Tag Archives: The Mann

40-60 AND BUBBLES

JULY 18, 2022 – As a kid, the first thing I could read was the stock market page in the newspaper. Probably since I was 5 years old I have been analyzing markets.
Early on I recognized a 16-year pattern in the stock market. I lived thru the 1966-1982 sideways (down when adjusted for inflation) market. I noticed that the market went up significantly after WWII into 1966. And looking back, we can see that from 1982 to about 1998 (actually 1999/2000) the market soared again. It hasn’t been quite as clear since then.
However, in looking at bubbles I think a pattern exists. I recall an appraiser friend telling me that you make your ‘big bucks’ in your 40’s. I assume that continues thru your 50’s. That seems very logical. People from 40 years to 60 years old invest in stocks, buy real estate, buy boats and cars, on and on. This is when they have the most amount of money to invest.
So, let’s look back at the generation before the Baby Boomers. This generation was born from 1931 to 1947. Adding 60 years to the first people and 40 years to the last people, yields 1987 to 1991. Exactly when the S&L Crisis peaked and burst.
My fellow Baby Boomers were born from 1948 to 1964. Adding 60 and 40 years, yields 2004-2008. Again, right on target with the great housing bubble.
Generation X ranges from 1965 to 1980. Adding 60 and 40 years, yields 2020-2025. And here we sit in the middle of ‘The Everything Bubble.’ With the top already in place, I assume this means we bottom by 2025.
In the last crisis there was a funny bumper sticker going around – ‘Lord, give me just one more bubble!’ Sure enough, we got another one. So, for those that missed out on this one and are wondering when the next one will occur…..Generation Y (aka Millennials) ranges from 1981 to 1997. Adding 60 and 40 years, yields 2037 to 2041. A ways off for sure. And honestly, I don’t have a clue what will be in a bubble at that time. What is left? Maybe since cryptos came about after the last bubble, the next bubble will be something that has yet to be invented.
If you and I are around and remember this post, let’s have a chat in 2037:) Of course, let’s chat before that so we are invested early on in the bubble item(s).

Shalom,

The Mann

SUBDIVISION APPRAISERS NEED TO ADJUST ABSORPTION IMMEDIATELY

LAST UPDATED – SEPTEMBER 18, 2022

JULY 17, 2022 – REMINDER TO CHECK BACK AS I WILL UPDATE THIS WITH NEW INFORMATION AS I RECEIVED SUCH.

There are times when the data available to us real estate appraisers suddenly become (almost) useless. For example, after Hurricane Katrina almost all real estate data in New Orleans prior to the hurricane was all but worthless. Manhattan had 9/11. The entire country had the lockdown in Spring 2020.
Today the entire nation is facing this in regard to residential real estate. Basically, the data thru Spring 2022 is no longer reflective of current market conditions. Nor future market conditions.
It is time for subdivision appraisers to look almost solely through the windshield and no longer the rear-view mirror. There is no excuse for using absorption rates over the past year to forecast absorption over the next year or two.
We have the training to forecast future supply and demand. It is critical we do such now. For those familiar with the Appraisal Institute’s books on Market Analysis, you know that it is time to perform Level C analyses. Look forward, not backward.
I will add items to this post as they come out. For starters, the following items are support for reducing absorption rates significantly. I am sure you will come across similar items in your research.

ADDED SEPTEMBER 18th – Mortgage rates are above 6% for the first time Since 2008. These rates are still cheap. But, people have been spoiled with the artificially low rates over the past decade. If you can’t afford a loan at 6%, you shouldn’t be buying a house anyway.

Per the Mortgage Bankers Association (MBA), the average home purchase loan size is only increasing at a 2.1% YoY rate now versus a 12.1% YoY back in April. This is a leading indicator for home prices.

Redfin’s weekly pending home sales tally of homes under contract has tightly tracked MBA purchases this year. Through the week ended September 4, this forward-looking gauge was down -29.3% versus year ago levels. Because demand is softening, supply is likewise loosening — Redfin’s age of inventory has risen on an annual basis since mid-July. (Quill Intelligence)

Pinto now predicts that by the December holidays, average home prices will hover around 6% higher than 12 months earlier. But the first seven months of 2022 are already in the can, and they show a total gain of 10% from January through July. To register a 6% increase for the year, prices must fall 4% over the next five months. That course would mark a severe reversal from the ever-rising tide of the last few years. And the drop will be anything but consistent across America. “The declines in the West will continue to be the most severe,” says Pinto. “The high end will also continue to be hit hardest.” So far, America faces nothing resembling an outright crash. But for the average homeowner, it will hardly bring cheer that the closer they get to the holidays, the more they’ll be watching the value of their cherished ranches and colonials fade. (American Enterprise Institute)

MBA noted that in addition to mortgage application activity remaining at a 22-year low, it was seeing, “average purchase loan sizes continuing to trend lower, as purchase activity at the high end of the market is weakening.” Blasting a warning to not be premature in looking for a bottom, this report was followed by the National Association of Realtors’ July Pending Home Sales Index, which registered the lowest reading since September 2011. Because this gauge is the most leading within the residential real estate universe, the best that can be said is to expect more of the same. (Quill Intelligence)

ADDED JULY 29th – Taking the unexpected in turn, June new home sales fell 8.1% to a 590,000 seasonally adjusted annual rate; each of the prior three months were revised downward. Chalk up revisions to cancellations. Nonetheless, the -50.5% annualized decline in the six months ended June has so few precedents, you can count them on one hand: 1966 near recession, 1980 recession, 1981-82 recession, 2007-09 recession and 2010 payback from home buyer tax credit. 
 
