July 27, 2006

New Home Sales Fall, Record High Inventory

The Commerce Department has the new homes sales numbers out. “Sales of new one-family houses in June 2006 were at a seasonally adjusted annual rate of 1,131,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.0 percent below the revised May rate of 1,166,000 and is 11.1 percent below the June 2005 estimate of 1,272,000.”

“The median sales price of new houses sold in June 2006 was 231,300; the average sales price was $290,600. The seasonally adjusted estimate of new houses for sale at the end of June was 566,000.”

“Sales of new homes fell in June by the largest amount in four months while the inventory of unsold homes climbed to a record high, providing further evidence that the once-booming housing sector is slowing.”

“The Commerce Department reported Thursday that new home sales dropped by 3 percent last month to a seasonally adjusted annual sales pace of 1.131 million units. It marked the first drop since an 11.5 percent plunge in February.”

“The government reported that the median price of a new home was $231,300 in June, which was up by just 2.3 percent from a year ago and was down by 1.5 percent from May.”

And from Reuters. “Beazer Homes USA Inc. on Thursday said quarterly profit fell 9 percent and orders dropped 16 percent, prompting the company to cut its forecast again in another sign of the weakening U.S. housing market.”

“Beazer, which sells homes largely to mortgage-rate sensitive, first-time home buyers, followed Pulte Homes and Centex Corp., which reported much greater declines in home orders as rising mortgage rates and housing prices pressured buyers.”

“‘Looking ahead, we do not see conditions in the housing markets improving significantly in the remainder of the fiscal year,’ Ian McCarthy, Beazer’s CEO said.”

“Home orders fell to 4,378 from 5,202, as increases in Texas and some Southeast markets were offset by significantly lower new home orders in the West and Florida.’

From the PDF file at the Commerce Department, ‘total for-sale at the end of the period’:

458,000 June 2005

459,000 July

477,000 Aug

491,000 Sept

492,000 Oct

508,000 Nov

515,000 Dec

525,000 Jan 2006

533,000 Feb

550,000 Mar

558,000 April

560,000 May

570,000 June

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Comment by David
2006-07-27 06:42:30

““The government reported that the median price of a new home was $321,300 in June, which was up by just 2.3 percent from a year ago and was down by 1.5 percent from May.””

In real dollars the year over year median sales price for new homes is declining.


Comment by Ben Jones
2006-07-27 06:49:49

Keep in mind, these inventory numbers don’t include cancellations, and the prices don’t reflect builder incentives. Here are the CD price numbers for new homes:

240,100 Aug 2005
240,400 Sept
243,900 Oct
237,900 Nov
238,600 Dec
244,900 Jan 2006
250,800 Feb
238,800 Mar
253,800 April
235,000 May
231,300 June

Comment by deb
2006-07-27 06:54:37

The huge incentives that are being offered make the median price comparisons y/y practically meaningless.

Comment by Getstucco
2006-07-27 08:43:51

The y/y numbers are meaningful — they provide a lower bound on the catastrophic dimensions of the correction underway.

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Comment by lindsey
2006-07-27 10:24:33

Have we hit a y/y decline yet? I thought house prices never went down y/y on a national level.


Comment by looking4mee
2006-07-27 10:38:20

There is definitely a yoy price decline, however, the RE industry is fighting like hell to spin the numbers to lessen the blow. At some point, this is all going to blow up when the decline is too great.

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Comment by Shawn
2006-07-28 19:10:57

These inventory totals disagree with the last three months as shown in May. Here’s are the numbers as shown in the May report.

Mar 547,000
Apr 553,000
May 555,000

Did they actually revise March’s inventory up by 3,000 or are there number games going on here.

Comment by Curt
2006-07-27 07:03:33

The Home Builder stocks are reacting to the news………..they’re all UP????????

Comment by freeloading roommate
2006-07-27 07:13:27

I think people were expecting that these numbers might be much worse.

Comment by manhattanite
2006-07-27 07:15:32

they WILL be much worse!

Comment by Chris from Jacksonville FL
2006-07-27 08:11:57

These numbers are actually worse than they appear. May’s original number was 1,234,000. May’s revised number is 1,166,000. June’s current number is 1,131,000. As a result, its actually a 8.34 percentage drop in new home sales.

The commerce dept has been downwardly revising previous months numbers for several months now. Can someone tell me if these downward revision are a reflection of cancellations? In other words, is the dept adding actual closing to their statistics as they occur and downwarding revising previous months’ sales numbers?

Comment by Backstage
2006-07-27 09:39:37

And hear’s the kicker

June sales = 1,131,000

June Housing Starts = 1,850,000

That’s a 719,000 home difference. It’s a specuvestor market.

