“Excess Demand Is Becoming Excess Supply”
It’s desk clearing time. “The U.S. housing market is going through a ‘fairly orderly’ adjustment process, Federal Reserve Governor Susan Bies said on Wednesday. ‘Now that many investors perceive that prices have peaked… they are trying to sell, so excess demand is becoming excess supply, we still think it’s fairly orderly’ Bies told reporters.”
“Still, Bies said she could not rule out a more disorderly correction lower in the U.S. housing sector.”
“The European Commission has warned that eurozone growth may grind to a halt early next year, dashing hopes that the world’s second-biggest economy will pick up the baton as America slows. HSBC said there was a risk that Europe would slow in tandem with the US, much as it did after the dotcom bubble burst in 2001.”
“‘If the global economy is looking for the eurozone consumer to come through, it should look again,’ said the bank’s chief economist, John Butler.”
“Centex Corp. pre-announced downbeat quarterly results that included a 28% decrease in net sales orders as well as land-write-offs. The company said it’s seeing record levels of cancellations, due largely to the inability of buyers to sell their existing homes.”
“Centex said it expects to write off between $85 million and $95 million this quarter for land options it’s walking away from. It also anticipates land-valuation adjustments of about $40 million to $45 million. ‘Despite the recent run-up in the stock since mid-July, we remain convinced that current trends are still in the early stages of a more meaningful slowdown,’ said analyst Rick Murray.”
The Times Reporter from Ohio. “Tuscarawas County home buyers are changing their ways when it comes to purchasing real estate. The average price for a house sold in July 2005 was almost $111,000. This July it dropped to $101,000. In August 2005, the average price was $109,000. It dropped to $93,000 this August.”
“The owner of the house at Gnadenhutten said the family lowered the price considerably at the end. ‘It got to be frustrating after a while,’ he said. ‘It was empty so long the insurance company was going to stop coverage.’”
The Daily Herald Tribune from Canada. “Grande Prairie’s housing market appears to be slowing down to catch its breath following a marathon spring and summer of record prices. In the spring some homes were going up in price by $10,000 a week.”
“The developer would consider it a sold house and begin work on another to maintain inventory, but the original buyer would then try to flip the property for a higher price to make money as values rose.”
“Part of what’s driving that is the double-selling of some properties. When prices began rising quickly one year ago, Kevin Vobeyda, president of the local real estate board, said many people bought homes on speculation while they were under construction. ‘Now that property has to sell twice in the same market in one year,’ Vobeyda said, adding that speculation sales have fallen off during the summer as more homes are added to the market.”
The Dallas News. “North Texas homebuilders have gotten the word about the softening housing market. Even so, they started work on more than 12,000 houses in the three months through September.”
“DR Horton reported that 40 percent of its home sales were canceled in the most recent quarter. ‘It’s more pronounced at the lower price points,’ said Ted Wilson of Dallas-based Residential Strategies. ‘In places like Lancaster, it’s running as high as 70 percent.’”
“Almost 30,000 unsold new homes were on the market in Dallas-Fort Worth last month, an increase of 14 percent from a year earlier. The number of preowned houses on the market in North Texas jumped by 13 percent last month to almost 47,000 homes.”
“‘People are thinking twice about the housing market,’ analyst Ted Wilson said. ‘They have read all the negative reports about what is happening nationally.’”
The Arizona Republic. “When Scottsdale’s Hotel Valley Ho announced it would build condominiums on top of the hotel and sell them for about $1 million apiece in December, buyers didn’t hesitate to bite. But now, half of those buyers have pulled out and the waiting list disintegrated.”
“‘There was no turning back,’ said Jesse Thompson, sales director. ‘We started building before the economic climate changed in the real estate market here.’”
“The W Scottsdale Hotel & Residences planned to open sales on 18 condos this summer, but it will hold off, said Michael Mahoney of Triyar Companies, which is building the hotel. ‘We’re very pleased not to be in the straight condominium market at this time,’ he said.”
