‘Price Correction A Welcome Development’: NAR
The realtors trade group has the August numbers out. “Median sales prices of existing homes fell from year-ago levels in August for the first time in 11 years and just the sixth time in the past 38 years, the National Association of Realtors said Monday. Sales have fallen five months in a row and in nine of the past 12 months.”
“The median price of an existing home fell 1.7% year-over-year to $225,000. It’s the first time since April 1995 that median prices have fallen on a year-over-year basis. It’s the second largest decline in the 38-year history of the realtors’ survey, exceeded only by a 2.1% drop in November 1990.”
“‘The price correction is a welcome development,’ said David Lereah, chief economist for the realtors group. ‘The price drop has stopped the bleeding,’ Lereah said. ‘Sales have hit bottom,’ he said. ‘Sellers are finally getting it.’ Lereah expects prices to continue to drop for the rest of the year, which would keep sales from falling further.”
“Inventories of unsold homes rose 1.5% to 3.92 million, a 7.5-month supply at the August sales pace, the most since April 1993.”
“NAR President Thomas M. Stevens, said sellers need to price to current market conditions if they want to sell within a reasonable amount of time. In some areas home sellers are not making sufficient adjustments in their listing price, so their homes are staying on the market and contributing to the build up in inventory, said Stevens.”
“‘We’ve been anticipating a price correction and now it’s here,’ Lereah said.”
“‘The housing bubble has burst and housing is in full retreat,’ said Steven Wood, president of Insight Economic. ‘What was a sellers’ market has become a buyers’ market. The housing correction still has a long way to run.’”
“‘How long we can sustain consumption on the basis of what we have sustained it in the last several years: by taking money out of your house,’ Joseph Stiglitz, Columbia University economics and Nobel laureate, said.”
From MarketWatch. “Higher inflation remains a bigger risk for the economy than a sharp slowdown of growth, said Richard Fisher, the president of the Dallas Fed bank on Monday. ‘I continue to fret more about inflation than I do about growth,’ Fisher said.”
“Fisher dismissed the benign August PPI report released last week as unreliable. The best gauges of inflationary pressures ‘are not yet comforting,’ he said.”
“Fisher’s remarks lacked that sense of concern. He noted housing was undergoing a ’serious correction..In a few local housing markets, especially in the coastal areas..home prices have peaked and are beginning to decline.’”
“But he also said third-quarter growth would be only a touch below the 3 percent annualized pace of the previous three months, while highlighting factors supporting the economy. ‘We are fortunate that the rest of the economy is healthy and robust.’”
>
Shameless. From the gov to media to NAR. They just make it up as they go along and NOONE is ever held accountable. Disgusting.
Agreed!
“‘The price correction is a welcome development,’ said David Lereah, chief economist for the realtors group. ‘The price drop has stopped the bleeding,”
THE PRICE DROPS ARE THE BLEEDING!!!!
Yeah, but he thinks no sales commissions is the bleeding
Condos in the West appear to be leading the decline..
Existing Condo/Coop Sales (PDF)
Sales volume down 24.8% year over year (seasonally adjusted)
Sales price down 6.5% year over year (seasonally adjusted)
jb
So let us figure this out: Since August, 2005
The median home price dropped 1.7%
The inventory of homes for sale grew by 38% from 2.8 to 3.8 million
Annual sales dropped from 7 million to 6.3 million homes
The supply of homes increased from 5 months to 7.5 months
And David Lereah said
“The price correction is a welcome development, the price drop has stopped the bleeding, sales have hit bottom, sellers are finally getting it, I am confident the housing sector is picking up, if that’s so, we’ll have achieved a soft landing.”
How does this man look at himself in the mirror? I believe he needs all our prayers.
I believe that Lereah actually believes what he’s saying. This is how sociopath/psycopaths operate so effectively in society. Try it yourself; repeat a known lie to yourself over and over and over again… first, it will begin to sound reasonable, eventually, it may become believeable.
Didn’t David Liar take any ethics classes at U of Virginia Business School? Doesn’t the NAR have a Code of Conduct for it’s members? These sleezeballs make used car salesman look like saints…..Shame, Shame, Shame.
Obviously, this *is* the Code of Conduct.
I’m confident Lereah flunked the ethics class. That was the top pre-requisits for the highly respected NAR Chief Economist job he does so remarkably well at. Now the “Long awaited price declines” are a welcome sign according to the NAR chiefs? Don’t they realize that development will lead to complete market paralysis as potential buyers wonder where the actual bottom will end up settling out? Of course they know. These chumps are cheerleaders for the team that’s down 42-0 in the 1st quarter. There are 3 quarters to go and a lot of cheering left to do during the ROUT.
He does believe what he’s saying. Remember that the NAR makes money on transactions, not price. The worst case scenario is no sales, not lower prices.
Right, the NAR openly admits it exists for the benefit of Realtors, not buyers or sellers. Whatever benefits realtors the NAR does. If they were to falsify actual numbers, that would be an issue, but he can speak whatever forecast he likes, as economics is fundamentally driven by individual valuations and group psychology and so nothing is predictable. If he wants to forecast real estate will go up 10+% forever, well that defies common sense but okay. Obviously this is to rouse a speculative market and serve Realtor commissions. Likewise, now that sales volume is dropping, Realtors are better served if prices fall so that sales pick up, even if they sacrifice some commission. He is acting entirely consistently with his job description. If he’s not lying about current numbers then he isn’t lying; though all along people should have regarded the real estate industry more warily as they would any other sales interest. It’s the MSM that proposes to disseminate truthful information which has been unethical in serving their advertisers without seeking out dissenting opinions about this whole mess.
For some reason this made me think of OJ Simpson…
This is how sociopath/psycopaths operate so effectively in society. Try it yourself; repeat a known lie to yourself over and over and over again… first, it will begin to sound reasonable, eventually, it may become believeable.
Joe Gobbels and the Nazi’s had it down pact.
When the B-17’s and 24’s were raining bombs down on the German populace, the people didn’t have a clue as to WHY US????
Because they never got the truth.
The parallels are uncanny.
