Tuesday, August 31, 2010

Glimmer of Hope

An AP article released this morning proclaims:

Home prices rise in 17 cities in June

The relevant snippet from the article is as follows:

"The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday posted a 1 percent increase in June from May and was up 4.2 percent from a year ago."

   Someone might ask, "So, out of the thousands of cities across America, prices rose in 17 cities?" Well, the Case-Shiller 20-city home price index only tracks 20 major cities. If you look at the national data, prices were up 4.4% from April to June 2010 thanks to the $8,000 government tax credit which has expired. Without the tax credit subsidy, prices are expected to trend downwards in the next few months. As I've mentioned earlier, the turn is coming but it won't be a V-shaped rebound. It'll look more like a hockey stick with the stick portion tilted slightly upwards.

   I thought the following snippet from the article was amusing:

"Pam Geller and her husband have been trying to sell their two-bedroom condominium in Los Angeles so they can buy a house. It remains unsold after more than two months on the market, even after the couple lowered the price to $359,000 from $399,000.
They're close to completing the purchase of their next home. But the deal will collapse unless they find a buyer in two weeks. Geller said she's unwilling to slash the price further.

With home prices likely to fall, Geller wonders if it might be better to wait to buy another home. "What I see is houses still dropping" in value, she said.

   I'm of the belief that writers for the AP make up people like Pam Geller out of thin air to support a supposition or a point in their articles. How was Pam Geller contacted? Were any of her quotes edited by the writer? Why would she be buying a home when she sees "houses still dropping?" None of it makes sense and I'm going to call B.S. on the existence of Pam Geller.

Monday, August 30, 2010

Home prices on the mend? Nah.

   A Reuters article this morning reads as follows:

PREVIEW-US home prices to eke out small June gain

Looking at the article, one poignant quote follows below:

"U.S. home prices likely eked out a small gain in June, but a rise would represent the final tail-winds of the homebuyer tax credit that ended in April rather than housing market improvement, economists said."

   Economists have a knack for stating the obvious and getting outfits like Reuters to trumpet the obvious across newspapers online and offline. Housing on a national scale won't recover for at least another 10-15 years. At that point, the recovery won't even be appreciable. I'm talking sustained back-to-back 1-2% price increases instead of the drops and flatlines we've been seeing for the past few quarters. Markets have a way of destroying value just when everyone's all in. In the recent real estate bubble, plumbers and truck drivers became real estate moguls. That's reminiscent of the dot-com bubble when UPS drivers and Barbara Streisand day-traded their accounts and earned a few thousand dollars every day on E-Trade, Datek (now part of Ameritrade), and Schwab.

   Of course, it all ended in tears because not everyone can be a millionaire. Who'll serve coffee at Starbucks if everyone's got a few million tucked in the savings account? Who's going to get me a burger and a side of fries?

   Home prices won't recover appreciably anytime soon but the recovery is coming. That's how markets work - they destroy excess and reset to zero before growing again. We're still in the destruction phase but the reset will happen in the next few years. That's why I started this blog so I can map the recovery and offer anecdotal evidence and share any of my potential investments in real estate as the economy in the United States picks up again.

Sunday, August 29, 2010

The Seven Stages of Grief

   The real estate market in the United States is dead. Long live the real estate market. No really, just because the market is dead doesn't mean that all opportunities are gone. It just takes a lot more legwork, diligence, and savvy than the days when buyers snapped up anything and everything that was offered for sale. The days of shacks in California selling for $750,000 are over and will likely never reappear in our lifetimes.

   I'm going to begin our real estate venture with the Seven Stages of Grief and pinpoint where the nation collectively is at as of August 29, 2010.

1) Shock or Disbelief - The stock and debt market plunge of 2008-2009 was the trigger that opened up the shock stage. As markets around the world plunged and fear was everywhere, real estate froze and deals were broken. Banks walked away from loan obligations and capital dried up very quickly.

2) Denial - As markets continued to go on a tumultuous roller coaster ride from late 2008 to early 2009, home owners looking to sell and home buyers were looking for some solace. They would find none. In the space of one year, the booming real estate market had become dead man walking. Mega banks like Citibank and Bank of America were on the ropes and even JP Morgan looked vulnerable. No loans = no mortgages.

3) Bargaining - Home owners blinked and prices began to fall. Despite the discounts and incentives, buyers became scarce. At one point, some home owners were willing to include a brand new Lexus to buyers who closed on a deal. Home stagers enjoyed a revival in their business but the malaise would continue because no loans = no mortages.

4) Guilt - Remember that commercial at the height of the boom where the wife says to the husband, "I want that house" while the agent is on the phone and the hen-pecked hubby eventually accedes to her demands? Who's feeling more guilty now? The wife who got the family into a house they can't afford or the husband who relented and potentially ruined his family's finances and future?

5) Anger - Yes, there was anger and tears as the real estate market got demolished; the anger flared up when buyers lost houses to foreclosure. Home sellers aren't necessarily angry but more frustrated that they can't sell property and move on with their lives and plans.

6) Depression - I'm not sure that "depression" factors very large in buyers who have lost their houses. There's remorse and misgivings about buying a house that they couldn't afford but depression? Maybe, but I'd change this to "Regret" or "Remorse" for real estate. I believe that we are in this stage of the Seven Stages of Grief.

7) Acceptance and Hope - For some people who lost their homes, "acceptance" was forced upon them but home sellers have not accepted the crash yet. Many still think that a few years is all that we'll need to reach the heady highs of 2006-2007 again. That was when homes sold in 15 minutes after being listed and hundreds of people lined up for the right to buy into a new development. As I mentioned earlier, those days are over in our lifetimes. If you are 40-60 years of age now, you will never see those types of prices again in your lifetime. So, don't keep hope alive because housing prices are never rocketing into the stratosphere again for the next 30-40 years.