This post first appeared on Minyanville.
As Inauguration day nears, details of President-Elect Barack Obama’s huge economic stimulus package are emerging. In today's meeting with Congressional Democrats, Obama begins to lay out his vision for reviving the nation’s catatonic economy.
According to the Wall Street Journal, around 40% of what could be an almost $800 billion plan may come in the form of tax cuts. Rather than mailing rebate checks, as the Bush administration did last summer -- which by most accounts did little to boost real economic activity -- Obama wants to reduce tax withholdings to get more cash into the hands of middle-class workers with every paycheck.
The plan also calls for the widening of so-called “tax look-backs,” which allow companies to apply today's losses to future tax bills. The new proposal would let firms book losses against past tax payments, freeing up money for the current tax period.
To encourage businesses to buy new machines, factories and make other capital investments, Obama is considering allowing newly purchased assets to be more quickly depreciated. Along with tax breaks for hiring new workers and delaying layoffs, the new administration wants to discourage downsizing and prevent firms from delaying expansion plans.
These and other tax-specific initiatives would come on top of previously announced plans for heavy infrastructure investment. When news of the impending stimulus package began to trickle out toward the end of 2008, peddlers of all things metallic enjoyed a strong bounce into year-end.
Freeport McMoRan (FCX), the world's second-largest copper producer, is up almost 100% from its December lows, Nucor (NUE), America's largest steelmaker has bounced more than 90% since November and US Steel (X) is approaching levels not seen since last October. Still, these and other commodity-centric firms are well off highs seen just last summer.
Ultimately, dollars earmarked for businesses and consumers alike are being sent out with a single mission: To be spent. With consumer and business spending making up almost 85% of gross domestic product, it’s no wonder politicians are urging Americans to part with their precious pennies for the greater good.
As the sage Mr. Practical reminded us this morning, however, the true path to economic recovery is through saving, not spending. With each dollar the Federal Reserve prints to finance this massive deficit-spending program, our paychecks -- though they may be increasing in size -- are worth less every month.
Economic stimulus is all well and good, but handing out a currency that’s constantly being debased is akin to tires spinning in the mud: With each rotation, they just bury themselves deeper, and the task of unburying gets longer, more difficult, and infinitely dirtier.
Monday, January 5, 2009
2008: Better For Banks Than You Think
This post first appeared on Minyanville.
2008 certainly tried the nerves of American bankers - but other years were far worse.
University of Michigan economics professor Mark Perry notes that the 25 bank failures last year pale in comparison to banking crises past. Skeptical of comparisons with the Great Depression, Perry suggests first comparing the current situation to the S&L crisis of the 1980s, when almost 3000 banks were forced to close up shop.
As ugly as 2008 was, the banking system survived. And although many would argue (probably correctly) that it survived only because of unprecedented government intervention, survive it did. US banks are now set to benefit from the biggest economic stimulus package in a generation.
Stuffed with cash from the housing boom, years of low interest rates, and unnaturally high risk appetites, American banks entered the crisis with reserves to spare. In a year that saw the entire global financial system buckle, federal bailouts of AIG (AIG), Fannie Mae (FNM), Freddie Mac (FRE), General Motors (GM) -- and the collapse of Bear Stearns, Lehman Brothers, Wachovia and Washington Mutual -- the fact that only a handful of banks actually folded is remarkable.
Those that did collapse, however, did so in spectacular fashion.
The FDIC seized IndyMac Bank last July, in what was the second largest bank failure in history. The southern California-based lender -- which was spun off from also-defunct Countrywide -- was heavily leveraged to so-called Alt-A mortgages. Alt-A occupies the uneviable spectrum of home loans just barely good enough not to be considered subprime.
In late September, Washington Mutual collapsed, and its more than $300 billion in assets were absorbed by JPMorgan (JPM). WaMu's failure was the biggest bust of all time.
Downey Savings, another southern California mortgage specialist, survived until November, when it finally sucumbed under the weight of its portfolio of option adjustable-rate mortgages, or Option ARMs. Along with Charlotte-based Wachovia (which was forced to sell itself to Wells Fargo (WFC) in October) Downey found that giving out loans without bothering to charge interest turned out to be a bad business model.
Despite dour headlines and predictions of widespread bank runs, most smaller community banks avoided the fae of their larger brethren and survived. Weakened by worsening economic conditions, banks across the board are tightening loan guidelines and hoarding cash just to stay afloat.
