Monday, April 04, 2005

Flashback: Rental Vacancy At All Time Highs

The Census Bureau is busy putting together the past quarters data, including vacancy rates for rent homes. I thought it may be instructive to review the last report. As you can see, empty homes are near all time highs at over 10%.


At 5:01 PM, Blogger deb said...

Gee, so much for that housing shortage we are supposed to be suffering from. I think the over supply of housing will be staggering once the bubble begins to break.

At 5:07 PM, Blogger John Law said...

housing P/Es are out of whack...just like nasdaq 5000.

At 6:22 PM, Blogger John Law said...

this is off topic, but here is a good jubak article

Avoid the stocks of companies built on leverage. During the cheap-money decades, U.S. industrial giants such as General Motors (GM, news, msgs) and General Electric (GE, news, msgs) have turned themselves into finance companies to take advantage of a river of cheap money. About 50% of General Electric's revenue in 2004 and about 40% of its profit came from the financial businesses of GE Capital Services. The revenues and, more importantly, the profits from financial services aren't in danger as long as General Electric can maintain the high-quality credit rating that assures its ability to raise funds in the capital markets, which it then lends to businesses and consumers. As long as GE can maintain the spread between its cost of money and what it can charge consumers, rising interest rates won't be especially damaging to its profits.

But a company built on financial leverage can see its entire profit structure collapse if it loses its access to money at the cheapest rates. In 2004 all -- and I mean ALL -- of General Motors' $2.8 billion in income came from its financing and insurance business. The company's auto-making operations lost a total of $89 million in 2004 on $162 billion in revenue. In contrast, GM's financial businesses showed net income of $2.9 billion on $32 billion in revenue. Unfortunately, GM's ability to make money in the mortgage and insurance businesses it runs (as well from loans on cars) is at risk because the parent company's credit rating is approaching junk-bond territory. That raises General Motor's cost of capital and, because the company is in competition with companies that can raise money more cheaply, puts the margins in the company's financial business at risk. If those margins start to fall, the financial markets will react by raising the cost of capital to GM even more.


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