Zooming in a bit on Los Angeles

A previous post showed a large drop in housing starts in Los Angeles at the start of a large downturn in the housing market. Here is a look at what single family sales did (both new construction and existing) as reported by NAR:



The data is fairly rough looking, but I think it is reasonable to conclude the drop in sales from 1989-1991 was roughly a 2 year warning before median prices started tanking in 1992-1993.
Here are single family housing sales today:



If this 2 year pricing lag is accurate today, then 2007 should not see median price declines.

Downtown Miami overbuilding still going on

This picture was taken this week by a friend. Welcome to Miami:



Unbelievable.

Boulder, CO and Los Angeles housing prices vs starts

These 2 cities were requested. I also added color coded labels for the 2 data series. The giant fall in starts in 1989/1990 Los Angeles is curious. Was there some major legislation change then or something?

Commercial realty is next to feel the pain

The subprime mortgage crisis is hitting the once-comfortable confines of
commercial real estate. To be sure, commercial real estate defaults are low, with a rush of capital into the market in the past five years. Still, even the largest portfolios are financing most of their deals through traditional and new debt instruments, making many nervous about such leverage at a time when mortgage debt is in trouble. The leverage has fueled profits, but also could place future returns in jeopardy.

“The pain will not be easy for those using a lot of leverage,” Jacques Gordon, global strategist for LaSalle Investment Management Inc., Chicago, a real estate investment management firm. “Investors have to be careful in a frothy market. What happens when liquidity dries up or when lenders start tightening their criteria?” Mr. Gordon said. There are already small warning signals. Capital from institutional investors might slow this year as pension plans, endowments and foundations have already invested much of their increased allocations.

...

Some investment managers are becoming concerned with the increased spreads between secured real estate instruments (such as CMBS and CDOs) and Treasury bonds. “CMBS, the below-investment-grade piece, is the worst place to be today,” Mr. Coyle said. “Five years ago, it was a great place to be.”
The next two years will be significant for CMBS, said Larry Kay, director in structured finance at rating agency Standard & Poor’s, New York. A large number of the loans used in CMBS — about $40 billion— will be coming due, and the question is whether they will be paid off or go into default, he said. “We have to wait and see.”
CDOs carry the most risk because unlike CMBS, they are not regulated by the Internal Revenue Service, Mr. Kay said. They are not fixed vehicles, meaning the collateral can be sold off during the course of the loan to pay off any underperforming portions of the debt instrument. Some investors see them as bundled junk bonds sold off as higher-grade debt, and they’ve become very popular with private equity and hedge fund buyers for extra financing on deals above what a bank would lend, especially in the past year.

New home sales vs NAHB index

A reader suggested showing this comparison.

Housing market price changes and starts changes

If anyone would like to see the data for anywhere else let me know (I have 350 MSA's to choose from).

The left axis is inflation adjusted median housing price as reported by NAR, and the right axis is the number of housing starts from census.gov. Time is 1982 Q4 - 2006 Q4.

My goal in making these is to see the change over time - Places like Phoenix have had very strange changes.

Some possible good news for housing this summer

Tuesday's stock market crash, along with the recent durable goods report has caused some major pricing changes in the Fed Funds Futures market. For those who don't know, this market is based on placing bets as to what the Fed Funds rate will be some time in the future (the rate is currently 5.25%). This rate effects investors as it is considered a sort of risk free rate. Residential mortgage rates dropped a lot in the 2002-2005 range because the Fed Funds rate dropped from about 6% to 1%.

Over the last couple months, the futures market has predicted about a 15% chance of a rate decrease by June 2007. Very recently however, this changed to 40% likely. If this happened, more buyers would (in theory) be able to get financing at a lower rate. Here is the Fed Futures probability chart for June 2007: