Wednesday, April 01, 2009

If they just do nothing.

The economy will recover on it's own.

It's hard to believe my renter has been in my crapshack for nine months now. We've hit a reasonable routine. He doesn't always pay on time - but he always pays by a certain time. And, he's never bounced a check on me. It's okay enough that I'm starting to believe being a landlord isn't so bad. Yet, I only made a commitment to him for a year.

The last six months have been enormously stressful. I'd never planned to hold that house more than a year. I've held it for almost a year and a half now. By October I was jumping out of my skin, and there wasn't a moment I didn't want to sell that place.

I never really imagined a marketplace where you couldn't actually get a loan. I figured I'd either sell at a profit, or take a loss. Sometimes you win, sometimes you loose. I didn't really see it as any different than opening a restaurant. And honestly, I still don't. Our nation is built on risk. People show up here with the clothes on their backs and nothing more. They take risks. Build businesses. Risk everything.

Yet, never knowing if layoffs were going to hit my door, and pretty much everyone in the valley taking pay cuts to save co-workers has taken a toll on me. But, you never learn anything in the good times. If you make it through, you are so much stronger. I don't know yet if I'm stronger. However the last couple of days have led to some interesting developments.

Reports from all over - that houses are getting multiple offers. Most notably Mountain House. News story here. I wrote about it here in my Modern Ghost Town post.

What makes this especially interesting is that Mountain House isn't tied to anything. It is basically a community in the middle of farm land. In which farm workers can not afford the houses. You'd have to drive and hour in both directions in order to find any high paying jobs.

This morning I went to check on the inventory in my own city, and was shocked to find listings were down by maybe 40%. I'm sure of it, because I'd written a note to myself on March 9th that showed the lowest price listed in my area. And the amount of homes on the market.

It was such a dramatic drop I didn't actually believe it. So, I drove around today. Houses that had been on the market for upwards of 200 days now had sale pending signs. There were also a lot less for sale signs in general.

Yet, I'm still reading about "the deepening worldwide recession". That kind of real estate activity does not show a deepening. It shows that when banks are willing to lend, people still have enough money to buy. It makes me wish I would have listened to myself.

From October.

"Honestly people - normally I have a big crush on economists. But, cut the bullshit already. We are being told this is one of the greatest depressions ever. But, oh could be over by the first couple of months 2009. Seriously? What pussies we've become. Growing up, depressions lasted years. Not months. Unemployment is expected to rise to 10%. Which isn't great. But, that would make it the worst depression since.... the 1980's."

Yeah - I turned into a big giant wussy. I'll admit it. Though, it sort of looks like the economy is trying to right itself. Let it also me noted - I called 30 of the last 30 bottoms. They were all were bottoms! Just not the bottom. Just sayin'.

Not saying that everything is better - only that there are hopeful signs. Plus, people seem to be out in mass.


  1. You're focused on the right signs. The pick up in home sales is probably 95% of the reason why we've seen the rally we've seen over the last two weeks. Take a look at the banking index as these houses have been taken off their balance sheets, it's up approx. 50%. I know that I've lost out on three house in the past two weeks. Saw a great crapshack today that's been on the market two days and I'll be the third one making an offer for it (crossing fingers)

    The banks are still sitting on inventory, but the listings that had been on the market for 6 months are no longer dragging the home prices lower. Probably a different story for the high end places, but the low end places where the pain has been so devastating has seen a remarkable turn around. I credit Obama and his team's laser like focus on solving this broken area of the market, but the reality is that we don't really know exactly what's motivating the buyers.

    While the pick up in home sales is a great sign for the housing markets and the bank balance sheets, it still doesn't mean that we're out of the woods yet. The real key will be whether or not this activity changes how companies have been making decisions.

    With housing having hit the bottom, my focus is now on the high yield bonds. Watch this area of the market because if it improves then it means that businesses are investing again and even though unemployment will rise for a few more months, a meaningful recovery will be in site. If it doesn't improve then it's anyone's guess as to what happens next. After high yield bonds recover we should see unemployment come down and consumers will have the confidence to start spending again.

    While you raise a good point that we're a nation of wusses, don't let that fool you into thinking that things are more rosy then they really are. Most people have underestimated how close the banking system came to complete collapse. The pain index may not have hit an all time high, but we very much were facing a banking crisis of great depression magnitude. It took an extraordinary amount of government intervention to put a stop to the bank run. The nuclear risk to the banks has now seemed to subsided, but the cure will have a terrible price. My expectation is that we'll see 5 - 10% inflation levels for at least the next five years. This is part of why I think that real assets like homes, oil and metals are starting to become so attractive. Because of the crisis at the banks, we've seen tremendous demand for US treasuries, this has caused the dollar to become artificially strong. Between Fed printing money, expanding credit for the banks and the reversal of this trend when people sell out of dollars as they leave treasuries, I think that there is a potential for it to cut the value of the dollar in half. This should be what ends up saving the higher end of the housing market, but we will pay a price via higher food, labor and gas prices once again. Hopefully, we can go back to the government doing nothing now that the worst of the storm is behind us, but investors should definitely be doing something or else they'll see all of their hard work devalued even if that isn't reflected on their statements.

  2. Oh - it isn't lost on me how close we came. Even though I bitch about a lot of stuff, I'm pretty rational about financial things. After all - I'm a free market gal. Which is why I bitch. Even I had extreme urges to take money out of the bank. I can't imagine how intense those urges were for other people. My bank was on the fail list.

    I was actually for the bailout before I was against it. I just didn't see how else the banks were going to start lending. Their feedback mechanism was busted. They knew the government would help them after all.

    Having said that - I actually think that banks are lending now, not in whole because of the bailout. But, because they've seen how crappy the consequences of taking TARP funds are. Many are trying to reject the funds.

    They have three choices. Take money from the government, lend, or go out of business. Lending is the lesser of three evils.

    Plus, it should be painful to take money from the government. Hopefully it makes them think twice before they go running to daddy for money. Since banks don't operate in a completely free market environment - it's the best I can hope for.

    I'm sort of glad that banks and car companies were made an example of. Some in the tech world were starting to think "oh the government is just handing out money. Maybe I'll get some of that".

    When tech starts to look towards the government - I loose faith in the free market.

    Also, I don't think we are out of the woods. The market has gone up too quickly. Gives me the jeebies.

    So - which did you choose? Green acres or city life?

  3. I'm going with Green acres. At first I was going to buy in Oakland, but now it looks like I'm moving to the burbs in Pittsburg. Not looking forward to the commute, but I'm hopeful that it will only be temporary while I fix up the house and get a renter moved in. If I do end up liking it there, I can always move my business closer to home, but ideally I'd like to be back in San Francisco within a year. Here are photos of the crapshack I put a bid on. We'll see if I end up getting it or if I have to keep looking but of the 30 houses I've seen so far this one has been the best bang for the buck so I'm hopeful that the bank will accept my offer.

  4. Hahaha! Good for you! I would have placed money on Oakland. It's a really solid looking place though. Nice neighborhood. I will keep my fingers crossed you get it.

    I think you will be back in SF though. You don't really seem like the green acres type. At least, not for long.