NAR and their pathetic agent minions have led millions down the path to financial ruin with David Lereah shouting in the pulpit.
are we really sure that these quotes are from him? maybe he’s tied up in a basement somewhere, blindfolded and gagged, while baghdad bob impersonates him.
and of course the press dutifully reports whatever he says …
Because of the unprecedented number of houses bought by inexperienced “investors/speculators” combined with “toxic mortgages” there’s no way this can be a soft landing for most markets.
Liar-eah proves the old adage that the biggest lies are the most credible because the average jaded, cynical person can’t believe that anybody could lie this much.
I’m sorry, but with a track record like this, you would think DL would have the courage to tell the true story about where we’re REALLY at rather than taking the muddy road by saying s**t like “The price correction is a welcome development”. It truly pains me to to think how so many organizations blindly take stock into what he has to say.
CV of one “Dr” David Lereah:
B.A. in Economics & Marketing from American University, Washington, D.C.
Ph.D. in Economics from the University of Virginia, Charlottesville
Chief Economist and Chief Operating Officer for the Mortgage Bankers Association of America
President and Chief Executive Officer of Lender Technologies Corporation
Managing Principal and Chief Executive Officer of Vantage Financial Group, Inc
Chief Economist of Sovran Bank
Member of the American Bankers Association’s Economic Advisory Counsel
Faculty member at the University of Virginia
Faculty member at the Graduate School of Management at Rutgers University
Board Member, Velao Interactive Solutions Corporation
Board Member, EZ Archive Corporation
Board Member, The Harvard University Industrial Economist Council
Board Member, The Burnham-Moores Center for Real Estate at the University of San Diego
Board Member, The Gerson Lehman Advisory Council
Board Member, National Housing Conference, Center for Housing Policy
Are you sure that’s not a “BS” in economics?
PhD = pile it higher and deeper
Wow…
Posting that kind of information could be dangerous for you and for DL. For DL because that would make him a target of militias and you might be one of several blamed for sparking an assassination. I’m staying out of this.
Stephanie
“NAR President Thomas M. Stevens, said sellers need to price to current market conditions if they want to sell within a reasonable amount of time.”
Those of you that said that Realtors would (eventually) lead the charge for getting sellers to lower prices…you were right!
Ha, this is rich! The same folks that told schmucks across the nation to “buy the biggest house possible” - now chide them for expecting the gains they were promised!
Realtors come in somewhere between car salesmen and tow truck drivers on my sh*t list!
The best way that sales can start picking up is if the price quickly falls to its low point, and buyers don’t think any more price cuts are coming. But a long, slow price fizzle will not get buyers back into real estate.
IMHO, a good guess as to where prices will end up is by looking at the long run Price/rent ratios in specific markets. For many places on the coasts, those ratios started to climb around 2002, and rents have not been increasing very fast. So for most places, prices need to get back to about 2002 levels before buyers believe that they’ve bottomed out.
Great interview with Lennar’s CEO MIller in today’s Miami Herald on how just as I stated months ago, homebuilders will conitnue to build regardless of demand.
http://www.miami.com/mld/miamiherald/15587141.htm
Here is an excerpt:
“Lennar’s response: Keep building.
Miller plans to ”keep the conveyor belt running” and finish building new homes in projects already underway. He also plans to offer sales incentives and slash prices to get the homes sold.
It’s an approach shared by several home builders, such as Centex in Dallas and D.R. Horton in Fort Worth. Others, such as Pulte Homes in Michigan and KB Homes in Los Angeles, have taken a different tack. These builders are scaling back production but holding firm on prices until buyers return — a strategy some have called quality over quantity.
However, the pressure is on. KB Homes chief executive Bruce Karatz said Thursday price concessions and incentives by other builders have “required us to do the same in some cases.”
For Lennar, Miller says he’d rather have cash now — even if there’s less of it — than sit on a house and hope it’ll sell for a better price down the road.
”With liquidity we live to see another day,” said Miller.
Of course, that strategy also eats away at profits.
Lennar has ”decided to continue producing whether there is a buyer or not,” wrote Stephen East, analyst with Susquehanna Financial, in a September report. “Unless the market does an about-face, we know the impact to margins for the next several quarters will be detrimental. We prefer build to order, not build to a schedule.”
The question is, How much profit is built into their houses already and how much can they cut and still make money. Also how pissed will previous buyers be when they find out that Lennar can sell $400,000 houses for $200,000 and still make money. Personally I don’t know what the profit margins are but I suspect that the New Home Builders have been making out like bandits during this bubble, though eventually even they can’t keep cutting prices and still make money.
Personally I don’t know what the profit margins are but I suspect that the New Home Builders have been making out like bandits during this bubble, though eventually even they can’t keep cutting prices and still make money.
We are a long, looooong way from hitting that point. Some builders are still building on lots they purchased pre-bubble (late 90s), so they can literally slash 50-60% and still make a profit. The are in business to make money, so if they are still building like crazy, it means they are still making crazy amounts of money.
http://www.thestreet.com/_yahoo/newsanalysis/homebuildersconstruction/10310425.html
KB will have in 2007 “free cash flow” of $1 billion.
’With liquidity we live to see another day,’’ said Miller.
With oversupply you will die another day, said GetStucco.
I mentioned this in a previous post the other day but I was in a new Lennar model home in Bradenton FL a week ago and the model we looked at sold for $460k last summer and is now priced at $380k. The kicker is that the builder was willing to let it go for $330k on the spot and I imagine if I was actually serious it could have been negotiated even lower. They were deperate to unload some houses…..
Read between the lines. Stevens actually said,’Lower your prices below the last comp so that I can sell it and get a commission!’.
Of course. It’s a wonder they took this long to come around. Realtors find themselves in a tricky spot trying to sell something they don’t own and at prices they can’t adjust. They know good and well the inevitable slump will be protracted and ugly, as the defaults mount. Once we hit default critical mass, the eventual tipping point, that’s when we see the panic set in. Just a matter of time…
This is the same dumb-ass who can’t sell his OWN house because the price is admittedly too high…
http://www.washingtonpost.com/wp-dyn/content/article/2006/09/08/AR2006090800760.html
It bears repeating his comment:
“But, he noted, in his defense: “Who knew last September how long this down trend was going to continue,” after so many years of climbing upward?”
