Purchase Activity In The U.S. Is Up (WOW) And Down (YOY)

Here is a March Report on SF sales activity. I don’t agree with all the comments and it is filled with realtor speak, but I did find some of the data interesting. Some highlights I found as positive for the market:
– Feb 2011 was the second highest month in the last 2 years for homes accepting offers (Apr 2010 was higher with expiring tax credits) and was up 23% YOY on a monthly basis.
– Sales absorption was the highest in last 2 years at 26%.
– Months Supply of Inventory was down to lowest in last 2 years at 2.6 months.
I still am keeping with my flat pricing estimates (+/- 5%) for the overall SF RE market for 2011, but I expect Q1 to be on the weaker side as we continue to flush out old inventory and REOs.

I predict 10% down in SF on average by the end of the year, 20% if QE3 doesn’t kick in shortly after QE2 ends.
There’s still a lot of shadow inventory out there, and if QE3 doesn’t come quickly after QE2 it seems that interest rates will climb significantly.

Now there’s a conspiracy theory . . .
I’d look for Russian antagonists if you want to follow up on proving this one.

QE is causing the run-up in commodities. When QE2 stops, commodities will probably drop significantly, as will the stock market. The stock market is already faltering in anticipation of the end of QE2, what do you think will happen when they stop flooding the markets with ~$4 billion dollars a day?
Since QE2 is really about propping up the stock market, when the stock market craters QE3 will be guaranteed, it will probably just take a few months before they implement it, meaning higher interest rates and less lending for the rest of the year, meaning housing prices will drop.

Uh huh. Both bonds and stocks will be crushed. That’s PIMCO’s take.
No, it isn’t. PIMCO is aggressively moving into stocks. http://www.ocbj.com/news/2011/mar/10/pimcos-gross-sells-us-treasuries/
Would it kill you to be truthful about the newsbites that you paraphrase? You can still be doom and gloom alarmist while doing so. So there’s your assignment. Good luck.

From fluj’s link: “The company plans to debut its second stock fund, with a focus on emerging markets.” And its first stock fund now has $1.8b, or about 0.15% of PIMCO’s assets under management.
Didn’t quite tell the whole story there with your paraphrasing this as “PIMCO is aggressively moving into stocks,” did you? Let’s try to be a little more truthful.
I think J(NLB’s) read on things is probably right.

I understand. You completely misrepresent a fact, but my pointing that out is just “parsing.”
Heck, I didn’t even point out your biggest paraphrasing misrepresentation (in a post where, ironically, you criticized someone’s paraphrasing): “Uh huh. Both bonds and stocks will be crushed. That’s PIMCO’s take.” I don’t see that tipster ever said anything about PMICO’s take on stocks. You did. And you got it wrong.
Back on point re housing markets, see here for a summary of all the new fees and down payment requirements hitting first-time buyers:
http://finance.yahoo.com/banking-budgeting/article/112316/new-rules-for-first-time-home-buyers?mod=bb-budgeting&sec=topStories&pos=7&asset=&ccode=
I’ll quote instead of paraphrasing to avoid any claim of “parsing”: “Insurance fees on the government-insured mortgages that require just 3.5% down have doubled in seven months, to up to 1.15% (as of April). On a 30-year, $300,000 mortgage, a buyer would pay $30,000 more in fees than if he had signed up for the mortgage in September.”

Right. I provided the link. What, did I think nobody would read it? OK. “Aggressively” was perhaps too strong, technically. What constitutes aggressively then? Now Tipster is saying that they’re only going to buy emerging stocks. Where does “focus” on one fund mean “exclusively, PIMCO-wide”? I’m stopping this nonsense train right now. You can keep talking if you like.

