[LA_Renter]

“Does this fall into the category of “be careful what you wish for”???”

I am experiencing the same thoughts myself. I work for a manufacturer that supplies a variety of products into the industrial and service related industries. Our fist qtr sales were O.K., April we saw softening across the board through most regions of the country. The numbers jumped out because it was so uniform. I’ve seen this trend before namely 1990 and 2000. It’s way too early to tell but this looks awfully familiar. I am hearing that our production is reducing forecast for the balance of the year. That means cost cutting this Fall which means layoffs. In all honesty that is the primary reason for my household sitting on the sidelines. it’s not that I want prices to fall (I really do), it’s the risk of being forced to buy at the peak of what we all know was a bubble (of historic proportions) and then experience a layoff as a result of the negative consequences of that bubble. Then I calculated how much money we save renting verses owning there you have it. I feel confident my household will weather this storm. Once we get though a good portion of this correction and the long term prospects stabilize and homes become something you just live in again it will be time to pull the trigger.

[LA_Renter]

I am always leery of a market that goes up basically everyday and is obviously becoming disconnected from fundamentals. That does suggest this is a momentum play and IMO this is not exactly the perfect time to have that occur in the stock market. Why? I think the FED, many economist and Wall Street are really underestimating the housing slumps drag on GDP. The market is factoring in a .5% to 1% drag on GDP. As we get into the meat of the ARM resets and feel the full brunt of the housing downturn the drag will probably be over 2%. Reference the Credit Suisse Arm Reset schedule and you can see we have not experienced the worst of these loans. If the drag on GDP is greater than the .5% to 1% they are forecasting there will be an Uh Oh! moment on Wall Street and the market will correct.

Liquidity is driving the market right now. We are all talking about the weak US dollar, but we need to look at the YEN. The Yen is weaker than the dollar right now so the Carry Trades are charging ahead. The markets look crazy right now because there is too much money chasing too few assets. I do anticipate a stock market correction this year. When you got me.

[LA_Renter]

Thanks for cheering everybody up Juice.

[LA_Renter]

This was pretty fluffy. Basically what they are saying is that if there are no negative consequences from the housing downturn we have hit bottom.

And they add this caveat;

“But they add that there’s a major wild card: the question of whether a wave of foreclosures might drag down local home prices and exacerbate the current economic slowdown.

“We’ve only seen the very tip of the iceberg” in foreclosures, warned Ryan Ratcliff, a UCLA economist who evaluated the county’s housing market.”

With that said I always like to show the Credit Suisse ARM reset schedule.
We are on bar 4, look at the bars moving forward.

http://www.irvinehousingblog.com/wp-content/uploads/2007/03/reset.PNG

Basically what this article is saying is that if these ARM resets don’t materialize we should be O.K. There is nothing like an exercise in “wishful thinking”. Way to go Union Tribune.

[LA_Renter]

sdrealtor,

I agree with you as long as the economy avoids recession. If we go into negative job growth I anticipate another leg down in nominal prices then a flattening out period. We haven’t seen how this downturn has truly impacted the economy just yet. IMO.

[LA_Renter]

Herewego,

You may have a good point there. I just ran across this.

“Trade provided the biggest surprise, when exports fell unexpectedly and imports continued growing, subtracting half a percentage point from economic growth, according to the report.

Economists pointed out that the preliminary data on trade is particularly sketchy because the government did not yet have a good handle on exports and imports in March. But the data bewildered some analysts, who pointed out that the combination of a weak dollar and faster growth in Europe and elsewhere should be providing a lift to exports.

“We completely discount this number,” said Nariman Behravesh, chief economist at Global Insight of Lexington, Mass. “It’s inconsistent with everything else going on in the world.”

He suggested the estimate for first-quarter exports could be revised upward. And if not, he predicted, exports should record a sharp upswing in the spring quarter that is under way now.”

There is a strong tug of war going on. Let’s see how consumer spending plays out also. Right now that data is like looking into a rear view mirror.

[LA_Renter]

Lets look at the the last downturn in CA when nominal home prices actually fell. The primary reason for that was massive job loss as a result of the Defense/Aerospace downturn. Home prices fell because people had no income to meet the mortgage and had to sell and actually for that matter leave. That increased the liquidity of RE and actual home prices fell. If people can make their mortgage payment they will stay in their home and sales volume will fall and while home prices remain flat. That is actually very bad for RE employment. Rather than debate will home prices fall and by how much, I think the true debate is what will kick people out of their homes. Right now we are seeing a huge wave of foreclosures really hitting the bottom of the market first thats increasing liquidity and that is where we are seeing actual price drops. What we need to determine is how high up the food chain will the mortgage problems go. What I see is ARM resets to foreclosure is equal to aerospace/defense job loss. One thing to remember for people that bought pre 2003 is the rise of the HELOC. Also it does appear there is a greater possibility of recession on the horizon.

So how many people will lose their homes to bad mortgages (including HELOCS)? how far up the food chain does this go? How many people are at maximum pain with their reset and will put their property on the market? and the big question how many additional homes will go on the market in the event of a recession?? Another question to ask, how tight will credit become when we hit the true brunt of the foreclosure storm?

