Geldpress

The latest Case Shiller housing index values through October 2008 are now available here.   The graph below shows a sample of the data from select cities within the index.  The downward trend does not show any signs of reversing.

A few notes on the included cities above:

• Phoenix - Latest reading of 135.18, last crossed on the way the way up in July 2004
• San Francisco - Latest reading of 139.44, last crossed on the way up in June 2002.
• Denver - Latest reading of 129.05, last crossed on the way up in May 2004.
• Miami - Latest reading of 173.42, last crossed on the way up in May 2004.
• Atlanta - Latest reading of 119.77, last crossed on the way up in April 2004.
• Chicago - Latest reading of 145.49, last crossed on the way up in September 2004.
• Las Vegas - Latest reading of 142.57, last crossed on the way up in December 2003.
• Portland - Latest reading of 166.44, last crossed on the way up in .February 2006.
• Seattle - Latest reading of 170.45, last crossed on the way up in March 2006.

Ever wonder why the spokespeople for the National Association of Realtors behave like cheerleaders?  CNNMoney just published an interview with David Lereah, who was the former chief economist for the NAR.  In the interview, David essentially admits that he ignored reality and just conformed to the eternal optimist view just to sell overpriced real estate to unsuspecting clients.

I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts.

David now works as a private consultant and his interests now lie (pun intended!)  in telling the truth.  And as for his views on the future of real estate, here is what he said:

My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more.

Consumers beware!  Do not blindly trust numbers and forecasts from anyone or any organization who has a vested interest in their predictions!

Jim Cramer from CNBC is another example of an eternal optimist serving the interests of his employer.  CNBC is owned by General Electric (GE), and the board of GE will not tolerate anything less than a BUY, BUY, BUY cheerleader on the nightly Mad Money show.  MAS summed up Cramer’s continual and repeated market bottom calls here.

So who can you trust? - In the words of Johann Wolfgang von Goethe (1749-1832), “As soon as you trust yourself, you will know how to live.”  The entire financial system has put on display its widescale incompetence and corruption.  It’s time to take your financial matters back into your own hands.   Read some unbiased books and take some financial classes if you need to.  But for the love of <insert favorite diety here>, stop listening to Jim Cramer and the National Association of Realtors!

By some accounts, the Seattle housing market has held up very well during the last few years.  Talk to any real estate agent or loan officer in Seattle, and they still seem completely oblivious to the reality of the collapsing bubble.  But measuring objectively with actual data points tells a different story.  The Case Shiller housing value index is one widely available objective method.  The index values are measured off of the base of January 2000 prices, where all cities are given a value of 100.

According to the index, Seattle housing peaked in July 2007, with a value of 192.30.  This means that housing prices were 92% more expensive in July 2007 than they were in January 2000.  The latest available index reading is from September 2008, with Seattle showing a value of 172.84.  This corresponds to a greater than 10% housing price depreciation in Seattle in just over a year.  April 2006 showed a Case Shiller index reading of 172.28, the closest point to the September 2008 data point.  This means that that nearly everyone that purchased a Seattle home after April 2006 is now underwater.

In California, we saw that many underwater home “owners” opted to just walk away.  And by one account in Seattle, that walk away trend has already started.  The Geldpress team recently interviewed one highly paid Microsoft employee who just made his last and final mortgage payment in November.   “Mr Microsoft” (identity protected) purchased a condominium near his Microsoft employer in December 2007 for just under $350,000.

He was a first time home “buyer”, and like many first time “buyers” he didn’t put a single penny down.  His particular mortgage was a 30 year fixed with an interest rate of 6.125%.  His initial total payments, including mortgage and property taxes were $2,600.  This was a condominium, so he also paid almost $300 in association fees, bringing his total monthly outlay to about $2,900.   But several months after the purchase, he witnessed two payment hikes.  The first hike was in his monthly association fees, which were jacked up by nearly $100, as is very common with new condominium conversions.  The second hike was from the lien holding bank, who insisted he spend an additional $400 per month in mandatory flood insurance.  This brought his total monthly outlay to nearly $3,400.  For comparison, “Mr Microsoft” estimates that he can rent an equivalent size and quality apartment for only $1,500.  He now regrets his “purchase” decision, but he does not regret abandoning his mortgage payments.  He expects to live rent free for at least 6 months before eviction, and possibly up to a year.