We did. And *you* should have.
Dumb and greedy:
“When asked how long sellers should expect a sale to take these days, Stevens said 40 to 60 days would be typical. And if a house hasn’t moved by then, he said, “You need to adjust the price. . . . But I didn’t do that. And my house is still on the market.”"
Am I mis-reading something here? It says that he bought the property in 2001 for $1.3mil in 2001, and that it has been sitting on the market for over a year now with a price tag of $1.45mil. A few paragraphs later, it goes on to say that the property is “assessed at almost $2.8mil, a testament to the hot market”
How is possible to assess at almost twice the asking price that no one is willing to pay?
“David ’soft landing’ Lereah, stated that “We’ve been anticipating a price correction and now it’s here. The price drop has stopped the bleeding for housing sales. We think the housing market has now hit bottom.”
Hit Bottom? Think Again! The housing market boomed for 5 years. The decline will much longer 1 year.
David
http://bubblemeter.blogspot.com
Get David Lereah’s “Real Estate Reality Check” presentation off this page
to see what he new about how long it will take the real estate market to bottom out, and when he new it.
http://www.realtor.org/lsummitweb.nsf/pages/ViewPresentations2006
Great Link!
This guy makes me sick; excuse me; I’m going to puke now…
Hey David Lareah Watch guy! I know you read this blog. Why don’t you post GS’s presentation link on your blog with a timeline demonstrating what DL says in public to American consumers and what he and his friends know privately.
I thought bubblewatch and lereahwatch were done by the same blogger.
You seen what DLWatch did to Baggdad Bob; nobody deserves that… not even.. Baghdad Bob…
…and yes Suzanne, David = bubblemeter = lereahwatch; thanks for clearing that up for me; sorry for the redundancy David; I still think it was a great find by GS and deserves additional commentary within any of your forums…
DL needs to go back to school to learn how to construct more realistic models. The input for the model was the mythical outcome of a soft landing and it plugged numbers back in to satifsy the answer he was looking for. Total BS.
The only interesting number from the entire collection of slides was the net out-migration for CA of 663,000 in the past 5 years. What happened to everyone wants to live here and people keep coming to CA? LOL!!! CA is in a world of hurt, especially if the govt gets tougher on Visas. Expect 50-60 price declines.
The input for the model was the mythical outcome of a soft landing and it plugged numbers back in to satifsy the answer he was looking for. Total BS.
hehehe…sounds like a lot of the appraisals upon which this entire house of cards is built.
David ‘I told you prices will drop’ Lereah needs to go polish his crystal ball.
According to DL, “price drops will stop the bleeding in sales.” Think again, bud. It might have the opposite affect. Generally, when consumers expect prices to go down they tend to postpone purchases, particularly when purchasing big ticket items. Moreover, with all the bubble talk hitting the air, some consumers may postpone their purchases indefinitely due to fear of buying at the top of a falling market.
The only way to break these laggards out of their wait and see psychological state is with heavy incentives or price cuts; this way you avoid any post purchase disonance and reassure them of their purchase decision. Let the downward spiral begin!
Quick Question: Does anyoen know when we actually hit the pick in terms of median home price? Some time last year or this year? Just wondering.
Sorry, of course I meant “peak”, not “pick”. Now I know I have lost it.
It was different in different areas (and some may have not peaked yet).
Or do you mean nationally?
Sorry. I meant nationally.
cape was first to tank
same as 90’s
fall 2004
DC area 6/05
From various sources I’ve seen, the peak was probably around June or July of last year (2005).
From various sources I’ve seen, the peak was probably around June or July of last year (2005).
I’d echo that in S. FL according to what I’ve seen take place, I think June 2005 was close to peak.
According to NAR, the national price median peaked July 06. But, in the West, for instance, it was Nov. 05:
http://www.realtor.org/Research.nsf/files/EHSreport.XLS/FILE/EHSreport.XLS
Perhaps more important the price, seasonally adjusted sales peaked Aug 05 (well, they don’t have data from before then on this spreadsheet)
Thanks for the quick response. I have a follow-up question. Is anyone aware if median house price follows some kind of seasonal pattern or are is pattern we see in the spreadsheet just random fluctation. In other words, I that expect actual sales is affected by the season (ie., time or month of the year) but are prices also affected. Again, just curious questions.
Sales have a strong seasonal component, so only seasonally adjusted sales are really helpful.
Prices universally climb upwards. There may be a seasonal pattern, but I suspect that it is small, but I’m not sure. If there was a seasonal pattern, then this would be reduced by people trying to capture the gains. For example, if prices were always higher in the summer, then more sellers would list then, increasing supply, and reducing price. And if prices were always lower in the winter, then buyers would increase demand at this time, increasing prices. Also, a person usually buys and sells at the same time, so high sales mean high supply and high demand, keeping prices steady. Also, basically everyone wants to sell and buy when the weather is nice, and these effects cancel,which leave prices unaffected.
I think that consecutive monthly median prices will accurately track what is happening to the “market price.” In smaller markets, where there aren’t many sales, the median price may have high variability, so in that case, quarter to quarter or year to year comparisons may be helpful. You could also construct a 4 month moving average to reduce “noise” in the monthly measures.
‘I think that consecutive monthly median prices will accurately track what is happening to the “market price.””
Not sure you can say monthly median price means anything at all with declining sales and rising inventories. Clearly, the market price is significantly lower than what sellers are asking.
Agreed. Right now, we are in “disequilibrium” and prices are too high, resulting in a surplus of houses for sale.
But ignoring whether or not we are equilibrium, what I meant to say was that one can legitimately look at the monthly selling price and compare it to last month. If that is down, then that’s our best signal that market prices have fallen. Some people would place more weight on YOY price changes, but I don’t think there’s much seasonality in the prices, so one can simply look at month to month changes.
November ‘05 seems about right for the Bay Area… I was looking to buy then and there was still plenty of craziness going on. The speculative insanity seemed to slow down abruptly in December for San Francisco.