Pending total home sales collapsed 8.6% in June to the levels consistent with the last three recessions. The near-40% annualized plunge in the six months ended June was rivaled by the 2007 housing bust, 2010’s homebuyer tax credit hangover, and the COVID-19 flash recession. (Quill Intelligence)

((One of the best services I subscribe to is Quill Intelligence by Danielle DiMartino Booth. They analyze data in unique ways. Homepage – Quill Intelligence They have a Daily Feather sub that I think is $500/year. I guaranty it will be the best $500 you spend on a subscription!))

From Joel Kan, a Mortgage Bankers Association economist. ‘After reaching a record $460,000 in March 2022, the average purchase loan size was $415,000 last week, pulled lower by the potential moderation of home-price growth and weaker purchase activity at the upper end of the market.’

“Americans are canceling deals to buy homes at the highest rate since the start of the Covid pandemic. The share of sale agreements on existing homes canceled in June was just under 15% of all homes that went under contract, according to… Redfin. That is the highest share since early 2020, when homebuying paused immediately, albeit briefly. Cancelations were at about 11% one year ago. Higher mortgage rates and surging inflation are causing many potential homebuyers to reconsider their purchases.” CNBC (Diana Olick)

((I will add that a local Realtor told me that in the past 7 years she had six purchasers walk away from their contract. In the past 2 weeks, she had 16 (!) purchasers walk away.))

On Tuesday, Zumper’s National Index for two-bedroom apartments falling 2.9% in May was all the rage in chatrooms (link above for full skinny). After the close, Black Knight dropped this bomb: “The annual home price growth rate fell by more than a full percentage point in May, the largest monthly decline at the national level since 2006.” We would remind you that May is the strongest seasonal time of the year for rent and home price gains. Both have begun to stumble. (Quill Intelligence)

All in all, about half (53) of the metros in this analysis saw more than 25% of home sellers drop their asking price in May. More than 10% of home sellers dropped their price in all 108 metros, driving the national share of price drops to a record high.  The uptick in price drops is symbolic of the slowdown in the housing market. Many buyers are backing off amid skyrocketing home prices, surging mortgage rates, high inflation and a faltering stock market.  (Redfin)

June 27 – Bloomberg (Alex Tanzi): “US cities that saw some of the biggest jumps in home prices during the pandemic now have the largest shares of price cuts, according to… Zillow… Overall, the proportion of active real estate listings with lower prices has increased in all 50 of the largest US metropolitan markets tracked by Zillow. In these cities, 11.5% of homes saw a price cut in May, on average, up from 8.2% a year earlier. The share of lower listing prices rose the fastest in real estate hotspots like Salt Lake City, Las Vegas and Sacramento, California… Among the 50 metros in Zillow’s data, 32 had more than 10% of listings with a price decline.”

June 30 – Bloomberg (Prashant Gopal): “The housing slowdown is helping to solve one of the US real estate market’s most intractable problems: tight inventory. With fewer buyers competing, the number of active US listings jumped 18.7% in June from a year earlier, the largest annual increase in data going back to 2017, Realtor.com said… And new sellers entered the market at an even faster rate than before the pandemic housing rally began… Active listings more than doubled from a year earlier in metro areas including Austin, Texas; Phoenix; and Raleigh, North Carolina, the data show. They climbed 86% in Nashville, Tennessee, and 72% in the Riverside, California, region.”

June 29 – New York Times (Conor Dougherty): “For the past two years, anyone who had a home to sell could get practically any asking price. Good shape or bad, in cities and in exurbs, seemingly everything on the market had a line of eager buyers. Now, in the span of a few weeks, real estate agents have gone from managing bidding wars to watching properties sit without offers, and once-hot markets like Austin, Texas, and Boise, Idaho, are poised for big declines.”

“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” says NAR Chief Economist Lawrence Yun. “Contract signings are down sizably from a year ago because of much higher mortgage rates.” Pending home sales have fallen 13.6% from a year ago. Economists have pointed to rapidly rising mortgage rates to explain buyers growing more cautious. The monthly payment on a median-priced single-family home, assuming a 10% down payment, has risen by about $800 since the beginning of the year due to the increase in mortgage rates. Rates have jumped by 2.5 percentage points since January.

