But one thing remains consistent-- housing stinks. That's right-- no matter how much make-up you put on the housing pig, you can't dress this one up. Data comes in today, stating that sales are up 3.1%-- the biggest single month increase in 5 months! But wait... while this seems to be good news, we are forgetting a key ingredient in this housing crunch soup-- INVENTORY.
Inventory ROSE to an 11.2 month supply (from 11.1 month in June), which is roughly twice the number of homes as a 'stable' housing market. So, regardless of the homes being sold, there are still more houses entering this tired market than leaving the market... and the prices keep falling too. We are now just over 18% off the peak prices we saw in 2006... still falling, this equity torpedo continues to sink that ever-so-amazing housing wealth that Americans depend on for retirement. And with the market shifting to a distressed sale market, with REO's and short sale's becoming more and more the norm on a daily basis, the question has to be, how do we stop the madness???
ENTER THE PAPER TIGER... The Fed's. As we all now know, the Fed is in bed with the banks. Nothing seems to matter more than saving the banks-- which makes sense right. God forbid a few of these behemoth banks crack, forcing the FDIC to print money faster Michael Phelps swims the 200 meter freestyle. That would be bad. But still, the paper tiger will have to do something to help this housing market. But what can they do?
Watch your children!
Fannie and Freddie are bad kids. These two have been hard to discipline this year, and it's starting to look like they may need money for private school soon, as the public school system they are currently going to is not making the grade. So, how do you 'privatize' Fannie and Freddie without completely scalping the people that hold billions in investments??? Answer: You can't. Someone is going to get screwed here-- the Feds or the investors, and Paper Tiger will most likely watch his own back. 'Thank You for Screwing Me' letters can be sent to Alan Greenspan.Paper Tiger is also going to need an answer for inflation. Keeping short term rates is great for the banks-- it mitigates the loss they hold for borrowing capital (that is if anyone will lend to them), but it doesn't help inflation. And last time I checked oil is still almost 70% over the cost from last year, and seems to be leveling out. This increase in energy could cripple the US economy, as nasty 70's like funky stagflation creeps in for a few years... They say you can't have inflation with recession-- Just like Bear Stearns was adequately capitalized and just like Indymac wasn't in trouble-- it can and will happen. If they raise rates they will further crush the housing market and credit markets, but if they leave them steady or try and go lower we will be goggled up by inflation. Paper Tiger needs to be replaced.
And what does all this mean? It means the equity torpedo will continue to sink the housing wealth in America... and for what reason? We still have a weak dollar. We are experiencing the largest transfer of wealth EVER from the USA to oil producing countries. The constriction of credit and the collapse of interest for bank profits WILL create more banks to go under... and good old fashioned supply and demand. There are tons of houses (some nice, some crappy) on the market, but just not enough (qualified) buyers. The top of the market (July 06) had an estimated 24 Trillion dollars in US housing wealth. We are down over 18%, meaning that the torpedo has already blown over 4 Trillion dollars of wealth out the door... and while estimates are putting the 'bottom' of the housing market another 10% lower, plan on another 2 Trillion dollars of losses to be taken out by the tornado. But what is 6 trillion dollars between friends...
...6 Trillion Dollars has 12 zeros in it...
$6,000,000,000,000.00
Compare to your last bank statement to realize the true impact of the torpedo. Now gulp. That's right. Maybe it's time to have a drink.
Rick
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