The Housing Double Dip Fudge

In December, I posted a note about how I like chocolate ice cream.  I like it in a cone, double dip and I eat it with spoon.  Well, really, the post was about the economy and housing in particular.  I had friends that were bullish on the stock market, jobs, the economy, housing, you name it, they said buy it.  A lot of that braggadocio in regard to economy came from individual's fear of things going sideways.  It certainly didn't help that trusted sources like the Wall Street Journal were salivating over futures makets and Ben Bernanke was imputed with indicating that he didn't expect a double dip recession. 

Information from the Federal Reserve and the futures markets seemed to indicate that the recovery was going to happen in 2011, 2012 at the latest (see the video on the WSJ link.)  This morning, CNBC, not my most common source of news because it tends to push a rosy view of the economy, came out and said this morning that a "Double-Dip" in housing prices is even worse than expected. It would seem, that Mr. Bernanke likes a little fudge on his double-dip. In all fairness, I couldn't find a single quote from Bernanke saying there was not going to be a double dip, but he did make indications that there wouldn't be, with caveats. He should have been a lawyer.

So what is the driver in this "unexpected" double dip in the housing market.  Well, first of all, it isn't or shouldn't have been unexpected.  The amount of foreclosed/ bank owned properties on the market or yet to be available in the market is enormous.  The US housing market on average will sell about 4 million units.  The banks are holding nearly 8 million units and foreclosures are ramping up.  Though the data is not yet in for April/May 2011 in Washington, I expect Realty Trac to make an announcement of nearly a quarter to half increase over the previous quarter in new foreclosures for the state.

This has partly to do with the new Foreclosure Fairness Law, okay, scratch that.  It has almost everything to do with the new Foreclosure Fairness act.  So, if your house was worth X in February, the number of new foreclosures happening will likely place downward pressure on your price, no later than August meaning your house will be worth X-Y.  Additionally, Washington is already on pace to see more nonjudicial foreclosures this year than last year according to the congressional fact finding for the Foreclosure Fairness Act.

The article in CNBC said that the US average drop this year has been 3.5% which is more than what I had reported as being 1% per month and there are a lot of foreclosures to come.  State specific data on Washington showed a loss of 4.15% since December, well ahead of the US average.  Surprisingly, Seattle remained even from February to March, one of only two cities on the S&P/Case Shiller index to do so.

This double dip leaves this question to be asked:  What do I do about it?  If you purchased/refinanced your home between 2003 and now so you locked into the height of the housing market, how long will it take you to recover your house value?

This is a serious discussion that you have to have with your self and your financial advisers.  The average family has lost over $125,000 of value since 2008 and the greatest asset of most families is the home.  Can you afford to loose more over the course of the next two years? 

It is time that you sat down with a lawyer trained in foreclosure law and find out what your rights are in regard to your home.  I am not saying that your house is a stock and that it should be dumped, but when analogized, it can help make better economic decisions.  Let's head down to the local ice cream shop, get a real double dip, and see what you can do about avoiding the economic double-dip finally being reported by the media.  I like mine with some cinnamon bears on it and your paying.

Leading indicators: Statistics, lies, and half truths

There are a number of issues that I have with media, and the simple fact that I am writing this is going to perpetuate the problem.  What I am writing is not news.  Its my opinion, based on the facts as I see them, and I am going to spin the facts to convince you of the conclusions that I have already independently reached.  Media does the same thing, even though we call them "news" outlets that should be reporting truth that we then interpret for ourselves.

This last week I had a conversation with a good friend about our outlooks on the market in 2011.  He is bullish based on an economic forecast of strengthening job markets and I am bearish based on a weakening housing market. We are both getting our information from the media about these two very different sectors of our macro-economy but ones that have significant impact on our financial futures.  Both are related in certain respects, the higher the wages, and the more people employed, the higher demand for homes, the higher the prices for homes, requiring ever increasing wages to buy the homes.  You can see how those two indicators can spiral each other upwards and if you look at the inverse how they could spiral each other right down the toilet.

So in order to understand his position, I had to take some time to research his side.  At the same time I am going to look at some information that is contrary to his position and something that I think some pundits are neither including nor required to include but the exclusion of such information skews the outlook.

