Tag Archives: USA

DEAD CAT BOUNCE? STANDBY FOR THE STENCH

All I’d like you to do is read the following articles

http://www.zerohedge.com/contributed/2014-04-07/hot-air-hisses-out-housing-bubble-20-even-two-middle-class-incomes-aren%E2%80%99t-eno

AND

http://www.zerohedge.com/news/2014-04-07/mortgage-originations-plunge-lowest-record

 

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PERFECT STORM BREWING – 03 APRIL 2014

It’s all adding up….well, for me anyway, so let’s see how this pans out.

Retail stores are closing at an alarming rate in the USA and Europe, and yes, here in Australia.  My local large shopping centre has just had 5% of tenancies “walk” at the end of their leases, with strong suggestions from people I know who are “in business” but only just, in the same centre, that up to 10% of the tenancies could walk in coming months.  Unlike 2005 for instance, there aren’t 40 people waiting in the wings to get into this centre.  There is no-one.  No registers of interest, no active list, reserve list or any kind of list.

Large shopping centres are dinosaurs and some people just won’t admit it.  Ridiculous rents forcing retailers to charge equally ridiculous prices and therefore having no chance against online retailers with cheap-as-chips warehouse rent in the middle-of-nowhere.

There are otherwise intelligent people (I think) spending nearly AUD$700 million on rebuilding and revitalising another massive local shopping/destination centre.  The reasons they cite to try and justify their decision are plain ridiculous – the place will be an albino pachydermata.

If shopping centre owners drop their rents to a level where traditional retailers can once again run a half decent business, capital values will plummet.  Flow on to smaller commercial and industrial properties is sure. Lack of return, loss of jobs and its not hard to see residential housing taking a dive as well.  Don’t think so?

Massive interest rate cuts have failed to stem the drop in residential values.  The butchering of statistics continues.  I was recently challenged as to why my view differed from the those reported in the news and delivered startling “real results” to back up my view.  Yet again a number of properties in a suburb were quoted as delivering massive price rises that contributed to the percentage rises being quoted in the news.  Shallow analysis of each of these properties showed that there were, in each and every case, factors that impinged on the price rise and therefore those properties should have been excluded from the ‘results’ for that suburb.  Trouble is, you take those properties out, and the price FALL is dramatic.

Factors that made for selling prices being reported as UP from previous acquisition prices were as I’ve reported before in my blog.  Reconfiguring a home to cater for two families. Significant and costly renovations not taken into account. Rezoning of land adding to it’s base value.  And so on.  And… no IN and OUT costs taken into account to arrive at a nett gain (if any).

Make no mistake that fiscal policy makers are all out of ideas for getting our economy going.  The USA think-tank  has screwed up and nothing is working over there.  I know many people in the USA in business and they tell me it’s rubbish that side of the Pacific, more than a little scary and they’ve little to no confidence.

The USA 30 year mortgage rate when I was there in 2013, was about 3.4%.  A year later and its nudging 4.5%.  If the same rate of rise occurs here (and it will) our rates will jump 30%!  Imagine mortgage repayments for all those silly sods who dived in with their 90% plus loans on minimal deposit using their Mum n Dads place as extra collateral…  Most are paying over $500 a week – that could easily jump to $650 a week – and wipe out their ability to EAT!

An interest rate jump of that magnitude will cause a REAL and long overdue drop in house prices.

CHINA – for a start you can’t believe most of the numbers that come out of ‘Official’ China however the word from people I know who travel regularly to that mysterious land is that things are crap. I’ve heard it said that China is at about 2004/2005 on the Western GFC Clock.  When their house-of-cards comes down it will not be pretty and the flow on will be nasty.

Its all coming to  ahead.  If you have property, sell it NOW and take advantage of the pseudo reports and spin to get some sucker to cough up.  RENT, or take a long holiday.  And buy back in when the dust settles.  Go back in this blog to see just HOW CHEAP housing is in so many desirable areas of the USA – not the ghettos of Detroit but NICE PLACES TO LIVE.

We are waaay to expensive and need a correction… It’s coming…

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WE ARE NOT IMMUNE

Real estate is linked to the economy and vice versa. What’s happening in the United States absolutely impinges on Australia.  Always has and always will.

The following is from Phoenix Capital Research in the USA and is reproduced with full acknowledgement as to source.

“The Fed failed to announce a Taper yesterday of any kind. It is positively outrageous, but it does inform us of many things. First and foremost, the Fed has made it clear that it

cannot be hawkish is any way…So for all the talk of taper and shifting to a more hawkish tone, the Fed’s actions speak louder than words: the Fed is totally and completely

incapable of being hawkish at this time. Secondly, the Fed knows that the US economy is a total disaster. If tapering even $10-15 billion per month from $85 billion month QE

programs would damage the economy, then we’re all up you know what creek without a paddle. Put it this way… here we are, five years after 2008, and the Fed is stating point

blank that the economy would absolutely collapse if it spent any less than $85 billion per month. This admission has proven just how long ago we crossed the Rubicon. We’re

already in the End Game.

Period. Finally, the Fed has proven that it has absolutely no exit strategy. The Fed is going to print money and buy bonds until the entire financial system collapses. Any

time stocks fall it will try to rescue the markets. And it is going to do this ad infinitum because it has no clue what else to do. In plain terms, the Fed has proven

beyond even a hint of a doubt that it is simply flying by the seat of its pants, with no clear game plan or eventual outcome in mind. The Fed is simply going to keep doing

what it’s done for five years until something breaks. That something will be the entire financial system. We will have a crisis that is substantially worse than 2008. It

is coming. In fact it is now coming much sooner than it would have had the Fed announced a taper yesterday. In the meantime, inflation is soaring. The Fed

continues to lie about CPI and inflation but the reality is that the cost of everything is going up.” – Phoenix Capital Research, 19 Sep 2013 …

Oh dear – sell your property…buy gold, rent, and sit tight…

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WHAT PRICE SHOULD I PAY?

I’ve had quite a few enquiries from people who are nervous about waiting until the market goes down and are afraid (scared by media hype) that they’ll miss out if they don’t dive in now, especially as interest rates are at a record low.

The first thing I tell them to do is to calculate how their repayments will be at 3, 4 and 5% ABOVE the rate they’re being quoted today.  If that scares them, they’re not in a position to buy.  I also tell them that if interest rates do rocket up by 5% in the near to medium term, the valuation of their property will plummet and they’ll be faced with owing the lender more than the place is worth.

Considering that house prices, up until about say 2001 when the madness started, kept rising roughly with inflation, the following tool, from the Reserve Bank of Australia, is useful.

Click here – http://www.rba.gov.au/calculator/annualDecimal.html

I was selling a range of standard three bedroomed houses in a particular area in 2002 for around $200,000.00.  Go to the calculator and enter $200,000 and the year 2002 and then ask it to give you the adjusted price for 2012 (2013 not available yet).  You’ll see its about $263,000.00

NONE, I repeat NONE of those homes have sold for anywhere near $263,000 in the last 5 years BUT the prices are heading that way.  At the peak of the madness, some changed hands for $445,000.  They are now selling around $350,000.00 and my wee spies tell me there are sellers out there who NEED to unburden themselves, and because they bought in 2002 for $199,000.00, would take $250,000.00 if push came to shove.

The correction we HAVE TO HAVE is coming.  If inflation takes off in the USA we are doomed…

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AMERICA THE BRAVE

Just take a look at this Bloomberg Video.  CLICK HERE to watch.

I liked this comment to another Bloomberg article on the real estate and economic situation in the USA. Sure it’s political, and who knows which side of politics would be able to “fix” it, but its a similar story to ones I hear all the time right here in Australia.

“When will this administration learn that no matter how they spin the numbers, no matter how they try to paint the economic outlook, We’re in a serious mess that’s only getting worse day by day.

It’s a painful but true fact that my wife and I set an all-time record for income last year, and it’s all we can do to pay the bills we have. We’ve been without insurance for 4 years and there is no way we could afford the Obamacare that’s being unconstitutionally forced down our  throats.

Our house was “reassessed” by the town at 3 times what we might pray to get in the current market. The taxes are KILLING us and I know I’m not alone.

It used to be that it took two full time jobs to make ends meet, we’re now working 2 full and 1 part time job and it’s not helping as much as we hoped. In fact, it’s looking like our house will be on the market soon… as a foreclosure property. When we purchased it 16 years ago we intentionally purchased conservatively to keep within our means and have a comfort margin in the budget.

That margin is gone and the cost of this administration’s healthcare DISASTER is only now beginning to show it’s true colors. This president is killing America and most of the media is protecting him by not reporting the truth. ”

Think it can’t happen here?  Watch this space…

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