WSJ: Don't Rule Out a Double Dip Recession
"Also causing anxiety is the ominous rise in recent weeks in the three-month London interbank offered rate (Libor), the rate the most creditworthy banks charge each other for loans."or . . . is this another one of those seasonal, temporary freak-outs . . .
"Ace said... Spider, thanks, the market has been in free fall (big dip) for several weeks now. Would Warren Buffett say now is a time to 'be greedy when others are fearful'?"Certainly mortgage rates are astonishingly low. Is anyone looking forward to house-hunting this summer? Or are you going to Europe to shop?
Calculated Risk on house prices:
"Case Shiller is reporting on the NSA data (13 cities down), and I'm using the SA data. I'm not sure why Case-Shiller is saying prices are weakening because the tax incentive is ending. This is Q1 and March 2010 data - and the tax incentive pulled forward demand and probably supported prices. Just wait until later this year ... "Warning: Crash dead ahead. Sell. Get liquid. Now. by Paul Elliott, Motley Fool Hidden Gems --Tuesday, May 25, 2010
"Warning, fans, the numbers on the game-clock are flashing wildly. America's ratio is now 92%, thanks to Obama's $1.7 trillion budget, future deficits, exploding debt. Soon, Ka-Booom! Another great nation bites the dust. Depression follows. Goodbye retirement. ... No, 'this time' it's never different. Get it? In the end, it doesn't matter what happens to the Dodd-Obama financial reforms. The endgame's never a Black Swan, it's a very White Swan well known to historians -- guaranteed, inevitable and inescapable. This time is never different. . . .The clock's flashing. Huge point spread. Think bear, think crash, think end of capitalism, think Great Depression II. . . . This is no buying opportunity, this game's in the refrigerator, call it".You can't make this stuff up . . . "Consumer confidence rises for third straight month to 63.3 in May as job worries ease."
25 comments:
Harriet,
I think the Calculated Risk point is a very good one. Possibly the demand was pulled forward earlier than we expected and the March data already reflect the coming expiration of the credits. But I tend to think that CR is right.
Re: the top third properties, I wish I knew the characteristics of people buying these in the past few months. If it is primarily younger people without a trust fund, gambling that they will keep their jobs and that their pay increases (or their entrepreneurial business volume) will more than keep pace with inflation (i.e., they are borrowing to the hilt), then I don't expect much change in this part of the housing market here. But if there is a significant segment of move-up buyers and/or people who have investments, I think the rapid drop in the stock market will affect the housing market in this range (or the upper part of this range). They have less to invest and may be more jittery about future income, some of which is derived from the stock market.
I should have said, "they have less to invest in housing" (if the stock market stays low or goes down further).
Ace,
I think you're right about the nature of current buyers. $415K for a rambler in Warrenton astonished me - although it was fixed up nicely.
I wonder if it's a good time to sell in those ranges (if you're a move-up buyer) and wait out the summer by renting.
Still, I can't imagine our current federal government laying off anyone for a while to come. It will take a game change for that.
Harriet-
That is amazing that consumer confidence is up significantly. I guess most people pay less attention to the markets than we do.
Harriet, from my perspective, moving from an owned house costs at least $20K in out of pocket expenses and enormous aggravation, so I wouldn't think most people would be willing to do it just for a few months on the chance of making that much on a house by selling now rather than in the fall. They would have approx. the same expense and aggravation the second time. The only people I know who are selling now and moving into an apartment are people who, after months of futile move-up house searching and inability to get sellers to accept a home sale contingency, have decided to build a house. They have to have the equity from their current house to afford to finance the building, so they have to sell first.
There are many people in the move-up range who are not employed by the fed. govt. (e.g., lawyers, financial advisers, entrepreneurs, high tech folks, education and medical professionals). Many of them are affected by cutbacks, salary freezes, downturns in business, etc. Many consultants are somewhat protected if they do fed. business, but some aren't focused on that industry, and all may find that the fed. is cutting back on everything that isn't essential or can be deferred, in order to cover largely fixed expenses such as their own employees' salaries.
Here we go...
Home prices fall 0.5 percent from February to March, raising fears of a new bottom
"The housing slump isn't over.
Tax credits and historically low mortgage rates have failed to lift home prices so far this year. Prices fell 0.5 percent in March from February, according to the Standard & Poor's/Case-Shiller 20-city index released Tuesday .
The co-creator of the Case-Shiller index, who predicted in 2005 that the housing bubble would burst, is raising concerns that the worst may be ahead. That fear is shared by other economists who point to weak job growth, tight credit and many more foreclosures ahead.
"I'm worried still about the risk of a double-dip," economist Robert Shiller said in an interview.
The month-to-month drop from February to March marked the sixth straight decline. Prices in 13 of the cities fell. Only six metro areas recorded price gains. One, Boston, came in flat.
In the first quarter of 2010, U.S. home prices fell 3.2 percent compared with the fourth quarter.
Prices remain nearly 31 percent below their July 2006 peak. But they have risen nearly 3 percent from their April 2009 bottom.
The numbers are especially disturbing because they show that improved sales due to the tax credits didn't translate into higher prices, said David M. Blitzer, Chairman of the S&P index committee."