Home buying conditions for the top third match the lowest on record. If you’re curious, that top tier is responsible for 58.7% of home sales. By extension, they account for 56.5% of furniture sales. In a weekend chat with Ivy Zelman, she said she expects home inventories to be up by 70% YoY by the time we ring in the New Year. Redfin’s latest data corroborate the downside building — the brokerage’s proprietary gauge of pending home sales fell 10% YoY to the lowest since May 2020 while requests to tour homes sunk 16% YoY, the biggest decline since April 2020 when the pandemic slammed the sector. (Quill Intelligence)

On the heels of the release, Zelman & Associates warned, “In the months ahead we expect homebuilders to respond to softening demand with increased incentives and even price cuts in an effort to stimulate activity.”
 
Excerpts from Monday’s NAHB corroborate Zelman’s concerns: 
 “Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home.”

“In another sign of a softening market, 13% of builders…reported reducing home prices in the past month to bolster sales and/or limit cancellations.”

“Affordability is the greatest challenge facing the housing market. Significant segments of the home buying population are priced out of the market.”

Rather than move, a growing number of investors are making their way for the exits. As reported yesterday by Bloomberg, KKR, Blackstone and Amherst are among housing investors who have “cut buying activity by more than 50%.” At least they’re not joining Starwood Capital in jettisoning portfolios of single-family rental portfolios…yet. Yes, this will leave a nasty bruise on a market overly dependent on leveraged, deep-pocketed, price-agnostic buyers. (Quill Intelligence)

((I will finish by adding this thought. With interest rates up at least 250bp since the beginning of the year, I believe it would be prudent for appraisers to look at the past sales rate for houses that were priced about 50% higher than your subject’s houses will be. My logic follows.

Your subject expects to sell houses at $400,000. Assuming a 30-year mortgage with a 5.5% interest rate, the monthly payment will be $2,271. I just assumed a 100% LTV to make the analysis shorter. We all know that people buy a monthly payment, not a price. Last year, the same $2,271 monthly payment at a 3.0% interest rate could buy a $540,000 (Rounded). Therefore, I think it would be better to look at the past absorption rate for houses in the $550,000 price range instead of the $400,000 range.

That said, we still need to look to the future. All past absorption rates still need to be adjusted downward SIGNIFICANTLY. I don’t know by how much. Personally, I would apply a 50% drop to begin with. In a few months the data may well suggest a 75%+ drop. And I wouldn’t project any rebound for at least 2+ years. My two cents.))

Shalom,

The Mann

STEP 2 IN THE HOUSING REVERSAL HAS OCCURRED

JUNE 14, 2022 – It is rare that you see and know a peak is occurring as you speak. Three months or a year down the road it is easy to look back and see when a top occurred. But, while it is going on….that is difficult. Being in the forest makes it tough to see the trees.
There are 4 steps for the housing market (any market for that matter) to go from growth to decline.
Step 1 – Acceleration in appreciation begins to slow down. This occurred 6+ months ago.
Step 2 – This is occurring now. Annual home appreciation in June will be lower than it was in May. We will look back at May-June 2022 and see the rollover in annual appreciation. Essentially, acceleration has turned negative. Better to call it deceleration.
Step 3 – This is the opposite of Step 1. The steep upward slope of accelerating price appreciation now becomes a steep downward slope of slowing price appreciation. This will occur the remainder of 2022 and into 2023.
Step 4 – The final step occurs when the accelerating slow down (think of slamming on the breaks) takes the market from price appreciation into price decline. This seems a far way off. But, I think we might be in for a surprise and see declining home prices quicker than we expect. We shall see.
As an aside, Bitcoin (slightly below $20k) and Ethereum (around $1k) are nearing major lows. The next move should take both to record highs (4x-5x moves from these levels).
Shalom and Happy Heterosexual Pride Month!
The Mann

HOUSING MARKET SHOWING SIGNS OF TOPPING

APRIL 14, 2022 – The housing market has been incredibly strong since the pandemic started two years ago. Prices are increasing at a record pace. The supply of houses for sale is at an all-time low. Of course, what goes up, must come down. But, when…Tops in financial markets take awhile to form. Bottoms are usually a spike panic low – a V-shape.
We are starting to hear of markets where list prices are being lowered in mass. With mortgage rates up from around 3% last Fall to 5% this week, the number of potential buyers has dropped by many millions.
It will take awhile for the momentum to slow, stop, and then reverse. But, the signs of this occurring are in place and starting to mount.
One leading indicator I follow peaked in the 1st quarter of 2006. This was a full 2.5 years before the Lehman Brothers event the public recalls as being the start of the last recession. Of course, the recession started in 2005 and 2006 and Lehman Brothers (and others that went under) was the end result of the decline that had already occurred. In fact, this indicator bottomed in the 1st Quarter of 2009 and turned up from there.
This same indicator peaked in early December 2021. It has declined 29% since then. That doesn’t mean home prices will decline this much. (For perspective, the leading indicator declined about 85% and house prices declined about 30%.) It just suggests a peak in the housing market is on the horizon. The Case-Shiller U.S. National Home Price Index topped out at the end of the 2nd Quarter in 2006. Just a few months after the leading indicator suggested it would. I think the current momentum is too strong to have prices turn down this year. In fact, it will be tough to have prices turn down next year. But, it is now a decent chance of occurring.
Economists will confirm that as the housing market goes, so goes the overall economy. If the housing market slows done and rolls over, expect the same for the national economy.