The Daily Courier from Arizona. “Permits have dropped significantly in both Prescott Valley and in the county, however. The biggest drop is in Prescott Valley, where the number of permits fell to 23 in September.”
“Richard Parker, director of community development for the town, said , ‘That’s the lowest I’ve seen it since I’ve been here, (and) I’ve been here 10 years,’ he said.”
The Daily Bulletin from California. “San Bernardino County sales dropped 25.8 percent to 3,236, down sharply from last year, said John Karevoll, senior DataQuick analyst. ‘The market is coming down from an unnaturally high level,’ he said.”
“Christopher Thornburg, formerly a UCLA economist, believes the Southern California housing market is 30 percent overpriced. ‘One way or another, the market has to work out of this imbalance between market price and fundamental price,’ he said.”
My thanks to those who support this blog. Please check back this weekend for news, your market observations and topics!
Hi Ben,
I just made a small contribution to your cause. It isn’t enough, but I hope it helps. You have done me a tremendous personal service in helping get through this crazy market in the SF Bay Area. I’d also like to thank all of your loyal readers who contribute links and comments… I never miss a day and really appreciate the work that goes into a blog of this scope.
Personally I think the Google ads are really great. I mean, they really bring a lot of value to the blog and I’ve clicked on numerous ads and even made some inquiries from some of the advertisers.
‘The market is coming down from an unnaturally high level,’
I wonder how hard it is to collect records like DataQuick. It seems like just polling county offices and asking for records and then putting them into graphs. Maybe we could start DataQuick replacement and write stories with the appropriate wording, ‘Oh sh|t the sky is falling…run!’
You don’t get their business model, which doubtless involves taking $ from REIC constituents.
“Another threat to the housing market MAY BE from the ripple effect as this sector reacts to declining sales, Thornburg said.”
“If these cutbacks are large enough to pull down the overall economy and many homeowners lose their homes thanks to creative financing, that MIGHT BE the “one-two punch” that shocks the housing market into a dramatic price decline, Thornburg said.”
Someone should sue Thornburg for false advertising. Beacon Economics my a$$. “Things could be good, they could be bad.” “It’s a train wreck, but home price should stay flat and the economy is strong and may or may not remain so.” Quite a beacon.
- “Still, Bies said she could not rule out a more DISORDERLY CORRECTION LOWER in the U.S. housing sector.”
I can tell you from So Cal that we look upon the rest of the country as the
“Lower U.S. housing sector.”
Out here we have the O.C., San Diego, Inland Empire, Bakersfield, etc. These areas are ‘Soft Landing.’
“Centex said it expects to write off between $85 million and $95 million this quarter for land options it’s walking away from. It also anticipates land-valuation adjustments of about $40 million to $45 million. ‘Despite the recent run-up in the stock since mid-July, we remain convinced that current trends are still in the early stages of a more meaningful slowdown,’ said analyst Rick Murray.”
Just how many more hits can these HB’s take?
Pay no attention to Wall Street; a lot more I’m afraid; look at chart: http://tinyurl.com/y4xx2p
Centex has a very bad cash flow problem. Last quarter (ending June) they had a net income of 160M. But service on their debt was 169M. This interest was capitalized so it was added back to the inventory. They had to borrow money just to cover this and other cash expenses.
So, even in the good times they cann’t cover ther bills. What will happen over the next 16 quarters when their are no earnings?
Regarding ctx, land value = asset value = book value = share value. As the value of land plummets so will the stock. Ironic in light of the recent upgrades from Wall Street. Do they think these stocks have bottomed? Or, are they so cocky to think main street is full of fools?
The reason Wall street run up the HB stocks is to exit the position ‘quietly’. Like HB, they have excess inventory to dispose of.
Nothing to see here. Move along.
“Still, Bies said she could not rule out a more disorderly correction lower in the U.S. housing sector.”
