US to see a double dip in housing: Meredith Whitney

How can she foresee a double dip when the first dip is still in progress? Is it because "double dip" sounds better in headlines? Just call it the big dipper because the first dip that started in 2007 is still dipping.

Study: No Housing Recovery Until 2015

The numbers referenced in this study jibe with my opinion but that worries me. The crowd is never right when it comes to things like this so I might have to push my recovery date further out into the future.

Housing and Financial Stability Forum 2010

I'm back in New York but I've been catching up on everything. I was in Vegas for a multi-day wedding. Yep, a multi-day wedding. Ever go to one of those? Oh, it's ostentatious and... sinful. Everything that happened in Vegas will unfortunately, stay in Vegas. Maybe I'll include the stories in my memoirs when I'm 100 years old and somewhat famous. -J-Sonoma

Ryland Shares - Update

   Last week, I mentioned that Ryland was my favorite housing stock. I also mentioned that I wasn't buying yet because I don't buy on weakness but on strength. When I wrote my post last week, Ryland shares were trading at around $16.50. Today, those shares are down to $14.98 because of a middling earnings report earlier in the week. From Reuters:

http://www.reuters.com/article/idCNN2812963920101028?rpc=44

Oct 28 (Reuters) - Shares of Ryland Group Inc (RYL.N) fell on Thursday, the day after the seventh-largest U.S. homebuilder reported a quarterly loss and a 37 percent drop in orders. Ryland shares were down 4.5 percent at $15.20 in midmorning trading on the New York Stock Exchange, compared with a 0.9 percent dip in the Dow Jones U.S. Home Construction Index .DJUSHB.

    The shares are off about $1.50 from last week. So, am I looking to scoop any shares up NOW? Not yet. As I've mentioned before and I'll mention it again in the future, I don't start a position on weakness. I know that the shares are a nice bargain now compared to last week but there's a chance that prices will be discounted further in the next 1-2 months. I'm a patient investor and my time horizon is usually a minimum of 5 years. I do have a price in mind where Ryland shares would be so compelling that I'd have to break my buying rule and start a small position. In general however, I'm looking to buy size in Ryland only on strength.

How the Foreclosure Fiasco Threatens the Economy

^^ Another doom and gloom article, this time from US News and World Report. The first paragraph starts like so:

http://finance.yahoo.com/news/How-the-Foreclosure-Fiasco-usnews-610419413.html?x=0&sec=topStories&pos=8&asset=&ccode=
It might seem like a respite for struggling homeowners, but the sudden snags and slowdowns in thousands of foreclosure proceedings could prolong the housing bust well beyond its fifth year--and spell deep trouble for the broader economy.

   The broader economy's already in recovery mode and it'll soon be galloping along like a stallion despite the stumbling banks, the struggling homeowners, and the snarky foreclosure proceedings. America's like an engine that might sputter every now and then because of overheating but once it's been sufficiently cooled and lubricated, it's going to purr like a kitty kat. Yeah, I believe in America and the resourcefulness of our citizens and workers. Watch with me and see how the economy rebounds in the next few years. When the country is basking once again in the spotlight, we'll reminesce about how awful 2008-2010 was. When it's 2015 and the economy's hotter than the Alabama sun at noon, I'll probably be preparing for the next bust because by then, the engine that is America will be reaching for another critical temperature event.

Housing Slump Offers Opportunity In Apartment-Building Market

   CNBC has a reasonable article on apartment-building investing during the current downturn in real estate. The first paragraph draws the reader in with a small tale of success:

http://finance.yahoo.com/news/Housing-Slump-Offers-cnbc-1220757498.html?x=0&sec=topStories&pos=8&asset=&ccode=
   "The property in Fort Lauderdale, Fla. was originally valued at $285,000. Clint Gordon, a private investor in multifamily properties, offered the bank $50,000 cash-and within 10 days had closed the deal. A few days after that, he began renting it for $15,000 a year.

"Anybody that's getting into this business now, you get a whole lot of return if you're paying cash for properties," he says. "You're just buying them so cheap."

   The company I work for has been investing in various businesses in the past year and I think buying a few apartment buildings might be a workable plan in depressed areas like Fort Lauderdale. Then again, do we really want to be landlords? I mean, landlords have to deal with non-paying tenants, evictions, dirty ass people, property damage, bed bugs, and sabotage. What's going to stop an evil tenant from putting bed bugs in his apartment and then withholding rent until the bed bugs are evicted? I have an active imagination and I can think of a thousand ways a tenant might torment a landlord but I won't post them here. Posting the bed bug evilness was bad enough. 

