First, this is getting old hat, but that imminent housing rebound continues to evade us. We continue to see startling losses in home values - but this is nothing new, nor something we did not predict. What will amaze you is the first time home prices stop dropping 14% year over year (which is a disaster) to 11% year over year (which is a disaster) we will hear trumpets blaring and samba dancing on CNBC. Watch for it; it should be coming within the year. All these housing stories start to sound the same, but the key takeaways here are
- The disaster continues
- New home builders were the first to slash prices but optimists continued to point to existing home prices "holding up" - my comment was - that is because these people (current home owners) are not facing reality, have emotional attachment and/or have no idea what the real housing market is like. They will change their tune soon enough - i.e. when the house in the neighborhood half a mile away (new homes) is being sold for $75-$125K less than your home... that puts some reality into your world. That is NOW starting.
- "Walk aways" of people who are underwater are just really getting started - Jose Canseco did it, and it's spreading throughout the country. That's going to flood the market with more supply - it does not make ECONOMIC sense to keep paying for a depreciating asset. As I said late last year, 2008 (and part of 09) will be the year of the walk away
- What markets are doing well? Those with (shocker) affordable homes! $110K or so range. They are seeing appreciation. Unfortunately in most of our urban centers where our populace is concentrated, $110K buys you a kitchen and bathroom... not much else.
- 3 MILLION homes in America now sit ... EMPTY.
- The quicker we let this pain play out, the faster we can heal. I will repeat every month; the best thing for the bottom 80% of Americans will be an era of lower home prices - the less they need to spend for a roof over their head the more they can spend for the minor things in life, such as eating or heating/cooling said adobe.
- If you live in a farming area or energy related part of the country - don't bother reading the numbers below; it's a whole different world.
- Single-family home prices dropped 7.7% in the first quarter in the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982.
- The median sales price fell to $196,300, down 4.8% compared with the last three months of 2007. (that is not year over year, that is quarter over quarter - which would be equivalent to 20% year over year fall)
- Sun-Belt cities were among the biggest losers. In California, Sacramento prices plummeted 29.2% to $258,500 compared with last year and Riverside prices fell 27.7% to $287,100. Prices in Las Vegas fell 20.2% to $247,600 and those in Phoenix dropped 15.4% to $222,200.
- Midwestern cities, hard hit by factory closings, also suffered huge losses with Lansing, Mich., prices falling 26.9%.
- The best performing market in the nation was Binghamtom, N.Y., where prices rose 11.8% to $109,700. Second was Peoria, Ill., up 10.4% to $119,000 and Spartanburg, S.C., where prices rose 10.2% to $130,300.
- All that foreclosure activity added to the glut of homes on the market. The total inventory has risen to an average of 10 months worth of unsold homes. In addition, a record number - 2.9 million - of vacant homes are up for sale, according to the Census Bureau.
On to retail sales - I won't even bother with the "better than expected" mirage. Remember folks, this does not take into account inflation. If inflation is 5%, then retail sales would have to be up 5% just for unit sales to be FLAT. So what is being celebrated today is a complete joke but let's clap like seals and drink Kool Aid on the resilient consumer. We are seeing demand destruction. Just to keep up with inflation retail sales should be jumping 5-10-15%. They are in fact down 0.2% this month but if you EXCLUDE autos, they are up ! Yee haw. See, in every report we can exclude something to make it look good.
- The Commerce Department reported Tuesday that retail sales dipped 0.2 percent last month, right in line with economists' expectations. It was the second drop in the past three months and was led by a 2.8 percent decline in auto sales, the biggest setback in this category in 10 months
- Excluding autos, retail sales rose by 0.5 percent, a better performance than had been expected as sales at general merchandise stores, a category that includes big chains such as Wal-Mart, posted a 0.5 percent increase (mmmm, Kool Aid)
*********************
But one retailer in the "pooring of America" is doing great - who else? Our friend Walmart (WMT) - BOOM. This is just the beginning - great times ahead in the next 2 years (at least) for these guys. They sand bagged their guidance and will crush it in the future.
- Wal-Mart Stores Inc. on Tuesday said first-quarter profits rose 6.9 percent, but the world's largest retailer offered a guarded outlook as consumers wrestle with higher energy and food costs.
- Without fuel, same-store sales for the first quarter were up 2.9 percent at Wal-Mart's domestic properties, rising 2.7 percent in the Wal-Mart Stores division and 3.6 percent at Sam's Clubs.
- In a research note, analyst Adrianne Shapira of Goldman Sachs said Wal-Mart's first-quarter numbers "demonstrated that it is best positioned to weather today's challenging environment," considering increases in customer visits and how much shoppers are spending each trip.
2 comments:
add this from the WSJ today:
As Dues Dry Up,
The Neighbors Pay
By STEPHANIE CHEN
May 13, 2008; Page D1
Here's another consequence of the troubled housing market: Some homeowners associations are running low on cash.
The association at Monaco Place, a community of single-family homes and condominiums in Denver, is short $250,000 of its $9.3 million annual operating budget. It can't pay for needed roof and siding repairs to homes. Potholes in the streets haven't been filled in order to save money to keep electricity running in common areas, says Dee Tyler, CEO of Colorado Association Services, which manages the association. Monaco Place was already suffering from a high rate of foreclosures before the credit crunch hit. In the past three years, about a third of its 193 units have been foreclosed on.
