The word this
week month is stabilization. Most of the key market metrics have leveled off, including the stress indicators. In fact, I think what's happening with inventory is unprecedented in recent history.
Other data sources suggest (and the week-over-week graphs seem to confirm) that market activity has increased since March. At this point, it looks like demand is just about soaking up all the new supply coming on. Also, Agent Bubble's data tells us that two-thirds of all sales in March were distressed. I think a case can be made that the market is completely bifurcated, with banks controlling the margin. "Real" sellers are staying out, hoping that once the banks finish disposing of their inventory, prices will rise again. Those "real" sellers that do venture in are having no success, so the listings sit.
This bifurcation can be a useful psychological indicator. Bottom callers might want to pay attention here. Usually, a cyclical bottom doesn't occur until the downturn is recognized by all market participants. Since there won't be a reduction of REO inventory for quite some time, it is likely that prices will continue to decline, and "real" sellers will become more stressed as carrying costs mount.
I expect that market indicators will remain stable, or even improve somewhat, in the near future as bank REO managers test the margin and their pricing power. They will walk the market down in baby steps, hoping to reclaim as much of their failed investments as possible, until losses due to carrying costs outweigh any gains to be had by delay. In the meantime, "real" sellers will continue to stay on the sidelines, only venturing into the game when external necessity forces their hand.
Saturday, April 19, 2008
The word this