Although Seattle housing values have held up reasonably well so far in comparison to other major cities, the recent and upcoming job losses may accelerate the down trend.  According to the data reported by the Seattle PI, Washington Mutual is shedding 3,400 jobs in the Seattle area.  The PI also reports numerous other double and triple digit layoffs in 2008, with an increasing trend inherent in the figures.  And if the rumors are correct from the Mini-Microsoft blog, thousands of high paying Microsoft job losses will be announced in January, equating to roughly 10% of its workforce.   That’s hardly the ideal condition to buck the trend of crashing home prices in the Seattle area.  Seattle may soon take over California cities for monopolizing the mortgage walk away headline news.

If you thought Greenspan was a maniac for temporarily dropping interest rates to 1% in the years after 9/11, just wait until you seen what Uncle Ben Bernanke has in store.  Since taking on his positioin, Bernanke has so far ratcheted the federal fund rate down to Greenspan’s low of 1%.  But the two day fed meeting that started today is expected to commence tomorrow with an announcement that interest rates are going lower, and quite possibly to zero percent!

The United States bubble based economy is in trouble.  Instead of focusing on innovating and exporting our way to a stronger economy, we instead choose to borrow more, cut taxes, inflate, and spend.  Our government insists on short sighted solutions to keep asset prices artificially high.

In 1981, the federal fund interest rates topped out at over 19% and mortgage borrowing costs were expensive.  Borrowers were responsible, 20% was the customary home down payment, and the economy was humming along.  But with the first sign of economic trouble, the targeted strategy was to inflate asset prices at any cost, and the preferred solution was lowering interest rates.  Since that time, every new sign of trouble brings lower and lower interest rates, and those rates are now widely expected to hit zero percent in 2009, if not sooner.

Stimulating after zero percent? - Japan had deflating asset problems in the 1990’s Rather than allow the market to naturally self correct, they chose instead to aggressively lower interest rates.  When they approached and  hit zero perecent, they extended mortgage terms to 100 years to dupe consumers. 100 year mortgages were introduced in Japan starting in 1995 obsessed only with monthly payments and no comprehension of true value.  If desperate homebuilders, mortgage lenders, and real estate agents have their way, they will be introduced in the United States starting in 2009.

The sellsius real estate blog called for 100 year mortages recently.  Sellsius attempted to justify 100 year mortgages with seven ridiculous and unfounded benefit claims to the 100 year mortgage.  Unfortunately, every indication is that the United States will follow on with every policy mistake Japan has already made, including the 100 year mortgage.  Consumers will initially resist 100 year mortgages, but later embrace them.  Stupid Creative financing wins over most unsophisticated borrowers in the end as they consider only the monthly payments with no regard for longer term considerations.   But a few savvy consumers will make better choices.  And in most parts of the country, the wiser choice is still building equity through renting.  The equity comes from investing and compounding all the additional disposable income you keep from not buying inflated assets!

Other interesting reads:

• Reading the comics - aka Real Estate section
• FDIC won’t say if your bank is safe - find out yourself
• Inflation Nation and the Fed tightrope
• Mortgage insurance won’t help banks who ignored it

It’s pretty clear now that the entire housing market run up over the last 10 years was fake, and mostly based on wide spread fraud.  Anyone still in denial needs to read the latest businessweek article entitled Sex, Lies, and Subprime Mortages.

The women allegedly offering sexual favors were bank employees. Evan Stone, president of Walnut Creek (Calif.) mortgage brokerage Pacific Union Financial, says “minimally trained and minimally dressed” wholesalers often wooed brokers. He says he regularly got visits in his suburban office from representatives wearing unusually short skirts to entice him and his team of brokers to party at the local Ruth’s Chris Steak House. Stone says one New Century wholesaler offered to fly him to Chicago to “have a good time.” He says he declined all offers of sexual favors. “There were some indecent proposals made,” he says. “That was part of building the relationship.”

Redmond Townhomes are on sale, but according to the marketing e-mail, you better act quick because the sale will end in 72 hours.  Incidentally, this limited timeframe sale has come through my e-mail several times over the last few months.

Here is a Remax link of one of the townhomes with a list price of $359,900.  When I first looked at this property earlier this year, the townhomes were starting from the mid $400k range.  They assured me the prices would go up and that I needed to Act Quickly!.  Well, several months have passed and the prices are going nowhere but down.  And as for the 72 hour limited sale, I’m sure there will be another one next weekend, and the next, and the next, and the next…

These home auctions are very common all across Las Vegas, California, Florida and Phoenix.  But the last real estate holdout market of Seattle has not seen these panic auction sales - until now that is.  There is wide scale evidence that the Seattle market is tapering off - increasing inventory, lower sales numbers, and falling prices.  But interestingly enough, most Seattle homeowners are still in denial about the risks of vanishing equity.  Until recently, those 50% off auction sales were limited to those other bubble areas, and surely, Seattle would not take part in the madness.   Well Seattle, the game is over.  Say good-bye to your equity.  The auctions have landed.

