|The Best View of the Housing Bubble Pre-Crash|
This video was what we saw just months after the speech I made noted above. It was pretty stinking gloomy. The stock market was in the crapper and home prices crashed. With speed never before seen and perhaps treading on Constitutional Authority, the Government and Secretary of the Treasury Hank Paulson started to make investments in the Banks through the TARP program and several other initiatives. Ben Bernanke started to throw money at the financial system and economy. The banking system and Detroit were stabilized. But with the markets dragging bottom and hundreds of billions of dollars being thrown at US industry, the average voter started asking the question, “When do we get a bail out?” The answer came soon enough though most of America missed the memo when Fannie and Freddie were put into conservatorship to protect the US mortgage market from vanishing, causing a free-fall in house prices.
So where are we today? Fannie is actually starting to repay the bailout money (Self serving note: the Bank bailout through TARP was paid back with a sizable profit to tax-payers thanks to the strings Paulson put on that Bailout.) Of course Detroit is now going Bankrupt, but the American Auto Industry was able to rationalize their insane Union compensation plans, and has a chance to pay back a large part of that bailout, if not all of it …. well most of it anyway. The economy isn’t healed but the most recent Case-Shiller Index had this happy news last week:
“As of May 2013, average home prices across the United States are back to their spring 2004 levels. Measured from their June/July 2006 peaks, the peak-to-current decline is approximately 24 to 25 percent. The recovery from the March 2012 lows is 16.5 percent for the 20-city index.”
Essentially the news is, housing prices are back! In the Bay Area consumers even see an overheated market again with multiple offers and short listing periods. So I was wondering now …… just where is the recovery in terms of the measures in the chart at the top of this page? My speech back then said that we had to revert to the mean. Paulson said we wouldn’t see the economy and markets recover until we had the bulk of the housing correction was behind us. Did we get there? The current information out there suggests we have reverted to the mean and are now showing home values at 2.85 times median income. Of course the bad news in that is we will likely see growth in home prices slow now due to investors cashing out and more of the average mortgage payment going to interest, thus reducing the amount of house a person can afford. Being an optimist, we are at least not looking at another bubble. Housing growth will take place as median incomes rise.
|Consumer Comfort Index at 5 year high|
Don’t get me wrong. There is a lot to do still to heal housing and the mortgage business. Banks aren’t able to make home loans anymore and sell them as packaged securities. Prior to the crash, that was half of all new bank lending. Now it’s 0%. Banks now have to keep the loans on their books or sell them to Fannie or Freddie for the present. While its nice to know they are starting to turn the corner, last week President Obama outlined plans for the wind-down of the Governments involvement in those institutions. Having just gone through qualifying for a home loan, I can tell you first hand that the mortgage business is dramatically different than it was.
In the SVB State of the Wine Industry Report released in January, we predicted bumpy going in the first half of the year and an upturn in the back half with average fine wine sales growth in the 4% – 8% range. While there are still plenty of variables out there that can throw that forecast off, I think at this stage with the good news in housing and retail sales hanging in still, its remains a good forecast.
The middle class consumer is showing resilience, housing is now below 6 months of inventory which typically signals a short market, and the Fed is talking about ways to slow their bond purchases in response to what seems like a healing economy. We have a lot to look forward to in the last half of the year, and I’m hoping my pre-recession gloomy speeches will be forgiven by the organizers in hindsight, and maybe my phone will ring again since I have happy news to report? Oh well ….. at least my dog loves me.
What do you think? Where is the last half of the year headed? Are we going to hit my sales forecast for fine wine this year? What about the mortgage and housing markets? Are they going to stall or improve? There are lots of moving parts but please log in and offer your perspective for the community.
SVB on Wine