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Mick Weinstein, The Week's Best Stock Blogs

Housing: A Train Wreck in Slow Motion

by Mick Weinstein

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Posted on Friday, May 30, 2008, 12:00AM
There are three big pressures on this market: rising commodity prices (tied to dollar weakness/inflation), an ongoing credit crunch weighing on financials, and the sharp housing market downturn.

Last week we addressed the first with a roundup of opinion on the oil price spike. This week we turn to housing, as the latest S&P/Case-Shiller Home Price Index indicator released Tuesday poured a bucket of cold water on those hoping the U.S. residential real estate had bottomed.

Bloggers once again cut through the official-speak and presented some straightforward conclusions that investors and homeowners will appreciate knowing. Click through links for the full articles:

• Calculated Risk presents three key graphs to explain where we're heading in U.S. residential real estate, concluding, "With existing home inventory at record levels, prices will probably continue to decline over the next few years - perhaps another 20% in real terms on a national basis."

• Macroeconomist James Hamilton uses Calculated Risk's analysis to explain the broader implications: "The reason for the gradual and predictable changes we see in house prices is that if a homeowner is mistakenly too hopeful about what his or her house can sell for... the home just sits on the market unsold until reality finally sinks in... the magnitude of subsequent declines in house prices is probably the single most important determinant of how many more homes end up in foreclosure. That in turn will determine how widespread the failures of major financial institutions become. This has been like watching a train wreck in slow motion."

• Tim Iacono, author of 'The Mess that Greenspan Made' blog, notes the 14.4% year-over-year decline for the 20-City Composite Index is the steepest decline on record, and provides a helpful city-by-city chart of the decline. How's your area doing?

• Heather Bell at Index Universe finds two "faint glimmerings" of hope in the Case-Shiller report: slightly positive returns for Charlotte, North Carolina and Dallas, Texas. Yet with this week's publication of the Conference Board's Consumer Confidence Index, which hit a 16-year low, "it seems doubtful that consumers will be looking to buy much of anything, let alone a house. A real turnaround in housing does not appear to be in the cards anytime soon."

• Jeff Miller of NewArc Investments explains what a classic Nicolas Cage/Sarah Jessica Parker movie can teach us about supply in the current housing market.

• Kevin Price says "all but the most willfully obtuse Pollyannas now acknowledge that the real estate picture is bad... and likely to get worse before it gets better. Of course the universal caveat applies: Local markets will vary... the mad scramble to prop real estate up may or may not be effective, but regardless of its efficacy, its wisdom is doubtful at best."

• On the bright side, the popping of the real estate bubble means that housing affordability is near a three-year high, notes University of Michigan economist Mark Perry. This he believes should "continue to play an important role in the recovery process for the slumping real estate market. It's a buyer's market."

• Yet Barry Ritholtz finds the founder of Los Angeles-based homebuilder KB Homes predicting home prices will drop another 10 percent, and catches an 'erroneous homepage article in the Wall Street Journal' that suggests home buyers are jumping back into the market.

• If it's any consolation, FT Alphaville shows that U.K. home prices are in free fall also.

• For ongoing coverage of the housing market, check out blogger Judy Weil's 'Housing Bubble and Real Estate Market Tracker,' a carefully edited roundup of important items in this sector. In a recent edition, Weil finds that even the resilient luxury housing market has begun to see weakness - an ominous sign indeed.

Realtors, Kiss Your 6% Goodbye!

This week, the Justice Department and the National Association of Realtors reached a settlement in the antitrust case against the NAR's monopolistic hold on home listing information. It's a victory for Internet-based and discount listing services and another stake in the back of traditional brokers attempting to recover from this downturn.

• Media expert Jeff Jarvis says this means good riddance to real estate agents' familiar 6% commissions: "The only reason... that Realtors could hold onto their high commission for such little value and work is that they kept information away from the marketplace, making it inefficient. This new economy can now come to real estate sales as information become freer. Oh, it's not fully freed yet. But I do believe that the combination of this settlement and what it does to empower discount players and the depressed real estate market will combine to finally shove dynamite up Realtors' rears."

