Debt Markets Continue To Loosen

May 30, 2008

WSJ reports “investors return to riskier assets”.

Investors have shifted into sectors such as mortgage bonds and corporate debt. Investment-grade firms have capitalized on the demand by borrowing a record $123 billion this month, says Dealogic.


Case – Shiller Update

May 29, 2008

Las Vegas Case-Shiller index drops to 169. That data reflects March pricing and the drop from February. My prediction is that we’ll have one more good-sized drop in the index when it comes out at the end of June. Come end of July, though, the index will only go down if the sales that happened in the month of May were at lower prices than the sales that happened in the month of April. I predict that didn’t happen (interesting use of tenses there, no?). My prediction is that based on anecdotal evidence that foreclosures in April sold at lower prices than foreclosures in May, that we’ll see a leveling off of Case-Shiller in Las Vegas. That should get significant national attention, because I predict at the same time that most other parts of the country will continue to see price declines. You read it here first!

Chart courtesy of Calculated Risk:


SFR Under Contract Now Over 6000

May 29, 2008

Today, the number of SFR homes under contract in either Pending or Contingent status rose above 6000 for the first time in….well…we don’t have records going back that long for this particular statistic. Suffice to say it has been a LONG time.

As a measure of the trend strength, note that just 3 weeks ago, this statistic was at only 5400. Also note that in that same 3 week period, 1236 single family residences closed (sold).


Inventory Decline Continues

May 29, 2008

Total available inventory dropped below 22,400 today. It is now down 23% from its peak last September.

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Manufacturing Increase in Vegas

May 29, 2008

Small potatoes, admittedly, but always nice to see manufacturing jobs created.


Jim Cramer: Housing poised to recover

May 28, 2008

A pretty upbeat perspective on the housing market from Jim Cramer, who when last seen was bashing homebuilder stocks. He’s doing the same kind of root analysis that we do here at Frothing Developer

Cramer’s points:

  • 865,000 new homes purchased normally.
  • Lots of pent-up demand.
  • Price matters, and the price drops are having an impact.
  • Federal action to prevent foreclosures
  • April sales are up over March because of these factors
  • Typical bad 2/28 loans are coming to an end. Last quarter of 2006 was the end of those. By end of 2008, those loans will all have reset.

“Why no one thinks these things matter is beyond me”.

“How anyone could think things could get much worse is beyond me and flies in the face of reality….This is coming to a conclusion….maybe less than a year.”

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We agree.


Committed Renter Buys House

May 28, 2008

This article, which is currently the most emailed business article in the New York Times, is interesting primarily for its analytical approach:

The case for renting has been simple enough. House prices rose so high in the first half of this decade that you could often get more for your money by renting. You could also avoid having a large part of your net worth tied up in a speculative bubble.

Over the last several years, I’ve come to like a simple, back-of-the-envelope way to compare the costs of renting and owning. You find two similar houses, one for sale and the other for rent, and divide the sale price by the annual rent. You can call the result the rent ratio.

The concept will probably sound familiar to stock market investors. It’s the real estate market’s version of a price-earnings ratio — a measure of how expensive an asset is, relative to the underlying economic fundamentals. Like a P/E ratio, the rent ratio provides something of a reality check.

Throughout the 1970s, ’80s and ’90s, the average rent ratio nationwide hovered between 10 and 14. In the last few years, though, it broke through that historical range and hit almost 19 by the time the housing market peaked, in 2006.

And while home prices — and rent ratios — have always been higher on the coasts, they reached whole new levels recently. In the Washington area, the ratio went above 20. In Boston, New York, Los Angeles and south Florida, it topped 25. In Northern California, it approached 35, higher than it had been in any city, at any point on record.

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In the neighborhoods where we were looking, two-bedroom condominiums were selling for $400,000 and being rented for about $2,100 a month, which makes for a rent ratio of 16. Four-bedroom houses were selling for $700,000 and being rented for almost $4,000, which makes for a rent ratio of 15. No matter the price range, pretty much every apples-to-apples comparison produced a similar ratio.

Historically, this is still a bit high. But it’s very different from where the market was just a couple of years ago. With house prices having fallen over the last two years and rents continuing to rise, the decision became a much closer call. We would now have to spend only a little more each month for the privilege of owning.

This article calculates Las Vegas’ Rent Ratio to now be 17.1. But if you look carefully for high quality locations that command higher rents, you can do better than that. At Manhattan Condominiums, for example, condominiums that command $1350 a month are being listed for $220,000. That’s a rent ratio of only 13.6. In a city with a rapidly growing population.