GUNG HAY FAT CHOY
HAOLE MKA HIKI HO
It has been over 26 years since I left Hawaii to work the “mainland” as we Hawaiians refer to this part of America, so forgive me if my spelling is incorrect. It says, Happy New Year!
2009 IN REVIEW
This being December 31, 2009, I will spend this letter reviewing the past year per my letters and give you a forecast of the new decade of 2010.
December 30, 2008 I stated that the banks were holding onto their “bail out” funds from the Federal Reserve programs. That has remained to be the case throughout 2009. That lack or reluctance of banks to lend from the reserves created by the Federal Reserve ‘ investment in banks or from the TARP program has remained. I stated then that banks had “free” money at 0% and they would invest at 3% and make the spread to repair their balance sheets and take no risk in providing loans to the American Economy. That has been the case as the major “too big to fail” banks have repaid the investment of the FED. The key to these reserves and their ability to finance the expansion will be dealt with in 2010 forecast forward.
January 10, 20009 I wrote,
• “About a month ago I wrote you on the interest rate situation, TBills and Tbonds, mortgage rates and other related items. Today we have seen much of what I stated begin to see fruit. Interest rates have risen on Tbills and Tbonds. On December 18, 2008 the 30-year TBonds hit a low yield of 2.546% return, on January 6, 2009 the yield rose to 3.06%. Mortgage rates declined and money became available for mortgages.”….
• “2009 and where do we go? The first thing to remember is that money in circulation is inflationary. Sooner or later the money from TARP and the Bailouts will be taken off the balance sheets in the form of Tbills and Tbonds and go into the economic system. When it does it will cause prices to rise. If you haven’t notices, the price of gas is now up 10-15 cents a gallon and oil is up over $10 a barrel.”
On February 12, I wrote that I expected growth to come from “Platform” companies. I was wrong in that point. Growth has come from economizing of companies. Economy has come from lay offs and cutting on expenses. In reality there has been no growth but a rebound in earnings due to cutting of costs. That has not bided well for the American Worker.
The key to 2009 and our rebound is found in the April 4th letter. Confidence and a return of the acceptance of “risk” sums it all up. Homes sold quickly ion March and April after almost nothing from the prior 6 months.
By Mid-Year (June/July) not only were homes selling in our area, they were closing escrow. The fear I had in late spring was that all the offers that took the homes to pending would have closing problems as new underwriting terms were instituted. Buyers in Woodside, Palo Alto, Portola Valley and Menlo Park had money and good credit. The only slow down was in the time it took to close a transaction, 30 to 45 days were now the norm.
Fall 2009 brought about an 11% jump in homes sales, an increase of 7.2% in existing homes sales and the first time in 5 years that home sales increased 4 months in a row. Inventories began to decline, but unemployment in Silicon Valley continued to rise.
As leaves began to fall and pumpkins began to have smiles on their toothy or tooth-less faces homes sales continued to rise; but also so had commodity prices. The US$ was falling and offshore investors were looking for hedges for their dollar reserves and gold and commodities became a store of value. With that came the realization that the offshore investor was now becoming a noticeable factor in Silicon Valley as realtors were giving tours to visiting Asian Buyers.
While everyone planned for Thanksgiving the disparity between new homes sales and existing home sales became evident. The prices to build new homes had escalated due to the rise in commodity prices and existing homes were selling for less than construction cost to replace them.
As Santa approached and retailers looked to keep their stores open another year, housing starts continued to fall and inventories of homes for sale declined.
In summary, 2009 was not a bad year. The inventory of homes that all feared would cause a collapse in housing and a new depression did not occur. Sellers became more confident of the future and pulled homes from the market when the price did not confirm to what they felt their home was worth. Buyers on the other hand had confidence and the return to normal was beginning to occur. Existing homebuyers remodeled and obtained financing at historically low rates with substantial down payments. The buyer of the multi-million dollar property now came up with enough of a down payment to qualify and obtain a low interest small mortgage. A major change from the past, but in reality a return to way things were done in the not too distant past. Interest rates remained low and slowly more mortgages were available from numerous sources other than “too big to fail” banks.
2010 FORECAST
The key to 2010 is, or was, the key to 2009, THE RETURN OF RISK ACCEPTANCE.
We all became complacent with the various investments available prior to the fall of Lehman Brothers. If it had “insured” we invested. Money Market funds were well proven and many failed to consider the downside as ever a possibility. It had the makings of a fall. Fall it did and the repercussion was the lack of faith in anything other than U.S. Government Bonds, ergo, 0% on U.S. Treasury Bills. 2009 brought faith back into the investor mentality. Investors are need in a capitalistic system in order for the system to grow. Without investors it is a barren wilderness. Individual Investors can only go so far until the need of Institutional Investors are required. To understand Institutional Investors you must understand the “Prudent Man Principal”. Institutional Investors are fiduciaries. They are legally liable for the lost of funds placed in their care through the failure to follow the “Prudent Man Principal”. Prudence was waiting to repair one’s own house then waiting to determine if the system would survive. So it has, we did not fall and the system survived.
What justifies that comment, mergers and acquisitions are the answer. This will be one source of growth in 2010. Corporations that held large amounts of cash or had pristine credit ratings began to buy. With the purchase of companies, shareholders’ were liquefied. That liquidity will come back into the capitalistic system. It will come back in equity or debt, but come back it will. Whether the investor puts the money in a savings account or directly into the system the funds go back into the economy.
Where else will money come from to expand our growth? The “too big to fail banks” will be a major source. For most of 2009 the cry heard from economist was that bank reserves created by Tax Payer money was not flowing back into the economy. That is easy to understand. For all that one knows and hates about banks and bankers, they do know lending and interest rates and risk. They don’t know squat about running an investment bank or a trading operation, but they do know interest rates and risk of return of capital. With “insured” and “guaranteed” now only in the hands of the U. S. Government, banks can make sensible decisions on lending money. Here I go by my dear departed Father’s comments to me as a very young boy, “use your common sense”. Would a bank lend money long term at the historically lowest rate to waiting long term to regain it when inflation through the debasement of our currency through deficit funding was evident? Stupid, a fiduciary mistake and it could put them not only out of a job but next to Madoff making license plates.
I expect that interest rates will increase from 2010 forward. I expect a slow growth in lending from banks as they balance foreclosures, REO’s and Short Sales as they pray commercial loans remain balanced in their portfolios. I expect “median home prices” to increase. The increase will not come from increase values of homes, but from the sale of high-end homes; where to fore, the median home prices were composed of foreclosures, REO’s and Short Sales. I expect investors to begin to look at existing homes to buy at a discount, remodel and flip. I expect the new group of venture funds to be blind pool real estate funds composed of local (U.S.) investors and offshore investors. I expect offshore investors to continue to move their assets into the United States in the form of real estate investments. I expect that it will take a long time for the Dow Jones, S&P and NASDQ to regain their old highs for many years, 10 or more. I expect a picket fence of stock market indices, up and down, to frustrate inventors and that will drive them to real estate as a store of value. I expect the United States to dominate Technology and Innovation and that dominance will continue to draw students to the United States for education and training to help their countries and eventually lead them to relocate to the U.S.
The greatest fear I have is what I fear we may have in the next few years, STAGFLATION! That will be a return to Jimmy Carter and a stagnate economy with inflation. It was great for real estate and it was great for small growth companies and their development, but it was horrible for the U.S. economy. While I didn’t vote for the Kid with the Big Ears, I truly hope he can provide to the U.S. what I and those of my generation felt Jack Kennedy was going to provide. Good Luck Barry, do your best and that is all that you can hope for, with a little luck from above.
Happy New Year to All, and to All a Good Night.
POP!
Cindy come sit next to me by the fire while we watch the Ball Fall in Times Square.
Tuesday, January 12, 2010
Gold Sweet Gold
Gary’s Market Commentary
• Unemployment unexpectedly drop
• Commodity prices break led by Gold
• Dollar rallies
• What is the real value of a dollar
• Who has all the money and where will growth come from
• Results for November: new listings declining, inventory declining, closed sales declining, days on the market increasing.
