‘Buyers Know It’s Only A Matter Of Months’
Some housing bubble reports from Wall Street and Washington. “The economic outlook remains so uncertain that the Federal Reserve is very likely to hold rates steady again at the next policy meeting in September, according to participants at the Fed’s annual retreat. Economists said they were struck by the lack of certainty in their private conversations with central bankers.”
“‘Anyone who says they are dead certain is either lying to you or to themselves,’ said economist Lewis Alexander.”
“There is widespread agreement that the Fed finds itself in something of a box. The outlook for the housing market is a key part of the puzzle. The weaker market is expected to reduce the ability of consumers to spend, but the magnitude is uncertain. ‘The very rapid deterioration in housing is the most obvious question mark,’ Alexander said.”
The Gallop Poll. “These most recent data simply confirm the widely held perception that housing activity has slowed significantly in 2006. The August UBS/Gallup Index of Investor Optimism poll shows investors are worried that the real estate markets are continuing to deteriorate. Fifty-six percent of investors rate current nationwide real estate market conditions as ‘only fair’ (44%) or ‘poor’ (12%). This represents a significant worsening of attitudes compared with June and July, when 46% of investors held this view.”
“About 70 percent of investors believe that conditions in the real estate market are getting worse, up from 63 percent in June, the survey also found. Investor sentiment toward investing in real estate assets nationwide has also fallen. ‘The drop in confidence in the real estate market reflects the economic data for that sector and suggests that investors are feeling the pinch in their local markets,’ said Anne Briglia, strategist for UBS.”
From Danielle DiMartino. “Investors are being bombarded with arguments for and against the homebuilding sector. ‘Homebuilders have been living off high margins, high volumes and solid pricing,’ said Mark Kiesel, a portfolio manager at bond behemoth Pimco said. ‘But that’s all changing due to declining affordability, higher mortgage rates and rising inventories.’”
“Though prices are still up by a hair, 0.3 percent, buyers know it’s only a matter of months before they start to fall. Even for those willing to buy into this environment, the lenders still have to be willing participants. ‘Lending to consumers for housing will become more restrictive as mortgage lenders pull back,’ Mr. Kiesel added.”
“The implications for margins, and, more important, cash flow, are plain. ‘Right now margins are falling off a cliff, because builders have to offer such huge incentives,’ Mr. Kiesel said. ‘That’s where you get to the cash flow drain.’”
“Completed homes sitting in current inventory don’t pose near as big a threat to builders as those in midconstruction. ‘That’s why they’re doing everything they can to liquidate their existing inventories to raise cash,’ Mr. Kiesel said.”
The Daily Reporter Herald from Colorado. “Home builders are feeling the pinch from the slowdown in sales across Northern Colorado. Sales for new homes have plummeted 20 percent, said broker Steve Kawulok.”
“This puts builders with new homes on the market in a crunch. Earlier this month, one builder told the Berthoud Board of Trustees that he is losing money every day on his unsold homes at Gateway Park off Colorado 56 and County Road 17. ‘Sitting on all seven homes for two years has nearly bankrupted me,’ Eddie Mirick said.”
The Denver Post. “Businesses that serve the homebuilding industry are starting to feel the ripple effect of a slumping housing market. Architect Layne Bennett in Westminster has seen his revenue drop about 25 percent in the past year. The company’s three largest clients are production builders Ryland Homes, Continental Homes and Advocate Homes.”
“‘We’ve just gradually gotten less and less work,’ Bennett said. ‘They’re not selling their houses, so they’re not building more.’ The slowdown has forced Bennett to cut his advertising budget from about $100,000 last year to $40,000 this year. ‘I just don’t have the money to do it,’ he said.”
“Suppliers to the homebuilders also are seeing a dip in business. Steve Walters of Bel Shower Door Corp. said, ‘More than one major builder has brought in its subcontractors and asked the question of what we can all do to lower expenses,’ he said. ‘With the market slowing, the prices of homes have to come down. They have to lower expenses because their margins aren’t huge.’”
