The trend has already begun.  In six states there are already more sellers than buyers: Connecticut, New York (except Manhattan), Pennsylvania, Hawaii, North Dakota and West Virginia. Boomers were “an incoming tide for four decades.  Now the tide’s turned, and it’s going to make it much harder for the housing market to rise,” says Donald Myers, professor at the University of Southern California and co-author of the study.  The trend has been long anticipated, but Myers is the first to analyze buying and selling data, state by state.

Nationwide, the ratio of seniors to working-age people will increase by 67% in the next 20 years.  As Boomers age, more will move to apartments, relative’s houses or assisted living centers.  Those with two homes may sell one and retire to the vacation home.  And when they pass on, many heirs will simply sell the properties.
Myers’ research, which included population and immigration projections from the U.S. Census, shows that the Baby Boom housing bubble will hit the Northeast and Midwest hardest.  The math is simple: 79 million Baby Boomers have driven up housing demand.  Now it’s peaked and in a matter of years many areas will see three sellers for every buyer.

If you’re a Boomer, or getting close to retirement and live in the Northern tier of states, especially the Northeast and Midwest…take action now!

It’s obvious you need to act, and quickly.  You want to be one of the first out, not the last.  And there are choices.
1.  If you know where you want to go when you retire, and can leave a little early, do it.  Waiting can cost you serious money.

2.  Sell now and use all or most of the proceeds to buy where it’s warmer and rent a house, or an apartment, closer to work.  Negotiate a lease for the period you’re going to being staying…2, 3 or even 4 years.  Landlords are negotiable and a stable long-term lease beats having to put the property on the rental market each year.  When winter gets to be too much, vacation in your soon to be retirement home.

3.  DO SOMETHING NOW to minimize the chance that you will be selling when there are very few buyers.  Remember, even though you may have to take less in the current down market you’ll be buying in a down market area, too.  You’re trading $ for $.

“A year from now, you’ll wish you started today”

Original Post

The tables have turned.

For the past couple of decades, the markets have been dominated by institutional investors who devoured bargains so fast and in such bulk that individual investors were usually left, at best, with a few scraps.

But pension funds, hedge funds, mutual funds and other institutions are under siege as their portfolios implode and investors redeem their shares, forcing the fund managers to raise cash.
Virtually every investment that carries any risk is on sale. Stocks and bonds, at home and abroad, have had their prices slashed by up to 45% this year. Yet at the very moment when bargains abound, many of the giants who normally would buy can do nothing but sell.

Welcome to a buyer’s market without buyers.

This is a huge change for the little guys. Rob Arnott, who oversees $35 billion at Research Affiliates LLC in Newport Beach, Calif., puts it this way: “The question that hardly anyone ever thinks about is: Who’s on the other side of my trade, and why are they willing to be losers if I’m going to be a winner?” Ever since the 1970s, the person on the other side of your trade has almost always been someone who manages billions of dollars and has millions of dollars to spend on gathering more information than most individuals ever could. Now, however, as Mr. Arnott says, “You can — and probably do — have a counterparty on the other side of your trade who absolutely has to sell, perhaps at any price.”

You would be very wise to give these distressed sellers a little bit of your cash, which they overvalue, in exchange for some of the stocks and bonds that they are undervaluing. Sooner rather than later, institutions will no longer need to beg for cash, they will regain the upper hand over individuals, and the tables will turn again.

While blue-chip stocks are still cheap, as I’ve said many times lately, there are some areas where the liquidity drought borders on desperation.

 
Corporate bonds. A year ago, corporate bonds outyielded Treasurys by 1.6 percentage points; now, the spread is more than five. Top-quality corporate debt is yielding 7% and up. Consider cheap, well-run funds like Harbor Bond, Loomis Sayles Bond or . Convertible bonds are yielding 12% and more; here, the easiest choice is Vanguard Convertible Securities.

Municipal bonds. The tax-free securities issued by state and local governments have gotten so cheap that in many cases you would have to earn 7% or 8% before tax to match their yield. Vanguard, T. Rowe Price and Fidelity offer a wide range of muni funds at low cost.

