May 14, 2009

Another New Record

This bubble is still not over. I wonder if its true that bubbles tend to erase wealth all the way back to the its beginning. Bubbles are a do over .

Realtyrac: Foreclosures in April rose and are now affecting one in every 374 housing units, and bank repossessions will spike in the next few months.

cbs marketwatch: "Much of this activity is at the initial stages of foreclosure -- the default and auction stages -- while bank repossessions ... were down suggests that many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria."

Parsing the News
Foreclosures in California fell 10% month over month, a rate of one in every 138 housing units targeted for foreclosure. If you could remove the top four foreclosure states: California, Nevada, Florida and Arizona, it wouldnt look as bad. Together they accounted for nearly 60% of all the activity.

Anyone Benefit?
Apartment rents are dropping and vacancies are increasing. We are beginning to see rent roll backs which landlords are happy to agree with. A tp for owners: ask for a new one year lease if you do agree to a roll back. Constant cash flow and tenant retention is now more important than getting that high value renter.

Future Buyers
Some signs of stabilization, the ratio often used to compare home prices to income puts homes at 5% overvalued. Two things make me nervous. First "Jan Hatzius, the chief economist at Goldman Sachs, says that the “massive amount of excess supply” means that home prices nationwide will probably fall an additional 15 percent" (Via the NY Times.) Secondly, we have huge inventories that the banks have been holding back because they are flooding the markets and driving prices even further down.

Still, economically, the worst is probably behind us but for homes we will have to wait a little longer. When the bottom does come, it will be a hell of a buyers market.

Howard Bell

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