Light at the end of the tunnel - A train?
There is a term in engineering known as positive feedback. It is what causes the ugly whine that you sometimes get when setting up an audio system...a mike hears its own speaker and amplifies the noise it hears which increases the output from the speakers, which increases the input to the microphone which increases the output of the speakers...well you get the idea.
We appear to have gotten into such a situation in Las Vegas Real Estate.
The lenders sell homes around 20% or so below market which drives the market price down....the lenders than drop their price to 20% or so below the new market price...which again lowers the market price...well you get the idea. Here is a chart that shows the result...the sales of REPOs, Short Sales and Normal Sales in Las Vegas in the second half of 2008. These are single family homes only
[IMG]http://www.donohueteam.com/LVRE/Second%20Half%20Sales.gif[/IMG]
Note the REPO price decrease is actually growing over time if anything. We also see some resistance in the short sales and normal sales. That might help stabilize things over time. But that is not to be...the REPO sales are simply dominating the market..
[IMG]http://www.donohueteam.com/LVRE/Percent2.gif[/IMG]
So what is going to happen? Well it seems pretty clear the existing trend is going to continue until something external blocks it. The mechanism is a robust one and continues until some terminal event blocks it.
Note that the dropping price alone may be enough to sustain the flow of REPOs. As the price drops more people decide their home ownership is no longer workable and walk. Thus providing more grist for the REPO mill.
Possibilities to break the cycle? Might be running out of REPOs...could happen as the sub-primes run down and the spring volume builds. Or Obama et al may do something that throttles the flow of REPOs...say a real loan mod program.
Resistance to further drops in the regular market may eventually create a true dual market. You can buy in 25% of the town for half or two thirds of the other 75%.
Is that a national trend? No way. But I would expect similar in Phoenix, Florida and much of California. The rest of the nation likely lacks the REPO base to feed it. Note though that if it lasts long enough it could get to a lot more places.
If the process stops abruptly - say on some form of a governmental mod program - another big problem will unfold. Prices will rise rather quickly from the REPO level toward the normal level. That of course will likely take the volumes from the REPO levels toward the normal levels. Suddenly we are selling one third the homes.
It is going to be an interesting year.
We appear to have gotten into such a situation in Las Vegas Real Estate.
The lenders sell homes around 20% or so below market which drives the market price down....the lenders than drop their price to 20% or so below the new market price...which again lowers the market price...well you get the idea. Here is a chart that shows the result...the sales of REPOs, Short Sales and Normal Sales in Las Vegas in the second half of 2008. These are single family homes only
[IMG]http://www.donohueteam.com/LVRE/Second%20Half%20Sales.gif[/IMG]
Note the REPO price decrease is actually growing over time if anything. We also see some resistance in the short sales and normal sales. That might help stabilize things over time. But that is not to be...the REPO sales are simply dominating the market..
[IMG]http://www.donohueteam.com/LVRE/Percent2.gif[/IMG]
So what is going to happen? Well it seems pretty clear the existing trend is going to continue until something external blocks it. The mechanism is a robust one and continues until some terminal event blocks it.
Note that the dropping price alone may be enough to sustain the flow of REPOs. As the price drops more people decide their home ownership is no longer workable and walk. Thus providing more grist for the REPO mill.
Possibilities to break the cycle? Might be running out of REPOs...could happen as the sub-primes run down and the spring volume builds. Or Obama et al may do something that throttles the flow of REPOs...say a real loan mod program.
Resistance to further drops in the regular market may eventually create a true dual market. You can buy in 25% of the town for half or two thirds of the other 75%.
Is that a national trend? No way. But I would expect similar in Phoenix, Florida and much of California. The rest of the nation likely lacks the REPO base to feed it. Note though that if it lasts long enough it could get to a lot more places.
If the process stops abruptly - say on some form of a governmental mod program - another big problem will unfold. Prices will rise rather quickly from the REPO level toward the normal level. That of course will likely take the volumes from the REPO levels toward the normal levels. Suddenly we are selling one third the homes.
It is going to be an interesting year.
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