There will be Housing: How we’ve Returned to Selective Market Ignorance.

As we quickly approach our Wile E. Coyote moment in the market, we have once again returned to the selective attention desperation of early 2007. You know, the moment when we are rapidly chasing the road runner ignoring peril only to find ourselves suspended in air a few inches over a cliff. The market has been rallying since last week simply on the notion that there will be a bailout for monoline insurers. This so-called bailout has dominated all other financial news as the market desperately grasps for any sign of turning around. In fact, this week as the rating agencies proved yet again that AAA means absolutely nothing, the market took off flying on this false alphabet soup of delusion.  In fact, one of the monoline insurers was given an award!  Next we’ll be hearing that Enron won a prize in sound business practices. Here is the incredibly ironic thing of this all, the underlying asset backing up these players is real estate. Now logically you would think that a good measure for the soundness of these investments is real estate but instead, the market is using binoculars to look at bailouts as a sign of market health and not the collateralized obligations. Here is a newsflash, the fact that we are talking about bailouts every week does not signify a healthy market.  In fact, market psychology seems to have drifted back to Q1 of 2007 when a few high profile subprime lenders went under and that was spun as an “isolated” event. Now we are trying to make it seem that the monoline insurers are only isolated events again and any sign of movement is enough to send the market rallying. First of all, let us look at national foreclosure numbers: *click to enlarge market rally So we just had our second worst month on record in January and the market is rallying because there is a potential bailout for insurers that are backing up lenders that are holding portfolios of these foreclosures? I can see the ACME anvil getting ready to drop. For the mom and pop investor, I’m not sure what to say. All fundamental indicators are pointing to more housing and credit pain yet the market rallies on seemingly knee-jerk news while the bigger story gets sidetracked. For those of you who don’t know, the century old Dow Jones Industrial Average just decided to make the following move a few days ago: -Remove Altria and Honeywell International -Added Bank of America and Chevron Let us take a look at the one year performance of these companies: Altria: -13% Honeywell International: +23% Bank of America: -18% Chevron: +23% In the end it is a technical wash. But what kind of move are they doing considering that BofA is mingling with Countrywide and asking for “epic” bailouts? Also, they are now pegging to peak oil with Chevron but how much job growth is really in these areas? Honeywell was dropped since it was one of the smaller industrials but again, this speaks to what I was talking about in Business Devours its Young . That is, more and more we are getting rid of our blue collar industries and becoming a nation that is a paper pushing house flipping oil hungry populace driving around in tanks on the 101 at 5 MPH in peak traffic. You may be wondering about the title of this post but we are now a housing and oil nation and as such, we are going into a housing led recession followed by peak oil.  The selection of the two companies is very telling of what is now deemed as a big 30 company. Case/Shiller - 2007 Worst Year Ever As the market continues to fiddle while Rome burns, the Case/Shiller Index just came out with its worst yearly drop on record since it started keeping track of housing prices in its 20-year history. Prices in 20 of the top metro markets in this country are now down 9.1% for the year. Just for a comparison measure in the 1990-91 recession housing prices were down by 2.8%. So the velocity of this drop is 3 times as fast as the one we faced in the early 90s. Then again, we’ve never been in a global housing bubble so all rules are out the window. Take a look at the Case/Shiller numbers for Los Angeles: We are now down 13.7 percent for the year. Of course, we already know from other data measures that Los Angeles is off by nearly $100,000 from its median peak . The biggest drops came from Miami (down 17.5 percent on a year over year basis) and Las Vegas (down 15.3 percent on a year over year basis).  Don’t fret SoCal, we did take the bronze. These drops show no signs of slowing down. Even yesterday, the NAR came out with data showing a “stabilizing” market which of course is like saying the Titanic didn’t sink that badly because it went down in slow motion. Take a look at this write-up over at Calculated Risk discussing the numbers. What you’ll notice is no stabilizing and we are still at record inventory levels yet again, the “bailout” once again rallied the market.  Oh yeah, and producers input prices are skyrocketing but who cares! Need we remind you that March 2008 is going to be the month with the largest number of subprime resets thus far?: Yes my friends, there will be bailouts. Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information Share This Related Posts: ■ It Wasn’t Me. 3 New Trends: The Housing Lawsuits Begin, Prevention, and Story Telling. ■ Screw This Housing Market! Black & Decker Sucked into the Housing Abyss. ■ Housing Cross Contamination: Subprime Infecting Prime Lenders. ■ When the Housing Clock Stops Ticking: Why the Median Price is Going up While Sales are Going down. ■ The Sacred Commission: 3 Reasons Why Commissions Will Come Down.