USA TODAY: frontpage news

From the most circulated newspaper in the country: To drive sales, 75% of builders are now offering some kind of incentives to attract buyers, up from 50% who did so last year, according to the National Association of Home Builders. "These builder-developers understand the solution to the slowdown to the market is to quickly liquidate their inventory," says Ron Peltier, CEO of HomeServices of America.

In Woodbridge, Va., George and Susan Garrigan listed their home for $449,000 in March. After two price reductions and still no takers, they took it off the market. They painted the interior, landscaped the yard, put in new carpet and exposed the hardwood floors.

Now it's back on the market for $439,000. And there's a new car in the driveway with a sign: "2006 Corolla Free with Purchase of our Beautiful Home."

"You have to do something to stand out," says their agent, Barbara Tivnan. "There's so much inventory, and there's just not that many buyers."

Click here: USA TODAY LINK

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Bay Area overpriced: 50 to 60%

San Francisco-Oakland 53% Overpriced

San Jose 61% Overpriced

Vallejo-Fairfield 58% Overpriced

Sacramento 59% Overpriced

Los Angeles-Anaheim 57% Overpriced

Santa Barbara-SM 86% Overpriced


Thanks to a great blog: Sacramento Landing Blog

Click here: CNN money article

Read the full article by clicking above.

Alameda/Contra Costa: inventory up 700%

As of the end of business day yesterday, the number of properties currently on the market for sale in Alameda and Contra Costa counties has just broken the 14,000-unit mark. That's more than 700% increase from just under 2,000 units in the beginning of 2005. Unless something drastic (i.e. miracle or 0% interest) happens, there's simply not enough demand to absorb all that inventory.

Transports drop: 12% in 16 days

For some reason, analysts have been ignoring (or simply missing) the dramatic collapse of the Transportation Average. (Transports move the goods and the people) From a July 3 peak of 4974, Transports today closed at 4364, a loss of 610 points or a shocking 12.2% in a period of only 16 trading sessions.

What could the Transport semi-crash be telling us? In my opinion -- it's indicating a general slowdown in the economy. But the rapidity and ruthlessness of the Transport smash has me thinking that the economic contraction could hit sooner than most people expect.

Remember, this is not a 12.2% drop in a single stocks, this is a 12.2% drop in a stock average -- extraordinary. Of course, the big question now is whether the Transports will drag the Industrial Average down with it.

Could the Transports, home-building stocks and the retail stocks be telling the real story?

Pressure on pricing: Contra Costa

The difference between the daily supply of new listings (green curve) and the number of pending sales listings (red curve) continues to widen. Looking at the chart above, it appears that the demand (daily pending sales) hasn't faltered much; the red curve has managed to hover around 120 units for months now. The problem is the huge influx of new listings, which puts a lot of pressure on the pricing. By all means, the real trouble begins if/when the demand starts to decline.

Number of sold listings: Bouncing back

Contra Costa/Alameda housing market experienced a nice rebound in February after months of sharp decline. Our chart above indicates the 20-day moving average of the daily number of sold listings hit the bottom and started bouncing back in mid February. Unfortunately, this rebound appears to be coming to a halt by the end of April. It's been moving sideways since then (red arrow).

US Consumer

The Transports are down 33 points, this on top of Thursday's breathtaking plunge of 204 points. That makes a total of 237 Transport points lost in less than 24 hours.

The Transports represent sales, merchandise being moved, coal being moved to utilities, steel being carried to construction sites, activity, activity and more activity.

The plunging transports are telling us that America is slowing down, movement is hitting a brick wall, sales are slowing, and in the all-important housing area, sales have "dropped dead."

Technical note -- Yesterday, Lowry's Stock Buying Power Index sank to another multi-year low, indicating that demand for stocks was continuing to decline.


The US consumer is strapped for cash, and it's showing in the action of the stock market. The KEY could be the housing industry, which quite frankly, is falling on its face. First, housing sales slump, second, home prices and condo prices break. We're right on the edge of the second.

This is a nasty, sneaky market. For instance, have you seen anyone anywhere mentioning the Transport collapse?
There's a lot of damage being done, but nobody seems worried. There's just no urge to buy stocks from the big guys. The way things are going, this nation could be in a recession before anybody knows what's happening.

I'm convinced that the squeeze is on the consumer, and I'm convinced that the housing market is on the edge of a swoon. We should know whether I'm right in about a month or so.

US housing prices: 44 percent overvalued.

Robert Campbell published the fascinating Campbell Real Estate Timing Letter (858 481 3235). Robert is an expert on California real estate. He called the turn to the downside in Cal real estate in August 2005. In his latest report, Robert writes -- "Anyway you look at it, this has been a housing bubble of unprecedented proportions. Based on historic inflation adjusted norms, from 1996 to 2005, US housing prices are 44 percent overvalued. (This is calculated by taking the 4.4% difference -- a 6.8% minus 2.4% -- and multiplying is by 10 years). That's why I feel there will be a significant mean-reversion in US home prices, and I believe that it's not only going to be 5 or 10 percent of rice gains that get erased."

San Diego has been the hot spot in California's red-hot housing industry. The latest figures show that the median price of a home in San Diego has actually declined slightly in June on a year-to-year basis. This is the first time in ten years that the year-over-year median price of a home in San Diego has declined. There are a lot of homes for sale here in San Diego. In some cases, price concessions are being offered. But what has changed is the bids. The bids are drying up. Prospective buyers are holding off -- they're all waiting for lower prices.

There are exceptions, however. The word is that the late Aaron Spelling monster home in Beverly Hills just sold for $135 million (asking price was $150 million).

The SPDR Homebuilders ETF. From roughly 47 last April, the Homebuilders ETF has dropped to just under 30, a decline of 36% in three months. If we are to believe this chart, then it can be said that the homebuilding industry is close to crashing. In view of what's happening in homebuilding, it's would be very risky to raise rates.

Mortgage Applications: ****Down 25%****

Application Volume Index decreased by a hefty 24.71% to 398.5 from the record high of 529.3 just about 13 months ago. And, we've probably have only just begun...

Homebuilders: continue to fall

Consumer spending: falling

The ETF Retail Holders has been riding up an ascending trendline for months. But last May the retail index suddenly plunged through its rising trendline. And last week, Retail Holders suffered a huge drop. July isn't over yet, but we see enough to know that retail is in trouble. And consumer spending, as you may remember, constitutes about 70% of the Gross Domestic Product of the nation. When consumers cut back, the US economy is in trouble. Strange that nobody seems to be noticing what's happening in retail.

What's the biggest purchase by American families? It's a home or in many cases a second home. Well, not only is retail in trouble, housing is in trouble. The Housing ETF has violated a trendline is in a waterfall collapse. So much for housing, it's kaput, finished. How's the US consumer going to pull money out of his "housing ATM" this year?

The consumer Discretionary Spending ETF tracks items that consumers don't absolutely need for living purposes. In other words, items that consumers can live without. Stocks in this group include Disney, Home Depot, Target, McDonalds, GM, Viacom. Suddenly last week, Consumer Discretionary got in line with the other consumer charts, and Consumer Discretionary fell apart. It's increasingly apparent that the US consumer has put a lock on his wallet while women are in the process of zipping up their hand bags. This will all become apparent within a matter of a few month or so.

Whole Foods is a stock that I've watched with interest. The company has been growing rapidly, and it has been the envy of every supermarket chain. The only catch with this company is that its prices are high -- thus the nickname, "Whole Paycheck." The stores are great, the selection is fabulous, but again those prices. I've wondered whether whole families can do their shopping at Whole Foods. To my mind, this a "good time" chain of stores, specializing in "health-type foods." But with the growth of organic foods, the big chains are now getting into the act. Even our local Safeway now has an organic counter. Can a chain with high prices compete with the highly-competitive grocery super-chains? Guess we'll find out.

Whole Foods hit a high close of 79.90 on December 28, 2005. Friday it closed at 58.39, down 26%. Customers of Whole Foods may be running out of "luxury money" -- or else competition is hitting the chain. Or both. Interestingly, Whole Foods has made the cover of magazines over the last few months. But Whole Foods shouldn't feel bad -- even Wal-Mart has been hitting the skids. Wal-Mart, trading as high as 70.25, closed Friday at 43.05, down 38.5% from its high.

