Naz

Should be an interesting week for the Nasdaq.

The weekly chart is banging up against the trendline started back early in 2009 (which it hasn't touched sinced mid-2010) while resting on the 50 week ema.  The indicators are still pointing south.  A break below 2600, with volume could point towards a good sized pullback.  I suspect the trendline should hold on this test, but a stop near 2585 makes this an objective area to go long.

The Nasdaq 100 is resting on top the neckline identified here.  The 100 failed to hold the 200 day ema closing last week slightly below.  To get the expected right shoulder, price is going to move back above the 200 day ema in a hurry.  The daily indicators a buried in oversold territory, but have not turned up.  53.5 is pretty clearly defined support.  A break below and a backtest would limit losses for any long positions.  I'd prefer to see a reversal candlestick before committing any long positions.  The long side target would be around 58 for an 8% move.

Flippin'

While sifting thru some local housing data I came across some flipping activity so I thought I would see how they are doing.  The neighborhood in question currently has 4 homes for sale ranging from $174,000 to $289,000.  Only 1 looks like a flip, but let's see what other flips have sold.

This one was picked up out of foreclosure for $107,000 in 9/2010.  On 4/15/2011 it was sold for $240,000 after a facelift.

Can't tell what was done on the inside, but new siding, roof, driveway rocks and some landscaping.  Closing costs would have been about $19,000.  Looks like a successful flip.


This one was bought out of foreclosure in 10/2010 for $150,000.

It sold on 5/6/2011 for $265,000, after new siding, driveway, clearing and an entry were added to the outside.  Hard to tell what happened on the inside.  Closing costs on the flip would have been around $21,000.

Here's one still on the market.  It was bought out of foreclosure in 8/2010 for $124,000 and is currently listed for $289,000. 

New siding, driveway, roof and some landscaping on the outside.  Since it is still on the market there are inside pictures available on Redfin.  Here's a few of the inside upgrades.

The kitchen looks a little over the top for the neighborhood.  Granite, stainless steel and new cabinets.

New paneling, windows and carpeting in the family room.

New tile, cabinets, mirror and fixtures in the bathroom.

I'll be keeping track of this one to see what it sells for.

It appears flipping is alive and well.  The key appears to focus on foreclosures to ensure a low purchase price.  The flips above seem to have had a significant percent of their purchase price spent on upgrades.  The subsequent sales have made these flips some of the nicest homes in the neighborhood.  It seems to me that there is room in this market for less "over the top" upgrades and still be profitable.  It is worth noting that even though these flips were efficiently turned around (6 - 8 months), they were held during a 5 % drop in market prices.  I suspect flips this year could be even more profitable.

Seattle SFR

The monthly stats were recently released and deserve a look (charts from Seattle Bubble).

 Closed sales have picked up a bit from 2008/2009 levels and are close to 2010 tax favored levels.  While by no means robust, closing might be stabilizing.

 Pending sales look even better this year than 2008/2009.  The end of the tax incentives last April is clearly shown by the severe sales drop off last May.  There's only a couple more months to the "Selling Season."  A stable Summer/Fall of sales similar to 2009 would be very constructive for the market.

Interestingly, inventory levels have stayed relatively flat this year.  Even with slow closings, months supply of homes is less than 4, which historically has resulted in firmer pricing.  If new sales can stabilize, inventory levels should drop accordingly.  While looking for a catalyst for continued sales low mortgage rates come to mind, but market based prices seem more likely to compel more purchases.

Prices have continued their downward direction, dropping about 10% since last Summer.  Home prices are at their cheapest level in 3 1/2 years, matching prices not seen since 2004.  Low sales and inventory levels are making it look like most people have simply lost interest in the real estate market (which is a necessary step in the recovery process).  Those that have to sell are resorting to lowering their asking price.  Prices aren't going to stabilize until these homes are sold, and, volumes start to pick up.  Lower prices are the best way to achieve this.  If this doesn't happen by the Fall, it will have to wait until next Spring.

Market Indices

As foretold here and here, the markets followed thru with their downdrafts.  The Naz joined the contagion as seen below.

 The Naz has fallen about 8% from its recent high leaving the index flat for the year.  The weekly indicators still look bearish, however, price is nearing a 2 1/2 year trendline along with the 50 week ema.  2610 would be a very objective entry point to the long side because the stop would be near 2590, limiting the downside.  Zooming in a little bit, the daily chart is below.

The indicators on the daily chart are getting very oversold suggesting some sort of bounce, or, at least, not much more downside short term.  The bearish engulfing candle on 6/1 is glaring on the daily chart, as is the potential buying zone near 2600.  My current roadmap is an oversold bounce from 2605 (stops at 2590) with a rally perhaps up to 2800 forming a potential right shoulder for a head & shoulder move.  I hope it doesn't happen since more downside would be expected, but you have to play what you see, not what you hope for.

Market Indices

After looking dodgy mid month, many of the indices broke their trendlines and backtested.  Today they experienced some nasty looking bearish engulfing sticks.

 The mid-caps broke and backtested the trendline.  Volume exploded with today's bearish engulfing candlestick.  There's possible support at 96.4, otherwise the 200 day ema at 91 might have to do.

 The Russell 2000 also broke and backtested.  Volume was about the same as yesterday's upmove.  The indicators are a little mixed here.  If last weeks low breaks, the 200 day is next up.

The Transports have a chance at the trendline, however, the indicators are all heading south.

Another Tale of Two Towers

The CRE strategy remains much as it was 16 months ago.

Fully leased up buildings retain their value, empty buildings lose value.  705 Union Station lost their core tenant, Amazon, and were left with a "see-thru" building.  A REIT from SF paid $38mn for it.  The previous owner paid $66mn in 2001.  The original price included Amazon as an anchor tenant.  Live by the anchor tenant, die by the anchor tenant.  CBRE currently has space in 705 listed as "negotiable."  Here's 705:

But what about Amazon?  They are consolidating near South Lake Union/Denny Triangle area.  It just so happens that Scnitzer recently leased 60% of 1918 Eighth to Amazon.  Guess what?  1918 Eighth is up for sale. Of course, a sale won't be a walk in the park since the competition is pretty stiff with other downtown office buildings recently listed for sale including 36-story 1918 Eighth, 14-story 818 Stewart, 27-story Seattle Tower, the 21-story office tower at Westlake Center, and Regence Blue Shield's 16-story headquarters.  Here's 1918:

So the strategy remains the same...get and/or retain tenants.  So not much has changed in the last 14 months except CRE prices are down another 13% since then.

Residential - Neighborhood Update

I've been following a particular, homogeneous,  neighborhood on the Eastside in order to gain some insights on the marketplace as a whole.  May was not a particularly good month for the neighborhood.

4 more homes were listed (of which one was listed in April but didn't show up on Redfin until May) bringing the total to 12.  Of note, the late listing is a short sale.  3 homes had price reductions.  The most aggressive cut was by the short sale.  The short sale is now the lowest priced home in the neighborhood coming in at $374,950.  Last month, there were no homes listed below $400,000.  Currently 5 homes can be had under $400,000.  One thing is for sure, would be Sellers are resorting to price to sell their homes, and now they are facing their stiffest competition from a short seller.  It would appear banks are picking up their efforts to move homes.

Oh...and by the way...there were no sales.

While things aren't pretty, there is still hope for the neighborhood.  The homes are move in ready and neighborhood is predominated by school aged families.  School is almost out.  It will take some serious activity before 7/15 to turn this situation around.

Stayed tuned...