The decline in unemployment to 10% was a complete surprise. It put the US$ in a turn around and gold and commodities in a sell of. Of course it was not unexpected as many analyst were calling for a halt in the decline in the US$ and a break in commodity prices especially that of gold. As we come to the end of the year, hedge funds, traders and investors will want to lock in their gains. Clear the decks take profits and lets take home our 20% of the profits, say the Hedge Fund Managers. It will be a big payday for the hedge fund industry. Of course, none of that will accrue to poor Mr., Mrs. and Miss America as they wonder: will they lose their home, keep their job or find a new one.
The rally in the US$ is good for our real estate market. As many wonder about the inventory of foreclosed homes and the potential for a commercial real estate bust; having buyers over seas with US$ to invest is a good omen.
As I stated in my past letters gold and commodities had nothing to do with supply and demand rather it had to do with the store of value. The US$ is basically a worthless security. It represents the “full faith and credit” of the United States of America. There is no Gold backing, no Silver backing; just paper that measures your labor. I recall the term a “fiat” currency from Economics in college. It is a transfer from your hard work and a measurement that allows you to buy something of hard value; like a home, a piece of jewelry, a car, commodities like gold and silver or a security that provides you a return of investment measured in income of equity growth, and goods and services.
Prior to August 15, 1971 the dollar was backed by gold or at least partially. The convertibility of US$ to Gold was in the hands of governments. Then on that date Richard M. Nixon ended the convertibility. The stock market ended its bull cycle in November 1972 and declined to a low and loss not seen since the Great Depression. Inflation soared, commodities soared, gold eventually stopped somewhere around $800 an oz.; but most importantly, real estate became a “store of value”. The foreign investors relied on their local government to convert the amassed US$ into gold put their faith in gold on the open market, commodities and U.S. Real Estate.
Many of you may not realize that the US$ was a gold backed currency for years. It was the Gold backing that helped move the U.S. out of the Great Depression. Yes, the U.S. Government spent billions to get us out and up and it was not until WWII that we really spent enough to get out. Did you know it was not inflationary? The spending from the time of FDR’s election until the end of WWII was financed with Gold at Fort Knox. All the dollars that were created and in circulation were Gold backed. Gold was $20.67 for years until FDR discovered that all he had to do is revalue Gold to $35 per oz. and our currency in circulation could expand by 69%! In fact FDR would joke after taking his breakfast and with cigarette and coffee decide whether to increase Gold another dollar or two.
So where are we today; and is it any different? Not really and yes it is different.
Not really is that the expansion of the US$ during the 60’s was from the Great Society of LBJ and the Viet Nam War. The expansion and deficit funding along with an imbalance in trade created another deficit, a trade deficit. Nations which began to accumulate US$ from their trade imbalance cashed the dollars in for Gold. There was not enough Gold in Fort Knox to cover the US$ in float, so Nixon ended the exchangeability. Too many dollars chasing too little goods resulted in inflation. The U.S. could have funded the Great Society and Viet Nam if there was a positive trade balance in favor of the United States! There was not a favorable balance and inflation was created when convertibility ended. What happened next was that “smart Money” realized that even hard assets, as in Gold and Silver, could become over priced and the next hard asset was Real Estate. What is the key to buying Real Estate? It is LOCATION, LOCATION, and LOCATION. Where is the safest most secure most equal place in the world to live? IT is the United States. So where is LOCATION, LOCATION, LOCATION located? It was then the United States. San Francisco, New York, Los Angeles, Honolulu took off, and then farmland took off as wheat, corn and soybean prices escalated.
What the politicians who created the imbalances missed back in the 60’s and 70’s was that the U.S. was no longer the cheapest and most competitive source of production in the world. The U.S. was losing the competitive edge. The Baby Boomers wanted it now and did not want Dad’s Cadillac, they wanted a BMW, a Mercedes, and Brooks Brothers was passé. The inheritance of the Baby Boom Generation from the Depression Generation’s frugality was spend, spend, “been there, seen that, got that”. A strong dollar and a change in spending attitude by cheap goods overseas was a part of the increasing imbalance of trade.
Today all the ills of the past are coming home. The imbalance of trade, deficit spending, lack of government regulation has created a weaker dollar. The crisis of September 2008, the failure of Lehman Brothers, the breaking of the “buck” by a Money Market Fund created a crisis of faith.
Looking back, where did the excess US$ go in the past and today? They went into Gold, commodities, and real estate. Who owns all those excess US$? China reportedly holds US$2.7 trillion. What backs the Yuan? It is the same thing that backed the U.S.$, competitive and cheap productivity and products. What was the first location the newly rich in China placed their bounty? Hong Kong was the first LOCATION. Today it is said that Hong Kong demands $US 1000 per square foot! Where will and where are those excess US$ looking now? The same place they went in the past, San Francisco, Los Angeles and New York City.
I believe that waiting to buy real estate will be a regret many look back on and regret their failure to act. The US$ you hold is worth only what it can buy. The yield on US Treasuries are lest than the historic inflation rate, the stock market is up over 60%, Gold is up over 50%. So where is the historic store of value that has not risen? You know the answer it is REAL ESTATE. The US Government is subsidizing the purchase of real estate; interest rates on mortgage have never been lower. Waiting will be your error.
The November report on Atherton, Menlo Park, Palo Alto, Portola Valley and Woodside show a decline in inventor, sales and new listings. Sooner or later you will see a “POP” in prices brought on by a “POP” in demand. We, Jim, Craig and I are waiting to help and negotiate for you now. Call us today and arrange a viewing and tour!
• Unemployment unexpectedly drop
• Commodity prices break led by Gold
• Dollar rallies
• What is the real value of a dollar
• Who has all the money and where will growth come from
• Results for November: new listings declining, inventory declining, closed sales declining, days on the market increasing.
The decline in unemployment to 10% was a complete surprise. It put the US$ in a turn around and gold and commodities in a sell of. Of course it was not unexpected as many analyst were calling for a halt in the decline in the US$ and a break in commodity prices especially that of gold. As we come to the end of the year, hedge funds, traders and investors will want to lock in their gains. Clear the decks take profits and lets take home our 20% of the profits, say the Hedge Fund Managers. It will be a big payday for the hedge fund industry. Of course, none of that will accrue to poor Mr., Mrs. and Miss America as they wonder: will they lose their home, keep their job or find a new one.
The rally in the US$ is good for our real estate market. As many wonder about the inventory of foreclosed homes and the potential for a commercial real estate bust; having buyers over seas with US$ to invest is a good omen.
As I stated in my past letters gold and commodities had nothing to do with supply and demand rather it had to do with the store of value. The US$ is basically a worthless security. It represents the “full faith and credit” of the United States of America. There is no Gold backing, no Silver backing; just paper that measures your labor. I recall the term a “fiat” currency from Economics in college. It is a transfer from your hard work and a measurement that allows you to buy something of hard value; like a home, a piece of jewelry, a car, commodities like gold and silver or a security that provides you a return of investment measured in income of equity growth, and goods and services.
Prior to August 15, 1971 the dollar was backed by gold or at least partially. The convertibility of US$ to Gold was in the hands of governments. Then on that date Richard M. Nixon ended the convertibility. The stock market ended its bull cycle in November 1972 and declined to a low and loss not seen since the Great Depression. Inflation soared, commodities soared, gold eventually stopped somewhere around $800 an oz.; but most importantly, real estate became a “store of value”. The foreign investors relied on their local government to convert the amassed US$ into gold put their faith in gold on the open market, commodities and U.S. Real Estate.
Many of you may not realize that the US$ was a gold backed currency for years. It was the Gold backing that helped move the U.S. out of the Great Depression. Yes, the U.S. Government spent billions to get us out and up and it was not until WWII that we really spent enough to get out. Did you know it was not inflationary? The spending from the time of FDR’s election until the end of WWII was financed with Gold at Fort Knox. All the dollars that were created and in circulation were Gold backed. Gold was $20.67 for years until FDR discovered that all he had to do is revalue Gold to $35 per oz. and our currency in circulation could expand by 69%! In fact FDR would joke after taking his breakfast and with cigarette and coffee decide whether to increase Gold another dollar or two.
So where are we today; and is it any different? Not really and yes it is different.