Emerging markets. Stocks and bonds in the developing world have been decimated. Emerging-market stocks have fallen nearly 60% in 2008. The bonds have dropped about 20%, producing the highest yields in about a decade. For stocks, Vanguard Emerging Markets ETF is a good choice; T. Rowe Price Emerging Markets Bond fund is a solid way to play the debt.

TIPS. Larry Swedroe of Buckingham Asset Management in St. Louis recently bought 8-year Treasury Inflation-Protected Securities with a yield of 3.7%. “That is crazy,” he marvels, since the same day the 5-year TIPS yielded 2.6% and the 10-year yielded 2.7%. Such fat yields in excess of inflation on a risk-free investment are a rare opportunity. Put TIPS in a tax-free retirement account; learn more at www.treasurydirect.gov.

Closed-end funds. These neglected fund/stock hybrids are at their cheapest in years. Closed-ends often trade at a discount to the market value of their holdings. In many cases, you now can get $1 in assets for 85 cents. That augments the yield on funds that hold corporate or municipal bonds. A handy starting point for research is www.closed-endfunds.com. Be sure the fund is “unleveraged,” meaning that it does not borrow money, and avoid any fund with annual expenses over 1%.

Real estate. REITs, or real-estate investment trusts, have been gutted in the housing crisis, losing more than 40% so far this year after an 18% drop in 2007. Many REITs are now priced as if people and businesses will never again want roofs over their heads. The safest choice: a basket holding dozens of real-estate bundles, like Vanguard REIT Index fund.

Finally, if you have cash and courage, consider a vacation property or second home. Nearly two-thirds of the condominiums built in and around Myrtle Beach, S.C. during the boom remain unsold as of June, says the National Association of Home Builders. A similar supply glut has clogged markets in other getaways like Tampa, Fla., and San Diego. With due diligence, you could get both a high financial and a high psychic return.

Original Post

BALTIMORE, Sept 10, 2008 /PRNewswire via COMTEX/ –

Walt and Jean Smith start their mornings with coffee on the terrace. Sometimes they spy a school of playful dolphins jumping the waves. Usually, though, they watch the town awaken. Women pull tarps off small beach shacks where they’ll soon start grilling the ‘catch of the day.’ Young men joke and chat with each other before they head off in separate directions to sell their colorful wares and silver jewelry.

Later in the day, the Smiths may walk down to the malecon, or seaside boardwalk, for lunch. They know the best restaurants in Puerto Vallarta … those that are off the tourist track and where you can still get a filling lunch of fresh fish, rice, beans, and tortillas for $5 or less.

Puerto Vallarta, Mexico, is one of the favored destinations for U.S. and Canadian retirees. Although it’s difficult to corroborate exact numbers, estimates are that one million American and Canadian retirees live in Mexico at least full- or part-time. The Lake Chapala area, south of Guadalajara in the middle of Mexico’s central highlands, is home to the largest concentrated population of U.S. and Canadian retirees living outside the U.S. and Canada.

When the Smiths first retired to Mexico, they settled in the Lake Chapala area, in the village of Ajijic. They bought a large property, remodeled it, and reopened it as an upscale B&B. After five and a half years as innkeepers, they were ready to retire again … for real this time. And this time they chose to live in the famous resort and beach town of Puerto Vallarta.

“Moving from one town to another is fairly typical of the retiree experience in Mexico,” says Dan Prescher, publisher of International Living magazine and the expansive website about living and investing overseas, www.internationalliving.com. Prescher and his wife have themselves lived in three towns in Mexico: Ajijic, San Miguel de Allende, and now Merida in the state of Yucatan.

“Mexico is a very easy country to live in, especially if you’ve never lived overseas before,” says Prescher. “You can drive here easily from the U.S. or Canada, it’s easy to get a resident visa here and to import your household belongings duty-free. It’s easy to start a business. And the cost of living is lower than it is north of the border. Importantly for retirees, especially, health care in Mexico is first rate and can cost 50-60% less than it does back home. While Medicare doesn’t cover you anywhere outside the U.S., foreigners can buy into the Mexican government health insurance program for less than $300 per year. There are, in fact, many perks and discounts extended to retirees in Mexico.”

The country has so much to offer, says International Living editor Laura Sheridan, that for the second year in a row, Mexico ranks #1 on the publication’s Annual Global Retirement Index.