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Comment by looking4mee
2006-07-27 10:42:03

“These numbers are actually worse than they appear”

The passenger side mirror on my car says in big bold letters “objects in mirror are closer than they appear”. And sure enough, when I turn my head to look, I see for sale signs everywhere.

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Comment by cabinbound
2006-07-27 11:11:15

The commerce dept has been downwardly revising previous months numbers for several months now. Can someone tell me if these downward revision are a reflection of cancellations?

I’d sooner bet that it’s pure thievery. If the “revised” (downward) number had been last month’s headline number, last month’s headline would have been worse. They actually get a double bonus from the “revision”: this month’s comparison to last month’s number all of a sudden isn’t as bad as it would have been.

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Comment by Marc Authier
2006-07-27 08:02:32

Sucker’s rally.

Comment by BC Bob
2006-07-27 08:22:59

Builders stocks all up???? Do you mean this morning’s dead cat bounce, sell the rumor buy the news???

HOV, TOL, RYL, all off approx 60% from their 8/05 highs
CTX, LEN, both off approx 50% from their 8/05 highs

You would think that this is real estate.com????

BC Bob

Comment by david cee
2006-07-27 08:26:56

Building stocks up with all the negative news?? If the dot.com explosion and Ken Lay taught me one great lesson…the stock market is manipilated for the benefit of the insiders. There is not one shred of evidence that can suggest anything but pain for the builders in the next couple of years, and I don’t even believe their accountants are reporting the truth. The President of Pulte will be on CNBC today after the bell, wait till you hear his spin on how great Pulte is doing

Comment by Getstucco
2006-07-27 08:48:18

I agree with your assertion that homebuilder share prices are manipulated to go up on bad news release days. I find this extremely bizarre from a fundamental perspective, and I believe that if one did a careful study of stock market history, one would learn that this tendency of a sector to consistently rally in the face of bad news is a historical anomaly. I have occasionally speculated here about the underlying cause, but in all honesty I do not really know, nor do I know how to obtain the evidence. However, I would love to see the results of a serious effort to understand this phenomenon, by someone familiar with the underlying causal factors. It seems as though the efficient market hypothesis is stood on its head and stuffed into the ground by this kind of market behavior.

Comment by sellnrun
2006-07-27 19:00:58

What about investors covering shorts? That typically results in a price bounce.

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Comment by Getstucco
2006-07-27 09:06:05

The most suspicious aspect of the homebuilder stock charts on bad news days is the way they rocket upwards at the opening bell, then see high volatility throughout the remainder of the day. Is anyone else besides me extremely interested in understanding the source of that rocket fuel?

Comment by Marc Authier
2006-07-27 09:37:30

Manipulations from the “PLUNGE PROTECTION TEAM”?
I you believe that free markets are free, think again. Price fluctuations like these mean absolutely nothing. Maudits chiens sales d’enfants de chienne puants de la FED.

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Comment by lililegs
2006-07-27 11:46:11

J’adore les insultes françaises!

Comment by Marc Authier
2006-07-27 14:56:19

Ah! Mais de rien. C’est un grand plaisir que quelqu’un comprenne. Wouf wouf.

Comment by We Rent!
2006-07-28 07:45:17

Did he just call lililegs a bitch? :mrgreen:

Comment by Rental Watch
2006-07-27 11:54:02

Builder share repurchases?

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Comment by Getstucco
2006-07-27 13:21:17

If this is the explanation, I sure hope stockholders sue their azzes, because they must have lost megabucks on share repurchases by now, given that stock prices have been on a steady downhill slide since August 2005.

Comment by AZ_BubblePopper
2006-07-27 09:06:49

I’ll bet the stocks are moving up in anticipation of emergency money drops by helicopter ben sooner rather than later.

Comment by Marc Authier
2006-07-27 09:25:22

Yes Helicopter Ben is the real reason. AZ_BubblePopper is right. People who think that the crooks at the FED will let the bubble deflate, are plain bumb. Expect BIG BIG BIG inflation. Anyways the real CPI is about 8%. I expect to see it at 15% very very soon.