Shalom,

The Mann

FANNIE MAE STUDY CONCLUDES NO RACIAL BIAS IN APPRAISALS

MARCH 12, 2002 – Now, two studies of millions of appraisals by the American Enterprise Institute (AEI) and Fannie Mae have concluded that there is no racial bias in real estate appraisals.
For those involved in the industry, this comes as no surprise. It is essentially impossible for real estate appraisers to be biased. Probably 95% of the time the appraiser knows nothing about the physical characteristics of the borrower. Nearly 100% of the time the appraisal reviewers know nothing about the borrower. And ALL appraisals must be approved by a reviewer.
Also, the market sets prices and all appraisers do is analyze recent comparable sales and arrive at a value for the subject. Which, in purchase situations, is equal to or higher than the sales price 95%+ of the time.
Racist organizations like the Brookings Institution and others that are falsely complaining about appraisal bias need to ‘follow the science’ as they like to say. Scientific studies 100% conclusively say there is no appraisal bias.
Maxine Waters and President Biden owe the appraisal industry an apology. And so does the Appraisal Institute for not supporting its own members.
The real estate appraisal industry is the gold standard for an unbiased profession. We have been the independent referee for 80+ years.
Lastly, we all know about the Fair Housing Act, redlining, discrimination being illegal, et al. To say we need to be educated about such is ridiculous. If you have lived in America since the 1970’s, you know all about fair housing laws and what is and is not discrimination.
The true racists are those that accuse everyone else of being racist. These people need to be exposed and told where to stick their unfounded claims. They should be sued for slander and defamation, also.
Hey, Appraisal institute, get a backbone and stand up for your members! There is no legislation that can change 4,000+ years of economic theory. The appraisal industry does not need to make any changes. It is already fully diverse and inclusive of people of all socio-economic classes (I grew up in mobile homes and am Jewish….I have the low-priced housing and minority characteristics covered!). Remember, skin-color and the only two genders have nothing to do with diversity and inclusivity.
Shalom,
The Mann

THE METHODIST CHURCH SAVED ENGLAND OF THE 1700’S

MARCH 3, 2022 – For the first time in my life, I went to an Ash Wednesday church service. Our pastor’s message struck home with me and I hope to do my part in reversing the moral decline in our country, and the world. I will post his sermon below and discuss what I plan on doing for the remainder of my life in an upcoming post.
Shalom,
The Mann
===================================
By Dr. Tim McClendon
The people tell it and retell it every time they live and breathe their faith, and speak of the hope that is within them through Jesus. I have to share why this is important through a piece that I first heard through Bishop John Hopkins of the East Ohio Annual Conference:
“An interesting article was written in a journal called The Public Interest by Roger Starr, a professor at City College in New York. He is a liberal, Jewish Democrat. (Remember that; it is important to the story.)
Starr Concluded that there was only one other period in world history that matches the day in which we live. It was 18th century England. There was a problem of addiction – they had just discovered gin alcohol. Families were falling apart, Children were being abused. Domestic violence was rampant.
There were problems of pollution, crime, and violence – problems very much like our own.
When he discovered this, Roger Starr wanted to know what saved England, or brought them out of their situation. And would you believe? This liberal, Jewish, Democrat argues that the only thing that saved England was someone that he had not really heard much about – someone by the name of John Wesley who started a movement called Methodism.
“Now, I don’t even know any Methodists,” says Starr. “I don’t anything about them. But this Wesley started a movement that literally saved England. It was a movement that had profound social, economic, and political consequences and transformed and indeed saved that nation. Maybe what we need to do is to study those Methodists to find out how they did it, and to duplicate what they did back in the 18th century.”
About a month later, George Will wrote an editorial for The Washington Post. George Will is a conservative, Roman Catholic Republican. (Remember that; it is important to the story.)
Will wrote, “I never thought I’d agree with anything Roger Starr has ever written. But you know, this liberal has actually got a point. It is that in the 18th century you have the German and French revolutions, and other revolutions around the world; but you don’t have an English Revolution. But they did, you see. It was called the ‘Methodist Revolution,’ because these Methodists turned their world upside down. Maybe what we need to do is to take Roger Starr seriously and look at what was the secret of those Methodists.”
Then he added, “I know this is going to sound strange for me, saying that we need some more Methodists to save the world; and I hate to end the column this way, but does anybody out there have a better idea?”
About a month later, Fred Barnes, editor of The New Republic, wrote an article. Fred Barnes is an evangelical Episcopalian moderate. (Remember that; it is important to the story.)
He writes, “Can you believe this? We have George Will and Roger Starr agreeing on something. I can’t believe it! But the more you think about it, they are exactly right. But they forgot one thing. What they forgot was that basically the Methodist Movement was at heart, a spiritual awakening.”
Barnes continues, “Yes, it had tremendous economic, social, and political consequences, but it began as a spiritual revival – a spiritual awakening. And unless we get in this nation a spiritual awakening and a spiritual revival that will create these kinds of economic and political implication…in our day, it won’t work. It’s got to have a new generation of Methodists who will do for this day what they did in the 18th century.”
Other people see and say about us what we can’t see, or are too bashful to say about ourselves: The world needs a new generation of United Methodists to lead the way to change the world. Are we ready to go?”

