Have you ever wondered why BAC, as I've showed you using my Trend channel has been in a 7 month downtrend versus a bank like Suntrust (STI) which has been in a lateral trend during the same period.
Bounces notwithstanding due to short term victories and Congress' attempts to mitigate the fallout from round 2 of the housing bubble, the proverbial "second shoe" seems to have been priced in the last 6 months or so?
Read this article from ZH when you have some time to consider its implications.
As you may know, I live in Florida, the apparent ground zero of all kinds of controversies from hanging chads to real estate collapses. As you may know, when I bought a house in 2003 I was well aware we were in the midst of a housing bubble as I spent every Saturday and Sunday looking in a neighborhood we really liked for over a year. We had seen every house in the roughly 30 block territory and had made at least 5 offers. We went on vacation for 3 weeks to Europe and returned to see the same houses that had been for sale for over 6 months, now selling for 30% more. It escalated every couple of weeks from there and we decided we need to buy something, even if it wasn't exactly what we wanted as this was a bubble. The proof it was a bubble came from every corner of our social circle as housewives became real estate speculators and every party we went to, the conversation was always the same-Real Estate.
We decided to buy as knowing it's a bubble and being left without a home for several years were our choices. We settled on something less then what we wanted as homes that we looked at 6 months earlier went from $150k to $300+k. The final confirmation of the bubble came from my study of bubbles over the last 400 years. The statement, "This time it is different" is always a dead giveaway of a bubble. The explanations included, "They've built as far west as they can in Florida before you hit the Everglades", "Property never goes down" Arizona was proof positive that it does. In any case, our house gained about 250% in value over the next year and a half. Friends of mine were flipping ginger-bread houses, a few got caught with inventory as the market collapsed and they still hold them, but that didn't stop the building. As you drove through Miami, the new state bird was obviously the "Silver Crane". Condominiums were the biggest speculative bubble in Florida and even as property values plummeted, they kept building. In fact an entire condominium had been built with only 1 occupant, 1 family living in an entire building.
Since we have been looking for a home to buy, since all of the robo-signing talk cropped up, we became very picky. Realtors, which swamped us, probably over 20 contacted us every week with possible homes-I just got a text from one right now, show just how dire their situation is becoming. We've been told over and over that 80% of first time bidders on short sales walk away as the process takes 4-5 months. We decided to stay away. After that Bank REOs were the next bit of available inventory, but because of the putback scenario that is developing and lawsuits in the future, we decided to say away from those as well. True, title insurance will refund us our buying price but not the cost of any upgrades we spend on in case a former foreclosed owner bring suit over robo-signing and wins. This left us with what is amazingly an almost non-existent supply of homes, regular arms reach transactions. If we saw 100 homes, maybe 1 would be an arm's length transaction and usually way overpriced as people paid double what their property is currently worth and they just can not accept that. I feel that these properties, which we had been outbid on one which was an estate sale, even though we offered full asking price, will be few and far in-between and those that are prices reasonably will be quickly snapped up as this trouble in the banking/real estate sector continues to grow and most likely will force real estate prices lower. Although I feel the arm's length transactions will be in high demand as Americans start to take notice of what's going on.
In any case, this article does a good job of explaining what the financial industry faces. I've been talking about a second shoe dropping for a long time, I didn't quite expect that it would come from the same place where the problems originated, although in a different form.
America seems to have a rough future ahead of it and the write downs that we saw over a year ago every earnings season, look like it may once again be a defining theme of future earnings seasons, as well as bank failures and bailouts,
5 years ago
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