Comment by deflation guy
2006-07-27 09:52:09

Maybe TXChick was right about the technicals. Sentiment is very negative. They might have found support and are starting a countertrend rally. Price/earnings, price/book and other measures may be drawing some interest. There are probably some value investors biting now. Personally I wouldn’t go long - probably a suckers rally. But if you are a trader…

Comment by Getstucco
2006-07-27 10:25:31

My personal belief is that whoever or whatever is manipulating the builder stocks to rally on bad news releases is steadily losing its heft. What we typically see nowadays is a big spike at the opening, followed by a mid-day selloff, with a 2pm spike back towards the opening price. One would think such predictability would create arbitrage opportunities for day traders. But I have maintained and continue to maintain the belief that eventually fundamentals will swamp any and all efforts to manipulate these share prices above fundamental values, and at that point, we will see capitulation rivaling the .com implosion of 2000. We are not there yet, but getting close…


Comment by Getstucco
2006-07-27 10:53:45

2pm Plunge Protection is lifting the builders’ share prices, right on schedule…

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Comment by deflation guy
2006-07-27 11:21:03

Difference between home builders and internet businesses is that the former actually operate profitable businesses. Many of them are presently trading near or below book value. So, fundamentally, they are stronger than internet stocks. The big problem with them, and why I wouldn’t buy them now is that their business is cyclical and they are hitting the downside big time. Some of that is obviously already priced into the shares. However, I think that margins will shrink faster and farther than most speculate at this point. Revenues will get clobbered from the over-building that has occured. Too risky for my blood.

As far as manipulation goes, my guess is that the large block trades wait until there is enough interest in the stock before they start executing trades. The big guns usually sit on the sidelines until the end of the trading day.

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Comment by michelle owens
2006-07-27 14:33:01

hi, guys. reading for months, first time blogger. regarding the stock upticks on bad earnings news, it is not at all unusual. as a former equity trader on wall street, we had a saying “buy on the rumour, sell on the news”. in this case it would be the reverse. the market responds to what it thinks will be, not what is. if you think the hb’s will report bad numbers, you sell. once they report, you buy. clearly from looking at the charts, the upticks are dead cat bounces. i’m still amazed, though, at how low the p/e’s are. doesn’t mean they can’t go lower. also, big institutional buyers need big institutional sellers on the other side of the trade. it’s not one-sided. you can’t really manipulate liquid nyse stocks. it’s an open cry auction market combined with electronic orders coming over the system, as well as trades occurring off the exchange.

Comment by Getstucco
2006-07-27 14:50:16


Thanks for your insight. If I understood your point, then if the markets think the news will be worse than it actually turns out to be, then stocks will go up. That is reasonable.

But it nonetheless seems to me that the builder stocks are overly bouyant at the opening bell on exactly the day when bad news is released, and these news releases seem to be consistently worse than what was projected very recently.

I will concede that Wall Street traders may have much better (inside) information as a basis for forming expectations than the mainstream public gets from the financial press, in much the same way that bloggers here have a much clearer picture of the housing market situation than can be obtained from reading the mainstream press. This reminds me of my Russian teacher’s explanation of how Soviet era readers had to read between the lines of reports in Pravda…

Comment by Getstucco
2006-07-27 15:09:21
Comment by CA renter
2006-07-27 15:09:52

I’m still going with HB stock buy-backs. Hundreds of millions are being allocated to that right now. It would be beneficial to the HBs, if they even intend to stay in business, to buy when they believe stocks would be low (bad news days). I’m guessing we’ll get a fairly major selloff in August/Sept/Oct. We’ll see.

Comment by Getstucco
2006-07-27 15:16:24

“I’m still going with HB stock buy-backs. Hundreds of millions are being allocated to that right now.”

How do buybacks of shares on falling prices benefit shareholders? And what is to stop shareholders from filing class action suits to recover the cost of this stupidity?

Comment by david cee
2006-07-27 19:26:46

I’m thinking the mutual fund “buddies” do lunch and decide, with their play money at the fund, to have some fun screwing with Joe SixPack and the price of HB stocks. The swap the stocks amoung each other at higher and higher prices, and hope to ignite some interest from the CNBC talking heads, so Mr. and Mrs. Smith, who just attended the latest stock seminar thinks they can outsmart the market, and buy at the bottom With the billions the mutual funds have, and their lack of ethics, and Jim Kramer to do their bidding, nothing is real.

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Comment by Auction Heaven in '07
2006-07-27 23:32:45

That’s pretty interesting.


Comment by thejdog
2006-07-27 22:42:41

That scenario you describe is affecting nearly the entire market…not just builders. Interesting indeed and has been going on for most of the year.

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Comment by manhattanite
2006-07-27 07:11:26

‘median price’ is really the joker in this house of cards.

FB: “well, there’s a lot of inventory, but at least the value of my HOME is still appreciating modestly.” yeah, right! just put it on the market and you’ll find buyers queuing up to buy your $650K mcshack — for $250K. appreciate that!

Comment by stanleyjohnson
2006-07-27 07:37:59

I like way you explained Median. It really is just as it should be a number between highest and lowest and nothing to do with me personally.

