New Home Cancellations Sign Of ‘Underlying Weakness’
CNN has this report on new home cancellations. “Home builders are growing concerned about an increasing number of cancelled new home orders, which experts say could be a sign of an underlying weakness in the recent run in home prices.”
“The cancelled orders could be the latest warning sign that buyers who were turning to real estate as an investment, rather than for their own housing needs, are shifting out of real estate. And that could mean that in many hot markets, the air is about to come out of over-inflated real home prices overall.”
“A survey recently conducted by the NAHB of its members found one in 5 reporting more cancellations than six months ago, with 4 percent of the overall group saying the increase in cancellations has been significant. ‘When you start to see cancellations, you really get worried,’ said David Seiders, chief economist for the trade group.”
“Typically, a downturn in a local economy can cause a drop in real estate prices and an increase in home order cancellations. But the trade group’s survey found only 15 percent citing job losses by buyers as a cause for the cancellations. The survey, which allowed the builders to cite more than one cause for cancellations, found 45 percent saying it was due to a buyer’s inability to sell their existing home and a third citing the buyers not being able to qualify for financing.”
“But Seiders and others say a big concern is a factor not cited on the survey, the fear that cancellations are being driven by real estate investors who were ordering new homes with the intention of selling them quickly in a hot real estate market.”
“An investor-buyer..is more likely to cancel an order, even if they lose some deposit money, if they believe that the local market prices have fallen enough that walking away is more cost effective than buying and selling the home. The flight of investor-buyers from the housing market and the increased cancellations could therefore push real estate prices lower in different markets.”
“‘If you’ve overbuilt the market and sales get cancelled, you have to do something with the homes,’ said Seiders. ‘The incentives we’re seeing builders offering are clearly designed to support prices and stop cancellations.’”
Thanks to the reader who posted this link.
Sounds like the three prong attack. Higher interest rates, job loss, and inability to sell current house. These three will just continue to feed of each other especially once the risk premium stops hiding.
What job loss? govt still reporting as 20K less on unemployment claim last week. Not sure why we have such discrepancies in data. I assume the job loss won’t show up for another 30-60 days.
I think the article claimed only 15% were the result of job loss. Tough to know for sure, in any job cimate individuals still can loose a job.
From my experience the people with the recent highest income growth, are the mortgage brokers, realestate brokers, and realestate “investors”.
Everyone else has just been trying to get through th recession. The people with the most new money to spend are the ones that are currently being downsized.
If you stop looking for work, either because you’re frustrated or because you’re living off home equity wealth, you don’t appear in the unemployment numbers. Check out this chart for the labor participation rate which has been dropping since 2000.
Also add that speculative buyers have now become speculative sellers. That double whammy will be a powerful force driving down prices.
Yeah, pushing prices lower in some markets would be a real tragedy, wouldn’t it.
This it the beef I have with people who don’t like that I want to see a crash. The beneficiaries of this boondoggle haven’t been Joe Luncbucket or even the internet “re investor” braggarts, but big deep pockets who were rich before this, and will pick the money up off the ground when it all falls out again. It’s not that much different from Goldman Sachs having its traders drive the price of a stock into the ground, accumulating, and then “upgrading” it so they can redistribute. I watched them do that in 1999 with about an $80 move on YHOO. How this benefits anyone other the greedy bastards who have already cornered over 90% of the wealth in this country is beyond me.
I guess Joe Lunchbucket just doesn’t want to except he is a wage slave. The average american just doesn’t get it. If asset appreciation is much higher then inflation the only winners are the people with most of that given asset. Basically the top 5% of the wealthly. Meanwhile the middle class continues to play the bigger fool game.
I guess Joe Lunchbucket isn’t a wage slave.
Try accept.
please elaborate on the YHOO and GS story. i am really interested as i am researching market manipulation
Wall street has always been a giant con game and always will be. If you can’t swim with the sharks then stay out of the water.
Your comment sound like sour grapes to me.
They’re either myopic bleeding hearts or outright hypocrites who judge you for the supposedly moral crime of judging others. Idiots; ignore ‘em. I get a kick out of your blunt honesty; keep it up!
