Case-Shiller Housing Index Decline Sets Another Record.

First the bad news.  The Case-Shiller housing index of twenty metropolitan areas fell a record 18%, year over year.  Now the "good" news.  The numbers are from October.  October was perhaps the high of the "The World is Ending-Panic Index".  Since this time, Richie has gone out into the field, along with some special Monkey Business friends to some foreclosure auctions.  Here was Richie's report from two weeks ago from the auction;

Well folks, I tried to buy a few items at the foreclosure auction down in Fort Lauderdale, FL this weekend that was provided by the good folks at www.ushomeauction.com, but I missed.  When I tell you this was a room filled with over 3000 people at the Broward County Convention Center, I'm not kidding.  When I tell you EVERY one of the 300+ properties for sale had multiple bids on it during the auction, I'm not kidding.  Most important of all, when I tell you about 85 - 90% of the properties were sold -- which meant the banks agreed to sell to even the lowest priced bids AND the buyers had the proper financing for the purchases -- I'm not kidding.

I'm not disgusted or upset that I missed, either.  I know there are more opportunities to come but I also know I better hurry if I want these rock bottom prices.  I think you can start turning off the TV now too on some of these reports about how everyone will be homeless shortly.  There were people all over the place down there at the auction (and people bidding online via the internet) willing to bid for a bargain.  I understand it's not the cure-all for the housing industry, but I'm telling you right now these auctions are taking supply off the market.

We'll keep you posted on further developments on this front, but I will leave you with the line of the auction provided by the auctioneer while trying to get people to bid more on a property, "Um folks, I'm not talking about you buying a car, I'm talking about a place to LIVE.  At this price, you probably couldn't buy a CAR!"  The price (and the laughter from the crowd) went up off that little quip and the property sold for a whopping 50 thousand.  Um, I'll be at the next auction too.  No doubt.

Additionally, one of our close associates had this to say from the foreclosure auctions he attended;

Boys, just bot 1st one at auction on fri.  29cents on dollar from where direct comp (4 doors down street, similar stats & condition) traded retail in mid-Oct.

So, while we expect housing to continue to decline, perhaps at an accelerating pace in November and December, the anecdotal evidence that Richie and our friend have started to gather in December suggests that at least real buyers are starting to clear inventory at a meaningful rate.

Comments

I disagree, e. the pace of the decline continues thru most of '09. there are still too many people out there who do not know yet that they should be renters (and probably never should have been fooled into thinking they could be owners - sad, but true). pxs will bottom when enuff people realize that @ 29cents or some other stupid level, the positive cash flow from rental income generates tremendous investment returns.

[Eric Salzman]

I hear you and RPB Wez. I am just looking at whether or not values will keep declining at an increasing rate like they are now. I still see them dropping sharply but I am potentially seeing a sign, like price discovery at foreclosure auctions that the decline will start declining at a decreasing rate in '09. Maybe...hopefully.

[Wez]

Not sure a flurry of foreclosure auctions where property being bought at 29 cents on the dollar is a sign prices may stabilize soon? To me it shows the last couple cars on the roller coaster have cleared the crest and we are all screaming downward with our arms in the air....

[Eric Salzman]

Now THAT is a post! Thanks RP.

[RPB]

E Money,

While many of the proxies for new home production are getting smoked, I think we do not see a price bottom for some time. As Richie points out, we need a sharp inventory correction coming from both supply and demand. Home builders need to cut back on production or go out of business. And prices need to drop to levels where demand will support them. Good ole' fashioned free market capitalism predicts we will eventually arrive at a price discovery that accomplishes both.

But it appears that a relatively simple price correction will continue to be prolonged by a number of factors. Many of the surplus homes were built and sold under the auspice of easy credit and inflated asset values. They exist because the financing/regulatory environment made them economically feasible to be built, bought and sold. With credit restricted to even higher quality borrowers, many in debt and heavily depreciated wealth/savings for net savers, where will the buying come from? Who will take the other side and loan people the money/invest in the mortgage derivatives? How will demand for fringe, illiquid and underlying depreciating mortgage products return in a finance environment characterized by government debt crowd out, asset devaulation, defunct security ratings and no reinsurance?

How much lower will prices have to go to encourage renters to own again and speculators to buy again? While I understand people need a place to live, how many of these properties were second homes or speculative bets? How will long will it take price to accurately reflect the new finance and regulatory environment?

(suprised too that we haven't seen more arson/insurance fraud)

If we cannot encourage demand quickly, can we be creative and correct the supply? These are long lasting consumption assets with slight depreciation. Does the government step in, buy and bulldoze? Do they buy and give houses away? Do we get really cute and increase immigrantion to support demand? Or will the coming monetary and commodities caused inflation erase most debt and make prices more attractive? Could this also cause inflation perceptive consumers to trade depreciating cash for long term consumption assets? It seems like its time to start thinking outside of the box here because demand is at an impasse and the number of homes will not reduce itself.

With the NAHB, MBA and NAR economic spin factories forecasting more pain, it does not look good. Perhaps the new angle these jokers are spinning is a picture "so bad" that these groups need a bail out too. That would do much damage to correcting the supply/demand imbalance. I think steam will shoot out of my ears if that happens.

For some reason the Steve Winwood "Low Spark of High-Heeled Boys" has been resonating in my head. Some choice lyrics:

"The percentage youre paying is too high priced,
While youre living beyond all your means,
And the man in the suit has just bought a new car,
From the profit hes made on your dreams,
But today you just read that the man was shot dead,
By a gun that didnt make any noise,
But it wasnt the bullet that laid him to rest was,
The low spark of high-heeled boys."

[Eric Salzman]

Agree 100% AC.

[A C Shareholder]

1. Price discovery while painful is a beautiful thing.

2. Assets are always better in stronger hands.