R.e.a Share Discussion Threads

[energyi] 03/4/2005 22:43

3.27.05 - Weekend Link Roundup

The New York Times likens the current real estate boom to the tech stock mania of yore. My favorite part is the breathless claim that South Florida "is working off of a totally new economic model," compliments of, you guessed it, a real estate agent in South Florida. "New economic model"... that sounds familiar; where have I heard that before?

Similar themes are explored in a sobering LA Times article on the rush into real estate on the part of what are clearly very naive investors. One gentleman who was burned in the tech bust justifies his sight-unseen purchase of an expensive Colorado duplex by claiming, "Real estate is different. People are always going to need homes."

Our beloved SDUT notes that PMI is backing away from insuring speculators. Only the most blatant speculators--those with more than four mortgages--will be affected, so I don't expect much of an effect in San Diego. However, this is a trend to keep on the radar screen.

CNN claims that San Diego is overpriced by 28%.

Economic pundit Michael Shedlock features some Econo-Almanac content in an interesting comparison between the American and Japanese real estate bubbles. The graph of Japanese real estate prices should be a wakeup call to anyone who claims that San Diego real estate will go up ad infinitum due to the fact that there is a limited supply of land.

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[energyi] 03/4/2005 22:40

Don't know yet... depends on price developments.
But probably on at least one of the Top 3, and maybe SPF.

The Builders are very oversold now, and a Bounce is due, so maybe not
until May.

I like to set these threads up a little early, so the idea has time to mature.
And I welcome debate (but not those who simple want to "snipe" in a Troll-like fasshon)

[scarface01] 03/4/2005 21:17

which puts are you buying then enerygi

[energyi] 03/4/2005 21:13

NOT HEALTHY TRENDS...



The number of sales, while up from last month's feeble number, was still well off of last February's numbers; meanwhile, the median price hit its lowest level since May of 2004. And as we will see next, the last two months have seen supply outstrip demand at the fastest pace in over a year.

A reader emailed me a while back to suggest that I use sandicor.com's monthly data on sales and new MLS listings as a rough proxy of supply versus demand



- -
3.10.05 - Thursday Threefer

I've been asked a couple times whether foreign buyers might take advantage of the weak dollar to purchase San Diego real estate and thus prolong the bull market. It's certainly possible--foreign buyers are usually the last to enter hot financial markets and often contribute heavily to the final "blow-off" phase. However, whether this is happening or not is not of great concern to me, because any such activity will be reflected in the monthly home sales number about which I prattle on so endlessly. If sales start really picking up, then prices will likely stay aloft a while longer, and if sales remain weak then the market is on borrowed time. The nationality of the buyers is immaterial.


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[energyi] 03/4/2005 21:10

I AM NOT ALONE...

1/
Recognition Of Housing Crisis Spreads
One Californian agrees with this blogger that the home boom is a serious matter. Rich Colwell, Deputy CEO for Redevelopment said, "It's gone from an issue or a problem to a crisis. It's not just a social problem but an economic problem if you can't get workers to live in places they work."

The Roseville Press Tribune continues, Mr. Colwell "produced statistics showing that while median incomes had grown slowly and steadily, housing prices have skyrocketed out of most people's reach."

2/
Hovnanian Looks Like Toll Looks Like...
Hovnanian Enterprises Inc. (HOV) is out with the financials today, and the figures continue the trend. more and more inventory. The current ratio is getting ugly as well.

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[energyi] 03/4/2005 20:50

ARM DEMAND IS EXPLODING, and so is the Risk...

The LA Times has a story I hope remains free on the web, because it is packed with reports that California is facing ruin. In one instance, a builder conducted a test to see how many variable rate, pre-approved clients could qualify for a fixed loan. Out of 90, "only about 15 of the buyers still qualified. 'People are really pushing to borrow as much as they can, and the lenders are right there..there's apparently not much of a cushion."

"About one-quarter of the loan officers also reported that they increasingly had to keep home mortgages in their own portfolios rather than selling them to such quasi-government entities as Fannie Mae. The two reasons given: the loans were too big and they were of "insufficient credit quality."

"'A few years ago, you would have had to go to an infomercial to get the kind of deals we're offering now,' Wells Fargo home mortgage consultant Jimmy Kang told a group of new real estate agents last week."

The percentage of ARMs is exploding; "Santa Rosa was 85%; in Oakland 84%; in San Diego and Santa Cruz 83%; in Los Angeles 74%. About two-thirds of these loans are also interest-only, compounding the borrowers' risk of what the mortgage industry calls 'payment shock.'"