I agree!
Why don’t we just strip the rich of all their assets and redistribute the wealth so everyone has the same regardless of education, skill level, work ethic, saving/spending, risk taking, etc. OR those who don’t believe in capitalism can move to a communist country.
Not VAIN_vestor again.
Your leap of illogic is astounding.
How does re-distribution of wealth relate to the topic at hand of rooting for a crash?
You need a new handle non-sequitur man.
I was responding to tschick57. Read that post and if you still don’t understand mine, I will explain the relevance.
I’ve become convinced that the entire discussion is about the haves and the have nots. IT is not about a housing bubble.
BS - remember most of the wealth in this countrie is held by women!
Right on HOZ!
what do builders get for a deposit ?
must not be much
reservation vs true deposit
BTW those hoping for a crash, why do you think your job will be spared ?
I am hoping for a slow crash over 3-5 years. We have reached a point that is clearly unsustainable. Something has to give and I would prefer a scenario that doesn’t knock us into a deep depression.
I think most people are hoping for a crash, because it has to happen sooner or later and sooner it starts the faster we can move on.
I would never claim to be immune to loosing my job for any reason. Its a supply and demand economy. (At least thats what I have been told)
I am hoping for the sooner the better. I think an immediate drop is better off for the economy.
My job may be spared, but if not, I did not get the Mercedes, Yacht (almost bought one last year - would have paid cash) have no mortgage and worry more that neighbors, friends, childrens coworkers are all up Sh*ts Creek in this collapse.
I agree with you. What is achieved by wishing financial ruin on anyone? Perhaps (hopefully) it is just frustration and venting.
Flat: Depends on the builder really, I have looked into new construction homes and the deposit was a couple thousand dollars, on a town home we looked at it was $1000. They go up and down with demand. During the frenzy this summer some builders were demanding 10%. At least thats how it was here in Orlando.
yeah yeah yeah… cancellations, price declines blah blah you keep talking about this bubble, Fall is a slow time of the year for real estate because school is starting, you wait until this Winter over the Holidays when everyone has time to go out buying again… You wait After the new year all the baby boomers, young professionals and immigrants will be out buying homes… ok ok after the super bowl they will all be out I promiss, you wait the Winter is always slow for Housing with the Holidays and all… No no, you wait the spring buying season starts after Valentines Day… You bubble mongers have got it all wrong you wait the spring buying season will start after Easter and all these homes will get bought up, you’ll see… Ok the summer buying season is always huge right after the Spring, Spring time is always slow for housing…
ha ha!!!!
Good delivery, Lato.
You forgot the obligatory “you’re nothing but angry renters”.
They’d probably put it like this, though: ” ‘Your’ nothing but angry renters.”
But they will be too busy preparing for 4th of July…
TOO BIG TO BURST
by Peter Schiff
Euro Pacific Capital
February 24, 2006
“Through the wealth effect and cash-out equity extractions, the housing bubble has enabled Americans to consume far beyond their collective means. The result is a bubble economy, where incomes, jobs, tax revenue, corporate earnings, and the solvency of our lending institutions, are all dependent upon sustained, stratospheric home values. When prices return to earth, the economic impact will be catastrophic.”
I agree completely.
“The only way for housing prices to stay high is for the Fed to keep inflating”
Yes, but inflation itself will not keep home prices high. The number of homes that have been bought by speculators will cause the prices to drop, with or without inflation in other areas.
“My guess is that the Fed’s goal is to keep long-term interest rates low long enough to allow millions of homeowners to refinance their adjustable rate mortgages into 40 or 50 year fixed-rate loans, and to create enough inflation to cause nominal incomes to rise sufficiently in order to enable homeowners to make higher debt payments and prevent nominal home prices from collapsing.”
If this is the government’s goal, the problem with this strategy is that 40 or 50 year mortgages have almost as high of monthly payments, so I doubt if very many of the adjustable rate mortgage homeowners will be able to refinance into them, even if they wanted to do so, since so many of them did not qualify for a fixed rate in the first place. And although inflation does eventually raise incomes, incomes are generally the last thing to go up, and how will they be able to go up when the “bubble economy, where incomes, jobs, tax revenue, corporate earnings, and the solvency of our lending institutions” is no longer with us? The bubble economy depends upon increasing prices, merely keeping prices stable is not enough.
