A Tale Of Two Cities . . .

For the first time in OVER 8 YEARS, the median new home base price in Albuquerque is higher than the median new home base price in Rio Rancho. In fact, Albuquerque has seen an increase in new home base prices for the last six months in a row, while Rio Rancho has been steadily declining.

As I have said numerous times, and it bears repeating again, just because these facts are true it does not tell the whole story. To understand the big picture you have to realize that new home "products" are always changing. For example, during the inflation of the housing bubble it wasn't just prices that were increasing; it was also the size of homes.

IMPORTANT: TODAY THE SAME THING IS BEGINNING TO HAPPEN!

Our data this month shows not only gradually rising prices in Albuquerque, but also gradually rising home SIZE. In Rio Rancho, the opposite is true.

I thought it would be interesting to take a look back over the last 6 years and see what both the average and median new home prices are/were for both cities during the month of May. Here is the result:



It's so tempting to look at that and think there is a price implosion happening in Rio Rancho right now. In fact, that is completely untrue. The reality is that prices in Rio Rancho are, by and large, INCREASING right now. Again, it is an issue of product modification / change that is driving the year-over-year change in this case.

Of course, there are those who won't read my fine print, and instead will jump on the large numbers in the graphic and draw their own conclusions. But take it from me, the important thing to get right now is this: Prices are RISING, both in Albuquerque in Rio Rancho. It is the new home "product" than is CHANGING which accounts for the year-over-year numbers.

Happy exploiting of the data!

Welcome back bubble . . .

No, it's not a headline ripped from the pages of 2005 or 2006. This is from this morning, about Florida . . .

Presented with no further comment.

The New Housing Guessing Game . . .

In just the last 10 years, we have seen a dramatic increase in the cost of two basic American staples; Namely, Food and Gasoline.

The future affordability of housing in New Mexico is directly tied to these two very important economic factors: In the case of the former, it is something that every human being literally cannot live without. Food, not surprisingly, always remains in a high state of demand. In the United States over the last several decades, the food supply has always exceeded food demand in the aggregate, even as the U.S. government provides farm subsidies of billions of dollars annually to this very day. Never-the-less, food price inflation growth has exceeded New Mexico wage and salary growth since the end of the so-called “Great Recession” quite substantially.

Even more dramatic, has been the increase in the cost of gasoline over the last 10 years. But then, who really needs to drive a car? Really. The gasoline factor is so flexible, that its oscillations on a line graph are enough to make you feel nauseated. Never-the-less, we Americans do love our cars, and in New Mexico in particular, it’s not exactly easy to get everywhere you need to just by walking or riding a bike. The local housing market has responded to the gasoline factor by attempting to create the “live/work” environment within the City of Albuquerque, to a degree, and with mixed results.

But on the immediate horizon I see a problem with the local new home market going forward, and it has everything to do with wages vs. the costs of food and fuel. Many people cite their biggest monthly expense as being their mortgage payment. Not so in my case, since having 3 teenage boys, as well as a desire to eat mostly organic food, means that our biggest monthly household expense is, you guessed it . . . food!

The gasoline price spike really began in earnest during the summer of 2005, in the aftermath of Hurricane Katrina:



This was the summer of the housing bubble reaching full-boil. A fever pitch had come over the entire country, with home prices rising month after month after month, with no end in sight. A strange thing happened here in the Albuquerque metro in the aftermath of Hurricane Katrina though. For a period of almost 30 days, a number of subdivisions went into hibernation, and in a few cases shut down altogether. The cost-push analysts were taking into account what was sure to be an inflationary surge, as gasoline refining plants along the gulf coast had been shut down because of Katrina.

When they opened back up, new home prices jumped again, big time, as the higher material prices filtered their way through the cost of construction.

Then, when the financial crisis of 2008 began to unfold in earnest, and by 2009 had wreaked major havoc, the pressure on gasoline prices went the other way, slamming gasoline down to levels not seen since 2004:



Which leads us to today. For months now, the media has touted a recovery in housing, with price increases (from serious lows) being measured frequently, and the talk of pent up demand. I actually don’t have doubts about the demand, or even supply issues for that matter. My doubts are rooted in, “How are people going to pay?” If wages are stagnant, as is the case today, then how will people afford homes? Moreover, with the prices of food going ever higher, and gasoline trending that way, where will the difference be made up?



I may be wrong here, but I don’t see where the ability to afford housing is going to come from, absent the formation of another credit bubble. Could it happen again? Let's hope . . . not?

But, but, but . . . .

Today's money.cnn.com headline: Presented with no comment . . .

