For this Thanksgiving, on behalf of my teammates here at Hedgeye, I'd like to thank all of you - our subscribers, partners, and friends - for giving us all of the research feedback that you do.
Without you, there is no us. Long live the democratization of real-time research.
On the topic of this week's ugly housing data, here's some real-world, real-time, feedback from a debt-free American who is very much worried about how this all ends.
I read your great articles on the consumer and on housing. I live in Phoenix and what I see are people that have houses worth 50% of what they were a few years ago. They are not motivated by lower interest rates, not when they see a $200-$400K loss.
At the peak of the housing bubble there was a time when there was no home on the market in Scottsdale and any home put on the market sold for a minimum of $500K. My friend, a realtor, received earnest money down on homes, sight unseen. Those same homes are now $200-250K if you can get a buyer. Many of those people should have never bought those properties and the loss they are looking at is more than they make in many years. But worse, there are a growing number of people that can afford to make payments that are deciding not to. The neighbors on both sides of a friend of ours bought second properties in the same development (1/2 the cost of their 1st property), then, after closing, foreclosed on the first property. These are $850K homes and people that can afford them. They said it was a “business decision”. Their attitude is that their credit will recover faster than their loss would go away. My friends are now living in an $850K house (they paid cash for) with two homes next door that just sold for $350-400K. They won’t pay cash again. Another friend of mine foreclosed and defaulted on close to $1M in debt. One and half years later they bought an even more expensive home at a lower interest rate. A neighbor’s brother was current on his mortgage and just wanted the interest rate refinanced. His bank told him to stop making his payments. This is one of our top five TBTF banks. I know people living on unemployment for 2 years yet unwilling to take a job for less pay than what they get on unemployment. I saw someone drive to the supermarket in a new Cadillac and then use food stamps. I know people that haven't disconnected their cable, traded in the two BMWs, or stopped going to happy hour while defaulting on their loans.
What I see in the US is a society gone wild. You pay for your home or credit cards until you decide it isn’t worth it anymore. People have multiple foreclosures and bankruptcies yet get low interest rates guaranteed by the taxpayer to do it all again and again. We care more about whether people spend more than whether they will or even can pay it all back. The more people that break their contract to pay back loans, the more acceptable it is perceived to be. It is a snowball gathering momentum. My question is why do banks report "credit conditions easing".
Maybe I am just seeing the worst of it, but for what it is worth I agree with your housing assessment. I think it has further to fall. The people sitting in underwater loans probably won't sit there longer when they see others defaulting and living in their homes for a couple years before eviction or buying the same house they own but at a much cheaper price.
People have an intolerance for losses. Our system doesn't hold anyone accountable except the taxpayer. You can't build a responsible financial system and country without rules. I give up trying to understand why this ship is still floating. So please keep up the hard work and keep us safely invested. We greatly appreciate your reports and investment decisions.