The understatement of the millenium. More CYA I guess.
rebalancing is th magic word for today.not correcting,nonono,not falling,nonono,not crashing! nonono,rebalancing,yes,rebalancing.see i can still say it after 3 martinis and a xanax.
Cheers
Almost certainly “rebalancing” is in NAR’s current “talking points”. It’s occurring in too many places for it to be a coincidence.
And don’t ever forget “levelization”
bwhahahaha
This is like trying to “rebalance” a set BALD TIRES on a car!
Let air out of tires… This “level-li-zates” thems on the bottom.
I’m so pissed. I was going to buy Jan 25 PUTS against TOL for .55 cents yesterday but said I’d wait a little longer. Now it went to .85 cents. You guys think this company going down to 25 share by January or has it bottomed? A lot of volume betting against homebuilders.
Ironic news in light of recent upgrades; bastards!
They really do have us by the b@lls, don’t they? They create and distribute all the information on wllSt and we’re left holding the bag on main street.
No way it’s bottomed. Can’t advise you on timing, but TOL is a PoS that will trade in the teens, maybe even single digits. Fo’ shizzle.
Dimitris- You should have bought
easy to say now in retrospective…as I told you I doubled up a couple of days ago just to see a couple of firms upgrade TOL; could you believe it! Then CTX came out to save the day just yesterday at 5pm. Let’s hope they go down a couple points under 25 so I can paypal Ben!
I know I’m so mad at myself, I had a lot of cash to put up too. I was right about the rally though. I just got caught of guard by CTX at end of day. It’s still cheap enough @.85 for 25 Jan PUT. I’ll be in next week, I have a feeling it’s going to rebound a little, they have Cramer pumping for them. If it keeps diving on Monday, I’ll take the PUTS at .85.
“The company said it’s seeing record levels of cancellations, due largely to the inability of buyers to sell their existing homes.”
If the buyers and CTX would all drop their prices, then the deals would go through. Can’t we all just get along?
Illiquidity is a b!tch.
It’s interesting how the builders have such a high cancellation rate of 50 to 70 % . These have to be flipper cancellations .
This is another reason why flippers are bad because they caused the builders to build more and than they would cancell .
This (warning: obnoxious music on this page) in Chicago next month will no doubt have some wannabe moguls going out to buy properties in the coming months. I wonder how long the Chicago market will hold up? Just goes to show, a sucker really is born every minute.
“‘Despite the recent run-up in the stock since mid-July, we remain convinced that current trends are still in the early stages of a more meaningful slowdown,’ said analyst Rick Murray.”
Early stages of a slowdown after an unprecedented eight-year boom; let’s see, I guess we can expect this to bottom out by next year’s Super Bowl?
“we still think it’s fairly orderly”
WTFDTM?
I do have an anecdotal definition of orderly vs disorderly. Shortly after 9/11, Forbes magazine pointed out that the only then-seriously-underpriced asset was plane tickets. So I took a trip to Buenos Aires. A few days after I arrived I went to a bank to cash a traveler’s check. Orderly. The next day, which was a Thursday, the govt announced that as of the following Monday nobody would be allowed to w/draw more than $200 a week from any bank account. Due to IMF thumbing its nose at some request to extend more credit. Anyway, on Friday there was a giant silent sucking sound, and by Sat there was no money in any of the ATM’s. On Monday I escaped thought by taking a day-long boat trip to Uruguay. On Tuesday I went into a bank to cash another traveler’s check. Looked like a cartoon of a 19th-century insane asylum. At each teller’s window, several lines of angry, panicked people were converging and pushing and shoving. This is DISORDERLY. I would say we are as yet in an ORDERLY stage of housing decline. Maybe DISORDERLY is when absolute auctions attract no bidders?
Ctx said, “Oh! My land aches.”
Mummy…stop the pain!
Apply directly to the forehead!
- The Dallas News. “North Texas homebuilders have gotten the word about the softening housing market. Even so, they started work on more than 12,000 houses in the three months through September.”