What Comes Down, Must Go Up

Is it even conceivable that the “recovery in housing” we are experiencing today could just be another housing bubble about to form? A part of me finds that hard to imagine, given that the fallout from the last housing bubble hasn’t even been fully realized; due to everything from foreclosure moratoriums to still record levels of mortgage delinquency still taking place. What does history have to show us under these circumstances?

Looking back over the last 40 years at the correlation between 30-year mortgage interest rates and the sales rates of new homes, it’s rather easy to see that when mortgage interest rates are higher, sales of new homes tend to be lower. Conversely, when mortgage interest rates are lower, sales of new homes tend to increase. Back in 1982, when I was just a twelve year old, thrilled by movies like “E.T.”, “TRON” and anticipating “Star Wars Return of the Jedi”, unbeknownst to me at the time, 30-year mortgage interest rates were hitting all time highs pushing near the 20% level. In this graph, you can see the correlation between those very high mortgage interest rates, and the very depressed level of new home sales as a result:



What followed for the next 20 years was that mortgage interest rates (along with other forms of interest rates) began falling. This steady decline fueled the so-called “FIRE” (Finance, Insurance, Real Estate) economy, which emerged from the ashes of the early 1980’s back-to-back recessions and set the American economy back on its feet. New housing in America, as the graph shows, was fluctuating, but relatively stable during this period of time. At the beginning of the year 2003, however, a trend emerged that had never been seen in the data before: namely, that as the 30-year mortgage interest rates continued to decline, new home sales continued to rise to the point where these lines crossed on the graph. This was the early stage of what led to the great housing bubble of the early 2000’s, and consequently, the “great recession” which followed:



Fast-forward to today, and believe it or not, the interest rate / new home sales rate lines on the graph are about to cross again – and NOT in a direction that would exclude the possibility of yet another housing fueled bubble. Only time will tell whether or not this current trajectory continues on its present course, but given statements by the Federal Reserve that they intend to keep interest rates artificially low until at least some time in 2015, the stage is set for another bogus housing rally, built not on genuine demand, but on more speculation and “easy money”. The DOW JONES is also rallying, eerily similar to the same levels which preceded the last crash. Batten down the hatches folks, 2013 is going to be very interesting to say the least.

Housing recovery threatened by U.S. dictatorship

Presented with no comment.

Albuquerque New Home Prices Lift Off!

Albuquerque’s average new home base price jumped in March by a very strong +1.3% over the prior month of February, and year-over-year the average increased by +4.0%; the highest it’s been in over 2 years. The median new home base price increase was even more impressive, rising in March +1.9% over February, and year-over-year climbing a strong 7.5%; that’s the highest median in two-and-a-half years.

In the past, these kinds of increases often correlated to increases in the size of floor plans being offered. During the course of the housing bubble of the mid-2000’s, home SIZES increased dramatically, adding fuel to the rising prices at that time.

But the latest data for this month, compared to when prices were similar over two years ago, shows that home sizes are nearly identical – within just 10 square feet of comparison to each other. This is a definitive signal of rising new home prices in Albuquerque without the size of the homes playing a major factor.

Here’s a brief breakdown:

March 2013 Albuquerque New Home Base Prices:
Average = $228,730
Median = $214,900
Average square feet = 1,994
Median square feet = 1,882
Average price-per-square-foot = $115.89

(All data courtesy of SalesTraq of New Mexico – www.salestraqnm.com)

Home Builders Gallery TV is back.

I want to give a shout out to Richard Holcomb, and to congratulate him on the return of Home Builders Gallery television, especially because Richard is one of those people who is genuinely as nice in person as he comes across on television.

Now, I'm obviously the housing "bear market guy" in Albuquerque, and I have been for quite some time. But even I cannot deny that the return of Home Builders Gallery signals an uptrend in the local new home market. In no small part because Richard's show is, in my opinion, a high quality production. It's not the kind of thing you move forward with if you don't have momentum behind you.

Good to see Home Builders Gallery television back on the air!

Case foreclosed!

So I see this headline in the newspaper yesterday: “N.M., national foreclosures plunge”. That’s good news, right? I mean, if foreclosures are going down, that must mean that the housing market, and therefore the economy, really is improving. Just look at the stock market like Alan Greenspan says, right?

Right???

This misleading headline may lead one to conclude such nonsense as, things are getting better. But a more accurate headline would read, “Big Banks Bribe Fed in Foreclosure Scandal.” Here’s the truth behind the headline yesterday. You see, in January of this year (i.e. last month), eleven mortgage servicers subject to an Independent Foreclosure Review, (specifically: Aurora, Bank of America, Citibank, Goldman Sachs, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo) reached an agreement with federal regulators to pay more than $8.8 billion in cash payments and other assistance to help borrowers who had been in the foreclosure process between January 1, 2009 and December 31, 2010.