Hey, if Tony Snow leaves, I think Bush has found his next Press Secretary.:-]
“David ’soft landing’ Lereah, stated that “We’ve been anticipating a price correction and now it’s here. The price drop has stopped the bleeding for housing sales. We think the housing market has now hit bottom.”
Hit Bottom? Think Again! The housing market boomed for 5 years. The decline will much longer than 1 year.
David
http://bubblemeter.blogspot.com
Mostly I’ve avoided even paying attention to anything that comes out of this kook’s mouth. He’s a flack and a tout for the industry and hopefully everyone would realize that. Statements like this one just kinda make you scratch your head though:
“Lereah expects prices to continue to drop for the rest of the year, which would keep sales from falling further.”
What is that supposed to mean?
Nothing more than republicanspeak.
When I think of DL I acutally think of “I did not have sexual relations with that woman”. Let face it they are all liars er I mean ahem have different perceptions of reality.
When I hear Liareah talk, all I can think of is “there’s WMD’s over dar!”
He reminds me of Joe Isuzu.
DL favors an Econ 101 model of the real estate market, with a fixed demand curve. As long as the demand curve stays fixed, lower prices will increase the number of purchases. Too bad that the reality is quite a bit different, as real-world buyers try to avoid catching falling knives, and thus the demand curve shifts to the left once news about declining prices is printed in newspapers from coast to coast.
.6 or .625 ratio of r.e. boom to bust years (mentioned by poster ‘andra’ yesterday).
so, for 8(?) years up, this would portend about 12 years down!
comments, bubbluminati?
Was that ratio formulated before, or after, the advent of a market that is 50%(?) I/O’s and Neg-am’s and adjustables and no money downs and stated-incomes? Sure, real estate is sticky on the way down, IF homeowners don’t have to sell because they just ride it out with fixed payments. But this time, payments are NOT fixed. Payments are going to up, and people will HAVE to sell or go broke.
Wouldn’t that make the bust go a lot quicker?
The Bible says the seven fat years are always followed by seven lean years; that would be a one-to-one ratio. And as we know, the Bible is Always right.
Oxide’s comment was right on - since so many the factors are historically new (that is 50%(?) I/O’s and Neg-am’s and adjustables and no money downs and stated-incomes) how could any one reasonably predict how ugly this can get.
We do?
Possible they’re both right. The slope of the price declines curve will be asymptotic and very steep at the top, once it rolls over. So… perhaps 3-4 years to relatively flat prices and a prolonged dead market…8 years or so?
you got it!
you forgot:
record percentage of households owning/owing homes: 70%
PLUS
record percentage of households owning second/vacation homes
PLUS
record percentage of households owning investment real estate, 10+ properties (and likely cash flow negative)
Once again, you are on the ball GS. Most people’s assumptions and decisions are based on a fixed demand curve. What’s more, as you already know, the supply curve shifted to the right due to imaginary speculator and subprime market demand. The harsh reality will be reflected in prices; always has and always will. What a mess.
Agreed. The thing with a speculative bubble is that the supply and demand curve gets stood on its head. Increasing prices, rather than depressing demand, actually increase it, when people interpret the price increase as meaning prices will continue to increase.
It works the same way in reverse. Ordinarily, people buy more of an item when it is cheaper — but not when the item in question is being viewed as an investment. People see falling prices and expect them to continue.
Kind of the same dynamics as a hurricane, at least as it’s powering up: the hot air swirls around sucking up even more energy, which makes the hot air swirl around even more, until it eventually devastates a city.
Now the eye has made landfall, and is starting to wind down.
What’s more GS is this scenario was easily predictable b/c the housing inustry’s profit margins were at all time highs and there were little or no barriers to entry; everybody and their bucked tooth brother could easily place their hands on the real estate wealth building key.
As a result, existing builders large and small plus the new entrants high profit margins tend to spawn snatched up land options all over town, apartments converted to luxury condos, speculators piggy-backed on both, and fixer-floppers sprouted everywhere shifting the supply curve beyond reason and doubt. Now, everyone is looking for an easy way out, even the bucked tooth fella; and on the way out, they will drive prices down to minimize losses, break even, or make just one more dollar.
Mr. and Mrs. Soccermom nor any of the big players understand the carnage heading their way. Sellers better get their real estate crash helmets out and on because its going to be a rough ride down from hereon.
Not to mention how the demand curve is going to continue to shrink since so much of our economy is dependent on both bubble-induced consumer spending, and bubble-created RE-related jobs.
“Lereah expects prices to continue to drop for the rest of the year, which would keep sales from falling further.”
He’s saying prices will continue to drop so the # of houses sold will be steady. Price per house AND # of houses sold are different things, although he sounds like he’s talking about the same thing in that sentence.
In other words, NO houses will be sold if the prices stay steady.
He mean “sales volume” from falling further. Indeed, if prices go down to market value then sales volume will pick up and inventory will shrink. Mainly, realtors care about sales volume, which is where they get their commissions from.
Right, I’m not at all perturbed by these statements from Leareh, however inconsistent they may be with prior statements. He never claimed to have served the buying public.
I, too, am puzzled by how the “bleeding” is somehow stanched by a small price drop.
The “bleeding” that is staunched by a small price drop (assuming it stimulates buying) is the bleeding in the Realtor’s bank accounts–no sales means no commissions!
Owners still have a LOT of bleeding to come.
Jon
i just love how the reporters run right to their computers and get these fresh quotes out as ‘news’ from the expert. perhaps the news service that employs these reporters has actually outsourced this service … so this poor quality, low cost ‘reporting’ is being done at a newsdesk in mumbai …
“‘We’ve been anticipating a price correction and now it’s here,’ Lereah said.”
Anyone else reminded of that book 1984, where the government has to keep going back and changing history. Oceania at war with Eastasia? No no no. We’ve ALWAYS been in alliance with Eastasia and at war with Eurasia. (FYI — A good link on this topic:
http://www.online-literature.com/orwell/1984/3/)
That’s kind of what Lereah reminds me of. Did I say real estate would boom for the next decade? No, No, No. I said I was anticipating a price correction. What a joker.
george orwell in ‘1984′: ‘Those who control the past, control the future; Those who control the future, control the present; Those who control the present, control the past.”
