Sokol's Comments On Housing and the Economy

[Parsad]

David Sokol, CEO of Mid-American Energy, spoke at the Ira Sohn Conference.  He has some interesting comments to say about the housing market and the economy in general, which I think are dead on.  Cheers!

 

http://www.reuters.com/article/marketsNews/idAFN2826249320090528?rpc=44

[bablu]

Looks like Sokol is the front runner in the race for CEO job .. He is more visible in the past year or so than the other 2 or 3 guessed ones...

[netnet]

Interesting comments.  Buffett said that the housing market was "stabilizing". From Reuters: "Assuming the economy does not worsen, he [sokol] said: 'It will be be mid-2011 before we see a balancing of the existing home sales market.' He defined 'balanced' as a six-month backlog."

 

Now assuming that the two, Buffett and Sokol agree, given that they are presumably looking at the same data-- from the realty companies Mid-America owns-- I would have to conclude that Buffett's "stabilizing" means that the rate of decline is decreasing, (i.e. for those mathematically inclined, the second derivative of the curve of housing prices is decreasing).  This is probably what he meant and it seems to be generally true.  So stabilizing does not mean that either the property market is turning up or that it has even has bottomed out!

[scottyjukebox]

I really tend to agree with these points he makes in the article.  I am currently in the market for my first home and after looking at prices offered in my area (far south burb of chicago) it seems lots of people still think its 2006 even though more and more properties come on the market.  So here i wait for a distressed seller.

[Crip1]

Scotty,

 

Residential Real Estate is a good part of my professional business. Bottom line is that you are right to wait for a motivated (which sounds better than "distressed") seller, as they will certainly make themselves known in the coming months.

 

We are starting to see the rate of decline mitigate, meaning that the monthly decline rate is better now than a couple of months back, but it is still in sharp decline. This light at the end of the tunnel is only the first step towards a level of "normalcy" in the housing markets.

 

-Crip

[prevalou]

What about John Stumpf, Wells Fargo CEO, another Buffett favorite in its recent interview:

"Q So what signs of improvement are you seeing, particularly with housing?

 

A The inventories. Take California, which is a big part of our market. We had 12-month inventories of used homes a year ago. Today, we have 5 months. Today, when we sell a property on behalf of one of our investors, we get multiple bids."

 

Who is right?

 

 

[Crip1]

Prevalou,

 

They both are. The US Real Estate market is really the sum total of hundreds of markets and sub-markets stratified by metropolitan areas, price ranges, types of housing (condo, SF Home), even down to municipalities, school districts and subdivisions. Within the over US market any one of these sub-markets can and will vary greatly.

 

I do know that based on some reporting that the volume of transactions in California is increasing and the rate of decline is decreasing. The market is still in decline, but that decline is not as steep as it once was. This is more prevalent among homes below $500K in value (of which there are a lot more now than 2 years ago). For the past 2-3 years the rate of decline had been accelerating there and in most of the US...the fact that the decline pace has shown to be decreasing is encouraging. This is analagous to a patient who goes from critical condition to serious condition as the patient has improved, but he/she is still in serious condition.

 

Stumpf mentioned the CA market because that is where Wells has a high level of their mortgages, so that is a greater concern to Wells. Sokol is looking nationwide and seeing areas such as the upper Midwest, Michigan and Florida, among others, which are seeing the rate of decline increase. These areas do not matter as much to Wells, but do affect the overall picture.

 

One interesting note, according to a report a colleague pulled, the supply of homes nationwide over $750K in value is at an all time high of 40 months. This is absolutely incredible. The point of bringing this up is that looking at the overall "market" is different than looking at an individual market/sub-market.

 

Bottom line, it still ain't pretty out there.

 

-Crip