Thursday, May 31, 2007

Mortgage reset nightmare just getting started

Hundreds of Billions $ in subprime mortgages soon to reset.

Survey Suggests Homeowners View Renting in New Light

Arlington, Va. -- A new survey commissioned by the National Apartment Association (NAA) has found that an unpredictable housing market, marked by uncertainty in
mortgage rates and concerns about rising foreclosures,
indicates that many homeowners view renting apartments more favorably than they have in the past.

More than 2,100 people who own houses, townhouses, condominiums or co-op units were surveyed between April 26 and 30 by Harris Interactive, a market research firm. The survey found that 65 percent of homeowners believe that, given the current state of the real estate market, there are many advantages to renting.

“The survey reflects a notable contrast to what we traditionally see,” says Douglas Culkin, NAA president. “In the past, people who own their homes have generally seen renting an apartment as a stepping stone to homeownership. That phenomenon has by no means disappeared, but, across the nation, we’re seeing more and more consumers opting to rent instead of own.”

Surveyed homeowners said that the advantages of renting include no exposure to foreclosure, the impact of an unpredictable real estate market, and interest rates. Only 54 percent of homeowners cited the inability to build equity when renting as a major concern. Sixty-two percent of homeowners said that a potential lack of privacy is a more serious issue.

I believe the trend is more prevalent than the survey suggests. I know of a number of people (known as ‘Bubble Sitters’) who sold their homes, some more than a year ago in anticipation of a huge market correction. If you peruse the housing market blogs you will find even more evidence of this trend.

I myself am a Bubble Sitter. My younger brother is a bubble sitter as well. In the past renters have acquired a bad reputation as shiftless, under-motivated, or just plain losers, but this is no longer the case.

The face of renters is changing. Chances are better that you will now find an educated professional renting, waiting for the market to loose its froth. It makes sense. After all, if you buy, you are merely renting money from the bank and the rent you pay is referred to as interest payments. That money is paid out by you and does not build equity, same as rent to a landlord. Rent however is often less than the typical interest payment on a comparable house. That’s just one of the benefits of renting. Another is flexibility, and no exposure to a market downturn or foreclosure.

Man uses pigs to trash own house after foreclosure

More on the three little pigs.
Police in Clackamas County (Oregon) are looking for a man
they say locked three live pigs in his house in the hopes that they would trash the place. All because he was upset the home went into foreclosure

Lovett bought a home on SE Wildcat Mountain Drive in Eagle Creek a few years ago. In January the house went into foreclosure. Neighbors told police that Lovett was extremely
distraught over the the situation. He apparently told several that he had put the animals inside the house over a week ago and even joked about the fact that they did not have any water.

Here is a picture of the livingroom. The picture speaks for itself...

Shane Lovett, demon or saint? - You make the call.
No matter. I’ve seen the future of the housing bubble, and it looks messy.

Tuesday, May 29, 2007

3 pigs stuck in foreclosure home trash it

A man angry that his house is in foreclosure locks three pigs inside to trash the place. Watch the Video

It made the news. I hadn't considered this possibility but think about it. If this catches on it could cause housing market conditions to worsen around the country. Fears are already rising that vacant homes will cause blight in nicer neighborhoods, but if angry homeowners loosing their properties start to engage in this kind of wanton damage, whole neighborhoods could look like bombed out war zones followed closely by the crime that inevitably moves in afterwards.

The largest problem I see is the ‘why didn’t I think of it’ affect that it’s bound to have. I’m sure now that it’s national news many more are going to catch on.

I don’t think jailing the home-wreckers will have much impact either. Three square meals and a bed sound like a pretty good deal to someone who just lost everything including their credit rating.

If this thing spreads it just might have us all crying for a bailout.

Sunday, May 27, 2007

More countries feeling the housing pinch

values in Australian suburb halve in three years

The median house price in Sylvania Waters reached $1.54 million in the March quarter 2004 but was languishing at $767,500 in the March quarter this year, Australian Property Monitors figures show.

Sylvania Waters has also been home for the Reserve Bank Governor, Glenn Stevens, since 1993. Earlier this year he described his house - not on the waterfront - as "a piece of spec rubbish, built in the 1970s".

Mr Stevens has contributed to decisions by the Reserve Bank to lift interest rates eight times since 2002. Those policy moves have kept inflation in check, but they also helped drive down prices in many Sydney suburbs, including Mr Stevens's own.

warns on Irish housing market

The construction economist, Jerome Casey has warned that the current downturn in the (Irish) housing market could become a housing bust unless competitive issues in the economy are addressed through Government policy.

Mr Casey says structural difficulties in the economy, in relation to competitiveness, energy and healthcare, have been unmasked by the tailing off in the housing boom.

He is predicting house prices will fall 5% this year and by up to a further 10% in 2008, while house completions will drop to 62,000 per year over the next five years.

According to Mr Casey, unless the Government introduces policies to restore competitiveness, then the cyclical downturn in the property market of 2007 (and which is expected to continue into 2008) will turn into a 'structural housing bust'.

It’s not hard to see Australia falling into the same downturn patterns many other countries are facing.

While Australia cites rising interest rates as the chief cause of falling home values, Ireland points to government policy as being responsible.