Not really is that the expansion of the US$ during the 60’s was from the Great Society of LBJ and the Viet Nam War. The expansion and deficit funding along with an imbalance in trade created another deficit, a trade deficit. Nations which began to accumulate US$ from their trade imbalance cashed the dollars in for Gold. There was not enough Gold in Fort Knox to cover the US$ in float, so Nixon ended the exchangeability. Too many dollars chasing too little goods resulted in inflation. The U.S. could have funded the Great Society and Viet Nam if there was a positive trade balance in favor of the United States! There was not a favorable balance and inflation was created when convertibility ended. What happened next was that “smart Money” realized that even hard assets, as in Gold and Silver, could become over priced and the next hard asset was Real Estate. What is the key to buying Real Estate? It is LOCATION, LOCATION, and LOCATION. Where is the safest most secure most equal place in the world to live? IT is the United States. So where is LOCATION, LOCATION, LOCATION located? It was then the United States. San Francisco, New York, Los Angeles, Honolulu took off, and then farmland took off as wheat, corn and soybean prices escalated.
What the politicians who created the imbalances missed back in the 60’s and 70’s was that the U.S. was no longer the cheapest and most competitive source of production in the world. The U.S. was losing the competitive edge. The Baby Boomers wanted it now and did not want Dad’s Cadillac, they wanted a BMW, a Mercedes, and Brooks Brothers was passé. The inheritance of the Baby Boom Generation from the Depression Generation’s frugality was spend, spend, “been there, seen that, got that”. A strong dollar and a change in spending attitude by cheap goods overseas was a part of the increasing imbalance of trade.
Today all the ills of the past are coming home. The imbalance of trade, deficit spending, lack of government regulation has created a weaker dollar. The crisis of September 2008, the failure of Lehman Brothers, the breaking of the “buck” by a Money Market Fund created a crisis of faith.
Looking back, where did the excess US$ go in the past and today? They went into Gold, commodities, and real estate. Who owns all those excess US$? China reportedly holds US$2.7 trillion. What backs the Yuan? It is the same thing that backed the U.S.$, competitive and cheap productivity and products. What was the first location the newly rich in China placed their bounty? Hong Kong was the first LOCATION. Today it is said that Hong Kong demands $US 1000 per square foot! Where will and where are those excess US$ looking now? The same place they went in the past, San Francisco, Los Angeles and New York City.
I believe that waiting to buy real estate will be a regret many look back on and regret their failure to act. The US$ you hold is worth only what it can buy. The yield on US Treasuries are lest than the historic inflation rate, the stock market is up over 60%, Gold is up over 50%. So where is the historic store of value that has not risen? You know the answer it is REAL ESTATE. The US Government is subsidizing the purchase of real estate; interest rates on mortgage have never been lower. Waiting will be your error.
The November report on Atherton, Menlo Park, Palo Alto, Portola Valley and Woodside show a decline in inventor, sales and new listings. Sooner or later you will see a “POP” in prices brought on by a “POP” in demand. We, Jim, Craig and I are waiting to help and negotiate for you now. Call us today and arrange a viewing and tour!
Tuesday, December 8, 2009
Gary's Market Commentary
November 18, 2009
• UNEXPECTED DROP IN HOUSING STARTS, NOT FROM THIS LETTER!
• MIXED MESSAGES ON HOUSING
• US$ CONTINUES TO BE WEAK, CHINA REFUSES TO RE-EVALUATE THE ASIAN TIGERS ALL APPEAL FOR STRONGER US$
• $ FOR CAUKERS NEXT?
• % RATES UP BEFORE THE ELECTION IN 2009 OR 2012?
• INVENTORY DECLINING, PENDINGS DECLINING, SALES DECLINING, CANCELLED/EXPIREDS/WITHDRAWNS REMAIN UNCHANGED
Gold continues to move higher as it stands at $1144.60 per troy ounce today. India has purchased 200 metric tons for their reserves and other Asian Tigers have informed the International Monetary Fund they plan to purchase at present and future auctions. Cotton has more than doubled from $38.71 to $72.55. Copper is higher up over 7% for the week at 313.35, which is from a 52 week low of 125.00. Finally, the other builder need, Lumber is at 233.90 from the 52 week low of 137.90. Of course, let’s not forget Crude Oil at 80.33 and a 52 week low of 32.40!
I saw a paving contractor I recommended for a project in 2003. I asked if he remembered the project and the price he bid. “Sure do”, he said, “that project at $58,000 would cost about $150,000 today”. “Oil and labor benefits are the reason for the higher price”, he said.
Should housing starts be unexpectedly low when cost of construction is rising and the inventory of short sales and foreclosures and REO weigh in on the market? I don’t know where the newspaper people are getting their forecasts from, I do know common sense tells me unless builders work for no profit housing starts will be low.
That leads us to existing home sales. With the tax credit ending 2010 ( sign by April and close by June 2010), will home prices begin a slide back down, remain the same or slowly inch up? Oh Boy, where is Merlin now? Let’s try and take that apart.
With the tax credit gone will the benefit for buying lessen? That really depends on interest rates. Bernanke has said he will not raise rates. The rally we have in the stock market has been on profits by US Corporations based upon their ability to cut back, lay off rather than increase revenue. So that means we need employment to increase. The Congressmen are already looking at the November 2010 election. Congress knows that if unemployment remains high and is not declining their job is on the line. Do you want a job Mr. congressman, get employment moving. Are the Congressmen up for election intent on passing a universal medical coverage or moving on the employment issue? My common sense tells me jobs will replace health care issues. At present the expectation is that unemployment will move to 11% next quarter and then down to 10% by end of 2010. That is not going to help the Democrat “Blue” majority! The GOP, “Red”, is already aiming at employment.
Adding to the unemployment question is the Household Creation question. 2008 was the first time in years that household creation fell. Household creation was a major motivator of home buying along with employment numbers. It has since flattened with a pent up of demand of the household created in 2008 and 2009 laying to the question of how long will they rent? Many economists are optimistic on this pent up demand bursting into the housing sector. If you add the potential of employment declining, we could very well see a stronger market in 2010. The National Association of Realtors expects home prices to increase 4% in 2010 with sales hitting 5.7 million units slightly above the 2007 level.
Of course the key to this will also be interest rates. Bernanke says rates will remain the same as we have no inflation, economist look at rates increasing by the 4th quarter of next year. Other economists see flat rates for 2 more years or 2012. The “4th economists” of the national poll think the employment numbers will be declining, job creation expanding and most probable is the household creation log jam busts and renters become buyers. On the “other side economists”, the forecast is for a weaker economy, weaker dollar and increased unemployment. With all pressure on the US$, I put my money with Congressman wanting their jobs and job creation as the major focus of the remaining 2009 and into 2010. What does your common sense tell you?
Obama got the message from China, no on revaluation of the Yuan! The U.S. will only hurt the rest of the world who use the US$ as a reserve currency by keeping the US$ low or falling. This will only drive the 3rd world and maybe other allies into the China Circle. Let’s get back to basics. We can drop the price of commodity prices and control inflation at the same time we raise interest rates and strengthen the US$. Does that make sense? What I am saying is that commodity prices are rising only because they are a store of value versus owning the US$. The rises in commodity prices were and are not from supply and demand for end product use. The Chinese are supposedly buying for their stock pile. Where they, or was it to put further pressure on the US and the populace. Their citizens are subsidized to a great extent. Individual rights are not a subject for discussion China told Obama. OK, Obama back to the drawing boards. IF and that is an IF, the economy picks up production begins to increase, inventories accumulate and interest rates increase what happens to the speculator and investor who bought commodities for a hedge. The answer is they sell. Gold is ONLY a store of value. If the US$ strengthens the move is from GOLD which cost to hold to the US$, Treasury Bills and Bonds which pay interest!
So where is the new wave of stimulus that will help in job creation come from? How about a new twist to an old success story: Cash for Clunkers becomes Cash for Caulkers. One highly successful program was Cash for Clunkers. It would not have induced a boom without it! John Doerr of Silicon Valley and former President Bill Clinton have suggested Cash for Caulkers and it has one of the top things Obama is looking at per Rahm Emanuel Obama’s Chief of Staff. Doerr’s plan would cost $23 billion over 2 years and most for incentive payments of $2000-$4000 for weatherization projects. The homeowner would pay half the costs. $3 billion would be allocated to retailers and contractors to promote the program. Bill Clinton points to the Houston program that pays about $1000 to winterize a home. It worked because homes need other improvements and the cost is bore from the stimulus. Not bad thinking!
Oh yes, watch out for a correction in the stock market if this all comes out. Commodity driven companies will be liquidated, the bond market will go down and we could see another bubble burst. So go out and take some profits before the end of the year!
The key to the buyer is VALUE! Oh yes, a new chart with more information. Let me know if you want other cities added.