“Jim McFarland, a foreman for STK Framing at a KB Home development at Stapleton, said he has noticed there isn’t as much work available to the trades as there was a year ago. ‘It was hard to get help a year ago,’ he said. ‘Now, there are more people running around looking for work.’”
‘The slowdown has forced Bennett to cut his advertising budget from about $100,000 last year to $40,000 this year.’
And so the advertising guy has to cut back, etc. And some would say home prices can’t fall unless there is a recession.
It’s amazing how people can’t connect the dots and see the domino effect that is about to unfold infront of their eyes when it comes to all these RE job losses. So many people buy into the fact that just __% work in the real estate industry, so it won’t hurt my economy. Just start following the money and you’ll see how it works.
Navistar is planning to layoff 400 in Indiana to match the demand (or lack of) from Ford’s latest fall out.
This is going to domino quickly.
First it will be the builders
Shortly there after the real estate adgents/mortgage brokers.
Then anyone whom is in the ad business receiving money from any of the above.
Then the newspapers/TV stations will cut (barely)
With further cuts in durable goods
Resulting in retail layoffs…
I really wish I couldn’t see where this is going.
My only question is the rate.
I stick by my prediction that by the ides of October “Joe sixpack” will know home prices are declining.
And to think until 2Q2007 this is only a warm up act… Yikes!
This is going to domino quickly.
I agree. I think the best predictor of the rate of decline is the amount of underlying leverage/debt — roughly speaking, the more overly optimistic people were in the runup, the faster they will have to pull back when reality slaps them in the face. Works for stock market crashes as well as economic crashes.
And I think the closest historical model for today we have is the crash into depression after 1929 (1990’s Japan isn’t as good, because the rest of the world was doing fine and softened the blow for Japan, along with their large savings).
Nominal U.S. GDP, in billions of dollars:
1927 $95.5
1928 $97.4
1929 $103.6
1930 $91.2
1931 $76.5
1932 $58.7
1933 $56.4
1934 $66.0
1935 $73.3
1936 $83.8
1937 $91.9
1938 $86.1
1939 $92.2
1940 $101.4
1941 $126.7
Notice the 40% drop in GDP within three years. That’s not a 40% drop in GDP growth rate, it’s a 40% drop in actual GDP — as in, 40% less national output. That’s just a staggeringly fast drop.
Some would argue that the gold standard played a part. Also, the U.S. was a net creditor then, meaning it suffered more as debts it was owed were defaulted on. On the other hand, the overall debt levels today are significantly higher than in 1929. Especially if you count future claims that aren’t strictly debt, such as expectations of dividend payouts, rents, etc. We’re just overall much more optimistic today than in 1929, even.
Today’s Fed might be willing to ease more quickly, but how much will that offset the greater pullback force? I think the pullback will be so fast that they’ll be WAY behind the curve — easing by quarter percentage points for many months, in order not to “panic” people. They won’t haul out the big guns of massive debt buybacks and money-printing until it’s too late.
So, since I think we’re over the brink now, with no turning back and no further bubble blowing possible, my best guess is that we’re in the throes of Great Depression Two within about 4 years. (At which point, precious metals will be the thing to own, as massive dollar devaluation will be brought to bear by then.)
I think Joe Sixpack already knows. I was at a family reunion over the weekend in South Carolina (not an area that has seen a huge run-up in prices). Whenever I talked about being from DC, everyone I spoke with knew that prices were declining in DC and were aware of the issue nationaly as well. We’re now in the stage where word is spreading quickly. I say by September, when August’s data comes out, the decline will be unanimous.
“And I think the closest historical model for today we have is the crash into depression after 1929 (1990’s Japan isn’t as good, because the rest of the world was doing fine and softened the blow for Japan, along with their large savings).”
But Ben Bernanke is a student of the Great Depression. Don’t you think he will play his cards to take into consideration the mistakes that were made in the US during the early 1930s and in Japan during the early 1990s? What force of destiny is it that you believe will force him to guide the economy down exactly the same fatal path, even though he knows better?
and remember bb is no gwb. you can pretty much bet on a better outcome with the former.