By all rights, Steve Wynn, CEO of Wynn Resorts, should be very stressed these days.  The Wynn Resorts company, per their Yahoo Finance profile, engages in the development, ownership, and operation of destination casino resorts.  The company owns and operates Wynn Las Vegas and Wynn Macau.  Wynn Las Vegas reported a loss for the most recent quarter ending September 30, 2008 of $16.1 million.  Las Vegas traffic is down substantially and all the Las Vegas casino operators are suffering dearly, at least according to their stock charts.

Steve Wynn just appeared on a Bloomberg television interview earlier today, and he appeared very calm.  He recognizes the difficult environment in today’s economy, but he had already anticipated it, planned for it, and is now ready to navigate through it.

In a similar interview from the Straitstime, here is what he had to say:

In any economy, growth has to be done in phases.  If someone tries to build six hotels at once and finds the market can’t accommodate it, there’s a problem with the planning.

The interview laregely relates to his Wynn Macau property, where the Las Vegas Sands corporation is also involved.  Both companies are struggling with existing and anticipated continuing revenues.  A Las Vegas Sands senior executive chose to blame the government of Macua for their troubles, stating that “government decisions may have hurt the development of Macau casinos”.  Steve Wynn on the other hand views himself as a servant to his dedicated employees, and has already planned for such challenges. He recognizes that the rapid Macau expansion will take time to succeed.

The community has to be given a chance to absorb such expansion in an orderly fashion.  I found the government’s policies are evenhanded.

So there we have two casino operators in the same industry and the same markets.  Las Vegas Sands focuses their priorities on blaming others, while Wynn Resorts takes responsibility and looks forward.  If only the CEO’s of the other gambling industries - housing, banking, insurance, and auto - could take note of Steve Wynn’s attitude on economic cycles.  Perhaps they should have planned better for the expected downturn and foregone the need to beg for tax breaks, bailouts, and special subsides!

The latest gambling CEO bailout begging? - The chairman of Hovnanian is begging for direct government to consumer housing loans of 3%, as well as additional tax credits for buyers.

If you have any friends from Europe, chances are they may tease you about how America caused the 2008 financial crisis the world is now facing, and how America’s contagion is spreading through Europe.  It’s true that America bares a large part of the blame for its own financial woes, largely caused by irresponsible mortgage lending to sub-prime borrowers, and reprehensible INACTION by rating agencies and government officials.  But the brewing financial storm showing its head in Europe is about to get a lot worse.  Watch in the coming months as it sweeps through the continent with a vengeance that will make America’s own crisis seem insignificant.  Browse through some of coverage on the European crisis below:

• From a recent Bloomberg article, - “European banks’ lending to emerging markets is about 21 percent of Europe’s GDP and U.K. banks’ loans are around 24 percent of national output, compared with 4 percent for the U.S. and 5 percent for Japan”
• From a recent Christian Science Monitor article - Not my favorite publication, but they do sum up the problem quite well.  Emerging market interest rates are high, so emerging market citizens (Iceland being the most famous) take on mortgage and and other loans in euros, pounds, or Swiss francs.  Once emerging market currencies collapse, emerging market mortgage holders face little chances of repaying the loans denominated in euros. From the article, “Eastern European countries currently hold about $1.6 trillion in foreign currency debt, according to Morgan Stanley, and it’s overwhelmingly owed to Western Europe, whose large banks own 60 to 80 percent of Eastern Europe’s banking sector”.
• From a recent UK Telegraph article - Austria’s exposure to emerging markets is a staggering 85 percent of that country’s GDP.  What chance does Austria have in collecting those loans when the recipients of those loans are now all in line for IMF bailouts?  From the article, “Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc”




If you are currently holding european stocks or any accounts denominated in euros, don’t hold your breath waiting for the recovery…

Here is a hilarious parody of Der Untergang (The Downfall), a classic movie that depicts the Nazi dictator’s final days in his Berlin bunker at the end of WWII.  The audio is legitimate, but the subtitles have been overwritten with parodied accounts of foreclosure, financial crisis.  Hilarious!