2009 isn't likely to be a banner year for the country's bankers - but if they can fare at least as well as they did in 2008, few would be likely to raise a fuss.
2008 certainly tried the nerves of American bankers - but other years were far worse.
University of Michigan economics professor Mark Perry notes that the 25 bank failures last year pale in comparison to banking crises past. Skeptical of comparisons with the Great Depression, Perry suggests first comparing the current situation to the S&L crisis of the 1980s, when almost 3000 banks were forced to close up shop.
As ugly as 2008 was, the banking system survived. And although many would argue (probably correctly) that it survived only because of unprecedented government intervention, survive it did. US banks are now set to benefit from the biggest economic stimulus package in a generation.
Stuffed with cash from the housing boom, years of low interest rates, and unnaturally high risk appetites, American banks entered the crisis with reserves to spare. In a year that saw the entire global financial system buckle, federal bailouts of AIG (AIG), Fannie Mae (FNM), Freddie Mac (FRE), General Motors (GM) -- and the collapse of Bear Stearns, Lehman Brothers, Wachovia and Washington Mutual -- the fact that only a handful of banks actually folded is remarkable.
Those that did collapse, however, did so in spectacular fashion.
The FDIC seized IndyMac Bank last July, in what was the second largest bank failure in history. The southern California-based lender -- which was spun off from also-defunct Countrywide -- was heavily leveraged to so-called Alt-A mortgages. Alt-A occupies the uneviable spectrum of home loans just barely good enough not to be considered subprime.
In late September, Washington Mutual collapsed, and its more than $300 billion in assets were absorbed by JPMorgan (JPM). WaMu's failure was the biggest bust of all time.
Downey Savings, another southern California mortgage specialist, survived until November, when it finally sucumbed under the weight of its portfolio of option adjustable-rate mortgages, or Option ARMs. Along with Charlotte-based Wachovia (which was forced to sell itself to Wells Fargo (WFC) in October) Downey found that giving out loans without bothering to charge interest turned out to be a bad business model.
Despite dour headlines and predictions of widespread bank runs, most smaller community banks avoided the fae of their larger brethren and survived. Weakened by worsening economic conditions, banks across the board are tightening loan guidelines and hoarding cash just to stay afloat.
2009 isn't likely to be a banner year for the country's bankers - but if they can fare at least as well as they did in 2008, few would be likely to raise a fuss.
Sports Bubble Primed to Burst
This post first appeared on Minyanville.
In the world of illiquid assets, sports teams are as scantly traded as even the most esoteric mortgage-backed securities. And with markets for such things still frozen, the lofty valuations of recent years could soon be set to tumble.
The majority of sports franchises are owned by wealthy businessmen, most of whom made their fortunes in industries far removed from the on-field exploits of their hundred-billion-dollar hobbies. Now that those primary businesses are suffering -- and the ultra-rich are seeing their vast wealth depleted -- sports teams may be dumped into a decidedly unfriendly market.
The Wall Street Journal reports more than a few team owners have fallen on hard times, threatening to burst what many believe to be a bubble in America’s favorite sports dynasties.
Tribune Company (TRB), which recently filed for bankruptcy, owns the Chicago Cubs, a team with a storied history and a penchant for post-season misery. Tribune’s CEO, real-estate mogul Sam Zell, now wants to sell the team, along with Wrigley Field and a partial stake in a local sports network, for approximately $1 trillion - not a bad return, if you consider that Tribune bought the Cubs from the Wrigley family in 1981 for a mere $20 million.
Zell, however, is facing a harsh backlash from loyal Cubs fans, who don’t want to see their beloved team sold with little regard for tradition - even if that tradition includes a World Series drought of more than a century.
Another real-estate developer turned sports mogul, Bruce Ratner, may be wishing he'd stuck to skyscrapers rather than sky-hooks. Ratner owns the New Jersey Nets, and, along with Forest City Enterprises (FCEA), is trying to build the team a new $950 million Brooklyn complex. Legal troubles and financing difficulties have stalled development; Forest City has stopped work on all other existing projects.
Ratner isn’t any more beloved than Zell: Nets fans have no desire to make the trek across the Hudson for games, and Brooklynites aren't interested in seeing luxury condos go up in their backyards.
If team owners are forced to sell into such an unfriendly market environment, once-stratospheric valuations could come back to earth. Most teams turn small profits; owners benefit instead from long-term appreciations in value, along with the celebrity status the job affords.