It’s one thing to say “I know how to avoid another Great Depression”; it’s another thing to have the powerful creditor class threatening to kill you if you tank the dollar and erase all their wealth.
I think that because of political influences, the economy is much less guidable than most people think. After the popping of the 20’s debt bubble, there was bound to be a lot of pain for many people, regardless of what the Fed did. And likewise today. Bernanke will soon face the dilemma of whether to lower rates quickly or slowly. Sure, “quickly” might seem like the obvious answer. But then the risk is spooking the markets (by admitting there’s a huge problem), as well as tanking the dollar.
My point is that the pain is already baked in. The billions of bad decisions have already been made by millions of people. Granite countertops were chosen over building energy infrastructure, etc. There’s not enough earning power to satisfy our optimistic plans. Bernanke is in a box, and can only influence (somewhat) how the pain is distributed, and (somewhat) whether it’s fast and deep or slow and drawn out. But the 70-year or so credit cycle has now turned, and there’s no preventing its regression to the mean and beyond, now. I think it’ll be Great Depression Two, which hurts debtors the most, but maybe it’ll be Great Hyperinflation One, which hurts creditors the most. Who knows. Either way, it’s gonna suck bad, and politics will ensure the pain is shared to a large degree by everyone.
GetStucco, I wrote a careful, thoughtful reply to your question, but it got eaten or censored or whatever happens to posts on this blog. Very frustrating.
What comes first “bubble” or “recession”? Much like the chicken and the egg, is it not? Except, when the bubble comes first, the FBs are really, really F’d rather than just mildy F’d…as if it makes a difference.
Buyers are thumbing their noses at sellers right now. They could care less about how distressed sellers are; let them rot. They do not want to put their families in financial distress for the rest of their lives, by purchasing overpriced homes, at sky-high prices, which are not worth it. They are right to do so. Buyers shop for value.
It’s a buyers are thumbing their noses market and saying, Let Them Rot
Ok, I might be a bit late on this since I was on vacation last week, but did anyone notice how the NAR revised the June average prices? Particularly the sketchy Northeast average price. The big jump last month and the significant downward revision in July was the only thing that kept them from reporting negative average prices in both periods.
All the individual numbers are cooked and bogus. Watch the trends. They can hide the elephant in the shadows for a while, but it’s difficult to miss when it moves.
Ok, I might be a bit late on this since I was on vacation last week, but did anyone notice how the NAR revised the June average prices? Particularly the sketchy Northeast average price. The big jump last month and the significant downward revision in July was the only thing that kept them from reporting negative average prices in both periods.
That strategy is not sustainable.
They use architects to design these monstrosities? I wouldn’t want my name associated with most of the butt-ugly things I’ve seen. I thought it was a couple of five year olds with Tonka Toys designing these “homes.”
And usually you don’t know who the architest is.
They use architects to design these monstrosities?
We are renting a new KB home, interior doors open into the
mirrored closet doors, useless large hallways, attic access right in the middle of the ceiling of the family room, just to name a few.
They have to put in a good faith effort to pretend the houses are “designed” competently or they’d lose every lawsuit.
Yeah, I’ve designed better-looking houses using the design tool in “The Sims” video game. And I’m certainly no architect.
So many of those McMansions look like big ol’ barns with cheap vinyl siding attached. Just pure ugliness.
Anecdotal — I went out to dinner this past weekend with a framing company foreman. He said the frenzy has been over for a while and in the past couple of months he’s seen a noticable slowdown in new projects - off 25%-30% compared to last year… and worsening. Also, rumor at KB Home. Apparently, another round of layoffs are imminent. This is the nuclear chain reaction effect materializing, that everyone on this blog has been predicting.
Momentum building - the other way, and it goes faster in reverse than in forward.