• Calculated Risk looks at brokers' commissions as a percentage of GDP, showing that commissions "soared" in recent years as a function of the housing bubble. But as of the first quarter of 2008, commissions declined. "Now, with prices falling, transactions falling, and more competition, it is likely that total commissions will fall further over the next few years. Tough times for many real estate agents."

Invest in Real Estate While Blood's on the Street?

Everyone knows top investors make their biggest killings by buying when a sector looks bleakest to everyone else. So is this the time to scoop up homebuilder stocks - or dip into the brick-and-mortar real estate market?

• London-based trader 'Macro Man' reminds us of "an old trading aphorism that is worth following for both veteran fund managers and market neophytes: picking bottoms gives you stinky fingers." He's highly skeptical of some Wall Street interpretations of the Case-Shiller report that suggest such a bottom "is coming closer" and given rising oil prices, concludes: "You'll pardon Macro Man if he tries to avoid picking bottoms in anything at the moment."

• Flooring company Mohawk Industries has seen its stock fall 30% in the past year as, well, the floor fell out from under the homebuilders. But some see Mohawk as an attractive pick now - here's why.

• DealBreaker notes that some of the very hedge funds that profited handsomely from the decline in homebuilder stocks are now buying big stakes in those very companies. But before you pull the trigger on these stocks alongside the hedgies, be warned: "you should not be fooled by their charity. In reality, these stone cold bastards are spending a few shekels now to prop up these poor, unfortunate housing stocks until they rally, and when they do, will short these pigs to death one more time."

• A couple of weeks ago, Graham Summers of GPS Capital Research still thought it wasn't too late for investors to short homebuilders, but speaking of hedge funds, you don't see a whole lot of homebuilders in leading hedge funds' top picks, compiled by Mebane Faber.

• Aside from your investment portfolio, at this stage, is it better to remain a renter or buy a house? Former investment banker Lloyd Sakazaki, Ph.D., presents tools for making that important decision.

 

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53 Comments

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  • Yahoo! Finance User - Thursday, June 5, 2008, 11:55AM ET  Report Abuse

    • Overall: 3/5

    I couldn't agree more about the lack of value of Realtors for their 6% commission. I paid close to $10K on my last real estate trasaction for maybe 10 hrs of work by a Realtor. What a scam they've been running. Earn your $ Realtors!!!

  • Yahoo! Finance User - Wednesday, June 4, 2008, 11:30PM ET  Report Abuse

    • Overall: 1/5

    It is really sad to hear that you think Realtors have such little value and do little work.

  • Yahoo! Finance User - Wednesday, June 4, 2008, 10:13PM ET  Report Abuse

    • Overall: 2/5

    Although I believe quick mick is the worst Yahoo finance expert, the master of the copy and paste, this format was much easier to read and earned him my very first two star rating. Maybe if he wrote some original work he can earn additional stars one day.

  • Ted L - Wednesday, June 4, 2008, 9:23PM ET  Report Abuse

    • Overall: 4/5

    I thought that was an excellent article. To this Ken fellow, shut up and go back to your middle management day job. We are in a normal economic cycle and it is idiots like you that panic when the economy is down and don't understand the concept of capitalism. P.S. If your neighbors are white trash then you are too. Booyah

  • kris - Wednesday, June 4, 2008, 10:25AM ET  Report Abuse

    • Overall: 5/5

    I'm going to have to agree with Ken. I definitely like the humor. It does appear that we have a very bad situation on our hands. The Mortgage problem isn't exclusive just to investors and people who would not otherwise been able to afford a house. The problem is exceedingly becoming everyone's problem. Engy, I'm going to have to say you're wrong. Only about 2% of our working population represents 98% of our nations wealth. The majority in this country are what Ken describes as people driving Hummers and BMW's that they shouldn't have been able to afford. Since I'm in California, I know first hand what Ken is talking about. It might not be as apparent where you're standing, but a large majority of the wealth in this country is in California. 1 and 4 homes in our area are in foreclosure. The foreclosures are popping up even in the best places. Engy is right that there is a considerable amount of wealth in this country, but as it stands, that 2% is defining itself more while the other 98% struggle to pay their utility bills, pay for health care, and rent. But let's be real, if it wasn't for our governments ability to print funny money everyday that a gust of wind blows up our skirt, every bank in America would fold. If we were honest with ourselves, we'd realize that every dollar that circulates in our economy is borrowed.

