A Bottom in Housing? You’ve Got to Be Kidding!

The bottom two charts of the CPI – Rent (312.pdf) shows an interesting (to me) parallel in the top at ’78. From the extreme spike it took 4.5 years to see a bottom. From the extreme spike in ’05 that would equate to a bottom midyear 2009.

Regarding a bottom in housing, consider the following three facts together: (1) Five years ago, Jim Rodgers said in an interview, “Fannie Mae will be a $5 stock before this is through.” (2) Jim Cramer was **BUYING** Fannie Mae for his own portfolio in 2H 2007 and did a video in July 2007 entitled, “Mortgage Pain Is Fannie Mae’s Gain.”, (3) On April 1, 2008 (Fools Day), Cramer wrote, “Was there anyone out there who more loudly announced this credit crisis before it happened than I did?”

If enough people get enough money to want to buy houses, then housing has bottomed, and this person simply wants to alert people to get in for a great bargain. He’s a true American.

Of course, getting enough money/financing and wanting to buy housing is a completely different matter entirely. And from what I know this guy is trying to make money by selling his opinions…nothing un-American about that!

VennData, the person who does it will be accused of unhealthy obsession. “Get over it, man. Who cares? Get a life. etc. etc.” But you are correct. These people command great attention and respect among ignorant individual investors. People with access to low wage interns and grad students, etc. should put them to work on it. What I can’t understand is why some industrious young writer for some newspaper doesn’t do it. The reason I’m sure is that they just don’t follow it closely enough to understand. And those with the understanding don’t want to be wished into the corn field.

Eric,

with this: “What I can’t understand is why some industrious young writer for some newspaper doesn’t do it. The reason I’m sure is that they just don’t follow it closely enough to understand.”

be careful of the ‘Woodward y Bernstein’-myth and note that the ‘Media’ is there to get Paid–by their adv.ers.–of which, after Pharma, FIRE is a huge one.

I see an article in the WSJ today that posits that rescuing Fannie and Freddie could bring mortgage rates down from their 6.25% level (the same as a year ago). I think that they have this backwards. They need to keep mortgage rates the same or under 7% and bring up the prime so that everyone can earn more on savings via bonds and cd’s. If you need 20% down (standard for my entire 40 yrs as a homeowner), one needs to save money. Why bother with high inflation and low rates. The additional benefit of raising prime would be the increased value of the dollar and the resulting downward pressure on commodities. You can’t cater to those with no money and expect the economy to recover.

Barry,
Just an observation about the chart on Median Disposable Income:
The HELOCs were distoring this figure from 2002 to the present. There was, in reality, no incresse in disposable income. So, yeah, we are deep doodoo. Deeper even than these charts show.
The stuff below is somewhat off topic but I’m including it because it succinctly covers cause and effect for our present financial problems:
It’s one thing that U.S. foreign policy wonks imagined that Russia would remain in a coma forever, but the idea that we could encircle Russia strategically with defensible bases in landlocked mountainous countries halfway around the world…? You have to ask what were they smoking over at the Pentagon and the CIA and the NSC?

So, this asinine policy has now come to grief. Not only does Russia stand to gain control over the Baku-to-Ceyhan pipeline, but we now have every indication that they will bring the states on its southern flank back into an active sphere of influence, and there is really not a damn thing that the U.S. can pretend to do about it.

We could have spent the past ten years getting our own house in order – waking up to the obsolescence of our suburban life-style, scaling back on the Happy Motoring, reconnecting our cities with world-class passenger rail, creating wealth by producing things of value (instead of resorting to financial racketeering), protecting our borders, and taking the necessary measures to defend and update our own industries. Instead, we pissed our time and resources away. Nations do make tragic errors of the collective will. The cluelessness of George Bush is nothing less than a perfect metaphor for the failure of a whole generation. The Boomers will be identified as the generation that wrecked America.

So, as the vacation season winds down, this country greets a new reality. We miscalculated in Western and Central Asia. Russia still “owns” that part of the world. Are we going to extend our current land wars there into the even more distant and landlocked Stan-nations? At some point, as we face financial and military exhaustion, we have to ask ourselves if we can even successfully evacuate our personnel from the far-flung bases in Uzbekistan and Kyrgyzstan.

