New Home Sales November 2010 Review

New Home Market Pathetic

New Homes Sales were reported this morning for November 2010, and according to some, they may have represented a "pivotal turn in the housing market." According to us, that's foolish bull! Housing remains pathetic, especially within the New Home market.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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New Home Sales November 2010 Review

The US Census Bureau and the Department of Housing and Urban Development (HUD) reported on New Home Sales for the month of November 2010 this morning. I could not help but chuckle after reading a report on a respected news provider's website, which expressed joy at the 5.5% growth for the annual pace of sales in November. Many of these websites hire unseasoned writers and editors lacking financial markets experience, and life experience for that matter. I've seen this personally, with a twenty-something editor once completely altering an analysis of mine (recall I was a Senior Analyst); when I complained, the publisher sided with the novice editor, who was an internal employee, versus my freelance status. This is what you are buying into in many surprising instances… And this is a big reason why I've decided to tell truth in this independent fashion. I must warn you that publishers are not paying enough to attract high-level content producers, and I cannot comprehend why anyone would choose to be a business writer today in such an environment. There are more appealing career routes, like perhaps in waste disposal. Seriously, writers make less.

That awesome 5.5% growth in New Home Sales, took the pace of sales to 290K, which is pathetic. However, that fact was unfortunately overlooked by the novice reporter at the aforementioned publisher. Sales overcame a revised October pace of 275K, reduced from 283K. Thus, the growth got a boost from the reduction of the comparable period number. Otherwise, it would have marked a rate of 2.5%, which perhaps the gleeful grunt might not have found so great. Regionally speaking, sales improved in the south and west, while the sales pace declined in the more mature markets of the Northeast and Midwest.

Neither did it faze our fabulous friend that November's sales pace fell short of the consensus estimate taken by Bloomberg's survey of economists, which targeted a level of 300K new home sales. The wrong writer also missed the important fact that sales were down 21.2% from this time last year. In other words, this is a bad report, as I might put it to my peer before I relocated him to sweeping up duties (his story in particular) - if I were his editor. It just bothers me that this kind of work is being taken seriously because of the name atop the website, while our catchy but perhaps comical brand might turn a head or two away before even reading a sentence. It's up to you to get the word out…

The state of the new home market is pathetic, plain and simple, and capital is impossible to find for the smaller builders. Now, well-established and seasoned home builders like Toll Brothers (NYSE: TOL) use markets like these to go out and buy land on the cheap from troubled smaller developers. That said, TOL is down about 2% at this intraday trading hour, after a week of run-up on a reported profit. The Homebuilders SPDR (NYSE: XHB) is down about a half a point as well, given the wakeup call delivered this week, following a just finalized feeding frenzy.

New home supply moved to 8.2 months, improved from the revised 8.8 months inventory in October. Putting things into proper perspective, supply was at 7.7 months last November. It's important that you realize that housing supply is measured by the rate of sales, and so it is not a simple reading of the number of homes out there built and available for sale. Months matter to property owners, because they pay monthly interest on loans taken out for the purchase of land.

The median and average sales prices of a new home improved in November. Median prices gained to $213K, up from $197,200 in October, but fell from $218,800 at this time last year. Average prices also gained over October, up to $268,700, from $248,700. Average prices were down though from $274,700 last November. We suspect prices improved over October more so due to the attrition of developed properties out there in the wind for sale, and a lack of new development, versus due to a generally improving real estate environment. That said, if properties move at higher pricing, we have an improving environment for builders. Still, prices had dropped significantly from September, and remain below those levels in November. And they're still well below spring levels, which were synthetically lifted by the government's housing tax incentive. I should note that I expect prices to decline further, and this week Morgan Stanley (NYSE: MS) expressed its concurrence, forecasting real estate will shed another 11% or so through 2012.

We see little robustness in the levels of activity in the categories of development, with homes not started and under construction not showing any signs of life. Eventually, this new home segment of the real estate market will benefit from consolidation and today's underdevelopment resulting from the foreclosure flooded real estate market. This is because of stubborn population growth, a trend of general long-term personal economic improvement, and a labor market that had better improve. However, eventually is not today.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Housing Remains Horribly Hopeless

and Hapless!

This last week offered another status check upon the state of housing, and like what was reported in manufacturing this week, we only found more bad news. The latest two barometers included the important Housing Market Index (HMI) and key monthly Housing Starts.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Housing Remains Horribly Hopeless

We have taken a different approach to data flow this week, matching like topics in order to serve deeper analysis for more concise reader use. This should help to better clarify the trend in business sectors and economic data segments. In summary, the week's housing market data was profoundly poor, so I pity the reader who seeks to know more. Forgive the corny rhyme brought on by a bout of the flu.

Housing Starts

The Housing Starts Report measures new home construction activity, from permitting, to the start of construction, to completion. The data for October was horrible, with starts falling 11.7% to an annual rate of 519K. Starts were also 1.9% short of the prior year count, which was not a period reflective of boom-time. Many economists look toward single-family starts, a sub-segment of the aggregate starts count, for a more true measure of housing health. In that department activity was a bit better, with segment starts down a lesser 1.1% from September, at 436K.

When Starts are down so much, a rise in Building Permits offers some solace. Indeed, this occurred in October, with Building Permits rising 0.5% to an annual rate of 550K. Still, even permitting activity was 4.5% below the prior year period. Single family home authorizations measured a similar 1.0% above September. Housing Completions ran at a rate of 613K, down 3.2% from September's pace and 18.4% below last year's level.

Regionally speaking, strength was only found in the Northeast, where starts jumped 12.9% over September. That said, building permitting activity was flat in the nation's heavily populated region. The Midwest region's starts rose 1.0% over September, but permitting activity was robust, as the region marked a 14.3% increase there.

The South region of the nation saw Starts fall 13.4%, while permits slipped 3.4%. It appears the Governator is leaving a mess behind, as the West experienced a precipitous 30.5% plummet in Starts and a 0.9% dip in permits. Indeed, we have taken note of voices sounding concern about the potential for further sharp decline in Western home prices.

Housing Market Index (HMI)

Homebuilder confidence, as measured by the HMI, is reflective of the housing starts slippage in October due to the low mark it recorded. Still, the HMI also holds a whiff of hope, which would be a reflection of the gain in housing permitting activity reported above.

The National Association of Home Builders' (NAHB) Housing Market Index gained a point, rising to a mark of 16 in November. However, the latest month's reading could only be called a gain due to a one point downward revision to October's tally, to 15. Furthermore, allow me remind you now that it takes a reading of 50 on the HMI to mark a majority of homebuilders holding a positive outlook.