“What, did I think nobody would read it?”
Sometimes it is extremely difficult to figure out what you’re thinking.
For what it’s worth, PIMCO’s current equity fund, Pathfinder, which as pointed out above represents a tiny tiny fraction of assets under management is not really a normal long equity fund.
It’s more of a distressed equity (“Deep value” as they call it), Distressed Credit and Merger Arbitrage fund.
They actually mention their expectations for “Subdued” domestic growth in the strategy statement.
“Over the next three to five years, PIMCO expects subdued growth in the developed markets, higher growth in emerging economies, and increasing regulation and government intervention – an economic environment we call the New Normal. ”
http://www.pimco.com/Pages/PathfinderStrategy.aspx
” … opening a mutual fund operations center in NYC is not aggressively moving into stocks? How so?”
To answer your question here you need only look to the sentence above where the NYC office is referenced and note that “mutual funds” encompasses the 99.85% of their non-stock funds.
“The company is in the process of taking over the selling of its mutual funds from its German parent Allianz SE.”

Inflation and accompanying high mortgage rates are the answer to the governments (and pension funds’) long-term problems of low yields. Imagine a huge pool of new purchase mortgages yielding 8% or 10% instead of 5% or less. Low-yield problem solved!
And as someone who holds a sizeable fixed-rate mortgage, high inflation will be the solution to whittling down that debt more quickly, too.
One need only look to California in the 1970s to see what happens when interest rates and inflation rise — house prices go through the roof in nominal terms (but largely flat in real terms).
Last, as most of my products are exported to other countries, a declining US dollar (and declining real wages) are a direct benefit to my business.
I say: bring on the inflation, bring on QE3 and down with the dollar!

as I said above, Bill Gross’ actions are somewhat surprising. I’m not sure I understand why he did what he did, but among many possiblities is the following:
1)
he has inside information about future Fed/Govt actions (for instance if there is or isn’t QE3 in the pipeline).
as I’ve said many times, to know the future of the markets in our pseudo-centrally controlled markets one needs to know the minds of our govt/Fed leaders.
Few people have as close of contact with key personnel than Bill Gross.
2)
he is using this as a negotiating tactic. threaten to stop buying Treasuries. That is a shot across the bow of the Fed/Govt if anything is. Financial entities have been more and more brazen about doing this since 2007. If they don’t like what Govt is doing, they simply torpedo the market and force the issue.
3)
it is actually a return of the bond vigilantes. perhaps he is tiring of ZIRP and QE2?
4)
he is nervous about Treasury prices once QE2 stops.
yes, hordes of money is pouring from QE2 into Stocks. But it is also pouring into Treasuries.
forgetting the stock market for a second, think what may happen if nobody bids on Treasuries…
Ben B has a Sophie’s choice.
Continue QE2/start QE3 and risk further rampant commodity & oil speculation and runaway inflation not to mention problems from our Creditors and Bond Vigilantes.
or
Stop QE2 and risk Stock market correction and rapidly increasing Treasury yields.

I’ve posted this before, Cleveland Fed’s analysis of inflation expectations in the market — under 2% for the next decade and beyond:
http://www.clevelandfed.org/research/data/inflation_expectations/index.cfm
That’s where those with a dog in the hunt are pegging it. Anyone who thinks inflation will be much higher than that can profit handsomely (if they are right) through TIPS.