America's consumers have been on a tear. Looking at the charts and stock prices say it's over.

Declining peaks in Conta Costa/Alameda

Contrary to most people's belief, June, not summer months, is traditionally the month with the highest units sold. As the chart above shows that the number of units sold peaked in June 2004 (4,313 units) as well as in June 2005 (4,067 units). This year, we expect 2,980 units sold in June to be the same peak month. Nonetheless, this trend of declining peaks - the formation of lower highs - is a clear indication of a deteriorating market. This is the same technical analysis application that's been used in analyzing the financial markets. As an aside, please keep in mind that sales in June were generated by sales activities that took place in the previous months.

Home Builders: crashing today

Contra Costa/Alameda: Inventory at all time high

Thursday 07/13/2006: After a few months of retracement, the number of days worth of inventory bounced back up to 115.42 days, which had just surpassed the previous high of 109.46 days occurred on 1/9/2006. We use the 10-day moving average to smooth out the curve.

Debts

From what I gather, Americans on the lower 50 percent of the economic scale are having a tough time. Their wages haven't kept up with inflation, interest they pay on their credit card debits is rising, college tuition and medical expenses are surging, and their mortgage payments are steadily rising, particularly if they took Alan Greenspan's advice and chose a variable rate mortgage. During this year and next year about $2 trillion in variable-rate mortgages are due to be reset, and that should put a squeeze on the "bottom 50 percent's" spending. If that doesn't put pressure on them, the current price of gasoline and will make them think twice about taking that thousand mile vacation trip in the family SUV this summer.

The government puts out glowing figures on the growth of the US Gross Domestic Product. And of course, a large portion of this "growth" is simply the US public taking on more debt. Total US mortgage debt is now about $9 trillion, and in case you weren't aware of it, that's one gigantic load of Federal Reserve Notes that America's consumers owe to the banks and the savings & loans.

A lot of the spending frenzy has come from the appreciation in the price of homes and the withdrawal of cash from those levitating houses. Last year consumers withdrew $750 billion from the value of their homes, although that process is now slowing down. The big question is whether the so-called housing "slowdown" is going to be the well-advertised "soft landing," or whether it's going to be more of a painful thump. Unfortunately, nobody has the answer to this one. What we do know is that housing inventories are high with the inventory of existing homes at an all-time high -- up 41% over last year.

I've said before that the last two generations of American's are the only two generations in US history that have never seen hard times. Actually, we haven't experienced anything that even remotely resembles a consumer recession since the early '90s, and the '90s recession was over in a hurry. Today, the Fed literally promises that we'll never have another recession -- and even a "slowdown" is talked about in hushed tones.

There's something different about the situation today, something different than anything the US has ever had to face before. What I'm referring to is the giant mountain of debt, around $50 trillion, that has been built into the US economy. With that amount of debt, the US really can't take a recession, a thesis that I'm sure Bennie and the Feds are well aware of. With housing sales now slowing down, my guess is that the Fed is about through with raising rates. Raising rates in the face of a slowing economy is the recipe for disaster and Mr. Bernanke knows it.

More on the dollar and deficits

One reason the Bush deficits are so alarming is because they are so heavily financed by foreigners. Since 2001, 73% of new government borrowing has been through the kindness of foreigners. In fact, today 43% of the US publicly held debt of $4.8 trillion is in foreign hands. This compares with only 14% at the peak of the Reagan deficits in 1983 -- rising to 30% in 2001.

If the dollar starts to swoon, what's to happen to that $4.8 trillion that is held by our foreign "friends"? Will they sit on their fannies while the dollar (their dollars) head south? Hardly likely, they'll unload part of their holdings and drive US interest rates through the roof.

A collapse in the dollar would be too horrendous to contemplate. The whole world lives, saves, operates, trades on dollars. Yet ironically, the dollar is backed by the greatest debtor nation the world has ever seen. What's the trade-off? There must be a trade-off. You can't print perpetual prosperity!

Today the Dollar Index rallied a bit. The trend seems to be down. I'm wondering whether the Dollar will test its 84 low. I think it will.