The best homebuilders could say was that while traffic had not increased, the quality of traffic seemed to intensify. That is a weak statement that cannot hold true across the board of the nation's contractors. The component of the HMI that gauges the traffic of prospective buyers rose one point in October to 12, which is still horribly weak. Apparently homebuilders see a different seriousness about the intentions of those perusing through sample homes. This would perhaps be a sign that Americans are sensing a bottom to home prices, but as we have been outlining here, prices have started into double-dip direction. Thus, this new found "seriousness" might quickly disappear.

Meanwhile, homebuilders remain concerned about banks' sincerity in making funds available to prospective home buyers in today's marketplace. That fear might be alleviated if homebuilders themselves could find financing to build new homes, which they cannot, even despite the thin inventory of available finished construction.

The NAHB reports that homebuilders still believe things will improve in the months ahead. The component of the HMI that gauges sales expectations for the next six months rose two points to 25 in October.

Regionally speaking, the Northeast was the sole segment to post a decline in its HMI score in November, with a three-point fall to 13. The Midwest posted a five-point gain to 18, while the West posted a three-point gain to 15 and the South stuck at 18.

In conclusion, based on these latest two data points, it is clear to us that housing remains in a horribly hopeless state.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Home Sales in September 2010?

Better than Expected?

Are these words we should get used to hearing around the real estate industry? Probably not yet, but as we roll off of the industry lows set this past July, many of the housing data points are offering relatively good news. Today's reported Existing Home Sales for the month of September did the same.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT, AMEX: TWO, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

Existing Home Sales

Driven by single-family home sales, Existing Home Sales were reported increased 10% to an annual pace of 4.53 million in September. While that's a sweet improvement, the latest measure still reflects a sad state of current affairs for housing. July's sales activity dropped off a cliff, you see, free falling 27% after the First-Time Homebuyers Tax Incentive deadline passed. The last two months have offered increase from there, but we are still well off the sales pace seen in June (5.26 million). Of course, that month was injected with a hit of government drugs, or tax stimulus, so we would look for something less groovy here anyway.

Economists were fooled though, as they had set their average mark at 4.3 million existing home sales for September. The result was therefore a tepid positive news bit, given the still soft absolute level of activity. Sales were 19.1% short of the 5.6 million annual rate recorded in last year's period. Plus, there are still plenty signs of trouble in housing, including the blood-letting foreclosure flow (excluding the effects of the robo-foreclosure moratorium). Credit is not easy to come by either, and creditworthy borrowers are even harder to find. Furthermore, unemployment is still stagnant and sad, keeping most jobless from even considering home purchase, but mortgage rates are in record low territory. That's a positive right? Well, a good part of the reason they're so low is due to the depressed level of demand for mortgages now. Remember that supply/demand stuff from economics class; I know, I slept through it too.

The National Association of Realtors (NAR) reported that according to Freddie Mac (OTC: FMCC.OB), the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.35 percent in September, from 4.43 percent in August. Looking back a year, the rate was 5.06 percent in September 2009. Housing prices are also accommodating, and getting cheaper, but that's another sign of a tough marketplace and thus a mixed news offering. According to the NAR, the national median existing-home price for all housing types was 2.4% lower than the prior year period. A key factor in the still falling price of a home is the fact that distressed properties accounted for 35 percent of sales in September, compared with 34 percent in August and 29 percent in the prior year period.

Benefiting from the increase in sales activity, existing home inventory fell by 1.9%, to 4.04 million homes. That is a 10.7 month supply of homes at the latest sales pace, down from the 12 month inventory level seen in August.

Regionally speaking, existing-home sales in the Northeast increased 10.1 percent, to an annual pace of 760,000 in September; that is still down 20.8 percent from September 2009. The median price in the Northeast was $239,200, which is 1.4 percent below a year ago. Existing-home sales in the Midwest jumped 14.5 percent in September to a level of 950,000 but are 26.4 percent below a year ago. The median price in the Midwest was $139,700, down 5.2 percent from September 2009. In the South, existing-home sales rose 10.6 percent to an annual pace of 1.77 million in September but are 14.9 percent lower than September 2009. The median price in the South was $149,500, down 2.6 percent from a year ago. Existing-home sales in the West increased 5.0 percent to an annual level of 1.05 million in September but are 16.7 percent below a year ago. The median price in the West was $213,600, which is 4.9 percent lower than September 2009.

The Chief Economist of the NAR, Lawrence Yun, says real estate is recovering, and should rise from here. This is a widely shared view, though we see a more stagnant state dragging on for a while longer. I also share the viewpoint with a handful of economists that home prices are in double-dip territory now, and moving lower. As this occurs and the news hits the presses, it will only act to discourage buyers further. With current crippled credit conditions in place, and economic growth tempered by a heavy unemployment drag, I cannot see robust recovery. Furthermore, post elections, we see a less aggressive government effort set to stymie economic growth another year or so.

Thus, home prices could decline another 10% to 20%. I believe special conditions would have to fall into place for a 20% decline, including an ugly war with Iran and skyrocketing transportation and energy costs. You will not hear this view expressed in many other places, and yet the event is a strong possibility. So, the only property I would be buying now is a distressed one that offers me a 20% cushion to value. How you like me now?



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Home Builder Confidence Gains in October 2010

Surprise, surprise, home builder confidence is on the rise. The National Association of Home Builders (NAHB) reported today that its October measurement of the Housing Market Index (HMI) showed improvement.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Home Builder Confidence Gains in October

Before you get too excited and begin construction on your lot, it's important to note that the October increase came off record low sentiment levels. In fact, the three point gain in the Housing Market Index, to 16, marked the first such rise in five months, and takes it to a point last seen in June.

June is when the First-Time Homebuyers Tax Credit expired (though the settlement deadline was extended to September). The credit acted as a stimulus for real estate activity, and could have borrowed some from the months that immediately followed its expiration. Thus we could simply be seeing a normalization to a still stale state of activity.

That said, the direction of change is welcomed, though housing investors didn't think much of it. Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV) and D.R. Horton (NYSE: DHI) shares were unchanged on the day. Still, NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Michigan said:

"Builders are starting to see some flickers of interest among potential buyers, and are hopeful that this interest will translate to more sales in the coming months. However, because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market. This problem threatens to severely slow the housing and economic recovery."

Take note, because what you have just received from Mr. Jones was some industry insight that might help your investment strategy. If small builders are unable to access credit markets when housing eventually recovers, then the public companies that operate in the field will have market share opportunities open up to them. They will be able to leverage leverage, or the lack of it, and gain ground over their smaller competitors. It's an advantage they already had, but apparently it will play more prominently as growth renews in this cycle (someday).

The NAHB Chairman repeated words The Greek published this morning regarding the difficulty consumers are also having gaining access to credit, which runs counter to the Fed Chairman's statement on improving conditions. Mr. Jones said this was the most critical obstacle for real estate now, which is saying something given all the formidable obstacles that stand before housing: foreclosure flow & scandal; unemployment; and economic uncertainty.

Still, record low mortgage rates may finally be at a point capable of luring some into an open house. According to this biased organization (the NAHB), foot traffic improved this month. Specifically, the HMI's component indexes all gained in October. The index gauging current sales conditions rose three points to 16, while the index gauging sales expectations in the next six months rose five points to 23, and the index gauging traffic of prospective buyers rose two points to 11. Builder confidence also improved across each measured region in October. The South and West posted four-point gains a piece, to 18 and 12, respectively, while the Northeast and Midwest each took back a single-point, to 17 and 13, respectively.

It's not much to write home about, or to the blogosphere, but given last week's refinancing spike, this adds to evidence that record low mortgage rates might finally be pulling people in. Beneficiaries should eventually include the banks that are doing this business, along with home builders eventually, but not today.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Tasty Baking (Nasdaq: TSTY), Pep Boys (NYSE: PBY), SEI Investments (Nasdaq: SEIC), GSI Commerce (Nasdaq: GSIC), Comcast (Nasdaq: CMCSA), DuPont (NYSE: DD), Tyco Electronics (NYSE: TEL), Lincoln National (NYSE: LNC), Campbell Soup (NYSE: CPB), Cigna (NYSE: CI), AmeriSource Bergen (NYSE: ABC), Sovereign Bancorp (NYSE: SOV), FMC Corp. (NYSE: FMC), Ametek (NYSE: AME), Sunoco (NYSE: SUN), Urban Outfitters (Nasdaq: URBN).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Income or Yield Reach in 2010?

In his latest piece, our Real Estate Columnist Michael Douville says retired investors need not "reach" for yield at the peril of capital. He says, instead investors can find reliable and strong income that is within reach in the residential real estate market in 2010 and 2011.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT, AMEX: TWO, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

Income or Yield Reach in 2010?

Income! The Retired, Semi-Retired, Newly-Retired, and Soon-to-be-Retired have a common problem: the bills need to be paid every month!!! Plans and budgets need to be drafted and drawn. A consistent source of monthly income is crucial to successful retirement planning. A growth portfolio of stocks can produce capital gains, but in order to keep the utility company satisfied or plan for a cruise, a portion of the portfolio would have to be liquidated each month. Unfortunately, relying on consistent capital gains has recently been proven to be a losing game. In addition, stock portfolios have been further exacerbated by the volatility of 200 points up on Monday and 220 down on Wednesday.

The volatility and the inability to assess risk have driven many retail investors out of the stock market and into fixed income. The income investor seeking a conservative and consistent revenue stream has created a very crowded trade in US Treasuries. Yields have dropped to insignificant levels… 10-year Treasuries are yielding in the mid 2% range. Often these instruments are bought by investors seeking a safe harbor in turbulent times; at this historic inflection point, the exact opposite may be the result. Should the economy collapse, Treasuries will still perform exceptionally well. If the economy shows any sign of recovering, the bond market will likely suffer severe losses.

The greatest threat to a retired investor is market losses. Many investors are of an age that has no capacity to recover and replenish depleted portfolios. Their life style and perhaps more will suffer if caught in another market bubble burst. The deployment of their financial resources is a very serious issue; consistent income without the depletion of capital is the goal of SWAN Investors (Sleep Well At Night).

Monthly income from Pensions, 401K's, and Social Security have been traditionally supplemented by the interest earnings of the families' liquid nest eggs, which have been accumulated over a life time of savings. No longer can individuals earn any significant amount from bank savings accounts or CDs that are currently earning less than 1%; liquid money markets earn less than 0.5%, causing conservative investors to move into instruments that have longer duration and poorer credit quality. And they do this to earn an extra $500, $1000, or $2000 per month. The consequences may prove disastrous.

"...the perceived safe and conservative investment may prove to be anything but safe and secure."

This "Yield Reach" has caused many closed end mutual funds and ETFs to be priced with Net Asset Value (NAV) premiums of 10%, 15%, and even 20% in some cases, over true asset liquidation prices. Should investors start to exit these assets, the prices would likely fall precipitously, in my view. With yields at historic lows, the path of least resistance may be up. With price declining as yields increase, both the disappearance of the NAV premium and the adverse market reaction could conceivable combine to produce losses of 10-50%. Thus, the perceived safe and conservative investment may prove to be anything but safe and secure.

With the volatility of the equity markets, and the possible bursting of the "Bond Bubble," where can a monthly revenue stream be obtained that, when the economy eventually recovers, will grow the revenue and increase in value? Residential Rental Real Estate today should provide consistent monthly income. I expect its cash flow and the severe price decline recently experienced in the Real Estate market would help to mitigate potential risk.

Not all properties make suitable investment grade rentals. However, in most markets across the US there are properties that have experienced a severe correction and may even be priced below insurance industry replacement value. The risk of further declines is possible, but that risk has been mitigated by the recent depreciation in value, and so we may be closer to the ultimate bottom than near a historic top. Long-term mortgage rates favor today's borrower, and when the recovery is firmly established, the loan costs will still be fixed, but the rental rates will trend higher, increasing the cash flow. As the economy grows, the income stream also grows. The nature of a common fixed rate loan fully amortized over 30 years should now guarantee internal growth, with the ultimate result of a free and clear property that will generate income year after year. No additional market action is necessary. Further, a simple amortizing mortgage with which everyone is familiar, can be customized easily to fully payoff in 10, 15, or 20 years.

No more market volatility to worry about; no more technical analysis needed; no more "Island Tops" and "Head and Shoulders"; no more market openings that gap below the stop order. Instead, a true long-term investment that I expect guarantees huge returns; the tenants will pay the mortgage off and produce free and clear assets with consistent monthly cash flow.

In my home market of Phoenix, Arizona the sun continues to shine, golf is played every day, and rental properties continue to generate cash flow well. Investors remain investors and hire property managers to be the landlord; the property becomes a passive investment vehicle yielding cash flow month after month.