My primary example is a small but growing town here in Washington.  Lynnwood.  Now, Lynnwood has a growing retail market, although some recent tax changes may alter that, but as a typical American town, I will use it as an example.  In September, the city announced to its workforce or nearly 400 that in 2011, nearly 1/4 of its employees could be laid off. Then, this last week it was announced that Lynnwood laid off 24 individuals and 7 open positions would not be filled.  This was done in order to help fill a $20 million dollar budget short fall.

Last month, Olympia announced that Washington state is suffering from a budget shortfall that has ballooned to over $5 billion. That wasn't really news.  Any person that has resided in Washington for the past 4 years could tell you that budget shortfalls have been a part of the last two gubernatorial races.  So, if we go back to September we see notices from DSHS showing cuts of 6.3 percent, mostly through layoffs.  A quote from that news flash is instructive, "Secretary Dreyfus...emphasized that this will not be the end of budget reductions for the Department or the state. 'Our budget staff are already working on further reductions that will be required to balance the 2011-13 Biennial Budget to be developed by the Governor and the Legislature this winter.'" That quote was from when the projected budget shortfall was only $3 billion.

If you will excuse me for extrapolating, but you have a city with a budget shortfall of $20 million, with an "M" cutting 24 jobs.  Now you have a state that has a $5 billion, with a "B."  That is a bigger short fall by a a factor of 250.  So, if the state were able to trim its budget in the same manner as the city, which is quite a logical leap, but bear with me, then the State would cut 6000 jobs.

In January of last year, Microsoft announced it would lay off 5000 but in May it still had some further possible cuts..  At least with those announcements, there was a hint of silver lining in that Microsoft was moving more assets into high growth areas and would be expanding workforce in those profit centers by 2 to 3 thousand.  The State government doesn't have any high growth centers, at least not in the same terms.

In addition to the lagging data from the government, this week's paper had a note in regard to unemployment actually being up in November in most major metropolitan areas despite the claim that retail was making a comeback.  Read the link here.  Private sector jobs showed a vast increase in December, but the data seems to be a statistical anomaly.  In the post, a man is quoted as saying "If we add 200,000 jobs a month, it would still take 42 months" to recover those losses.  Additionally, a Gallup Poll on unemployment and underemployment showed that in actuallity, unemployment and underemployment increased by the end of December and that the report on private sector jobs is tempered substantially by the public sector layoffs.

The problem is that coupled with our mounting personal debt as Americans, an increased number of jobless is only going to speed the process of foreclosure.  In a recent post, it was noted that Americans will shed some $1 Trillion of housing debt this year.  That is in no small part due to lost wages.  These things are connected and both have to be fixed to get us out.

There may be those that say that the recession is over, there is nothing but birds singing and blue skies ahead, but there are heavy indications that there is still quite a bit of stuff to come.  I am not saying it won't get better, I'm just bearish on housing, and I don't believe jobs will overcome that any time soon.

The only double-dip I like, is chocolate ice cream...

There is chocolate and then there is "chocolate."  I like mine down at the local ice cream parlor, double dip, and give me a spoon because I can't handle it any other way.  However, there is some movement just this last Monday on another double dip and I think it will take more than a spoon to get through.  Maybe a shovel, or a backhoe.

There are recessions and then there are "recessions."  In the article posted at HousingWire.com, the journalist reports that Moody's, one of the largest credit agencies in the world that measures the credit worthiness of insurance companies and countries, has down graded a number of mortgage backed securities.  This tells me that the double-dip recession is more of an eventuality than the competing theory being spread by the Fed.  The party line, that is still being toed and also the reports coming from Bernanke and the Fed are that some time in 2011, housing prices are going to bottom out and at most there will be only a further loss of 5% in home values.If that were truly the case, why would you need to down grade these tranches of mortgaged back securities again?

Moody's has had this 5% line for months now and most of these securities have been down graded ages ago.  My guess, is that the rosy picture of a bottom is not an accurate picture of what is to come.  Certainty does not exist, but when the guys that have money in the game are putting money down on the bear, then the bull may not be as strong as some have been telling us.

The bear side of this recession is putting a line at 20% and that could take 2 or 3 more years to hit bottom.  2014 is a long time to wait for your house to bottom out, or your paycheck to bottom out, or a lot of things to bottom out.  If you want to believe Bernanke and his Bull about the economy recovering and your housing values rising, then by all means, start buying homes again and investing.  As for me and my money, I am betting on the house and its bears.  Speaking of bears, I love cinnamon bears in my chocolate ice cream.