Stocks Fall; Housing Holds; Blogs Dead On
A: I can already see the chain of events occurring. The purpose of UrbanDigs is to discuss, in forward thinking terms, what is going on right now that might later affect real estate; especially in Manhattan. As I choose the topics to discuss I can only hope that I write in a manner that is educational and that you are a bit more knowledgeable at the end of the article. It is this knowledge that should make you a savvier investor. With this subprime thing getting headlines for weeks now, it is starting to effect consumer psychology and the stock market. What I see is a stock market that is beginning to price in future risks to the strength of the economy as investors account for uncertainties down the road. The question remains, is this pullback in the stock market a leading indicator of future economic weakness that might slow job growth and housing's search for a bottom? I think so.
Lets start from the top and go down from there.
STOCK MARKET BEGINS TO PRICE IN RISKS
I'm sure the cowbell will have something to say on this one. The stock market right now is pricing in risks seen to the future sustainability of strong economic growth. Specifically, it seems the subprime sector woes are a lot deeper than most thought and are threatening to infect prime lenders, housing, and the consumer. Not good. This change in the overall environment brings new risks and adds to the uncertainty of the near term strength of the economy; hence the pullback in stocks. Get it? I discussed the chain of events of a falling stock market that leads me to believe it is a leading indicator of near term economic strength. in my posts 'Why Lower Rates Might Not Be Good'.
According to Yahoo Finance:
Stocks plunged Tuesday as troubles for subprime lenders kept piling up and U.S. retail sales came in weaker than anticipated, leading investors to brace for a wilting economy. The Dow Jones industrials fell more than 150 points.As stocks fall, wealth is lost, consumers get more concerned, businesses cut back in spending/hiring, and the economy weakens. Chicken or the egg? I'll go with stocks. If this equity downtrend continues it will inevitably lead to a slowdown in the economy that proves itself in future reports.
Oh, and retail sales released this morning missed analysts expectations.
NYC HOUSING STAYS STRONG
Short and sweet. Buyers are a dime a dozen, open houses are still very active, no-finance contingency requests are becoming common proving the shift to a sellers market, and inventory remains tight.
I still expect this surge in buyer demand to last only 1-2 more months, max. Come mid May, I think buyers will notice activity half of what it is today. The question I have is how much inventory will be there to choose from and how negotiable the seller becomes to adapt to the slowing activity.
BLOGOSPHERE GETS IT RIGHT
Bubble Meter Predictions Revisited (Bubble Meter)
Housing in 2007 (Calculated Risk)
Of Things To Come (Property Grunt)
2007 - Predictions & Discussions (UrbanDigs)
URBANDIGS CALLS
Well, if you read my blog often you know that I strongly believed the biggest threats to the housing market to be tightening of lending standards and future job losses. Here are my posts on the former which I believed to be the first to hit:
Credit Crunch: Tighter Lending Standards
Credit Update: HSBC Warns of Bad Debts
Lenders Starting To Tighten!
UrbanDigs Says: Okay, so for months I've been discussing what might happen as the housing market cools and so far its pretty dead on. As subprime woes continue to unfold, and they will, its only a matter of time until prime lenders go into 'prevent' mode and tighten their standards of lending. This contraction in credit is not good for consumer spending in general and means risks to the future strength of the economy. The stock market has been pricing this in for weeks now. The ripple effect begins, corporations slow down spending/hiring, consumers lose confidence and cutback their spending, the economy slows, jobs are lost, fewer can afford homes, more homeowners tap into any equity thats left in their homes, weak homeowners are forced to sell. The question that comes to my mind now is at what point the contrarian investors (myself included) start seeking for a bottom!
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Comments (6)
The large number of condo conversions is depleting rental inventory. This, combined with high property prices drives rental prices up. Residents have to a) pay the higher rent prices b) bite the bullet and buy or c) move away. While the renters ponder their choices, Europeans see a weak dollar and see NYC as cheap and buy, cushioning the Manhattan market. Toss in the record Wall Street bonuses and you have strong open house activity.
Thoughts on if this is true? And has the increase in buyer activity led to selling price increases?
Posted by spaceboy | March 13, 2007 7:08 PM
Yes I think you are fairly defining the nyc marketplace! I think sales prices have stayed at the high end and have afforded sellers shorter times on market and less negotiations to move propertys.
I think in coming months NYC real estate data will show strong performance during the months of JAN - MARCH
Posted by Noah | March 13, 2007 7:21 PM
“You're walking around blind without a cane, pal. A fool and his money are lucky enough to get together in the first place.”, Gordon Gecco, 1985.
First off...How can anybody POSSIBLY SAY that the Stock Market slide over the past couple of weeks is a LEADING INDICATOR. Since we've agreed here that the underlying cause is the Sub-Prime meltdown(not to be confused with the meltdowns of Ron Artest, Britney Spears, and Chance on I LOVE NEW YORK), and those loans were originated in the past few years and failed in the past few months and the stock market didn’t predict it until AFTER is happened???
“Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep, and sheep get slaughtered.”, Gordon Gecco, 1985.
If you wanted a true leading indicator to predict this sub-prime mess, it was staring you right in face in the fourth quarter of last year…
FOR EVERY $1.00 AN AMERICAN EARNS HE SPENDS $1.01.
Thats a negative savings rate. We knew banks had offered riskier loans AND we knew that consumers were growing their debts and not putting away money.
“The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own”, Gordon Gecco, 1985.
It wasn’t that one percent taking the on Sub-Prime loans. It was those that could barely afford their home purchases in the first place. And now that we’ve created a NEGATIVE SAVINGS RATE this couldn’t have been more obvious. The negative savings rate was the leading indicator here. The stock market was a big, electronic, fairly corrupt, manipulated sheep.
And this won’t be good for housing, you can bet on that. This WILL spill over to the prime markets and the Mortgage market will tighten. Except in Manhattan, were the buyers are flush and supply won’t ever truly grow. So, as usual, as a current buyer, this won’t do anything for me.
I will now light myself of fire.
Posted by More Cowbell | March 13, 2007 8:10 PM
Can co-op owners in Manhattan buy a unit with a 30 year fixed and then later re-fi with an ARM or Interest only loan?
I.e they got drunk on equity and spent themselves to death
Since almost all home owners re-fi'd in the past few years, wondered if this may affect co-cops?
Posted by uwsider | March 14, 2007 9:33 AM
If you bought a coop, you'd probably have a lower debt to income ratio. Plus, if you refi'ed from a fixed you probably only did it for a lower fixed rated... not sure why you'd refix for an adjustable rate since that prolly means you're leaving soon. Why not just hold out until you needed to sell? The breakeven on the refi might not make sense.
Posted by spaceboy | March 14, 2007 10:30 AM
Agree with spaceboy - In short, YES you can refi but why would you want to?
Is it because you originally couldnt afford the property and now need to lower your monthly payment? Not a good situation?
Generally, the transaction cost of refing should cancel out 1 years worth of savings from the lower rate! If it doesnt, it makes no sense.
Posted by Noah | March 14, 2007 10:54 AM