Houses bounce too...
Not much happened yesterday. The Dow fell 47 points. The newspapers attributed the reversal to surprisingly low consumer confidence numbers. Apparently, consumers aren't so sure this crisis is over. As we reported yesterday, they're saving money...maybe even at an 8% rate.
Oil didn't move yesterday. Neither did gold.
The Wall Street Journal reported that markets were reacting to "mixed data."
That is to say, some reports were encouraging. Others were not. It was as if one weather forecaster called for a blizzard and the other for sunny skies and warm temperatures. Investors didn't know how to dress.
Among the dark clouds was an item on the falloff in tax revenues. States are having a hard time balancing their books, because their tax receipts are declining. The WSJ reports that they are running 17% below last year. Since states cannot print money, they're forced to make cutbacks - typically reducing hours worked per employee as well as the total number of employees. This is a bad thing, says the report, because it increases unemployment and lowers the wage base, leading to less consumer spending.
Another little cloud appeared yesterday (in addition to the consumer confidence numbers): the vacation timeshare market is collapsing at a record pace.
Well, don't worry about it. We met a guy who explained the timeshare business to us.
"What you're selling is a dream. You bring them to the property. You make sure they have a good time. And then you do to the numbers with them. You show them how much they save by coming to your property rather than on a typical vacation. And then you show them the other properties that they can exchange for. They think they can buy a cheap property and then exchange with an expensive timeshare. But it doesn't work that way. They get stuck in the cheap unit and the dream gets a little faded. And then, they stop coming...and then they try to sell the timeshare. Timeshares are rarely a good investment."
Besides, timeshares are a small, quirky part of the housing picture anyway. The real story is in the regular housing market. There, if you believe the forecasters, it's sunny skies.
House prices seem to be stabilizing. In some areas, they are going up. Of course, in some places you can get a house at half the price it sold for two years ago. That lures buyers back into the market. If we wanted a house to live in, we might be tempted too. That's why we like falling prices in housing; we get more for our money. But most people want a rising housing market. They think it makes them richer.
They're likely to be disappointed. They show up at the beach with their umbrellas and sun tan lotion...just as a winter storm hits the coast.
Forbes lists eight reasons to "remain worried about housing":
- The federal tax credit, worth $8,000, is set to expire at the end of November. That will make housing $8,000 more expensive for first-time buyers.
- The Fed is also ending its $1.45 trillion shopping spree. It has been supporting housing by buying mortgage-backed derivatives. What will happen when it stops?
- Mortgage lending standards are tightening up generally.
- Houses are still not cheap. Forbes cites Shiller's numbers, putting the average house 41% higher than it was in 2000. Incomes did not increase during that period; ergo, houses are still too expensive.
- Damaged psychology. It will take time for potential homeowners to get over the shock of a bear market.
- The end of summer has arrived. Housing sales always go up in the summer. People relocate in summer, when school is out. Then, sales fall with the autumn leaves.
- There are still huge numbers of houses that will be foreclosed. Forbes says only 12% of option ARMs have been reset. More foreclosures will increase the supply of desperate sellers and decrease prices.
- There's a 'shadow inventory' hanging over the housing market; it could be vast. Everyone knew it would be hard to sell a house in 2009. Many potential sellers held back, waiting for the market to stabilize. As they put their houses up for sale, that too will hold prices down.
Some wiseacre economist has probably already come up with eight reasons why housing prices will go up. But the key thing to recall is that this is a depression...a major restructuring of the economy, not a standard post-war recession. After 64 years, the consumer has finally rung a bell. He has reached his limit. He cannot borrow more. He cannot spend more. He is finally cutting back. That fact will echo through the entire world economy...and through the US housing market...for many years.
Houses, like stocks and corpses, may bounce. But they will not begin a real bull market again for a long, long time.
Bill Bonner
for The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Geithner Says it Would Take a “Long Time” to Repair the Housing Market
- Housing Market is Becoming More Affordable but That’s Not Necessarily a Good Thing
- Loving the Shutters
- When Will Housing Stop Falling in Price?
- The Kitchen is the Place to Be
About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by prozak on 1 October 2009:
Bill,
what planet are you on?
I assume there are timing issues with your writing and publishing.
Today is the the 1st of October - yesterday the 30th Sept OIL jumped over 5% - on gasloine inventories news apparently.
Comment by Bargeass on 1 October 2009:
Once the emergency low rates start to rise and socialist government con grants end watch the bottom fall out of the property market.
Get ready for negative equity.
Comment by Ned S on 2 October 2009:
Nuts Bargeass ... You're singing from the wrong hymn book now ... Deflation for a while at worse (which a smart PI will hold through) then inflation ... Which explains why a 1930's deflationist like BB has been so depressed for the last two months!
While still consoling himself with the thought that his gold purchased a decade ago will be worth LOTS ... in fiat currency ... and especially USD!
Comment by Ned S on 2 October 2009:
Let me put it another way Bargeass so there is no confusion - Who wants the USD to retain its value (China). Who wants the USD to go down (the US). Who has the biggest guns???
Comment by Brian on 3 October 2009:
The 8 reasons are not very compelling. Saying that the Fed has stopped pumping 1.45 trillion into the economy is a reason why prices will fall? come on. That's 1.45 trillion. You can't pump that much money in without lowering the value of cash. Cash down, houses up - it ain't rocket science.
Comment by bargeass on 3 October 2009:
Economy heading down and all will follow.
Comment by Chris on 5 October 2009:
At least housing costs have reduced somewhat in the US, even if they are still overpriced.
How about Down Under? Housing costs here are becoming ever more obscene. The only solution I see is lower standard of living for everyone, so we can feel 'rich'.
Comment by Biker Pete, Vancouver, B.C., Canada on 5 October 2009:
Yes, Chris, housing is cheaper in most of the places you'd never want to live! Want to work for $5 - $9 per hour? You'll be just another Mexican in most of those places. I often wonder why, if we're so badly off in Oz, 1.) why is every other b*stard (large bird) trying to get there; and b.) why the unhappy few in Oz don't flap off to greener grasses where chipboard homes are cheep, cheep, cheeper?!~
Comment by Chris on 5 October 2009:
Well, aside from many British, I notice it is mostly people from developing countries moving here. Of course, we have plenty of jobs to offer in our national pastimes of finance, real estate and of course mining..
Secondly, over one million Aussies do enjoy greener pastures overseas - maybe I should join them
Comment by tar and feathers on 5 October 2009:
The US it seems is leading the pack with social and economic decline. If the US expect a lowering of their debt to China & Co that's probably a drastic move.....the World seem content on propping up the US$ the US still require lots of oil import and they may not have enough foreign currencies for that (as an eg because no one will want their buck).
Wars cost the US too much.....the successful profiteering by the US in WW2 has been attempted in Vietnam and Iraq without success....'Wall-Street' have tried to push the economy its not working. Where is Keynes now?
People from the 3rd World are flooding into 1st World the internal lobbying and other instruments are more powerful than Govt.....there is powerful lobbying in the US and Europe and Aus that want more immigration (refugee same thing) ALTHOUGH ITS SLOWING except in Aus....the US has a surplus of consumers that's part of the problem everywhere in the affluent world.
Aus has a service economy and depends on tax revenues from mining, the lower unemployment reflects the low manufacturing, Aus is not even a developing nation we consume way more than we produce and borrow from the rest of the World to do it, we have no food security policy, mining is more important than agriculture, we have left the kitchen door open and the larder is getting emptied, not by skilled migrants. Aus are becoming locusts in their own country.
Aus vocational training for trade skills has been gutted, we have spent the nations savings on crap and are borrowing more to keep people in work at $160,000/job. Our health system could be remedied by having GPs and specialists located in clinic rooms (24 X 7) in Public Hospitals & ER centres, and the Govt underwrite the negligence insurance.....However Aus Govt is policy driven to kill our citizens, we import food that is toxic. Our housing affordability index will only worsen because of all the bs jobs which will become redundant.
Where's the rainbow? On the moon perhaps.....lets go there.
Comment by John Salamon on 26 October 2009:
You guys have the best articles on the internet. I don't know what Mr. Murdoch is thinking when he says that 'free' online newspapers are a thing of the past. None of the junk in his newspapers are unbiased or informative anyway!
Would love to read an article on current speculation on the Australian housing market. It seems global economists forecast a 'mini' housing bubble burst here in Australia while some pundits, mostly real estate writers and stakeholders say prepare for another Australian housing boom!
To be honest I don't trust any real estate agent, their full of hot air at the best and worst of times, as well as being overpaid and under worked, they rate between pond scum and crocodile shit in my book. Well most of them anyway.
There seems to be pretty slim pickings in all investment/asset classes at the moment and now more than ever you have to actively monitor all your investments as the globally economy changes. I am just waiting for things to change in the domestic housing market which will give me the best bang for my buck!