“However, while the use of the old-economy technology of the printing press may allow the Fed to prevent nominal home prices from falling,..”
I disagree completely; there is no way to keep even nominal home prices from falling, because of the speculator specter, which is not going to wait around while incomes rise due to future inflation.
“The danger is that the controlled inflation the Fed is attempting to manage turns into a wild fire, with implications far worse then the mere severe recession it is attempting to postpone.”
This person believes that runaway inflation is coming and the people should buy gold, which is advertised at the bottom of the page. But I really don’t see how the Fed will be able to cause inflation when the housing prices start seriously falling. Consumer spending will drop, with the ATM gone. Businesses will be looking to consolidate to keep alive, not expand. Energy prices may go up, but people will have to find ways to consume less energy because they won’t be able to afford the cost. People will not be able to borrow as much, even if they want to, because interest rates will go up due to finally recognized risk factors, and lending policies will tighten. Many defaults and bankruptcies will deflate the money supply, so how will the Fed cause inflation in that environment? They don’t “print” money… they encourage increasing debt to expand the money supply, and increased spending regardless of whether a person has increased earnings. Can anyone who believes that the Fed will succeed in increasing the money supply explain a plausible scenario that would cause this to happen?
My guess is that the Fed’s goal is to keep long-term interest rates low long enough to allow millions of homeowners to refinance their adjustable rate mortgages into 40 or 50 year fixed-rate loans, and to create enough inflation to cause nominal incomes to rise sufficiently in order to enable homeowners to make higher debt payments and prevent nominal home prices from collapsing.”
I Agree! In fact as I posted before these are getting easier to do.
It didn’t work in Japan (early 1990s) and it won’t work over here, either.
Excellent post! It is good to keep in mind that, like many other experts and purveyors of religion as well, Schiff offers a dose of truthiness which mixes fact with implausible conclusions, primarily intended to make you want to buy what he is selling.
The article is based on the presumption that the Fed takes an active role in managing asset price bubbles. I see this “Fed this” and “Fed that” all over the place in bubble acticles and blogs.
But the Fed has never tried to stop bubbles from forming or bursting no matter what the consequences. Bubbles are simply not in their department.
Dream on, pal. You forget that actions speak louder than words. What do you think the Greenspan put was about? Remember the mop ups after the 1987 stock market crash? The Mexican peso crash in the early 1990s? The Thai currency crisis and Long-term Capital Management crisis (1998??)? The dot com implosion and the 9-11 attacks? All were followed by Fed responses to buoy up the stock market. If these policy responses did not help bubbles to form, then neither does soap.
Hmm…
CNN finally figured out that investors will crash the market?
Wow, that took long enough.
How long do you think it will take them to figure out why “they’re not making any more buyers, ya know?”
Mortgage job losses, new home cancellations, plunging sales, median price declines already, record inventories across America, open houses with birds chirping and sleepy RE agents…
…but hey! No Bubble Here!
Just You Wait Until Spring!
From this day forward David Lereah shall be known on this website as “Bagdad David”… keep pumping out the out dated statistics based on numbers 6-8 months old and keep telling everyone about those mythical babyboomers, young professionals and immigrants who are all going to be out in force for the next 10 years buying up every home they can get their hands on.
Can I officially make this call or does Ben have to proclaim this?
Ok I hearby proclaim Ben to be known as “the creator Ben” for creating this blog.
Bagdad David as in Bagdad Bob, that lovable Iraqi official who stood on the roof top of one of Saddam’s government offices reporting how the Americans were being defeated and Bagdad was secure… As our tanks were rolling down Saddam Bvld.
With the way things are going with the insurgency, maybe Bagdad Bob was ahead of his time.
realtors and an grasshoper story.
http://realtytimes.com/rtcpages/20060224_ant.htm
The idea is resonable but I don’t know why the ant grasshoper roles were switched.
