Foreclosure … Next Exit
May 27, 2009 – 10:53 am
The big news this morning is the existing home sales report for last month and the GM probable bankruptcy.
Existing home sales came in slightly higher than expected with inventory rising to 10.2 months of supply. Of course the sales have increased more dramatically in the areas that were hardest hit and have the most foreclosed properties selling at sharp discounts. The low priced end of the market is selling but the high end has fallen off a cliff. First time buyers represent about 40% of sales in April. It makes sense with the government incentives given to them when added with low interest rates and low prices.
The housing market is still in a deep slump and though sales increased so did inventory. There is no real change. Housing is still a big problem. We will get the ‘new’ homes sales report tomorrow. We will see what that will bring. I do not have much hope for new construction.
GM could not get enough bond holders to agree to the lousy deal they were offered. They instead would prefer bankruptcy. The reason is obvious. The long bonds of GM are selling at 5 cents on the dollar and in bankruptcy they could get nothing or maybe 10 cents on the dollar. They want to let a judge decide, not what GM and the Obama car czar decide what they should get for the secured bonds.
The market is not getting much good news, yet it is holding up well. Yesterday we got a better than expected consumer sentiment report and the market took off. That is an important distinction.
Good Trading
Steve Peasley
