An end of the month look at housing and market causes and effects

Implications: The subject article repeats the refrain common to the most overdone major housing markets in the country. Arizona, California, Florida and Nevada prices are way beyond fitting into the average budget and are going even deeper into red accounts. New York City and the surrounding states that serve as the bedroom for Manhattan will soon be feeling the effects of a slowdown on Wall Street. Some remaining markets are vibrant like Seattle but most are in the doldrums or so small as to be inefficient markets or never going to be big because the wages and high end jobs required to purchase the housing stock are just not present or just thudding along at an unexciting but even pace. Looking across the country for a bright spot means you have to click off the New England States and the Rust Belt and Texas and the Great Lakes region and the Midwest farm belt and the Great Plains before you get to Seattle.

Analysis:

Now we’re told that the resets on the sub-prime and Alt-A and even conforming mortgages have only just begun. To quote Dick Enberg - oh, my! or even Keith Jackson – whoa, Nellie!

Other news presented includes the reporting from various sources that family medical premiums now average $ 12,000 annually of which the average employee foots ¼ of the bill. At the same time demand for medical services is so great that rents for medical space are rising and space is tight. As observed too, lots of construction is underway to meet this demand. Confusingly, hospitals in many markets are finding it difficult to generate profits, particularly in the areas where incomes are most challenged and insurance is least prevalent. More and more it’s a case of the haves and do not haves with a widening gap between the two and a lesser middle strata. Sometimes when you’re reading about the U.S. healthcare problems, you think you might be in the Philippines or Brazil or Mexico or any other similar 3rd world confused economy rather than the U.S.

Then Arizona, Nevada and Texas rank in the bottom five of the States for financial prosperity with Arkansas and Louisiana. The characteristics of this status are high debt, low wages and no net worth or emergency cushion. It is possible to feel the general consensus of an overall business slowdown coming to Arizona and the U.S., as well as a secondary thought concerning whether we’re already in that recession. I read that some believe that the U. S. recession will not be shared by the rest of the world as they are bigger and badder and we are also rans, smaller fry in the big picture. Certainly, the U.S. has been piling up export numbers since 2000, so there may be a lot of validity to any such thinking if you believe that fact proves the rest of the world’s economies to be superior to the U.S. The recent buying binge from UAR, Qatar and Dubai funds and the continuing investment by the Russians or even Israel may prove that there is a new world order too.

At the same time, building fees are increasing at city and county levels by amounts which will cover reduced revenue projected for a continuation of yesterday’s housing construction volumes. This contrary position will no doubt need to be negotiated down to build at all, but it’s another indicator of a market gone wrong.

Now the end loan secondary markets are gone from Wall Street and the warehousing lines are denied since there can be no exit seen to be projected. Once B of A and Countrywide spend B of A’s investment to increase market share, all subsequent such investments will be smaller in scope. It will be interesting to see whether there will be enough liquidity in the markets to continue the American dream of home ownership. Sam Zell says market liquidity is not diminished, rather risk is now perceived at a higher level and investment paralysis is occurring. Pardon me if I have taken liberties with Mr. Zell’s words, but I think that’s a reasonable restatement. I think in this case you have to use your own faculties as Mr. Zell still has a ton invested in Equity Residential and may speak from a promoter’s perspective. I prefer the alternative view at this time.

One note that I reviewed is the appraisal dilemma where the estimates are now coming in at numbers above the contact. I have difficulty imagining how this can be happening when the general consensus is that the markets for single family housing are just beginning a slide off, not a move up. The idea of credibility of the appraisal industry is strained to me when such a document is issued. I can see where a prediction that the buy is below market can be made believably when the market can reasonably be predicted to be moving up. But again, that is not now the case and it is not believable that such will be the case for some time. To me, anyway.

I think it’s time to bring out themes to point the way forward. Such as you’ll hate eight, nine won’t be fine and I have a yen for ten seem appropriate, I think. We’ll see.