Three weeks ago in the open thread of 6-28-2008, I suggested that maybe oil would top and the market would bottom. It is too early to tell if this weeks market action saw both of those occurences, but both of these markets have certainly put in a short-term top and bottom. Only time will tell if it lasts longer. Calculated Risk had an interesting post this week on the economy. In it, he suggests that the difference between a moderate recession and a severe recession is going to be the price of oil. If the price of oil drops, inflation will subside, the FED can keep interest rates lower for longer, and the recession will not be as severe. I think he is right. I also think this is what the stock market is betting on. As long as oil does not rally to new highs and stay at elevated levels, the stock market will probably rally -- this isn't investment advice, just an observation... BTW, I also believe the bullish action of the last few days in financials and homebuilders was short covering and both of these groups will make fresh lows -- but I could easily be wrong...
There is no particular theme for the music today, I was just in the mood for Paul McCartney.
What are your observations of the housing market? Are there any interesting properties you are watching? Tell us what you see.
Declining home values are a source of great aggravation to homeowners, but it is even more aggravating to the lenders. The lenders are the ones really losing in the deal. At one time, I had believed that the pain of loss might actually put and end to the crazy beliefs of kool aid intoxication. Unfortunately, since it the lenders who are enduring most of the pain, the general populace may continue to believe these crazy notions. The fact that the lenders are absorbing these losses rather than the people will create a massive moral hazard. All of the gains went to the individuals while all of the losses were absorbed by someone else. The seeds of the next bubble are being sown today. Perhaps the enablers at the lending institutions will not allow another bubble to be built, but I rather doubt it. Institutional memory is short, and as long as the infrastructure is in place without any significant regulatory reform, we will create another bubble as large and as painful as the one we have just witnessed. I suppose I am OK with that as long as I buy at the bottom and sell to some fool at the next peak...
Today's featured property is a large condo in Woodbury breaking down below $300/SF. This is the next tier of the housing market showing distress. It will get worse.
Filtering out the bad that holds us back... Take hold of what is true to your hunger A hunger that will not go away Plans for tomorrow, they will remain
I have a parable for you today:
A weary traveler was on a
quest to satisfy his deepest longings and desires. He traveled from
place to place, but no matter where he went or what he tried, nothing
would quite satisfy him. One day, exhausted from his search, he
happened to sit beneath a magical wish-fulfilling tree. He thought to
himself, "Perhaps it is not so good to desire so much. It has not
brought me any lasting satisfaction, but I am tired, and I could use
something to eat and drink..." No sooner had he thought this when
delicious food and drink appeared for him to enjoy. "Wow," he
exclaimed, "this is fantastic, but it would be nice to have someone to
share this bounty with." As soon as the thought occurred, a companion
appeared to enjoy the feast. His desires replete for the moment, he
thought to himself, "This is very strange. Everywhere I have traveled I
have wanted and found no satisfaction, and here at this tree, I can
have anything I desire. I wonder if there is something magic in this
tree? I wonder if it is inhabited by some spirit? I wonder if it is a
goblin that will consume me?" And, as soon he had this thought, a goblin
appeared, and consumed him.
HELOCs enabled people to satisfy
their hunger for vacations, consumer goods and the like and live well
beyond their means. This went on for an astonishingly long time. Many
of these people became accustomed to living off the extra "income"
coming from their houses. Like the goblin in the parable, the magic
wish-fulfilling house consumed them, and now they have lost their
house, their credit and themselves.
Whenever I hear the Beatles song, Penny Lane, I think of Irvine. An idyllic little world of perfectly manicured landscapes, and perfect little houses beneath the blue suburban skies. I have written before about the English neighborhood in Northwood that is a particular favorite of mine. If there is a "Penny Lane" environment in Irvine, you will find it here. Today's featured property is located in this little enclave, and it now the private Hell of Washington Mutual.
Each new low sale or asking price lowers neighborhood values. As I discussed in Financing in a Declining Market, everything within a 1 mile radius of a low asking price becomes very difficult to finance. All of the short sales we have been seeing advertised do nothing for the would-be seller, as they rarely result in a sale; however, they do serve to obliterate the neighborhood comps as these low asking prices sit on the market. In fact, I would say that attempted short sales are doing more damage to the market right now than foreclosures because the foreclosures simply disappear into the black hole of lender holdings whereas short sales stand out in the market signaling a new lower pricing level. Today's featured property is a nearly new property in Northwood II asking $240/SF. It is an astonishingly low price in today's market.
There are no pictures on the MLS, but the pictures below are of the identical property at 39 Secret Garden offered by a neighbor for $240,800 more (WTF?) Let's just say this neighbor can't be very happy about this short sale.