Unfortunately we are still very early in the game. IMO the answer to many of those questions don’t look to promising right now.

[LA_Renter]

How many ways can you put lipstick on a pig??

“So the fact that March of this year was lower than March last year shouldn’t surprise anybody because March of last year was pretty much the high point,”

Now as I recall March 06 sales were well below March 05 sales. I looked to bubble tracking for a reference;

03/07: (3,218)___03/06: (4,367)___03/05: (5,018)

So March of last year was not the high point. In fact looking at it from this angle looks like the YOY decreases are actually escalating.

[LA_Renter]

I would say yes it would make US property market more appealing to people outside of the US with strong currencies. At least in theory. I think what offsets this is that RE is the most inflated asset in the US economy right now. So its appealing but not that appealing. Also the entire globe has its eyes on the struggling US housing sector. You may see some people take advantage of the weak dollar and buy in Beverly Hills and other nice areas but you won’t see properties being bought with foreign investment for quick appreciation. Everybody knows this market has played out. The sheer size of this bubble offsets the weaker dollar.

[LA_Renter]

“The export number is key, as exports add directly to GDP.”

The only problem with that is we are not set up to benefit from a falling dollar with exports.

“Analysts said the bulging US trade deficit, which is especially pronounced with China, as well as the housing market downturn have conspired to hobble growth.

US exports fell 1.2 percent in the January-March quarter while imports rose 2.3 percent, contributing to the weakest overall growth pace since the first quarter of 2003 when America launched a war to topple former Iraqi leader Saddam Hussein.

Rising demand for imported goods can dent growth, especially if it means that Americans, for example, are buying more foreign-made cars than comparable models made in Detroit.”

[LA_Renter]

Keep in mind the surging earnings are not coming from the US. They are are coming from US multi-national corporations with strong overseas growth. It is my contention that the impact of the housing slump is being totally underestimated. The 1.3% GDP below an estimate of 1.8 is due to the housing slump. Of course this will be revised, Right now I am of the opinion we will see GDP well below the Fed forecast this year.

[LA_Renter]

“That article no longer seems to be there except for the first page. Pity since it sound interesting.”

You may want to try again I can still access it.

[LA_Renter]

Referring to my previous post

“The one point that he (Chris Thornberg) makes in this segement that stands out to me is that economist, and you can throw in Wall Street for that matter are totally underestimating the sheer size of this housing bubble. They have not budgeted accordingly its impact on GDP.”

Today’s GDP

“WASHINGTON (AP) — Economic growth slowed to a near crawl of 1.3 percent in the first three months of 2007, the worst performance in four years. The main culprit: the housing slump.
The fresh reading on gross domestic product, released by the Commerce Department on Friday, was even weaker than the 2.5 percent growth rate logged in the final three months of last year. The new figures underscored just how much momentum the economy has been losing as it copes with the strain of the troubled housing market, which has made some businesses more cautious in their spending.”

IMO we have not yet felt the full blow of the housing bubble. There is definitely a tug of war going on in the economy but I think Chris Thornberg was right, the fed and Wall Street have not budgeted the negative consequences of this housing slump into the numbers. This report increases the possibility we will see recession this year, 2008 for sure IMO.

“Even though the economy slowed in the first quarter, inflation picked up — a development that will complicate the Fed’s work.

An inflation gauge tied to the GDP report and closely watched by the Fed showed that core prices — excluding food and energy — rose at a rate of 2.2 percent in the first quarter, up from a 1.8 percent pace in the fourth quarter. Another measure tracking all prices jumped by 3.4 percent in the first quarter, compared to a 1.0 percent decline, on an annualized basis in the fourth quarter.

Federal Reserve policymakers say the biggest danger to the economy is if inflation doesn’t recede as they currently predict.”

If the dollar weakens further this will only get worse before it gets better. We could find ourselves going into recession with the FED handcuffed on easing. They will cut but it won’t be enough to turn back the tide on housing or enough to prevent a recession. How the stock market reacts to all of this? judging from the way it is performing now it will probably go up, ha ha. There is still a ton of liquidity sloshing around and heavy short interest in the market. Volatility anyone.

[LA_Renter]

“LA_Renter: Properties available to RENT are hard to find – there is indeed a shortage in LA – especially low priced units. (due to estimated 1M illegals in LA?)”

I agree on that point, I was pointing out that there is no shortage of bubble priced homes. As a whole sales volumes are way down and inventory is rising. There are still some hot zip codes but they are getting fewer by the day.

[LA_Renter]

“Here in LA (Burbank) sales are a little soft but median price increases EVERY month. I’m amazed what people pay for crap here. Unlike SD, there is a severe housing and rental unit shortage in LA.”

I don’t necessarily agree with that. Watch this excerpt from Chris Thornberg about the housing shortage in California and LA. He touches on this in the last two minutes of this segment. He basically points out that there is a shortage of apartments and multi family housing but that really has nothing to do with housing. I live in the the South Bay and there is no shortage of homes to buy right now. Tons of Open House signs every weekend.

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