“In Mexico, you can afford the kinds of luxuries only the wealthy enjoy up north … like a maid, a cook, and a gardener,” says Sheridan. “Whatever your vision of the ideal retirement involves … shopping, fishing, sunbathing, diving, mountain climbing, collecting crafts, visiting archeological sites, going to concerts, attending the theater, or fine dining … in Mexico you can have all this and more.”

To determine the Annual Retirement Index, Sheridan says 29 countries, are analyzed and ranked in categories including real estate costs, special benefits offered to retirees, culture, safety and stability, health care, climate, infrastructure, and cost of living.

“We look closely at the best opportunities worldwide for retirement living,” she says. “Where will the pensioner’s dollars go farthest? Which country is the safest? Where is the health care best? We give top priority to those things that matter most to anyone planning for retirement, including programs with special benefits for retirees … things like tax breaks and discounts, for example, that various governments offer in an effort to attract investment and retirement dollars.”

“This is the second consecutive year that Mexico tops our list as the best country in the world to retire to,” Sheridan says. “It’s followed on that list by Ecuador, Panama, Uruguay, and Italy.

“Keep in mind that every place has its pros and cons. And every country has pockets where living is easier … or cheaper … than another. Mexico is a good example of this. Living in a resort city like Puerto Vallarta is more expensive than living in a smaller and lesser-known town like Tepic, just a few hours north.”

The same is true of Italy, Sheridan says, where higher prices are common in the northern part of the country and near big cities like Rome and Florence. “But go south to the Abruzzo, Molise, and Campania regions and towns like Strazzari and Calitri to find the bargains.”

Ecuador, in the number two spot, may be the best-kept retirement secret in the Americas, says International Living publisher Dan Prescher, especially when it comes to real estate prices.

“On a recent trip to Ecuador,” he says, “I saw flat, buildable lots with majestic views overlooking the Pacific Ocean for $6,000. In a tidy gated community right on the beach lots are selling for $18,000. Gorgeous modern condos in high-rise towers in the Oceanside city of Manta sell for $100 per square foot. And in the highlands, prices can be even lower. How does $46,000 sound for an 1,100-square-foot penthouse with views of two volcanoes?”

This is the 16th year that International Living, founded in 1979, has compiled its Annual Retirement Index.

The United States ranks #21 and receives particularly bad marks in the area of special benefits for retirees. It scores well in both safety and infrastructure. The United Kingdom ranks at the bottom of the list at #29 - primarily because of its high real estate prices and overall high cost of living.

“No place scores a perfect 100,” stresses Sheridan. “Even Mexico, our number one retirement destination, earns a score of only 77. The best, but not perfect. If you’re trying to pick a place to retire, keep that in mind. There will be good points and bad, no matter where you go. Realizing that ahead of time will eliminate many disappointments later.”

    The Top Ten Best Places to Retire (and total points out of a possible 100):
     Mexico         77
     Ecuador        76
     Panama         75
     Uruguay        74
     Italy          73
     Brazil         72
     France         72
     Argentina      71
     Costa Rica     70
     Australia      70

To read the article and see the complete scores for every country in every category, go to: www.internationalliving.com/2008retirementindex.

For interview and further comments, contact Suzan Haskins: shaskins@internationalliving.com.

This information was brought to you by International Living. For nearly 30 years, International Living has operated on a simple premise: you can live better…for less…travel farther…have a lot of fun…and maybe make a lot of money…when you expand your world beyond your own shores. International Living has more than 200 correspondents traveling the globe, investigating the best opportunities for real estate, travel, retirement, and investment. Learn more at www.InternationalLiving.com.

SOURCE International Living

 http://www.internationalliving.com/2008retirementindex

The magazine released its 15th annual retirement index and rated Mexico highly for its affordable combination of modern features and old-world charm, health, climate, infrastructure and cost of living.

Mexico is home to close to 700,000 U.S. and Canadian citizens who exchanged urban busyness, frigid temperatures and higher living costs for a more relaxed, warmer and inexpensive lifestyle.

Common destinations include the colonial city of Guadalajara or along the nearby Lake Chapala; the beach towns of Acapulco, Colima, Cuernavaca, La Paz, Mazatlan, Manzanillo and Puerto Vallarta; and the colonial cities of Guanajuato, Merida, Morelia, Oaxaca, Puebla, Queretaro and San Miguel de Allende.