Like nearly every industry in the country, sports teams are likely to be faced with tough decisions, cutbacks, and even -- gasp! -- wage cuts. After years of wildly inflated contracts, a baseball team that thinks it's a good idea to pay $126 million for a pitcher who's lost almost twice as many games as he's won may think twice in future.
In the world of illiquid assets, sports teams are as scantly traded as even the most esoteric mortgage-backed securities. And with markets for such things still frozen, the lofty valuations of recent years could soon be set to tumble.
The majority of sports franchises are owned by wealthy businessmen, most of whom made their fortunes in industries far removed from the on-field exploits of their hundred-billion-dollar hobbies. Now that those primary businesses are suffering -- and the ultra-rich are seeing their vast wealth depleted -- sports teams may be dumped into a decidedly unfriendly market.
The Wall Street Journal reports more than a few team owners have fallen on hard times, threatening to burst what many believe to be a bubble in America’s favorite sports dynasties.
Tribune Company (TRB), which recently filed for bankruptcy, owns the Chicago Cubs, a team with a storied history and a penchant for post-season misery. Tribune’s CEO, real-estate mogul Sam Zell, now wants to sell the team, along with Wrigley Field and a partial stake in a local sports network, for approximately $1 trillion - not a bad return, if you consider that Tribune bought the Cubs from the Wrigley family in 1981 for a mere $20 million.
Zell, however, is facing a harsh backlash from loyal Cubs fans, who don’t want to see their beloved team sold with little regard for tradition - even if that tradition includes a World Series drought of more than a century.
Another real-estate developer turned sports mogul, Bruce Ratner, may be wishing he'd stuck to skyscrapers rather than sky-hooks. Ratner owns the New Jersey Nets, and, along with Forest City Enterprises (FCEA), is trying to build the team a new $950 million Brooklyn complex. Legal troubles and financing difficulties have stalled development; Forest City has stopped work on all other existing projects.
Ratner isn’t any more beloved than Zell: Nets fans have no desire to make the trek across the Hudson for games, and Brooklynites aren't interested in seeing luxury condos go up in their backyards.
If team owners are forced to sell into such an unfriendly market environment, once-stratospheric valuations could come back to earth. Most teams turn small profits; owners benefit instead from long-term appreciations in value, along with the celebrity status the job affords.
Like nearly every industry in the country, sports teams are likely to be faced with tough decisions, cutbacks, and even -- gasp! -- wage cuts. After years of wildly inflated contracts, a baseball team that thinks it's a good idea to pay $126 million for a pitcher who's lost almost twice as many games as he's won may think twice in future.
Treasury Bails Out GMAC
This post first appeared on Minyanville.
The US taxpayer is now in the business of making subprime car loans.
Yesterday, the Treasury department announced it bought $5 billion of preferred equity in GMAC, the finance arm of General Motors (GM). The new cash -- along with a $1 billion loan to GM -- is aimed at boosting the availability of auto loans to credit-strapped consumers.
Cerebrus Capital Management, the private equity firm that owns Chrysler, holds 51% of GMAC, while GM owns a 49% stake. Cerebrus has now double-dipped into the Treasury Department’s coffers, having been bailed out for 2 massive bets gone awry.
According to the Wall Street Journal, GMAC responded to the capital injection by lowering the minimum credit score needed for retail financing to 621, down from 700. Seeking an immediate impact from its second round of federal money, GM also announced it would offer 0% financing on certain car models through next Monday.
Taxpayer support of GMAC comes on the heels of news the Federal Reserve approved the finance company’s plans to become a chartered bank, giving it access to Federal Reserve borrowing. The Fed had originally required that GMAC raise $30 billion in capital to become a bank, which it had failed to do as of Friday. But accompanying the news of the Treasury’s investment yesterday was an announcement by GMAC that it had managed to scrounge up the requisite capital.
GMAC didn’t just have its hands in auto loans - it was a major player in the subprime mortgage boom. As big industrial companies reached for fat margins in the housing market, they got burned when the mortgage market collapsed last year. General Electric (GE), which purchased subprime lender WMC Mortgage from Apollo Management in 2004, was forced to shutter the lender in 2007 as losses overwhelmed its operations.
Ford (F), GM, GE and other industrials which Toddo often refers to as “financials in drag” are reeling from their exposure to the turmoil in the credit markets. In addition to higher borrowing costs, these firms relied heavily on their finance arms to drive revenues by offering customers loans to buy their products. Now that cheap financing is all but nonexistent, these and other firms reliant on credit-flush consumers are struggling to unload their wares.