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[energyi] 03/4/2005 20:36

"Patronising" followed obnoxious, my friend

You admit admit you have no view on the US, so it may be best to simply avoid taking a position. My approach has been to take an occasion pop at this market when it is overbought, by purchasing puts. I have had to be very nimble in taking profits to capture gains, but the extent of overvaluation now is so excessive, that a more aggressive approach may be warranted.

I want to follow the US Housing sector in relation to 10.year Bond rates (TNX), for which I also started a thread recently, to widespead apathy here.

[monty burns] 03/4/2005 20:35

Thanks for the patronising comments.

Of course I can see the risks - the risks change every day, and I adjust accordingly. But over the last 5 years, all basic indicators for pretty much every UK housebuilder - fundamentals, TA, affordability, sales volumes, gross margins etc etc have pointed to the share prices being undervalued and likely to go higher. And so it has proved.

That will not continue forever. We may or may not be at that point - that, I imagine, is what your are attempting to 'predict.' But we have not been so far, and that has not been difficult to see in advance. Just watched a lot of people put up a lot of similar 'analysis' which has been plain wrong.

US housebuilders - dunno, have no view and no knowledge. Certainly they are on notably higher earnings ratios, so I have no reason to be interested. Best of luck with your positions.

[energyi] 03/4/2005 20:24

Monty,

I have made & lost money on Puts, with a small net loss,
at a time when the Builders have continued to rise.
But it hardly registered in my portfolio of mainly mining stocks.
I see the Property sector as a dangerous one, that can (and will?) tank the
US economy.

I reckon the time is ripe for a BIGGER BET

I you are not clever enough to see the risks, and find intelligent approaches
to managing them- then, I suggest you, STAY AWAY from the sector

[energyi] 03/4/2005 20:14

BUBBLE TROUBLE - Barron Article, Mar.21, 2004 (pg.17)
"As the housing cycle ages, home builders- and their shareholders
are facing greater risks"

SUMMARY / notes:
+ The Philex Housing Sector Index (HGX) has rallied 122% over Two Years
HGX charts
..

+ NA of Realtors sees a 3.2% drop in sales of existing homes in 2005 to 6.57million, and a 0.7% decline in housing starts to 1.94 million.

+ Backlog of unsold new homes has risen steadily: in Jan.2005 approached a 5year high of 4.7 months' supply.

+ Long term rates remain near rockbottom levels: 30year rates: 5.91% versus an alltime low of 5.25% , and an average of 9.45% over the past three decades.

+ Median house prices have risen about 30% since March 2001, well ahead of an 11% gain in personal income.

+ In 27 US cities- including: Santa Barbara, Calif., Boston, L.A., NYC, SF, and San Diego, the ratio of median house prices to per capita incomes is at or near a 30-year peak

+ Household real-estate assets now equal near 140% of gross domestic product, the highest proportion in two decades (and close to the ratio of stock portfolios to GDP at the bubble peak in 2000.)

+ In Feb.2005, a Univ.Michigan survey registered a 25-year high in the number of people who believe it is a good time to buy a house

+ The American dream, updated version, now involves owning several homes

+ Some analysts expect the largest builders to fare best in a downturn, because they are expected to gain market share by acquiring the smaller ones. They also have investment grade credit ratings and geographic diversification.

+ Not everyone believes the muddle-through scenario, Bearish investors have sold short 20% of the sector's publicly-quoted shares

[energyi] 03/4/2005 20:09

Is There A Debt Bomb?
Dan Ackman, 09.21.04, 10:20 AM ET

NEW YORK - That the Federal Reserve is poised for another quarter point interest rate hike should not obscure the fact that we are now living through the lowest real interest rate period in a generation.

Since 2000, when the Fed started cutting rates, the conventional mortgage rate has fallen to 5.87% from 8.06%. The real mortgage rate (the interest rate on mortgages minus the current inflation rate) is now at 3.22%. This rate is as low as it has been since 1980.
. . .
That interest rates are lower has not led to consumers reducing their debt burden. In fact, that burden has stayed about the same since 2000, according to Federal Reserve data. This is the typical pattern in the U.S. When interest rates fall, as they have been, Americans respond by increasing their borrowing. For instance, between 1985 and 1995, interest rates fell dramatically, but debt service remained on average between 16% and 17% of incomes.

Since 2000, the debt service ratio has snaked to above 18%, and there has been a rise in the number of bankruptcies. Additional borrowing, particularly in the form of mortgage and home equity debt, has fuelled a surge in residential construction and household consumption.

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[energyi] 03/4/2005 18:50

This "LAST RALLY" (?),
- Looks like a 5 wave structure since Aug.2004 (not yet complete?)
- Is coming on much less volume than the previous Wave (see CTX.mt chart)

[tday] 03/3/2005 17:25

Breaking out of its recent price range perhaps?

[tday] 03/3/2005 17:19

It looks as if RE.is beginning to break out of its recent price range.