-- Posted Tuesday, 11 July 2006 | Digg This Article | Source: GoldSeek.com
Rick’s Picks
Tuesday, July 11, 2006
For investors who’d rather be smart than lucky
“There is no housing bubble!” That would be no mere permabull talking, but rather a delusional, frothing-at-the-mouth, head-buried-in-the-sand, deny-it-unto-death permabull. One clinical notch below these nut-jobs are the ones who recognize that a housing bubble exists but think any danger it could pose to the U.S. economy would be limited to areas where real estate prices went bonkers.
Finally, there are those, such as my friend Jas Jain, who understand that the imminent real estate collapse will implode prices not only in Atherton, Rye and Boston, but in such relatively docile markets as Muncie, Trenton, Tulsa and even Vernon, Texas. That’s because home prices are set at the margin, and if just one homeowner in a cul-de-sac of $800,000 homes gets in trouble, forcing him to liquidate his property for, say, $570,000, a sale at that price will effectively pull down the prices of all of his neighbors’ homes. It works the same way at the macro level, so that a glut of homes for sale in California will eventually depress home prices in Peoria, Biloxi and Camden, Maine.
Jas, who lives in California, monitors the real estate market there very closely. He pays attention not only to the statistical picture but to the anecdotal, allowing him to zero in on price softening before it becomes statistically obvious. His latest observations, which I have reprinted below along with some tabular data, will I am sure be of interest to many of you. Here’s Jas:
California Crucial
Why focus on California housing? Because it is a big deal – it represents some 25% of the dollar value of U.S. housing, or $7-$8 trillion! Someone from North Carolina pointed out to me that the housing is doing great there, but in fact it represents no more than 1%-2% of the dollar value of the nation’s housing stock. A 20% drop in the price of California homes has the potential to take the U.S. and world economies down with it because of the leverage, reckless lending practices (pioneered in Southern California), and the globalization of the financial system.
The most important development during the past two months is the increasing numbers of price reductions in the areas that I monitor on a regular basis. For example, during the past three months, the median listing price of SFH (Single Family Homes) in Santa Clara County is down from $895K to $849K, and in Santa Cruz County it is down from $820K to $799K. Most of this is due to the price reductions in the listings that existed. Another important development is the very low levels of sales for the seasonally strong period. The current pending sales are at the same level, or lower, than what they were during the winter months. The most ominous sign for the future prices is the mushrooming of the inventory on the market. I will let the statistics and a case study do most of the talking.
Santa Clara County
Table 1 summarizes the deteriorating supply-demand situation. The current level of the Sales Pending is the same as during the end of November and February, while the listings are lot higher.
Santa Cruz County
Table 2 summarizes a supply/demand picture indicative of a dead market, with very few buyers and an increasing number of anxious sellers.
The situation is exemplified by a case study of a listing that I know of personally and other listings in the same development, which was built during the last 6-7 years. I visited the home after it had just been bought and the development’s early phase completed.
The homes from this development that are listed for sale are one to six years old, per the listings. Here is a partial list of homes for sale in this development:
97 VISTA POINTE DR
33 VISTA POINTE DR
77 VISTA POINTE DR
21 VISTA POINTE DR
72 VISTA VERDE CI
92 VISTA VERDE CI
52A VISTA VERDE CI
60 MONTEREY VISTA DR
NUEVA VISTA AV
38 QUINTA VISTA ST
10 PORTA VISTA CT
316 SUNSET VISTA
308 SUNSET VISTA
4 YARRO CT
33 PELICAN DR
108 PELICAN DR
63 PASEO DR
123 PASEO DR
50 VILLA ST
18 VILLA ST
62 VILLA ST
54 VILLA ST
126 LIGHTHOUSE DR
30 LA JOLLA ST
12 LA HACIENDA ST
39 LA HACIENDA ST
How many of the above are “flippers”? You can see that there are multiple homes for sale on some streets. There was even an article in the local paper about “sign pollution” in the Santa Cruz area! By the way, with changes in zoning there is plenty of land around this development for many future developments. The current housing bubble was God’s gift to the developer, who broke ground at the height of the tech bubble, when scam stock-options money was bidding up the prices in Silly.con Valley.
Tehachapi Area
Table 4 summarizes the situation that is getting worse by the day for the anxious sellers.
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San Francisco Seminar
The Hidden Pivot Seminar in San Francisco is a “go,” with only a firm date remaining to be set. As of now, it looks like it will be held in early February, so please let me know via-email if you’re interested in attending.
The two-day class is geared to teaching traders of all skill levels the rudiments of my proprietary Hidden Pivot System. Post-grad mentoring in a chat-room is included so that students can master the techniques learned in the classroom in a real-time setting.
A Student’s Experience
Here is what one of my grads, Hunter Reynolds, had to say recently about the chat room:
"We have all come a long way. I think everyone here is making a little $$, or we would be doing something else by now. I can honestly say I am up about ten percent, maybe a little more, since your class. I am pretty conservative. I just trade from the long side, but I'm getting really good at picking the hidden-pivot reversal points for the uptrend!"
Dates are not yet firm for a fourth seminar to be held in Sydney, Australia, but it looks like it will take place either in November 2006 or February 2007. The class is filling up, so do let me know soon if you’d like to attend.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2006, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 11 July 2006 | Digg This Article | Source: GoldSeek.com