If the Fed gave a flying… ummm… buttress about the housing market they wouldn’t have popped it in the second place. They certainly wouldn’t have inflated it in the first place. Now that we have two examples of the Fed not giving a rat’s… ummm… skin about the housing market what do they care about? Don’t for a minute think the obvious answer; the general economy. The true answer is the US banking system. Now gee, how to protect the banking system? Ans; sacrafice the housing market.
robert,
Please elaborate in more detail. How does sacrificing the housing market save the banking system and not screw the economy?
Oh, God. Now you’ve done it.
LOL
I’m not getting the joke?
bubbleboy-you will get it soon, and so will we. Oh my goodness!
Don’t get me started. Housing is an asset class. The Fed plain old doesn’t care, actively doesn’t care about asset classes. They let the tech bubble burst, they don’t even acknowledge the existence of the commodities market. They don’t pay attention to housing purchase prices when calculating the CPI fercrissakes.
Bubble-boy - your homework assignment is to go to the bookstore, and then read “The Creature from Jekyll Island”. It will provide you with your answer.
Bubbleboy — clue — the only time, to my knowledge, that I really pissed off Robert and TxChick was when I tried to fix them up.
That humor inserted, I thoroughly enjoy the contributions each makes here.
OMG…watch out, here it comes!
I give Robert a hard time sometimes as well, however, I don’t think that it is warranted on this topic.
I will cast a vote asking Robert for a detailed post expanding on his original.
Robert is certain of many things, only some of which I agree with but well worth listening to.
No hard time giving for Robert! He’s the man!
I’m just joking around…he is one of most astute posters…
and one of our most..er…holistic.
I would use the word “sadistic” myself.
I thought I was the man?
A sadist and masochist were set up on a blind date. As you might expect everything goes well. At the critical moment at the door the masochist all but begs; “I want you to hurt me.” The sadist, with an evil grin, replies; “No.”
Robert is certain of many things, only some of which I agree with but well worth listening to.
Which ones have ended up wrong except of course my disaster with cotton futures?
At least I thought we have agreed to disagree on this blog about planning.
You prefer cars.
I prefer people.
No real empirical evidence either way on that one. Only time will truly tell.
I think it’s about protecting the dollar and the treasury bonds by fighting inflation. The member banks & GSEs will get a bailout package a lot faster (and ultimately bigger) than Katrina victims, which will magnify the deficit and probably crater the dollar anyhow.
I think they’re just a bunch of really smart people who happen to be unaware of the limits of the human brain.
I wasn’t aware that either one could be salvaged.
How do you save banks by popping the bubble? Wouldn’t the foreclosures kill them?
I think he means by tightening lending standards so banks can’t lend without 20% down bla bla bla. Who knows? I’m curious to see what his response is.
just so happen that we have a very good example in japan. boj is starting to test fractional reserve requirement again to check if japanese financial institutions are healthy enough to handle it. remember the big worldwide drop in stock market recently even with good data all over, it was because of this maneuver by the boj.
Read this series of post on a Sarasota message board.
http://forums.heraldtribune.com/eve/forums/a/tpc/f/3941081465/m/7611067665/p/1
They are in denial!
I like the agent who blamed the slowdown of Sarasota high end sales on the stench of “red tide”, what an idiot.
They were using the red-tide excuse late last summer as well……
Red Tide has been around for a long, long time. It comes and goes. In the 1980s, my brother-in-law was one of the world’s leading experts on red tide, worked for Mote in Sarasota. Eventually it crawls back into its hole and waits for the next opportunity to reappear. Happens throughout nature.
There is a solution. Let’s buy insanely overpriced house at 2005 prices and work are tails off for the next 30 years paying off the mortgage-maybe get second or third job. This will keep the economy artificially propped up and in doing so help our fellow Americans!
We borrowed from the future and we will surely pay for it.
What’s this WE kemmo sabe? Wait I’m looking at the federal debt and the IOU says…Payable by U.S. taxpayer, darn, I’m F’d too.