Thirty per cent of all retirees to Mexico are Canadian. Five per cent of Canadian baby boomers are considering investing in real estate in Mexico and that demographic is expected to grow five times over the next four years, according to numbers released by the Mexico Tourism Board.

Each year more than 2,500 Canadian retirees invest in property in Mexico with an average investment of $200,000 each. Total sales of resort properties in Mexico reached $1.5 billion in 2006.

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Economy of Mexico
Santa Fe Business District (Mexico City)
Currency	Mexican peso (MXN, $)
Fiscal year	Calendar year
Central Bank	Banco de México
Trade organisations	NAFTA, WTO, and OECD
Stock Market	Bolsa Mexicana de Valores

The economy of Mexico is 14th largest in the world,^[1] with a gross domestic product (by PPP estimate) that surpassed a trillion dollars in 2004,^[2] measured in purchasing power parity. As of July 2008, it has also surpassed a trillion dollars measured nominally as the peso has gained 10% against the dollar, making it currently the 13th largest by that measure. Mexico has a free market and export-oriented economy and is firmly established as an advanced middle-income country.^[3] According to the World Bank’s latest available figure (September 14, 2007), it has the highest income per capita in Latin America, in market exchange rates and in purchasing power parity.^[4] Mexico is the only Latin American member of the Organisation for Economic Co-operation and Development. According to Goldman Sachs BRIMC review of emerging economies, by 2050 the largest economies in the world will be as follows: China, USA, India, Japan, Brazil, and Mexico.^[5]

http://en.wikipedia.org/wiki/Economy_of_Mexico

The SECTUR director noted that during the past 16 months of President Felipe Calderón’s administration, Mexico has accumulated $6.267 billion USD, as a result of which it has achieved 31% of its six-year goal of $20 billion USD.

On behalf of President Felipe Calderón, Elizondo inaugurated the 22nd Annual Convention of the Mexican Association of Tourist Developers (AMDETUR) on “Tourism, the Engine of Development for Mexico.”

Earlier today, Tourism Secretariat Rodolfo Elizondo inaugurated the 22nd Annual Convention of the Mexican Association of Tourist Developers (AMDETUR) on “Tourism, the Engine of Development for Mexico,” at which he told businessmen in the area that Mexico has shown favorable results regarding private tourist investment by accumulating $2.803 billion USD during the first four months of the year.

Accompanied by José Carlos Azcárraga, President of AMDETUR, the SECTUR director stated that as a result of the confidence of investors in the tourism sector, 31% of the six-year goal of $20 billion USD has been achieved, since over the past 16 months of President Calderón´s government, $6.267 billion USD of investment in tourism have been generated.

“55% of this investment comes from national capitals, while the remaining 45% corresponds to foreign investors, mainly from the United States and Spain.”

“The presence of those of you who are tourist investors and developers confirms your enormous confidence in Mexico and your willingness to continue combining forces and coordinating the actions that will enable us to increase tourist flows and investments and thereby contribute to Mexico’s economic development,” declared Elizondo Torres.

He went on to say that in order to continue promoting tourism in Mexico, the National Tourist Promotion Fund (FONATUR) will participate in major projects such as La Pesca in Tamaulipas as well as two tourist real estate developments in Puerto Escondido and Baja California Sur.

The Tourist Secretary admitted that tourism in Mexico will be further reinforced by President Calderón’s support of this industry, one example of which has been the creation of the National Infrastructure Fund.

“This fund provides the possibility of financing tourist projects for the state, which in turn will facilitate the construction of the tourist attractions we have planned, as well as the improvement of urban services in already consolidated destinations.”

In particular, he reported, the Tourism Secretariat has formally submitted a package of seven investment requests for providing basic services such as drainage, safe drinking water and the installation of wastewater treatment plants and other urban works for seven beach tourism destinations, including Cancún, Ixtapa-Zihautanejo, Loreto, Los Cabos, Puerto Peñasco, Puerto Vallarta and the Riviera Maya.

