It appears to this perplexed investor that that there is a tremendous amount of unsatisfying commentary regarding the state of the housing market and the strength of the consumer. When in doubt, it is useful to be one’s own personal Sherlock Holmes. I’ll offer up my own amateur observations.
On interest rates: My home equity LOC began with an interest rate of 5.5% in June 2005. Now it is October 2006, and the rate has increased 45.5% to 8%. I thumb my nose at this increase because I’ve not a nickel borrowed against it. But if I had, then I’d be paying 45.5% more each month on top of any principal I was repaying. On a $100K balance, that’s an extra $200 per month, just in interest.
Outside of the conversation regarding about the effect of housing on the economy, this discussion has mostly been narrowed to primary mortgages. What I’ve not seen is any discussion about the number of folks who have second mortgages subject to this steady march of increasing rates. A house is still in the event of a default on ANY obligation for which the house is proffered as security. Keep a look out for any of these statistics and please share them if you see them.
You know that you are getting old when you read the obituaries and the foreclosures. I’ll accumulate foreclosure statistics from my weekly paper (the Richmond Times Dispatch) as an informal barometer of what is going on in at least one locality. I will say, though it is anecdotal, is that the % of notes >$90K is much greater in the last three months than it has ever been. Specifically, maybe 10% of the note balances were in this strata—now it is 40-65%, depending on when you look. I don’t know that I will have the time to strip out the duplicate running of notices, but I’ll at least provide a compilation of this breakdown.
From an investment perspective, I had this thesis that the Fed was not done as there was still real inflation in the system. I also felt like consumer and mortgage exposure in the larger banks was not being discounted. I had puts on BAC and WFC. Let’s just say that my opinion was not held by the larger investing public. I’m still awaiting their capitulation to my way of thinking! It’s often difficult for me to determine when I’m lacking in conviction vs. when I’m just plain wrong.
On the consumer: Let’s just say that the consumer may remain strong against all the perils that they face (high oil, slowing economy), but in the end, the consumer remains stupid. (I’m not trying to sound harsh). Consumers are spending their way into poverty. I recently heard that 52% of the population will be over 55 by 2012. Couple that statistic with not enough of us saving for retirement we have a brewing pot of economic mischief in the offing. I suppose that deferred pain is the mantra of the US consumer, and I'd be a liar if I didn't fall into that category at one time or another in my lifetime. Currently, we are in the parsimonious category--but we do eat well! I'm also adding a wine bar to my blog to show showcase a few discoveries that I enjoy and feel worth sharing.
If we can conclude anything about the consumer from this week’s retail numbers, the Wal-Mart strata of our populace is hurting and the middle to upper strata is doing okay judging by Target’s and JCPenney’s numbers (in addition to a host of other better-than-expected numbers). Nevertheless, the investment glee over retail stocks escapes me.
1 comment:
I can't figure out housing either, except to say two things that I absolutely know for a fact: I just heard on the radio that a major RE firm is letting go of many of its brokers. Not a surprise. A friend who became a broker in the past 18 months told me yesterday that she's been unable to sell anything lately AND that in conversations with the top producers in her company, several have seven to ten properties listed for sale...and no buyers. So that's # 2 thing that I know for a fact: that brokers have "inventory" (as they call it) but that's all.
They need buyers.
I live in the Northeast (NYC and environs). Our papers are already beginning to report softening demand for apartments in Manhattan. Also, advertising for real estate is up. When the RE market is moving upward, steadily moving upward, advertising is less important. When it slows, people start advertisng more in a (desperate?) effort to sell.
If there is a downturn in the economy -- and I think we'll know soon enough if there will be -- I expect we'll see some serious real estate price declines. One group that won't help to support RE prices -- and they have in the past -- are speculators. They'll get a banging and also get flushed out.
Last person out will turn off the lights.
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