Sonoma Napa Homes Undressed

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21

I think just about everyone is on media overload. Between the roller coaster stock market, the bailout plans, the Presidential elections and the myriad of international crises, we are over the top. It has created a “deer in the headlights mentality”.  Fear is not only controlling the financial markets, it has impacted the housing market, particularly during the last week or two. Many buyers are now on the sideline immobilized by the upheaval, increasing interest rates and larger down payments being required by lenders, especially on jumbo loans (loans over $729,750) “Dreaded” Monday this week turned out to be “cheery” Monday, with a 400 plus point gain on the Dow.  It appears that some of the moves, both domestically and internationally, have begun to loosen the credit markets indicated by the Libor rates declining (the rates at which banks loan each other money).  Bernanke’s endorsement for another stimulus package could have been another factor in changing the pattern of the last several weeks.  However, most experts are predicting continued volatility. There are concerns that we have more de-leveraging to contend with and that lingering weakness in the economy will remain for some time.  A minority feel that most of the wild swings are behind us and that the volatility will subside in the short-term.   Whatever the outcome, many buyers have taken a breather as indicated by the slowing open home traffic and sales. The media persists in painting a bleak picture which reinforces the inertia.  The lower end price ranges are seeing the bulk of the activity.  The majority of multiple offer sales are occurring in this same range. The exceptions are homes that combine three essential factors—updating, staging and aggressive pricing. A $1.249 mil. 3 bedroom 2 bath home in Mill Valley received 2 offers and went over list price. It had the triple threat.   The market has not come to a halt. It is trudging along.  Until buyers fears are allayed and the jumbo loan market returns to equilibrium (more reasonable loan parameters and rates) sales will reflect the pattern we experienced at the end of last year and the beginning of this year—well off the record pace of previous years. In the meantime sellers will be able to move their properties by staging and competitive pricing their homes. This is not the time to test the market. If sellers are seeing little showing traffic they need to quickly adjust their pricing, otherwise they will be chasing the market downward.  Conversely, in most cases, buyers are in the driver’s seat.  Well-qualified buyers have their pick of listings and can certainly find great value.  There is plenty of money available on good terms for conforming loans (those below $729,750). It is a buyer’s perfect storm. The pricing bubble expanded between 2003-2005 and burst in 2006. A new bubble is forming. I call it the “buyer demand bubble” and it is building.  No one knows how long it will take until the conditions are right for it to let off steam. When it does, prices will stabilize and begin to rise once again.  Certainly not with the velocity of the last upward cycle, but if prices appreciate at 2-3% a year we will be headed back to a healthy, balanced market. It will happen and you can quote me on that.

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17

Wealthy Are Afraid They’ll Rub Out of Money

It’s not just the middle class that has money worries.  Even the affluent are worrying about running out of cash.

According to a new survey from American Express Publishing and the Harrison Group, nearly half of respondents with incomes of $250,000 or more agreed with the statement that “I worry that at some point I could run out of money.” That’s up from about a third in April.Fully 69% agreed with the statement that “The recent real estate and banking crisis has affected my sense of financial security.”Of course, $250,000 is only “Obama wealthy.” And running out of money “at some point” is a long time horizon. Yet the survey suggests that even high-income earners are cutting back their spending for fear of what the financial future might bring. Fully two-thirds say that they are “looking closely at every spending category to see where I can save.”

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01

Don’t call it a bailout. Or a depression

Commentary: The nattering nabobs of negativism have it wrong. Here’s why

By Irwin Kellner, MarketWatch

Last update: 10:41 p.m. EDT Sept. 28, 2008

Comments: 657

PORT WASHINGTON, N.Y. (MarketWatch) — We are nowhere near a depression, so let’s stop talking ourselves into one.

Spiro Agnew’s words of the Nixon era ring true today. The politicians, pundits and, yes, the press, are nattering nabobs of negativism.

For example, in recent weeks, the broadcast and the print media have filed stories replete with scare words. You don’t even have to look at the tabloids to see what I mean.

The front page of the New York Times recently described what it called “chaos” in the financial markets.

Not to be outdone, most of the first section of The Wall Street Journal one day last week was devoted to articles describing the “spreading crisis” in our economy.

And both newspapers have run stories using the word “depression” more times than I care to count.

Now, don’t get me wrong, I am not saying things aren’t serious out there, but another Great Depression? I don’t think so.

If you look at the data, you will see more differences than similarities between the 1930s and today:

In the crash of 1929 the Dow Jones industrials (plunged 40% in two months; this time around it has taken a year to fall 22%.

• The jobless rate jumped to 25% by 1933; it is little more than 6% today.
• The gross domestic product shrank by 25% during the early 1930s; it is up over 3% during the past year.
• Consumer prices fell by about 30% from 1929 to 1933; and the last time I looked they were still rising.
• Home prices dropped more than 30% during the Depression vs. about 16% today.
• Some 40% of all mortgages were delinquent by 1934 compared with 4% today.
• In the 1930s, more than 9,000 banks failed compared with fewer than 20 over the past couple of years.

Remember also it was policy errors, not the stock market crash, that caused the Great Depression:

• Instead of increasing the money supply, the Federal Reserve of that era reduced it by one-third.
• Instead of lowering taxes, Herbert Hoover raised them.
• And to channel whatever demand was left into U.S.-made goods, the government enacted the Smoot-Hawley Tariff Act to keep out foreign products; this only provoked our trading partners to do the same.

Add to this today’s automatic stabilizers such as unemployment insurance and Social Security, the FDIC to insure bank deposits and circuit breakers to keep stocks from falling too quickly, and you can see why this is not a depression in any way shape or form.

While I am at it, I would like to take issue with the almost ubiquitous use of the word “bailout” to describe the government’s rescue package.

Folks, this is not a bailout of anyone, not Wall Street, not Main Street, and certainly not the so-called “fat cats.” It’s an infusion of liquidity, designed to unclog the financial markets. In doing so, it will benefit everyone, business and consumers alike.

Also, the $700 billion bandied about will not be immediately handed over to the Treasury secretary; he will simply have a line of credit, similar to what the typical business might have.

Finally, this package may not even cost $700 billion. For that matter, it may wind up costing nothing. It all depends on the price the government pays for these distressed assets and what it winds up selling them for.

As for whom to blame for this mess, there is plenty to go around. In the words of that great philosopher, Pogo: “We have met the enemy and he is us.”

Irwin Kellner is chief economist for MarketWatch, and is Distinguished Scholar of Economics at Dowling College in Oakdale, N.Y.