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The Blog Connection for California: Real Estate and Economy
Month of May, 2008 Sothern California Real Estate Sentiment: Stay far away from housing, community local bank Q1 earnings are tanking amid record foreclosures. Asset class commercial properties should weather the storm with owner rate flexibility, low LTV buffers, and credit tenants.
Question: "Should I 'invest' in a house now? The market seems to be bottoming out."
Answer: "Hold. Do not buy yet". To buy a house in today's market is very risky. Your down payment could disappear as the market continues its downtrend, and you would be non liquid. If you take out a loan, your 'loan to value (LTV)' on the property could tick to 100% as the down payment equity deteriorates: which means you would have difficulties getting out at cost. We need evidence of recovery before buying here in California.
If some California regional banks go bankrupt this year, then expect even more inventory saturation. The threat is there. Wait until these local community banks prove they are recovering in quarterly results. So far, their Q1 earnings have been dismal; much weaker than expected. We also need to see a sustained reduction (not just stabilization) of foreclosures over an extended period of time.
Fact is, bank risks run beyond sub prime - now to conservative fixed rate 20% down loans made within the past 3-4 years. What was 80% loan to value in '05 is now negative equity. This means more foreclosures, and more downside price risk. The vicious circle is: Tighter lending -> less qualified buyers-> less speculation-> lower prices -> more foreclosures -> tighter lending. Click here for quick California bank earnings and foreclosure rate updates ---> Analysis of California Bank Earnings & Foreclosures Update
Commercial Property: Asset class commercial properties 80%-100% leased should be ok, with typical conservative financing and credit tenants. I don't expect the sub-prime crisis to spread significantly into commercial, because lending conditions for commercial are typically more stringent and based on income fundamentals, not blue sky appraisals. Loan to values are much lower than on residential homes, even though the risks are lower with commercial. There will be vacancy exposure by properties dependent on financial related tenants; but due to low ltv buffers, the foreclosure threats are reduced. Land investments are a long term hold of 5 to 10 years. Be sure to understand zoning, growth patterns, environmental issues, and political trends before investing in land.
Updated 5.12.08 Most Recent: The Schizophrenic FED Gambit The FED quagmire. Ongoing: Next for the Economy: The Greatest Bull Run in History? An analysis of the stock market and economy since the Bear Stearns incident in March '08. No Recession, but Deflation? The March '08 UCLA economic report so far is 'right on target'. Articles
For info on the author of this blog: the party animal turned economist!
Wall Street Analysis
Thought of the Month: "Have to say it's a shame our government cannot save its own economy by intervening on the oil speculation. Seems like the current administration either sanctions these high oil prices, or they are behind 'em."
Updated 5.13.08 Oil is crashing our rally party this week. It just hit a new high at over 126 a barrel. The dollar has continued to gain strength, and commodities are down. This can only mean continued speculation: Probably not just greedy wall street hedge funds, but the middle east, China, and our own government. Our government needs to short oil aggressively, for the benefit of our economy. The Senate did decide to stop stockpiling our own US oil reserves to help bring down prices on 5.13.08. However, much more needs to be done; We cannot allow oil speculation to ruin the fragile American economic recovery!
Updated 5.11.08 We are seeing those counter intuitive market forces again: Oil prices rising, while the dollar gains strength. Economists have historically considered the two to have a negative correlation; not apparent here. Commodities did not necessarily rally, yet we saw deflation in the stock markets and continued housing weakness (See Articles: The Counter Intuitive Market). We are apparently returning to the feb-march bearishness that marked the most recent run up to just above 13,000. If we see new bottoms, or approach the 12,300 level on the DOW, the question will be "where is the next double bottom?" The financials need only a small hint of good news to get a hard rally. Intl companies may only have small weakness for the close of the year: even retail had some gains. Have to assume the primary driver behind the record oil prices is pure speculation, in the face of the stronger dollar. The biggest swings that could occur for the week 5.12.08 will be a sudden fast drop in oil prices (not expecting a huge run up) and a run up in financials (not expecting a huge downturn). Tech should hold but we haven't seen the rally as expected: I always assumed tech was the safety play; but it looks like oil and cash is what the trend is now.
This weeks predictions: I am predicting the DOW will not go below the 12,500 this week; and the high will be that 13,050 base; -250/+250. Expect continued drops on Monday: with possible cracks forming in financials and bottom indicators. With continued oil record highs I am liking (with selective entries) online grocery sites etc like EBAY, AMZN, and SVU. entries mid /late week. Still bullish on tech: selective retail like WMT and online sales growth for apparel. If DOW break significantly lower than the 12,500 base and closes below 12,500: we may be right back where we started: 12,300. I will reenter at 12,300, at levels below 12,000; firm until we know where this market is going. See more wall street analysis: Next for the Economy: The Greatest Bull Run in History?
For info on the author of this blog: the party animal turned economist!
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Riverside County - Los Angeles County - San Bernardino County - Northern California locations
Welcome to the California cities real estate blog center. Our interest is in analyzing local and national economic trends, and determining how these trends will effect the great state of California. Our current focus is on the wave of foreclosures and price pressures on housing. There are many theories on where the market is heading. We seek the realities of our local markets; not based on media or bias, but real life trends. You can also find detailed stats and demographics for each city. Scroll down for some original articles on the general economy. Add your blog
San Diego Residential and Commercial Real Estate Blog Connection Please select an area of the map to find a list of blogs for that area: Click Here For Coachella Valley, Riverside County
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Articles, Opinions, and Topics of Interest
. Q2- '08: The Schizophrenic FED Gambit "The squeeze is on the FED because they cannot immediately raise rates
without dampening any recovery that hasn't occurred yet.. ." Click Here to read. Q1- '08: Next for the Economy: The Greatest Bull Run in History? "As the credit crisis weighs in on our very faith in the system: we are forced to stay in it. It may be the ultimate survival mechanism of the financial system; the simple fact that there are no viable alternatives." Click Here to read . Q1- '08: No Recession, but Deflation? "UCLA Anderson continues to report "no recession" (3.11.08): This gives the bears a moment of pause: They (UCLA) are historically reliable and not biased by the media. " Click Here to read . Q1- '08: True Market Analysis, or Self Interest? "When conducting your own analysis of the markets, you really must 'read between the lines' and try to see the motivations behind the article or person." Click Here to read . Q1- '08:- The Counter Intuitive Market Force: But Housing is the Exception "Most markets, are counter intuitive: They always seem to run opposite the general sentiment. However, housing is the exception to that: Why? Because housing is really a liability.." Click Here to read . Q1- '08:- The 5% Income Rule "Residential housing as an investment is difficult to justify in a 'negative equity expectation market'...I suspect the term 'investment' was introduced by those "in the business" of real estate, to add another tier of consideration for residential buyers. Click Here to read . Q1- '08:- A Compelling Argument for Alternative Investments "...Look around and you'll see many investment houses try to manufacture a sense of impending anxiety .. they are also angling for commissions on stock sales...So that leaves 'alternative investments': Alternatives to what is considered a normal course of investment. This is an area of great interest to many people, as we've been led to believe real estate and the stock market are the only places to invest money" Click here to read . Q1- '08: - The Perfect Storm of Economic Downfall "...Politically, we are on the verge of chaos... Click here to read
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