I just found out that my brother and his GF are moving to Ohio from Sarasota, FL. I asked why? The said, “Because we can both make more money up there, pay less in car insurance, house insurance, and the homes are cheaper up there. Also, No Hurricanes!”
I think other people are thinking the same thing.
UHAUL RATES
TAMPA, FL to COLUMBIA, SC $1,523.00
COLUMBIA, SC to TAMPA, FL $400.00
MIAMI, FL to RALEIGH, NC $2,003.00
RALEIGH, NC to MIAMI, FL $422.00
SAN FRAN, CA to OK CITY, OK $2,456.00
OK CITY, OK to SAN FRAN, CA $ 788.00
Nice post!
Gotta be careful with the abbreviations over here.
Yeah, is that your Girl Friend or Greater Fool or (both).
Tom,
I’m a huge fan of the u-haul index (amoung others, I’ve done the analysis too-shameless blog plug).
I’m shocked at the directionality from Florida. Not that its there, but the scope.
Oh yea GF=”greater fool” on these real estate blogs…
His girlfriend is a GREATER FOOL. The acronyms are synonymous in his case.
this is exactly what you saw prior to the tech bust out here in sf bay area…you couldnt find a moving truck, and when you did, you got reamed. it’s starting again, just another bubble…and this one will be much more painful.
‘Lending to consumers for housing will become more restrictive as mortgage lenders pull back,’ Mr. Kiesel added
Do I have a valid concern that mortgage rates do not have to follow benchmarks (10-year T, LIBOR, etc)? Is this what Mr. Kiesel is talking about?
Because what I see developing is falling prices/sentiment becomes the lead, causing wider interest rate spread on residential mortgages to cover increasing default risks, further exacerbating the problem, and so on. Didn’t something like that happen in the RE busts of the 80’s and 90’s - generally low benchmark rates, but high mortgage rates/very strict lending.
Mortgage rates tend to follow said benchmarks becuase of the competition for investment dollars between investment vehicles, but to answer your question, no they don’t have to follow those benchmarks. Investors could indeed ask for additional risk premium as defaults rise, causing mortgage rates to rise even though treasury yields are falling…
Lou Dobbs just had a piece on the War on the Middle Class regarding the increase in foreclosures - alot to do with ARMS, etc…DUH~!!!!!!
Where was Lou Dobbs two years ago? Funny how after things unfold all of a sudden people become wizards.
Lou was taking on Enron and now illegal imm.
Along with outsourcing.
who here is going to make more in 06/07 than 04/05 ?
if you’re not in the gov/mic/parasite class, ain’t no way
I’m a parasite. I make my money by providing healthcare in a highly profitable niche. Niche occupiers of the world unite!
if it’s private sector then you’re NOT a parasite
healthcare is private industry? i don’t even think the supplying of plastic tableware at the hospital cafeteria really qualifies as private industry.
W2 Income…I am on track to make about 10% more in 06 than in 05. I made about 8% more in 05 than in 04. I made about 7% more in 04 than in 03. 07 s/b around 6% or so.
My interest income is WAY up in 06. I have the Fed to thank for that, too bad inflation/taxes are eating away at it.
At 5% interest, taxes and inflation are not just eating away at it - they are demolishing it as the principal gets eroded every day. REAL Inflation is running at 6% minimum today. Could be worse than that. Your mileage will vary greatly is the disclaimer the USG should be forced to print in bold type right next to the index.
Food, health car, prescriptions energy and debt service have skyrocketed in the past 3 years and yet we get 3.5% reported inflation. Total bullshit. These numbers are only representativeif you are homeless, without a car and eat foodscraps out of a trash bin… or in prison where inflation doesn’t matter.
yep…I know…
Honestly, I think your 6% number is even low. It seems to me that everytime I buy something it costs much more than the month before.
food seems to be galloping at 20% per year. just look at how much you spend for lunch.
I don’t think debt service is or should be part of the CPI. It’s the price of being stupid.
Food, health car, prescriptions energy and debt service have skyrocketed in the past 3 years and yet we get 3.5% reported inflation. Total bullshit.