Comment by Mort
2006-07-27 11:06:38

I think the FBs really believe that prices are still going up, so all they have to do is wait until some of the excess inventory clears out. That’s right suckers, just hang in there, everything’s gonna be okay. Denial, it’s not just a river in Egypt anymore. :D

Comment by flatffplan
2006-07-27 07:16:32

median,CPI, SUV and granite
all will be scorned in 07
median doesn’t show the free garage and BJ included in new home “deals”

Comment by BC Bob
2006-07-27 07:26:13

“‘Looking ahead, we do not see conditions in the housing markets improving significantly in the remainder of the fiscal year,’ Ian McCarthy, Beazer’s CEO said.

Ian, please get real!!!!!!! The fiscal year???? How about you’ll be lucky if they improve this fiscal decade!!!!!!!

BC Bob

Comment by Judicious1
2006-07-27 09:08:34

Sorry, I didn’t see your post before I added mine below. I couldn’t believe the “fiscal year” comment either. I checked their financials and this guy is only forecasting the next 2 months. The MSM strikes again - publishing comments from the so called “experts” that have their fingers on the pulse of the housing market.

Comment by txchick57
2006-07-27 07:30:37

Builders Are Controlling the Housing Glut
By Tony Crescenzi
RealMoney.com Contributor
7/27/2006 11:02 AM EDT
URL: http://www.thestreet.com/p/rmoney/tcrescenziblog/10299896.html

New-home sales were weaker-than-expected in June, running at a pace of 1.131 million compared to forecasts for a pace of 1.150 million. In addition, data for the previous month were revised sharply downward, with sales now reported at a 1.166 million pace instead of the 1.234 million pace that was previously reported (large revisions to the new-home sales data are common).

I have noted since February that mortgage applications have fallen about 15% from the peak, suggesting that sales would fall similarly. Today’s figure puts sales roughly in line with what should be expected, based on mortgage applications — with sales down about 17% from the peak in the latest month and 15% when looking at the average sales pace of the past three months. The data, therefore, are hardly a surprise.

A highlight of the home-sales report is the fact that the inventory-to-sales figure, although up in June, has stabilized. The ratio now stands at 6.1 months of supply, up from 5.9 months in May but below the peak of 6.4 months set in February. This is in contrast to the I/S ratio for existing-home sales, which reached a nine-year high in June.

A key feature of the housing market is likely to be improved inventory control as compared to the last housing downturn in the early 1990s. With a greater share of the housing market controlled by larger, more capital-rich home builders than was the case in 1990, inventory control is likely to be better this time around, which should reduce the amount of forced liquidations and help to contain price declines.

Comment by deb
2006-07-27 09:26:57

“The ratio now stands at 6.1 months of supply, up from 5.9 months in May but below the peak of 6.4 months set in February”

This quote is ridiculous. The only reason Feb’s months inventory number is higher is because sales were lower. Fewer sales take place over the holidays, resulting in fewer Feb closings. The trend for actual inventory (not “months”) is clearly up up up.

Come fall, the months inventory figures are going to look terrible. Sales typically start falling off quite dramatically in Sept-Oct. I wouldn’t be surprised to see 10+ months of inventory nationally by then.

I have a suspicion that the Realtor associations could try to move away from the months inventory stat, or at least play it down. It works really well on the way up to make inventory look tight, it’s going to get real ugly as inventory swells, sales fall, and then we hit the slow season.

Comment by DC Condo Watcher
2006-07-27 07:52:00

I think there’s a typo Ben - your first number for median new home price is correct at $231,300, but your second reference is $321,300 - I think it was a simple case of a typo, right?

Comment by Ben Jones
2006-07-27 08:28:22

You’re right. I fixed it. Thanks for pointing that out.

Comment by lalaland
2006-07-27 08:43:51

It wasn’t Ben’s mistake. The AP article was the one that transposed the numbers (stating that the median is $321K, when it’s really $231K.)

Comment by climber
2006-07-27 08:07:56

Pretty soon “seasonally adjusted” will mean all houses for sale last season won’t be counted again this season. By this count my neighborhood doesn’t have any houses for sale, since all of them were listed either last fall or last srping. Even better if one of them does sell there will be more houses sold than there are houses on the market “seasonally adjusted”.

I can see doing seasonal adjustements when talking about annual rates extrapolated from the most recent quarter, but I can’t possibly see how they can say “The seasonally adjusted estimate of new houses for sale at the end of June was 566,000.” This is just plain crap. Either there are $566k houses for sale right now or there isn’t. How can you seasonally adjust a current number?

Comment by Mort
2006-07-27 08:54:16

If we had twelve Junes per year we would see that… Yeah, and if wishes were nuts we’d all have a merry Christmas.

Comment by jl in sd
2006-07-27 16:04:35

About “The seasonally adjusted estimate of new houses for sale at the end of June was 566,000.” This is just plain crap. Either there are $566k houses for sale right now or there isn’t. How can you seasonally adjust a current number?