  • Mark - Tuesday, June 3, 2008, 8:48PM ET  Report Abuse

    • Overall: 3/5

    Ken, although I do believe you are an idiot, I do agree with your prescription to the problem. Unfortunately for you there are alot of people that have truly prospered and even if credit goes back to 1980s conditions will still be able to conspicuosly consume. This is because there is still an enormous amount of wealth controlled by US citizens. The "pretenders" were few in number but active in impact and now in collective whining. The media has made sure that their stories have been told & they all one thing in common: They cut corners on prudent discpline. This is not the majority like you intimated & the majority will lament at their plight and continue to talk about them at cocktail parties. This too will pass like the "Day Traders"from the 90s , House Flippers will go out and find real jobs andf the Earth will continue to rotate on its axis like it has been until the "Commodities Hedge Funds" bubble bursts and a parade of new people will feel that they were sheered.

  • David - Tuesday, June 3, 2008, 2:21PM ET  Report Abuse

    • Overall: 2/5

    Who knew you could get a job copying and pasting. Why didn't I think of that?

  • BJ9736 - Tuesday, June 3, 2008, 2:18PM ET  Report Abuse

    • Overall: 3/5

    Ken for President! Right on friend!!

  • Kenneth - Tuesday, June 3, 2008, 1:08PM ET  Report Abuse

    • Overall: 4/5

    Anytime a story comes out talking about a recovery, I want to print it, read it, and the wipe myself with it once I'm done with business. Mick wrote this story really well. He only provided facts and quotes from others. Excellent write up. Let's not get carried away and start blaming Greenspan. That's an ignorant conclusion. The facts are that our country in the past 7 years has buried itself in debt because of an over bloated war. Greenspan couldn't have anticipated even on his best day that our leaders in this country would overspend to point of no return. Debt is what causes a lack of liquidity in our currency and as a result, our energy costs are out of control. In the history of the world, OIL has always taken vulnerable economically challenged nations down. Simply put, we are headed towards an economic earthquake. All the Feds are doing is delaying the process. Don't be an idiot and post in reply to this saying I'm a pessimist. Look around at everyone else around you. The majority of our generation is a bunch of bloated fat cats who expect a handout when they run out of money as if it grows on tree's. I look at all the white trash in my neighborhood who drive BMW's and Hummers. Every level of our society is living on borrowed money. They borrow to borrow. It's that way from the bottom up from our children, to our parents, to our government. It's part of our culture now. The people who spend and go into serious debt are rewarded by getting bailed out while the people who save and pay off their debts regularly are sitting back watching their investments, their real estate, and their asset equity drop. I think America needs a swift kick in the butt. Raise interest rates to boost the dollar, start drilling in Alaska to subsidize the appetite for oil within the borders of the U.S., and invest in technology, education and domestic policy in the US while keeping taxes low. If we stopped importing oil and boosted our refining, oil prices would drop back down to $1.50 a gallon. This would obviously help drop business costs while fueling spending in the economy. The low cost of energy would have a reverse effect on the multiplier effect. Rather than have an oil company keep Billions in profits, the billions would instead trickle through our economy multiple times from small businesses to large. Right now all of our money is going into one large beast called Exxon/Mobile. The housing prices are going to continue to drop, commodities will continue to go up (oil, metals, wheat, etc.). We import almost everything now to feed our bloated fat children. Food prices are going to go through the roof over the next 12 months. Inflation has just begun. In about 3 months the Feds are going to be forced to raise interest rates to hedge off inflation. This will be another round of real estate woes. Fuel costs will continue to rise because the dollar will not recover and investors will panic. Our dollar has been dropping for years. If you think that the dollar is going to go up, you're a fool. There is NO direction but down from here. And it's even more apparent than ever that our country is broke and getting broker by the day. The Feds cannot raise interest rates to boost the dollar because our GDP would fall below the meager 1% it's currently producing. If the Feds drop interest rates more, our currency drops more, which as a result causes more inflation. They are stuck between a rock and a hard place. The only thing the Feds can do now is sit back and watch and hope for a miracle. The answer to this mess is to stop importing so much junk from everywhere and start producing within our borders. Shut up you environmentalist pigs. As we sit back and watch our country resign to developing nations who can drill in their own back yard, all I can think about is the environmentalists and the fat lobbyists who profit from them. All the developing countries are laughing to the bank!