Meanwhile, Washington is spraying money around the economy in the hopes it will land in the wallets of would-be consumers. But banks, hoarding cash to offset bad debt, are reticent to start lending again. Until they do, the billions of dollars being poured into the financial system are simply plugging existing leaks.
Thus far, it has. But there are ony so many holes the government can fill at once.
The US taxpayer is now in the business of making subprime car loans.
Yesterday, the Treasury department announced it bought $5 billion of preferred equity in GMAC, the finance arm of General Motors (GM). The new cash -- along with a $1 billion loan to GM -- is aimed at boosting the availability of auto loans to credit-strapped consumers.
Cerebrus Capital Management, the private equity firm that owns Chrysler, holds 51% of GMAC, while GM owns a 49% stake. Cerebrus has now double-dipped into the Treasury Department’s coffers, having been bailed out for 2 massive bets gone awry.
According to the Wall Street Journal, GMAC responded to the capital injection by lowering the minimum credit score needed for retail financing to 621, down from 700. Seeking an immediate impact from its second round of federal money, GM also announced it would offer 0% financing on certain car models through next Monday.
Taxpayer support of GMAC comes on the heels of news the Federal Reserve approved the finance company’s plans to become a chartered bank, giving it access to Federal Reserve borrowing. The Fed had originally required that GMAC raise $30 billion in capital to become a bank, which it had failed to do as of Friday. But accompanying the news of the Treasury’s investment yesterday was an announcement by GMAC that it had managed to scrounge up the requisite capital.
GMAC didn’t just have its hands in auto loans - it was a major player in the subprime mortgage boom. As big industrial companies reached for fat margins in the housing market, they got burned when the mortgage market collapsed last year. General Electric (GE), which purchased subprime lender WMC Mortgage from Apollo Management in 2004, was forced to shutter the lender in 2007 as losses overwhelmed its operations.
Ford (F), GM, GE and other industrials which Toddo often refers to as “financials in drag” are reeling from their exposure to the turmoil in the credit markets. In addition to higher borrowing costs, these firms relied heavily on their finance arms to drive revenues by offering customers loans to buy their products. Now that cheap financing is all but nonexistent, these and other firms reliant on credit-flush consumers are struggling to unload their wares.
Meanwhile, Washington is spraying money around the economy in the hopes it will land in the wallets of would-be consumers. But banks, hoarding cash to offset bad debt, are reticent to start lending again. Until they do, the billions of dollars being poured into the financial system are simply plugging existing leaks.
Thus far, it has. But there are ony so many holes the government can fill at once.
Monday, December 29, 2008
Amazon's Strong Sales Bucks Trend
This post first appeared on Minyanville.
As data pours in from the holiday shopping season, stories of tight purse strings and a general rejection of the extravagant abound.
But bucking the trend, Amazon.com (AMZN) reported strong sales and record buying activity. The world's biggest online retailer called the otherwise bleak environment it's "best ever." Still, online sales are expected to slow from the previous year for the first time ever.
On December 15, according to the Wall Street Journal, Amazon's customers snapped up items at a clip of nearly 73 per second, or 6.3 million for the day. That's the busiest the site has ever been.
Leading the record-breaking sales were Nintendo's (NTDOY) Wii video game consul, Samsung's 52-inch HD television and Apple's (AAPL) 8-gigabyte iPod Touch. In addition, Acer Inc.'s Aspire One netbook attracted buyers looking for cheap access to the Internet. The tiny laptop, with a screen that measures just 8.9 inches, sells for less than $500.
Amazon's strong results are in sharp contrast to most brick-and-mortar retailers, which rang up weak sales despite aggressive discounting. Consumers, hunting for bargains and reticent to brave harsh winter weather across much of the country, shunned malls, preferring instead to shop from the comfort of home.
The site's relative success is evidence that, even during recession, the cream of the corporate crop can still thrive. Economic activity doesn't grind to a halt just because Apocalyptic headlines seem to be without end.
Instead, downturns weed out the weak hands, building a stronger foundation for future growth.
As data pours in from the holiday shopping season, stories of tight purse strings and a general rejection of the extravagant abound.
But bucking the trend, Amazon.com (AMZN) reported strong sales and record buying activity. The world's biggest online retailer called the otherwise bleak environment it's "best ever." Still, online sales are expected to slow from the previous year for the first time ever.