It can make sense to correct the “for sale” total, if there are seasonal recurring patterns. For instance, may be builders typically have more houses for sale during the spring and early summer and then the inventory goes down during the winter… I’m not sure that’s the case, but if it were, then the adjustment would be useful in order to compare April to, say, October. Another example could be if builders didn’t build during hurricane season in the south east.

If you need to know the non adjusted number, then it’s estimated at 570,000.

Comment by UnRealtor
2006-07-27 08:58:50

Damn good questions. Near me, when I divide current inventory by sales per month (averaged for say 6 months), I get 16 months of inventory.

32,000 homes on market / 1,900 sales per month = 16 months inventory.

But articles constantly refer to a “seasonally adjusted” inventory of only 6 months. Can anyone explain this nonsense?

Comment by jl in sd
2006-07-27 15:23:00

Sales of new one-family houses in June 2006 were at a seasonally adjusted annual rate of 1,131,000 [...] The seasonally adjusted estimate of new houses for sale at the end of June was 566,000. This represents a supply of 6.1 months at the current sales rate.

The sales of new homes is at an annual rate of 1,131,000, which is a rate 94,250 sales per month. Since there is a seasonally adjusted 566,000 home for sales, it would take a litlle bit more than 6 months to sell those homes ~(566K/94K)… I think they rounded it up to 6.1 months in the press release.

Comment by Auction Heaven in '07
2006-07-27 23:41:48

Seasonally adjusted, my ass is the exact same heigth as my head.

If I’m bodfysurfing in July, that makes sense.

In Huntington Beach, the waves have sucked in July.

Thus, ass or head, or face, it don’t make a difference.

Andrew Dice Clay, eat your heart out.

Seasonally adjusted.

Could be your liver.

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Comment by Judicious1
2006-07-27 08:10:43

“‘Looking ahead, we do not see conditions in the housing markets improving significantly in the remainder of the fiscal year,’ Ian McCarthy, Beazer’s CEO said.”

That’s looking ahead?? Beazer’s fiscal year ends Sept. 30th. What a joke.

Ian, you might want to try looking a little farther ahead than that. Please keep this in mind: potential “mortgage-rate sensitive” buyers now on the sidelines can afford to wait this out much longer than HBs and existing-home sellers. You may want to factor that in to your next forecast.

Comment by Marc Authier
2006-07-27 09:27:35

By John Crudele
New York Post
Thursday, July 27, 2006


Federal Reserve Chairman Ben Bernanke revealed that the secretive Plunge Protection Team meets several times a year, but he dodged a congressman’s inquiries about what the group does and whether minutes are kept of those meetings.

So the Post has filed a Freedom of Information Act request for those minutes — specifically for the meetings that likely occurred immediately after the terrorist attacks in 2001.

I wrote about the Plunge Protection Team in a series of articles earlier this month. Formally called the Working Group on Financial Markets, it was formed in 1988 by President Reagan to advise Wall Street.

Headed by the Secretary of the Treasury, it also has top regulators and the chairman of the Fed as members.

But in addition to giving Wall Street advice, I suspect — and former White House adviser George Stephanopoulos seems to have confirmed — that the Plunge Protection team has morphed into something more active.

And Wall Street firms may have been invited to join.

What’s clear from answers to questions posed by Rep. Ron Paul, R-Texas, is that new Fed chief Bernanke either doesn’t know much about the role of the working group or preferred not to discuss the matter.

And, I think, it’s time we found out a little more about an organization that could afford some Wall Street firms an opportunity to reap massive profits at the expense of ordinary investors.

Here’s some of the exchange that occurred between Bernanke and Rep. Paul last Thursday at the House Financial Committee hearings.

* * *

Rep. Paul: Good afternoon, Chairman Bernanke. I have a question dealing with the Working Group on Financial Markets. I want to learn more about that group and exactly what authority they have and what they do.

Could you tell me, as a member of the group, how often they meet and how often they have actions? And have they done something recently? And are there reports sent out by this particular group?

Bernanke: Yes, congressman. The president’s working group was convened by the president, I believe, after the 1987 stock market crash. It meets irregularly. I would guess about four or five times a year. But I’m not exactly sure. And its PRIMARY function is advisory, to prepare reports. I mentioned earlier that we’ve been asked to prepare a report on the terrorism risk insurance. So that’s what we GENERALLY do.

Rep. Paul: In the media you’ll find articles that will claim, at least, that it’s a lot more than advisory. You know, if there is a stock market crash, that you literally have a lot of authority, you know, to impose restrictions. And we’re talking about many trillions of dollars slushing around in all the financial markets. And this involves the Treasury and, of course, the Fed as well as the SEC (Securities & Exchange Commission) and the CFTC (Commodities Futures Trading Commission) And the reason this came to my attention was just recently there was an article that actually made a charge that out of this group came a position that interfered with the price of General Motors stock. Have you read that? Or do you know anything about that?