Fundamentally, housing is still overvalued. More so here than nationally.
Apartment vacancies are at record high and pressuring rents. This is making the reality even worse.
spider,
What is your source for local apt vacancy rates?
http://franklymls.com/DC7324730
here's one, assessed at 474K,
sells for 330 down 30%
sat for ayear, needs tons of work.
i think at 270K it'd be worth it,
but someone overpaid.
Spider-
I think VA is right vacancies are still relatively high, but I believe they have peaked and started to come down. I have seen several reports from CB Richard Ellis (a huge building manager) saying vacancies peaked. Quickly I found this one, I can probably find a better article if you want me too appt vacancies peaked
I do agree with you housing will fall although I think it will bottom closer to 165, I am pretty sure you think it will hit ~150
HB, VA -
Linky
From local perspective, I just got decent discount on my rent on renewal. I am in a pretty good location and it never (if ever) goes down. There is ample vacancy, in fact some of the apartments in the area are grossly under-occupied.
Plus, the impact of rents on prices are gradual - even if you believe the vacancies have peaked.
And, even if the rents stay where they are - prices are out of whack...what can I say?
Spider-
I totally agree with you that price to rent is in favor of renting. I was just trying to point to the vacancy. I think we are both of the same belief that housing prices will continue to fall (although slightly different expectations of where the bottom is).
"Va_Investor said...
spider,
What is your source for local apt vacancy rates?"
VA -- locally, he has none, which is why his link says absolutely nothing about the vacancy rate in the DC area.
Spider thinks "Fundamentally, housing is still overvalued. More so here than nationally." for one reason, and one reason only, price.
Spider sees that DC has the highest case shiller value of anywhere in the country and concludes, it must be the "most overvalued".
Of course, he ignores the fact that incomes rose more here than in most of the country, or that inventories are only a fraction here of what they are in most of the country, or that unemployment is only a fraction here of what it is in most of the country -- as long as he sees high prices, he assumes "most overvalued" -- end of story.
The rest of us assume that the fundamentals matter, and thus because those fundamentals matter, and are so strong here, DC will hold on to a greater percentage of its gains than most of the country will.
hb,
Nice link to Bloomberg. Notice the five markets where rents are expected to increase? Perhaps spider should take a look.
"DC will hold on to a greater percentage of its gains than most of the country will."
Here we go again about immunity of this region. I am sure fundamentals don't apply in NoVA. Property that I can rent for 3k/month, can sell here for 900k - there is something special about this region. At least you aren't in the boat of few others here who expect double digit yearly increases.
All I see is falling CS in the face of extraordinary stimulus - tax credit, fiscal (temporary job growth in this region), monetary (lower interest rates), FHA/FNM/FRE insurance.
"DC will hold on to a greater percentage of its gains than most of the country will."
Or, another way of thinking about is the rest of the country is a sinking ship and the bow is D.C., the last part sticking up out of the water.
Yeah, things are fine if you're standing on the bow...
:)
The Anonymous said
If this year is anything like the last, this should be the last month in which we get negative MOM numbers. However, given the expiration of the tax credit, we very well could see continuing MOM declines for the next few months.
Don't forget another stimulative effect that helped turn things around April 2009:
Oct 2008 6.2%
Nov 2009 6.09%
Dec 2009 5.29%
Jan 2010 5.05%
Feb 2010 5.13%
Mar 2010 5%
Apr 2010 4.81%
It's easy to forget now since we've had rates like this for over a year now but those sub-5% (let alone 5%) mortgage rates grabbed everyone's attention.
spider said
All I see is falling CS in the face of extraordinary stimulus - tax credit, fiscal (temporary job growth in this region), monetary (lower interest rates), FHA/FNM/FRE insurance.
I agree with this. I don't understand how anyone can be more optimistic than thinking we have entered the long, flat period.
tremendous stimulus and CS is staggering.
that's a sign of an unhealthy market.
Wow, people think that rents might go up here? Nobody around here seems to have gotten the memo - still offering big screen TVs for move-ins.
I've lived in my apartment (Tysons Corner) for 3 years now and the rent is ~$20/month lower than when we first moved in. We may pay a little more when we renew next August, but only because we'll be switching to an 8 or 9 month lease.
I'm now two and a half years in my crack shack rental and my rent has only gone up $50 from it's already ridiculously low monthly amount. Anybody that is questioning the vacancies isn't spending much time on Craigslist. Don't be lazy, look got the anecdotal clues, like THREE FREE MONTHS OF RENT.
As for DC being an immunozone, go ahead and keep praying that Obama will spend to the sky and focus it entirely on this region. GLUG GLUG GLUG.
Wow - all I do is point out the fact that DC has held up best out of anywhere in the country, and once again the IMMUNE argument gets dragged out!
Texas Native's comment about DC being the bow of a sinking ship is very appropriate here. I mean, what part of a -34% drop frop peak (per CS) causes people drag out the immune hyperbole? All we are is the tallest of midgets.
My point was, for some people here, there can be no tallest midgets. Whenever they see the tallest midget, they ignore fundamentals and conclude, "well, it has to fall further since its above average." Sorry, but that type of thinking is no different than people looking at the shortest midget (Detroit) and assuming it is going to zoom back up to average soon.
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