Maybe Danielle will be able to gag that motor mouth Fisher soon.
The entire world economy has been using a big american credit card. The bill is here. There’s a strong argument to be made that gas prices are a reflection of the slowdown (velocity of money) so to say low gas prices will help is missing the point. Gas prices are low because businesses don’t need it as much.
And when things pick up again, expect fuel too overshoot the old ceiling of $3.25/gal or whatever it was in your area.
yep, about 2012
I’m thinking we’ll start seeing gas prices rise Wednesday, November 8, 2006. But maybe I’m just a cynic.
My thoughts exactly. The financial press siezes on news of lower gas prices as unambiguously good for the economy, ignoring the possibility that they are symptomatic of a worsening downturn.
I find it far more likely that the dramatically lower gas prices will a) convince the lumpenmasses that things are getting better, which will b) lead them to continue with profligate lifestyles rather than drawing back and saving, which will c) provide a “dead cat” bounce in the market where it appears to be heading into better territory, but will actually d) make the future drop even worse.
This has been my thinking, too. Especially given the Fed pauses (which will also convince the lumpenmasses that things are getting better).
Out of sight , out of mind. Vast majority of people more than happy to stick their head in the sand when it comes to their personal finances . After al, their Uncle Sam has been ignoring mathematical reality for decades. Sooner or later the bleeding can’t be staunched though. IMO it should have bled out more than a few times in the last 30 years. But they slap Bandaids on and look for a new way to inflect a yet another wound. When once , the wounds could have been healed , albeit painfully perhaps , they have simply been allowed it to fester and compound to other parts of the body. It makes it worse. The patient may not be terminal yet , but he’s moving in that direction. What will it take for people in general to stop living beyond their means etc etc? I think that many of them really honestly think it’s okay to live this way. They just don’t understand the math. Previous generations probably did and must be sad to see what has happened. Reminds you of that joke about the how system has failed to educate people :
Math test in 1960: A farmer has costs of $80 and sells his lettuce for $100. What is his % profit?
Math test in 1970: A farmer has costs of $80 , and makes a profit of 25%. How much profit does he make?
Math test in 1980: A farmer has costs of 80 dollars. His profit is 25%. This equals $20. True or false?
Math test in 1990: A farmer has costs of $80 , and makes a profit of 25% , or twenty dollars. Use your pencil to underline the word twenty.
Math test in 2000: A farmer works unfairly hard for his inadaquately subsidized income. How do you think this makes him feel? Draw a picture if you like.
Math test in 2010: Uno granjero…..
Math test 2020: There used to be “farmers” who worked what was known as “farmland”—open space where food was grown. Yes, Timmy, plants that grew out of the ground, and people ate them. Not as tasty, of course, as the chocoblastsoylentxtreme we have today, but those were dark, primitive times.
only math test for 2000: “what’s the monthly payment for the teaser rate interest on …”
Comparitive math test in most other developed/developing countries outside the USA 2006: Using your knowledge of differential geometry, calculate the rate of change betw……
yes, these mysteriously falling gas/oil prices, despite increasing world demand (u.s. up 1% and china up 15% yoy), and diminishing output from the largest fields, all add up to a major sucker’s rally as the underlying bust is just gaining steam. it’s been suggested by james howard kunstler that the military was winked to top off the tanks a while back to so as to deaden demand before the election….
Here’s how they’ve been doing it for the past 10 years: raise it up (the price per gallon), then bring it down some once we buy a bus pass, or start riding our bikes to work. Then raise it up more, then bring it down less. Etc. etc.
I don’t care if they raise it to $10/galon, I can walk to work, and it would help bring back neighborhood commerce.
Interesting analogy although it is pretty common sense. I know quite a few people that bought the big SUV’s and 3500 trucks. They now drive Honda civics while the gas guzzlers sit in the drive way, with for sale signs on them.
And now making payments on the gargantuan SUV AND the fuel sipper. Brilliant financial minds at work I tell ya.
Agreed. The economy is on the precipice of a major slowdown/recession…
” There is no real growth in the American economy. Figure it out. Last year Americans saved less than 0% of their net earnings while they borrowed a whopping $600 billion from their home equity to piss away on a consumer spending spree. Once home prices begin to retreat, that $600 billion will evaporate, real GDP will shrivel, and the economy will begin flat lining. (Consumer spending is 70% of GDP)”
http://www.pej.org/html/modules.php?op=modload&name=News&file=article&sid=5481&mode=thread&order=0&thold=0
That Mike Whitney article is a real cure for happiness. He’s right, though.
I’m amazed that people think the Fed ‘failed’ to stop this bubble. Why would they, when they engineered the whole thing every step of the way.
Reading that story is like jumping into a cold lake.
Now is the time when, noticing they are standing on the decks of a listing ship, the smart people start to mill around the lifeboats - awfully close to the lifeboats.
Sorry, I’m not buying the police state thing. In two years GW will retire to a life of leisure and speaking engagements and Hillary or whoever will take over. Unless you think Hillary will continue the driver towards the police state.
IMHO, Hillary won’t take up residence at 1600 PA anytime soon. She’s terrifyingly ambitious, but not stupid. What rational person wants to inherit the post GW-and-friends disaster? I’m strongly considering voting Repug….if only to give them that smidgen more rope they need to snap those delusional necks once and forevermore, amen…
You’re wrong, she’s stupid.
Last year Americans saved less than 0% of their net earnings while they borrowed a whopping $600 billion from their home equity to piss away on a consumer spending spree. Once home prices begin to retreat, that $600 billion will evaporate, real GDP will shrivel, and the economy will begin flat lining.
Plus they have to pay the 600Billion back
What about the possibility that oil is forecasting a decline in the dollar? That is, in real terms, oil may not cost any less at all.
This guy Lereah is unbelievable…I mean the quotes he is making over this time are nothing short of astounding. Someone surely must be collecting them to shove it in his face when all is said and done.
