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Posts Tagged ‘Real Estate’

How’s the Housing Market Doing? – Depends on What Data You Look At

It’s been over three years since the first signs of trouble began emerging in the U.S. housing and real estate market. Standard & Poor’s just released the latest Case-Shiller Home Price data so where do we stand now? Market pundits have been cheering the percentage price gains in the Case-Shiller Home Price Index for several months and telling bearish investors to forget the past and go right back to the same assumptions that caused the real estate crises in the first place. To support their theory, they simply point to charts like the one below.

Case-Shiller Percentage Year over Year Price Change Index

Unfortunately, the above chart gives a very skewed picture of what is actually happening to U.S. home prices because we are coming off of such a low base. To account for this statistical anomaly, I prefer to look at what actual prices are doing with the chart below.

Case-Shiller Home Price Index

Looking at the first chart would leave you to believe that you’re about to “miss” the next boom in real estate but using the second chart for added context will surely give you pause. The U.S. Government began inflating the housing bubble all the way back in the 1980’s with aggressive home-ownership policies spearheaded by Fannie Mae, Ginnie Mae and Freddie Mac. Wall St. helped the bubble along with financial “engineering” and then the Federal Reserve even stepped in to do its’ part after the dot-com crash by lowering rates dramatically for an unprecedentedly long period of time.

All these factors make it very hard to get a real idea of what housing prices should be because the markets have been manipulated so completely. For a best guess, we can look back to where prices bottomed in the 1990’s or we can look at metrics such as income to home price ratios. Unfortunately, no matter what you look at (aside from the housing bulls’ percentage price change chart), things do not look pretty. The 1990’s levels leave us with a long way to fall and inflation-adjusted median income has fallen.

Let’s just hope that I’m wrong and the housing bulls are right…

-MJB

Is China in a Bubble? Chanos and Friedman are Probably Both Right

January 14, 2010 Leave a comment

The New York Times reported a few days ago that James Chanos – the short-seller famous for predicting and profiting from the collapse of Enron – recently said on CNBC that China is in a bubble similar to “Dubai times 1,000 — or worse,” and that it was soon due for a crash. He brought up familiar points that the market is very familiar with but the article was somewhat troubling because the charts may be proving Chanos right at the moment. Both the Shenzhen and Hang Seng markets have broken their uptrends and are in the process of establishing downtrends.

Then I saw Thomas Friedman’s article today and although he took a contrary opinion of Mr. Chanos’, they are likely both correct. There are so many headwinds facing China right now from Government censorship and corruption to climate destruction that investing there can seem daunting, but most of China’s problems are well known to the market. I think I am still bullish on China for the long term but the charts don’t look pretty in the shorter term so why not be patient and hope to pick up more at lower prices?

It still feels easier to be bearish than bullish and the market has a tendency to do whatever will embarrass the most people…

-MJB

Disclosure: Long GXC, CHU and many other American companies with exposure to China

Commercial Real Estate Concerns

October 6, 2009 Leave a comment

The WSJ has published an article that draws comparisons between the housing bubble and subsequent collapse that we witnessed culminate last year, and the commercial real estate portfolios that exist on the balance sheets of many banks.

The summary is that many banks are being slow to recognize the losses that exist on the loans they have made, and the Fed is watching with great concern the mounting vacancy rates and declining property values that form the foundation of many of these loans. The Fed is trying not to be caught with its pants between its ankles like it was with the housing bubble, and is keeping a close eye on the balance sheets of the more highly leveraged banks.

This could have a similar effect on bank stocks that the housing collapse had. As losses mount, more and more reserves are used up to cover the losses until the bank finally becomes insolvent. While the Fed has not formally said anything about the problem, the WSJ says that an internal review has been going on for months, and is increasing in intensity.

Disclosure: Long GS and JPM, but maybe not for much longer…