Housing

Speculators, Not Government, First Sounded The Housing Alarm

08/07/2009 by Research Reloaded

It is interesting to note that speculative markets, not government institutions were the first to sound the alarm when it came to the US housing bubble. And actually... not only were government institutions asleep at the wheel in terms of warning people that prices had gone too far, but they were actually contributing to the problem and helping to inflate the bubble further. It was speculative markets that sounded the alarm in 2007, keeping future capital away from jumping off a cliff, and preventing the bubble from running longer and crashing harder. (Hat tip to one of our readers for this great nugget)

Barclays on Housing: Beware Recent Data, No Bottom Until 2010

08/05/2009 by Research Reloaded

More bad news ahead for housing prices, as per Barclays. They're forecasting a bottom in 2010, down a whopping 40% from their peak, and argue that some of the recent good news in the data may have been deceptive. Expect a return to negative surprises this fall. (via Calculated Risk)

seasonally adjusted home-price data has been skewed higher during the spring months of this year and last year by an “amplified” version of typical patterns, according to the analysts. More homeowners sell their properties during those months, cutting the share of foreclosed homes being offloaded at distressed prices, as new buyers focus on “desirable neighborhoods” where values hold up better, they said.

...Data reflecting a reversal of the seasonal benefit, as well as “a tide of new foreclosure sales” as a moratorium on the seizing of homes put in place by banks subsides, will lead to “renewed weakness” in the fall, they said.

How to Solve the Glut in Housing or Autos, Google-Style

06/10/2009 by Research Reloaded

Great article in Wired Magazine on Google's internal economics. Worth a read for those who wish to learn what Googlenomics is. But hidden in the end of the article, we found an interesting idea for solving current gluts in autos or housing. Keep in mind Google's core genius, after its search technology, is its auction technlogy for ads, which is extremely efficient at getting adspace sold at the best price.

Can the rest of the world be far behind? Although Eric Schmidt doesn't think it will happen as quickly as some believe, he does think that Google-style auctions are applicable to all sorts of transactions. The solution to the glut in auto inventory? Put the entire supply of unsold cars up for bid. That'll clear out the lot. Housing, too: "People use auctions now in cases of distress, like auctioning a house when there are no buyers," Schmidt says. "But you can imagine a situation in which it was a normal and routine way of doing things."

Problem is, homeowners and automakers are likely to balk at the prices they might receive if a sudden, giant auction were held. The truth can hurt. But clearing the glut of housing and arguably autos (there is also the problem of production capacity here), could set a nice floor for prices, even if it's a floor at a much sharper, lower pricing level than we can even imagine right now.

Simple, Unfortunate Math for the US Consumer

05/15/2009 by Research Reloaded

Henry Blodget at The Business Insider succinctly explains how the fall in US home values will, in a leveraged fashion, annhilate the wealth of so many US households.

15.4 million homeowners now owe more on their houses than their houses are worth, up from 13.6 million four months ago. The number will probably top 20 million when all is said and done...

...A couple of years back, the value of US residential real estate was about $25 trillion. Mortgage debt constituted about 45% of that ($11 trillion*) and owner equity 55% ($13 trillion). (Rough numbers) Now, the value of the US housing market is down almost 30% and headed to, arguably, down 40%.

In other words, if the peak value was $25 trillion, the current value is about $18 trillion, and the trough value will be about $15 trillion. So what will happen to homeowner equity? It will drop by 70%....

...And what happens if you have a more typical debt-to-value ratio--say, 80% debt? Then, unfortunately, your equity IS going to zero. In fact, it will only take a 20% fall in the house price for that to happen. That's why so many households are now underwater.

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