Lastly, Secretary Elizondo urged businessmen and investors to continue trusting in Mexico and to create a sustainable, orderly development for the benefit of the industry and Mexico’s economic and social development.
“The point is not to do business to the advantage of a few and to the disadvantage of many but to ensure that investments in Mexico are attractive and profitable for investments while distributing wealth, which will create well-paid sources of employment and provide local benefits.”

“I would urge you to continue investing in Mexico and for our growth to be orderly and planned and have a long-term vision rather than one based on doing business in a day,” he stated.

The inauguration of this event was attended by Ernesto Coppel Nelly, President of the National Tourist Business Council (CNET); Luis Antonio Mahbub Sarquis, President of the Confederation of National Chambers of Trade, Services and Tourism (Concanaco-Servytur), legislators, state tourist businessmen and businessmen in the area.
Source: Head Office of Media and Communication, Press and Information Office, Tourist Secretariat (SECTUR).

original here

The booth is owned by the Mexican company Yvesam Retornos Mundiales S.A de C.V, who obtained a ten year concession to administer the reimbursement of the tax to those foreign tourists who can show a minimum purchase of 1,200 pesos (including the VAT) in Mexico and that they are returning to their country either via airplane or ship.

This booth has three people to attend to the customers and right now is open from 8:00 am to 8:00p.m. and soon will maintain the house of 7:00 am to 10:00 pm

The manager of operations of the booth, Uriel Miranda Zavala, indicated in an interview with the media, “the response of the businesses and the tourists has been scarce because of a lack of information on this new policy. We need to begin, both the government, the businesses and we ourselves, to spread the word that this is a benefit that will help tourism and obviously increase income to small and medium sized businesses from the consumption that the tourists make in those affiliated businesses.  At the same time, he revealed “that very few tourists have come by since they think it is a money exchange – all this due to misinformation that exists, and in fact, many businesses in Mexico still do not realize that they are returning the VAT to the foreign tourists here just like they do in other countries.”

It is important to note that the reimbursement of IVA to those foreigners in Mexico as tourists is only done in the event they have acquired products or services in one of the businesses or stores that are affiliated with the concessionaires authorized by the tax authority, in the case of Puerto Vallarta, the one currently operating is Yvesam Retornos Mundiales S.A de C.V.

Nevertheless, due to misinformation and lack of interest from Vallarta businesses, only two companies have become affiliated, (Optica Alvarez and No Name Boutique) even though affiliating costs nothing to the affiliating business; on the contrary, the affiliates shall actually have a “benefit” as the tourists will have a distinct advantage with merchandise that they acquire since they have the possibility of the reimbursement of the VAT.  It is also important to note that this benefit does not include services, such as hotel and restaurant, just as in other parts of the world.

The tax authority (SAT) granted concessions to three companies for operation.  These companies are Premier Tax Free, Global Refund México and YVESAM Retornos Mundiales S.A de C.V, who will be responsible for the administration of the return of the tax to foreign tourists that can show a minimum purchase of $1,200 pesos (including VAT) in Mexico and that they are returning to their country either via airplane or ship.

The Procedure

As part of the procedure, which shall be completed bit by bit throughout the country, purchases made by international tourists must be paid by credit card of debit card or in cash if less than $3,000 pesos.  Purchases may be made in those stores or businesses that have been affiliated with a concessionaire who is duly authorized by the tax authority.  For the reimbursement, the tourist shall have the right to receive up to 50% of the net reimbursable amount back in cash, as long as said amount is not more than $10,000 pesos, and the balance shall be sent electronically within 40 days.  The airports which are going to begin operation this summer, in the first phase, are the airports of Mexico City, Cancun, Guadalajara, Los Cabos and Puerto Vallarta; this because they have an large influx of international visitors.

In the second phase, in the next six months, booths will be set up in the airports of Monterrey, Cozumel, El Bajío, Mazatlán and Morelia; finally this will occur in the rest of the airports in Mexico and ports such as Acapulco, La Paz, Huatulco, among others.

(original, in spanish http://www.vallartavive.com/vallartavive.asp?id=2018)

WASHINGTON — When the U. S. economy sneezes, Latin American economies catch colds, according to an old saying. Not this time — at least for now. The U.S. crisis triggered by subprime mortgages and rising energy costs will spare most economies in Latin America, experts said Thursday.