Bernanke: No sir. I don’t.

Rep. Paul: But back to the issue of meeting. You tell me it meets irregularly. But are there minutes kept, or are there reports made on this group?

Bernanke: I believe there are records kept by the staff. There are staff, mostly from Treasury, but also from other agencies.

Rep. Paul: And they would be available to us in the committee?

Bernanke: I don’t know. I’m sorry. I don’t know.

* * *

Rep. Paul obviously doesn’t have a reporter’s knack for the follow-up question, so here’s what I would have asked next.

Crudele: Well, Mr. Bernanke, how about you find out? Someone in your position should know if, as former White House adviser Stephanopoulos has claimed, the Working Group on Financial Markets — the Plunge Protection Team — has the authority to interfere with the free market for stocks. And we’d also like to know who makes decision for the group, politicians or guys on Wall Street. Don’t misunderstand, Mr. Bernanke. I’m not saying what the group is doing is wrong. But why should firms like Goldman Sachs — from which two of the last four Treasury secretaries have come — be in a better position than anyone else who gambles in the stock market?

See, that’s why I’ll never be in Congress.


John Crudele is business columnist for the New York Post.

Comment by Getstucco
2006-07-27 10:10:26

There is no such thing as the Plunge Protection Team, the Easter Bunny, or Santa Claus. This is my firm belief, and like Oliver Cromwell, my faith will remain unshaken regardless of the evidence that anyone can present to challenge it.

Comment by dawnal
2006-07-27 13:13:32

Well, Stucco, there sure are a lot of traders who don’t believe in the Easter Bunny or Santa Claus but steadfastly assert that the PPT is in the market frequently making the market do the opposite of what circumstances would indicate. These guys aren’t dumb. And they are in there everyday. Worth thinking about.

Comment by Getstucco
2006-07-27 10:11:47

P.S. Where are the likes of expose’ reporters like Bob Woodward when these conspiracy theory stories keep resurfacing again and again. Maybe Crudele is just making this stuff up though, right?

Comment by lalaland
2006-07-27 12:01:32

The New York Post: that bastion of higher thinking.

Comment by dawnal
2006-07-27 13:42:07

There sure are a lot of reporters who don’t want to step on Superman’s cape.

Comment by Getstucco
2006-07-27 10:15:39

“And Wall Street firms may have been invited to join.”

The big questions, IMO:

(1) Do Wall Street firms use tax dollars (implicitly or explicitly — does not matter) to prop up asset prices, and how?

(2) Is the Greenspan conundrum a direct consequence of persistent market interventions to prop up the market level above underlying fundamental value?

(3) What if the full extent of any such manipulations comes to light?

Comment by dawnal
2006-07-27 13:25:56

The PPT is financed by the repo pool. The Fed lends money to the members of the PPT secured by marketable securities. The loans are short term, often overnight.The amount of the pool has grown dramatically in the past year or so. Recently, it has topped $100 billion several times.To reward exceptional performance, the Fed will grant a “coupon pass” occassionally. That means that the interest due on the loan to the PPT member is forgiven. The regular reporting of transactions in the pool was discontinued when the M3 reporting ceased. But clever people can find the data to calculate the changes in the pool.

Comment by Getstucco
2006-07-27 15:41:20

Sounds complicated, but at the end of the day, doesn’t this amount to a scheme for executing Greenspan puts to kick-start stock prices when they look plungy? And if so, isn’t the inevitable consequence conundrumish asset price inflation, especially when the smart money herd learns to ride along with the interventions? And finally, after enough artificial asset price inflation, won’t fundamentals finally catch up with the wide gap between prices and fundamentals? I am just having a hard time understanding how this kind of manipulation can go on forever without some kind of major mean reversion…

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Comment by dawnal
2006-07-27 17:08:31

The scheme is to maintain/drive a market higher than it should be. A steady/rising market is a major political goal. We are nearing the mid-term elections and can expect a steady dose of manipulation in the interim. The hedgies are a part of it all. When they sense(or are tipped off) that the PPT is working they join in
and accelerate the direction of the PPT effort. But they have to be quick because when the PPT quits, the market drops again(except where the effort is to drive prices down as frequently happens with PM mining stocks).
And of course fundamentals will catch up to them. One could say that that has happened to a large extent with the HBs. I have held short positions of HBs for quite a while and have had a front row seat when the PPT has decided to “spook” the shorts. Earlier the stocks would rise sharply and stay up for longer then they do now. Recently such efforts have lasted one or two days and then have fallen back, just as we saw over the past three days.