   So, anyway, we probably won't become landlords anytime soon but it's awful tempting with the knockdown and blowout prices that we've seen in Florida. The economy's going to be roaring back in another few years and buying sometime in the next 2-3 years might be a wise investment.

Pending Home Sales Rise 4.3 Percent in August but Remain Below Last Year's Pace - AP

   Some good news on housing coming down the pike? Nah, not really. From today's AP article on home sales:
   WASHINGTON (AP) -- The number of people who signed contracts to buy homes rose in August for the second straight month but remained far below last year's pace. The weak economy and fears that prices will fall are keeping many consumers away from the housing market.
The National Association of Realtors said Monday that its seasonally adjusted index of sales agreements for previously occupied homes rose 4.3 percent to a reading of 82.3. That's still more than 20 percent below the pace in the same month a year earlier.
Economists surveyed by Thomson Reuters had expected the index would rise to 81.4.

   Don't you love the part about economists expecting the index to rise to 81.4? I do. It bolsters my contention that economists are far removed from reality and operate on models, dogma, and "data" that insulates them from what's happening in the real world. I'll bet that no economist surveyed by Thomson Reuters has a clue about how the average American family lives or what the price of a quart of milk is. Until the reality of life blows through the sanctified world of the economists, we'll continue to get dumb and nonsensical expectations about the real estate market and the economy.

Bank of America delays foreclosures in 23 states

   During the height of the real estate boom when anyone with a pulse was able to get a home loan, banks were signing off on mortgages like risk was dead. Back then, banks couldn't process mortgages fast enough and liar loans were approved without much of a background check or due diligence.

   All of that laxity came back to haunt and nearly destroy the big banks during the real estate crash of 2008-2009 when loans soured like milk under a hot Alabama sun. Now, news come from the likes of JP Morgan, GMAC Mortgage, and Bank of America that they didn't do their due diligence when processing foreclosure documents. Homeowners in foreclosure now have the process delayed while the banks go through the paperwork to determine if the foreclosures were properly handled.

   Are the banks really this shitty? Well, yeah, I guess so. When big banks have the full backing of Uncle Sam and by proxy, the American taxpayer, banks have a blank check to do whatever they want. When they take on too much risk and that risk bites them in the ass, it's okay. Taxpayers will bail them out. Bail Out Nation. That has a nice ring to it.

Housing Conversation

   I reconnected with an old college buddy yesterday who sent me an email asking what I was up to. I called him and we talked for about 30 minutes. I consider "Brad" one of the most down-home good 'ol boys I've ever had the privilege of knowing. He's honest, upright, and I guess you could call him a square. Brad's a family man with a 9-to-5 and he tends to believe what he sees and hears in the news. In other words, he hasn't been bitten by the cynicism bug yet.

   He supported President Bush, is wary of Obama, and has no opinion on Sarah Palin... yet. Our conversation turned to housing and he told me that he's been unable to sell his house due to the market. My ears perked up. "Why do you want to sell your house," I queried. "My wife says we need more space but we can't get a house until we sell the current one we got," he replied. I wanted to go into a rant about consumerism and why the real estate market wouldn't bottom for at least another decade but I spared him my diatribe. I don't think he'd appreciate what I had to say and his wife definitely didn't need to hear about my prognostication if her heart was set on another house. So, I encouraged Brad to continue trying to sell the house and suggested hiring a staging company to spiffy up the house and show it every other weekend to drum up traffic. If Brad sells the house, I'll post up an update but I think it's going to be a long time coming.

Home prices to take hit next year in many markets

   A new AP article today starts off with, "Don't take the latest snapshot of U.S. home prices too seriously." and goes on to reveal:

"The Standard & Poor's/Case-Shiller 20-city index released Tuesday ticked up in July from June. But the gain is merely temporary, analysts say. They see home values taking a dive in many major markets well into next year."