As in any portfolio, diversification is appropriate and only a portion of an investor's total assets should be in Real Estate. As difficult as the Real Estate Market has been across the nation, a suitable property can probably be found close to home; if not, then it can be found in the Sand States of Arizona, California, Florida, and Nevada, which I view ripe. If you believe the largest economy and richest nation in the world will eventually recover, then an enormous opportunity should await.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

House Prices Sink & Confidence in Government Failing

Morning Greek
Greek Factor: -1

The day has a solid negative tone to it, given poor data out for housing prices, mortgage activity and crude and gasoline storage. Meanwhile, the demise of the President's economic team is furthering a case against the Administration's ability to give life to the economy. All the while, Ben Bernanke said the "D" word, or implied it anyways. The "Greek Factor" ranges from +3 to -3, and is a subjective measure of The Greek's view of the market impact of individual and aggregate news and the day's scheduled events.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Relevant Tickers: NYSE: GS, NYSE: NYT, NYSE: S, NYSE: TWC, NYSE: AOL, NYSE: SNI, Nasdaq: CMCSA, NYSE: TRI, NYSE: PCS, Nasdaq: THQI, NYSE: CBS, Nasdaq: EQIX, NYSE: MHP, NYSE: UBS, Nasdaq: IMMU, Nasdaq: LMNX, Nasdaq: ALKS, Nasdaq: LIFE, Nasdaq: SPPI, NYSE: STE, Nasdaq: AMGN, Nasdaq: THOR, Nasdaq: ARTC, Nasdaq: BRKR, Nasdaq: CADX, Nasdaq: ICUI, Nasdaq: SUPG, Nasdaq: ALOG, NYSE: DHR, Nasdaq: GERN, Nasdaq: GTXI, Nasdaq: IART, Nasdaq: HITK, Nasdaq: INFY, NYSE: WST, Nasdaq: HALO, NYSE: ALR, Nasdaq: MATK, Nasdaq: AMRN, Nasdaq: ANDS, NYSE: MDT, Nasdaq: VVUS, Nasdaq: AFFX, Nasdaq: NBIX, Nasdaq: OGXI, NYSE: MRX, Nasdaq: KNSY, Nasdaq: MDCI, Nasdaq: SNTS, Nasdaq: MDCO, Nasdaq: EXEL, Nasdaq: ONXX, Nasdaq: SCLN, Nasdaq: AVNR, Nasdaq: QCOR, Nasdaq: KERX, Nasdaq: INTU, NYSE: FLO, NYSE: BBY, NYSE: GIS, NYSE: KMX, Nasdaq: CPRT, NYSE: DRI, Nasdaq: DYNT, Nasdaq: EGAN, NYSE: IHS, NYSE: JEF, Nasdaq: LYRI, AMEX: PHC, Nasdaq: PSDV, NYSE: RHT, AMEX: VSR, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

House Prices Sink, Confidence in Government Failing

Talk about trouble. "You picked the wrong time to leave me Larry," are the words the President might be saying this day and moving forward. With the flow of economic data still troubling, any further loss of consumer confidence seems certain to drive this economy into double-dip recession. Meanwhile, the Democrats might rather an aluminum bat to the brain then the departure of a critical economic advisor from the administration ahead of the November elections. You can mail it home now; the Republicans seem sure to take over Congress, unless more kooks turn up in the Tea Party.

FHFA Price Index
Greek Factor: -2

The FHFA posted its House Price Index today, which showed prices fell 0.5% from June to July. What's worse is that June's 0.3% decline was revised to a 1.2% drop. Price decline, which you will recall has been predicted within these pages for months now, is the natural consequence of sickly demand. Record low mortgage rates have thus far not been enough in an economic environment that struggles with soaking unemployment, restrictive lending, deteriorated credit ratings and a flood of low priced distressed property. Note that for the 12 months ended in July, prices are down 3.8%. We remind readers though, that the FHFA data is limited to the purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae (OTC: FNMA.OB) or Freddie Mac (OTC: FMCC.OB). This is still important news, and a heavy negative for stocks today. Looks like housing shares might soon give back the gains made earlier this week.

Mortgage Activity
Greek Factor: -1

The latest Mortgage Applications Survey for the week ending September 17 shows mortgage volume fell, but don't read too much into the data point. The Mortgage Bankers Association has been imperfect in its adjustment efforts around holidays, and this particular report adjusts against Labor Day, which fell within the compared against prior week.

Thus, the seasonally adjusted Market Composite Index fell 1.4%, while the unadjusted measure gained 22.9%. As you can see, there's a lot of room for error here. Mortgage rates fell during the period, with contracted rates on 30-year and 15-year fixed rate mortgages falling to 4.44% (from 4.47%) and 3.88% (3.96%), respectively. Despite the decrease, the Refinance Index fell 0.9% in the period. The index measuring purchase activity decreased 3.3% on an adjusted basis, and rose 18.9% on an unadjusted basis.

This week, more than ever, we should rely on the four week moving average. The four week moving average for the seasonally adjusted Market Index is down 2.3 percent. The four week moving average is up 1.0 percent for the seasonally adjusted Purchase Index, while this average is down 3.0 percent for the Refinance Index. Finally, real estate investors will be well aware of the 38% deficit that exists in the volume of purchase activity against last year's period.

Bernanke's Shift
Greek Factor: -1

Yesterday's FOMC Monetary Policy Statement offered some interesting wording that seemed to focus attention to deflation risk. The Fed's statement specifically stated: "The Committee… is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate." That statement seems to prepare the market for future accommodative policy that may irk some hawks, like dissenter Thomas Hoenig. It certainly raises concern about the economic recovery, which should be the most important takeaway here.

Summers' Departure
Greek Factor: -1

The market is abuzz about the departure of President Obama's top economic advisor, Larry Summers, but I suspect there is less to this than it seems. Bloomberg Radio reported this morning that Summers' tenure would expire at Harvard, should he stay away for more than two years. While he could reapply, this fact might have played a small role in his decision. It is possible he and the President felt he could still be an important guide from outside the White House.

Maybe Summers just got frustrated with the scene in Washington, and the difficulty in getting economic policy through Congress. It is also possible that Summers sees the writing on the wall for the upcoming November elections, and has decided the Administration will have less sway with a Congress that might shift to the right. Still, the market is going to read into the departure as a sign President Obama's team is falling apart and that the Administration cannot cure what ails us economically speaking.

EIA Petroleum Status Report
Greek Factor: -1

The EIA reports every Wednesday on the flow of petroleum goods into and out of inventory. For the week ending September 17, crude oil inventory increased by 1.0 million barrels and gasoline stores increased by 1.6 million barrels. Both crude and gasoline stocks stood above the upper limit of the average range. Beware, though, crude shorters, because even as crude future prices on nearest expiration sit in the mid to upper $70s, the market is being reminded now of the great risk threatening over the next year or so… Iran conflict. Prices should be supported at least in the very near-term as the UN General Assembly meetings play out. The build up in inventory though, says something about economic demand.

DC Doings

The Senate Banking Committee is at work reviewing the government's response to the economic crisis, while a House Financial Services subcommittee is busy looking through the jobs bill.

Corporate Wire

The Goldman Sachs (NYSE: GS) Communacopia XIX Conference highlights presentations by New York Times (NYSE: NYT), Sprint Nextel (NYSE: S), Time Warner Cable (NYSE: TWC), AOL (NYSE: AOL), Scripps Networks (NYSE: SNI), Comcast (Nasdaq: CMCSA), Thomson Reuters (NYSE: TRI), MetroPCS (NYSE: PCS), THQ (Nasdaq: THQI), CBS (NYSE: CBS), Equinix (Nasdaq: EQIX), McGraw Hill (NYSE: MHP).

