I think it is; I think it is. Maybe if I say it twice it will make it so. On March 20, I asked the "bottom" question for the first time. My reasons for asking were mainly technical in nature, although I said I believed the enormous under girding of the banking system by the Fed and other governmental agencies was starting to have an effect.
I asked the "bottom" question again on March 26. This time I explained that my reasons for leaning to the affirmative were not only based on the technical action of stocks, but most importantly on the fundamentals. The last two weeks of March saw four economic releases for February housing data that were all better-than-expected.
Good grief surely housing could not be turning, especially when home prices were still falling and defaults were still on the rise. But yes, new housing permits, new home sales, exiting home sales and pending home sales all turned higher in February and beat estimates by between 6% and 22%.
I think yesterday's Wells Fargo pre-announcement of better-than-expected earnings validates the February housing data. It was clear from Wells Fargo's earnings pre-announcent that a big increase in mortgage originations was driving their good results.
Now for some additional good news. I'm hearing anecdotal reports from realtors that I know around the country that March real estate readings in many of the most troubled areas of the country, such as Florida, California, and Arizona are turning up. In almost all cases the year over sales are up substantially, and the inventory of homes is shrinking. Home prices in all areas are still falling, but unit sales are increasing and walk-through business is growing rapidly.
I have said many times before that real estate got us into this mess, and improvements in real estate will need to get us out. Increases in unit sales are good news for real estate and the economy, but we need for real estate prices to stabilize. That would seem to be many months off. However, the Fed's purchases of long-term Treasury bonds and mortgage backed securities has driven down 30-year mortgage rates to about 4.75%. That is proving to be a boon to refinancings as well as new buyers.
My brother in Indianapolis says he has a number of buyers who are ready to buy, but they cannot sell their houses. That may not sound like good news, but it is. Just a few month ago, he said things were completely dead. The fall in mortgage rates is definitely putting more people in the market, and I'm hoping that one of them is interested in one of my brother's clients' homes, so a fortuitous chain reaction can begin.
My sister-in-law in Arizona, says she has had more activity in the last few weeks than she has seen in months.
It may seem early to call a bottom in the economy with only one month's data and a few anecdotes. Indeed, the good news may later be seen as false hope, but when you combine good data and anecdotes with the fact that stocks have staged a bona fide technical rally, the turn around appears to be sprouting legs.
Thursday, April 09, 2009
Is This The Bottom? Part III
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2 comments:
I love optimism. It is what let's me know we will get out of this and a way that is different from Japan. That said, housing interest is simply a seasonal occurrence. Of the Realtors in Indianapolis I have spoken to, most have not seen anything percolating. If there is traffic, it is at the first time homebuyer level. Unfortunately, that is an indicator of nothing as every year will have its own crop of first time buyers. This year's vintage are lucky folk as their buying power will be historic as will be their mtg rates! But that and 50 cent will buy you a Coke--in some but not all machines...
What is more concerning are the visits I have had with numerous business owners--retail, restaurants, shipping/trucking, manufacturers, homebuilding, lawyers...the message is costs have been cut to the bone with the next step being even more staff reductions, shift reductions, etc. On top of that, many of those owners have received in the last few weeks notice from their banks of reduced lines of credit, or worse-removal with 90 days to move or settle-up...
Now, I've been a hoosier long enough to know things here will usually be worse longer while other parts of the country are busy recovering. So it is important to not focus too much on Indiana, but springbreak down south didn't tell a different story.
Numbers being "less bad" is not the same as "getting better" It would have been difficult to conceive of an economy slowing at the rate it was over the last few months--that would be scary. But it numbers are still getting worse--at a slower rate.
Five weeks of rally is impressive. Hope is a powerful emotion. The way the markets fell left few resistance points on the way up--so one would expect that a strong drop would yield strong bounces.
Whether this is "a" bottom or "the" bottom will be evident when we have the benefit of hindsight. However, there is compelling research that argues it is better to be 6 months late to the bottom than to be 6 months early to the bottom. Bernstein at Merrill Lynch did the work and examined all major bottoms from the 1950's to the present and the evidence showed that being late to the party was better than being early. So i will be fashionably late, you can show up early and help with the decorating.
Please tell your sister-in-law from Arizona that you should see more activity in Spring. I just read some data that banks have more foreclosure homes, that they have not even listed in the mkt. Have the banks started lending money ? Have the feds stop printing money ? Have the unemployment rate decreased ? Sir, we have a long way to go before you call the bottom.
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