Fear, Loathing and Market Recovery

It's down to one thing in the world we live in: FEAR. Fear of job loss, fear of survival, fear of no retirement, fear of falling values on one's home, fear of banks failing, fear of things getting worse. Take your pick, the boogeyman's out there.

If people continue to be afraid, spending on a macro scale will continue to decline which will eliminate more jobs, more companies and more stability (for as much as there even is today). The less people spend, the less likely we are to see any type of recovery in the near future. Make no mistake, I've never been much of a Keynesian when it comes to economics but these days I'm starting to wonder. For the record I'm loosely defining that as one who believes in spending our way out of a recession.

I was watching a CNN interview with Martin Wolf, a noted economist and writer for the London Financial Times. Mr. Wolf, while also a non Keynesian, stated that since we have already passed the stimulus bill and the money was going to be spent anyway, the most important thing we can do is get the money into people's hands who will actually spend it. In his opinion the biggest challenge to where we are is that the President is hell bent on the whole 'roads and bridges' philosophy which will do nothing for at least 18 months on the national economic front that in Mr. Wolf's opinion is wayyyyyyyy toooooo late. Mr. Wolf flippantly shared at one point we'd have been better off walking out and handing people money on main street than allocating it the way we have. We can have the argument on how to improve the current mess in terms of massive tax cuts versus massive spending but being where we are, spending the money properly in a way that would make things better is now the discussion. It's not one that will likely be resolved soon.

Having stated the obvious, here's sublime of the where we are. I don't know exactly when we will see a huge turn in the economy but I am convinced that right here, right now there are unprecedented opportunities for success. Opportunities in the stock market, opps in the real estate market, opps in employment in the form of new demand for different types of skills. They are out there....and in the face of fear those who have courage will change their lives for the better. Some will buy stocks, some will buy real estate, some will reinvent themselves and their personal brand and change careers and their lives forever. Some will get entangled in the fear and suffer. Some will embrace where the world is and prosper. The only question for each of us is which path will we take?

Greg's appearence on WIBC from 11/25 explaining the latest real estate numbers can be heard here!

___________________________________________________

NO NO NO NO NO!

I like the Indy Star. I am a dying breed in that I like getting the hard copy of the paper every day at home to read with my caffeine. Today I have a grudging disagreement with them. On second thought, why sugar coat it, I'm just pissed off at them.

The top headline that states 'Area home sales plunge 24%' is true but not accurate. That number reflects closings of home sales in the month of October which has NOTHING to do with the current market. Closings are a combination of things that have happened over the last several months and not just October. Why does something that happened six months ago reflect on the current market.?

IT DOES NOT.

The ONLY key number is not the number the STAR used but in fact, in simple terms Pending Sales in October for our area. That number as a 3 month rolling total is down 7 percent from a year ago. It is not a 24% drop as the Star attempts to convince us it is. The Star tells us we are far worse off than the national average. It is less than reported on the National Association of Realtors site that states:

"The median price of U.S. resale homes dropped 11.3 percent year-over-year in October -- the largest ever drop since the National Association of Realtors began tracking the statistic in 1968."

Let's see that's an 11.3% drop nationally versus 7% drop here....hmmmmm.

That is not the figure used in the Star today. I understand where the Star got their numbers. They cherry picked them to blast a headline that gets people's attention and sells papers....I GET THAT. However, they are not telling the entire story when they use that tack and frankly lose credibility on the issue now and in the future. I was on WIBC last night (Monday, 11/24) and preempted their headline by giving the whole picture instead of just a headline. I'll post that audio link at the top of this page today as it's available. In the mean time, yes it's a damn hard time to sell a home and great time to buy one but it's not the Michael Stipe 'end of the world as we know it' in local real estate. It would have been nice if the Star had actually asked someone who knew what the data meant before printing the article.

Questions? Comments? Donations? Greg@GregCooper.com or 317.848.GREG (4734)

Fannie, Freddie, Whatever it takes.

So Warren Buffet thinks it's a great idea. Frankly that's about good enough for me. So does the Dick Vitale of money, Jim Cramer at CNBC. In fact just about anyone you ask today is in favor of the government take over at the two lending giants Fannie May and Freddie Mac. While it would have been best that they not have to be dealt with in this way, the take over saves millions from foreclosure, nudges the real estate market forward and probably saves a run on one or several other lending insitutions.

For those of you who have their fannies and freddies confused, here's the simple version of who they are and why they matter.
Fanniemae and Freddie Mac, are the largest loan guarantors in the country. They are responsible, essentially, for the health of the loan mortgage market in the United States. They have nothing to do with a semi sweet box of chocolate or a deceased rock star.


They do have a significant impact on the health of the U.S. housing market and subsequently the American public as a whole. Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie -- and at lower rates -- since the federal government is now explicitly standing behind that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

Friends, if conventional mortgage rates begin to move towards a 5.5% rate from the mid 6% rates were seeing today, the faint light we've been imagining to see at the end of the tunnel will start to get brighter. Do not for one second think that this will cure all of our ills. There are still too many foreclosures both in the Indianapolis area AND nationwide for that to be the case. There is still far too much resale inventory for that to be the case. There is still a total trepidation among buyers that they are paying too much that won't go away anytime soon.

It will, however, add hope....which may be the most important factor in determining the direction of the market in 2009.

Virtually Green: What the Real Estate Business WILL Become (coming Monday 8/25)

Dropping the F Bomb: Recovery's Starting Point

For years real estate foreclosures have been a small percentage of the overall market place but still having a powerful affect on values. In the Indianapolis market foreclosures for many years were 7-9% of all properties sold over the course of any one year. Then came 2006....and 2007....and this year. In the latter part of 2006 foreclosures began to run rampant gobbling up a 15% share in the 4th quarter of the year. In 2007 that number rose to 23% of all properties sold and in the last 90 days here in 2008 foreclosures both nationally and locally were running as high as 30% of all homes in the market in a given price point. From a realtor's perspective, that's a stunning number.

30% is a stunning number because that means 1 in 3 homeowners who are selling have lost their property to a lender. It's a stunning number because it destroys value in other resales homes in a given neighborhood or township. It's a stunning number because it also means that municipalities have been denied the property tax revenue for those homes that's needed to provide essential community services. It's a stunning number because over a prolonged time period, it sets a totally different benchmark for comparable sales that affect the lives of many real people who are dependant upon the equity that they've created in their homes.

The crystal ball is still very murky but eventually we are going to see the foreclosure numbers turn. The recent passage of the 'housing bill' will allow many of the millions of sub prime loans made in '06,'07 and '08 to be refinanaced, thus saving them from the foreclosure wrecking ball. That will be a huge factor in any recovery from the housing depression we're in. It seems that the bottom of the trough may come late in 2008 or early in 2009 with the potential for the overall foreclosure market to begin to recede. When it does the resale market will begin to correct it's excessive inventory and eventually new home construction will begin to improve. But that's at least a year away. For now, simply saving more residences from ending up overgrown, dilapidated and depressing to many of their closest residences is a noble goal. It's one that actually may be in sight as the proverbial 'light at the end of the tunnel.' How far off that light is or how soon it becomes reality is still unclear. How soon it comes will determine whether our housing slowdown is a 'V' or a prolonged 'U.' For the sake of everyone's financial sanity, let' drop the F bomb NOW....and make certain that letter is a quick V instead of a long term U.

Questions? Comments? Donations? Greg@GregCooper.com or 317.848.GREG (4734)