The UBS (NYSE: UBS) Global Life Sciences Conference includes presentations by Immunomedics (Nasdaq: IMMU), Luminex (Nasdaq: LMNX), Alkermes (Nasdaq: ALKS), Life Technologies (Nasdaq: LIFE), Spectrum Pharmaceuticals (Nasdaq: SPPI), Steris (NYSE: STE), Amgen (Nasdaq: AMGN), Thoratec (Nasdaq: THOR), ArthroCare (Nasdaq: ARTC), Brukur (Nasdaq: BRKR), Cadence Pharmaceuticals (Nasdaq: CADX), ICU Medical (Nasdaq: ICUI), SuperGen (Nasdaq: SUPG), Analogic (Nasdaq: ALOG), Danaher (NYSE: DHR), Geron (Nasdaq: GERN), GTx (Nasdaq: GTXI), Integra LifeSciences (Nasdaq: IART), Hi-Tech Pharmacal (Nasdaq: HITK), Infinity Pharma (Nasdaq: INFY), West Pharmaceutical Services (NYSE: WST), Halozyme (Nasdaq: HALO), Inverness Medical (NYSE: ALR), Martek (Nasdaq: MATK), Amarin (Nasdaq: AMRN), Anadys Pharmaceuticals (Nasdaq: ANDS), Medtronic (NYSE: MDT), Vivus (Nasdaq: VVUS), Affymetrix (Nasdaq: AFFX), Neurocrine Biosciences (Nasdaq: NBIX), Oncogenex (Nasdaq: OGXI), Medicis (NYSE: MRX), Kensey Nash (Nasdaq: KNSY), Medical Action (Nasdaq: MDCI), Santarus (Nasdaq: SNTS), The Medicines Co. (Nasdaq: MDCO), Exelixis (Nasdaq: EXEL), Onyx Pharma (Nasdaq: ONXX), SciClone (Nasdaq: SCLN), Avanir (Nasdaq: AVNR), Questcor (Nasdaq: QCOR), Keryx (Nasdaq: KERX).

Intuit (Nasdaq: INTU) and Flowers Foods (NYSE: FLO) have analyst meetings scheduled for today. The earnings schedule includes Bed, Bath & Beyond (NYSE: BBY), General Mills (NYSE: GIS), CarMax (NYSE: KMX), Copart (Nasdaq: CPRT), Darden Restaurants (NYSE: DRI), Dynatronics (Nasdaq: DYNT), eGain Communications (Nasdaq: EGAN), IHS (NYSE: IHS), Jefferies (NYSE: JEF), Lyris (Nasdaq: LYRI), PHC (AMEX: PHC), PSIVIDIA (Nasdaq: PSDV), Red Hat (NYSE: RHT), and Versar (AMEX: VSR).

Markets are closed in China, South Korea, Taiwan and Israel today.



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

HMI Reaction Shows Stocks Priced in Bad but Not Worst Case Scenario (Iran)

The reaction of housing stocks to today's depressing Housing Market Index seems to say the bad news has been well understood and priced in. The solid earnings report of a housing stock, Lennar, also went far in keeping homebuilder shares in the green today. However, global events bring our attention to the worst case scenario, which is not only absent in the valuation of housing stocks, but ignored by the entire market. We suggest our President tread carefully with regard to Iran, given the current vulnerability of our economy. We further urge our government to focus the entirety of its attention to first curing the economic situation and labor problem, before placing a vulnerable economy in the line of fire.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, Nasdaq: AVTR, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

HMI Reaction Shows Stocks Priced in the Bad, but NOT the Worst Case Scenario: Iran

The Housing Market Index (HMI) for September stuck at a very low mark of 13, matching both August and the low point reached in March of 2009. Oh by the way, that was the low point for the stock market as well, when full panic had a grip of every American, especially those with 401K plans dwindling away. Thus, this latest check of builder confidence is worrisome, and it supports our case for a double dip in home prices and possibly the economy generally, should some new catalyst find this sensitive economic situation.

What sort of catalyst do I suggest? Well, there are more than enough possibilities, like for instance sovereign default within Europe; the disintegration of the European Union's troubled euro; an asset bubble burst in China, which would hurt the domestic demand that is supporting US manufacturing now; a significant terror attack (though we can’t live in fear of it); the loss of control of government debt and entitlement programs; war in any oil sensitive market, like Venezuela for instance.

And there is one major risk in focus this week, which threatens to send shipping costs skyrocketing and the economy deep into recession at a moment's notice. That moment would be the one in which Israel and/or the United States and Western nations engage Iran in conflict. Though this may be the necessary step, it would also mark the moment when Iran launches missiles, aircraft and maybe even troops, perhaps all over the Middle East, but most likely toward Israel and maybe into Kuwait, Iraq, Saudi Arabia, and Afghanistan. That's the day all hell breaks loose and oil prices top $150 on their way to plus $200 per barrel. Iran's real reaction may fall significantly shorter than where we have forecast, but we have not even spoken of China's reaction, given a major source of its oil supply could be shut to it.

So yes, things could get worse, and yes we do sit on the brink of economic depression; and yes, our government had better tread carefully while our economy is so vulnerable.

The Housing Market Index is sad enough, even without such a risk. Who needs a catalyst with homebuilder confidence already so low just on the lack of demand and the flood of distressed properties to meet that slim pool of home shoppers. Who needs such catalyst when banks will not give money away like they used to. Who needs such a catalyst when 10% of America is unemployed and another 7% not making enough money to pay for basic necessities, let alone a new home. They can't qualify for the loan anyway, not even applying old standards of lending (the legal ones anyway).

The National Association of Home Buiders' published its report today, and we quote: "In general, builders haven't seen any reason for improved optimism in market conditions over the past month," noted NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "If anything, consumer uncertainty has increased, and builders feel their hands are tied until potential home buyers feel more secure about the job market and economy."

"The stall in the nation's housing market continues," agreed NAHB Chief Economist David Crowe. "Builders report that the two leading obstacles to new-home sales right now are consumer reluctance in the face of the poor job market and the large number of foreclosed properties for sale. However, we do expect that moderate improvement in the job market will help boost consumer confidence and improve conditions for new-home sales in this year's final quarter." I'm not so sure about that last part!

The component indexes measuring current business (measured 13) and opportunities over the next six months (18) stuck at the same low marks seen in August. Perhaps these readings are so low now, that any further deterioration will be hard to find in the index. In other words, this may be about as bad as it gets for homebuilders.

The industry also reported that foot traffic dropped in September, as that index fell a point to a depressing mark of 9. I would have to say this is the most important component reported, as it measures real business opportunity.