Where are the housing bulls? Nowhere. They're NOWHERE for the next few years as I've prognosticated in previous entries on my little blog. I'm a contrarian's contrarian in that I always bet against the crowd during extremes. When shoeshine boys, Barbara Streisand, and UPS drivers were trading internet stocks in 1999, I knew the jig would be up soon. When it looked like the end of the world on September 11, 2001, I felt just as scared as everyone else and admittedly, I didn't buy anything when the market opened up again. I did start buying too early in 2002 and racked up losses before the market took hold and started to climb again. So what's the J-Sonoma meter telling me now?

   An extreme melting point in the real estate market hasn't been reached yet. Prices have pretty much stabilized and although buyers are scarce, deals are still being done. I think there's still steady price erosion ahead that'll probably ratchet prices back to the levels that were being bid in 1999-2000. If that happens, I think buyers will become courageous and start bidding again.

Housing Still in "Bottoming Process" But Worst Is Over, Zillow's Humphries Says

   Who knew a real estate website like Zillow needed a "Chief Economist" on the payroll? What does a Chief Economist on a website do? I guess he appears on Yahoo's Tech Ticker to talk about the state of the housing market. According to Stan Humphries:

"Homeowners remain torn about the prospects of the market. "Homeowners are in flux right now in terms of what their expectations are," Humphries says, referring to Zillow's homeowner sentiment survey. "A lot of them believe we're in a bottoming process, but a fair number do believe the bottom still lays ahead." 

   I've never believed in the intelligence of crowds. I've always bet against the crowd but when it comes to the housing market here and now, I have to side with the bearish masses. It's only common sense in light of the conspiracy of factors that have smacked housing down for the count. Humphries says that a lot of homeowners believe the bottoming process is ongoing so I'd say YEA to that. Also from the Humphries interview:

   "While Zillow foresees the housing market finally bottoming toward the end of 2010, it isn't projecting large gains. Factors such as the large foreclosure pipeline, high levels of negative equity, and the sideline sellers "will constrain the amount of appreciation we'll see over the next few years."

   This is on target and fits with my views. The only thing I'd amend would be the last line to "will constrain the amount of appreciation we'll see over the next decade." Don't want to get anyone's hopes up.

Couple buys home with 67 cents in collateral

   Where can I sign up? Well, if you live in Idaho, Massachusetts, Minnesota, or Wisconsin, you too can take advantage of Fannie Mae's Affordable Advantage Program which is putting first time home buyers into houses. From CNBC:

"The Fannie Mae program requires a minimum credit score of 680 (720 in Massachusetts) and the buyer must live in the home. All loans are 30-year fixed. The arguments for the program are persuasive: It wasn't the no-money-down loans themselves that fueled the housing crash, it was the poor underwriting. These loans are very strictly underwritten. Adjustable rate loans were the primary drivers of default, while these loans are fixed."

   So, Fannie Mae and by extension, the American people, are still footing the bill for the Uncle Sam's master plan to get people into homes. Guess the housing crash, the recession, 10% unemployment, and the emergence of Sarah Palin as a Teaparty mover and shaker weren't enough to make Uncle Sam cry "uncle."

House Prices Are Still 10% Too High, Says Barry Ritholtz

   Barry, be honest and tell everyone that house prices are 20% too high. Maybe even 30% too high. Who's to say what's too high anyway? In the middle of a market crash, what's a stock like Pfizer (PFE) worth? Some sellers are willing to get out at any cost so figure $8 on the low end. Sure, it makes no sense but when prices are crashing through the floor, some people would prefer $8 than the possibility of $4. Others won't sell at anything below $20 while another portion of the investing public are happy with $15. This is what makes a market and what causes people to buy when others are selling.

If Barry won't say it, I'll say it. Housing prices are 20% too high. If the economy creeps along for another decade or so, Housing prices are 30% too high at this point. Anyone who's capable of buying now and acting on that impulse is trying to catch a falling knife. That's my opinion and I'm sticking by it. Link to the article below:

House Prices Are Still 10% Too High, Says Barry Ritholtz
http://finance.yahoo.com/tech-ticker/house-prices-are-still-10-too-high-says-barry-ritholtz-535388.html?tickers=&sec=topStories&pos=2&asset=&ccode=
Money-manager Barry Ritholtz has a message for the National Association of Realtors, the trade group that always puts a sunny spin on the outlook for the housing market, no matter how horrific the facts may be:
You're making the problem

Ritholtz, who runs Fusion IQ and writes The Big Picture blog, says that the NAR's happy spin is making homeowners too optimistic about the prices they'll be able to get--thus encouraging them to price their houses too high.