  • The_Wind_Gods - Tuesday, June 3, 2008, 2:32AM ET  Report Abuse

    • Overall: 5/5

    greenspan really blew it he was waaaay off

  • Yahoo! Finance User - Monday, June 2, 2008, 10:38PM ET  Report Abuse

    • Overall: 1/5

    When did Penelope get glasses?

  • Insider - Monday, June 2, 2008, 5:58PM ET  Report Abuse

    • Overall: 1/5

    Don't mention the one site that got the dot com then the housing market right and first from 1998 that all of these other sites copy: itulip.com google search "housing bubble correction" and you'll see what I mean. the housing forecast since Jan 2005 has been spot on.

  • JIM - Monday, June 2, 2008, 5:25PM ET  Report Abuse

    • Overall: 5/5

    I wouldn't say he's three years late. This is all timely info for people who are thinking a bout buying now. If it's not the bottom and you buy now, your effective interest rate on your mortgage will be in the high teens when your new house goes down 10% in value over the first year. Wow! BUYER BEWARE! Good luck.

  • binderzz - Monday, June 2, 2008, 5:02PM ET  Report Abuse

    • Overall: 5/5

    Your "picking bottoms gives you stinky fingers" quote alone makes you worth reading. You're also a nice change from the Ben Steinery of "all the bad home price news is secular, main stream, liberal media lies". Thanks!!!

  • zac - Monday, June 2, 2008, 4:53PM ET  Report Abuse

    • Overall: 4/5

    aside from this guy looking like Subway's Jarred, what a great article. Every time i think i want to buy a house, I read something like this that helps me to be more patient.

  • Yahoo! Finance User - Monday, June 2, 2008, 4:24PM ET  Report Abuse

    • Overall: 3/5

    You're about 3 years late, but welcome to the party...

  • jon f - Monday, June 2, 2008, 3:12PM ET  Report Abuse

    • Overall: 5/5

    If home prices doubled and in some areas tripled from 2000-2006,prices have a long way to go.When prices roll back to 2002 prices,sales will pick up.Why would anyone want to borrow money to purchase a depreciating asset?

  • asdf - Monday, June 2, 2008, 2:26PM ET  Report Abuse

    • Overall: 4/5

    Houses are only worth what someone is willing to pay for it and they cannot pay more than they have (counting for continuing salary.) With food and energy increasing so fast and I believe for decades, what people can afford for house payments will decline for many decades. I predict that housing prices will therefore decline for many decades.

  • Murfdigidy - Monday, June 2, 2008, 1:20PM ET  Report Abuse

    • Overall: 5/5

    The more I read this dude the more I like him.

  • royhobbs - Monday, June 2, 2008, 11:50AM ET  Report Abuse

    • Overall: 5/5

    It's good to see the unvarnished truth. A nice change from Ben Stein and other assorted idiots. To the corporate criminals, real estate frauds, Bushies, and other greedheads who have damaged our country so much in the age of Reagan, you are done, finished. So much for "conservative" economics. For you wannabees who became Republicans, a lesson well learned. Now you can stop looking down on others and join us in lifting America back up to greatness.

