sâmbătă, 27 august 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Five Rules to Remember When Dealing with Real Estate Agents; Why are New Home Sales So Low? How Big is the Pool of Eligible Home Buyers?

Posted: 27 Aug 2011 07:35 PM PDT

A reader asked me to comment on historically low mortgage rates and their effect on housing. He asked because Realtors are telling him mortgage rates prove now is a "great time to buy".

That comment prompted me to write Five Rules to Remember When Dealing with Real Estate Agents

Rule Number One

Real estate agents will always say "Now is a Great Time to Buy" no matter what the trend of prices, mortgage rates, or inventory.

Here are some phrases to expect depending on current conditions.

  1. Prices are going up, better act fast.
  2. Alternatively, prices are falling, homes won't last long at these prices.

  1. Interest rates are going up, better buy quick before you get priced out.
  2. Alternatively, mortgage rates are falling, they won't go much lower.

  1. Inventory is huge. It's a buyers' market.
  2. Alternatively, Inventory is shrinking fast. Don't let your dream home pass you by.


Rule Number Two

Unless you specifically have a buyers' agent negotiating on your behalf, the agent represents the seller.

Rule Number Three

The agent has only two missions:
  • To get you to buy something
  • To get you to pay as much as possible so the agent make the largest commission possible

Rule Number Four

As a result of rules one, two, and three, it is imperative to be skeptical about anything positive your agent says.

Rule Number Five

It's equally important, if not more important, to take cues from what the agent does not say. For example, if the agent does not say anything about the school district, it is probably a poorly rated school district. Also, don't expect the agent to tell you if a crack house is next door, gangs have taken over a neighboring block, the tap water tastes like sulfur, or the street floods every April. At most, agents will only disclose what the law says they must.

How Big is the Pool of Eligible Home Buyers?

Here is a set of questions that will explain what is happening now.

How many people ....
  1. Don't have a house?
  2. Want a house?
  3. Can afford a house, upkeep, and property taxes?
  4. Have a needed cash cushion in the bank?
  5. Have a decent down payment for a house?
  6. Have a salary that can support interest and principal payments even at these low rates?
  7. Are not scared s*less about the loss of a job, assuming they do want a house and meet the rest of the conditions?
Someone needs to meet all of those conditions before they will buy a new house. How many is that?

I just happen to have the answer.

New Home Sales at 1963 Levels

The Los Angeles Times reports New home sales drop to six-month low
Sales of newly built homes fell in July to the lowest level in six months, as the nation's housing market continues to struggle.

Newly constructed single-family homes sold at a seasonally adjusted annual rate of 298,000, putting the industry on a pace to post the lowest annual sales since the Commerce Department began keeping data in 1963.
Is the eligible buyers' pool getting bigger or smaller?

The trend says smaller, in spite of falling interest rates and falling prices. Many items on my 7 point list are more important than interest rates, notably 1, 2, 3, 5, and 7.

That is the psychology of the situation and I see little reason for it to change until the labor market changes first.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Hurricane Irene Cuts Power to Over 1 Million; U.S. Airlines Scrub 9,500 Flights; World Trade Center Construction at Risk

Posted: 27 Aug 2011 07:04 PM PDT

Here is a quick roundup of stories related to Hurricane Irene.

AccuWeather reports Irene Cuts Power to a Million Plus; Eyeing the Northeast
Aug 27, 2011; 7:50 PM ET
"As of Saturday evening, over a million customers were without power in Virginia, North Carolina, Maryland and Delaware."

Hurricane Irene made landfall on Cape Lookout in eastern North Carolina as a Category 1 hurricane and will continue track to the north with conditions deteriorating for millions across the mid-Atlantic through tonight.

8:30 p.m. EDT Saturday, Aug. 27: The eye of Hurricane Irene has emerged back over water about 35 miles east of Norfolk, Va. Wind gusts to hurricane force (74 mph or greater) will continue to be experienced near and to the north of the center, along with a damaging storm surge. Doppler radar estimates over 17.50 inches of rain has fallen in parts of North Carolina and extreme southeastern Virginia with confirmed reports between 10.00 and 14.00 inches.

Suffolk, Va., has received nearly 10.50 inches of rain thus far and was indicating widespread flooding in the city. Rainfall was increasing rapidly in Delaware and southern New Jersey with multiple locations now over 3.00 inches.

Power outages have had an impact on data collection in North Carolina and southeastern Virginia. Over 3/4 of the Dominion Power customers in the Richmond Metro area are without power at the present time.

Irene threatens to bring the worst effects from a hurricane in 50 years in a large part of the I-95 Northeast in terms of flooding and power outages.
There are lots of videos in that Weather Channel Link.