One need only look to California in the 1970s to see what happens when interest rates and inflation rise — house prices go through the roof in nominal terms (but largely flat in real terms).
Last, as most of my products are exported to other countries, a declining US dollar (and declining real wages) are a direct benefit to my business.
there are just a few problems with this assessment.
1)
if price inflation occurs at the same time as wage depreciation or wage stagnation, then it causes severe problems.
The 1970s were very different than today. Back then you had strong unions and strong labor groups that allowed for wage-price spirals. As example, COLAs were built into many people’s contracts back then. Thus, higher interest rates translated directly to higher nominal wages.
Today with global wage arbitrage and the destruction of strong labor groups you would likely have price inflation without wage inflation. who in this environment is going to (be able to) ask for a raise? few people.
price inflation plus wage stagnation = “stagflation” and it was not a pretty time.
2)
your assessment may work if the US depreciates relative to the countries you export to. But what if they devalue faster than the US? it is a race to the bottom.
In that case you have higher prices in $ terms, but your customers have less money to buy your products as well.
Clearly, many countries are suffering right now. Eurozone and Japan are obvious examples.
global price inflation is crushing many developing countries (hence, food riots across the world). These dictators are not opening their coffers for nothing.
for now, Brazil looks pretty good… but will it stay doing well if the rest of world suffers? What about Australia, which depends so much on Chinese economic health? Or the other Asian tigers who derive their wealth from mercantilist policies that require the US et al to continue to consume?
China is a whole other story, and has a host of its own problems (and promises). but QE2/3 is a direct economic attack on China’s peg, and could lead to a trade war. so not sure QE3 will benefit many Americans with regard to Chinese trade.
I’m just not sure if people realize how anomalous these times are. Until recently we had NEVER done Quantitative Easing. Then we did it and tried to stop, and failed miserably and had to rapidly restart it. QE is a last-ditch effort done only in times of economic catastrophe. the fact that we are still using it means that we have underlying economic catastrophe. it shows that there is a pervasive and severe dysfunctioning of our various markets.
we are still VERY much in the midst of the credit collapse. And as I said before they take many many years to resolve. not 3 years. Perhaps a decade or more. This is not a garden variety 1970’s or 1990’s downturn. this isn’t even a mild .com crash. it is far more serious.
does this mean we’ll all burst into flames and die in agony in the streets? No. It means that we’ll probably live like we have the last 3 years, going from mini-crisis to mild-crisis over a prolonged period of time all the while we slowly fall to a lower standard of living, adjusting to the “new normal” all the way.
This is what our leaders are hoping. That they can slowly suck all the worker bees dry and shovel as much to the pig-oligarchs, but do it in a slow and insidious way so that the regular people don’t know what is happening. Make it complicated and covert. Then do bread and circuses (Jersey Shore) and scapegoating (unions caused all this!) to rediret the common man’s ire.

If not monetary policy, then what …? Industrial policy? Trade policy? Tariff policy? Immigration policy? Defense policy? Some other policy?
Seriously, please educate us on what our great leaders should be doing for us.

Generally the most direct approach is best.
Using monetary policy for problems with the money supply.
Housing policy for problems with housing. Trade policy for trade issues…
During the boom, I saw various polls of homebuyer expectations of future housing price changes. I recollect seeing expectations of double digit per year appreciation.
If you think your house is going to appreciate at 20%/year is an 8% mortgage going to deter you from buying? How high would interest rates have to be raised before making you think twice about buying? If interest rates were raised high enough to kill the housing bubble, what would that do to the rest of the economy?

tc_sf wrote:

During the boom, I saw various polls of homebuyer expectations of future housing price changes. I recollect seeing expectations of double digit per year appreciation.

No need to go all the way back to the credit bubble. Via Felix Salmon at Reuters, in April of 2010 the Fannie Mae National Housing Survey found that:
• 2 in 3 Americans thought it was a good time to buy a home (same as in 2003).
• 80% believed homeownership was/is important to the economy, and 77% of renters shared this view.
• Nearly two-thirds think owning was/is preferable to renting.
• more than 60% of Americans say that if they were to move they would buy rather than rent.
• about 37% of Americans thought that home prices would go up; another 36% said that prices would stay about the same.
I think that no matter what the CS number say, there’s going to be substantial buying demand for houses for the foreseeable future, even if lots of people lose money when they try to sell after a short-term hold, as evidenced by every third post on socketsite nowadays.