Why didn’t they use a chicken and a cat?
My coworker just made his first sale as an amateur RE agent last week. He keeps asking me when I’m going to buy. I just heard his sad story today and I had to write it down. He has 30K in credit card dept. He put down 15K on a new house in Bakersfield and $1000 on one in AZ. The bakersfield home is nearly finished and he is worried about finding a buyer. I asked him if there was any competition in the area and he looked confused. I told him that inventory was going up and he was so surprised. He had no idea about current trends in inventory all over the country. He’s looking for a third job for extra money. He thinks he can make extra money being a striper. Mean while he has a wife and two kids at home with no clue. My favorite quote from him is “RE always goes up” as he waves his had through the air up and down to describe RE trends. This guy is a professional engineer but he has no common sense. He’s also taking classes to get his brokers license.
Striper? Do you mean stripper (as in take off your clothes?? kind). I do see him losing his shirt, but not the stripping way..
stripper. sorry. I are engineer will no spelling skills.
AMAZING…
Sounds like the guy has put absolutely zero time into actually thinking what it takes to be successful in any manner ( as realtor / broker will lose his shirt, as investor will lose his shirt, as stripper will lose his shirt and family). I hope he is a good engineer as that sounds like all he is going to have left to fall back on.
Bakersfield inventory is through the roof. He will be taken out in this bubble massacre. Good luck to him!!!!
he’s totally screwed. He’s still in that deniel stage. He thinks he can break even and sell the Bakersfield place. He has 15K into the place and doesn’t want to loose the money invested. I think he’ll loose a lot more if he takes the keys. He bought the place for $295. I think the builder is selling same models for 300K (or should I say not selling). He may loose everything including his primary home. I think he should walk away and kiss the down payment good-by.
I don’t advice him to buy the house, but then I had no clue that Bakersfield had gone up sooo much. Bakersfield? Geesh, what an eyesore.
See this one Ugly house.
It is probably not your co-worker’s fault that he did not know the down trend. “Bagdad David” has been bombarring real estate agents like him from head to toe.
When I read about a situation like this I wonder how some people get up and get themselves dressed in the morning.
So far Fusion at South Bay is still steamrolling ahead, they are building this project. Hey, home prices start in the $504K’s and you get sardined in with 279 other units, what’s there to complain about?!? When Centex starts talking about cancellations here then I’ll know my neighborhood bubble has finally burst.
Well the CFO is resigning in June - bad times ahead. Now they can blame the CFO. Or is this an Enron waiting to happen?
45 percent cancelled due to a buyer’s inability to sell their existing home.
That means the so-called “investors” are bailing out. Once investors are gone, who is left to buy? We know that the non-investors buyers like 1st time buyers can’t afford to buy a house in places like CA & FL.
Mind if I ask a non-related question? I flied to Taxes to check out a house. But did not buy it after a failed negotiation. Can I claim/deduct travel expenses on my tax return in this situation? I will appreciate it if you can point me any resources that address this matter.
Flied to Taxes? Did you mean to say “I flew to Texas.”?
The other post above by Foose - his excuse was that he is a engineer. What is your excuse DL?
What is it with you people today and your grammar and spelling??!!
Good catch. Yes, I meant “flew to taxes.” I happen to be an engineer also - God damn it!
Where is “Taxes?”
Now I am laughing! LOL.
I just *love* mainstream media proof-of-the-bubble stories!
A few points that possibly have already been addressed. In a seller’s market you can buy before selling your existing house… in a buyer’s market this is lethal. — In a buyer’s market the latter can lead to a series of cascading non closings. I see this starting to happen — I suggest you ignore sales before closings in a buyer’s market . In the mid 80s my wife was the marketing manager for a motel chain on the operative side (ei. get the people into the rooms) — the biggest suckers on the investor side were doctors and dentists since they felt they deserved ‘big’ bucks without ever doing ‘due’ diligence… the next group were the accountants — they constantly dealt with big bucks and ‘knew’ their brilliance in relation to some of their clients so were really big suckers for any get rich scheme.