Wednesday, October 14, 2015

Seller/Buyer Transactions Define Market Value



Is the buyer likely to be the family on the left or the guy on the right?

Via zerohedge...

Whether this is due to lack of demand, or far stricter mortgage supply remains a topic debate, but one thing is undisputed: after a terrible 2014, mortgage applications in early 2015 saw a modest rebound. Alas, it has since proven to be merely the latest headfake in a long series of false starts.  The evidence: earlier today the largest U.S. mortgage lender Wells Fargo reported results that beat expectations by the smallest possible increment. What caught our attention, however, was the fuel that keeps Wells Fargo's engine humming: mortgage applications. Unfortunately for the housing bulls, there was no good news here because after rushing higher in early 2015 on the latest false hope of an economic recovery or due to fears rates are rising, Wells' mortgage applications and the associated pipeline have declined ever since.
...It also means that far from rising rates - a gambit which was meant to spoof potential home buyers into rushing out to get a mortgage ahead of rising mortgage rates, a gambit which has since failed - the Fed will have to come up with a way to lower interest rates even further just in time for the US to finally decouple with the Emerging Market debt crisis and the Quantitative Tightening courtesy of the collapse in commodity prices.

Referencing the picture above, Housing Bubble 2.0 has long since run out of the guys on the left.  Unless you're trying to move a truly "prime" property in Irvine or Arcadia.  What little action that Johnny-come-lately extreme home debtors were providing seems to have petered out as well.  And the recession hasn't even started yet...

International Valuation Standards defines market value as "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion."  Compulsion and a lack of prudence have been the norm during Housing Bubble 2.0 as have a dearth of willing sellers vis-a-vis willing buyers.  This is no longer the case.

The market value of residential RE in the Bubble areas is being adjusted as we speak.  Asking and closing prices are down in all but the most exclusive enclaves and they have been trending down for almost a year.  As every single other bust has shown downward price momentum tends to over correct.  Sure the timing is difficult, but it is the point of maximum financial opportunity.   

Be patient true believers of math and market economics.  The end of Bubble 2.0 is nigh...

Tuesday, October 13, 2015

"I'm so scared right now..."

Is the FED malicious or incompetent?  I've always assumed it's both.  The failure to raise rates at the September meeting and the ensuing market turmoil it unleashed seems to support that theory.  The Federal Reserve NEEDS the next recession to begin soon so the inevitable downturn can be managed.  Conversely it can't be seen as causing the recession.  Blind them with bullshit seems to be the plan.  After the "dovish-hold" that no one saw coming, the FED then walked backwards and then forwards and then backwards again the forward guidance language.  I don't think the FED has a problem with the crash happening with rates at zero, they've still got more QE and NIRP in their chamber.  They likely have a BIG problem with it happening 2 or 3 years from now with the DOW, S&P and PE ratios further into full retard territory.  Can FED obfuscation tip some domino that causes the recession without the FED seeming to have caused it?   I have no idea.

How does this relate to housing you say???
 
I would argue that ultimately the FED will be seen as irrelevant to what we unfortunately still call "markets".  When the momentum turns this time no amount of QE will move market participants back into assets at anything close to these evaluations. 2011-201X will be looked upon as one big dead cat bounce.  The FED will have gone full Japan with ZIRP 4evah.  There won't be enough money seeking the US Real Estate Laundromat to keep prices anywhere near current valuations.  The Credit Mega Bubble ends not with a bang but with a whimper.  Deflation will prove unavoidable as no combination of policy tools and political will can put enough money into working peoples pockets to maintain anything near current prices even with rock bottom mortgage rates.  And don't forget baby-boomers will be selling in droves to fund retirements...

Sit tight true believers.  If you are wise with your money and can keep liquid and employed, you might be looking at fast dropping RE prices AND rock bottom interest rates.  If so you can thank Grandma Yellin and crew for blinking.