And you can be assured that such manipulation can not go on forever and that when the crash comes, it will be a sharper plunge than it would have been without the artificial support that the PPT has provided.

Comment by Getstucco
2006-07-27 10:17:17

“And, I think, it’s time we found out a little more about an organization that could afford some Wall Street firms an opportunity to reap massive profits at the expense of ordinary investors.”

This could go far to explain how Wall Street firms have been doing extraordinarily well in recent years against the backdrop of a limp stock market…

Comment by Getstucco
2006-07-27 10:20:08

“I’m not saying what the group is doing is wrong. But why should firms like Goldman Sachs — from which two of the last four Treasury secretaries have come — be in a better position than anyone else who gambles in the stock market?”

Which reminds me of what HedgeFundAnalyst told us on one of his posts: The house always wins. (Where are you, Hedge — we miss your insights!)

Comment by OC Appraiser
2006-07-27 09:30:27

More tid-bits from my area of South OC (Dana Point).
33071 Santiago (active 869-917k 80 days on market) Purchased last year for 665k, refied 4 times, owes 932k. Superior active properties in area listed at 800k. Ouch.
32912 Barque (active 810k 68 days on market) Purchased on 8/26/05 for $800k (overpaid), but borrowed 840k at the time, go figure. $810 active price is in line with other similar actives in area, but buyers have not budged in the last 3 months, and have only contracted on 799k and under. There around 25 similar actives to choose from. Starting at 779k, to the obsurd 917k. I think its funny how sellers price their homes based on what they owe the bank. They need to take some econ classes and study the supply/demand dynamics of a market. Buyers to care if you over-paid, or refied to take that long awaited vacation. I wonder how all that free lobster they got on that cruise is tasting right about now?

Comment by sleepless_in_seattle
2006-07-27 09:35:35

The big question is what did they do with the money? Did they buy another high priced property? or blew it on a lavish vacation? or lost them at the craps table? in any event, nothing looks good from here.

Comment by Marc Authier
2006-07-27 10:14:45

Both. They bought another high priced property. They blew it at a lavish vacation. And they lost it at the craps table.

ANSWER: All of them!

2. Fed Eyes Housing: Potential Economic Catastrophe?

It has been well documented that the U.S. housing market is currently in the midst of a downturn. June brought yet another monthly drop in sales of previously owned homes, and according to The Christian Science Monitor, that number has “fallen in all four major regions of the United States from a year ago, with nationwide sales volume down 9 percent, according to a report released Tuesday by the National Association of Realtors.”

Homebuilders are cutting back on housing starts, rising interest rates and stagnant or lower home prices are stopping people from spending their home equity, and ARM-holders are getting crushed by a sudden spike in mortgage payments.
Meanwhile, the Fed is monitoring the situation carefully to determine whether current housing retrenchment will stay moderate or devolve into a severe situation that could badly damage the economy.
While the Fed has raised rates 17 times to combat inflation, they realized the hikes would eventually affect housing, but Bloomberg’s John M. Berry points out that another development has only just become apparent.
“What has only become evident in recent months is that, perversely, the big decline in housing affordability – due to the combination of double-digit housing price increases year after year and higher mortgage-interest rates – would cause a surge in core inflation,” says Barry.
“Would-be homeowners – either priced out of the market or simply fearful that the value of a home purchased now could fall in coming months – are renting instead. As a result, rents of residences and the so-called owners’ equivalent rent components of the consumer price index have shot up this year.”

Barry goes on to say that these components of the CPI are so critical that when they rose, they accounted for almost two-thirds of the percentage point rise in core CPI for the first six months of 2006.
Federal Reserve Chairman has insisted that the impact of housing on the economy has been “orderly,” and most economists seem to agree. While few see the housing slowdown spurring recession, some do expect that it will slow economic growth considerably.

“Economists at Merrill Lynch, for example, reckon that the dive in homebuilding alone could subtract a percentage point from overall gross domestic product in the third quarter, tugging GDP growth down to perhaps 2.5 percent, annualized, for that quarter,” says the Monitor.

But some are predicting far worse.

“… recession is a real possibility, in the view of Merrill Lynch’s David Rosenberg. After the past 10 peaks in new-home starts by builders, an economy-wide slump has followed seven times. Housing starts, like home sales, peaked last summer.”

Comment by Getstucco
2006-07-27 10:52:02

“Would-be homeowners – either priced out of the market or simply fearful that the value of a home purchased now could fall in coming months – are renting instead. As a result, rents of residences and the so-called owners’ equivalent rent components of the consumer price index have shot up this year.”

Rising rents + inflation targetting = continued Fed Funds rate increases. Sorry, Wall Street bulls…

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Comment by sunsetbeachguy
2006-07-27 11:14:10

keep those examples coming.

