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Voor beleggers die graag willen profiteren van een herstel van één van de economisch meest gevoelige sectoren is deze ETF een uitkomst.
If you want to buy Homebuilders ETF read this first!
Posted: 05 Aug 2009 12:00 AM PDT
The much anticipated bottom in real estate is here! Bwahahahaha! This is madness. It is time to rejoice people. Let us for a second forget about the 336,000 foreclosure filings last month and the 26,000,000 unemployed and underemployed Americans. The time to buy real estate is now. If you didn’t buy a home yesterday do it now! Grab your phone, call up your agent with the glossy business card, line up your carefully saved down payment, and buy up that 900 square foot home in Culver City for $500,000 because this is it. We can also disregard the analysis from Moody’s that California’s unemployment rate will top 13 percent in 2010. Another estimate places the unemployment rate at 14 percent (we are at 11.6 percent today) so things will get worse before they get better but who cares! Real estate prices will go up on pure hype. The cash for clunkers Real Homes of Genius program.
In 2006, when I talked about the absolute shady underbelly of the housing industry including no-doc loans, forgeries, mortgage broker corruption, agent shenanigans, bought off appraisers, crony Wall Street, there was a sizable contingent that believed it was a tiny group of bad apples. I argued the vast majority of the industry was polluted and as we are now painfully finding out, that is the case. Last year, I started discussing the shadow inventory data and we had another group that simply did not believe this. They thought for the most part, only one or two homes were off the books and shadow inventory was basically a misguided assertion. Today, I am going to prove to you with Southern California data that there is a gigantic shadow inventory building. The Alt-A and option ARM tsunami will be the match that sets this housing tinder box off in 2010 (with the peaking unemployment rate). Keep in mind, we may have a national economic recovery but California housing is done for many years.
What is shadow inventory? First, shadow inventory is housing units that are not making it onto the public market for one reason or another. There is speculation surrounding why this is happening. Lenders are overwhelmed and simply do not have the human capital to handle the glut so goes one theory. Others speculate that lenders are simply too incompetent to have a system in place to handle the mess they created. There is truth in both of these scenarios. What I am starting to believe is the massive glut of housing is being caused by the inability of banks to sell homes for losses and take write-down’s to their already weak balance sheet. Think of all those notice of defaults for example. Technically, the bank can value the price at an overly optimistic point because mark to market has been suspended and the bank technically hasn’t sold the home. So this may be more of a practical survival mechanism for the banks. However, with such a crony capitalist system then why would we continue to hand money out to these institutions? We are back to the hype based economy. This is like a person saying “yes, I own $2 million in real estate” except they have $3 million in debt which they don’t openly talk about.
Let us put the numbers together since no one has attempted to get an actual hard figure on shadow inventory. Since we can’t do this for the entire United States, we can try to recreate our own little figures for Southern California. First, I’ve been tracking MLS data since 2007 when it peaked:
The peak was reached in late 2007 when over 160,000 units of housing were on the market in Southern California. Since that time, the drop in MLS housing units has continued on a steady pace. Now some would say this occurred because during this time, prices fell by half and thus spurred sales. Yes and no. For the last year or so, nearly 50 percent of all Southern California homes sold were foreclosure re-sales. A bulk of the homes sold happened in more depressed lower cost markets. Many of those homes did not even make the MLS in the first place. So the drop has to be explained by other reasons. Another reason is people pulling off “non-distress” home sales from the list. That is, homes being sold that are not in any form of distress but simply because a seller wants to offload the property. So that might explain a few homes being yanked off the MLS but certainly not as many as the current list is showing. What we can safely predict, is what occurred with the glut of subprime homes back in 2007. Let us look at the notice of default charts for that trend:
In 2006 notice of defaults shot up through the roof. Much of this was in lower priced areas loaded with subprime toxic waste. The trend was simple, NODs spiked and then once prices stalled, foreclosures slammed the market. Now, the pattern is repeating itself except this time we have the Alt-A toxic mortgages that will start recasting in mass in 2010. The pattern is extremely clear. But these are things that we already know. As of today, there are some 71,000 homes on the MLS for all 6 counties in Southern California. This is a far cry from the over 160,000 homes near the peak in 2007. Keep in mind this was the ultimate bubble point. During the crazy days of the bubble we would have one or two months of inventory on the market in some areas!