Seriously, please educate us on what our great leaders should be doing for us.
1)
they should be prosecuting financial fraud to help weed out all the bad apples in finance these days.
(instead they refuse to prosecute, even obvious fraud such as fabricated documents used in foreclosure cases… this isn’t “paperwork problems” it is lying on an affidavite in a court of law).
2)
they should be encouraging marketplace transparency so that investors have access to needed investment information. Said information should be truthful and timely.
(instead they changed accoutning rules to allow and encourage mark to fantasy valuations, and continue to allow shady accounting gimmickry such as Repo 105 type transactions. Bank balance sheets are therefore completely useless.)
3)
they should be figuring a way to unwind the Too Big to Fail institutions.
(instead, they made the TBTF institutions BIGGER by facilitating mergers and takeovers between TBTF institutions. they also have supported the TBTF institutions with govt largesse which gives unfair advantage to TBTF institutions allowing them to absorb or destroy smaller competition).
4)
they should be working on ways to separate the use of toxic financial instruments from the boring and much more important role of traditional banking. A TBTF entity should not be able to commingle it’s trading/speculation strategies with it’s deposits.
(instead they allow the banks to continue to gamble with taxpayer money and depositor money).
5)
they should be figuring out a way to unwind government support of private institutions.
(instead it’s every company for itself as it dives into govt largesse. QE2 and POMO are a travesty, not to mention ZIRP and government guarantees not to mention the obvious implicit TBTF guarantee.)
6)
there is no reason why we need most of the new securities that have been created. CDS, CDS squared, CDO, and so on.
ban them all or put them on an exchange with proper collateral. (however, these are so toxic that having collateral would make them undoable. they only exist because of the fact that our govt is hostage to these things blowing up and guarantees everything under the sun).
========
in sum,
our leaders used this crisis to concentrate wealth and power in just a handful of very large organizations. they use all their power to maintain the status quo, hoping to go back to the “glory days” of 2005. it works great for them because they can give a lot of handouts and then leave office and quietly go work as a “consultant” for those very same places that gave them the pork.
unfortunately, they are helping a parasitic class that adds no value and simply extracts huge amounts of money from the productive economy.
TBTF are Too big to exist. their size and parasitic nature is impoverishing us all. The politicians are in bed with them. From BOTH sides of the aisle.
some call this a corporatocracy or perhaps a kleptocracy. both are accurate. We have a government of the corporations, by the corporations, for the corporations.

California Jan YOY -4.3% or -0.6% excluding distressed sales while SF-Redwood City area was -5.3 and -2.8%. It would be great if they published SF only data. My speculation is that SF County is down less than San Mateo County especially if it correlates at all with median prices, which were -17% in San Mateo and -8% in SF county respectively Jan YOY according to DataQuick.
http://www.dqnews.com/Charts/Monthly-Charts/CA-City-Charts/ZIPCAR.aspx
Note: DQ does use new house sale data so not 100% apples-apples.
In any case, as I have stated numerous times before, I like to see at least 3 months trailing data for median pricing before drawing any meaningful conclusions.
Also, it would be interesting to actually know the sample size they are able to get in SF/San Mateo area each month. With only about 600-700 sales combined per month my SWAG is they get less than 1/3 of sales as viable matched pair data because of notoriously bad and incomplete data in the public records. I could be way wrong, but does anyone know more about this subject?
Also, I believe the CoreLogic index for both CA and SF/SM is still above the lows, which I think were in Q12009, unlike USA in total. I could not find the data handy, but if someone has it let me know if I am wrong and post a link.
My summary is we are still basically flat YOY (monthly data +/- 5% is noise to me) and especially if you are looking at non-distressed sales and are not looking in D10, D3 or parts of D9. I focus my investing in D7/8/5, which has few distressed sales so the non-distressed number is of most interest to me. It will be very interesting to see what rest of quarter tells us.
Other CoreLogic highlights:
“Including distressed sales, the five states with the highest appreciation were: West Virginia (+5.5percent), North Dakota (+3.3 percent), New York (+1.9 percent), Hawaii (+0.7 percent) and
Wyoming (+0.2 percent).
Including distressed sales, the five states with the greatest depreciation were: Idaho (-15.7
percent), Alabama (-12.1 percent), Arizona (-11 percent), Oregon (-9.9 percent) and Utah (-9.8
percent).”