On December 15, according to the Wall Street Journal, Amazon's customers snapped up items at a clip of nearly 73 per second, or 6.3 million for the day. That's the busiest the site has ever been.
Leading the record-breaking sales were Nintendo's (NTDOY) Wii video game consul, Samsung's 52-inch HD television and Apple's (AAPL) 8-gigabyte iPod Touch. In addition, Acer Inc.'s Aspire One netbook attracted buyers looking for cheap access to the Internet. The tiny laptop, with a screen that measures just 8.9 inches, sells for less than $500.
Amazon's strong results are in sharp contrast to most brick-and-mortar retailers, which rang up weak sales despite aggressive discounting. Consumers, hunting for bargains and reticent to brave harsh winter weather across much of the country, shunned malls, preferring instead to shop from the comfort of home.
The site's relative success is evidence that, even during recession, the cream of the corporate crop can still thrive. Economic activity doesn't grind to a halt just because Apocalyptic headlines seem to be without end.
Instead, downturns weed out the weak hands, building a stronger foundation for future growth.
Friday, December 19, 2008
Bush Bails Out Detroit
This post first appeared on Minyanville.
The holidays just got a bit brighter for Detroit.
This morning, President Bush authorized up to $17.4 billion in loans to rescue General Motors (GM) and Chrysler from imminent collapse. The 2 troubled automakers had asserted they'd run out of money by year's end without government assistance.
According to Bloomberg, the bailout money, which will come from the Troubled Asset Relief Program, or TARP, will provide a 3-month window for the 2 firms to devise a restructuring plan to ensure their long-term viability. At the end of March 2009, the loans are callable if the government doesn't feel its demands have been met, forcing GM and Chrysler to immediately pay the money back.
Ford (F), which said it didn't need an emergency loan, wasn't included in the proposal.
In exchange for the cash, the government will receive warrants on non-voting stock, in addition to the right to block transactions of $100 million or more. Both companies must limit executive pay, give lawmakers access to their financial records, and are barred from issuing dividends until the debt is repaid. Debt must be slashed by two-thirds.
Detroit's powerful union lobby, the United Auto Workers, accepted concessions on retirement contributions and payouts for downtime.
Bush, in saving the US auto industry at a time when the economy can ill-afford further job losses, told CNN "I have abandoned free-market principles to save the free-market system."
Rumors swirled in recent weeks about the possibility of an "orderly bankruptcy," after Congress failed to agree on terms for a bailout. The President said this morning that allowing the carmakers to collapse, given the ongoing financial turmoil and recession, would "not be a responsible course of action."
Evaluating the relative success of the industry's turnaround plans will largely be left up to the incoming Obama administration. The Wall Street Journal reports metrics for determining the firms' financial viability are "relatively lenient." And though the agreement doesn't specifically refer to a so-called "car czar," it does say the government must put someone in charge of ensuring the terms of the bailout are being met.
After months of pleading for money, GM CEO Rick Wagoner and Chrysler boss Robert Nardelli can finally return to Detroit with their pockets bulging. Payrolls can be met, vendors paid, and the books closed in January without a visit to bankruptcy court.
However, for 2 firms that seem inordinately adept at losing money -- and lots of it -- one would be hard-pressed to find too many people surprised if, before March, Wagoner and Nardelli are back on Capitol Hill explaining why they deserve a second chance.
The holidays just got a bit brighter for Detroit.
This morning, President Bush authorized up to $17.4 billion in loans to rescue General Motors (GM) and Chrysler from imminent collapse. The 2 troubled automakers had asserted they'd run out of money by year's end without government assistance.
According to Bloomberg, the bailout money, which will come from the Troubled Asset Relief Program, or TARP, will provide a 3-month window for the 2 firms to devise a restructuring plan to ensure their long-term viability. At the end of March 2009, the loans are callable if the government doesn't feel its demands have been met, forcing GM and Chrysler to immediately pay the money back.
Ford (F), which said it didn't need an emergency loan, wasn't included in the proposal.
In exchange for the cash, the government will receive warrants on non-voting stock, in addition to the right to block transactions of $100 million or more. Both companies must limit executive pay, give lawmakers access to their financial records, and are barred from issuing dividends until the debt is repaid. Debt must be slashed by two-thirds.
Detroit's powerful union lobby, the United Auto Workers, accepted concessions on retirement contributions and payouts for downtime.
Bush, in saving the US auto industry at a time when the economy can ill-afford further job losses, told CNN "I have abandoned free-market principles to save the free-market system."