Ditto from the peanut gallery.
It’s like the Fed drives by the 99-Cent store every few months and thinks to itself, yup, no inflation — those prices are still 99 cents. They aren’t concerned that it now costs twice as much to drive over and check inflation prices.
It’s like the Fed drives by the 99-Cent store every few months and thinks to itself, yup, no inflation — those prices are still 99 cents. They aren’t concerned that it now costs twice as much to drive over and check those inflation prices.
Hellooooo, my husband and I are middle school teachers (science and social studies), both third careers so very much the newbies for our age in this profession and, quite frankly, I don’t like to be lumped in with “parasites.” We do good work and we don’t mind getting up every morning and doing it right. BTW, you try teaching kids that age and then express disrespect toward the people who do it. AND I think we made excellent career change choices considering the southward direction bidness is going - we’ve both been there as well and wouldn’t touch it again.
Don’t even bother replying to him. He’s a “one comment” guy. Everything is the fault of government workers. They are the source of all evil, etc. etc.
Towels not fluffy enough? Blame those damn government parasites sucking up your tax money. Can’t get your lawnmower started? I’ll bet those blood-sucking government pension whores use their ill-begotten gains to buy fancy, auto-start mowers.
ad nauseum.. ad infinitum…
No, you don’t do good work. You get paid with taxpayer dollars to brainwash the next generation into dumb as a stump worker bees, as you yourselves were brainwashed. Don’t fool yourself into believing otherwise:
Rockefeller put his money to good use - dumbing down Americans…
THE GENERAL EDUCATION BOARD (1902-1965)
In 1902 Rockefeller established the General Education Board (GEB) for the “promotion of education within the United States of America without the distinction of race, sex or creed.” In its active years between 1902 and 1965, the GEB distributed $325 million for the improvement of education at all levels, with emphasis upon higher education, including medical schools. In the South, where there was special need, the GEB helped schools for both white and African-American students. Also, out of the Board’s work with children’s clubs in the farm arena grew the 4-H Club movement and the federal programs of farm and home extension.
http://archive.rockefeller.edu/bio/jdrsr.php
“In our dream, we have limitless resources, and the people yield themselves with perfect docility to our molding hand. The present educational conventions fade from our minds; and, unhampered by tradition, we work our own good will upon a grateful and responsive folk. We shall not try to make these people or any of their children into philosophers or men of learning or science. We are not to raise up from among them authors, orators, poets, or men of letters. We shall not search for embryo great artists, painters, musicians. Nor will we cherish even the humbler ambition to raise up from among them lawyers, doctors, preachers, politicians, statesmen, of whom we now have ample supply.”
Rockefeller Foundation Director of Charity,
Frederick Gates, 1913
I assume then that you went through the educational system and are now a brainwashed stump worker bee. I’m sorry that your educational experience prompts such a vitriolic view. That was NOT my experience nor is it the experience (or expectations) for my students. I began as a pediatric registered nurse and then practiced law for 20 years until a rather tragic life event took me into teaching. Increasingly, I am seeing people go into teaching to do away with this idea of dumbing down in education. It’s in no one’s interest to go in that direction.
Rockefeller was an ass. And so is anyone else who gripes about taxpayer money going to educators when so so much taxpayer money goes to so called free enterprise adventures, e.g. subsidies, tax breaks…oh, don’t get me started on where taxpayer money goes. WE are taxpayers as well, you know. It’s no free ride, dude.
I suggest you do not throw stones at glass houses. You’re not at this blog because the public education system sent you here.
There are quite a few very intelligent posters here who are public ed teachers. Flat has an agenda. I can only imagine that his ex-wife is a govt worker who left flat for another govt worker.
I’ve suggested on a number of occasions that he enter the teaching profession since it pays so well for such easy work. Seems he hasn’t taken me up on the suggestion. Wonder why???
Yes, apparently competing to see who can sell the most widgets is more honorable and noble a profession than education.
isn’t this what walmart is doing today?