“In any case, as I have stated numerous times before, I like to see at least 3 months trailing data for median pricing before drawing any meaningful conclusions.”
“(monthly data +/- 5% is noise to me)”
Note that I believe the CoreLogic Data as reported is actually a weighted average of the past three months. i.e “Jan 2011” data combines Jan 2011, Dec 2010 and Nov 2010
Even though they could jigger something and report month over month data, I have not seen this. Prior six months is the shortest they release.
To provide some context on their errors, as part of the Jan 2011 release, they revised Dec 2010 data from -5.46% to -4.7%, excluding distressed was revised from -2.31% to -3.2%.
“Also, I believe the CoreLogic index for both CA and SF/SM is still above the lows, which I think were in Q12009, unlike USA in total. I could not find the data handy, but if someone has it let me know if I am wrong and post a link.”
I also haven’t seen data, but by chaining together the prior 6 month changes I think SF has breached below both Jan 2009 and July 2009. I believe the National low was March 2009.
I have
Jan 2011– July 2010 : -8.02%
July 2010– Jan 2010 : 2.91%
Jan 2010 — July 2009 : -1.24%
July 2009 — Jan 2009 : 1.09%
Putting Jan 2011 5.5% below Jan 2009
“My summary is we are still basically flat YOY (monthly data +/- 5% is noise to me) ”
The -8% drop from 6 months prior is fairly large (16% annualized rate of decline) and the last time this rate was exceeded was May 2009.

Bill gross appears to be doubling down, shorting Treasuries.
“Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., bet against U.S. government-related debt last month and boosted cash to be the largest of the Total Return Fund’s holdings.
Pimco’s $236 billion fund had minus 3 percent of its assets in government and related debt, after reducing the position to zero in February, the Newport Beach, California-based company said on its website. ”
[…]
“Gross lowered mortgage-related debt to 28 percent from 34 percent, according to the website. Investment-grade bonds comprised 18 percent of the fund’s holdings, unchanged from February, the figures showed.
Treasuries fell today, extending a three-week decline, as economists said three government reports this week will show inflation is quickening. The securities handed investors a 2.8 percent loss in the six months ended March 31,…”
http://www.bloomberg.com/news/2011-04-10/pimco-total-return-cuts-government-related-to-negative-boosts-cash-assets.html

A.T wrote:

Yes, just a day or two into it, but Bill Gross is getting creamed on his treasury short strategy so far.

Well, here we are now, almost four months later and how’s that working out so far? From the L.A. Times’ Tom Petruno, How Bill Gross’ wrong call on bonds has cost his Pimco investors:

Bond market guru Bill Gross is telling his investors what many of them already know: He made the wrong call on U.S. Treasury bond interest rates this year, and that has cost him dearly in his renowned Pimco Total Return bond fund.
Because he kept the $245-billion Pimco fund largely out of Treasuries until recently, Gross missed out on the rising market value of older fixed-rate Treasuries as rates on new bonds fell.
“Do I wish I had more Treasuries? Yeah, that’s pretty obvious,” Gross told the FT.
The Wall Street Journal followed the FT report Monday with a story that had Gross saying he had “lost sleep” over his wrong-way bet on U.S. bonds.
In an interview with the Los Angeles Times on Aug. 18, Gross conceded that “we capitulated a few weeks ago, and we [now] have a fair amount of Treasuries” in Pimco Total Return.

So there you have it; The index returned more than twice that of Pimco Total Return. “Don’t fight The Fed”, as they say. Even Bill Gross can’t do it.

Interest rates aren’t going up, the world economy is sinking:
http://www.forbes.com/sites/robertlenzner/2011/12/26/from-2011s-santa-claus-rally-to-2012s-perfect-storm/
Even Bill Gross has piled back into bonds:
http://www.bloomberg.com/news/2011-12-21/gross-s-reversal-too-late-as-total-return-headed-for-redemptions.html