We have hit bottom????
We have a perfect storm of media idiocy, and they need someone to quote.
Some generalizations with obvious exceptions:
1> Journalists own homes
2> Journalists don’t understand economics
3> Journalists don’t do their homework because the printing press distribution monopoly made them lazy.
4> Journalists are paid with money from real estate/housing related ads (open a paper to see what I mean)
5> Journalits’ income is threatened as advertising money shifts to online advertising which makes #4 more important.
6> Journalists fear good blogs which tend to have a more bearish(and arguably more honest) stance, so they feel a need to defend their bearish, paycheck generating, outlook.
Maybe Markey Mark can play the fearless news captain in the movie version of this debacle.
1> Journalists own homes
This is the key. Since they own their homes, it colors their thinking. Journalists are human, too. Humans have a tendency to deny the things that may be detrimental to their financial condition.
What do we know? We’re all a bunch of bitter renters.
http://davidlereahwatch.blogspot.com
“‘We’ve been anticipating a price correction and now it’s here,’ Lereah said.”
What about that book you wrote David? What was it called again - oh yea “Why the Real Estate Bubble Will Not Bust”
When was is published again? - oh yea Feb 2006.
Shut up David - you’ve lost all creditability.
Wait until the figures are in by the end of the year . I’m sure that incentive were not included in the YOY price drop either .
Oh , and I agree with you …SHUT UP DAVID!
Maybe DL should have quotes around his title, as in ‘David Lereah, Chief “Economist” for the National Association of Realtors’?
Actually, it occurs to me that maybe he’s telling the truth. Maybe the NAR did see this coming and just kept it to themselves, instead telling everyone to BUY BUY BUY!
What it comes down to is whether these so-called experts were incompetent or lying to us. Either way, why should we listen to them?
I imagine that “we” do not listen to them. The problem is that many people do listen to them and take what they say as truth in this area.
was the .5% number high or lower than expected ?
BTW many on this bb called for the YOY negative in september
We’ve already gone negative in real terms. The inflation adjusted figure is -5.0%.
Yes, inflation adjusted prices are the only way to compare YOY changes. The current CPI has inflation at 3.8%, so add that to the nominal price decline, and you’ve got your inflation-adjusted figure.
In Humboldt County California, the YOY inflation adjusted drop is 11.5%, and it’s been negative in real terms for the fourth straight month.
Being a public relations shill is a difficult job, whether it’s Bagdad Bob or David Learah. They both come from the same mold, and neither is fit to lick the sweat off a dead man’s nutsack.
Subkommander Dred
“‘We’ve been anticipating a price correction and now it’s here,’ Lereah said.”
Sure. Like there were WMD in Iraq.
Today’s market action is interesting. The home builders soared on the news that the sales decline was smaller than some expected, but the overall market gave up its early advance. Then the news that the decline in home prices was the second largest, month over month in history and the HB stocks started to come down. At this time, around 11:00 am, the HB’s are going up again and the overall market is very close to break even. I wonder just how many people can believe that home sales have now bottome out, as NAR says? I think that inventory is the best indicator. It seems to be still going up, especially in the bubble regionns: CA, Phoenix, and Florida. It’s also going up quickly in states that have, or had until very recently, increasing prices: Texas, Washington State, Idaho etc. In the midwest and northeast, inventory seems to be down a little in Sept, but maybe people are tired of keeping homes ready for showing and plan to put them back on the market during the spring selling season.
Yeah, there are a lot of people rushing to get these stocks “at the bottom.” I think Jim Cramer has been flogging them.
Sales were about level with July. If you look at pending sales from NAR, which supposedly presage changes in the actual sales numbers by one or two months, May and June were about even, but then they fell 7% in July. If existing sales fall that much in September, the number will below 6 million and inventories could hit eight months.
I think that will definitely get Wall St.’s attention.;-)
Cramer has such a great record on bottom picking.
I think there is a lot of risk in the builders doing a large part of their work in the bubble areas. I think within three quarters the earnings will drop significantly – the drop in orders is telling us that. Most of these builders have a significant amount of debt – so the question will be take some inventory impairments (which will reduce their earnings and profit) or not take the impairments and give the federal government tax dollars the builders need. Look at the price of the debt on some of the builders - the bond market is no where as positive as this recent stock rally might lead us to believe. Like everything else in this house of cards economy – the builders too will have their day.
He’s not all bad. Or is he?
How about some good old tarring and feathering? I think it is sorely needed at all levels of industry and government.
More tax burden shifts off of corporations are needed before you warm your tar pots.
Remember the slow sales last Fall? NAR said it was a fluke, and Spring 2006 would be the big rebound. Then there was no real Spring selling season. Now they’re saying declines will be minimal and over in a few months. Pathetic. I hope no one believes all this revisionist crap.
David Lereah says; “Doubleplusgood.” Soon to be a nonperson.
I was going to make an analogy between DL and Trotsky, but considering that the NAR was the only witness that did not send its chief economist to the senate hearings two weeks ago, the 1984 reference is apt. Watch DL’s face disappear from realtor.org’s website.
I commented the same days/weeks ago that he will be a burden. He served his purpose for that period.
For the “soft landing” period, NAR will have some one who will offer softer image. Without no past history of getting the seller to this dangerous high cliff, he can urge them to be brave and take a small fall. (after all he is acting in their interest. And for the buyer, it is the Best time to buy!)
Yes, time to get rid of DL.
Wonder what his termination package will be. Does a $1mil lump sum payment plus a life-time pension of … $50k/yr (indexed) sound OK? Does he deserve more? Or less?
I bet he’ll get something like that or maybe even a multiple of it.
I’d give him a nice house with a mortgage. He can live of the appreciation.
Soon to be a nonperson.
Soon?
Shhh! The MiniReal may be monitoring.