W2 income is way up so far. My client list will get hit by the downturn, but my systems are priced a good 30% below even what it costs to outsource to India, so I am guessing we will continue to keep the doors open and the rice bowl full. I am salting away personal and corporate money for the bad times ahead.
From my view point, if I can manage to keep the business coming in, even at a low rate I can score some top talent when everyone else in the sector is cutting back.
“less work for the trades”
I’m seeing that with painters in Northern Colorado. We had some guys give us quotes, some of them were available “immediately”. One guy only had commercial jobs for references, no residential, and now he’s leaving flyers on door knobs.
The guy we ended up hiring also became available almost immediately.
I guess it’s a good time to get a mason to redoo my front steps. Last time I hired a mason (’99)he didn’t get to work for about 9 months. But the price was great.
The “R” word is more and more becoming a part of the landscape as people look over the horzion to where housing is headed.
““This puts builders with new homes on the market in a crunch. Earlier this month, one builder told the Berthoud Board of Trustees that he is losing money every day on his unsold homes at Gateway Park off Colorado 56 and County Road 17. ‘Sitting on all seven homes for two years has nearly bankrupted me,’ Eddie Mirick said.””
I feel really sorry for this poor soul, as I’m sure he didn’t have this coming. Maybe tomorrow I’ll setup a website to raise money via donations to help him out…ya’ sure that’s what I’ll do, right after I set one up for the broke NBA players that pissed away their millions.
All sarcasm aside, I generally don’t wish ill fortune on people, but what kind of greedy person holds on to spec houses for two years waiting for them to sell?
“…what kind of greedy person holds on to spec houses for two years waiting for them to sell?”
I was wondering that, too. Probably a deer in the headlights reaction, but he could have cut all of them by a set percentage or tried cutting one or two loose at whatever it takes to sell. Whatever, by not cutting prices to move his product, he screwed up badly and is about to pay dearly for the experience.
“‘Anyone who says they are dead certain is either lying to you or to themselves,’ said economist Lewis Alexander.”
Well Mr. Alexander, I’m dead certain that there will be no rate change next month. The MSM is on the job cranking out realism in the housing market so all the Fed needs to do is sit on the sidelines and wait until further adjustment is needed. Having said that, if I were in the retail business I’d be stocking all my Xmas goods early with sales to lock profits now, by Thanksgiving weekend things may be toast for holiday sales.
In our area, back-to-school shopping was heavy over the weekend and today. Might be the lousy weather but I still
saw too many people at Kohls and Old Navy. We’re going to
wait several weeks before buying clothes. They’re priced
at full retail right now.
Salinasron — what do you think about the strong hint of a noticeable uptick in European interest rates, with regard to the Fed’s decision? Them bonds gotta be sold somehow. I was wrong re the last two Fed meetings, so have eaten enough crow to be content watching others predict the next meeting’s results.
Dashing through the tracs in a one horse open Benz or the roofs we go selling all the way but wait! Where are the buyers? Sorry !!!
GAME OOOVER!
holy shat. like minded people. great blog. i saw the burst coming years ago cuz the hogs were buyin’ em’ like a hoss runnin’ 6 furlongs..add our current leaders. 33, saving and waiting 3-4(6?) more years to buy a beautiful(cheap) coastal gig and one in the city, portland OR.
i’ve been mildy preachin’ for the past couple years to friends and family about the shifty economic times to come and they all shot me down with valid points but lackluster futuristic insight. they’re all in debt to their ears.
This puts builders with new homes on the market in a crunch. Earlier this month, one builder told the Berthoud Board of Trustees that he is losing money every day on his unsold homes at Gateway Park off Colorado 56 and County Road 17. ‘Sitting on all seven homes for two years has nearly bankrupted me,’ Eddie Mirick said.”
Sometimes, your first loss is your best loss. This guy should have cut bait when he had the chance. Have you seen the inventory levels in Northern CO lately?
Forgettaaboutit.
