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Tuesday, July 19, 2011

House Trap and Women's Soccer has their 15 minutes.

It ended in a shoot-out?  What is this, the Wild Wild West???
A big shout out to the women’s U.S. Soccer team for making it to the finals of the World Cup.  You sure let down quite a few Type II diabetics at the local pub that called you a ‘sure thing.’  Don’t worry—they still drank as much PBR as they would have even if you had not made it to the finals (I’m sure bowling was on).  We were all Soccer fans for about 12 minutes and it sure was awesome... until you lost in a lame shoot-out.  American’s are so patriotic about sports until we lose.  Then it’s back to Nascar and bitchin’ about NFL labor disputes.
  Housing Up… but still in the gutter
Another day in the world of make believe and another hope and prayer for some kind of stop to the train wreck that is the housing market.  Housing up but still in the gutter.  Wozers!  Housing starts ROSE by 14.6%.  Yea dogg, pull down the Alize and let’s PAR-tay like it’s 2005! 
Oh 2005.  The beginning of the end of the bubble.  June 2005 housing starts were a lofty 2,004,000.  That is a 69% drop since 2005.  All of a sudden those numbers don’t looks so good.  In addition to this, last month’s data was revised down and the majority of the increases this month were in multi-family starts.  I would say that this was actually a really crappy housing report—not worthy of Alize, but most definitely worthy of double Jim Beam shots for homeowners!  Prices... look out below (again).  And while I can’t take away all the thunder from this less bad report, I worry that this less bad report is coming way too late in the year to make any impact on 2011 being a horrid year for housing.  Even if the momentum is up slightly, fall follows summer and winter follows fall.  Winter is not going to help and we did not get any 'seasonal' help in spring, the season that usually has the most robust housing starts. 
Remember too that starts say nothing about price.  If builders push out 625,000 homes for $250,000 that would have sold for $335,000 in 2005, this is NOT going to help the market, but instead is going to only increase the chances of someone walking away (or walking down the street and getting the same home from the same builder for 30% less than their current balance).
Scraping bottom:  Housing starts follow the exact same trend as losing your sex life to weight gain (note:  weight gain chart has not relevance to this story, nor is it accurate).
 Housing is getting killed by 3 things:
1)      Mortgage credit is only as easy to get as cocaine at a Mormon picnic.  Approval rates are way down, down payments are up and products are getting taken away faster than Bernanke can print money.  Big thing to watch going forward:  Funding from the big 4 monster banks:  Wells, BAC, Chase and GMAC.  BAC should be the one to watch.  I would guess that BAC will be almost completely out of correspondent lending in the next 12 months.  Countrywide is just too much for BAC to swallow and they will have to sell their servicing and wind down lending if they ever want to pay a dividend again.
The bottom 5 lenders do not lend as much combined as Wells Fargo.  If BAC falls, Wells Fargo gets to make the lending rules (hint hint:  they already do)… and the rule today is: protect thee servicing portfolio of mortgages by not allowing people to pay off current loans.  If there is no competition to buy mortgages, rates could drop to 3%, which would be just under the underwriting approval rates.
2)      (F)Unemployment.  This one is pretty straight-forward.   Unlike 2005 you have to have a job to buy a home.  You also have to have a job to come up with a down payment if you are buying your first home, and you have to have a really good job if you are going to pay off the negative equity on your current home AND buy new home.  Don’t expect any magic to happen in housing until jobs come back.  There are no magic loans and there are no magic jobs in today’s market.  Even if jobs return, many people will be SELLING at any chance of recovery (see next point). 
3)      Baby Boomers.  I still think it is asinine to think housing can recover with baby boomers retiring.  It would be great if that happened, but the boomers are NOT going to participate in the real estate market again.  Why:
a.       They got burned hard by the last bubble
b.      They are going through declining income through retirement
c.       Boomers will be SELLING and not BUYING if the market turns ever so slightly and this will only delay the recovery.
If you asked the average American boomer for one wish for their financial health over the last 10 years it would either have been to (a) go back in time in a time traveling Delorian and sell their house in 2005, or (b) go back in time in a time traveling Delorian and smack their younger selves at the closing table of their house from 1998-2005, steal the money and throw it in the stock market (or take it to the track!).
Unfortunately for this wish to be granted we would need a Flux-Capacitor, which is a make believe device that makes time travel possible.  The only person that has make believe items is Ben Bernanke (he is a master wizard).  It would also put a lot of strain on that clunky AMC Delorain to fix 77 million people’s real estate screw-ups.   While this is all crazy talk, the idea of going back in time in a make believe, time traveling Delorian, to fix the housing market is probably more realistic than seeing the housing market recover in the next 3-5 years due to ‘increased demand.’ 

Speaking of Baby Boomers and make believe:  R.I.P Hunter S. Thompson.  You would have been 74 this week had you not gone crazy and killed yourself.  You were a little before my time but I still have enjoyed your works.  You were also crazy, but the 5 gallon buckets of cocaine and LSD might explain a good portion of that.  I hope you got the afterlife with all the virgins!  That one sure sounds the best.
We Can’t Stop Here…. This is Bat Country.
All in all, housing sucks, but it is probably not a horrible investment at this time if you buy right.  If you can find a home you are going to stay in for while (18 months is not long enough) and you negotiate the price, have the cash to buy and understand that it will get worse before it gets better… maybe you should buy. 
Then again, if you can do all that you might as well buy 15 rental properties to house all the baby boomers.  They will have to live somewhere… 

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