  • Michael - Monday, June 2, 2008, 11:17AM ET  Report Abuse

    • Overall: 1/5

    no meat... waste of time to read

  • Yahoo! Finance User - Saturday, May 31, 2008, 12:09AM ET  Report Abuse

    • Overall: 1/5

    Mick would be doing the reader a better service if he profiled bloggers that get it right or at least have good insights. Under this format, he gives the appearance that he's basically pimping himself out to the highest bidder meaning his friends and people who will benefit Mick the most are probably first in line for quotes. Isn't that the American way these days? First, make money, second, care about the reader who thinks you are acting in their best interest.

  • Yahoo! Finance User - Friday, May 30, 2008, 8:03PM ET  Report Abuse

    • Overall: 5/5

    Good source for finding more informative and useful internet sites. The naysayers are those obviously employed (or formerly employed) by the very industry that promoted this whole ponzi scheme and want to use the mainstream "talking heads" to revive the whole mess again. Bless the blogeers for providing the "real information".

  • GREG H - Friday, May 30, 2008, 7:44PM ET  Report Abuse

    • Overall: 1/5

    can I start a blog about a guy that speaks of bloggers blogging aboutresearch and blogging? not much to see here

  • RobertM - Friday, May 30, 2008, 6:48PM ET  Report Abuse

    • Overall: 1/5

    I convinced. Prices will either go up or down from here or perhaps stay the same.

  • Dan - Friday, May 30, 2008, 6:39PM ET  Report Abuse

    • Overall: 1/5

    I was kind of curious who is behind Yahoo's writers. It seems that the constant regurgitation of other people's blogs, and telling us that it is a great time to buy (anything), is like something out of Scott McClellan's book. Seems as if telling things honestly, and like it is, makes you unpatriotic. I guess the Bush Administration has put it's tentacles around all forms of speech, and made it clear. The economy is NOT in recession so sayeth the Bush Administration. Forget the fact that foreclosures are 112% more than last year, forget the fact that gasoline is over $4.00/gal, and oil is over $125/a barrel. If you are a good american, you take this garbage. Sorry Mick, and "Dubya", there are many that AREN'T so stupid. Obviously a reality check is in your offing (not to mention a pink slip to both). EARTH TO YAHOO: Try putting useful advice, that is not only pertinent, but realistic. Then maybe Yahoo will mean something else other than cyber mediocrity!

  • Yahoo! Finance User - Friday, May 30, 2008, 4:28PM ET  Report Abuse

    • Overall: 5/5

    eventually there will be good deals on train cars ...........to live in

  • GeorgeK - Friday, May 30, 2008, 4:13PM ET  Report Abuse

    • Overall: 1/5

    I used to like the internet it was a great place for good information but this is getting just plain stupid. Back and forth "IT"S GOOD" and "IT'S BAD". Make money on a loser run a stock up and then short it, run Realtors out of Business, ignore protesting gas prices and forget about the FHA Loan Bill .... This is yellow tainted journalism, no fact just stress with graphs to try and prove a position. Keep this up and you will continue to slow our ecomony. Then you can lose your home and move in with your parents and then you can save enought money to buy a loaf of bread or a gallon of gas. Protest Gas Prices, Demand the FHA Foreclosure Bill be passed and signed. Or go to the Bank and get all your money out. That makes as much sence as this article did.

  • Rodger - Friday, May 30, 2008, 4:07PM ET  Report Abuse

    • Overall: 2/5

    My best performing investment right now is Australian dollars - I get close to 8% pa with 30 day contracts and due to the commodity boom they are appreciating at about 12% pa. Stuff real estate. Also stuck all of 401k into municipal bonds noew realizing 7 - 9% tax deferred. Lastly chose to not exercise my stock grants and oil company I worl for has increased 110% since grants given. What recession? Sounds a lot to me like inflexible positions and lack of attention to ones portfolio.

  • Yahoo! Finance User - Friday, May 30, 2008, 3:45PM ET  Report Abuse

    • Overall: 1/5

    The only difference between Mick's bogger friends and the people who post comments is Yahoo! has to pay Mick. Aside from that there's no difference. Just a bunch of people giving their opinions.

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