It’s hard for an outsider to say what kind of action the Irish government might take to change the course of their market, but one thing is sure, more countries are now joining the chorus of pain.

Saturday, May 26, 2007

Housing, an economic cornerstone

Mortgage Sector Shaking Economic Foundation

Realty Times -- It only takes one ARM adjustment to send some subprime household budgets into a tailspin. If a credit card payment is sucked into the vortex, not only does the household face foreclosure, but the credit card company reacts with a skyrocketing interest rate increase penalty, further exacerbating the household's financial woes.

There's now a much smaller sanctuary, if any, in a refinance,
because the borrower likely can't qualify, under stiffer credit standards today, for the same loan he or she received two or three years ago.

It's not just the low-income household suffering from lenders
pulling the red carpet out from under buyers, though that would be plenty. Mortgage companies failing, consolidating, laying off workers, and tightening purse strings stings the economy too.

Housing is, after all, an economic cornerstone creating jobs and revenues in sales, finance, insurance, building and rebuilding, as well as infusing local economies with tax revenues -- just for starters. Equity gains, when available, gives consumers more spending power, the power that fuels the

The sky isn't falling, but others say the economy has already been run over by high oil prices and now it's beginning to feel like, well, a house fell on it.

Conditions are chipping away at the cornerstone.

The article says it all.

Friday, May 25, 2007

Basic economy or Dude, where’s my gas money?

I was watching the news this morning and there was a story about the rapidly rising cost of food in the U.S. This caught my attention because life for many average families is becoming more difficult as jobs shrink and housing for some remains unaffordable.

Gas Prices have risen sharply putting more strain on the family budget and mortgage rates have just jumped, which is bound to have a bad effect on all of those A.R.M. loans many are struggling to keep up with. Not to mention the numbers who are failing to do just that every day across the country.

Let’s see, we have price increases in -

Thank god the price of flat screen TVs has come down. The only question now is when the bank takes the house because you can no longer make the payments due to the increased mortgage payment, where to put the TV?

But seriously, it’s a fundamental problem. For instance if a new home owner can’t make the mortgage this month, they miss the payment causing the lender to have to cover the amount to the bank they borrow from. That bank will eventually have to book the loss or pass it on etc…
It doesn’t go away. Eventually the amount ends up on someone’s books, effecting their bottom line, and in turn their stock value, (in a normal environment) and finally the share holders portfolios. The ripple effect.

It’s easy to see a struggling family from a distance and think, that’s too bad, but it doesn’t affect me. If it happens on a wide enough scale it could. And that might end with us all saying Dude, where’s my gas money?

Thursday, May 24, 2007

New home prices plunge, sales rise

New home prices plunge, sales soar
Sharpest decline in price of new homes since 1970 spurs stronger than
expected sales in April.

-- A big drop in the price of the typical new home sold in April spurred much better-than-expected sales, according to the latest government reading on the battered real estate and home building market released Thursday.
New homes sold at an annual pace of 981,000 in April, up 16.2 percent from the revised 844,000 pace in March. Economists surveyed by had forecast an 860,000 rate in April.

The gain in sales compared to March is the biggest jump in 14 years. But even with the April spike factored in, April sales came in 10.6 percent below year-earlier levels.

The median price of a new home sold in April plunged 10.9 percent from a year earlier to $229,100. The new price reading was also down 11.1 percent from the March reading.

It was the sharpest year-over-year drop in median new home prices since December 1970 and the biggest month-to-month drop on record.

"The builders are clearing out the merchandise," he said. "They're doing a Detroit here. When you have excess supply, the quickest way to move supply back into balance with demand is to cut the price, and finally they're doing that. I would not say this is the bottom of the housing recession."

I’m not quite sure what to make of this report. The biggest spike in sales in 14 years but April sales still came in 10.6 percent below year-earlier levels? They lost me on that one… My guess is this news will be tempered soon with a restatement.

‘Doing a Detroit’, sure it’s probably a good idea but honestly, who is going to buy? The sub-prime and Alt-A borrowers are done, effectively eliminated from the market now. Most everybody else who was hot to buy a home when the market was supercharged already have one and probably can’t sell it. The lucky ones like me who sold are not willing to run back in and catch a falling knife. That leaves who? I do not know.

With the Chinese stock market shooting past irrational exuberance, and Spain heading for divorce from the EMU over its growing deficit and evaporating reserves, I’d say there is fair reason to be cautious. Any meltdown here will ripple across the planet.

France is also facing the impending burst of it’s own housing bubble ahead of a decidedly downward sliding U.S. market. These are not just random events, they point to deeper systemic problems that are more closely related than they appear.

As we move closer the July we should see some definitive moves down for many asset classes, lead most likely by the failure of housing markets to stabilize, but could also be kicked off by China’s stock market or a derivatives meltdown.

Tuesday, May 22, 2007

Housing, the good news is bad news

May 17th 2007
Housing Construction Pipeline Continues to Shrink
The news that moved the markets yesterday was a housing data release which was widely reported as "mixed" as in, some good news and some bad. The good news? Home builders constructed more homes in April in the U.S. compared with
March as housing starts rose 2.5% to an annual rate of 1.528 million units.

A month to month increase in home construction in the spring is as meaningful as month to month increases in the number of warm days. Reporting more warm days in April than in March is not exactly news. If the mean daily temperature in April fell short of mean daily April temperatures for the past 100 years by, say, by 25%, now that would be news.

So, the real news on housing starts? The Commerce Department data showed housing starts for April had declined by 25% compared to April last year; the good news was bad news. And the bad, bad news? Applications for building permits
fell by the biggest amount in 17 years.

The big news that the markets ignore is the implications of the collapse in housing permits issuance for the economy. In our 2007 forecast in October 2006 we noted that six of the past seven recessions followed a decline in housing permits of 20% to 30% over the previous year's issuance; the exception was the
2001 recession that followed the NASDAQ crash.

“Six of the past seven recessions followed a decline in housing permits of 20% to 30% over the previous year's issuance.”

In the face of a 25% reduction I would have to say “Place your head firmly between your knees and brace for a hard landing”. Many signs point to the fact that we are headed for deep water, this is just another. What mystifies me is the fact that so many people are going about their business as if the numbers ad up and everything is fine. Do they know something I don’t or is this simply a monkey trap.

‘Monkey Trap’
A monkey trap consists of a jar with a narrow neck tied to a tree branch with a fist size piece of fruit inside. The monkey puts his hand in, grabs the fruit, but holding the fruit, can no longer remove his hand and will steadfastly refuse to let go, even as the hunter approaches and captures the animal. The monkey becomes a victim of it’s own greed…


Monday, May 21, 2007

If you rent you must be stupid

I recently sold my home in Norway and am now renting. I've been a home owner most of my adult life so I'm not used to being treated like a second class citizen, but here I am…

I’ve owned income properties when I lived in Seattle, and all rental owners can tell you renter stories. Now here is a story from the renters side. My landlord here in Norway thinks I’m stupid, most probably because I’m a renter. He provided me with a riding lawnmower to cut the grass which I was told was part of the rental agreement. When I tried to use the mower for the first time two weeks ago I found it was broken. He sent it to the repair shop and sent me the bill!

It states in the rental contract that I am responsible for maintenance. I took that to be tune-up, oil change and cleaning which is reasonable.

The rental agency representative contacted me yesterday and said the owner would like us to sign an addition to the contract binding us to fix any future damage that might occur and send the mower in for a standard overhaul at the end of our tenancy here. I said no, I will stand with our original agreement and will not sign any additional. She threatened to have the riding mower removed and a push mower delivered in it’s place. It was a threat, it’s a big lawn!

After reviewing my rental agreement I found that there was no part of the contract stating that I was to mow the lawn. She said she simply forgot to include it, but that it was her intention to and I would be held to the obligation none the less. The law says otherwise.

It seems that the landlord believes he is free to interpret the meaning of maintenance to suit his needs, forcing us to pay for damage done before we moved in, but we are not free to exercise our rights when it comes to the language of our contract. Sure it is partly a Norwegian thing, but you don’t get this kind of guff if you own your property here. I think the bias against renters is universal however, we must be stupid or why would we rent right?.

By the way, the housing market has begun to slide here after five years of record breaking gains. You can probably guess why I sold in January and am now renting. My landlord can’t.

Sunday, May 20, 2007

Chinese stocks headed for a melt-down?

A case of stock fever for Chinese investors
Millions of first-timers are getting involved in the frenzy as Shanghai's main market gauge continues to post eye-popping gains.

China is in the grip of stock market fever. Shares are changing hands in record numbers as first-timers pour in new money. Some are mortgaging their homes or dipping into retirement savings to finance a frenzy of trading known as chao gu, or "stir-frying stocks."

This year's 50 percent surge in the main market measure, the Shanghai composite index, comes on top of a 130 percent increase in 2006. The market shrugged off a one-day drop of nearly 9 percent in late February that set off a decline in stocks around the world.

Stock prices are 30 to 40 times earnings, an unusually high ratio for many major markets, which some say makes them unrealistic.

"We are opening 40 to 50 new accounts a day," said Zhang Jun, deputy manager of the Tiantong Securities branch. "Six months ago, it was four to five a day."

Many readers wonder what Europe and China’s economies have to do with the U.S. Now that the world is flat (economically speaking) it has a lot to do with it. Notice the section of the above article I highlighted in red. - A sudden one day slide in the Shanghai market led a rapid drop in world markets. This should not be regarded lightly. It is beginning to look like another legendary bubble in world history, only with wider ramifications.

China has a housing bubble, like most of the rest of the developed world right now, and their stock market along with other world markets is heading in the same direction. Ad to this private equity and derivatives fueling world wide mergers and acquisitions at a break-neck pace, could we be witnessing the makings of a perfect financial storm?

Average Chinese are notorious gamblers and tend to trust luck over research, and now they are lining up for their chance to throw the dice on the Shanghai stock market as if it were a craps table. It’s ‘Tulip Mania’ all over again, and if they crash and burn, it will have a very bad effect on the rest of the planet.