By now, Greek readers are well aware of the impact the First-Time Homebuyers Tax Credit had on housing. At this point, you must understand that the synthetic demand it created was limited to the few folks in position to buy their first home, or who qualified for the tax incentives offered when the law was expanded. By now you understand that economic activity of the sort we are mired in, with unemployment laboring all things, cannot support gains in housing nor any consumption.

Regionally speaking, it looks as though the softening manufacturing space is having an impact on Midwestern activity, with the regional index dropping three points to a mark of 12. The honeymoon is indeed over in Detroit, and so those of you thinking about buying into GM's IPO, might think twice about the timing. It's certainly suspect that the offering is being sought this soon.

In the densely populated Northeast, the index also fell 3 points to a mark of 16. It seems it would be difficult for the West to get worse, as that index now sits at 8, unchanged from August. Only the South improved, with the regional measure gaining two points, to a mark of 14. Perhaps oil slick slowed Gulf activity is returning toward normal now, which would explain the different direction posted by the region's homebuilders.

Given the state of affairs was already understood to be harsh by the stock market, the report has had little impact on trading Monday. In fact, the Dow is up about 1% at this hour. Toll Brothers (NYSE: TOL), an important high-end homebuilder, saw share rise of 3% thus far today, as the entire housing sector benefited from a good report from Lennar (NYSE: LEN). LEN shares were up 9% at the hour of publishing, so a pretty bad scenario has already been priced in.

However, we argue the worst case scenario is one nobody wants to think about, and would send these shares tumbling, along with the entire market. Tread carefully my dear President. The economy is of highest priority now, because nothing else can be addressed until it is off cliff's edge vulnerability.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX and Avatar Holdings (Nasdaq: AVTR), NYSE: HON, NYSE: GD, NYSE: COL, NYSE: GR, NYSE: LLL, NYSE: SAI, Nasdaq: FLIR, NYSE: ERJ, NYSE: SPR, Nasdaq: BEAV, NYSE: TDG, NYSE: CAE, NYSE: HXL, NYSE: ESL, NYSE: TDY, NYSE: CW, NYSE: HEI, NYSE: TGI, NYSE: ORB, NYSE: AIR, Nasdaq: KAMN, Nasdaq: AVAV, Nasdaq: SWHC, NYSE: HWK, Nasdaq: LMIA, NYSE: XOM, NYSE: BP, NYSE: CVX, NYSE: COP, NYSE: ECA, NYSE: E, NYSE: EPE, NYSE: PZE, NYSE: PTR, NYSE: REP, NYSE: TOT, NYSE: WMZ, Nasdaq: GULF, Nasdaq: TRAMX, Nasdaq: TRIAX, NYSE: ISL, Nasdaq: XISLX, NYSE: NOC, NYSE: RTN, NYSE: ATK, NYSE: LMT, NYSE: BA, NYSE: IWM, NYSE: TWM, NYSE: IWD.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Deflating the Housing Bubble

A Tale of Two Markets

Our Real Estate Columnist Michael Douville takes this latest opportunity to discuss the multiple personalities of today's real estate market. He describes a tale of two markets that coexist within this deflating housing bubble. The two coexist in parallel, but could not be more different in character. Real estate it seems, like most everything else in this world, has its winners and losers, and its profit or its damage control opportunities.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, Nasdaq: AVTR, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

Deflating the Housing Bubble

It was the best of markets; it was the worst of markets. Timing became essential, and a degree of luck, in determining which market a real estate buyer had entered. As asserted in countless pages written about the "Historic Bubble of 2005-2007," those who purchased during the frenzy, and those who re-financed and stripped the equity from the property, now find themselves in financial trouble. It may take many years to recover fully; those who have experienced hardship, such as a lost job, reduced employment, or health issues, may choose to liquidate the property and start over. Foreclosure of the mortgage(s) may be the only option for some, and that may entail an additional bankruptcy to clear the debts. However, the "Short Sale", where a negotiated settlement of the loan to accommodate a market driven sale, is becoming streamlined, accepted, and quicker than anything else, seems to be the favored venue for both lender and borrower. These sales represent the worst of the market.

"The clearance of these problem properties affects the entire economy."

The clearance of these problem properties affects the entire economy. Lenders are suffering HUGE losses. In the Sand States of Arizona, California, Florida, and Nevada, lenders are liquidating; homes sold for $215,000 in 2005 can now be found and purchased at 50% or more discounts. The lender realizes even less, as the fees and costs are debited from the lender's ledger. This loss is a very large drag on lender reserves, impacts lending practices, and severely reduces the velocity of capital. There are still many yet to be cleared; however, the supply is finite.

There is an acceleration of the process underway as lenders and Realtors have adjusted to the market. The process has evolved with many major lenders committed to a "team and partner" attitude to successfully close the transactions. Many major lenders are participating in the short sale process in earnest. Less than 12 months ago, fewer than 15% of short sales closed; now some statistics are showing upwards of 70% are closing, and the success rate is rising. How can these sales NOT be deflationary?

These reductions in asset prices have spilled over and affected related industries. Home prices have dropped 50%, and average loan amounts have dropped accordingly, as have the origination fees for the lender, the title fees, the real estate commission, and the payment, which are all based on the purchase price. The last 3 years have been for many, "The Worst Market," as the property market stagnated.

Sellers are now able to work with many lenders and liquidate their underwater property. Currently, although every situation is different, the penalty for a homeowner that sells via a short sale is considered to be approximately 24 months; it's 5-7 years for a foreclosure. There exists a huge supply of homeowners that need to sell, but are prohibited from buying. Investors are one of the major sources of buyers for these properties. It is purely economics at play: a large supply of potential properties now, and for the next 24 months, a diminished supply of buyers.

"Rents should trend higher, probably much higher..."

Rents should trend higher, probably much higher, and barring a recession or severe downturn, prices should be stable with a slight bias to the upside for the next 24 months. That's when the penalty period for former homeowners will be over, and when the wave of past property possessors re-enter the market. It's the perfect exit strategy for half of the portfolio. In the meantime, these former homeowners need a rental.

Investors are receiving a generous reward for providing housing to former homeowners - CASH FLOW has returned. Those investors that remained INVESTORS, and refrained from participating with the SPECULATORS (who ultimately were devastated in the real estate crash) enjoy "The Best Market". Savvy investors are now purchasing properties that have corrected, and in many instances over-corrected, and are now generating cash flows and potential future APPRECIATION.

"...there may be a seminal shift in the market."

With commercial financing severely limited, new multi-family and residential development and construction will also be limited. Investors purchasing properties as they correct and come to market are providing housing for the displaced homeowners. For the next 24-36 months, rents should stabilize, and if the trend continues, the potential for 10-15% rental increases are possible. Dispassionate and return-driven investors are the dominant force in the real estate market; they are profit motivated, which has a tendency to depress prices. However, once a homeowner, always a homeowner; when the waiting period for penalized former borrowers has expired, there may be a seminal shift in the market. New demand may enter the housing market, and those properties that "deflated" may start to appreciate or inflate, accelerating the recovery.

