Trendocracy

Sunday, April 21, 2013

Charleston Market Report - October 2012

Charleston Market Report - October 14, 2012

The long term trends in real estate and the stock market do not occur overnight. It is a surprise to many because most people do not know how or have the time to track this sort of stuff except for geeks like me. The national media then often reports "crashes" in the markets as though they just happened overnight. The wonderful aspect of trend movement is that they will always move towards an in-balance between supply and demand and show a true direction of price movement.

In order to track the real estate market of the historic and beautiful city of Charleston, SC, which is my hometown, I measure four main indicators which are:

1. Existing Home Sales
2. New Home Building Permits
3. Foreclosure Filings = (Defaults + Auctions + REOs)
4. Interest Rates

Three out of four of these indicators are local except for indicator #4, interest rates. The direction of interest rates tend to increase or decrease the momentum of home prices depending on the direction of indicators #1 through #3.

Main Indicators #1 and #2 are the two best leading indicators and interest rates (#4) have been very favorable and have displayed improvement since Q1 2010. The trends point to a very nice rebound in the Charleston real estate market from depressing levels created by the "credit bubble."

Main Indicator Matrix
When you look at the Main Indicator Matrix below the Charleston, SC real estate market began to deteriorate starting in Q1 2006, which I covered years ago when I first started writing the Charleston Market Report. Starting in Q3 2006 we were in full "red alert" risk mode for home price decline here and most people thought I was a lunatic because Charleston had been such a consistent real estate market for so long. Unfortunately for those who did not listen to the warnings and "trust the trends" they soon realized the hard way that they should have made the "trend their friend."

Q1 2010 is where we first began to see the trends confirm some market improvement as distressed real estate was being worked out, interest rates were favorable and sales turned the corner after some help with stimulus programs.

The Main Indicator Matrix below shows all four indicators in green which has not occurred in over seven years. This can be attributed to a number of factors which include a Zero Interest Rate Policy (ZIRP) being pushed by the Federal Reserve, more affordable home prices and a reduction in distressed properties flowing onto the market. Combine these factors with the quality of life in Charleston, positive demographic trends, a strong cluster of aeronautical, defense and technology companies, and favorable state policy to recruit new businesses is a recipe for a rebounding housing market.

Please keep in mind that these charts are just merely a macro view of what is happening in Charleston, SC and is by no means the sole reason to go buy or sell a home. You will need to drill down in your own area and personal finances with a professional before making that decision.

Please feel free to share this info with family, friends and co-workers.

If you would like to stay updated on the local and national economic and real estate trends please click on the link below:

The Home Price Appreciation chart below is not a main indicator but rather a result of what happens when supply and demand creates an in-balance or no in-balance at all. Real estate prices act just like the stock market because sometimes they go up, down or simply move sideways. The key is identifying a major change in trend, such as what began to occur in late 2005 before most people in Charleston or the rest of the country realized a major decline in housing prices was upon us.

Share Disclaimer: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Charles Towne Capital, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Charles Towne Capital, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Please see a more detailed disclaimer at the bottom of this page.

U.S. Real Estate Market Report - October 2012

U.S. Housing Market Report - October 14, 2012

From JPMorgan's just released earnings, which beat expectations:

Dimon commented:

“Importantly, we believe the housing market has turned the corner. In our Mortgage Banking business, we were encouraged that credit trends continued to modestly improve, and, as a result, the Firm reduced the related loan loss reserves by $900 million. Despite this improvement, the absolute level of charge-offs remains elevated. We also expect to see high default- related expense for a while longer. We are acting responsibly to help homeowners and prevent foreclosures, offering nearly 1.4 million mortgage modifications and completing 578,000 since 2009. Credit trends in our credit card portfolio continued to improve, and the wholesale credit environment remained stable.”

There is no question the U.S. Housing Market has turned the corner as Mr. Dimon suggests but it has come at a cost to the U.S. taxpayer in the form of multiple Quantitative Easing (QE) programs initiated by the Federal Reserve over the past couple of years. The approximate cost to save bank balance sheets and artificially lower interest rates is around $2.9 trillion since QE started in December 2008 after the Credit Crisis that almost caused the U.S. economy to collapse.

The charts below were taken from a presentation given by one of the brightest economists in the world, David Rosenberg of Glufkin Sheff + Associates Inc. at The Big Picture Conference in New York. When we focus on the short term recovery over the past two years the housing market looks extremely positive. However, we must not fall into the trap of short term memories of where we came from and where this housing market has gone since trillions has been spent on QE.

The Fed's interference into the free market benefits one sector while it hurts others. Sure the real estate industry is important to the overall economy but at what cost. Is it fair to seniors who need yield to artificially keep interest rates low? While the stock and housing market has reacted positively to QE over the past few years what are the ramifications in the future of this stimulus by printing dollars out of thin air.

So yes the U.S. and many local housing markets are doing extremely well right now but up to this point it has been a $2.9 trillion fix. Questions remain if it will last and how will it be paid back.

Timing is everything in all aspects of life especially real estate and investing where money is on the line. I have been using trend analysis for over 10 years to measure the irrefutable law of supply and demand in the stock market and real estate market. It is a real simple concept that is the foundation of rising and falling prices from everything to stocks, houses, gas, tomatoes, etc. etc. With the economy struggling to recover and the experience of one of the worst recessions on record in history it is critical to be able to determine when to buy and when to sell when your hard earned money is on the line.