Thursday, May 17, 2007

Spain risks crisis over vanishing reserves

Spain's foreign reserves have plummeted to wafer-thin levels, leaving the country exposed to a possible banking crisis if the property market swings from boom to bust - despite membership of the eurozone.

Over the past two months the Banco de España has sold off 80 tonnes of gold, flooding the world market with enough bullion to dampen the usual spring rally. The bank has reduced its holdings of US Treasuries, British gilts, and other investments at a similar rate.

Total reserves have now fallen by two thirds from €41.5bn in early 2002. Greece and Portugal have seen a similar drop.
It appears the bank has been draining the reserves to help finance the current account deficit, which has ballooned to 9.5pc of GDP, reaching €8.6bn in January alone.

"The current account is completely out of control," said Alberto Mattelan, an economist at Inverseguros in Madrid.

Where this gets serious is if there is a property collapse in Spain and the banks get into trouble," said Prof Tim Congdon, an expert on monetary policy.

The first signs of a housing slump are emerging as the ECB raises interest rates, already up seven times to 3.75pc since December 2005. The shares of Valencia builder Astroc have fallen 77pc since February, setting off a sharp slide across the sector, with knock-on effects on banks with mortgage exposure.

Each country is on its own. The ECB may interevene only if the crisis spreads across the eurozone, and it is forbidden from bailing out the member states. The International Monetary Fund warns that the structure leaves EMU exposed to "systemic financial risk".

For now Spain is still looking rosy: growth was 4pc in the first quarter; the budget surplus is 1.8pc of GDP; and export share is holding up reasonably well.

However, the party is ending after a near tripling of house prices since 1995. In a report, The End is Nigh, Jamie Dannhauser from Lombard Street Research, said Madrid is now making matters worse with a new law to hit property speculators.

"This screams of closing the stable door after the horse has bolted. House price growth has clearly peaked and is decelerating quickly. Speculators appear to have got out already, sensing the dangers that lie ahead," he said.

The government cannot devalue its way out of trouble, so it will have to deflate. "Pain seems to be on Spain's doorstep," he said.

What happens when the reserve runs out? This is no different to being out of a job and using your personal savings to make interest payments on your mortgage. When the savings account runs dry you still have the principal due plus the next interest payment. It looks to be a very desperate move any way you slice it.

It also demonstrates just how bad banks view the current condition of the Spanish housing market. Given the fact that the ECB is barred from bailing Spain out unless an economic crisis spreads across the E.U., it looks to me like Spain is in dire straits.

Further, if the crisis expands to France, which it well could given the current state of their housing market, where does that leave the Euro? And Germany has been in economic recession for how long now? When you take a close look at the Euro, who backs this currency? Think about it…

Wednesday, May 16, 2007

Hedonic Adjustment, or (just make the damn numbers up)

Why does everyone think the Dow is going up, when it is actually going down in value?
According to the Minneapolis Federal Reserve, total inflation from 2000 to 2007, using the Consumer Price Index, is just about 20%. This means the Dow would have to be at 14,100 just to break even. And that's if the CPI wasn't a made-up, hocus-pocus, voodoo fabrication (which it is). Here's why.
In calculating inflation, the Bureau of Labor Statistics (BLS) takes a basket of goods and services and tracks their prices throughout the years. This worked just fine when they would track the actual price of the same items year after year. The problem is they no longer use the actual price, and they no longer track the same items year to year. If the price of an item has gone up so much that it might make whichever administration that is in power look bad, they simply drop that item from the basket of goods (deletion), switch to another item (substitution), or make up their own price (hedonic adjustment). Yes, the BLS has become just another division of the governments "Ministry of Propaganda". Its job is to manipulate the numbers, so as to paint smiley faces all over the economy.
…[This kind of] “invisible crash” is a product of a fiat currency system and/or rampant credit creation. It requires a rapidly expanding money supply to obscure the fact that an overvalued asset class is correcting and reverting back to fair value or less. It cannot happen on a gold standard with conservative fractional reserve banking practices. Therefore, it didn't happen in the United States until the 1970s and today. But it has happened numerous times throughout history once a country leaves an asset backed currency standard. The stock of the Mississippi Company of John Law's France, and the German stock market during the Weimar hyperinflation come to mind.
It's no great secret, we are being bamboozled by government reporting agencies. I can't say I blame them, the numbers don't look good. Answer? - Make'em up. Most people won't check, after all it's a government reporting agency right? Good as gold...

It's time we pulled our heads from our butts and did our own checking. Things are coming apart fast and we don't have the luxury of closing our eyes and hoping it will go away. All good things must end eventually and so it is with the great housing market of the early 2000s. It’s over, deal with it.

Monday, May 14, 2007

Eurozone housing markets cool

Eurozone demand for house loans has dropped sharply, supporting the European Central Bank's view that property markets are cooling – so far in an orderly manner.
Eurozone housing markets have varied considerably in recent years, with countries such as Spain, Ireland and France seeing rapid growth while German prices have remained flat or even fallen. The ECB's survey results fit with anecdotal and other data pointing to a general slowdown in house price growth in those countries that have seen the fastest increases.
Seven increases of a quarter percentage point in the ECB's main interest rate since December 2005 have contributed to the slowdown. But so far, the eurozone has avoided any sharp correction that might have damaging economic consequences, although worries remain about the vulnerability of the Spanish market in particular.
For the eurozone as a whole, Jean-Claude Trichet, ECB president, pointed to a gradual slowdown in the growth of actual lending to households for house purchases, which fell to an annual rate of 8.9 per cent in March, from more than 10 per cent at the end of last year. This represented "a certain cooling down," he said.