• UNEXPECTED DROP IN HOUSING STARTS, NOT FROM THIS LETTER!
• MIXED MESSAGES ON HOUSING
• US$ CONTINUES TO BE WEAK, CHINA REFUSES TO RE-EVALUATE THE ASIAN TIGERS ALL APPEAL FOR STRONGER US$
• $ FOR CAUKERS NEXT?
• % RATES UP BEFORE THE ELECTION IN 2009 OR 2012?
• INVENTORY DECLINING, PENDINGS DECLINING, SALES DECLINING, CANCELLED/EXPIREDS/WITHDRAWNS REMAIN UNCHANGED
Gold continues to move higher as it stands at $1144.60 per troy ounce today. India has purchased 200 metric tons for their reserves and other Asian Tigers have informed the International Monetary Fund they plan to purchase at present and future auctions. Cotton has more than doubled from $38.71 to $72.55. Copper is higher up over 7% for the week at 313.35, which is from a 52 week low of 125.00. Finally, the other builder need, Lumber is at 233.90 from the 52 week low of 137.90. Of course, let’s not forget Crude Oil at 80.33 and a 52 week low of 32.40!
I saw a paving contractor I recommended for a project in 2003. I asked if he remembered the project and the price he bid. “Sure do”, he said, “that project at $58,000 would cost about $150,000 today”. “Oil and labor benefits are the reason for the higher price”, he said.
Should housing starts be unexpectedly low when cost of construction is rising and the inventory of short sales and foreclosures and REO weigh in on the market? I don’t know where the newspaper people are getting their forecasts from, I do know common sense tells me unless builders work for no profit housing starts will be low.
That leads us to existing home sales. With the tax credit ending 2010 ( sign by April and close by June 2010), will home prices begin a slide back down, remain the same or slowly inch up? Oh Boy, where is Merlin now? Let’s try and take that apart.
With the tax credit gone will the benefit for buying lessen? That really depends on interest rates. Bernanke has said he will not raise rates. The rally we have in the stock market has been on profits by US Corporations based upon their ability to cut back, lay off rather than increase revenue. So that means we need employment to increase. The Congressmen are already looking at the November 2010 election. Congress knows that if unemployment remains high and is not declining their job is on the line. Do you want a job Mr. congressman, get employment moving. Are the Congressmen up for election intent on passing a universal medical coverage or moving on the employment issue? My common sense tells me jobs will replace health care issues. At present the expectation is that unemployment will move to 11% next quarter and then down to 10% by end of 2010. That is not going to help the Democrat “Blue” majority! The GOP, “Red”, is already aiming at employment.
Adding to the unemployment question is the Household Creation question. 2008 was the first time in years that household creation fell. Household creation was a major motivator of home buying along with employment numbers. It has since flattened with a pent up of demand of the household created in 2008 and 2009 laying to the question of how long will they rent? Many economists are optimistic on this pent up demand bursting into the housing sector. If you add the potential of employment declining, we could very well see a stronger market in 2010. The National Association of Realtors expects home prices to increase 4% in 2010 with sales hitting 5.7 million units slightly above the 2007 level.
Of course the key to this will also be interest rates. Bernanke says rates will remain the same as we have no inflation, economist look at rates increasing by the 4th quarter of next year. Other economists see flat rates for 2 more years or 2012. The “4th economists” of the national poll think the employment numbers will be declining, job creation expanding and most probable is the household creation log jam busts and renters become buyers. On the “other side economists”, the forecast is for a weaker economy, weaker dollar and increased unemployment. With all pressure on the US$, I put my money with Congressman wanting their jobs and job creation as the major focus of the remaining 2009 and into 2010. What does your common sense tell you?
Obama got the message from China, no on revaluation of the Yuan! The U.S. will only hurt the rest of the world who use the US$ as a reserve currency by keeping the US$ low or falling. This will only drive the 3rd world and maybe other allies into the China Circle. Let’s get back to basics. We can drop the price of commodity prices and control inflation at the same time we raise interest rates and strengthen the US$. Does that make sense? What I am saying is that commodity prices are rising only because they are a store of value versus owning the US$. The rises in commodity prices were and are not from supply and demand for end product use. The Chinese are supposedly buying for their stock pile. Where they, or was it to put further pressure on the US and the populace. Their citizens are subsidized to a great extent. Individual rights are not a subject for discussion China told Obama. OK, Obama back to the drawing boards. IF and that is an IF, the economy picks up production begins to increase, inventories accumulate and interest rates increase what happens to the speculator and investor who bought commodities for a hedge. The answer is they sell. Gold is ONLY a store of value. If the US$ strengthens the move is from GOLD which cost to hold to the US$, Treasury Bills and Bonds which pay interest!
So where is the new wave of stimulus that will help in job creation come from? How about a new twist to an old success story: Cash for Clunkers becomes Cash for Caulkers. One highly successful program was Cash for Clunkers. It would not have induced a boom without it! John Doerr of Silicon Valley and former President Bill Clinton have suggested Cash for Caulkers and it has one of the top things Obama is looking at per Rahm Emanuel Obama’s Chief of Staff. Doerr’s plan would cost $23 billion over 2 years and most for incentive payments of $2000-$4000 for weatherization projects. The homeowner would pay half the costs. $3 billion would be allocated to retailers and contractors to promote the program. Bill Clinton points to the Houston program that pays about $1000 to winterize a home. It worked because homes need other improvements and the cost is bore from the stimulus. Not bad thinking!
Oh yes, watch out for a correction in the stock market if this all comes out. Commodity driven companies will be liquidated, the bond market will go down and we could see another bubble burst. So go out and take some profits before the end of the year!
The key to the buyer is VALUE! Oh yes, a new chart with more information. Let me know if you want other cities added.
Wednesday, November 11, 2009
Market Commentary
November 2, 2009
Last week I wrote about the disparity between “New Home Sales” versus “Existing Home Sales”. My commentary rationalized the disparity to the cost of construction and the escalating price of commodities due to the weakness in the US$ and the accumulation of US$ by developing nations, most notable to that being China.
This last week New Home Sales fell 3.6%, while big order ticket items such as cars, washing machines and the like increased 1%, and economists forecasted a 3% GDP growth for the 3rd quarter 2009. Add this to the thought process; “remodeling prices” are down an average of 5%-10% across the U.S. With the cost of construction being material and labor it tells me that the labor part is being discounted to accommodate for the rise in material costs. With “New Homes” sales being down, new home contractors are competing for remodeling jobs. This is a great combination for the reason for increasing existing home sales. The competition from the new homes sector could be increased competition from laid of Commercial builders. The SF Chronicle states commercial vacancy rates are now at 14% and 70 projects for new home construction remain on the drawing boards. The S&P/Case-Shiller home price index composite of 20 cities rose 1.2% in August from July 2009. The best performing areas were Minneapolis at 3.2% and San Francisco at 2.8%.
Last week I wrote about the disparity between “New Home Sales” versus “Existing Home Sales”. My commentary rationalized the disparity to the cost of construction and the escalating price of commodities due to the weakness in the US$ and the accumulation of US$ by developing nations, most notable to that being China.
This last week New Home Sales fell 3.6%, while big order ticket items such as cars, washing machines and the like increased 1%, and economists forecasted a 3% GDP growth for the 3rd quarter 2009. Add this to the thought process; “remodeling prices” are down an average of 5%-10% across the U.S. With the cost of construction being material and labor it tells me that the labor part is being discounted to accommodate for the rise in material costs. With “New Homes” sales being down, new home contractors are competing for remodeling jobs. This is a great combination for the reason for increasing existing home sales. The competition from the new homes sector could be increased competition from laid of Commercial builders. The SF Chronicle states commercial vacancy rates are now at 14% and 70 projects for new home construction remain on the drawing boards. The S&P/Case-Shiller home price index composite of 20 cities rose 1.2% in August from July 2009. The best performing areas were Minneapolis at 3.2% and San Francisco at 2.8%.
Thursday, October 29, 2009
And The Story Goes...
OCTOBER 27, 2009
· SEPTEMBER EXISTING HOME SALES ROSE 9.4%
· COMMODITY PRICES CONTINUE TO HIT HISTORIC HIGHS
· CHINA BEGINS A DIVERSIFICATION OF ASSETS
· HOW TO PRICE YOUR HOME PURCHASE
By all appearances, LOCALLY, it looks like a bottom was hit in our real estate market. From our local statistics foreclosures sales have dropped substantially; although, there continues to be an increasing number in the amount of default notices.