[illustration]
Like Monaco Place, a growing number of homeowner and condominium associations across the country are raising their fees or putting the brakes on clubhouse improvements, new landscaping and other shared neighborhood amenities. The kitty is so low for some that essential services, such as building maintenance, electricity, trash removal and repairs have been cut.
As community residents lose their homes to foreclosure and new home building has slowed considerably, many of the roughly 300,000 neighborhood associations in the U.S. are grappling with shrunken budgets. One estimate puts the delinquency rate on dues at less than 5% in many markets -- higher than normal, though still not enough to threaten basic services, says John Carona, president of Associa, a Dallas-based company that represents 7,000 community associations in 26 states. Normally, the delinquency rate is about 2%, he says.
Elsewhere, the rate is much higher. At Spanos Park East in Stockton, Calif., owners of about 25% of the development's 1,500 single-family homes have been delinquent in paying their quarterly dues, according to Adrianne Bretao, a manager at M&C Associations Management Services, which helps to manage the community association. As a result, the association has put off expanding a patio area in the clubhouse and swimming pool this year, says Denise Laven, the association's president.
"It's frustrating," Mrs. Laven says. "We're seeing the people not paying the fees, so we know it's our money that has to pay for everything. And our dues will go up next year because we set them annually."
Residents on the Board
Often, the people behind the decisions to cut services are the homeowners themselves, since community-association boards are usually composed of members elected from the building or neighborhood. (Developers usually serve as the association board until the project is complete.) Some boards will also hire a third-party management company or accounting service to ensure general upkeep of the area and manage the budget.
GOVERNING BODIES
A look at homeowners associations in the U.S.:
• There are currently about 300,800 communities covered by an association -- an estimated 59.5 million residents.
• The total annual operating revenue for associations is more than $41 billion.
• More than 1.7 million people serve on an association board.
Source: Community Associations Institute
Rules on fees and services are outlined in association bylaws, and some states have laws that cover governance of the associations. So individual homeowners often have little power to fight increases in dues and cuts in services -- as long as the board is following the rules. They also have little recourse against delinquent neighbors other than filing lawsuits, which can be costly and time-consuming.
That's why housing experts advise homeowners to read the bylaws thoroughly, asking what services are guaranteed and whether annual fees are capped. Still, since bylaws were drafted when the community was first built, few outline contingencies in the event of a wave of foreclosures.
Eric Glazer, an attorney at Glazer & Associates P.A., in Hallandale, Fla., says nearly all of the 200 condominium associations his firm represents in South Florida are short of revenue due to delinquent association fees. Five years ago, those associations grappled with only a handful of nonpaying residents, he says.
[Home fees]
Stephanie Chen
The Ebenezer Farm development in Marietta, Ga., a suburb of Atlanta, has empty lots and half-finished homes.
Mr. Glazer and other housing experts say a growing number of banks aren't paying association dues on properties on which they have foreclosed and now own.
Colin Hendrick, president of the Carlisle on the Ocean Condominium Units Association Inc. in Surfside, Fla., has filed six lawsuits since December against banks that failed to pay dues on foreclosed units.
One of those banks, Minneapolis-based U.S. Bancorp, says it isn't responsible for the assessment fees, saying that they are merely the trustees of the property and that the service agent is responsible for the payments. But Florida lawyers say that since the bank is the ultimate owner, it should have to pay.
So far, no overdue fees have been recovered as a result of the lawsuits. With 20 of the development's 115 luxury condominium units in foreclosure and an additional 35 units either behind on their fees or not paying them at all, the association says, it had no choice but to jack up fees 10% to $470 a month.
A Halt on Amenities
"The good owners are left carrying the baby," Mr. Hendrick says.
That's what happened to Krissy Longyear and her husband in an affluent suburb of Atlanta, where construction of new homes has stalled dramatically. A year after they moved into a custom-built, two-story brick house, the couple saw their homeowners' association fee jump 27% to $635 a year. Meanwhile, the developer has put a halt on promised amenities, such as street signs and a walking trail around the community lake.
"We aren't getting any more for the extra money we're paying," she says. "It's disheartening that we spent all this money and time. Maybe we made a mistake."
The tough economy is hurting associations even in areas where the housing market has been relatively stable. Rob Rosenberg, president of Massingham & Associates Management Inc. in Hayward, Calif., says 90% of the 350 home associations managed by his company in the Bay area of California are seeing a rise in the number of residents who pay their dues late or not at all. Some of the associations are toughening their payment policies by sending out more reminder letters, and many will have to start cutting amenities or services after another six months if they don't start collecting more fees, Mr. Rosenberg says.
Craig Koss, president of Kramer-Triad Management Group LLC in Ann Arbor, Mich., says he advised his 300 local homeowner associations to cushion their budgets with additional dollars in anticipation of the heavy foreclosures last year, but only about 25% of the associations did so. He says fiscally responsible associations will keep reserve funds, but in most states, there is not a state agency to oversee the associations to ensure that reserve funds are set up. "A lot of people won't plan until they have to," he says. "They won't have a rainy day fund until it's pouring."
Write to Stephanie Chen at stephanie.chen@wsj.com
thanks for the link, I was just getting around to the WSJ Stories tonight. That's a good one. As with all things - in America - we don't plan for the rainy day. And just like all these homeowner bailout plans - the people who struggled and paid and saved are going to subsidize those who put nothing down and bought $300K-$400K houses on $40K income.
But remember, housing is only 4.5% of GDP so it's not a problem. Buy stocks. :)
Post a Comment