Cancelled listings: 75% higher than last year

Monday 07/10/2006: In the month of June, the number of Withdrawn/Cancelled listings climbed to 4,331 units, another new high. (For Contra Costa/Alameda Counties) This number is 17% higher than 3,700 units in May, and 75% higher than 1,575 units in the same month a year ago.

The US dollar: may be topped out

New thought: An increasing amount of oil will be traded in euros. When that happens, the demand for dollars is going to decline. Our foreign friends, holders of huge amounts of dollars, are not going to be happy when their dollar holdings start to lose value. They're going to unload some of their dollars. They will also want to unload some of their US real estate holdings. This could send the price of housing into a vicious downward spiral. Remember, since World War II Americans have never had to worry about a steadily and even rapidly unraveling dollar. It will not be a pleasant experience. This is one of the main reasons why I recommend that investors hold gold. As the dollar declines, the dollar price of gold will rise.

What's a home worth? I consider a home to be reasonably priced when you can buy a home, and then rent it out and cover your costs. You can't begin to do that today. This means that either rents are going to trend higher or home prices are going to come down -- or both. American's "wealth and savings" largely resides in the value of their homes.

If home prices start sliding, there's going to be hell to pay. If home prices decline, home owners are going to cut back on their spending. They're going to do whatever they can to hang on to their homes. In some cases, if equity falls below the size of their mortgages, these people are going to hand the keys to the bank and walk away -- and rent rather than own.

Here's my thinking -- because the US has lost its manufacturing base, over the long run the US standard of living (now the highest in the world) will be heading down, while the standard of living in China and Asia (which are now attracting dollars and gold) will be improving. Remember, the current US prosperity is based on the rest of the world's accepting the fiat dollar that the US creates. This situation will only continue as long as the rest of the world has no substitute for dollars. But now that is changing. The substitutes are mainly euros and gold. In due time the ruble and the yuan may be added to the "substitute" pool.

Contra Costa: 88% more expired listings in one month

Just when we thought the spikes of expired listings on the first day of each month might've topped out, the number of listings expired on July 1st dwarfed all previous records. There were 282 expired listings on the first day of July. That's 88% more expired listings than June 1st and 48% more than the previous high of 191 occurred on May 1st.

Since summer 2005: sales down 42%

We know that the housing boom and consumer spending are inter-related. The growth in consumer spending has been closely tied to the rise in home prices. Last year consumers pulled an incredible $750 billion out of the value of their homes. But that's not happening this year.

Wall Street is worrying about whether the Fed is going to boost rates another .25% in August. I don't think it's going to happen. The reason I say that is that I believe that consumers are going to pull in their spending. Here's why -- the rising price of oil squeezes consumers. Today it costs anywhere from $50 to $100 to fill up your car's tank. In other words, the high price of oil and gasoline acts as a tax. On top of that, the central banks of the world are tightening -- so credit will become more difficult to come by. And last but not least, the housing market is running out of steam.

More about the fizzling housing bubble. Since the peak in the summer of 2005, home sales have declined by a shocking 40%, year-to-year. Housing stocks are down 25%, so far this year and down 42% from their 2005 peak. In the face of slowing sales, home inventories have increased to record highs. The time it takes to sell a home is lengthening, with buyers in many area not bidding at all, simply waiting for prices to decline further. In "red hot" San Diego, owners who bought condos to "flip" in many cases are under water and desperate to unload their wares. Some houses have been sitting for months, looking for buyers who will simply take the thing off their hands and hopefully let them break even.

With consumer spending tied so closely to housing and with housing in trouble, I'm of the opinion that the Fed is finished raising rates. If rates are to rise from here, it's the market that will do it, not the Fed. And with the yield curve now inverted, I doubt that the market is thinking in terms of another Fed rate boost. Suddenly, cash has again become an "asset class" to be respected.

San Diego: Great charts

From 2000-2005, sale prices rose over 4 times as much as rents, and the disparity has only gotten worse since 2003. The declining growth in rents concurrent with a phenomenal increase in sale prices provides yet another indication that those sale prices are not justified by fundamental factors.

Thanks to: www.piggington.com/bubble