Copper has hit a 30-year high and Cocoa has hit a 28-year high, Oil over $80 while gas has not followed suit and natural gas remains bogged down a historically low prices. Other basic commodities continue to move up toward their historic highs seen in the 70’s. Interest rates for convention 30-year bonds have moved up as Chairman Bernanke has stated the economy has improved and interest rates may move up.
With all the indications that the economy is improving, employment has not improved and forecasts are that there will be a 10% unemployment rate in the first quarter of 2010. The consumer is not spending and the main theme of getting the consumer to spend is VALUE.
VALUE is also the word when looking to purchase real estate. Frankly, value should always motivate any investment. When “FEAR” and “GREED” motivate the real estate transaction is either over valued or under valued. So, how do you evaluate the real estate in a transaction?
The evaluation is part of the statistics that are given each month; it is NEW HOMES SOLD, which still is unimpressive. Why is that so, it is cheaper, to buy than to build is the sole answer. Whenever an economy comes out of a recession there is a recovery phase. During that phase you will notice that Companies are active buying other companies. Why is that, it is cheaper to buy than build. The price of the company being acquired is a function of the stock price of that company. Acquisition companies, like Oracle, use their cash reserves and their balance sheet to purchase other related companies who are weaker, smaller; or just under-priced. So is the case in real estate.
As an example let us look at a home from what they are built of. From my last letter I referenced the cost of oil and commodity prices being a part of the construction of a home. There was a time when West Menlo Homes sold at $1000 per square foot; they since have fallen to $750 or less.
Take apart the cost of a home and break down into land and improved costs. It is not that difficult to find a tear down and use the sale price as a cost of land. You can also look at title of a recent sale and find out what the County Tax Records has for land and improvements. With the County records you will know what a 10,000 square foot lot in West Menlo Park, or a lot in wherever you are looking is worth.
With that price in you can now look at the difference between the asking price of the home you are considering and the latest comp in the area land value. Now divide the square foot of the home into the difference of list and land. What is the result? Take that number and determine what will be the costs of improvements to update or cure the ills of the property. Now you have a new price, divide it by the square foot of the property. What is the resultant? Now look at a newly built property, do the same. Now you know the comparative value. The seller’s are both vulnerable. Here is how you proceed.
Which home do you like? If it is the older home make the offer less the cost of improvements and the cure of the ills. If it is the newly built house use the older house as leverage against the seller. The seller of a newly built home is not in a strong position. The seller is usually a contractor or speculative builder. The seller has bank money invested in the property and has pressure to sell the property either due to the cost of carry and or lender pressure. The seller of the older home may be in a strong position or may not. You need to find out more about the seller. Is it an estate sale, does it need court approval. Are the owners long-term owners and why are they selling.
This is what I do for my clients before they even make an offer on a home. If they are listing a property I look at what is needed to make the home competitive and tell them how many days on the market they must look at in today’s new market place. All of what I have written about is what an appraiser looks at and the lender looks at. It is called “comparative market analysis”.
You can go one option further and that is to contact a builder and find out what is the average construction costs are for a typical size home you are considering purchasing. Find out what the contractor mark up is and then the cost of permits and architectural fees. Once you have that you can make a cost comparison on the “Cost Basis”
Sound complicated, that is what you pay a realtor for, not only to know the market; but how to evaluate the market. Just because the realtor spends money to advertise in the local papers and magazines does not mean they are cost or comparison analysts. They may be simply great sales persons!
Now on to what is causing the increase in commodity prices in a major recession. It’s all about the US$. A strong US$ created growth in the world economies. After WWII the US was the sole economy and country that was not devastated by the war. The strong currency was the US$. The world was building back and their currencies were weak. Weak currency means competitive prices on the world market for goods and services. Since WWII the US has subsidized the growth of all the world’s economies by having a strong dollar. It makes sense, does it not, to look at providing goods and services at a cheaper rate than the same goods and services provided in the US. Therefore, we saw large accumulation of dollars in a country like Japan. Japan has kept its currency weak and they accumulated US$ and provided competitive goods; sometimes at the expense of US companies. Now we have China, but in this case the US$ is weak. The currencies and countries of the world have grown up. It is now time for the US to get back its competitive edge; ergo, a weak dollar. China and many of the world economies have accumulated dollar holding is the form of US Treasury Bonds. These bonds are the countries’ reserves. Too many weak US$ coming in means they must diversify. They cannot sell the bonds they hold dominated in a weak currency of the US$ or the value of those bonds and their reserves would collapse. What decision do they make? How do they offset the loss in value due to a weak US$? The decision was made to accumulate commodities with the excess dollars and offset their reserves with Gold, Copper. These commodities when then be available for their economies. Remember this, China and the Asian Tigers are still controlled economies and subsidized by the State. Mao maybe dead and there is a Western Look to Beijing, but his creation is still there
To me this is a slam-dunk formula for high housing prices and a revival in the Real Estate market and the US economy. Excess reserves, higher construction costs and the off shore buyers come in to acquire homes in the safest government in the world; the foreign buyers did it in the last recession of 1974, they are doing it now.
This Monday I drove to San Francisco to deliver a packet for a listing we have in Portola Valley, 5070 Alpine Road, to an attorney representing a Hong Kong conglomerate of buyers. San Francisco was like a Sunday when I lived there. Parking in the Sutter parking center was readily available on the 4th floor when normally I would be required to go to 7 or 8. As I walked along Kearny and Sutter Streets, I notice parking spots available. What, parking spots available on a weekday in San Francisco? The stores along the way were snack shops and fast food stores. The clothing stores were not open or having big sales. When I returned I asked the girl at the shoeshine spot in the parking lot main floor why it was so slow. She said that it was always that way now. Stores are closing and the restaurants are losing business to the cheaper fast food outlet. That was not the case in Menlo Park and Palo Alto when I returned back from San Francisco. Like they say in Hawaii, “lucky you live Hawaii”, now it is lucky you live in the Peninsula!
From now on you will have charts and graphs to look at. The year-end is usually the best time for buyers to get “value”.
Click the link below for the charts:
· SEPTEMBER EXISTING HOME SALES ROSE 9.4%
· COMMODITY PRICES CONTINUE TO HIT HISTORIC HIGHS
· CHINA BEGINS A DIVERSIFICATION OF ASSETS
· HOW TO PRICE YOUR HOME PURCHASE
By all appearances, LOCALLY, it looks like a bottom was hit in our real estate market. From our local statistics foreclosures sales have dropped substantially; although, there continues to be an increasing number in the amount of default notices.
Copper has hit a 30-year high and Cocoa has hit a 28-year high, Oil over $80 while gas has not followed suit and natural gas remains bogged down a historically low prices. Other basic commodities continue to move up toward their historic highs seen in the 70’s. Interest rates for convention 30-year bonds have moved up as Chairman Bernanke has stated the economy has improved and interest rates may move up.
With all the indications that the economy is improving, employment has not improved and forecasts are that there will be a 10% unemployment rate in the first quarter of 2010. The consumer is not spending and the main theme of getting the consumer to spend is VALUE.
VALUE is also the word when looking to purchase real estate. Frankly, value should always motivate any investment. When “FEAR” and “GREED” motivate the real estate transaction is either over valued or under valued. So, how do you evaluate the real estate in a transaction?
The evaluation is part of the statistics that are given each month; it is NEW HOMES SOLD, which still is unimpressive. Why is that so, it is cheaper, to buy than to build is the sole answer. Whenever an economy comes out of a recession there is a recovery phase. During that phase you will notice that Companies are active buying other companies. Why is that, it is cheaper to buy than build. The price of the company being acquired is a function of the stock price of that company. Acquisition companies, like Oracle, use their cash reserves and their balance sheet to purchase other related companies who are weaker, smaller; or just under-priced. So is the case in real estate.
As an example let us look at a home from what they are built of. From my last letter I referenced the cost of oil and commodity prices being a part of the construction of a home. There was a time when West Menlo Homes sold at $1000 per square foot; they since have fallen to $750 or less.
Take apart the cost of a home and break down into land and improved costs. It is not that difficult to find a tear down and use the sale price as a cost of land. You can also look at title of a recent sale and find out what the County Tax Records has for land and improvements. With the County records you will know what a 10,000 square foot lot in West Menlo Park, or a lot in wherever you are looking is worth.
