Monday, September 26, 2011

New Home Sales Fall Again

The Commerce Department announced today that new home sales fell again for the fourth straight month to a new six-month low in August 2011.

What is crucial to note in the Commerce release is this startling statistic.

With a seasonably adjusted annual rate of merely 295,000 new home sales, the United States is LESS THAN HALF from the number of homes that must be sold merely to sustain (and not grow) a healthy housing market.

The U.S. needs to sell at least 700,000 new homes a year.

At best, this year new home sales may top 300,000.

I have been reporting in this blog for YEARS now that an improvement in the new home sector will not happen before 2015 and this figure is optimistic.

The news gets worse.  Prices of new homes are still falling, down another 9% over the last year.

So with near historically low mortgage interest rates and sharply falling prices, new home sales rates are steadily declining and even failing to keep pace with normal market demand forces needed to sustain a healthy market.

New home sales figures have fallen for FIVE straight years.

2011 is appearing to be #6.

What is the Federal government's response to this crisis?  So far, almost nothing.  But watch this video from Australia on what some "activists" are proposing for the new homes sales catastrophe in their country.  It is just a matter of time before similar calls go up in the United States, especially in an election year like 2012.

Wednesday, September 21, 2011

Seattle Homeless Encampments

On June 17, 2011 I posted this photo online of a homeless encampment in downtown Seattle.  The particular one I chose was just four blocks from City Hall and literally on an entrance ramp to Interstate 5.

Tens of thousands of people saw this encampment daily.  At the time I saw it in June, it "housed" about four people and was about a quarter of a city block long.

KING-5 TV in Seattle did a piece on this very same homeless encampment on September 14, 2011.

What took them so long?

When you watch the TV piece, look for the talking head shot of reporter Linda Brill.  You will see camping tents in the background, yet another homeless encampment that has arisen since my original report in June.

This report is amazing.  You will be stunned to learn that this particular encampment now houses twelve people and there is a "waiting list" for space.  I also learned through a source that works near the encampment that most of the people in this space have lived under I-5 for years and just migrate from one space to another when the complaints mount and some eviction action is finally taken.

The lesson here is simple.  That which is allowed to grow unchecked, does.

Saturday, September 10, 2011

Mortgage REIT Alert

The mortgage REIT sector has been hammered this week by the SEC decision to review whether such REITs should be regulated as investment companies under the Investment Act of 1940.

For FIFTY years, since 1960, when Ike was in the White House and Gunsmoke was the #1 show on your black-and-white TV, mortgage REITs have been exempt from this regulation.

And a whole new real estate investment sector developed around this exemption.

Now, of course, when the economy is mired in recession and the President is desperate to stimulate business growth, another part of his own administration decides to investigate if new rules on mortgage REITs are necessary.  In other words, should we regulate the use of leverage in this sector and drive some weak and troubled existing REITs out of business.

Investors in mortgage REITs need to be fearful.  Most issues took a hit this week and I'm not sure when the good times are coming back.  Here's another author that agrees with that assessment.

Mortgage REITs are great instruments for investors.  Yes, of course they use leverage, lots of it, to boost their yields.  So what?  Knowing how to use leverage is part of what mortgage REIT managers are paid to do on the job.

The sixty-day public comment period has begun.  Please contact the SEC and tell them HANDS OFF this sector.  Here is the SEC concept release and how to reply during the review period.

Saturday, September 3, 2011

Feds Sue the Banks

Seventeen of the country's biggest banks, including the struggling and financially threatened Bank of America, were sued yesterday by the Federal Housing Finance Agency.

The claim?  Misleading Freddie Mac and Fannie Mae on mortgage backed securities.

Read this excellent article on why the Feds will not win this case.

The idea that the government is bringing huge legal actions against the very banks they need to lend money to lift the nation out of recession is like shooting yourself in the foot to spite your face.  These lawsuits stand little chance of success and most likely will be settled with petty agreements on both sides.  This case is brought solely for political reasons and does nothing but further destabilize an already weak and deteriorating financial system.

The White House certainly knew that Friday's job report for August with ZERO employment growth was coming.  The announcement of lawsuits against the nation's largest banks on the same day the risk of a major double dip recession increased dramatically is the definition of poor timing.

The statute of limitations on these actions should have been allowed to quietly pass and this whole sordid mess left to history.  The banks have not gotten off scott-free for any actions they committed.  This observation is obvious.  If the goal is saving the U.S. economy, it is time to move forward and not hold show trials for the benefit of the 2012 campaign.  The banks have plenty to do to move the economy and showing up for depositions and producing evidence are not on the list.