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| I really dislike having to start comments with 'in the old days' as I suddenly realize my age & I remember how I used to dislike it when I was lectured by someone beginning with the same reference point; except I believe it is important, always to listen, and more importantly, when trading, to listen & to watch people. In the very late sixties & early 70's I was actively involved in the lumber markets & there were 3 fellows in the trading pit filling the orders & sometimes it was a real circus getting filled as two of them were brothers.
Housing is complex. Frequently, when in a circumstance when the market was out of line, I'd have to buy "rollers" which were railcars of lumber shipped by a mill to a Chicago destination for example & use that as a threat for delivery as in those days, instead of a warehouse receipt, you took delivery of a car of lumber & either re-tendered it or sold it & often an extremely difficult task as the Chicago Market in those days was dominated by one large lumber distributor.
1/2 of our lumber supply is imported from Canada & there is a currency consideration & various import quotas, which leak & frequently change & the Canadian producers used to receive a variety of stumpage subsidies from the Canadian government & today the cost of lumber in a modern home is not as significant as in 1970. But, I do recall spending a great deal of time attempting to predict housing starts and permits. When a housing market is dependent mostly upon the organic growth of our population, the residential construction business can be very slow. Occasionally, and I cannot remember any of these US government stimulus actions anymore, but I do recall there was a considerable lag in response time.
There is one additional factor I have noticed during the previous 5 years. Quite a few folks, mostly baby boomers, what I would call a portion of the cream of the crop in terms of securing financing, as they retire, are choosing Costa Rica, Nicaragua, Panama (in a huge way), & Belize. Construction costs are lower, & while most of these countries have adopted a uniform building code & environmental evaluations, and while the bureaucracy in those countries can drive you crazy, the bottom line costs are significantly cheaper. Costa Rica has now priced itself out of the market more or less because of land & the country is broke for all practical purposes and beginning to seek ways to raise taxes & etc. Point is, while this is a world market in finance, more and more baby boomers are also looking toward a more mild climate and economies friendly to senior citizens. Panama in particular will make all sorts of concessions from discounting consumer goods to property tax relief for seniors. My friend who lives on Gatun Lake indicates bus load after bus load of Americans on buying tours pass his property every few hours. Because of the canal, Panama is in an enviable economic position & their constitution is boiler plate based upon the state of Connecticut & a judicial system based upon common law much as ours in contrast to the Napoleonic system of Costa Rica.
In addition, the other fact I have noticed, when people either reach the age of being able to upgrade a home or retire, they are ‘en masse’ in contrast to expert forecasters, building slightly larger homes & seeking smaller lots & no potential yard work except for horticultural amenities & with an upstairs bedroom for those times one of the children visits & the first floor is spacious and full of modern toys, kitchen toys, other comforts and large closets.
In developments, baby boomers seek more active lifestyles and the ‘community center’ meeting room is passé.’ Outdoor activities whether a fishing pond, a Canadian Obstacle Course, walking paths & etc. are now in more demand.
The market for older homes has become narrower. Unless unique, a 30-40 year old home appeals to a narrow audience.
The median price data presented by housing surveys is based upon a completely different type home than the home of 20 years ago, or even of 10 years ago. Therefore, some of these price increases in the so-called “median home” are very misleading.
Therefore, and do not mis-interpret my overview, I do believe we will see some limited recovery in specific housing sectors. I also believe it would be a real mistake to get bearish on the stock market down here. While I believe this market will yet test lower levels over the next months, and while it may feel like a collapse, I believe we are close to a ‘buy zone.’
My overall view is a massive amount of wealth has evaporated due to the present housing crisis & a significant segment of the collateral is absolutely worthless & by the time another segment of other homes of questionable value are finally liquidated, they will require considerable rehab. In my view, more Fed stimulus will be required to breathe life back into the housing sector in any big way.
As a history buff, I look at the past several years and compare it to Jesse James. In the form of builders, new home owners & mortgage brokers & appraisers & sellers of old junk housing, Jesse just pulled off the biggest bank robbery in history & the fall out is going to be with us for awhile.
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Not out of the woods yet!