With that price in you can now look at the difference between the asking price of the home you are considering and the latest comp in the area land value. Now divide the square foot of the home into the difference of list and land. What is the result? Take that number and determine what will be the costs of improvements to update or cure the ills of the property. Now you have a new price, divide it by the square foot of the property. What is the resultant? Now look at a newly built property, do the same. Now you know the comparative value. The seller’s are both vulnerable. Here is how you proceed.
Which home do you like? If it is the older home make the offer less the cost of improvements and the cure of the ills. If it is the newly built house use the older house as leverage against the seller. The seller of a newly built home is not in a strong position. The seller is usually a contractor or speculative builder. The seller has bank money invested in the property and has pressure to sell the property either due to the cost of carry and or lender pressure. The seller of the older home may be in a strong position or may not. You need to find out more about the seller. Is it an estate sale, does it need court approval. Are the owners long-term owners and why are they selling.
This is what I do for my clients before they even make an offer on a home. If they are listing a property I look at what is needed to make the home competitive and tell them how many days on the market they must look at in today’s new market place. All of what I have written about is what an appraiser looks at and the lender looks at. It is called “comparative market analysis”.
You can go one option further and that is to contact a builder and find out what is the average construction costs are for a typical size home you are considering purchasing. Find out what the contractor mark up is and then the cost of permits and architectural fees. Once you have that you can make a cost comparison on the “Cost Basis”
Sound complicated, that is what you pay a realtor for, not only to know the market; but how to evaluate the market. Just because the realtor spends money to advertise in the local papers and magazines does not mean they are cost or comparison analysts. They may be simply great sales persons!
Now on to what is causing the increase in commodity prices in a major recession. It’s all about the US$. A strong US$ created growth in the world economies. After WWII the US was the sole economy and country that was not devastated by the war. The strong currency was the US$. The world was building back and their currencies were weak. Weak currency means competitive prices on the world market for goods and services. Since WWII the US has subsidized the growth of all the world’s economies by having a strong dollar. It makes sense, does it not, to look at providing goods and services at a cheaper rate than the same goods and services provided in the US. Therefore, we saw large accumulation of dollars in a country like Japan. Japan has kept its currency weak and they accumulated US$ and provided competitive goods; sometimes at the expense of US companies. Now we have China, but in this case the US$ is weak. The currencies and countries of the world have grown up. It is now time for the US to get back its competitive edge; ergo, a weak dollar. China and many of the world economies have accumulated dollar holding is the form of US Treasury Bonds. These bonds are the countries’ reserves. Too many weak US$ coming in means they must diversify. They cannot sell the bonds they hold dominated in a weak currency of the US$ or the value of those bonds and their reserves would collapse. What decision do they make? How do they offset the loss in value due to a weak US$? The decision was made to accumulate commodities with the excess dollars and offset their reserves with Gold, Copper. These commodities when then be available for their economies. Remember this, China and the Asian Tigers are still controlled economies and subsidized by the State. Mao maybe dead and there is a Western Look to Beijing, but his creation is still there
To me this is a slam-dunk formula for high housing prices and a revival in the Real Estate market and the US economy. Excess reserves, higher construction costs and the off shore buyers come in to acquire homes in the safest government in the world; the foreign buyers did it in the last recession of 1974, they are doing it now.
This Monday I drove to San Francisco to deliver a packet for a listing we have in Portola Valley, 5070 Alpine Road, to an attorney representing a Hong Kong conglomerate of buyers. San Francisco was like a Sunday when I lived there. Parking in the Sutter parking center was readily available on the 4th floor when normally I would be required to go to 7 or 8. As I walked along Kearny and Sutter Streets, I notice parking spots available. What, parking spots available on a weekday in San Francisco? The stores along the way were snack shops and fast food stores. The clothing stores were not open or having big sales. When I returned I asked the girl at the shoeshine spot in the parking lot main floor why it was so slow. She said that it was always that way now. Stores are closing and the restaurants are losing business to the cheaper fast food outlet. That was not the case in Menlo Park and Palo Alto when I returned back from San Francisco. Like they say in Hawaii, “lucky you live Hawaii”, now it is lucky you live in the Peninsula!
From now on you will have charts and graphs to look at. The year-end is usually the best time for buyers to get “value”.
Click the link below for the charts:
"Use Your Common Sense"
October 13, 2009 - SF Bay Area (Peninsula)
1)Commodity Prices Rise
2)International Economies Rebound
3)Dollar Still Weak
4)Where is the Growth Coming From
Australian is “Commodity Currency Country”. What that means is that Australia relies on commodities; such as grain, metal ore and the like to prosper. In fact; all Natural Resource Countries have had a rebound in their economies and their currency. The demand from China for raw resources has returned and the world economy has bounced back. So why has not the U.S. I think the major reason is we lost our competitiveness because we kept a strong US $. The strong $ allowed the developing nations a favorable spin against our businesses. You all know the fact about the person in Silicon Valley who was laid off and replaced with a worker in India or another developing nation, simply to save money for the parent corporation. A strong $US did that. With a weak dollar the situation will change. Sooner or later the developing country employee becomes more expensive than the domestic employee. Our goods become competitive to foreign competitor’s goods and the tide will swing and the balance of payments will become positive.
The next wave is the present wave, foreign investors and residents will look for a secure environment to raise their families and protect their newly accumulated wealth. Where else but the United States? They will use their strong currency to purchase weak currency US$ assets. Stocks are necessary a stable asset that can be bought on a discounted level, but at present real estate is a discounted US asset.
I recently attended a “Angel Venture Capital” investor forum for Keiretsu Forum in August and September. I was interested in the subject of the August Forum and the venture capital investment Keiretsu would introduce to their members. The August forum was in San Francisco and dealt with depressed real estate. It was STANDING ROOM ONLY! I am not talking about small investors. I am talking about institutional investors and investors with a minimum net worth of $5 million net of home. In fact, a venture capital investor will take 20 or more positions on the basis of not all working. With a minimum of $1 million per investment we are talking about investors with $20 million of speculative money to invest and that speculative money is roughly 5% of their net worth. What I am talking about are big time investors!
The September Forum had 5 investment 3 were real estate oriented and two were funds to purchase real estate.
This group of venture capital investors invests for a 5-year time frame. If they think real estate is the place to look, where should you be?
As the only hard asset that has not participated in the commodity boom; as gold, silver, oil and other natural resources, physiological forces not real forces have kept down real estate.
Let me explain that comment, what is asphalt’s major component? Oil is it not? What about copper prices? They have increased along with other metals. What are pipes and home wiring made of? What about the circuit boards in the electrical panels? The roofing is wood or a composite made from, oil. There is not one part of a home that is not a natural resource commodity. The trucks that bring equipment to the employees and the material; they are all natural resource driven. What country has the greatest source of natural resources? You got it, the United States. Would we purchase high priced foreign resources with low priced US $? Of course not is the logical answer.
Where do we go now? We touched upon natural resource value and the weak dollar; but who will drive our future growth?
Immigration is the answer. I have retired my designation as a certified financial analyst and investment advisor, but I still keep up to date with many of the publications. Martin Barnes wrote one of the publications that I kept in my files in 2004. It is titled “Global Demographics: An Economic and Geopolitical Time Bomb. WOW! I will attach it here or a link to it for those of you who wish to read the article in full.
http://isvr.net/usr/1024408819/CustomPages/Gobal_Time_Bomb.pdf
The basis is this, the baby boom generations of the post WW II years are retiring and moving out of the work force and are no longer the age of Conspicuous Consumption. That goes for the US, Britain, France, Germany, Japan, Russia, Australia and Italy. Only the US will have a positive growth in population. In fact, the US growth projected for 2000-50 will be # 1 at +123.7%. Where elsewhere will there be growth: Yemen +66.4%, Afghanistan +48.1%, Iran +39.1%, Iraq +34.7%, and Saudi Arabia +32.6%.
If the US is losing the greatest generation, the Baby Boomers, where will growth come from? Immigration. The projected fertility rate is 2.05 for 1995-2000 in the US; in Mexico it was 2.75, India 3.45, Egypt 3.51, Saudi Arabia 5.09, Pakistan 5.48, Nigeria 5.92 and Yemen at 7.30.