STUDY CONCLUDES THAT APPRAISERS ARE NOT BIASED

JANUARY 8, 2021 – The American Enterprise Institute has published a study about the possibility that appraisers have intentional or even unintentional racial bias.  Their conclusion is:

We conclude allegation that knowing the race of the applicant results in racial bias by appraisers on refinance loans is uncommon and not systemic. This same analysis supports the conclusion that unintentional bias based on race is also uncommon and not systemic.

You can find the article and link to the report at:

How Common is Appraiser Racial Bias?

It would be nice if the racially biased Brookings Institute would issue an apology to the appraisal industry.  But, racists have an agenda and do not apologize.  Thankfully, there is access to actual data and entities like the AEI can analyze and report the facts.

Basically, it is simply impossible for the appraisal industry to be racial or gender biased.  Probably 99%+ of the time appraisers know nothing about the physical characteristics about the borrower in residential transactions.  Also, every appraisal report is reviewed and I would say near 100% of the time the reviewers know nothing about the borrower at all.

AVMs are often used in the residential arena and they know nothing about the borrower nor the subject’s neighborhood, et al.  To them, data is data.  Finding the best comparables is based on analyzing numbers.  That simple.  And for the most part, it is the same for human appraisers.

There is one group of people in real estate that can have significant bias.  I won’t name them.  You can probably figure it out.  There might actually be a few groups involved in this arena that can have bias.  That is not to say it is widespread and rampant.

For those who want to keep the ‘conversation’ going, provide the AEI report.  You will see how fast the other side wants to stop the conversation and change the subject:)

Great work AEI.  I hope they will now do a study about the 20 million whites that live in poverty and see what it is about their neighborhoods that is common and how action can be taken to improve their standard of living….and housing.  At the same time, I am sure those solutions can help everyone that lives in poverty.  Remember, poverty is colorblind.

The Mann

ENDING MARCH AND INTO APRIL WE GO

UPDATE APRIL 3 (EVENING) – Thankfully, a calmer week in the books.  Nothing has changed regarding my market forecasts.

I did want to congratulate Morgan Stanley on correctly forecasting the 700,000 job losses that was reported this morning.  That was an extremely difficult forecast to make and to nail it is impressive.

Oil was up 40% in two days.  We will let it play out a bit more to see if a final low is in place or not.

It is becoming apparent that there will be some major changes in our world going forward.  Hopefully, AirBNB and Uber are dead.  Dining in at restaurants might be forever changed, too.  How do we know that someone in the kitchen area doesn’t have the virus?  Plus, the virus can stay around 2-3 weeks after a place has been thoroughly disinfected (per the Diamond Princess experience).

Grocery delivery will finally succeed.  25+ years in to its existence, telecommuting will finally go mainstream.  Executive offices (now called shared worked areas, .e.g. WeWorks) should go back away.  They are simply VIs as I have termed them – Virus Incubators.

Other VIs are apartment complexes (especially mid- to -high rise buildings) and large cities like New York and San Francisco.  The denser the population the higher the rates of crime, disease, and numerous other issues.  If people truly want healthy lifestyles, move to the suburbs or rural areas.

The changes will be interesting to observe.  Everyone continue to be safe.  Maybe next week will be more interesting regarding the markets.

Godspeed

The Mann

UPDATE APRIL 1 (EVENING) – You know you are becoming immune to the chaos when 1000 point days in the stock market are no longer shocking.   Not much to add this evening.  Stocks might be starting their next significant downturn, but it isn’t a certainty.

One thing to note is that all of the stimulus acts that are being passed are only trying to replenish what has been lost.  There is no pent-up demand.  Wealth and Output have been permanently lost.  It is a misnomer to call these stimulus packages.  No stimulus is going to occur.  The money handout is simply trying to make as many people and companies as whole as possible.

I will say that it is about time that an infrastructure act is being considered.  $2 trillion at this time.  We missed the opportunity to do that in the last crisis.  With an expected 45 million people being unemployed over the next month, it would be good to put people to work to build our versions of the Hoover Dam and TVA and so on.

I won’t bore you as there isn’t much to add to what I have already said.  It is truly tragic that we will start seeing 3000 and 4000 Americans die each day.  Amazing we will likely hit 100,000 deaths by the end of this month.  And we just surpassed 4000 today.

Hopefully, we have learned a lot from this experience.  The sad thing we have learned is that some people are plain stupid and some just don’t care about others.  But, that is nothing new for the human species.  A lot of the virus spreading is due to plain selfishness.

The upside is we have seen how good most people are.  How we help each other out.  It would be great if we continued that after this pandemic is gone.  But, well before Election Day I am sure we will be back to a hateful 50/50 split country again.  Tragic.

