March 4, 2012

Whose Sanity Is Questionable?

Readers suggested a topic on economic recovery. “How long from now will virtually all the serial bottom callers throw in the towel? Or will some of them keep it up for decades, if necessary, so they can claim their stopped-clock prediction called the bottom, once it finally happens?”

A reply. “The housing bust is no longer hurting the economy. While prices may be edging down, and may continue to do so in real dollars, you may get more construction, sales and associated activity. Not excess, speculative activity, but more than the absolute bottom we’ve hit. You’ll get some building because people want different units in different places than those that are empty — multifamily in viable redeveloping cities rather than moving to the existing ghost towns on the exurban fringe.”

“So you’ll get an increase in housing-related activity from historically low levels, which will add to the economy. But housing won’t drive the recovery, as it has after several other recessions. People, after all, are now just buying or renting housing as housing. So something else will have to generate the growth. But at least the damage is pretty much done.”

Another said. “I see new construction as a sign that current owners are totally screwed…….when the new construction comes onto the market priced $2-300K less than what they paid for a equivalent house in 2006.”

One had this, “A take on Stealth Stagflation: Since 2006 (dates and figures for illustration only) we’ve doubled the money supply, and in essence doubled ‘productivity’ (by off-shoring, downsizing, reneging on pension and benefits, cheaper/better managed materials, technological improvements, etc.) Although housing may have lost 50%+ of ‘value’ since 2006, the prices remain proportionately higher–thus giving the illusion of stabilization.”

“In actuality, houses, cars, even packaged food stuffs have doubled in cost for what we’re offered over what they would have cost to produce in pre-2006. Housing in my area is back to 1993 prices. My point is that bubble prices WON’T go away, they’re essentially here to stay and this is the new normal.”

“The problem (if that’s what you want to call it,) is that incomes won’t increase proportionately, and that spending spree you reference is a long-over anomaly. Unless another world economy emerges to offset the USD, (unlikely, though they’ll equalize,) debt levels will re-balance at this new higher level of expectation and life will go on.”

“Over the next fifty years, the Boomers will all die off, taxes and necessity will re-balance income inequality back into a new middle class, then someone will ‘deregulate’ the banking system and the disparity will start all over again.”

A reply, “How can this be? Sales have cratered to 14 year lows, inventory is massive. The only way to address that lopsided supply/demand scales is dramatically lower prices.”

And another, “Who are they going to sell it to if wages don’t inflate? There’s a demographic time bomb coming along. The more you ‘extend and pretend,’ the less it works actually.”

Finally, “I suspect the builders are perfectly rational; it’s the buyers or whoever loaned them the money, which in many cases is unlikely to ever be repaid, whose sanity is questionable.”

From Bloomberg. “After several false starts, housing is flashing the strongest signals yet of a sustainable rebound. While foreclosures continue to depress prices, buyers are wading back into the market, lured by rising employment and record-low mortgage rates. Six years into the biggest real estate collapse since the Great Depression, housing may become a net contributor to the U.S. economy for the first time since 2005.”

“‘We are seeing early signs of the banks being willing to come back on a very selective and limited basis,’ said Barry Rutenberg, a Gainesville, Florida, builder who is chairman of the National Association of Home Builders. ‘We are starting to see it loosen up just a little bit. This is the very beginning of this. Let’s not get carried away with euphoria. It is generally loosening up.’”

“Demand also has grown for New York City-area condos and for homes in the Boston-to-Washington corridor, said Doug Yearley, CEO of Toll Brothers Inc., which reported that orders for the quarter ended Jan. 31 rose 19 percent and average prices climbed 22 percent to $682,000.”

“PulteGroup, the largest U.S. builder by revenue, and D.R. Horton, the biggest by volume, each have one community in Eastvale, California. Meritage sold about 30 homes in the town last year and this year opened a new community called River Road, with prices starting at $402,990, said Larry Seay, chief financial officer for the Scottsdale, Arizona-based builder. KB Home has four communities in Eastvale, with prices starting at $272,990, according to its website. The homes are selling at a profit, said Steve Reffner, president of the Southern California region for the Los Angeles-based builder.”

“Dan Kowalyshyn figures he owes about $200,000 more than what his four-bedroom house is worth today. It faces a cul-de-sac where three of the six homes have been lost to foreclosure since his $570,000 purchase in 2006. The software developer has decided to keep up on his mortgage payments because he sees signs of improvement outside his window. Trucks drive by to deliver lumber for houses being constructed.”

“‘Either those builders are insane or they’re getting some traction selling new homes,’ Kowalyshyn said in a telephone interview from his house in Eastvale, 45 miles east of Los Angeles. ‘I think we’re seeing the beginning of a recovery.’”

Bits Bucket for March 4, 2012

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