I hate to sound like a broken record here, but it would be nice if we all took a minute to:
1. Sit down and write a real letter (paper in an envelope) to our elected officials
2. Tell them you want NO government bailout for housing speculators or people “caught” with bad mortgages
This includes:
1. NO Softening of the new BK laws
2. NO relief for taxes owed for forgiven debt
3. NO Government backed refinancing
I’m certain that the 5% of the population who are responsible savers will be made to pay for the 95% of the (voting!) population who are idiots. Maybe if we plant an idea in our elected officials heads we won’t be raped so badly.
“I’m certain that the 5% of the population who are responsible savers will be made to pay for the 95% of the (voting!) population who are idiots.”
Therein lies the problem….you can’t win an election with only 5%.
as Alexander Tytler said some 200 years ago, in a quote that O’Rourke cites :
“A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largesse out of the [public treasury]…”
…either that or…..”Congress…always ready with funds for needy corporations….” Robert F. Kennedy Jr., quoted from Rolling Stone
….or until your voting machine producting buddlies can slip those little patches in memory cards to minimize the chances the lumpen actually get a voice in their “representation”.
My hypothesis is that the 95% of the (voting!) population who are idiots are less inclined to actually show up at the polls than the 5% of the population who are responsible savers.
If 95% of the 5% go to the poll, and 5% of the 95% who are idiots actually show up to vote, then you have a dead heat.
Do the math.
The 95% in my gerrymandered area are all Demoncrats who vote the party line. I am sorry that I live in a blue precinct.
Great idea, because we all know how politicians court the groups with the most votes. That 95% you mention (the “mortgage moms”) will be pursued by every hack candidate out there! That would, in effect, sanction poor financial sense as an American trait - perhaps to replace “…land of the free.” with “…land of the broke.”?
The government isn’t going to bail out borrowers. They will probably bail out the banks, but not the borrowers. Bankruptsy laws, eh, I don’t know, it doesn’t apply to a lot of mortgages anyway, though I strongly doubt they would be repealed. I certainly don’t see tax relief for forgiven debt coming. Government-backed refinancing MIGHT happen but would only prolong the agony of the FBs and would be part of the bank bailout.
Actually, I think government backed refinancing is a brilliant idea. It’s a direct way to make debt-slaves out of millions of people. Like the sharecroppers of old the FB will never seem to be able to pay off their debts.
RE: The price decline.
Don’t forget there’s a transaction cost. House have to go up 6% (assuming a spec-u-vestor put $0 in to it!) for the flipper to BREAK EVEN. Now the median house has to go up nearly 8%!
I posted some comments on the latest home sales stats at my blog (link beow). I also hope to have some charts up later today showing just what a mess we’re into here. When you see graphically what the inventory situation and/or price change situation looks like, it hits you like a ton of bricks…
http://interestrateroundup.blogspot.com/
Your blog makes clear how ridiculous Learah’s contention is that this tip-of-the-iceberg price drop will be enough to blow through existing inventories. Yeah, right. Provided no one else puts a house on the market for the next four or five months. And of course, as two analysts on CNBC made it clear this morning, sellers don’t actually “have” to sell. They’ll put their homes on the market, wait a few months, and then pull them off again.
Unless they lose their job. Or get a divorce. Or change jobs. Or are flippers.
And of course, THAT never happens.
I was driving out to Woodland Hills this week for Rosh Hashanah and my husband and I, in the course of remarking how just about every third house going over the canyon had a sign in front of it, were trying to figure out why anyone would choose this time in the marketplace to sell their home. And then it dawned on us — all of these people “had” to sell!
“Unless they lose their job. Or get a divorce. Or change jobs. Or are flippers.”
or don’t wanna hold a depreciating investment. or they stop buying. that’s what people don’t understand. the main driver of this, after the real fundamentals had been exhausted, was cheap money to fuel rising prices. now that prices aren’t rising, people won’t buy. boom over.
It will be interesting to see how many properties are going up for sale to feed the flipper-speculators’ OTHER negative cash flow/declining value investments. Many of these guys bought multiple properties for little or no money down, and their little empires will probably fall piece by piece like a house of cards.
“Unless they lose their job. Or get a divorce. Or change jobs. Or are flippers.”
…or may I add, Have jobs in construction, Re agents, Mort Brkrs, Home improvement, Retail, Auto Ind., etc etc…
It truly is unbelievable the extent that our Leaders ,and media assume how stupid we are…are we?
or - um - die of natural causes.
“Unless they lose their job. Or get a divorce. Or change jobs. Or are flippers”—>>>> or their mortgage adjusts upward (15% more on average Aug 2006 vs. 2005. The minute people sign the listing agreement, they have already moved in their mind.
Nobody really enjoys the open houses, the dealings with strangers, the fix up expense, keeping the house spotless. It’s hard work….so to think this is just some sort of exercise by sellers to test the market is just plain wrong. These competition to sell their house as the market price tumbles will create the ultimate real estate crash.
Mike, I read your blog all the time and it is great. It would be even better if you allowed for comments.
‘home sales were off because people were busy buying cheap gas”
david LIErah NAR
‘Sales have hit bottom,’ he said.
Well, I agree that’s sales are on it’s ass.
There’s certainly an ass here but it isn’t sales, yet. Buy DL’s book now for your library. Put it right next to “Dow 36,000.”
I think glassman is still employeed
why ?
Interesting to see how different news outlets quoted different “experts” after the data headline. The APjust used the NAR.
“We do expect an adjustment in home prices to last several months as we work through a buildup in the inventory,” he said. “With sales stabilizing, we should go back to positive price growth early next year.”
From Bloomberg:
“There is worse news in the pipeline,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. “With inventory still rising, there is no chance of any short-term relief. Prices and volumes have a long way to fall yet.”
Yield curve inversion is looking bad!
Crispy –
Either the bond market is wrong about the economic outlook, or else Hulbert is a stopped clock.
http://tinyurl.com/mh3cy
Does anyone know how to compare this chart with similar data for 1987? My guess: The data would look quite similar (bond market crash in the spring), except that the bond market is “ahead of the curve” this fall…
http://tinyurl.com/sxhrf
GS–yahoo has a new beta chart format that is pretty cool and allows you to move the time period around at the bottom of the chart. Check this one out(with luck):
http://tinyurl.com/kqwer
Oooooh, nice…yahoo has been studying their AJAX I see. Kind of like a google maps for financial data.