Rumors swirled in recent weeks about the possibility of an "orderly bankruptcy," after Congress failed to agree on terms for a bailout. The President said this morning that allowing the carmakers to collapse, given the ongoing financial turmoil and recession, would "not be a responsible course of action."
Evaluating the relative success of the industry's turnaround plans will largely be left up to the incoming Obama administration. The Wall Street Journal reports metrics for determining the firms' financial viability are "relatively lenient." And though the agreement doesn't specifically refer to a so-called "car czar," it does say the government must put someone in charge of ensuring the terms of the bailout are being met.
After months of pleading for money, GM CEO Rick Wagoner and Chrysler boss Robert Nardelli can finally return to Detroit with their pockets bulging. Payrolls can be met, vendors paid, and the books closed in January without a visit to bankruptcy court.
However, for 2 firms that seem inordinately adept at losing money -- and lots of it -- one would be hard-pressed to find too many people surprised if, before March, Wagoner and Nardelli are back on Capitol Hill explaining why they deserve a second chance.
Thursday, December 18, 2008
Keepin’ It Real Estate: The Other Side of the Rock-Bottom Mortgage
This post first appeared on Minyanville and Cirios Real Estate.
It’s wishful thinking that artificially low interest rates alone are enough to rehabilitate the housing market.
The mortgage industry has undergone a swift and ruthless downsizing over the past 18 months. While a necessary part of the corrective process, the market is ill-equipped to handle the onslaught of new loans that regulators are hoping to incite.
Last week, the Wall Street Journal reported the Treasury Department is considering pushing down mortgage rates to levels not seen since the heyday of the housing bubble. Through the recently nationalized mortgage giants, Fannie Mae (FNM) and Freddie Mac (FRE), loans would be offered to qualified homebuyers with rates as low as 4.5%.
It’s wishful thinking that artificially low interest rates alone are enough to rehabilitate the housing market.
The mortgage industry has undergone a swift and ruthless downsizing over the past 18 months. While a necessary part of the corrective process, the market is ill-equipped to handle the onslaught of new loans that regulators are hoping to incite.
Last week, the Wall Street Journal reported the Treasury Department is considering pushing down mortgage rates to levels not seen since the heyday of the housing bubble. Through the recently nationalized mortgage giants, Fannie Mae (FNM) and Freddie Mac (FRE), loans would be offered to qualified homebuyers with rates as low as 4.5%.
The story sparked a wave of refinancing as rates on all types of mortgages tumbled. Coupled with the Federal Reserve’s plans to buy agency debt and freshly originated mortgage-backed securities, the stage is set for renewed buying activity.
Although Treasury Secretary Hank Paulson has since denied that he’s planning such a move, he did say that he’s “always looking at new ideas” and that “the key thing to get us through this period is getting housing prices down.”
Whether there’s an official program of 4.5% mortgages is immaterial, as Washington is doing everything in its power to push rates as low as possible.
It’s hard to argue cheaper mortgages won’t encourage buyers to leave the sidelines and jump into the market. However, as Bloomberg noted this morning, layoffs at mortgage companies and banks like Citigroup (C), JPMorgan (JPM) and Bank of America (BAC) have greatly diminished origination capacity. Lenders, having already tightened underwriting standards, have limited resources to process new applications.
Many are hoping low rates will encourage refinancing and help clear out the toxic subprime and Alt-A securities still plaguing the financial system. Unfortunately, the loans originated for securities in 2005, 2006 and 2007 – the ones causing all the trouble — were done with minimal down-payment requirements. Falling home prices mean most of these borrowers are underwater - and thus unable to refinance.
Furthermore, any renewed buying is likely to be met with a flood of new supply. There’s a concept in real estate known as “phantom inventory,” which refers to homeowners who want to sell, but keep their homes off the market while they hope for conditions to improve. Some experts believe actual inventory levels, when these would-be sellers are taken into account, is as much as 25% higher than official data show.
Anecdotally, this makes sense. For each buyer waiting for lower prices to step in, there’s a seller waiting for a better market. So any pop in buying activity will offer sellers an opportunity to list their homes in a seemingly stronger market. As foreclosures continue to spread into previously unaffected areas, inventory levels are likely to remain high throughout much of the country.
And while attractively-priced, well-maintained homes in desirable neighborhoods will continue to sell, more of the same will be available in each successive month. Patience remains the best ally for the prospective buyer.
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