I will post Friday evening.  As the markets are starting to calm down (well, to me they are getting boring already), I will likely post less frequently.

I did want to thank everyone that has been sharing information with me.  The more I can absorb the better.

Please stay safe!

The Mann

MARCH 30 (EVENING) – As expected, our essential shelter in place recommendation has been extended thru the whole month of April.  April has been projected to be the month where we finally peak in cases and start to see the curve flatten and rollover, hopefully.

I am confident the shelter in place will be extended to at least May 15th.  Maybe until Memorial Day weekend.

Trump is right when he says people in this country want to live a normal life.  Colds and the flu have never gone away.  We live normal lives with them coming and going thru the population and seasons.  I guess that will be the way with Covid-19, also – when we have a vaccination.  That is supposed to be 12+ months away.

There is a point where we just have to get back to normal and deal with the Covid-19 cases and deaths.  There is no choice.  But, we had to do this Social Distancing in this initial phase so as to avoid the 2,000,000+ deaths that were projected if we did nothing.

Continue to be safe.  And take advantage of the world being on a long time out.  I always wanted things to slow down.  To stop.  Time to stand still so we could relax and smell the roses.  Now is that time. This likely will not happen again in our lifetime.  Take advantage of this.  Reduce your stress, permanently.  Learn that things do not need to be rushed.  Do all of those things you stacked up to do when you finally had some time to do them.  You have that time now!

As for the stock market, today was up a bit.  I still cannot rule out a move above last week’s high of 22,595.  Whether or not that occurs, the expectation of a 25%+ decline remains.  I took advantage of the rally last week to get out of some oil stocks I stupidly got in too early.  We all make mistakes eh:)  But, best to cut your losses than let them ride.

Oil broke below $20 today.  I believe we are seeing the final down wave to what might well be the end of a 120-year combined bull and bear market.  I haven’t followed up on the timing issue mentioned last week.  So, just sitting on the sideline and watching the crash continue.

Gold and silver didn’t do much.  Significant declines are still expected.  That is a bit longer-term view so this isn’t a day-to-day forecast.

Everyone went crazy about the US Dollar being so strong.  So last week, I believe, was one of the worst weeks ever for the USD.  The markets love to get everybody to one side of the ship before sinking them.

So, nothing has changed re my forecasts.  The markets are starting to trade in a bit of a range.  This helps alleviate all of the record oversold readings for technical indicators.  We can’t go straight up to infinite nor straight down to zero.  More Wednesday evening when I post next.

I will drop this after one more mention of it….I don’t recall firefighters and police whining after 9/11.  Those people were proud of the fact that their peers ran straight into those towers to save as many people as possible.  I don’t recall them saying they were like lambs being led to the slaughter.  They were true heroes.  They know every day they go to work could be their last.  They don’t ask for sympathy.

So, I just don’t get it, and am truly disgusted by, the doctors and nurses in New York complaining about everything…we are risking our lives, we are overworked, whine whine.  They are truly ruining the appreciation they would get and deserve.  Maybe they just aren’t as tough as firefighters and police officers.  That isn’t in doubt really.  If you didn’t think you were going to be in many situations where you could become very sick or die by helping others, you shouldn’t have become a healthcare provider.  Thanks to the majority that do their job proudly and don’t whine in hopes of getting pity.

And as to us real estate appraisers arguing that what we do is essential….really?  An appraiser friend in Puerto Rico said they ruled it wasn’t essential.  I agree.  Albeit, I was happy the appraiser came out and appraised my daughter’s farm today so hopefully her closing will still occur in 2 weeks:)  But, truthfully, this isn’t an essential service.  Closings can be pushed back 2-3 months like everything else.

Enjoying life on the 5/3 Farm…..til Wednesday evening….be safe and stay well.

The Mann

MORE TIDBITS OF REAL ESTATE MARKET INFORMATION

March 26 – One of you shared this with me.  Good info and it seems to put a definitive range on expected loan losses for CRE loans.  When two different methods come up in the same general range that can provide some confidence in the forecasts.

·         Commercial real-estate loans made by banks will suffer as much as a 2.5% loss rate over the next five years, according to the analysis of 12,500 loans now on the books of banks ranging in size from small community banks to the largest banks in the country. If that were applied to the $2.3 trillion of outstanding commercial real-estate bank loans, then losses would amount to $57.5 billion, Trepp says.

·         The Fed’s own stress tests of banks capital adequacy assumes a CRE loss rate of $65.7B.

·         Loss rates last year were less than 0.1%.

·         Between 2008 and 2011, the peak default rate was 4.4%, according to Trepp. That default rate will hit a peak no higher than 2.7% in the expected Covid-19 downturn, Trepp said.

·         Defaults this time probably won’t soar so high partly because bank portfolios were in relatively strong shape leading up to 2020.

·         Hotels and shopping centers will likely be the hardest-hit property type with cumulative default rates over five years of 34.8% and 16%, respectively, according to Trepp.  Apartment buildings and industrial property will be hurt the least with respective default rates of 3.3% and 3.0%, the analysis said.