The bad news is that the slowing U.S. economy and high oil and food prices will continue to drag down the global economy, including Latin America’s to some degree.

Overall, the International Monetary Fund predicted that the region’s growth would slow from 5.6 percent in 2007 to 4.4 percent in 2008 and to 3.6 percent in 2009.

Over the past decade, the region experienced steady economic growth, but not every country is well positioned for the downturn, said Anoop Singh, the director of the Western Hemisphere department at the International Monetary Fund. He and others spoke at the American Enterprise Institute, a neoconservative policy institute in Washington.

They noted that countries such as Venezuela, Brazil, Chile and Mexico have seen their economies grow because of a boom in commodity exports such as oil, copper and soy, but not due to fundamental improvements in their economies.

‘‘International commodity prices have experienced an unprecedented boom over the past five years, but they are expected to ease if there is a global recession,’’ said Desmond Lachman, an advisor to AEI.

THE POOR’S BURDEN

Independent of the U. S. economic situation, high food and energy prices are burdening Latin America’s poorest people, said Singh.

Countries such as Brazil and Mexico can deal with that because they have welldeveloped social programs to address the needs of the poor, he added. Other countries, however, lack the money to do so. Singh urged those countries to turn to international organizations such as the IMF for social welfare funds, rather than using their central banks.

Haiti has done that, Singh said, and other Central American and Caribbean nations are following suit. On Tuesday, the Inter- American Development Bank approved a $500 million line of credit primarily to assist Guatemala, Honduras, El Salvador, Costa Rica, Nicaragua, Panama and the Dominican Republic.

Because their economies are more closely tied to the U.S. economy and they rely on imported oil, Singh and other analysts said, they’d be more affected by the global food and energy crisis than other South American economies will be.

Inflation is another major concern in the region. Lachman and two other advisors from the institute gave Brazil and Mexico ‘‘A’s’’ for acting quickly to keep inflation low. Venezuela and Argentina got ‘‘ F’s’’ for adopting populist policies that will make it harder for them to rein in inflationary pressures.

In Argentina, where the government increased taxes on agricultural exports, farmers have been protesting on the streets for months.

LIVE AND LEARN

Richard Noriega, a former assistant secretary of state for Western Hemisphere affairs and now an advisor to AEI, said the popular protests in Argentina show that people are ‘‘terrified’’ by the prospect of an economic crisis. But he said that other countries in the region would learn from Argentina’s mistakes and avoid them.

‘‘Argentina and Venezuela are cautionary tales that reassure other countries that what they are doing is the right thing,’’ Noriega said. ‘‘If you slap the invisible hand of the market, you are more likely to have problems.’’

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.

From original here

The launch party will be held Friday and five of 46 condo units are presold, with three more under contract. Not earth-shattering, perhaps, but further evidence that the real estate slowdown is an inconsistent beast. 

The first of two towers at Grupo GVA’s $40 million-plus Dos Marias condo project just outside Puerto Vallarta, on Mexico’s Pacific coast, broke ground about two months ago. The 18-story south tower will include 29 two-bedroom homes of nearly 2,000 square feet each, 13 three-bedroom homes of 2,400 to 2,500 square feet all at the building’s corners. In addition, there will be four penthouses: a traditional penthouse on the top floor and three two-story townhouse penthouses below it. 

Shared amenities at the development will include a bar and pool area, a gym with sun deck, 24-hour security and a small grocery store. The second tower will feature a multi-edge infinity pool on the 12th floor; a second pool in the south tower will overlook the jungle and the adjacent river.

Two of the penthouses are among the presold units, Wayne Franklin, president of Tropicasa Realty, Dos Marias’ sales representative, told CPN. “People are still looking for retirement and vacation homes,” he said, and the top end of the market hasn’t seen much fallout from the recession. Preconstruction prices start at $297,000 and go up to nearly $1 million for a penthouse. 

Tropicasa has cast a wide net to market Dos Marias, he said, and buyers so far have included Americans, Mexicans and Canadians, with some European interest as well. “Mexico is basically on sale as far as Canadians are concerned,” Franklin noted. 

The first tower is scheduled for completion in 12 to 15 months. A second, very similar tower on the five-acre site will break ground in about six months, depending on sales in the first tower. 

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