The ECB is expected to raise its main interest rate by another quarter percentage point, to 4 per cent, in June, and economists have generally pencilled in another such increase by the end of the year.
This sounds like a pretty tame report considering that the disappointing housing news that hit Spain only a few weeks ago wreaked havoc on their building industry stocks, leaving the prospects for their near future shaky to say the least.

This sort of journalistic conservative toe dipping is not without precedent, I was reading the same kind of reports less than a year ago about the U.S. housing market.

I was traveling in Spain last year and I saw what looked to be huge over capacity and very high housing prices. My first impression was that it was a larger bubble than the U.S. I read a report not long after that mentioned property speculators were holding up to three million units unoccupied, in Spain!

Watch for the reports from the Spanish and French housing bubbles to become more direct and to the point soon as the first signs of a bust there have already shown up. Other areas such as in Eastern Europe – Poland, Estonia and Lithuania will also soon be wrestling with the downside from their own housing market bubbles.

This is why we blog

Property profit record

Aftenposten - Property prices in Oslo continue upwards, and there seem to be few barriers for eager buyers - who don't wait for attractive homes to go on sale.
According to newspaper Finansavisen a 260 square meter (2800 square feet) apartment in the exclusive Frogner district of Oslo was sold for NOK 26.5 million (USD 4.4 million), despite not being on the market.

The flat, which is on the top two floors of an elegant property and includes a large roof terrace, was sold after a broker approached the owner on behalf of a client willing to pay a premium.

The sale translates to a price of NOK 100,000 per square meter (USD 1,550 per square foot). The seller bought the home in 1997 for NOK 8 million, and Finansavisen calls the transaction the most profitable apartment sale in Norwegian history.

This story was run May 9th in Norway’s Aftenposten newspaper. The story in my previous post ran May 8th.
So…which is it Aftenposten, are housing prices going up, or are housing prices going down?

I have noticed this kind of inconsistency before with news in Norway. Does it have anything to do with socialism? Probably not. I have noticed similar incongruities in U.S. news reporting. It only highlights the fact that accurate news stories are hard to come by.
This is why we blog.

It used to be that we only had a handful of media outlets to spoon us out a version of the news, kind of like fascism, what they want to tell us and when they want to tell it. Times have changed. The days of monopolized media reporting are over. So until bad men show up and take away my keyboard, I will continue to point you to the news between the lines.

Saturday, May 12, 2007

Norwegian housing bubble leaking air

Home sales slow down
Real estate brokers are reporting that it's taking longer to sell residential properties, and prices may finally be coming down
The marketing boss for DnB NOR Eiendom, Norway’s largest brokerage chain, told newspaper Dagens Næringsliv on Tuesday that it's taking almost twice as long to sell properties now than it did in January.

The real estate market was so hot last winter that many properties sold after, or even during their first showing, which often are limited to just an hour at a specific advertised time in Norway.

In one example, a home in Oslo's fashionable Holmenkollen area has been on the market since Easter and hasn't sold yet. The sellers recently cut its asking price by NOK 500,000 (about USD 90,000).

Several flats in the popular Majorstuen district of Oslo have also been advertised repeatedly in recent weeks, clearly because they haven't sold.
After news three weeks ago that the Spanish housing bubble has begun to burst real estate in France seems to be following close behind. Now witness Norway. The Norwegian housing market is now paying the same price for record price gains in real estate over the past 5 years.

I sold my house in January but I saw signs then that things weren't as hot as they were six months earlier.

The real estate bubble is an international phenomenon and has played out in other countries for many of the same reasons that it did in the U.S. The end result may only vary by degrees of relative price rises, but will end in a painful downward slide none the less.

Friday, May 11, 2007

Retail numbers nose dive

Market Watch - With 51 retailers reporting to Thomson Financial, 85% of them missed expectations for same-store sales, the industry's benchmark for growth measured by receipts rung up at stores open longer than a year.
Overall, the data showed a 1.8% decrease.
The International Council of Shopping Centers weighs its results differently and tallied an overall same-store sales drop of 2.3% to set the largest decline on record, which dates back to November 1970.
To be sure, by Niemira's own calculations the three-month trend is for a 2% increase in same-store sales, compared with last year's 4% gain in the same first months of the retail fiscal year. His May forecast is for a gain of 2% to 2.5%
Here is a roundup provided by Mish Shedlock
*Walmart posted a 4.6% decline rather than the 1.1% drop expected.
*Target's same-store sales dropped 6.1%.
*Gap stores' results were a big blow to investors, plunging 16%, more than double the minus 7.1% estimate at Thomson Financial.
*Banana Republic's sales were down 13% -- a big miss from the 1% decline expected.
*American Eagle was forecast to ring up a 1.3% gain in same-stores sales. Instead, the teen-wear retailer turned in an eye-popping 10% drop in comparable-store sales, blaming all the expected factors of weather, calendar shifts and comparisons.
*Pacific Sunwear of California same-store sales dropped 16.5%, far deeper than the minus 6.5% expected at Thomson Financial.
*Limited Brands Inc. parent of Limited, Express, Victoria's Secret, and Bath & Body Works reported that same-store sales fell 1% rather than the forecast 1% gain.
*Bebe Stores the trendy apparel and accessories retailer for young women reported same-store sales fell 6.5%.
*Chico's a fashionable apparel and accessories retailer for older women, also let down investors with a 7.3% decline in comparable-store sales vs. the 0.6% dip anticipated.

