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...

Market Indices

The markets are looking pretty dodgy here.

 The Mid-caps are holding on by a thread.  Support is at the 50 day ema.  A break below 98 opens up an air pocket into the low 90's.

 The Russell 2000 has lost its trendline as well as the 50 day ema.  Support might be found between 77 - 79.

The Transports have potential support at the 50 day ema at 96.  The trendline shows up at 94.

Residential Market Analysis

I was poking around on Redfin over the weekend in an attempt to figure out which way the market is headed.  I must admit that the amount of information available to the public compared to 10 years ago is astounding.  Every time I access sites like Redfin, Trulia & Zillow it confirms my long held belief that Real Estate Agent commissions are headed the same directions as Travel Agent's & Stock Brokers...down.  However, I continue to be amazed at how slow in coming it has been for Real Estate Agents.

In the meantime, I spent some time sorting thru the data to see what insights were to be had.  To marrow my focus I chose North Bend as my microcosm.  Here are some observations.

I counted 64 homes currently listed for Sale.  The average listing prices was $402,000.  The average monthly sales for March & April were 10.5, leaving a 6 months supply of homes.  Not too bad.  The nationwide months supply is north of 8.  Of the 64 homes listed, 10 were listed as short sales.  7 of those homes are listed at least $70k below their purchase price.  Ouch!  4 of the short sales have been listed in the last 1.5 months.  5 of the short sales have seen price reductions since the beginning of the year, averaging about 10%.  The new short sale listings and aggressive price reductions on existing short sales would lead one to believe lenders are getting more serious about clearing out the deadwood.  While hard to ascertain, it would appear lenders are trying to be competitive with their pricing, but they aren't the loss leaders.

Since April 1st, 25 homes (39% of the listings) have had price reductions averaging 9%.  Half of those have been on the market over 200 days, so these listings are basically being marked to current market price after last Summer's price highs.  Unfortunately, these potential sellers are chasing the market down.

16 listings (25%) are priced over $50k below their purchase price.  The bulk of these, not surprisingly, were bought in 2006 & 2007.  That is some pretty serious negative equity.  Oddly, only 6 of these are listed as short sales.

In general, the market is acting as one would expect.  Sales are ticking up a bit during the selling season.  Months supply is reasonable.  There are distressed properties on the market, but it doesn't seem to driving the market down.  Of course, one month doesn't make a trend.  In order to determine the trend, I anticipate following North Bend closely thru the selling season to see the true state of the market.  In particular, I will be watching a specific neighborhood, Si View.  If is a fairly homogeneous neighborhood with similar sized lots and similar styled homes making price comparisons easier.  There are currently 9 homes listed for sale.  4 of these are leftovers from last Summer and have been marked down this Spring.  5 more homes have been recently listed at prices similar to the leftovers.  None of these are listed as short sales.  I'll be interested to see what strategies are employed to move these homes.  Stay tuned...

Here's Redfins listings.

Real Estate Stocks

With the Spring selling season underway, it's time to take a look at how Real Estate related stocks have been faring.

 The Homebuilder have continue their steady up trend from last September.  They are currently overbought but have good support at $18.5.  The $20 target still holds.

REITs broke out and hit their target.  They are currently overbought and could use some unwinding.  The first support is at $60.

Lumber has setup nicely in its base.  This is very objective for going long near $230 with a stop 5% below at $219.5.  A more conservative stop would be below the 200 wk ma at $228.5.  If lumber gets going again, it ought to target $330.  It's worth noting that WY & PCL's shares have been in denial over lumber's drop.  That sets up a nice paired trade by shorting PCL. 

10 year rates look set to take a breather.  April's drop in rates has created some significant resistance are 3.3%.  It may take a while retake levels above that.

My favorite local Bank stock got a nice boost after posting a favorable earnings report this week.  Support is now raised to $2.55.  If local residential prices can stabilize Banner should continue to perform well.  Of note, a local private bank, HomeStreet, has announced its intention to go public.  It will be interesting to "look under the hood" at its financials to see how they have weathered the storm.

Construction Investment

The recent GDP report provided an update on Private Construction Spending.

The residential spending freefall has been reflected in housing starts.  Residential investment dropped from nearly $700bn in 2006 to $225bn last year.  Even though non-residential spending never reached the heights of residential, it has gone from $400bn in 2008 to $250 last year (a 37% drop).  Some of the drop was picked up by various governmental stimulus programs, including preferred financing available thru "Build America Bonds."  This financing program ending 12/31/10, so all funds available thru this program are known.  It seems highly unlikely that the government will provide any further stimulus.

So the question is whether private investment will be revived any time soon.

Private investment in offices depend primarily on vacancy rates.  If employment gains continue, vacancy rates should stabilize &/or fall and office spending will increase.  Friday's Employment Report showed a continued trend towards job growth.  Developers are going to want more proof before proceeding.

Hotel Occupancy rates are showing a pickup, but are still below prior peaks.  High gas prices may affect travel plans this Summer, but occupancy rates bear watching during the peak season.  Lodging got overbuilt in the last boom.  I wouldn't expect much new construction from lodging the next couple of years.

Can't expect much help from Malls.  Regionals are doing well, but the REITs are buying them, not building them.

In the meantime, Apartment vacancies are at a 3 year low.  A poor residential housing market is pushing people into apartments and other rental arrangements.  This is spurring Apartment construction across America including Seattle where several projects are getting underway.
From the Seattle Times, "With demand apparently rising faster than supply, developers are rushing to fill the gap. Twenty-two of the 28 projects that have appeared on the agendas of Seattle design-review boards so far this year are apartment proposals".I would suspect Apartment construction will lead private non-residential construction the next couple of years.

Charts from Calculated Risk.

Commodities

Wow!  Tough week for commodities.  The failure of the ECB to raise rates made for the start of a bad week for the Euro, which wasn't helped by rumors of Greece fleeing the Union.

 After breaking out last month, the Euro broke its trendline dropping over 3% for the week.  The first line of support is at $142 with stops at $141.  The indicators look to be rolling over, so $142 is questionable.  A MACD crossover would probably push the Euro lower.

The USD was a primary beneficiary of the weak Euro.  The USD looks poised to test $77 on this bounce.

While the currencies provide stimulus, the real action was in the commodities.

 After a parabolic run over the last 9 months, Silver finally got its wings clipped.  After touching $49.75 last week, Silver dropped 33% before finding some buyers at the trendline on Friday finishing the week off 25%.
Volume exploded.  Silver might be damaged goods for a while, after its tremendous run.  Another test of the trendline might provide an interesting opportunity, but I'd rather see how this settles out before jumping in.
 

 Oil got drubbed for over 16%.  $100/barrel looks like an important pivot price.  That's close to vertical support, a prior breakout and moving average support.  $90/barrel would be the next line of support (10% lower).  The indicators look suspect.  Regardless, hopefully consumers will see some relief at the gas pump soon.

 Dr. Copper started faltering in February.  It's off 10% since April.  A drop to $375 would set it up at its trendline while allowing the indicators to reset.  Not a bad looking chart compared to the others above.

Of note, Gold performed pretty well considering the carnage seen elsewhere.  Gold dipped less than 5%, backtesting a prior breakout level.  $1400 looks like good support.  I suspect Gold will meander for a while allowing the indicators to come in a bit.  It seems to me the markets are finally waking up to Gold as an alternative to all paper currencies (not just the USD).  Gold will always be subject to the vagaries of the commodities market, but its relative strength this week was interesting.