Color of money
It is very easy to make generalizations about markets and trends, and for a top-level snapshot analysis this may be quite acceptable.
Such is the case with July 22nd housing sales data announcement from the National Association of Realtors. “Total existing-home sales (completed transactions for single-family homes, town homes, condominiums and co-ops,) dipped 1.2 percent to a seasonally adjusted annual rate of 5.08 million in June from a downwardly revised 5.14 million in May, but are 15.2 percent higher than the 4.41 million-unit level in June 2012,” says NAR economist Lawrence Yun.
But of greater concern is the expansion of inventory.
Building Business Systems
I was involved in building call center and business systems in the early 80’s that included supervisor workstations. The goal was to increase supervisor awareness of caller demand in an airline reservation or inbound call center so they could match staff to deliver better levels of service and fewer lost orders.
In 1980 colored displays cost $1500 versus monochrome tubes at $800 each. Marketing got into a battle with the engineers who were reluctant to include costly colored CRTs. Fortunately marketing persevered, installed colored tubes and colored reporting and ran away with the market against our monochromatic cost centric competition.
“Green is Good”
Predictably the screen report colors followed traffic light colors; red for stop or danger, amber for slow down or caution and green for go and a safer environment.
In the field we discovered a phenomenon that we had not expected. Supervisors in a call center are mobile on the floor working with their staff. Working one-on-one meant loss of a global understanding of call demand for your group. Inventive supervisors solved this by placing their supervisory screens strategically so with a quick glance the color tone of the screen would instantly tell them the service levels and whether or not agents were meeting that demand. Not in detail, but in understanding a snapshot state. Then with further investigation, understand trends and what they had to do to better respond to short-term and long-term demand.
Our trending of The Altos Research data is like this. Our color based trend reports are a good indicator of where we see the market headed, and it appears general caution is in order, while selective and opportunistic behavior for individual investors remains an absolute.
“Color me Going?”
There are a number of caution signs popping up in a number of places that signal a “Heads Up” and informed investing.
These 20 Altos markets have remained in a steady state for the last three months. Inventories are rising in every major market except where value buying was initially possible in parts of the Miami, Phoenix and San Diego Metro Statistical Areas. Days on market are still ahead month-to-month, as are price increases. Inventory increases are typically an early indicator of reduced demand that lead to a slowing market, increased DOM & flat to negative prices.
Investor knowledge of these facts is important for use in current purchase price negotiations with property owners and financial institutions selling bulk SFD stock.
What this Means – Investors are not Homebuyers
PREI Magazine believes true real estate investors first buy property as a business with revenue not just real estate. Discussion by economists and TV business talking heads are not typically directed at real estate investors but homeowners & other businesses dependent on real estate. Investors buying on real rental fundamentals are insulated from any price fluctuations, especially those real estate investors and funds using a blended return approach of mid- to long-term rental income, coupled with capturing future value increases when market appropriate.
On July 17, Bernanke testified to the House Financial Services Committee. He said that the housing recovery has been central to the overall recovery. He said this recovery in housing would likely continue.
Conservative economist Gary North concludes, “increases in home prices are bolstering household finances and consumer spending while reducing the number of homeowners with underwater mortgages. Housing activity and prices seem likely to continue to recover, notwithstanding the recent increases in mortgage rates, but it will be important to monitor developments in this sector carefully.”
This is because much of this stimulus “defied gravity” using money printing and debt buying and recycling strategies. Today’s drop in Q’1 & Q’2 restaurant sales further confirm a potential economic retrenchment. Heads up as analytical investors always benefit by buying on real returns.