I lost out this week on what would have been the new house of my dreams, had I let my heart rule my wallet. Listing agent probably used my serious inquiry to get someone else off the fence. Too bad. But in many ways it’s like losing a nice piece of Kobe beef. There will be another, and another, coming soon enough to a market near me. They may not be quite as perfect, but they sure as heck will be a lot cheaper. I’d be happier paying $25 a pound for a steak that is 95% as good as the one for $50 a pound.
that’s the key, isn’t it? why do so few people get that? on the one extreme they MUST have the 100% at full price, and at the other extreme they will pay 10% for something 5% as good… kobe beef, used cars, whatever…
The writing is on the wall, and on the chart:
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
The real estate bust has only just begun.
Pity the fools who bought at 100-year highs (2003-2005)…
“100 year highs,”
great phrase, puts it in perspective.
That chart is the most disturbing indication I have seen to date of how far out of wack housing prices have become. It’s impact is made all the more disturbing by what I know of Robert Shiller’s modest integrity.
Here is the link to a very good article about the global housing bubble from the Economist magazine and what we can expect over the next 5-7 years here in the US.
http://www.economist.com/finance/displayStory.cfm?story_id=4079027
One of the major arguments of the article is that, “…residential investment is at a 40-year high in America, yet the number of households is growing at its slowest pace for 40 years. This will create excess supply.”
Is a recession coming? You bet! The only question is, how deep?
As economist John Kenneth Galbraith described the situation in his 1954 book The Great Crash - 1929, “The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune.”
a great book, and a fun read. The parallels, especially in mass phychology and the power of leverage - which is just as powerful in reverse, have convinced me that we are in for a severe recession or a depresson.
“Investor sentiment toward investing in real estate assets nationwide has also fallen. ‘The drop in confidence in the real estate market reflects the economic data for that sector and suggests that investors are feeling the pinch in their local markets,’ said Anne Briglia, strategist for UBS.”
More to the point, it reflects the fact that investing in real estate does not pencil out very well when cash flow and capital gains are both negative.
“Though prices are still up by a hair, 0.3 percent, buyers know it’s only a matter of months before they start to fall. Even for those willing to buy into this environment, the lenders still have to be willing participants. ‘Lending to consumers for housing will become more restrictive as mortgage lenders pull back,’ Mr. Kiesel added.”
Hold it. I vaguely recall Ben posting new home sale prices from Dept. of Commerce a couple of days ago which showed a 17% decline (36% annualized) in new home sale prices from April 2006 through July 2006. I guess the discussion above must pertain to used homes?
DANIELLE DiMARTINO
12:00 AM CDT on Monday, August 28, 2006
Danielle DiMartino
Investors are being bombarded with arguments for and against the homebuilding sector.
Mark Kiesel, a portfolio manager at bond behemoth Pacific Investment Management Co., or Pimco, has been sorting through the noise. He thinks he sees a scenario playing out in homebuilding that will be of interest to the corporate bond universe.
If you’re tempted to stop reading because you only play the stock market, don’t. Mr. Kiesel’s conclusions also speak to the rising chorus that insists homebuilding stocks are a great value.
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What part of “hard landing” do they fail to understand? And that characterization came out of the mouth of no less than one of the sector’s former leading bulls, Robert Toll.
“The next question is what happens when new home sales at even newer low prices fail to cover builders’ cash flow needs, which drives at the heart of what’s facing shareholders and bondholders alike.
Tuesday: Landlocked”
Danielle — You go girl! I am sitting on the edge of my chair with anticipation to findo out what balance sheet implications might arise from being “landlocked.”
Haircut of the day:
About 20 steps from my front door is a realtor’s office, which I pass all the time on my walk to STBX.
Anyway, I always look in the window to see what’s for sale (everything) and how the prices looks (still insane) will be for a long time.
Anyway, here is the listing I saw today. 1/1 condo in Monticeto (a condo building in downtown) 208K. That’s still dreaming, but to give some perspective, they were selling for 240-260K just a few months ago. They are about 750sq.ft, in a decent neighborhood; unfortunately, right on the RR tracks.