Read about the details here: http://www.federalreserve.gov/consumerinfo/independent-foreclosure-review.htm
And here: http://www.federalreserve.gov/newsevents/press/bcreg/20130118b.htm

And why are these banks forking over almost $9 billion in cash to those on whom they once foreclosed? So they won’t have to face the wrath of, oh I don’t know...let’s just call it what it would be called if it happened to you or me. “Criminal prosecution”.

Sentator Elizabeth Warren recently questioned regulators when was the last time that they litigated against one of the big banks for some of their obvious crimes. Their response...(insert cricket noises here). It's worth your time to youtube that one.

Shameful, embarrassing, disgusting.

But oh well. At least the headlines can read “foreclosures plunge” so that the rest of us can feel better about the deterioration of justice in the Land of the Free. But just in case you have any doubt about what I'm saying, let's look at one more fact that backs it up. If foreclosures "plunged" in January for some legitimate market based reason, then surely we'd see some leading indicator showing that trend of direction. Something perhaps like big banks seeing mortgage delinquency rates decline, right? Wrong!!! They're pushing a 12% default rate as we speak.



Hmmm. Defaults go up and foreclosures go...down?

On the coming Recession of 2013...

I took this picture 3-and-a-half years ago of a condo development on Albuqeurque's west side. At the time it was taken, the Great Recession was on the verge of offically ending, after wreaking economic havoc for the previous 18 months. Today, these condos have been thoroughly repaired and remodeled, and are currently being leased. You would never guess they looked like this at one time.

The original vision of the builder at the time (Longford Homes), was to SELL these condominiums. An HOA would have been set up to collect the fees necessary to maintain certain ammenities and general maintenance of the property. I'm not sure who owns the property today, but the fact that the property had to be rescued from eventual destruction via nature and entropy, and has since been leased so as to generate revenue indefinitely, says something about the local housing market to me.

What it says is this: Real Estate is a good investment right now.

"Gasp!" you say. I can hear you out there. Did David Murphy just say what I think he said?

Hear me out.

On one hand, yes, it's true that now is a great time to buy a home and/or property. The reason is strictly (in my view) because of financing. Long term debt financing right now, particularly for a mortgage, is at the lowest level ever. FIXED RATE financing (not just "low rate"), is what is key. I say this, because the stage is now set for the United States to begin to go through another recession, and an eventual period of increasing interest rates. The time is running out to finance a large level of debt at such articially low interest rates. The door is slowly beginning to close.

Moreover, the opportunity to EVER own property may be slipping away also. America is on the road to profound changes that will alter the course of the next generation in a way never before seen. Despite all the hooplah about "recovery", the truth is, we're back at the door step of recession. And as always, it is the fault of everyone, but especially of the very 2-party political system that we find ourselves so entrenched in. I blame; "The Democrats and the Republicans". To wit:

In at least the last 32 years, spending has increased under every single adminstration:

Many democrats like to say that spending did not increase under Bill Clinton, but that is demonstrably false. True, Bill Clinton did enjoy a presidential rarity (so rare it's almost unheard of in our history), that is, the fabled "Budget Surplus". Clinton actually had one in his second term of over 1/2-a-trillion dollars! However, that says nothing of the fact that under Clinton, the spending STILL INCREASED. The only reason Clinton had a surplus at all, was because of unexpected revenue growth in the emerging "dot com sector", which turned out to be a bubble in its own right. The difference between the dot-com bubble which popped and the housing bubble which popped subsequent to that, is that the dot com bubble was largely equity financed. Those people actually lost money. The housing bubble on the other hand, was largely debt financed, which is why Ben Bernanke is currently able to soak up $85 billion dollars a month worth of toxic mortgage backed "securities":

To see the economic and social danger that lies clearly ahead, you must grasp the ever-growing gap between government income and expense, which can be clearly seen to the left. Pay special note to the vertical gray bars in the graph, that indicate "offical" recession periods. Can you see anywhere a recession like the last one we just went through, which supposedly is now over? Do you really believe we're not going to be in an "official" recession within the course of this year?

The opportunity to buy a house and finance it with cheap long-term credit is eventually going to go away. You may want to use this information to persuade yourself, or someone you know, to buy a house while they still can. This gap you see to the left can only be closed with some bitter reality. It is going to take significant reductions in government spending, as well as substantial increases in revenue via taxation and inflation. Don't be fooled. This is not a recovery we're in, it's just a mountain of debt manure to try and grow a few green shoots.