If you haven’t noticed the DOW is up 4.5 percent from its correction point that was hit at 12,743 earlier in the week. You would think fantastic information is coming out but there are only two good pieces of news if you can call it that:

1. The Fed is practically elbowing us, wink wink, that a Fed rate cut is a foregone conclusion.

2. Oil Prices are trending lower.

But is this really enough good will to cause this mini rally? Are we really at a point where housing is going to correct? Clearly the government is going to try to bailout this market at any expense to tax payers. And make no doubt about it, this is corporate welfare for Wall Street. None of these plans are going to help the people facing foreclosure in any measurable way. We’ve talked about the plan of offering legislation that will support cram downs and I’ve heard rumors that this may be an avenue that is being actively pursued.  This is the only solution that will force lenders to suck on their bile that they have dished out for the large part of this decade. But let us take a look at some of the bad news this week:

1. The US Commerce department announced that the price of new homes sales dropped to $217,800, a year over year drop of 13 percent. I wish I can offer you a personal reference on how bad of a drop this is but I wasn’t even born at the time we reached such significant drops in 1970.

2. The Case-Shiller Index showed a national decline of 4.5 percent.

3. Big retailers such as Sears showed dismal earnings showing that the American consumer is running low on high octane consumerism.

4. We have foreign entities taking up large positions in our top banks. The market tried to spin this as good news but is coming to its senses and seeing this for what it is, bottom fishing.

5. Freddie Mac announced a sale of $6 billion in preferred stock. This isn’t good news. It shows the company is running on low and needs liquidity.

6. Foreclosures continue to rise. RealtyTrac announced that foreclosures in October are up nearly double from last year seeing 224,251 foreclosure filings.

7. Short Sales hit another record here in Southern California reaching 12,000+.

We can do a 12 days of Christmas list of all the negative news coming out but we’ll branch off and focus on the short sales here in Southern California. It is now the 21^st week since I started tracking short sales that the list has increased each and every week. Inventory is holding at a steady number but the percentage of short sales to overall inventory is increasing. When I started looking at the numbers in July, short sales made up roughly 3.35 percent of the entire inventory. Now, short sales are up to 7.64 percent of the entire inventory in Southern California. A doubling in only five months. Take a look at the chart below:

This week also seems to mark a somewhat psychological point in investing. The market seems to be getting immune to all the negative housing information. After all, we had literally one of the worst weeks in terms of market information for housing yet we are in a rally. The market in my opinion is in a dead cat bounce rally. How is this going to combat nearly $500 billion in toxic loan resets in 2008? Keep in mind that winter is the worst selling season and we are still in fall! Is the unusual rain today here in normally sunny Southern California telling us something?

Looking at Real Homes of Genius in the area serves more than showing absurd housing prices. What we get is the ability to peer into the massive disconnect of how flawed the housing system really is. We did have one good piece of news this week when government rate caps will stay at $417,000 for 2008. But we have systemic problems in this industry. For example, how is it possible that rating agencies are paid by the folks that get rated? There is clearly a major conflict of interest here. Also, the creation of a secondary mortgage market is a main contributor for what is going down. Wall Street has no idea what is going on in Detroit, Cleveland, Inglewood, Compton, the Inland Empire, or any other hard hit area since none of these people have been there! Think about it. These companies are using cowboy agents, renegade brokers, and bought off appraisers as their eyes and ears on the ground. Are you kidding me? Do you think they will give an accurate reflection of the price? The vast majority of these on the ground grunts were driven by one thing and that is to sell a home at any cost. Otherwise, no commission is cut. Are there good people in the industry?  Of course.  But the large number of bad apples are running the store.  Before, with a local bank or lender you would have much more scrutiny and oversight since there money was on the line plus they knew the area from first hand knowledge. At this point now that horrific mortgages are being kicked back, no one really knows who the actual owner of some of these places are. Ironically this may be the first time the bank takes a look at what they own now that REOs are increasing.

It is an Alice in Wonderland type of system. You have the frontline pushing anything and everything even if it means committing outright fraud and Wall Street turning a blind eye since profits were so good. Foreigners and investors relied on the agencies (big mistake) to monitor the creditworthiness of the loans in these obscure portfolios but how in the hell can you know the value of an asset without even looking at it? I can’t tell you how many places sold sight unseen or where sellers put “as-is” and the feeding frenzy was so high that buyers bought regardless of contingencies. It is flat out absurd. Nothing is going to stop this oncoming correction. The frustrating thing is the government is using tax payer money to essentially add fuel to this burning ship. Nothing is going to stop this train. The money is not helping people that are in desperate need for help in foreclosure but what it is doing is giving the golden parachute to those on Wall Street who already made a mint. You think these people have any idea what is going on in the inner city of America?  Do you think they know what the middle class is facing? They have no idea and I can assure they will keep it that way. Short sales are only going up and now these people will be forced to look at what they’ve purchased whether they like it or not.

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This entry was posted on Friday, November 30th, 2007 at 10:09 pm and is filed under Real-estate news. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.