The DOW dropped around 150 points yesterday on this news. Given the gravity of the situation I think the markets handled it well.

The excuse that weather or the Easter holiday effected sales sounds like it was penned in advance, like a press release. These retailers know what is going on in there own stores. I bet none of them expected such a large, broad-based downturn though. The shear number of retailers showing a loss is startling.

I think we will see retail numbers improve soon but not enough to get them out of the hole. Look for a spin job when that happens.

Is this the first boulder of an avalanche of downward movements? Perhaps.
Look for May numbers to be lack-luster or even negative.
July will be a defining month as the housing mess gets deeper. If retail sales continue to drop, the stock markets won’t take it well leading to a spiral.

Thursday, May 10, 2007

Hawaii Housing, not all good news

Signs of cracks
The number of O'ahu single-family home and condominium sales peaked in 2005 at 12,607. Sales dropped 17 percent to 10,421 last year, and have continued to decline this year but at a slower pace.

Homes that a couple of years ago spent a median 15 to 30 days on the market before selling have spent a median 40 to 70 days on the market this year.

Inventory, which dropped to roughly 1,700 units in mid-2005, has been around 4,000 this year.

Median prices, meanwhile, began to wobble late last year after doubling since 2001. This year through April, the single-family home median price is up just 1 percent to $630,000. The year-to-date median condo price is $322,000, up almost 6 percent compared with a 15 percent rise last year.
It might be noted here that a number of higher end properties began showing up on the Hawaii market in January. Sales of any of these would push up the median price stats. This has to be factored in when accounting for median price rise. The actual price movement could very well have moved south.

Pasion said one of the bigger recent challenges has been dealing with tighter lending standards instilled in the fallout of several Mainland lenders struggling with defaults on exotic mortgages.

"It has a tremendous effect," she said. "I find that more challenging than selling. I have the product, but it's the mortgage companies now providing the pressure."

Severson, a former pro bodyboarder who's become a real-estate investor, said he's seen sellers price property relatively low to entice competing bids — a strategy that was rare at the top of the market. But many sellers, in his view, are still pricing property as though the boom isn't over.

"I think people are still living eight or 10 months ago and trying to gouge," he said.
The news isn’t all bad. The market slide has showed signs of slowing in Hawaii. This is true in other places of the country as well. I have seen signs however that would point to institutional investors picking up valuable properties in exclusive areas betting that the housing market will bounce. This of course would leave them with some fine properties acquired at bargain prices. That very well could happen, but I won’t hold my breath.

Tuesday, May 8, 2007

$4 gasoline?

Get ready for $4 gasoline
(CNN -- With gas prices near record highs, experts say $4-a-gallon gasoline is just around the corner.
"I think it's going to happen," said Phil Flynn, a senior market analyst at Alaron Trading in Chicago. "Unless things change dramatically, I think we're going to see $4 a gallon."
Already, prices in California average $3.48 a gallon, according to the motorist organization AAA. And one service station in San Francisco was charging $3.95, according to, a handy site that lists the cheapest and most expensive gas stations by city and state across the country.

Refinery problems and strong demand are the two main reasons cited for the runup. Prices hit a record high of $3.07 a gallon, according to the Lundberg survey released Sunday.
The Dow broke an 80 year record winning streak today just as news of impending higher oil prices threatens to push the cost of gas to $4.00 per gallon. Not great news.

If you ignore what the NAR says and look at the real housing numbers nation wide, you can see the sure signs of a slowing housing market.
What bank will lend on equity in a falling market? Non I think. Net result? No more M.E.W. (Mortgage equity withdrawal). Bad for an economy like the US that relies on 70% domestic spending. You can see already the downward pressure in the American auto industry and other industries that sell big ticket items.

Couple this with the fact the most Americans have no savings, many job markets are flagging and the reality of higher fuel prices can only slow down domestic spending further.

This is not good news for those already struggling to make steadily rising mortgage payments or facing a reduction in work hours or impending layoffs. It won’t be just them who feel the pinch, the ripple effect of this will touch us all.