So let us run the quick numbers which are sucking people back in. Last month some 23,262 homes sold in Southern California. With 71,000 homes on public inventory that is 3 months of inventory at the current sales rate. Not bad right? A normal market will have about 5 to 6 months of inventory. But this is the ultimate head fake. Those subprime loans are still toxic and there are some $400 billion outstanding and there are some $660 billion in Alt-A loans most of it calling California home:
Bottom line many of these loans will default. But let us look at 2009 and count our home sales:
For the first six months of the year 114,495 homes sold in Southern California. Keep in mind that in any given month, Southern California makes up over half of the sales for the entire state so this is a good indicator of the overall market. We have prime, near prime, subprime, and every mortgage product ever created in this market. For example 44,167 homes sold statewide in June with 23,262 (52%) coming from Southern California.
The MLS figure from the start of the year to the current number has dropped from 110,000 to 71,000 a drop of 39,000 homes. But there can be no bigger deception than this number. Let us look at first quarter and second quarter foreclosures for the state:
Statewide some 235,670 homes entered into foreclosure (NTS and REO). The NOD number of course is off the charts and this is inventory that will hit later this year and into 2010. But set that figure aside for the moment. Let us assume the same proportion of 52% for foreclosures in SoCal. That would mean roughly 122,000 homes were added via the NTS and REO process. We only had 114,495 home sales recorded during this time! So we are missing some 40,000+/- homes from the MLS! That is an enormous number and sure is bigger than a one or two home anomaly. With the Alt-A and option ARM junk still being booked at peak values in most cases, banks are kicking the can down the road as far as they can. That is why I get so many e-mails and comments from people saying:
“Hey doc. I haven’t made a payment in 4, 5, 6, or even 7 months and still have no notice of default from the bank.”
Those lame loan modifications are basically self serving for the bank because the principal isn’t touched and the bank can still claim it has an “asset” that is valued at $500,000 when the real market value is more like $250,000. Pure insanity.
So that drop in the MLS is pure hocus pocus. What is happening is this. Homes are selling from a second wave of bubble dream buyers. These people say they are comfortable staying in the home for 5 to 7 years but deep down, they believe in the trading up myth created during the bubble. What about staying in your home for 10, 15, or 20 years? Many have sat on the fence and simply cannot wait any longer. They are jumping into a shark tank lured by tax incentives and more housing Kool-Aid. Did they not notice the $26 billion budget deficit for the state? So as these homes sell, they are removed from the MLS. Most people that can sell without distress, are holding back because many suffer from California housing delusion and are licking their chops because they think they can reclaim that 2007 price point. They won’t and they are in for a stunner. But these are the people removing their home from the MLS. The few homes that do make it to the list in distress are selected and aren’t priced competitively in mid to upper priced areas. The lower range is being sold at a rapid pace at rock bottom prices like homes in Compton going for five-figures.
How do we know something is fishy? On the MLS there are only 5,800 homes labeled as foreclosures for all of Southern California! Bwahahahaha! This is madness. Those loan mods are basically to keep banks afloat and pad their current balance sheet until they can tweak the public-private investment program to unload this crap to the public. They have nothing to do with keeping the homeowner afloat. Here is a loan mod for you. How about you foreclose, list the home, and let the market decide the price without government subsidies to prop up the banks? This is like being shocked that the cash for clunkers program is working. Well no crap! You are giving money away! I’ve never heard someone in my life say, “gee, thanks for that free money but no thanks.”
It is pure madness. The data is rather clear. And don’t think this is some tinfoil hat conspiracy. Even the MSM is going with this but there is no way to look into the REO books of banks since they are cooking their data like Julia Child:
“(Reuters) Shadow inventory has the potential to give us another leg down on home prices during the second half of the year,” said Steven Wood, chief economist at Insight Economics in Danville, California.
“It appears that there is a significant amount of shadow inventory in the form of bank owned properties, which will continue to grow with the rising in delinquencies,” he said. It can take about 4-6 months for a house for be out of foreclosure and ready for sale.
Torsten Slok, senior economist at Deutsche Bank in New York, said about 1.8 million homes are currently in foreclosure and they will continue to weigh on home prices at least for the rest of this year.”
No doubt. And with those toxic Alt-A mortgages how many homeowners are going to opt for the ridiculous modifications that basically make them lifelong renters with zero mobility? Get ready for round two. This wave is coming and nothing is going to stop this. Summer selling season is nearing the end and we are now going into the slow selling season with shadow inventory coming into the light.
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