No BS Real Estate – 2008 November

Commentary

Bail-Out or Loan, Main Street or Wall Street… Whatever! The bottom line is that the geniuses in Congress don’t want some firms to fail and their plans to help homeowners are surprisingly misguided (doh!). There is going to be pain regardless of what Congress does. And from failure comes wisdom and strength. But will we actually use the new wisdom? Let the bad ones fail — then the good ones will emerge and make us stronger. And someone fire the party planner at AIG!

Demand is still healthy and supply, well supply is going to be healthy through the winter and into next year. This is a GREAT market for investors, 1st time buyers and folks who want to move up to a larger, nicer home. The banks have slowed down (“deer in the headlights” syndrome) as can be seen by the new NODs. Surprisingly, banks are starting to smell the flowers and approve more short sales. And I’m now an expert at short sales. Believe me, a short sale is long, arduous, and sometimes frustrating. But they are better for the seller and economy than are foreclosures.

Remember, my indicators and analysis are similar to the concept used in commodity trading (real estate is a commodity). While this is most useful to an investor, understanding the market is necessary even when buying or selling your family’s shelter, not an investment property. This is an investor’s tool to predict the direction of the NEXT data point. Explaining history should be done but it’s the NEXT action that makes a difference. Refer to this month’s charts and note where the Momentum indicator crosses it’s zero axis (red axis & typeface) — it has been a predictor of the change in actual volumes. Specifically:

  • Existing Home Sales — Momentum fell below zero in Aug ‘05 indicating the drop in Sales in Jan ‘06. Momentum hit bottom Dec ‘07 indicating the Sales spike in Mar ‘08. Momentum is still positive as there are smart people who know that now is the time to buy. The Media scares some buyers, but not the contrarians (e.g., Warren Buffet).

    Major-Sales-2008-10

  • Permits — Momentum exceeded zero first in Apr ‘02, spiked with the last big builder push, and has stayed at or below zero since Sep ‘04. Some builders are truly in a bad spot — we are going to see more builder bankruptcies. The strong will survive.

    Major-Permits-2008-10

  • NODs — Momentum exceeded zero in Nov ‘05 indicating the NOD increase in early ‘06. Momentum peaked in Aug ‘07. The recent housing bill is requiring lenders to give a “good faith effort” to work with borrowers before filing a Notice of Default. This went into effect in August and may explain the sharp drop in September NODs. There are also more approved short sales which can explain part of the decrease.

    Major-NODs-2008-10

  • REO Sales — Momentum exceeded zero in Jan ‘06 indicating Apr and May ‘06 spikes. Momentum is positive. Short sales and REOs dominate the listing activity.

    Major-Distressed-2008-10

  • Rate — Momentum went below zero in Aug ‘07 indicating the Oct ‘07 drop. The bond market is still chaotic but rates are at historic lows. Inflation and unemployment are at their averages as well.

    Major-Rate-2008-10

  • Median Price — This is county-wide. Momentum peaked in Feb ‘05 indicating the Price peak in Aug ‘05. Momentum fell under zero in Nov ‘06 and Prices really started to fall in March ‘07. Momentum is still negative but we have seen some slight increases in the last two months.

    Major-MedianSA-2008-10


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