This must be an equally sobering moment for Europe, and an additional reason for the recent plunge in the relative value of the Euro, for Europe is now at the mercy of Russia in terms of staying warm in the winter, running their kitchen stoves, and keeping the lights on. Russia also exerts substantial financial leverage over the U.S. in all the dollars and securitized U.S. debt paper it holds. In effect, Russia can shake the U.S. banking system at will now by threatening to dump its dollar holdings.

The American banking system may not need a shove from Russia to fall on its face. It’s effectively dead now, just lurching around zombie-like from one loan “window” to the next pretending to “borrow” capital – while handing over shreds of its moldy clothing as “collateral” to the Federal Reserve. The entire US, beyond the banks, is becoming a land of the walking dead. Business is dying, home-ownership has become a death dance, whole regions are turning into wastelands of “for sale” signs, empty parking lots, vacant buildings, and dashed hopes. And all this beats a path directly to a failure of collective national imagination. We really don’t know what’s going on.

The fantasy that we can sustain our influence nine thousand miles away, when we can’t even get our act together in Ohio is just a dark joke. One might state categorically that it would be a salubrious thing for America to knock off all its vaunted “dreaming” and just wake up.

Until next time,

James Howard Kunstler
for The Daily Reckoning

Check this out what the FDIC is doing with IndyMac mortgages.

http://www.fdic.gov/consumers/loans/modification/indymac.html

Compliments from Norway!

Very assertive and well articulated speech!

“The additional benefit of raising prime would be the increased value of the dollar and the resulting downward pressure on commodities. You can’t cater to those with no money and expect the economy to recover.”

This is obviously the right thing to do as the only way to combat double digit inflation is with double digit interest rates. But who in Washington has the sack to pull the trigger on a “Volker”? To raise prime enough to stop the Dollar’s slide and return it to parity with pre-bubble currency valuations would collapse the housing bubble overnight; as for the majority of Americans, it is the monthly cost of a new home that determines the price they can afford to pay, and a house is only worth what you can sell it for.

An action like this would be the bullet that would put the terminally ill, under regulated U.S. Financial sector out of our collective misery. And, it seems to be that Washington is determined to remove this band-aid in the most painful way possible, in a doomed effort to resuscitate the failed financials. Plus, the Fed is now on the hook for Fannie and Freddie. I think I will stay long on commodities and short on the Dollar, until election day at least.

“George Bush is nothing less than a perfect metaphor for the failure of a whole generation. The Boomers will be identified as the generation that wrecked America.”

It is stunning how fast the “greatest generation” is followed by what history may find to be the worst. It looks like Generation “X” and Generation “Why?” was preceded by Generation “Me,” and it does not appear like they are leaving the U.S. in better shape than they found it.

BTW, big ups on Yahoo for having a Mac-compatible video player…

If they won’t raise wages or let mortgage values fall or quit adding new inventory then this quagmire will continue for some time. Opening the spigots to more easy money is neither an option or a solution. Been there, done that.

One of the unique phenomenons of this downturn that is becoming more pervasive is the decline in peoples’ enthusiasm for homeownership.

One of the value propositions for buying a house has been the expectation of steady appreciation. (not with everyone, but it does exist in varying degrees in many home buyers.)

With prices falling and not likely to appreciate anytime soon, a lot of people will be asking themselves why they are paying such a high premium for ownership over the cost of renting a comparable property? Up until the bust, a premium for ownership could be justified cause you were getting a healthy amount for appreciation.

More and more people will be asking themselves, with no appreciation and even depreciation, why are we paying such an exorbitant amount for an asset that is declining in value? And when some answer that question, they will walk away from their mortgages and give the keys back adding another wave of foreclosures to the inventory.

There are a couple of home valuation tools that identify the top or Ceiling for prices in a particular area and the bottom or Floor home values for the same property.
Check out ceiling and floor fundamentals at http://www.UsHousingMeltdown.org/home-value.asp

The ideas is you want to sell when you’re at the Ceiling and buy when at the Floor. The top or ceiling is the high limit of prices based on exceeding income to home price levels. The Floor is when the home value reaches the level where it could generate rental income returns acceptable to an investor. It makes sense