“DR Horton reported that 40 percent of its home sales were canceled.
I have always heard stories that they do EVERYTHING BIG in Texas.
““Christopher Thornburg, formerly a UCLA economist, believes the Southern California housing market is 30 percent overpriced.”
Last time that SoCal was 30% over-priced we had a long recession in early 1990s. This time we would have a depression because of the level of leverage and toxic mortgages.
Jas Jain
Thornburg is about to become the #1 quoted economist on this blog!
Ok, I have to disagree while agreeing with Thornburg.
Traditionally homes max out at 8X median wage while they’re now at 11X median wage. Ok, so that’s ~30%. But after hitting 8X they traditionally drop to 6X median wage. So I would say homes are more than 30% overpriced. More like ~45% overpriced. I’m not betting for a return to the mean without a downside overshoot though… This party’s hangover will hurt.
Neil
Neil, your point is well taken, however, I think it’s important to pay attention to interest rates and their influence on the ratio of home prices to median wages. If interest rates are low, as they are now, then buyers are justified in paying more for a house, resulting in a higher ratio of home price to median wage. If interest rates skyrocket, the ratio will plummet. My point is that prices don’t necessarily have to revert to the “mean” of 6X median wage. Maybe this time it will be 7x (or even 5x).
Would a more appropriate measure of the mean be annual income/annual housing costs? Just as an example, the use of house price/median wage mean would overlook the current situation in Florida, with its high homeonwners’ insurance rates and real estate taxes. High taxes/insurance aren’t reflected in the house price/median wage calculation, but would be reflected in the annual income/annnual housing cost ratio.
Further, the price/income ratio differs from one place to another - it truly is different in California, as people have for a long time paid a higher multiple of income in order to buy a house in California than in the Midwest (where i live).
I read “reversion to the mean” over and over again on this board - i’m wondering if anyone knows of any studies that have really tried to arrive at the “mean” to which everyone thinks we have to revert.
I apologize if i missed this in another thread.
Isn’t it amazing how big-name economists completely miss the role of insane levels of leverage in this story?
Yes, GetStucco. That’s why they don’t see it is 1929.
Wow, if the paper in New Philadelphia and Dover, Ohio (two teensy towns, even by my lax standards) is writing about the bubble, then you know it’s seeping into the public consciousness.
I was half expecting to see some shocked comments at the average house prices cited in the article (average homebuyers are looking in the $85,000 to $100,000 range–no, no zeroes missing). I was actually surprised that folks in Tuscarawas County (real name, not made up) can get that MUCH for their homes! We are talking serious boonies here.
So apparently the bubble reached the serious boonies, too, and not just the coasts like all of the “experts” seem to say. But, of course, that is no mystery here, as we understand that the bubble was caused by massive credit, which knows no local housing boundaries.
from the Prescott paper quoted in this post.
——————————————————
“I don’t see it,” he said. “We have been somewhat isolated from other downward market trends and it stems from the fact that this is a real-ly nice place to live and people will pay a premium.
“I don’t think that that’s going to change anytime soon.”
————————————————
I’m getting really tired of “it’s different here!” everywhere. Putting all of these quotes together along with the location being quoted about would be a hysterical if depressing view of the housing bubble popping.
Well its true
Somewhere special there will be a 15% decline,
in another special place will see 20%
In a different special place will see 25%
in a far off special place will see 30%
etc
etc
etc etc etc
It proves the point that everyplace is “Special”
and will face “Special” declines.
LOL!
And don’t forget, the further off that special place is, the more the decline will be.
Sorry Hawaii, you’re in deep do-do!
Seriously, secondary markets are going to get spanked. I’m not saying primary markets aren’t in trouble, but my cloudy crystal ball is telling me that quite a few retirement plans are toast and people while have to go to plan D or E for retirement.
Maybe this is why Florida through all their political weight in getting engineering and production jobs for NASA’s Orion?
