Monday, January 26, 2009
Update To The Cockleburrs
In the cockleburr post I noted:
Bad as the economic news is, all this number crunching I am doing shows stabilization ensuing from the P-Nat shift showing widening margins that I mentioned a while ago. The first blobs of evidence are in US FUT, German confidence surveys and retail.To those first blobs of evidence we will add Existing Home sales (and inventory) (see CR posts here and here), plus leading indicators. I am not a huge fan of leading indicators (I think the index is too recursive), and I believe it is more of a coincident than a leading indicator. Nonetheless, it did increase. I expect some more drops in that baby!
On the existing home sales, the price drop shows that reality is returning to the marketplace, and mortgage rates are really very low for qualified buyers. Therefore I do expect a generally improving trend with some ups and downs. Markets that have held out well so far will probably decline considerably this year, but some markets are close to bottoming or have bottomed. A bottom occurs when you can buy it and rent it for an amount that will pay the mortgage, costs, and a reasonable set-aside for repairs and maintenance. Not before then.
New Homes also show a heading-to-bottom pattern. permits have finally fallen to a realistic level. Permits were at 363,000, starts were at 550,000, and completions were at 1,015,000. Thus there is more of a drop off in building activity to come (liberating more workers), but we are beginning to get to the inventory workoff point.
In November, median months for sale for new homes was still rising to 9.3 from October's 9.1. Months of supply was at 13.2. Nothing but a huge slowdown in completions could reverse this trend, and we aren't quite there yet.
Note: when foreclosed houses are sold to investors (and in some markets, that is most of the current activity) there tends to be an upsurge in pickup construction/rehab work.
There is an intangible for which I can't put forth numbers, but small, conservative banks are generally picking up some decent loan business (see Bloomberg article), and in general, the more conservative financial ops are picking up speed and seeing some opportunities even as the headlines detail one depressing loss after another.