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On a different issue, I heard a nice, concise explanation of how large of a bailout is needed in the USA.  Last year, our GDP totaled $21.44 Trillion.  If 2Q GDP falls 25% to 35% (or pick the number you like), then the bailout will need to be $5.4 to $7.5 Trillion.  The various bailout Acts passed by Congress and the purchases by the Fed are heading towards that range.

What I don’t get is the backside of this decline.  As of today, annual GDP projections for 2020 are around -3.0%.  That would indicate an annual economic loss of less than a trillion dollars.  So, how is the Fed and the US Government going to get  back $4-6 Trillion they lend out?  I doubt they will get much back.  We basically increase our overall debt many fold.  Of course, even these amounts are trivial compared to the $100 Trillion+in unfunded pensions, government handouts, and so on.

Another video I was watching (Hidden Secrets of Money – Part 1…the series is on YouTube.  I highly recommend viewing it.) said a researcher found 600 (!!!) fiat currencies in history that began with the letter A and was half way thru the B’s when he stopped.  All 600 currencies went to Zero.  The point being the US Dollar and all other existing currencies won’t be exceptions.

Lastly, I am seeing numerous predictions that many countries will totally disappear in the upcoming years.  That may seem surprising. But, go back to an atlas of 1900 and see how many countries no longer exist in 2020.  So, I guess I won’t be surprised to see dozens of countries get ate up by their neighbors.  That was the norm throughout history until the past 70 years.  We have lived in an anomaly that has come to an end.  I think the only good thing for us in the Western Hemisphere is that most of the changes will occur in the Eastern Hemisphere.

The 1920’s were the Roaring 20’s.  That term might apply again to these 20’s, but for a different reason.  Some aggressive countries will be roaring as they take over their neighbors.

Enough cheerful news for today.  Everyone be safe.

The Mann

THE DECLINE IS NOT COMPLETE

MARCH 18TH (EVENING) – The DOW closed below 20,000 for the first time since 2017.  Today’s low was 18,917.  Nothing occurred in the last two days that would change my range forecast for an intermediate bottom.  All I can say is further declines are ahead.

And this is a way too long post.  But, I had lots of things on my mind:)

I saw an indicator that may be useful in telling us when an intermediate bottom is occurring.  I will share this one with you so you can follow it yourself.  Go to this web page:

https://www.etf.com/etfanalytics/etf-fund-flows-tool

There is a table for the Top 10 Creations (aka inflows, people buying) and Top 10 Redemptions (aka outflows, people selling).  Then look for the Vanguard S&P 500 ETF (VOO).  Incredibly over the past two weeks people have BOUGHT over $12 billion of this ETF.  In the first phase of a Bear Market, the public buys the dip thinking the market will rally back to new highs.  This is when the Smart Money sells their holdings to the public so they get caught holding the bag as Joe Granville would say.  When you see VOO in the Redemption column, then we might be near a significant bottom.  When VOO is being sold in HUGE amounts then we know the public has thrown in the towel and never want to own stocks again.  Remember that for every transaction there is a buyer and seller.  So, when the public finally caves the Smart Money will be buying everything the public dumps.

Another indicator many traders follow is called TRIN.  I won’t explain it here (I am sure somewhere on the web it is explained).  But, amazingly, this indicator is at a level seen at market tops.  Not market bottoms.  Like VOO above, there is massive buying going on.  There is no panic.  All the way down people have been buying and buying.  In fact, two friends told me their advisors said to just keep buying as the market declines.  Those advisors get paid for such brilliant advice:(  For those who know about TRIN, when we see 5-day average readings over 1.60, then we start looking for a bottom to occur.

Some items of note.  As of today you can pay the government interest to hold your money for 4 weeks to 3 months.  Negative interest rates have arrived in America.  I do hope banks will soon pay us interest on the loans we get from them:)

I saw this information from an automobile expert and wanted to add Auto Dealerships to the list of commercial properties that will likely see significant closings and bankruptcies.  If all auto dealerships are forced to close (like many other retail establishments….and supposedly one state has required dealerships to close, already) for 1 week, it will cost the car industry $7.4 billion and 94,400 American jobs.  The government will lose out on $2 billion in taxes.  But, that is now insignificant when trillion dollar bailouts are being handed out.

Remember that is only one week of closure.  As we have seen, closures are much longer than that.  Banks need to be looking at their floor plan and real estate loans immediately.  As I have tried to explain for almost 30 years, an auto dealership is never the highest & best use of a site.  It is an interim use from the day it is built.  This special purpose property type is going to result in a lot of losses for lenders.  It is time to get those loans in order.

As for auto stocks, it is likely all of them will go bankrupt.  If I recall right, only Ford did not go bankrupt in The Great Depression II ten years ago.  I wonder how the people that bought the great Tesla stock at $969 feel with it hitting $350 today.  I wouldn’t be surprised to see it fall another 50% and hit a new annual low below $175.

Almost no one pays attention to parabolic patterns and what happens when they occur.  I learned about this from one of my idols, Joseph Granville, back when I was a teenager in the 1970s.  Essentially when something has a blow off parabolic rise it gives up the entire gain when it crashes.  Or at least say 85%-95% of its gains.  There are probably hundreds of stocks that have graphs showing a parabolic rise and this subsequent crash.