Neil
dude from forecloseme.com will be on L.A. radio show “john and ken” on am640 6:00.
You must mean the twat from iamfacingforeclosure.com.
Here’s the url for the John & Ken radio show online (Casey what’s his name-the kid with the 8 foreclosing properties on the air in about 10 minutes - 6:10 pm. Pacific):
http://2005.kfi640.com/pages/streaming.html
Sweet!
GREED knows no age limit! He is only 24 years old and he has completely mastered the art of greed. His realty gurus would be proud of him.
I have no problem with greed. It’s this guy’s stupidity that gets me…
that guys a real piece of work
I listened to the interview.
Guess which question they never asked this clown?
That’s right: “Who the hell lent you this money??????”
“Christopher Thornburg, formerly a UCLA economist, believes the Southern California housing market is 30 percent overpriced. ‘One way or another, the market has to work out of this imbalance between market price and fundamental price,’ he said.”
Judging from some of his other recent misleading statements (”the market will bottom out next year”) I would guess his private estimate of the percent overvalued is 50% or more.
I wish Thornburg would get a set of stones and quit adjusting his forecast for what ever audience is before him. Thought he was a smart guy when I saw his presentation. You could tell that he thought the sh&t was gonna hit the fan. Now, it’s different every time he opens his mouth…… He isn’t thinking of running for some kind of public office is he?
I think it has to do with his line of business i.e. consulting. Thornburg can only give his clients the end game answer once which would not be very profitable. Better to sell his services repeatedly by incrementally giving the right answer through revision. Thornburg only has to be more bearish than his closest competitor in order to gain credibility and then revise accordingly to stay ahead of the competition. Smart business plan if you ask me.
Speaking of which, if you saw Bernanke at the Economic Club in DC, when he started talking about housing his voice broke and you could see the fear behind his eyes.
“must not blink…. throat dry…concentrate….. no Gorilla in room, no Gorilla in room….No Gorilla in r…………”
For a good laugh, check out this 24 year old failed RE investor’s website:
http://iamfacingforeclosure.com/
He bought SIX HOUSES with no money down and now is up to $400,000 underwater.
Did’nt he buy 8 house and sold 2?
Yeah, bought 8 and sold 2.
Oops, I just read the thread, someone already posted this fool’s website. Anyway, looks to me like the guy is a hoax and/or is just trying to draw attention to his website.
This kid is no joke…. It has just been confirmed that he will be taking “Thornburg’s vacant position at Anderson Forecasting at UCLA, due to his incredible and visionary real estate forecasting skills. That is All.”
Gary Watts
Announcing the latest trend real estate marketing: FAITH-BASED sales.
“Based on at least 20 sales, Del Mar (ZIP 92014) turned in the biggest year-over-year quarterly price decline, 27.3 percent, for single-family resale houses, which dropped from $1.7 million to $1.3 million this year.
Longtime Del Mar real estate agent Chiquita Abbott said the departure of investors and speculators took much of the steam out of her coastal market. ‘The aura of the frantic is over, and that’s what I tell people,’ she said. ‘If you’ve got a house to sell, you have to adjust your price and pray someone wants it.’” — San Diego Union Tribune 12OCT06
LOL
“The aura of the frantic is over”
Must be”New Age ”
“I’m getting an Aura” “The Aura is …. Brown, warm and Mushy…. There is an aroma,…. no a ODOR!….. It feels soft….. and OOOH!
I know a FB in Tucson carrying 5 mortgages on properties he cant sell, boy is he sh*tting bricks right now! Said the market ’suddenly’ turned on him, told him about this blog but I dont think he understands what being ‘underwater’ is yet. LOL.
Maybe for Arizonans one should replace the term ‘underwater’ with some short equivalent of ‘out in the middle of the desert with no canteen’.
BYE BYE 2006 - HELLO 2004!:
http://bakersfieldbubble.blogspot.com