Sunday, May 6, 2007

Vacation rentals cheaper and more abundant

(Money Magazine) -- Unless you're looking to buy a new home right now, you may be having a hard time imagining the upside to the bursting of the real estate bubble. Well, here's one: There are a lot more places to rent at the beach.
Usually the best shore rentals are snapped up while the snow is still on the ground. But this year inventory in vacation markets is up. Speculators - once lured by mega-appreciation - are having trouble selling, says David Stiff, chief economist at Fiserv Lending Solutions. "And if they can't sell their homes, the next best option is to rent them out."
Where to look
So how do you find places on your own? First try, which has some 70,000 vacation-rental listings, all posted by owners. That will give you a sense of what kinds of places are available and the price range.
I recently returned from a trip to the Outer Banks of North Carolina and saw more beach rental properties than I could count. Along with the over abundance of ‘for sale’ signs it was not hard to appraise the situation - too much inventory.
Locals tell me that tourists come and fill these places each and every Summer, but somehow I doubt this will be the case this year.

Speculators threw up million dollar homes as fast as they could pull the permits.
Given that quite a number of these were purpose built for vacation rentals many were split into multiple units inside to pull the greatest rental profit.
This presents a problem as not many families do not want to live in a million dollar duplex or triplex. These will most likely remain a permanent part of the rental landscape. Just one more piece of fallout from the great turn of the century housing speculation.

Saturday, May 5, 2007

Mortgage rates hold steady

Average rates for 30- and 15-year loans unchanged on signs of consumer spending weakness and cooling inflation.
May 3 2007: 1:59 PM EDT

Mortgage rates remained unchanged this week, Freddie Mac said Thursday, following a slowdown in consumer spending growth and a tame inflationary reading.

The average rate on 30-year fixed-rate loans averaged 6.16 percent for the week ending May 3, unchanged from the previous week, the mortgage finance firm said. Last year at this time, 30-year mortgage rates averaged 6.59 percent.

"Additionally, both consumer spending and price increases in consumer expenditures were quite tame in March. These contributing factors allowed mortgage rates to hold steady this week."

The rate on 15-year loans averaged 5.87 percent, unchanged from the previous week, Freddie Mac said. A year ago, the 15-year rate averaged 6.22 percent.

Five-year adjustable-rate mortgages eased to 5.87 percent from 5.88 percent last week. The five-year ARM averaged 6.21 percent a year ago.The average one-year adjustable-rate mortgage fell to 5.42 percent, down from 5.43 percent the previous week. At this time last year, the loan averaged 5.67 percent.
Some good news for a change, mortgage rates held steady this week giving many a breather from A.R.M. creep. How much of a breather is debatable but as a wise man once said, ‘If you hit yourself in the head with two hammers long enough, one hammer feels great!’
Let’s hope this buys some a little more time.

Can we trust the reported numbers?

This from Mike Shedlock:
Birth Death Model Fatally Flawed
Nonfarm payroll employment edged up +88,000 in April, and the unemployment rate was essentially unchanged at 4.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Job gains continued in several service-providing industries, including health care and food services, while employment declined in retail trade and manufacturing.

This was lower than the expected 100,000 and far weaker than it even looks. 25,000 of those 88,000 jobs were government jobs. In addition 28,000 goods producing jobs were lost.Economic Recap

How anyone could have expected good job growth in the face of those statistics is unexplainable. But more amazing yet are the Birth/Death job assumptions this month.
In the face of all that slowdown, somehow the BLS model added 317,000 jobs for the month.Kevin Depew on Minyanville wrote about this today in on Minyanville wrote about this today in Five Things You Need To Know. Here are the first two.

Economic Deceleration Contained to Overall EconomyU.S. job growth in April slowed to 88,000, less than the 100,000 economists expected. And that's actually the good news.
* The bad news is related to the comical shenanigans of the the Birth/Death Model.
* The Birth/Death model contributed 317,000 adds.
* That's not a typo. That's 317 thousand adds.
* According to Minyanville Professor Scott Reamer, since 1999 there has been only one other month in which the add was bigger, January 2004.
* For some perspective, in the 36 month period ending March 2002 - 36 months - the total adds from the birth/death model were 353,000. Over 36 months.
* Since the beginning of the year, the birth/death model has accounted for a net 388,000 jobs.
* Last year it added 964,000 jobs.
* The kicker is that the Bureau of Labor Statistics refuses to allow academics and commercial economists access to the models they use for the birth/death additions.2. GM Losses Contained to Auto Sales and Subprime LendingGeneral Motors' (GM) first-quarter earnings fell nearly 90% due to heavy losses related to subprime lending at GMAC, the carmaker's financial services arm.
* Here's what passes for "good news" over at GM:The net loss from GM’s core North American automotive operations was "only" $42 million.
* Woo hoo!
* GMAC reported a first-quarter loss of $305 million earlier this week, compared with earnings of $495 million a year earlier.
* ResCap, the company's home-lending unit, lost almost a billion dollars.
* As if that's not sad enough, do you have any idea what the company's best markets are?
* Emerging markets. The Asia-Pacific region, Latin America, Africa and Middle East divisions accounted for nearly one-third of the GM's vehicle output.
* Latin America, Africa and Middle East were by far the largest contributors to GM’s earnings, reporting a record first-quarter profit of $201 million, according to the Financial Times.
* So, think about this for a moment:America's largest car maker, number five in the Fortune Global 500, employing 335,000 people, is now almost
entirely dependent on emerging markets just to remain operational.
* Oh, one last thing before we forget. Where exactly do all those consumers in emerging markets get their money?
* Pick up a random object on your desk and look where it was made.
* That's right. They get it by exporting things to U.S. consumers and getting dollars in return.
If there was ever any doubt about how flawed that birth/death model is, there certainly should be none now.
Mike Shedlock / Mish