Oil crumbled right thru $25 and bottomed near $20 today before having a dead cat bounce back to $23 at the close.  I believe it was yesterday that Morgan Stanley said that oil would hit $30.  It closed at $28.  They get paid the big bucks to provide such wonderful advice:)

As for the China Virus, an American in Wuhan said only one new case has occurred in the past week.  Wuhan is basically back to normal.  And China did nothing like the USA has done to slow this virus down.  So, I am wondering if a month from now we will see optimism as the number of cases rolls over and starts to decline.  Maybe Tax Day will have a bit of silver lining.  The next two weeks will be bleak as the number of cases soars due to tests finally occurring.  But, a month from now we may see a light at the end of the tunnel that is not a train coming at us.  Always think ahead.

A few side thoughts.  First, this crisis should set globalization back many decades.  I think countries, especially America (finally!), realize the importance of not relying on other countries for critical goods.  Of course, most countries are small and have no choice.  But, for America to let Asia take over production of so many items is (you fill in the word).  Because of globalization the average American wage has not increased for 50 years in real terms.  It is all about greed – corporate greed and individuals having the desire for everything they buy to  be cheap (or even free!) but wanting to get paid more and more.  We can’t have it both ways.

Second, the China Virus might have finally made telecommuting a significant reality.  25 years ago my MBA group wrote a paper that telecommuting was not going to take over as was being projected at the time.  The experts were saying that by the Year 2000 most people would be working at home.  We argued that the human species was a social animal and wanted to deal with each other in person.  We were right.  In the past 5 or so years many companies have changed their policies and required all employees to come into the office.  It might have taken an annoying little virus to finally make working from home go mainstream.

I wanted to give a shout to a few friends (not by name).  One told me a month ago to get ready for martial law.  I believe his prediction will come true any day now.  Even the California Governor said today he has the right to invoke such.  I believe the ONLY way to stop this virus is to lock down the entire country.  People just aren’t listening to what they are being told to do.  Of course, the leftists will say yep we told you Trump wanted to be a Dictator:)  As Ron White says, you can’t fix stupid!

Another friend said he bought some S&P 500 Puts and was up 10x.  That was yesterday, so he is up more after today.  It is good to know someone plays the downside.  Options are extremely difficult to trade.  It is pure gambling (as my mentor said, the stock market is the world’s largest casino).  I would not recommend trading options to anyone.  You can buy ETFs that are short the stock market or industries or many things.  And there are 2x and 3x ETFs that will magnify the move by those factors.  Unlike options, ETFs do not have time decay working against them.

It is always easier to make money in a Bear Market than it is in a Bull Market.  But, 99% of the public never plays the downside.  And every time we have a Bear Market people start screaming to make short trading illegal.  Too funny.  It is ok for insane buying to push markets to unsustainable levels.  But, it is not ok for people to push the market back to fair value and then down further to bargain levels.  Stop complaining and learn how to play the game or get out.

Some of you have passed along information on the few people that predicted this downturn in advance.  I sincerely appreciate it.

As for investments, I obviously cannot give any specific advice.  This blog just provides my thoughts for all to see.  It helps me get things in print.  It reminds me of things to watch for (like VOO and TRIN).  And it actually does help some people with their investment decisions.

Thankfully, my wife and step-daughter listened last August/September and let me put their retirement 100% in cash.  I think the only time they listen to something I say is when it is about the stock market:(  They missed the last 10% of the Bull Market.  But, they have had no worries in this crash.  And we have enough toilet paper, so no worries outside the market either lol  As I tell people, I do follow my own advice with my investments.

Lastly, my step-daughter is selling her horse farm (hopefully, it closes in 3 weeks).  Great time to sell.  She has been looking at houses to buy right away.  I am thinking she might want to hold off until Fall.  By then, many local businesses will have failed.  Few people will be buying this Summer.  Sellers should become desperate.  I am seeing my thoughts about residential real estate start to form as I write this.

I remember the only good buy my wife and I ever made was in 1992 when we saw a house for sale in a neighborhood we liked.  Doing some research (before the internet was used for such) we found out the owners were losing the restaurant they owned and needed to sell and move in with their parents.  We offered almost 20% below the list price and our realtor said don’t hold your breath.  We said give them the offer and tell them they have til 11pm tonight to make a decision.  We got a call at 10:30pm that they accepted the offer straight up.  Every other house we ever bought we lost money on:(  Typical of many of us appraisers eh:(

Don’t be afraid to buy low.  It is the best way to make money:)

My email is GeorgeRMann@Aol.Com

Yell anytime.  Pass my blog along to anyone you want.

Please stay safe.  Take extra precautions for the elderly and sickly.  Go out of your way to buy what they need for them so they don’t have to go out in to the public and risk their lives.  Remember to sanitize everything you do buy for them before they touch it.

It is better to give than to receive.  Pass it forward.

Godspeed

The Mann