U.S. Airlines Scrub 9,500 Flights

Bloomberg reports U.S. Airlines Scrub 9,500 Flights as Irene Threatens N.Y.
U.S. carriers including United Continental Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL) scrubbed more than 9,500 flights as Hurricane Irene churned up the East Coast and shuttered airports in New York, the nation's busiest travel market.

American Airlines halted New York City-area flights as of 10 a.m. local time, while United and Delta earlier scrubbed their full schedules. The Port Authority of New York and New Jersey closed John F. Kennedy and LaGuardia airports and three smaller facilities to arriving flights as of noon local time as the city awaited heavy rain and wind.

"We need to make sure that we give our customers and our employees ample time to get home" before mass transit systems are closed, said Andrea Huguely, an American spokeswoman.

Philadelphia's airport remains open, although airlines have reduced arrivals and departures throughout the day and none are scheduled for tomorrow, said Victoria Lupica, an airport spokeswoman. The airport terminals will remain open for passengers who may be stuck at the facility.

The six biggest U.S. airlines canceled at least 9,570 flights today through Aug. 29 because of the storm. Another 334 were scrubbed earlier in the week as the hurricane approached. New York officials suspended train, bus and subway service at noon today, making it harder for workers and passengers to reach airports. More than 370,000 people were ordered to evacuate low- lying areas.
World Trade Center Construction at Risk

AccuWeather reports World Trade Center Construction at Risk from Irene's Winds
Construction at the site of the World Trade Center memorial, Reflecting Absence, has been halted due to Hurricane Irene.

The Mayor Michael Bloomberg suspended construction on Friday and crews disassembled the cranes that were on site, according to Latimes.com. This was done to prevent the cranes from coming apart in high winds, crashing to the ground and causing major damage to anything or anyone below.

Despite dismantling the cranes and securing building supplies, there is still a risk of damage to the building itself. Winds are expected to be sustained at 50-60 mph with gusts to 65-75 mph as Irene impacts New York Sunday morning, according to AccuWeather meteorologists.

Wind can be funneled between tall buildings increasing wind speed.

Glass windows have already been placed toward the center of the building. The wind could dislodge the windows. The windows become dangerous as they fall and break or could even be blown into other buildings and cause more damage.

This is an issue not only for the construction site of the World Trade Center, but for any construction sites along the path of the storm.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Capital Flight Proves Confidence in European Interbank System has Collapsed

Posted: 27 Aug 2011 10:49 AM PDT

Capital flight from European banks has now reached such a state that for one undisclosed bank needed emergency funding last week for a mere $5 million. Previously, the ECB stepped in to provide $500 million in emergency liquidity measures to non-disclosed banks.

As money flees Europe, it lands in US banks that do not know what to do with it. Capital flight has led to negative interest rates in the US.

DurationU.S. Japan Germany UK
3-Month-.010.100.970.51
6-Month0.020.110.560.59
12-Month0.080.120.590.53
2-Year0.190.140630.59
3-Year0.320.170.670.75
5-Year0.930.341.201.36
7-Year1.520.591.631.84
10-Year2.181.042.142.49
30-Year3.552.012.983.75


Swelling US Deposits as Money Flees Europe

For a look at European Bank funding needs please see 8 Trillion Euros in Borrow-Short Lend-Long Madness at European Banks; Circuit-Breaker Silliness; Dash for Cash Sends Short-Term Rates Negative Again

"Lehman-Like" Credit Crunch Hits EU

For discussion of the European credit crunch and $500 million in emergency liquidity measures to undisclosed banks, please see "Lehman-Like" Credit Crunch Hits EU; ECB Will Not Disclose Affected Banks; Euro-Style Anxiety Spreads to U.S.

$5 Million in Emergency Funding

$5 million is a trivial amount. That a bank would need it is not.

Jean-Pierre Chevallier writing on Business économiste monétariste behavioriste discusses the stetup in his latest post ECB: no more bets! More…
The situation is out of control in the euro zone, as I have been writing it for a while…

The interbank market does not work because euro-zone banks managers have lost confidence in other banks. So they keep their cash in US$ rather than lending it to other banks that need it as they would in normal times: ECB had loaned $5 million to a bank on August, 25.

ECB had previously loaned $500 million (USD) on August 17. This caused a flash-crash in U.S. markets.

The problem is serious.
Chevallier notes that the paltry amount of money involved "shows that the interbank system is completely blocked".

Trust in European banks is shot, and by hiding the banks needing emergency liquidity funding, distrust spreads to all banks in the system. Then again, why shouldn't distrust spread?

The entire global financial system is bankrupt. Loans have been made that cannot and will not be paid back.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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