Friday, May 4, 2007

No Spring Thaw for Housing

Maybe you guessed it, but now it's official: The housing market has not hit bottom. Poor home sales in cold-and-quiet February may be excusable; but in March, April, and May, they are a sure sign of distress. The latest numbers indicate that the spring of 2007 will go down as one of the worst real estate seasons in years.
March, April, and May are traditionally the strongest months for home sales.
But this year, the usual throngs of spring buyers just aren't there. On May 1, the National Association of Realtors reported that home sales closed in April will remain soft, with some drag possible into May. The NAR's Pending Home Sales Index, a forward-looking indicator based on contracts signed in March, dropped 10.5% from March, 2006, and 4.9% from February, 2007, to 104.3, the lowest reading since March, 2003.
NAR Chief Economist David Lereah to point to "signs of stabilization" and predict a leveling out of home sales in the months ahead. But in March, existing home sales fell 8.4% year over year, marking the sharpest plunge in 18 years and the beginning of what is sure to be an illuminating spring season.
McPherron, on the other hand, says he wouldn't be surprised if home sales were still soft well into the summer months, even though year-over-year comparisons could improve. And if the trend set in March continues, as the numbers suggest, into April, May, and beyond, the many sellers who are struggling to make their mortgage payments and holding out desperately for a spring buying boom could be in for a shock, at least, and foreclosure at worst.
I think it is safe to say many savvy real estate investors have left the market. It was a game of musical chairs for them and the music stopped mid summer of 2005. Couple that fact with a new tightening of lending standards and any realistic hope of re-igniting the market looks dismal. To keep the momentum at the levels of 2005 you would need the same level of speculation. In my opinion it’s not going to happen.

Though irrational markets can go on irrationally for longer than any of us can venture a guess, fundamentals don’t support it going on much longer.
Time will tell, but my guess is July 2007 will be a defining month.

Wednesday, May 2, 2007

More thoughts on the state of N.C. real estate

Smells like desperation
I came across an article yesterday touting six luxury beach front homes for sale across the U.S. One was on Topsail Island, N.C..

By chance last week I was on Topsail Island, in North Carolina as a guest of my good friends Ingun and Kenny Van Neste. I didn’t see the property mentioned above but I saw many more with asking prices over a million and apparently no takers as far as I could tell. From the many for sale signs dominating the landscape things looked a little competitive to me.
Topsail Island is a nice place. Not too big, with a number of very nice, newer beachfront homes. The folks are friendly and the town of Surf City has a nice surf town feel. However, signs of the housing downturn can not be overlooked.
On one street with newer homes I saw nearly every house with a for sale sign in front. What is to be made of this? Too much speculation is my guess. Owners and builders look as if they are bailing out. Only problem is they all seem to be doing it at the same time.
Is this a sign of things to come for other areas of the country? Sadly, my guess is yes. Topsail Island can be looked at as a microcosm for the rest of the market, and not just in the U.S. Watch areas of France and Spain follow similar paths very soon.

Tuesday, May 1, 2007

Bullish real estate economist to step down

WASHINGTON (Reuters) -- The economist who prodded investors into the U.S. housing boom and has been skewered by bloggers during the bust is leaving a top real estate trade association, the group said Monday.

David Lereah, the author of "Are You Missing the Real Estate Boom?" will leave the the National Association of Realtors by the middle of next month after serving as the head economist for seven years, a spokesman said.
Lereah was the Realtors' analyst through the five-year run-up in home values that ended in 2005, and he has continued to deliver the group's outlook through the current downturn.
One blog, David Lereah Watch, cites passages from Lereah's books and his encouraging words about the housing market and asks him to "admit he cheerleaded this destructive housing bubble."

Housing vacancies hit rental market

Housing vacancies hit record high
With home sales diving, empty houses with for sale signs out front are becoming part of the landscape.
And the upsurge in foreclosures and forced sales are also dumping inventory on the market. Foreclosures are up 47 percent year-over-year, according to online foreclosure marketer, RealtyTrac.
In a related story, rental vacancies have also climbed, to 10.1 percent during the first quarter, from 9.5 percent a year ago. Larson thinks that investors, again, contributed much to that increase.

"A lot of speculative buys are coming onto the rental markets," he says. "The investors can't sell the properties and they're looking to offset some of their expenses by renting them out."
I stated in an earlier post my projection of how a record number of properties hitting the market would affect the rental market. It seems I am not far from the mark as I judged from this report in CNN money .
You can tell a lot about your market from perusing your local MLS and looking for listing photos showing empty units. Californians can ignore that bit of info as real estate brokers there now stage properties to look occupied, but for now it is still a useful tool for most other areas in the U.S.

An empty unit says ‘flipper’ to me, a speculator who held on too long and is now carrying the cost of an empty unit. You can bet it is only a matter of time before they pull the trigger and dump the property for what ever the market will bring or rent it out.
Which ever result, downward pressure looms in both the rental and for sale markets.
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