This deflation may be considered just a correction to a more appropriate level, with some positive features. First-time buyers are able to enter the market and purchase homes in much more desirable locations, in from the fringe of the city, with much shorter commute time. Average monthly housing expenses are being severely reduced. A property being cleared via a short sale may have a $215,000 mortgage at 6.5%, for a P&I payment in excess of $1300 per month - it's now being sold for under $100,000, with a 4.75% rate and a P&I payment less than $500 per month That's a monthly savings of over 50%.

Can this huge reduction in housing cost be part of the basis for the significant jump in the US savings rate? Former owners transformed into tenants have found that the rent for a comparable home, like that which they have sold, in many instances is half of their former mortgage payment. Buyers are able to purchase with affordability, and less of their discretionary income is therefore dedicated to housing. The new buyer and new tenant are able to spend or save this differential, which may fuel a coming wave of consumer demand. A new base for an expanding economy is being formed. A much stronger economy is being created, and is a mere 24 months away. Is this "Deflation" such a bad thing?

Properties purchased and financed with little regard for fundamental economics will need to correct. Those buyers and lenders will suffer; the result will eventually be a much stronger economy. Huge sums of capital are waiting on the sidelines to be deployed. This stockpile of cash, by some accounts historic in proportion, mitigates the threat of an immediate recession.

In my view, those with a job in the private sector will probably keep their job, while those currently unemployed or working for state or local governments may be at risk. One of the mandates of the Federal Reserve has been to maintain a stable and growing economy; Chairman Ben Bernanke is a student of the Great Depression and will err on the side of too much rather than too little. Until the correction in housing has been completed, all of the financial markets cannot fully heal. The Fed may attempt to accelerate the process by adding additional liquidity to the system via quantitative easing, buying long-term treasuries, mortgage backed securities, and encouraging commercial property lending. Long-term rates could trend lower and bank reserves could spike up; the results would be greater economic activity with the ultimate goal of reflation.

A window of opportunity still exists for the average investor. Could prices trend downward as the clearance sale continues? Possibly, but although the inventory of homes that need to be corrected is large, the inventory is LIMITED. If the economy can skirt a recession for the next 18-24 months, the distressed housing inventory will be greatly reduced. The adage "from weak hands into strong hands" along with "timing, timing, timing" will rule the day.

The fluctuations in price that are inherent in a correcting market, are greatly mitigated by the cash flow of the investment. Using a 5-year investment horizon and concentrating on enhancing the cash flow performance and the income generated should be the investor's focus. Further, a window of opportunity may exist to employ an exit strategy or a sell and reduce debt strategy in 24 months, enough time to qualify for long-term capital gains and reap potential appreciation.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX and Avatar Holdings (Nasdaq: AVTR).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Cataclysmic Home Sales Data for July

Real Estate

Tuesday's report by the National Association of Realtors was so bad that the pace of sales fell outside the range of 70+ economists forecasts, needless to say missing the consensus estimate. The data was so miserable, it set the broader indexes to gap lower openings, and held them down all day.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, and Mr. Kaminis has appeared across major media. While writing for Wall Street Greek, he presciently predicted the financial crisis in detail.

(Tickers: NYSE: NVR, NYSE: DHI, NYSE: PHM, NYSE: GFA, NYSE: TOL, NYSE: LEN, NYSE: MDC, NYSE: KBH, NYSE: RYL, NYSE: MTH, NYSE: SPF, NYSE: HOV, NYSE: BZH, NYSE: BHS, Nasdaq: AVTR, NYSE: XIN, NYSE: MHO, Nasdaq: CHCI, NYSE: SNH, NYSE: DMM, NYSE: UMM, Nasdaq: FSHOX, Nasdaq: CHLN, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: BRE, NYSE: AIV, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: EDR, NYSE: AEC, NYSE: PMT, NYSE: TWO, NYSE: HD, NYSE: LOW, NYSE: USG, NYSE: EXP, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

Home Sales Data for July

"Cataclysmic" seems to apply best here. I'm sorry to say it dear readers, but the broader market is starting to capitulate to our viewpoint. Once again, we've gone from the Armageddon view to mainstream consensus, and once again that occurred as a result of popular thought merging toward our prescient insight. The reason is simple friends; it's because we have no bias. We are neither contained by editorial leanings or political bias, nor directed by a higher business objective. We pay little attention to the views of media nor pundits. We focus on the pure data, and we see things clearly. Even when we do turn on the tele for a look-see, we sift the crap from substance and we flush it away. This ability to weed out noise is why I succeeded in stock selection, and it's the same reason I can forecast economic and market matters now.

Tuesday's report by the National Association of Realtors (NAR), a biased organization mind you, could not contain the damage. The result was so bad that it fell outside the range of economists estimates, needless to say missing the consensus forecast. The data was so miserable, it sent the broader indexes to gap lower openings, and held them down through the day.

July's pace of Existing Home Sales ran at an annual pace of 3.83 million, down 27.2% from June's revised measure of 5.26 million. Ensuring you took note of what you just read, the NAR recorded a steep monthly slip of over 1 million sales to the current rate of activity. On a relative basis, that's a bad comparison, but it does not even completely tell the horror story. This latest rate of housing sales is the worst since comparable records began in 1999. This rate includes both single-family homes and multi-family structures though. The rate of sales for single-family homes alone fell to 3.37 million, the lowest since May of 1995! Need I say that's bad?

Bloomberg's consensus of 74 economists projected an annual pace of sales of 4.65 million. That's lower, but not anywhere near as low as the actual result this month. In fact, not one economist of those surveyed foresaw the 3.83 million rate, continuing a recent trend of wake up calls among the economist community. It was just last week none of them foresaw jobless claims spiking to above 500K again. The economists' range here covered from 3.96 million to 5.2 million.

Much of the same scribble we used to define the housing hit last month remained valid again this month. You might recall our report found here, which stated: "A housing sector, and economy, that have been held up by government stilts for some time have now been left to stand on their own. We're sorry to report, she's falling flat onto her face in the mud where a foundation was supposed to be. As the First-Time Homebuyers Tax Credit expired, was renewed and expanded, and expired once more, its ability to spur housing activity wore thin. Don't get me wrong though, the government's efforts served a useful purpose and kept the economy from disappearing altogether. It's just too soon for this unemployment burdened baby to make a significant growth spurt." Ditto this month...

By the way, I was wondering if this last quote sounded familiar to you? I just turned CNBC on for the first time in months and heard some of the crew chirping about the same things we said a month ago. You could have heard it from us when it might have saved you some money; hey, CNBC, you might try including some Greek on your menu.

