Posts Tagged ‘Real Estate’

Welcome to the top of the ride … all downhill from here.

There is an adage in the market that says,

“Sell in May and walk away.”

Well, there are many leading indicators that are now pointing DOWN, way down.

From the Treasury Market Inflation Forecast to the Economic Cycle Research Institute’s (ECRI) Long Leading Index of global industrial growth, these indicators are showing that the “W” of recovery is more likely.

Given that the US housing market has not rebounded as was once hoped, that the QE and QEII have only resulted in a short term bull rally in the stock market and a temporary easing of short term bond rates and not the much touted employment that the bankers and others from Wall Street and DC were promising was ‘on the way’.  Indeed employment numbers are stalled, much like the sense one has in a roller coaster car just as you reach the top of the first ‘hill’ after being released from the lift chains.  We have had a drop and a ‘scare’ now the real ride begins.

Richard Russell, 86-year old author of the Dow Theory Letters commented as follows on the deteriorating market breadth: “This is a bearish picture. The ‘soldiers’ are deserting even while the ‘generals’ continue to march forward. In a war, this would be a prelude to disaster. In the stock market, it may be the same.”

I agree with that sentiment and add in argument that the broader market place is going to go into a panic situation, this summer will be pleasant enough, like the roller coaster car moving gently along the top of the rail in a near flat grade.  By this autumn?  Well Kondratieff Winter will blow in for real with a storm to remember …

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Canadian RE Marketplace … distortions

The Vancouver market is being used as a ‘boost’ to the provincial and national house sales numbers.

This sort of reporting is what brings about the market distortions and perpetuates the myth that ‘all is well’ in Canadian Real Estate.

Canadian banks want the retail residential mortgage consumer to continue to operate with confidence, while the truth of the matter is that home prices in major markets are moving beyond any sort of affordability and the re-sale values of properties almost everywhere else, especially in markets where employment challenges are evident (and growing) are suffering equity destruction.

Organizations like Real Estate Boards are getting desperate to paint a rosy picture over the more accurate decay that is settling in on many markets.

Watch for a significant correction in the working class neighborhoods while the white collar and advantaged locations will be used to ‘paper over’ the increasing losses.  Any reports that use the words ‘average’ or make year to year comparisons are worthless.

Read what the Financial Post is supporting from the CREA:

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Commercial Real Estate next dominoe to fall …

Charlie Rose talks with Elizabeth Warren, looking at the regulatory reform in the wake of the TARP decisions.

During the interview she very correctly points out that nearly 3000 of the 8000 regional and smaller banks in the US are about to be having to handle under-water commercial real-estate.

Charlie Rose Interviews Elizabeth Warren

My view of this situation, at a minimum will mean a total cut-off of the lending tap. Anecdotal evidence of this has already come to my attention where successful developers, with stable clients are being told to seek their mezzanine financing elsewhere.

Do not expect leverage to be a tool that can be used to acquire real-estate any time in the near future.

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Double-Dip? Shiller says “Yes”

Robert Shiller originator of the case-shiller report, during an interview last year made the clear warning statement that the was real potential in the market for a further drop in housing prices and therefore a real potential for a ‘double-dip’ recession.

My own view is that a double-dip is coming and that the second ‘dip’ will feel more like a depression than a recession.

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Short Sale Merry-go-round

It has often been said that once a process, story or other investment activity becomes headline news then the activity is dead.

Is this the case with the short sale?

One starts to wonder what is in the mind of the Whitehouse with a process like this:

The concept on the surface ‘seems fair’, my challenge is with the investors and the future of the mortgage marketplace. With a precedent set like this it will not be in anyone’s interest to ever bother with a loan secured by residential real estate. The power of foreclosure will be lost and thus the ‘security’ factor removed increasing the risk.

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Fed Warns of Rate Hikes

The picture that was painted in the 1930’s returns.

With the rate hike(s) that are being put forward by the US Fed and FDIC showing that they are out of money the prospects of a quick recovery or even a silo recovery are rapidly slipping away.

As Bloomberg reports :

and Karl Denninger supports from his article:

There are clear signs that this will have an impact on the financial sector and following that everybody else.

Consider the impact on your industry or sector of the economy of an increase in the cost of borrowing money … that is if you could even find a bank willing to lend since the financial institutions could make more money buying T-Bills on the 0% rate FED money they got and earn loads of profits virtually risk free for these past many months.

For small business this will mean a continuation of a tightening of credit = secure your terms NOW.

For Real Estate, the commercial sector will start to really feel the pinch, any survivors from the S&L mess of the 1980’s can already hear the rhyming notes in this new song. Expect a lot of commercial real estate to start going on FIRE SALE soon, with the potential for great deals coming ~ watch for the critical factor = your own leverage position and keep the yield high with CAP rates in the double digits only. Many owners of Commercial properties financed in the heydays of the mid ‘naughts’ and have property that they cannot refinance already ~ with the next round of tightening coming they will likely look to dump non-performing assets first.

Likewise with Equities, the weak performers will be dumped first. When examining the equities better time can be used in the “discovery” space ~ especially Bio Med, Bio Tech, Commodities (such as copper and uranium) and the many start-ups that will come from the wreckage of so many of the ‘dinosaurs’ which face extinction due to their inability to restructure so much debt that is moving in the world system right now.

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