Specific really shut up the bulls.

Comment by Getstucco
2006-07-27 14:52:50

Interesting how the bulls feel free to ignore the facts, instead appealing to hopes and dreams based on the premise that prices (stocks + houses) have always generally trended up ever since the Great Depression…

Comment by semper fubar
2006-07-27 10:13:17

Toll Bros just broke ground a couple weeks ago on a big new housing development down the road from me. (Luckily for them, I have been assured that we have a GREAT economy here locally, and EVERYONE wants to live here.)

I drive by it every few days. Any ominous “bubblicious” signs I should be on the lookout for? They’re pushing dirt around like mad at the moment.

Comment by seattle price drop
2006-07-27 16:35:23

Watch for postcards in the mail advertising incentives to buy in a couple months.

Comment by Carlsbad Jim
2006-07-27 19:43:51

In six months they’ll be decorating the models. See if they pull up short of the usual six-figure extravanganza.

If they don’t build the models, well then that’s another sign all together.

Comment by gordo nyc
2006-07-27 10:22:44

The Dept of Commerce site also reports the sales by a properties’ selling price range. A quick glance indicates that recently a larger percentage of homes in the higher priced ranges have been sold (compared to earlier 2004-2005 data). This would explain some of the reasons median sale prices have not dropped as much as one would think they should, given the fact we know most sellers are discounting off asking prices.

If enough high dollar homes are sold, the median dollar value of sales could actually rise; in spite of the fact that most houses were sold for a lower price than a comparable home sold for the month before.

Comment by cabinbound
2006-07-27 11:21:59

Pulte guy on CNBC at 3:17, here’s some rough highlights: we can call it a buyer’s market, speculators all appear to have put their homes on the market at the same time, people seem to have decided to wait 6 months before getting into the market, increased cancellations are leading to excess inventory, hottest markets are cooling quickly, we are pulling back on future land purchases, reducing the number of spec homes, controlling SG&A expenses, we are cutting expenses, we have a good record of controlling SG&A.

Comment by looking4mee
2006-07-27 11:25:06

Richard Dugas of Pulte homes was just on cnbc, and he was rather straight forward about the slowdown. He said that sales have been falling for months now, and cancelations from contracts signed 8mo. ago are adding to inventory. Infact, almost everything he said was negative about the RE industry. I wasn’t expecting that.

Comment by edhopper
2006-07-27 11:33:28

“Home orders fell to 4,378 from 5,202, as increases in Texas and some Southeast markets were offset by significantly lower new home orders in the West and Florida.’

I keep hearing how there is a mini boom in Texas. Are most Texans as stupid as the President? (see I’m asking, not saying it:-) This is the last gasp of the speculators. They think the bubble has finally caught up to them in Dallas and Austin. Don’t they see the end results all over the rest of the country.
This is like trying to find a good Tech stock IPO in 2001.

Comment by looking4mee
2006-07-27 11:39:33

Most of the buyers in Texas are from out of state.

Comment by edhopper
2006-07-27 13:33:59

Thanks. So it’s the same idiots, after they got burned in SoCal, then LV, then Phoenix are looking for new pastures they can manure?

I feel sorry for the Texans (and I haven’t felt that way since GWB was Governor)

Comment by looking4mee
2006-07-27 14:13:51

LOL, good one! He destroyed our school system here in Texas by the way, there has never been so much fraud or competition to gain school dollars in history.

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Comment by Getstucco
2006-07-27 12:27:02

More builders lower expectations
Stocks lower as investors digest earnings reports, new-home sales
By John Spence, MarketWatch
Last Update: 4:04 PM ET Jul 27, 2006

BOSTON (MarketWatch) — More home builders have cut their 2006 profit outlooks as second-quarter orders for new homes have come down significantly from last year on continued weakness in the U.S. housing market.

The stocks traded lower Thursday as investors focused on earnings warnings and lower new-home sales in June. Meritage Homes Corp. was the lone bright spot as the stock gained after the company said quarterly profit rose from the year-ago period and easily topped analyst expectations.

Home-building stocks are down sharply from the highs they set last summer. Year to date, the Dow Jones U.S. Home Construction Index is off 35% on higher mortgage rates and a deeper-than-expected pullback in the housing market.


Comment by Getstucco
2006-07-27 13:22:36

Speaking of inventory, SD ziprealty shows a steadily increasing share of listings marked “price reduced” — up to 39.4% of all listings as of today.

Anyone care to venture a guess as to how high this percentage will climb before the correction ends?

Comment by feepness
2006-07-27 13:59:45

I would venture very close to 80%. That won’t be when the correction ends, but it will be when sellers begin to get rational.

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