Here's what you'll see on CNBC in the months ahead. Flash forward: "Home prices fell! Recession looms again!"

Prices

Prices increased this month, based on the NAR report. Still the data was skewed by major Northeastern and Western MSAs. The median price of an existing home sold in July increased 0.7% from the year ago mark. The price of a single-family home was 0.9% higher than a year ago. Single-family home prices increased in 11 of 19 metropolitan statistical areas (MSAs) in July, year-to-year (1 MSA data point missing). That means 8 MSAs did not report price increase though, or nearly half. The median existing condo price fell 1.7% in July.

Generally speaking, price increases in the Northeast and West offset price decline in the Midwest and South. We took a closer look at the MSAs and found scarce price increases, though they were in existence in the heavily populated MSAs of Boston, New York, Washington DC, etc. I have to believe that wherever markets are global in nature, prices are more stable, a benefit of that extra demand stream.

Inventory

Home inventory is directly impacted by the rate of sales, which fits into the denominator of the equation that finds it. The numerator is the number of homes on the market. As you might expect, with the severely lower denominator, existing home inventory shot up in July to a 12.5 month supply, from 8.9 months in June. However, even in absolute terms, the news was bad. The number of existing homes on the market increased 2.5% in July, to 3.98 million. The supply of single-family homes on the market in July marked the highest housing supply since 1983 (11.9 months supply).

Lawrence Yun, the NAR's Chief Economist placed a majority of the blame on the end of tax credits. He said that it would take a few more months before the affect of the conclusion of the credits wore off. The idea is that the credits did not really create activity, but pulled forward what would have otherwise occurred this month and next, and perhaps after that as well. What that basically tells us is that housing activity is anemic, has been anemic and will be anemic for the foreseeable future. It's a wake up call to investors who may have gotten ahead of themselves, and it leads one to wonder, have home prices been artificially stabilized and will they take a second leg lower? The answer is yes, unless economic activity gains some traction. All signs point to that not occurring any time soon.

The Good News is Limited

The good news for some of my uber-wealthy neighbors in NYC is that the ultra rich are still buying homes. The highest end of the spectrum, encompassing $1 million plus homes, was the only one to see sales increase in July. This ultra-rich segment marked a 6.9% increase in sales activity in July. Of course, characteristics of this group do not include "surviving by the skin of their teeth on unemployment checks."

Regurgitating Some Old Greek Wisdom

We wrote this a month ago, it still applies, and I cannot say it any better:

Sad State of Affairs

The low mood in housing continues to find causation in an overhang of near 10% unemployment, extremely altered lending standards and a flood of foreclosure activity. While unemployment lingers at a suspect 9.6% rate (probably understated due to workforce declines), the underemployed, or those working insufficient hours at inadequate income remain upward of 16%. That simply will not inspire a fantastic spending scenario.

With regard to lending, the game has changed. With the secondary market for mortgage securities seeing a seismic shift in investor perception, and with a commensurate change in demand for the investment pools, a significant degree of liquidity is gone. But that's not what is limiting housing starts now. Rather, that's what will limit housing growth once the economy starts to gain traction again.

Lending standards have shifted as well, since these assets are finding less secondary demand. You can't just write them and sell them anymore (though some would say you never really could - Countrywide, Washington Mutual, etc.). Anyway, we would like to take this moment to again thank the rating agencies for rating MBS investment grade in the first place; thanks a lot S&P (NYSE: MHP) and pals (NYSE: MCO). Let your policy makers know that we're still waiting for justice.

Meanwhile, foreclosures continue to mount, flooding the market with low-priced inventory. Why would any cost-sensitive buyer look toward the new construction market under these conditions? Well, plenty are not. Distressed home sales accounted for 32% of all transactions in July, up from 31% last year.

Even with mortgage rates at historic lows, buyers are still not turning up. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.56 percent in July from 4.74 percent in June; the rate was 5.22 percent in July 2009. Last week, Freddie Mac reported the 30-year fixed was down to 4.42 percent.

Thus a confluence of factors weigh against housing. The problem is of course that the main factor is systemic; too many Americans simply cannot or will not buy a home under these conditions. Finally, housing itself is a systemic driver of the overall economy and spurs all sorts of consequential spending. We have found ourselves caught in a continual loop of lousy, a death spiral. It will take some original thought to get us out of this mess. We need to stimulate the economy, not to stand it up on stilts like we have with the housing tax credit and via the issuance of $300 checks. Otherwise, we will inch ahead and pray for Asian growth and demand to pick us up.



Relevant Tickers include NVR Inc. (NYSE: NVR), D.R. Horton (NYSE: DHI), Pulte Group (NYSE: PHM), Gafisa SA (NYSE: GFA), Toll Brothers (NYSE: TOL), Lennar (NYSE: LEN), MDC Holdings (NYSE: MDC), KB Home (NYSE: KBH), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Standard Pacific (NYSE: SPF), Hovnanian Enterprises (NYSE: HOV), Beazer Homes (NYSE: BZH), Brookfield Homes (NYSE: BHS), Avatar Holdings (Nasdaq: AVTR), Xinyuan Real Estate (NYSE: XIN), M/I Homes (NYSE: MHO), Comstock Homebuilding (Nasdaq: CHCI), Senior Housing Properties Trust (NYSE: SNH), NYSE: DMM, NYSE: UMM, Fidelity Select Construction & Housing (Nasdaq: FSHOX), China Housing (Nasdaq: CHLN), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR, Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), BRE Properties (NYSE: BRE), Apartment Investment Management (NYSE: AIV), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties Trust (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Education Realty Trust (NYSE: EDR), Associated Estates Realty (NYSE: AEC), PennyMac Mortgage Investment (NYSE: PMT) and Two Harbors Investment (NYSE: TWO). The day's EPS reports included American Woodmark (Nasdaq: AMWD), Avago Technologies (Nasdaq: AVGO), Bank of Montreal (NYSE: BMO), Barnes & Noble (NYSE: BKS), Big Lots (NYSE: BIG), Burger King (NYSE: BKC), CRH PLC (NYSE: CRH), Daktronics (Nasdaq: DAKT), Dycom (NYSE: DY), Eastern Light Capital (AMEX: ELC), Edap TMS (Nasdaq: EDAP), Eltek (Nasdaq: ELTK), Israel Chemicals (ICL.TA), Lihir Gold (Nasdaq: LIHR), Medtronic (NYSE: MDT), Pacific Sunwear (Nasdaq: PSUN), Indosat (NYSE: IIT), Sinocoking Coal (Nasdaq: SCOK), The9 Ltd. (Nasdaq: NCTY), Trina Solar (NYSE: TSL), Urologix (Nasdaq: ULGX), Verifone (NYSE: PAY).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.