US stocks and T-bonds (not to mention gold) are all going up today. Is this a flight-to-quality move, or is this just a sign that the US is the best place to invest, kinda like the way our housing market was the best investment a couple of years ago?
http://www.marketwatch.com/tools/marketsummary/default.asp
S&P 500 just hit a 5 1/2 year high. It appears the stock market has reached a permanently high plateau — again!
http://tinyurl.com/l7n6u
Stop blaming this idiot David Lereah for the stupidity of millions of American lenders, appraisers, RE agents, and above all, buyers. No one twisted their arms to buy crackerjack box sized homes for half a million or to invest in money losing speculative property to flip. Most don’t even know who this guy is.
The problem is that the MSM are using Liereah with his quotes as a kind of authoritative source for their articles, while he is just trying to maximize real estate agents’ income.
David Lereah is not a household name. Nor do I think that many people read an article in the local newspaper and run out to buy a house.
I think what really fuelled the bubble was that everyone around us was making lots of money in homes and anyone who wasn’t involved wanted in. The attitude was: If my family and friends were all making a killing in RE, I can too. To make matters worse there was an attitude amongst buyers that renters were the suckers and renters started believing it as prices kept going up. Even as prices soared new buyers were even more enticed by irresponsibly low interest rates and lax lending standards; as a result the bubble began feeding on itself…and then one day, it all stopped.
David Lereah was never anything more than a cheerleader in this whole thing: helping from the sidelines with team spirit but not a player in the game.
Exactly, David Lereah is getting paid by the NAR to further the interests of the real estate agents….period! He has no other duty, certainly not to educate the public. My beef is with the mainstream Press which continues to point to the NAR as their “expert” source.
Could anyone perhaps point me towards a NYC historical housing info spot? Just trying to demonstrate that yes, even in NYC, housing prices have went down once… remember reading some poster he mention that it has occurred.
Just go to the source; look for “Real Estate Reality Check” by DL; its within the pdf presentation; aft you read thank Get Stucco for the find.
http://www.realtor.org/lsummitweb.nsf/pages/ViewPresentations2006
WOW…. When I saw GetStucco post it earlier I presumed it was just a little sidespeak compared to Lereah’s normal bullish rants…. this thing… it looks like it was written by a poster here…. rofl… I love it.
Nice guy, huh? This DL dude?
Realtors are salesmen, not financial advisers. People need to understand that.
Aren’t financial advisors salesmen as well? The only people that have your best interests in mind are yourself and possibly your loving mother.
Yes, except with realtors their product maybe counter to your financial well-being, whereas with financial advisors their product is your financial well-being.
“whereas with financial advisors their product is your financial well-being.”
HAHAHHAHAHHAHHAAA…Good one. Their product is THEIR financial well being. Commission salesmen all of them.
Most are. Fee-only advisors aren’t which is why the wealthy go to them instead of a commissioned-based broker. WIth everything how people get compensated has a lot to do with whose interest they are looking out for. And even with commissions you can still get great people - had a great realtor who was extremely honest. Too bad she’s not in San Diego.
No, the MEDIA needs to understand that and quit quoting realtor agenda as economic common sense. And Mr. Leahry needs to follow every pseudo-economic “forecast” of his with a disclaimer that he’s paid by the NAR which clearly states as their mission statement: “The core purpose of the NATIONAL ASSOCIATION OF REALTORS® is to help its members become more profitable and successful.”
Why does the stockmarket go up when there is bad news about the housing market?
Where else will investors park their money now?
because interest rates are down….slower growth accompanied buy low interest rates is a nice combination for stocks.
On the Titanic they kept on playing music louder and louder before… bubble… bubble…blub
Has Leslie Applesauce-Young come up with a new metaphor for the housing market yet?
If she has not, what about Splash Landing!
….as on the car winshield. ( with apology to the splatterd bug who was not at fault….it was doing what every other bug was doing…..and did not know what hit it)
I think she is going to have to quit using the “housing souffle`” metaphor in exchange for the “housing pancake” analogy. The housing pancake is a market where it is neither falling or rising…….it’s flat as a pancake!
It will be interesting to see the legal ramification this will have on the RE and banking industry. I think there will be congressional inquiries into the lending pratices that created this mess. How much or how little disclosure there was to the homebuyer about the loan they signed. I don’t think there will be new legistlation passed to make sure this never repeats in the future. Who is to blame? How many people will be affected? This remains to be seem as it is playing out currently. I do see the signs that wall street is catching on. It will effect the markets severely before years end. I see consumers frozen with fear just about the time the holidays roll around. Merry Christmas? I think not….
hello!!!
is this finally the data we need? the whole spin was always “real estate has never declined “nationwide” on a “y-o-y basis.” well, here it is. and now they claim it’s the first time in 11 years? say what? and they say it’s the largest since 1990? i always thought the last time it went down nationwide y-o-y was Great Depression?
You caught that one as well, chillidog! I’m surprised nobody else mentioned it yet. All we heard from these idiots was, “real estate never declined on a national basis.”
Now, it’s just a short 11 years ago that we discover that it actually has declined on a national basis — Six times since the GD??? (gasp! who ever could have known?)
The actual quote is quite restrictive. It talks about the average price for a year (I think a calendar year), and also spells out that the start date for the NAR statistics is 1968.
However it has been widely misquoted as “YOY prices have never fallen nationally” by Realtors ™.
New Home Builders have been making out like bandits during this bubble, though eventually even they can’t keep cutting prices and still make money.
My wife happens to work in the home building industry in Orange County ,Calif. Let me tell you that on multiple unit developments and some single family homes the cost to build by the builder ranges from $80.00 to $110.00 per SQ. Ft. So on an 1,800 Sq. Ft. home that is $144,000 to $198,000 plus what ever profit they want to add. Based on these numbers this market could get real UGLY!!!
This report has all the integrity of most data produced by the National Association of Realityspinners. Wait until the new home sales report comes out later this week. The national homebuilders’ stocks will be off 3-4% Thurs.