Just like the weather, real estate and the stock market move through cycles or stages. The measurement of this movement can be determined by measuring data, which is nothing more than looking at the psychology of markets because people are making decisions that effect price movement in various markets.

With regards to real estate and interest rates for the U.S. I use momentum trend charts to determine long term trend changes in the market. The techniques used to create the charts below are used by institutional traders in the stock market in order to make important buy and sell decisions in their portfolios. In most cases what we tend to see is that these trends will move in a sequence with each other as certain aspects of market variables and psychology change.

In order to get the "big picture" of what is going on in the U.S. I look at the following:
1. Home Price Appreciation
2. New Building Permits
3. Distressed Real Estate (Notices of Defaults (NODs), REO Sales and Pre-Foreclosure Sales, which is provided to me by my friends at RealtyTrac.
4. 30 Year Interest Rates.

So for example, if new building permits are decreasing while distressed real estate and interest rates are all increasing then that will put downward pressure on home price appreciation. This is the exact trend that occurred in 2006 that eventually led to a major housing bust.

I will continue to update these charts as the data comes out so that you can make more informed decisions on major purchases, such as real estate. Please keep in mind that these charts are just merely a macro view of what is happening in the U.S. and is by no means the sole reason to go buy or sell a home. You will need to drill down in your own market and personal finances with a professional before making that decision.

If you would like to stay updated on the local and national economic and real estate trends please click on the link below:

Please keep in mind the following:

1. Rates have dropped by 30% YoY allowing the 70% of buyers who use a mortgage to ‘pay’ 15% more for a house on the same monthly payment.

2. Foreclosures as a percentage of total sales dropped 25% YoY lifting the “median” sale price.

3. You comp YoY against a stimulus hangover year.

The result ’prices paid’ will ‘rise’ and ‘comps’ will look great. But the benefits of stimulus and easy comps will soon turn into headwinds and difficult comps, which is exactly what happened in 2011 following the year+ long home buyer tax credit stimulus pump of 2009/10. Once again, people are mistaking stimulus for durable fundamentals, which has been a consistent problem since housing’s first dead cat bounce on QE in 2009.

Source: Mark Hanson

Monday, April 08, 2013

A Dangerous Bubble

Disclaimer: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Charles Towne Capital, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Charles Towne Capital, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Please see a more detailed disclaimer at the bottom of this page.

Monday, February 18, 2013

The "Steroid" Housing Recovery

Wednesday, February 13, 2013

Chart of the Day - The Dow is 10.6% off all-time highs

With the non-inflation-adjusted Dow is trading 1% below its all-time record high, today's chart provides some long-term perspective with a chart of the inflation-adjusted Dow since 1900. Of interest is that the inflation-adjusted Dow has traded within the confines of an extremely long-term upward sloping trend channel over the past 113 years. It is also of interest that the secular bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s. Also, while the market action from the inflation-adjusted record high of 1999 to the financial crisis lows of 2009 was severe, the magnitude of this decline was much less than what occurred with the bear markets that concluded in the early 1930s and early 1980s. More recently, the Dow has retraced most of the financial crisis bear market though the inflation-adjusted Dow currently trades 10.6% off its 1999 record high. While the inflation-adjusted Dow is not quite as near record highs as is the non-inflation-adjusted Dow, the post-financial crisis rally would have to be considered a rather dramatic turn of events -- inflation-adjusted or not.

Chart of the Day - The Dow is 10.6% off all-time highs

Disclaimer: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Charles Towne Capital, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Charles Towne Capital, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.Please see a more detailed disclaimer at the bottom of this page.

Thursday, January 31, 2013

`Mild' Bond Bubble Possible in 2013?

An interesting interview with Dominic Konstam, the global head of rates research at Deutsche Bank AG, talks about the outlook for the U.S. bond market and Federal Reserve monetary policy. I agree with his analysis.

Disclaimer: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Charles Towne Capital, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Charles Towne Capital, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. Please see a more detailed disclaimer at the bottom of this page.

Wednesday, January 23, 2013

Chart of the Day - How does the current rally rank?

The Dow just made another post-financial crisis rally high. To provide some further perspective to the current Dow rally, all major market rallies of the last 112 years are plotted on today's chart. Each dot represents a major stock market rally as measured by the Dow with the majority of rallies referred to by a label which states the year in which the rally began. For today's chart, a rally is being defined as an advance that follows a 30% decline (i.e. a major bear market).

As today's chart illustrates, the Dow has begun a major rally 13 times over the past 112 years which equates to an average of one rally every 8.6 years. It is also interesting to note that the duration and magnitude of each rally correlated fairly well with the linear regression line (gray upward sloping line). As it stands right now, the current Dow rally that began in March 2009 (blue dot labeled you are here) would be classified as well below average in both duration and magnitude. However, when compared to the most recent post-major bear market rally (i.e. the rally that began in 2002), the current rally has already surpassed it in magnitude and required less time to do so.

Chart of the Day - How does the current rally rank?

Disclaimer: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Charles Towne Capital, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Charles Towne Capital, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.Please see a more detailed disclaimer at the bottom of this page.