Based upon those statistics will real estate prices remain at their present levels? I must say that my father told me as a very young boy, 8 or 9, to use your common sense when I made a mistake. When we will all do the same? Sooner or later the inventory of homes will decline, sooner or later the news commentaries will talk about the escalating cost of home construction, repair and remodeling and sooner or later home values will increase. Sooner or later a solid form of lending will occur and a change from the old system will be accepted. When that all occurs home prices will increase. How far away is that? I use the venture capitalist time fame, 5 years or more. 10 years from today people will brag about buying in Woodside, Atherton, Menlo Park, Portola Valley and Palo Alto at the depressed levels of the Great Recession of 2009. Will you be one of them?
I added a new column to the statistical page below, it is “expired, cancelled and withdrawn” homes. I decided to add this page since I sent out letters to this group every 14 days. The average number is usually about 39 or more. We have dropped sharply. What does that mean? My guess is that sellers are staying pat with their listings. The seller has realized that it may talk longer to sell a home, but it will sell at or near their listing price. Sooner or later the buyer realizes that the price will not decline any further and they will make their offer.
October 13, 2009
City
Active
Pending
Pending 2
Sold
Exp/Cxl/WD
Atherton
43
5
8
0
1
Menlo Park
75
19
10
10
10
Portola Valley
28
4
4
3
3
Woodside
53
9
3
0
1
Palo Alto
103
22
33
12
9
September 24, 2009
Inventory
Pending
Pending contingencies removed
Sold
Menlo Park
85
14
12
16
Portola Valley
28
2
8
4
Woodside
54
5
1
4
Atherton
39
5
6
11
Palo Alto
114
22
28
36
September 2, 2009
City
Inventory
Pending
Pending contingencies removed
Sold
Menlo Park
72
12
11
17
Portola Valley
27
2
6
5
Woodside
52
2
1
5
Atherton
40
5
6
6
Palo Alto
93
21
28
28
July 28th report as a comparison
Cities
Active
Pending
Pending Do Not Show
Sold
Menlo Park
90
10
13
58
Portola Valley
33
5
1
6
Woodside
57
2
5
3
Atherton
37
3
10
7
Palo Alto
117
13
25
27
1)Commodity Prices Rise
2)International Economies Rebound
3)Dollar Still Weak
4)Where is the Growth Coming From
Australian is “Commodity Currency Country”. What that means is that Australia relies on commodities; such as grain, metal ore and the like to prosper. In fact; all Natural Resource Countries have had a rebound in their economies and their currency. The demand from China for raw resources has returned and the world economy has bounced back. So why has not the U.S. I think the major reason is we lost our competitiveness because we kept a strong US $. The strong $ allowed the developing nations a favorable spin against our businesses. You all know the fact about the person in Silicon Valley who was laid off and replaced with a worker in India or another developing nation, simply to save money for the parent corporation. A strong $US did that. With a weak dollar the situation will change. Sooner or later the developing country employee becomes more expensive than the domestic employee. Our goods become competitive to foreign competitor’s goods and the tide will swing and the balance of payments will become positive.
The next wave is the present wave, foreign investors and residents will look for a secure environment to raise their families and protect their newly accumulated wealth. Where else but the United States? They will use their strong currency to purchase weak currency US$ assets. Stocks are necessary a stable asset that can be bought on a discounted level, but at present real estate is a discounted US asset.
I recently attended a “Angel Venture Capital” investor forum for Keiretsu Forum in August and September. I was interested in the subject of the August Forum and the venture capital investment Keiretsu would introduce to their members. The August forum was in San Francisco and dealt with depressed real estate. It was STANDING ROOM ONLY! I am not talking about small investors. I am talking about institutional investors and investors with a minimum net worth of $5 million net of home. In fact, a venture capital investor will take 20 or more positions on the basis of not all working. With a minimum of $1 million per investment we are talking about investors with $20 million of speculative money to invest and that speculative money is roughly 5% of their net worth. What I am talking about are big time investors!
The September Forum had 5 investment 3 were real estate oriented and two were funds to purchase real estate.
This group of venture capital investors invests for a 5-year time frame. If they think real estate is the place to look, where should you be?
As the only hard asset that has not participated in the commodity boom; as gold, silver, oil and other natural resources, physiological forces not real forces have kept down real estate.
Let me explain that comment, what is asphalt’s major component? Oil is it not? What about copper prices? They have increased along with other metals. What are pipes and home wiring made of? What about the circuit boards in the electrical panels? The roofing is wood or a composite made from, oil. There is not one part of a home that is not a natural resource commodity. The trucks that bring equipment to the employees and the material; they are all natural resource driven. What country has the greatest source of natural resources? You got it, the United States. Would we purchase high priced foreign resources with low priced US $? Of course not is the logical answer.
Where do we go now? We touched upon natural resource value and the weak dollar; but who will drive our future growth?
Immigration is the answer. I have retired my designation as a certified financial analyst and investment advisor, but I still keep up to date with many of the publications. Martin Barnes wrote one of the publications that I kept in my files in 2004. It is titled “Global Demographics: An Economic and Geopolitical Time Bomb. WOW! I will attach it here or a link to it for those of you who wish to read the article in full.
http://isvr.net/usr/1024408819/CustomPages/Gobal_Time_Bomb.pdf
The basis is this, the baby boom generations of the post WW II years are retiring and moving out of the work force and are no longer the age of Conspicuous Consumption. That goes for the US, Britain, France, Germany, Japan, Russia, Australia and Italy. Only the US will have a positive growth in population. In fact, the US growth projected for 2000-50 will be # 1 at +123.7%. Where elsewhere will there be growth: Yemen +66.4%, Afghanistan +48.1%, Iran +39.1%, Iraq +34.7%, and Saudi Arabia +32.6%.
If the US is losing the greatest generation, the Baby Boomers, where will growth come from? Immigration. The projected fertility rate is 2.05 for 1995-2000 in the US; in Mexico it was 2.75, India 3.45, Egypt 3.51, Saudi Arabia 5.09, Pakistan 5.48, Nigeria 5.92 and Yemen at 7.30.
Based upon those statistics will real estate prices remain at their present levels? I must say that my father told me as a very young boy, 8 or 9, to use your common sense when I made a mistake. When we will all do the same? Sooner or later the inventory of homes will decline, sooner or later the news commentaries will talk about the escalating cost of home construction, repair and remodeling and sooner or later home values will increase. Sooner or later a solid form of lending will occur and a change from the old system will be accepted. When that all occurs home prices will increase. How far away is that? I use the venture capitalist time fame, 5 years or more. 10 years from today people will brag about buying in Woodside, Atherton, Menlo Park, Portola Valley and Palo Alto at the depressed levels of the Great Recession of 2009. Will you be one of them?
I added a new column to the statistical page below, it is “expired, cancelled and withdrawn” homes. I decided to add this page since I sent out letters to this group every 14 days. The average number is usually about 39 or more. We have dropped sharply. What does that mean? My guess is that sellers are staying pat with their listings. The seller has realized that it may talk longer to sell a home, but it will sell at or near their listing price. Sooner or later the buyer realizes that the price will not decline any further and they will make their offer.
October 13, 2009
City
Active
Pending
Pending 2
Sold
Exp/Cxl/WD
Atherton
43
5
8
0
1
Menlo Park
75
19
10
10
10
Portola Valley
28
4
4
3
3
Woodside
53
9
3
0
1
Palo Alto
103
22
33
12
9
September 24, 2009
Inventory
Pending
Pending contingencies removed
Sold
Menlo Park
85
14
12
16
Portola Valley
28
2
8
4
Woodside
54
5
1
4
Atherton
39
5
6
11
Palo Alto
114
22
28
36
September 2, 2009
City
Inventory
Pending
Pending contingencies removed
Sold
Menlo Park
72
12
11
17
Portola Valley
27
2
6
5
Woodside
52
2
1
5
Atherton
40
5
6
6
Palo Alto
93
21
28
28
July 28th report as a comparison
Cities
Active
Pending
Pending Do Not Show
Sold
Menlo Park
90
10
13
58
Portola Valley
33
5
1
6
Woodside
57
2
5
3
Atherton
37
3
10
7
Palo Alto
117
13
25
27
Has The Real Estate Market Bottomed?? Part 2
SEPTEMBER 24, 2009
· Real Average hourly earnings up 4.5% over the year
· CPI, Consumer Price Index up .4% in August, unchanged July, less food and energy up .1%.
· CPI for SF, Oakland and San Jose +. 2% 12 months ended August 2009 and 0.0% for past 2 months.
· Housing prices were forth art do thee go?
· Interest rates in the crystal ball
· Local market performance
By the look of the economic reports we are still looking for the end of the tunnel. I still go by my forecast that it will take us 10 years plus before we surpass the highs of 2007-8. Inflation is lacking; irrespective of what the investment gurus tell you about Gold, precious metal, commodities and the inflationary impact of the bond-selling binge of the
US Government. The key item here is to remember that the US wants inflation. The US want risk to come back into the investor mentality. We have inflation and we have risk again and we will have low unemployment and a growing economy with increased tax receipts and healthy banks and consumers. We do not have that now, that is why the US is feeding the economy with $$$$$.
I know we hear about gold and commodities, but did anyone notice the Real Estate indexes all had dramatic move upward in the stock market? For investors real estate was just as popular as precious metals and gold.
The stock market is up over 50% for the year. Is that not confidence in the future. At least in my experience and training the stock market is the forecaster of the future. Things will be better in the future says the stock market.
It is too soon for our economy to be moving in its old fashion. The old economy was built upon poor foundations of synthetic securities and over seen by blind watch dogs. We need the consumer protection agency in force, a new-invigorated SEC and FTC. Too big to fail means just simply TOO BIG, and they should be dismantled for the betterment of our society. Risk need to return and that can be seen by a yield curve that returns back to normal with a normal range between government, corporate debt. Investors need to be buying mortgage-backed securities, not the Federal Reserve System. This will all take time. Housing prices will stabilize, move up in some areas and stop declining in others. Foreclosures will end, and a new mortgage environment will emerge from the ashes of the old.
Where will interest rates go in the future? I say they remain flat for the near term into the first quarter of 2010. The FED has agreed to expand and continue its mortgage purchase program. This will keep rates down, increase affordability of homes and diminish the inventory of homes. Mortgages will be changed and banks will no longer be sellers of real estate. It will take time. Don’t expect the turn around to be noticeable. It will slowly occur in areas that will slip by you.
Sort of like grass growing, you don’t see the blade rising, but one day you look at the grass and say to yourself, “it needs to be cut”. That is how the real estate market will treat you.
To me the indications are in the high-end market. Buyers of Atherton and Woodside do not need mortgages because they are all cash buyers. When I created the report below, I looked at the homes that sold and the homes that are pending in Atherton and Woodside. The prices were from $3 up to $12 million and a few were not quoted in the sales price but listed ion the $6 million range. The homes had been on the market beyond 6 months and some over a year. Was there price sensitivity, yes some; but not a knock down and drag out kicking and screaming to the Title and Escrow Company.
On the other hand, the areas or towns that grew in the past boom like Menlo Park and Palo Alto are not the darlings of the past, they are seeing the inventories increase, but no matching increase in pending and sold properties. None of the high end home dominates the sold and pending list.
It is a time for value hunting, a time to buy rather than build new, a time for re-modeling, a time for paying down debt and saving and a time for buying real estate as an investment NOT A SPECULATION!
Gold, precious metals and commodities do not shelter you from the cold, rain and wind. They cost money to carry. They do not give you the satisfaction of hosting friends and family for the holiday. They do not store you precious belongings and remembrances that give you comfort during times of loss, sickness and death.
It is time we all get back to basics and realize that real estate is a home not a savings account to draw upon for fun and excitement.
For the buyers out there, get in touch before the end of the year. I see many places of opportunistic buying. For the sellers, don’t rely upon the past for your sales price. Remember you can’t work and play as you did ten years ago and you can’t expect the prices of a year or two ago to be good this year.
Rental properties should be considered for those of you who do not want to take on the risk of the stock market. Values are returning and the rents to debt coverage ratios are now coming back to a point there is positive carry in California Real Estate.
To the sellers, remember if you are down sizing or moving to another area, you are getting the same deal you are giving. We called it “Same Day Substitution” in my stock market days.
Don’t let your ego; greed and fear dictate your actions. Evaluate and ask questions, like busses and elevators; there is always another one coming along.
· Real Average hourly earnings up 4.5% over the year
· CPI, Consumer Price Index up .4% in August, unchanged July, less food and energy up .1%.
· CPI for SF, Oakland and San Jose +. 2% 12 months ended August 2009 and 0.0% for past 2 months.
· Housing prices were forth art do thee go?
· Interest rates in the crystal ball
· Local market performance
By the look of the economic reports we are still looking for the end of the tunnel. I still go by my forecast that it will take us 10 years plus before we surpass the highs of 2007-8. Inflation is lacking; irrespective of what the investment gurus tell you about Gold, precious metal, commodities and the inflationary impact of the bond-selling binge of the
US Government. The key item here is to remember that the US wants inflation. The US want risk to come back into the investor mentality. We have inflation and we have risk again and we will have low unemployment and a growing economy with increased tax receipts and healthy banks and consumers. We do not have that now, that is why the US is feeding the economy with $$$$$.
I know we hear about gold and commodities, but did anyone notice the Real Estate indexes all had dramatic move upward in the stock market? For investors real estate was just as popular as precious metals and gold.
The stock market is up over 50% for the year. Is that not confidence in the future. At least in my experience and training the stock market is the forecaster of the future. Things will be better in the future says the stock market.
It is too soon for our economy to be moving in its old fashion. The old economy was built upon poor foundations of synthetic securities and over seen by blind watch dogs. We need the consumer protection agency in force, a new-invigorated SEC and FTC. Too big to fail means just simply TOO BIG, and they should be dismantled for the betterment of our society. Risk need to return and that can be seen by a yield curve that returns back to normal with a normal range between government, corporate debt. Investors need to be buying mortgage-backed securities, not the Federal Reserve System. This will all take time. Housing prices will stabilize, move up in some areas and stop declining in others. Foreclosures will end, and a new mortgage environment will emerge from the ashes of the old.
Where will interest rates go in the future? I say they remain flat for the near term into the first quarter of 2010. The FED has agreed to expand and continue its mortgage purchase program. This will keep rates down, increase affordability of homes and diminish the inventory of homes. Mortgages will be changed and banks will no longer be sellers of real estate. It will take time. Don’t expect the turn around to be noticeable. It will slowly occur in areas that will slip by you.
Sort of like grass growing, you don’t see the blade rising, but one day you look at the grass and say to yourself, “it needs to be cut”. That is how the real estate market will treat you.
To me the indications are in the high-end market. Buyers of Atherton and Woodside do not need mortgages because they are all cash buyers. When I created the report below, I looked at the homes that sold and the homes that are pending in Atherton and Woodside. The prices were from $3 up to $12 million and a few were not quoted in the sales price but listed ion the $6 million range. The homes had been on the market beyond 6 months and some over a year. Was there price sensitivity, yes some; but not a knock down and drag out kicking and screaming to the Title and Escrow Company.
On the other hand, the areas or towns that grew in the past boom like Menlo Park and Palo Alto are not the darlings of the past, they are seeing the inventories increase, but no matching increase in pending and sold properties. None of the high end home dominates the sold and pending list.
It is a time for value hunting, a time to buy rather than build new, a time for re-modeling, a time for paying down debt and saving and a time for buying real estate as an investment NOT A SPECULATION!
Gold, precious metals and commodities do not shelter you from the cold, rain and wind. They cost money to carry. They do not give you the satisfaction of hosting friends and family for the holiday. They do not store you precious belongings and remembrances that give you comfort during times of loss, sickness and death.
It is time we all get back to basics and realize that real estate is a home not a savings account to draw upon for fun and excitement.
For the buyers out there, get in touch before the end of the year. I see many places of opportunistic buying. For the sellers, don’t rely upon the past for your sales price. Remember you can’t work and play as you did ten years ago and you can’t expect the prices of a year or two ago to be good this year.
Rental properties should be considered for those of you who do not want to take on the risk of the stock market. Values are returning and the rents to debt coverage ratios are now coming back to a point there is positive carry in California Real Estate.
To the sellers, remember if you are down sizing or moving to another area, you are getting the same deal you are giving. We called it “Same Day Substitution” in my stock market days.
Don’t let your ego; greed and fear dictate your actions. Evaluate and ask questions, like busses and elevators; there is always another one coming along.
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