Monday, August 17, 2009

Staggering housing statistics, unemployment and markets, oh my...

A new survey just published last week shows that the number of homeowners underwater (those that owe more than their house is worth) has soared and it really puts the prospect of any recovery in housing in perspective.

"More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30, 2009 according to newly released data from First American CoreLogic. As of June 2009, there were an additional 2.5 million mortgaged
properties that were approaching negative equity. Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide.

• The aggregate property value for loans in a negative equity position was $3.4 trillion, which represents the total property value at risk of default. In California, the aggregate value of homes that are in negative equity was $969 billion, followed by Florida ($432 billion), New Jersey ($146 billion), Illinois ($146 billion) and Arizona ($140 billion). Los Angeles had over $310 billion in aggregate property value in a negative equity position, followed by New York ($183 billion), Miami ($152 billion), Washington, DC ($149 billion) and Chicago ($134 billion)."

Think about those facts - nearly 40% of US homeowners owe more than their house is worth. Those homeowners are stuck and their banks are stuck - there is no way to unwind this mess short of a massive wave of foreclosures, short sales and/or bank failures (note that banks have continued to fail while the stock market has rallied).

Anyone looking at real estate in Florida should be able to get a Detroit style bargain in 5-10 years. The aggregate value of all property in Florida is roughly $981 billion and there is $923 billion in debt against that real estate. That's the sort of debt to equity ratio that an emerging market should have not a major retirement zone in the leading economy in the world. California has almost $2.4 trillion in mortgage debt and 42% of these loans are underwater. What's truly stunning about these statistics is that roughly a 1/3rd of all homeowners nationwide are estimated to have no mortgage. So when you consider Florida for example, roughly $320 billion worth of homes are paid for and $660 billion worth of homes are levered with $920 billion worth of debt. Staggering.


This chart is quite scary. I knew this data existed, but I have not seen someone put it together before the St. Louis Fed put out this chart.

This shows the average length of time it takes for an unemployed person to find a new job. Every recession in the last 50 years has peaked at 15-20 weeks for the average length of time it takes to find a new job. Now, we're in uncharted territory with it taking 25+weeks for the average unemployed person to find a job.

Ever the contrarian, I noted last week the frothy happy headlines that had started to emerge - The recession is over, The bull market is back, etc., etc.

This coincided with some information that came out on

The daily sentiment indicator among active traders has been up around 85% to 88% levels last recorded in October 2007 (the market peaked in October 2007). Think about how dramatically the economy has changed in the last 2 years, but the sentiment of traders is effectively the same as it was when the down was over 14,000? The disconnect between the markets and reality may be at an all-time high.

All other sentiment indicators (AAII of individual investors, ISE sentiment index, etc) are hitting peak levels not seen in 2-3 years. These indicators tend to be pretty accurate contrarian indicators and while a single day does not make a trend, today's market action was disappointing to the bulls because it really broke through a number of key levels. The Asian markets are bouncing back right now in early trading so we'll see how it plays out tomorrow.


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