will compete in a losing battle with the soon to be larger residential home and land owners looking to move properties at highly discounted prices: the banks sitting on foreclosed properties – Bubbles, Banks and Builders.
Well, although I do feel I have been relatively prescient in my predictions and predilections, all of you guys who were waiting for me to be wrong can now have your day. As it turns out, the largest residential land home owner will probably not turn out to be Countrywide (see Would you buy Countrywide if all of its bad mortgages were magically wiped off the books?) or any other bank or builder after all, but most likely the FDIC, or in more direct terms – You, Mr. and Mrs Taxpayer, see: FDIC Holds $1.8 Billion in Property From Closed Banks: WSJ Link. There are properties repossessed this year by the FDIC that were actually also repossessed during the S&L Crisis. Talk about not learning your lesson!As lately as the 2nd quarter of this year, alleged experts were still pontificating the coming bottom in real estate, despite the fact that unemployment was high, supply was high, demand is low, and credit is tighter than frog ass! Exactly two months ago, I said As I Made Very Clear In March, US Housing Has a Way to Fall. See the following excerpt…
From Bloomberg, early in the morning you get the usual, inaccurate analyst chatter: Sales of Existing Homes in U.S. Probably Climbed on Tax Credit
Sales of U.S. previously owned homes rose in May to the highest level in six months as buyers rushed to beat a June tax-credit deadline, economists said before a report today.
Purchases of existing houses, which are tabulated when a contract closes, increased 6 percent to a 6.12 million annual rate, according to the median of 73 forecasts in a Bloomberg News survey. To receive a government incentive worth as much as $8,000, buyers must have signed contracts by the end of April and need to complete deals by the end of this month.
Credit-induced gyrations will make the underlying health of the market difficult to determine over the next couple of months. A slump in builder shares since early May signals investors are concerned the damage caused by the end of government stimulus, mounting foreclosures and unemployment will exceed the benefits of lower mortgage rates.
Then the actual report comes out: Existing Home Sales in U.S. Unexpectedly Fell to 5.66 Million Rate in May
June 22 (Bloomberg) — Sales of U.S. previously owned homes unexpectedly fell in May, a sign demand was probably pulled into prior months before a June tax-credit deadline.
Purchases of existing houses, which are tabulated when a contract closes, decreased 2.2 percent to a 5.66 million annual rate, figures from the National Association of Realtors showed today in Washington. To receive a government incentive worth as much as $8,000, buyers must have signed contracts by the end of April and need to complete deals by the end of this month.
The decline raises the risk the retrenchment following the expiration of the tax credit will be deeper than anticipated. A slump in builder shares since late April has exceeded the retreat in the broader market on concern the damage from the end of government stimulus, mounting foreclosures and unemployment may cause renewed weakness.
Now, this is the BoomBustBlog version from March of this year where I made it crystal clear that housing will fall further and significantly. The governmetn incentives are just market interference and pricing distortions, prolonging the pain: It’s Official: The US Housing Downturn Has Resumed in Earnest
Let’s take a look at some charts sourced from the upcoming BoomBustBlog subscriber “A Fundamental Investor’s Peek into the Alt-A and Subprime Market”should be released withing 24 hours or so. This release will include all of the raw data necessary for users to run their own calculation and draw their own conclusions. update, which
In the chart above, you can see where CA has made some progress interms of appreciation. CA, FL, and NV account for nearly 50% of nationwide price damage. Let’s take a closer look…
Banks have been, without a doubt, attempting to hide the extent of thier inventory and valuation issues. See Anecdotal Evidence That Banks Are Hiding Depressed High End Real Estate, as excerpted…
Why are Banks Hiding High End Residential Real Estate? Courtesy of the Real Estate Channel: