Home Sales Fall Into ‘A Bit Of A Trough’
The NAR has the existing home sales numbers out. “Total existing-home sales; including single-family, townhomes, condominiums and co-ops, declined 2.8 percent to a seasonally adjusted annual rate1 of 6.56 million units in January from an upwardly revised pace of 6.75 million in December. Sales were 5.2 percent below the 6.92 million-unit level in January 2005.”
“David Lereah said sales are tracking the trend in the association’s Pending Home Sales Index. ‘Our leading indicator, based on pending sales, has been trending down since hitting a record last August,’ he said. ‘In the wake of interest rates peaking in November, I expect we are in a bit of a trough that may be followed by a modest rise and then a general plateau in the level of sales activity.’”
“Total housing inventory levels rose 2.4 percent at the end of January to 2.91 million existing homes available for sale. Single-family home sales dipped 1.5 percent to a seasonally adjusted annual rate of 5.77 million in January from an upwardly revised 5.86 million in December, and were 4.8 percent lower than the 6.06 million-unit pace in January 2005.”
“Total existing-home sales in the West declined 3.5 percent to a pace of 1.37 million in January, and were 14.4 percent below January 2005. In the Midwest, existing-home sales dropped 7.7 percent to an annual pace of 1.44 million in January, and were 3.4 percent below a year earlier. Existing-home sales in the Northeast fell 10.0 percent to annual sales rate of 990,000 units in January, and were 13.2 percent lower than January 2005.”
“The decline in total sales was driven by a 1.5 percent decline in the pace of single-family sales and a 10.6 percent drop in condo sales in January.”
Some housing bubble news from homebuilders on Wall Street. “Dominion Homes, Inc. today announced financial results for the three and twelve months ended December 31, 2005. The Company’s year-end backlog for 2005 was the lowest in several years and reflects a slowdown in home sales that began during the second quarter of 2004 and continued throughout 2005. The Company’s land position..became disproportionate to the lower demand for its homes experienced during 2004 and 2005. As a result, the Company began to aggressively reduce its land position during 2005.”
“The Company’s CEO, Douglas G. Borror, commented ‘We are offering selective discounts on our homes to improve sales that are expected to reduce our gross margin for the year. Due to our low backlog at the end of 2005 and the anticipated reduction in our gross margin, we do not expect to be profitable for the first quarter of 2006.’”
And from Standard Pacific. “New home orders companywide for the year-to-date period ended February 26, 2006, excluding joint ventures, were down 13% from the level achieved a year ago. This slowing of sales activity is particularly evident in markets which have experienced significant price increases and investor-driven demand in recent years, such as California and Florida.”
“New home orders were down 24% year over year in Southern California on a 29% increase in active selling communities. The lower level of sales activity in Southern California was due to: (1) a softening in buyer demand, most notably in San Diego and, to a lesser degree, in Orange County, (2) reduced product availability, particularly in our Los Angeles division, and (3) an increase in the cancellation rate.”
“In Northern California, new home sales were down 60% on a 12% lower active community count. The Company saw a noticeable slowing of demand in Sacramento in the second half of 2005. New home orders were down 37% in Florida on a 12% decrease in community count. A number of factors contributed to the year-over-year decrease in Florida order activity: (1) reduced product availability in certain divisions, particularly in Orlando and Jacksonville, (2) a softening in buyer demand, most notably in South Florida and Southwest Florida, (3) continued intentional slowing of orders to better align production and sales, particularly in Tampa, and (4) a modest increase in the cancellation rate.”
“The Company’s cancellation rate for the year-to-date period ended February 26, 2006 was 26%, up from the year earlier rate of 18%.
“Nearly half the new homes put up by builders aren’t being sold as expected, the report shows. At the current sales pace, there were enough new homes on the market to satisfy demand for the next 5.2 months, the fattest inventory glut since November 1996.”
What happened to the story that the builders would be able to remain profitable well into a price slide? If they are already going to be losing money this early into the “soft landing,” what happens if things really tank.
The only thing I can imagine is that they have high fixed costs for interest on the raw land, taxes on the land, and fixed cost of operations (advertising, administration, etc.) Anybody have a better idea of what’s up?
Exec salaries, stock options, perks. Those learjets are pricey.
They are not as upside down as it would appear….The money they borrow is the cheapest money available…Maybe 50 basis points over t-Bills. Their land costs is also mis-leading..You see that they have a planned community for lets say 2000 homes..Likely equal too 1500 acres +-…They probibly have not purchased all this land..They have purchased a portion of the land and then taken long term options on the remainder..If the market continues to be strong they take down more land..If the market tanks, they just let their options expire and the land just reverts back to the original land owner.
Long term options will fall faster in value than land prices when the bubble collapses.
I think scdave’s point is that the absolute sum lost on an expired option is probably less than that which you’d lose if you’d purchased the raw land outright.
additionally, investors start howling when earnings GROWTH doesn’t match that of last year, not earnings.
New orders down, down, down,…, cancellations up, up, up,…
When will all this good news show up in the HB stock prices? Or can Toll keep its stock price pumped up indefinitely through share buybacks?
Soon, the hefty profits used for those buybacks will dry up and the stock will come to rest at its natural value, i.e., much lower.
Dead on here. If this thing does continue a slow bleed, Toll is toast in 6 months.
You guys are just wrong about the big home builders..Are they going to loose stock value Yes…Are their margins going to get thinner Yes…Ultimatly, if the market gets to bad, they will just put the hammer away, let the market absorb the remaining inventory, lay off most of their staff and fly off to thier home in the bahamas…Its the middle level and small developer that is going to get trammpled by the Elephants….
Still not with you scdave. But I enjoy the conversation.
Actually, stock bybacks don’t work that way. They PERMINANTLY boost the price per share by removing shares while keeping the same market capitalisation.
Thus they can’t actually serve to boost or drop the market cap (the real value of the company), they just adjust the availability.
The real goal of a buyback is twofold: A: If the company legitimatly thinks the stock is undervalued, buying back its own stock really is a good investment.
B: It acts as a dividend to all the shareholders (increasing the value of their holdings in a way they can cash out) without incurring a dividend tax.
C. Also used to cash out employee stock options without increasing the # of shares outstanding. In fact for some companies the buy back and issuance of stock options is actually a wash with no benefit to anyone except the insiders who excercised those options.
C. Which is exactly what we’ve seen with TOL and other HBs.
It is also a way for insiders to take a company private without having to file.
SCDavy,
Keep whistling past the grave yard, pal…
More bad news on used home inventories…
10:00 AM ET 2/28/06
U.S. JAN. HOME INVENTORIES 5.3-MONTH SUPPLY, 6-YEAR HIGH
10:00 AM ET 2/28/06
U.S. JAN. MEDIAN EXISTING HOME SALES PRICE UP 11.6% Y-O-Y
10:00 AM ET 2/28/06
U.S. JAN. EXISTING HOME INVENTORY UP 2.4% TO 2.91MLN
10:00 AM ET 2/28/06
U.S. DEC. EXISTING HOM SALES REVISED UP TO 6.75M VS. 6.60M
10:00 AM ET 2/28/06
U.S. JAN. EXISTING HOME SALES LOWEST SINCE FEB. 2004
10:00 AM ET 2/28/06
U.S. JAN. EXISTING HOME SALES FALL 2.8% TO 6.56MLN PACE
I am sure this is coincidental to the bad news that homes are no longer selling, but it seems worth mentioning anyway…
U.S. Feb. consumer confidence drops sharply
By Robert Schroeder
Last Update: 10:00 AM ET Feb 28, 2006
WASHINGTON (MarketWatch) — U.S. consumer confidence ended a three-month gaining streak in February, falling to 101.7 from a revised January level of 106.8, the Conference Board said Tuesday. The expectations index fell to its lowest level since March 2003, to 83.3 in February from 92.1 in January. The present situation index rose to a four-and-a-half year high of 129.3 in February from 128.8 in January. The group’s consumer research director said declining expectations may cloud the economic outlook for the rest of 2006.
Year over year sales have turned negative: 1/05 8.016; 1/06 7.89
Also, the 7.89 figure is the lowest in at least 16 months.
Calculated risk has an interesting post on yesterday’s numbers at his blog. I have a somewhat different take: EVEN WITH record new home sales, inventory STILL went through the roof.
I ran into a new homebulder the other day here in gilbert. I asked him how thing were going, oh great. Later in conversation I am told of 30000 incentives. Well if things are so great why do you need an incentive? Things are getting real rough folks. They will try and hide it as long as possible but all the data tells a compelling story.
Different companies will have different resiliency in the face of the bubble pop. That’s what makes capitalism great. Many players, much diversity of strategy. Just like Darwin. The strong survive, the weak get eaten. If the macro conditions had been different, the riskier companies might have been the survivors.
Yeah yeah, dont bother flaming me. Its not a pretty process, I know.
SidneyPrice,
It is a bit different than Darwin when the insiders can take the money and run before the beast goes extinct, neh?
Yes, you are correct about that. Darwin’s selection process doesnt have insider information. And my analogy was for best-case capitalism, the sort of situation that economics profs teach, but that doesnt always apply.
As long as we are talking ironies here, Ive been impressed over the years how certain politicians preach the virtues of Darwinian selection in the marketplace, but deny its existence in biology. But this observation is far off topic.
Or the weak companies are hoping for the hand of an “intelligent designer”?
consumer confidence is also down. put all this together and you have bad news for the housing sector and the economy in general. with businesses continuing to be cautious with investment there’s no way they’ll save the US economy this year.
i keep hearing GDP growth of 5% in the 1st quarter with a 2006 projection in the low 3’s. eh, don’t think so. slowing mortgage equity extraction will put the nail in the coffin for sure.
There is a bit of tension between reports on how strong Q4GDP was versus the more current evidence on where things are headed. It reminds me of reporting on the trajectory of an airplane which thirty seconds ago was flying straight up into the stratosphere, and is currently headed towards earth in a nosedive. Keep focusing on that rapid upward climb from thirty seconds ago, and ignore the current evidence, and we can all stay dumb and happy!
The ODE needs both x and x-prime to project into the future. Position and velocity.
Don’t forget x-prime-prime, which is starting to look very negative as regards home sales and prices!
Are we talking a third-order ODE? If its only second order, the magic of x-prime-prime is in the coefficient. What equations have been used to model the RE market anyway?
The dominant equation used by the industry would appear to have been Price (x) / price (x-12months) >= 1.1 :D.
(My eyes glaze over once DE’s come into play. They’re the main reason I stopped studying Applied Maths back in the 70’s. :))
Now I know why some people look at a glass as half empty or half full.
“David Lereah said sales are tracking the trend in the association’s Pending Home Sales Index. ‘Our leading indicator, based on pending sales, has been trending down since hitting a record last August,’ he said. ‘In the wake of interest rates peaking in November, I expect we are in a bit of a trough that may be followed by a modest rise and then a general plateau in the level of sales activity.’”
I imagine that plateau he mentions all the time will be permanently high…
last January there was snow and ice
adjust for that
The adjustment means the current numbers are even worse than they appear at a glance…
NAR President Thomas M. Stevens: “The longer you own, the bigger the gain.” Tell that to the folks who bought in the last six months.
Sounds like an advertisement: “The more you buy, the more you save.”
Stevens was just on CNBC touting how real estate is still a great investment. “Double-digit returns are good.” True, but where would you invest right now to get that kind of return?
Maybe Lereah is taking a break from being the public face of the NAR. Stevens does not look very comfortable in the role.
Also had some book peddler on at the same time claiming real estate is a good investment provided you have “a team of professionals to guide you”. The guys’ name was Jenks and the book “The Millionaire Real Estate Investor”.
they’re hanging on the teat to milk the last bits out…I mean, there’s the number, right there, it’s double-digit, right? 11.6% y-o-y median on existing homes. he’s still got some play left, unfortunately, and there are still some lemmings who couldn’t afford it last year but what with that 0-down, *40*year mortgage…hey, they can get in *now* before they’re priced out forever!
I’m trying to dig up an online version of what I just caught in my detroit-area paper from monday (missed it somehow) on how MI foreclosures are currently *double* what they were last year and twice the national average! Our unemployment rate is also higher than national average, but not double it. Sorta shows how amplified it all gets… that’s what happens when you convince people they need to buy buy buy but their jobs are toast toast toast! and last week too i finally saw a little blurb in the local biz section, picked up from the AP or somewhere, that R&D jobs and other ‘higheducation’ jobs are the next to be outsourced. The service-minded and hard-working english-speaking 300 million member middle class of India are happy to do our customer-support *and* do our taxes, our legal research, our investment research, our medical analysis…soon, design our supply-chains, our airplane wings, etc. The manufacturing jobs go first, the tier-two jobs are leaving, and the very top of the salary-chain will get challenged as well. there’s only so much a short-term RE flipping strategy will buy us til we need to buckle down and have a plan beyond vinyl window replacement and selling paint.
cheers!
well said,that sums it up perfectly,we are going to be a nation of hamburger flippers
I’m sorry; I need to correct myself–the rate of foreclosures in MI has doubled in “two years”, not just one as I indicated above. It is currently at 2.5 times the national average. Now, I have no idea how median income in MI compares to the rest of the US, and our unemployment rate statewide was at 6.7 for 05 versus 4.9 nationwide, but homeprices were low here compared to elsewhere, despite sizable gains in the recent nationwide run-up. The reports also indicate that the unemployment rate in the state is expected to edge up for 06 and then again for 07.
I’ve seen stories about people who are having to put their house on the market (buying more paint!) because the 200$ a month increase they will be getting on their ARMS would put them in foreclosure. More and more people all over are at that point, where a couple hundred more a month makes it impossible to keep up. It’s sad and scary…
but the realtors are doing their best to keep on keeping on! I just saw an ad in the weekday paper from a sweet hubby/wife team with a big local realtor (they overprice their listings maybe a little more than some of their colleagues) who will let us take a course on how to buy foreclosures with them next weekend!
Looking at foreclosures is depressing for primary-res buyers, let me tell you firsthand. Went to one last summer, in a big new sub. Laundry basket still left in the upstairs walkin closet, along with a pair of crutches. bad bad karma.
cheers!
Gotta disagree with the trend of outsourcing. Certain things work. Certain things don’t. Ultimately, I’m sure the products will shore themselves up and compete better, but outsourced customer service/professional services to India tend to be quite poor and only work when suppplemented with services elsewhere to support the issues that run through their queues several times still not appropriately addressed, racking up charges to the outsourcer each time…
please tell me wherefor you came to that opinion…
I’ve been reading about how well it’s all working. Indian call centers not working out, you say? Indian software writing not? Their schools are so much less good than ours, is that it? I’m seriously wanting to know… I’ve been reading about Boeing’s facility in Russia, where they have hundreds of very high-quality engineers (remember the spacerace? when we were competing on technology because we thought it would save our asses from disaster? well, it still will!) who design parts of new planes while their counterparts here sleep and then they have a small overlap to videoconference on different issues, tag each other, and continue the design cycle. I’ve not seen the reports of how problematic this all is, but even if you could show me some, I’m guessing that the overall savings is worth the need to spend some of the 4X-higher salary of the US engineer ‘correcting’ the work of his foreign brethren.
but I love to change my mind, so fire away with data!
cheers!
Shel: Have you called Dell lately? How about that great tech support in new delhi? Let me put it to you this way. It is absolutely terrible from an end user perspective. Person answering the phone was unable to resolve my issue, even though I had gone through the proper prompts at the automated PBX. Then got transfered to the WRONG department (ended up in sales or billing, really could not understand what she said) and after losing around 1 Hour, finally got some decent tech support, where the engineer was helpful, and solved my problem. You know where I finally got decent tech support? HERE. So after going around the globe, I ended up in a call center in Idaho!… Yes outsourcing works as long as it is transparent for the end user. IF not, what you will do is turn your end users away.
Ever wonder why Dell has their major customers call into the Idaho Call center? You got it, They REFUSED to deal with call centers in India!
i received utterly fine customer support calling into India needing help with my Compaq laptop. The folks I spoke with there were actually more forthcoming about a configuration question I had when I was trying to decide which kind of wireless card to go with than the US sales staff, by a good bit (less incentive to market by lying to me, or better informed?). And they were fine with all aspects of helping me to establish that the product was a PoS (i.e, defective) and needed to be returned. I had to return two of those damn Compaq laptops…one wouldn’t turn off and the next one had cd-drive reading problems and a weird-looking screen. The customer support I received from India was fine…the quality control on the manufacturing, whereever the hell that happened(and why do I doubt it was in the US? do you think those operations will be coming back, if they’ve left our shores already?), left a lot to be desired.
I don’t mean to knock the quality of our citizens; I would just like more than our anecdotal reports about the quality of other citizens’ work is all. I guess I could take it upon myself. But I worry that we might be having a no-way-we-could-be-replaced-we’re-too-valuable complex that will hurt us soon, or later.
cheers!
okay, here’s the most recent article I could find easily with a yahoosearch (I like that engine better than google, call me crazy). It took me forever to load on my ol’ modemline, so instead of a link here’s the text:
———————————-
Dell To Open Third Call Center In India
Michael Dell is optimistic that earlier language problems can be overcome.
By Paul McDougall
InformationWeek
Mar 22, 2005 10:00 AM
Dell is opening a new customer-support center in India, a company spokesman confirmed Tuesday.
The PC and server maker plans to hire 1,500 staffers in the Indian city of Mohali during the next 12 months, company chairman Michael Dell told Indian media outlets during a visit to the country over the weekend. India’s Financial Express quoted Dell as saying, “We are looking at a significant expansion of our operations in the country.”
Dell currently operates two call centers in India.
Outsourcing customer service to India hasn’t been altogether smooth for the company. It was forced to repatriate customer service for some large business customers to the United States after they complained that their service reps’ heavy accents made communication difficult.
At the event in Mohali, Dell, according to news agency Agence France-Presse, said he believed the language difficulties could be resolved. “How much effort does it take to neutralize an accent that may have inflections of the mother tongue?”
————–
true, it was a year ago almost now. it mentions that problem you refer to, with the highend customers not wanting to try and understand the accent, but they’re getting much better at those callcenters with training out the accent. they have these huge accent-neutralization classes they make employees take, probably right after they feed them dinner for free. I saw another article somewhere I couldn’t access on how some people believe that the filipino accent is slightly easier for americans to understand (we’re not the most patient people, that’s for sure…and we haven’t had to be while in the economic drivers’ seat all these many a decade), so perhaps for these relatively low-education callcenter jobs more will move there. But as I understand it, the callcenters in india are staffed by very happy young people who are working days there and getting nice wages, accent classes and free dinner, plus they’re working on their advanced degrees at the same time. while our youngins’ are flipping condos on the weekends…well, i jest, but far more of them are doing that than should be and far fewer are working on engineering degrees than should be…
and if you do feel like hitting the article:
http://www.informationweek.com/showArticle.jhtml?articleID=159904087
where you’ll see snazzy banners and indices for the mag that has a tab for “outsourcing”. its very own InformationWeek mag tab!
cheers!
I used to love Dell computers. I’m a computer geeky person. Do it for a living. Anyways, Dell sucks now. They cut corners building their pc’s like most. They used to be a step above. They no longer are.
I prefer building my own.
Shel: That is pretty much what the company that I used to work for did. When Dell started outsourcing, we stopped buying dell, and instead started building in site. No big deal. As far as language courses go, I tought ESL in a foreign country, and it is almost, if not impossible to get rid of an accent after you are 10 Years old. Very few, if any could ever get the tough th, ph, gh sounds right.
I believe that Michael Dell is mistaken with the approach Instead of opening more call centers in India, he should be perfecting his computers, and training more engineers. We should be developing new jobs here, with technical and engineering positions that require thought, not flipping houses. We used to be the world leader in technology. We no longer are.
Those compaq computers are most likely built in the philippines with no QC.
Another thought. Call centers used to be the stepping stone for techies. You got out of college, and needed a job quickly, you got one at a call center. The pay was crap, but, you acquired skills that you could use later on. Now where are those college, or those willing to enter a career in technology to start? Mc Donalds, or flipping condos? Reading Blogs?
“I expect we are in a bit of a trough that may be followed by a modest rise and then a general plateau in the level of sales activity.’”
NAR is wearing out this “plateau” thing…along with all the other creative euphemisms.
“Stock prices have reached what looks like a permanently high plateau.”
– Irving Fisher, Yale University Professor of Economics, 1929
(two weeks later, the stock market crashed and the Great Depression started)
Did that guy really say that? Well no wonder everyone sold and the depression followed. Why would anyone not sell an investment that wasn’t going to gain anymore money?
A slew of disappointing news is flooding the market today. The major news services are at work trying to put a positive spin. The Fed might pump more liquidity into the market to keep the stocks alive.
From the update:
‘The decline in total sales was driven by a 1.5 percent decline in the pace of single-family sales and a 10.6 percent drop in condo sales in January…Nearly half the new homes put up by builders aren’t being sold as expected, the report shows. At the current sales pace, there were enough new homes on the market to satisfy demand for the next 5.2 months, the fattest inventory glut since November 1996.’
“….the fattest inventory glut since November 1996.”
Ben, who published this update? Surely not the NAR.
Fat Tuesday!
The NY Post
Thanks
The First Sign of Cracking
Ben, I’ve been checking inventory weekly in one particular upscale development in Hampton Roads Va (Williamsburg/Norfolk/Va. Beach area) for over 4 months. I want to describe it at some length, because it looks like a real canary in a coal mine.
In case you didn’t know, Hampton Roads with 1.6 million people was one of the top ten metros for percentage appreciation last year. The development I’m tracking is very upscale patio homes in a prestigious area. There are 130 houses. At all time since last October, about 1 of 6 have been for sale. Of 25 listings in that time, only 5 (of the least expensively priced) have sold - all by early December. There hasn’t been a single sale in almost 3 months.
A few weeks ago, the price of 13 of the 14 most expensive models were cut on average about 5%. Still no sales. This past weekend, though, came the first sign of a real crack in the market. One of the larger models, that has been on the market with no sale in almost half a year, had its price cut almost 10% (and almost 20% off its initial offering price) to the lowest asking price of any model listed for sale in the whole development in the entire 4+ months. Any sale of that house now will destroy the comps.
I track the listings each Friday. It will be interesting to see if the smaller houses for sale drop their prices even further. No panic yet, but getting close to desparate — and a decisive drop in prices.
This is telling - I like the accounting of what’s going on at “the street” level.
Thanks!
yeah, good job on keeping track of all the details and then reporting them so carefully. a very well constructed anecdote.
Stupid Whitey
Northeast sales drop 10%.
Boo hoo for 50k/yr slimers who think they’re Warren Buffet Jr. Back to the 8 hour grind!
GOOG352.00, -38.37, -9.8%) plummeted as much as 13% early Tuesday.
______________________________________
How much of their ad revenue is RE related?
okay, so why is median house price up y-o-y? a whopping 11%? this landing can’t get going til that changes, because it’ll let buyers believe the rhetoric that inventory merely means more choices. I don’t know…the sentiment might be more about those negative savings reports meshing with people’s perceptions that they’re buying too many pairs of shoes and dvds they don’t watch while all these for-sale signs pop up everywhere. There might be some inherent feeling that if all these people are selling their houses and it’s taking them longer, but the endless up fantasy can continue if prices still go up, to hell with inventory numbers…
cheers…
Do not get excited with Y-O-Y value. They did not tell us how much it came down from the time when it peaked.
The median price is a very blunt indicator. It only tells you what buyer are spending, it does not tell you a thing about what they are getting for their money. With inventory ballooning, remember the buyers have more choices, so the nicest houses with the best locations are the ones selling.
You can expect that the median price will UNDERSTATE the magnatude of the declines all the way down. In the early 90’s, “they” love to say that SoCal median prices fell by 15-20%. Anyone involved in re during that time (I was an agent) can tell you that prices for individual properties fell 40%, 50% and more.
remember, in the first 6 months of a downturn ,nothing happens
these existing #s are from oct at best
yeah, good point..
I wonder too what the effect of thru-the-vermiculite-filled-rafters home-heating prices will be. Are those costs predicted to go down?! I don’t pay for my heat directly, so I don’t feel it (incl in my rent), but people I know have been paying 400bucks a month to heat their 1500-1800SF older homes, twice what it was last year. And keeping those sweaters on to boot. I don’t imagine the idea of trading up is all that appealing if those heating-oil and -gas (mostly around here that’s what it is) prices stay in the stratosphere.
Dont expect heating oil and gas to be cheap again. Unlike land, which can be subdivided and built up as well as out, the fossil fuels are depleting steadily. It would take quite an demand-side slowdown to change the pricing trend . . . . Assuming we are talking only fossil fuels.
NEW TOPIC :
what will mort equity extraction be in 06 ?
any guesses
Probably way WAY down:
Those who refinance often can’t refinance.
Those who would extract rarely may or may not, but probably are less likely looking at “hey, prices are flat/down, and interest rates aren’t any better (I already refied to 5.5% 30/yr fixed 2 years ago)”
Those who wouldn’t, won’t.
Housing data:
http://www.xanga.com/russwinter
Comments by bakabeikokujin and shel are both on point. Price is the bottom line. The tide will officially turn when the asking price changes we’re seeing at the micro level show up in the macro-level sales statistics. Since there’s a 1-2 month lag between contract and closed sale these lower comps should show up in the next 3-4 months.
Lower comps could show up sooner in the NAR’s pending sales index.
Mad tiger’s got it…..
The next stage after the moderating market is going to be appraisals…If you start getting sales significantly lower than previos sales, the “Appraisal” becomes the falling knife…Even if the buyer is willing to pay the asking price, if the appraisal does not come in, the deal does not happen…Its a slippery slope…
There are plenty of crooked appraisers out there willing to hit any number thrown at them. SOP in many areas.
I think many will tighten up thier practices now that appreciation has stopped.
In the past they didnt care if they were high by 10% because 4 months later it would be a wash and no one would care…now they know they need to be carefull.
The smart ones do any way.
I don’t think appraisals will come into play this early. The nature of appraisals is an estimate, and therefore they won’t capture declines of up to 10% very accurately. Most appraisals look at recent comps, on a per square footage basis, and then apply it to your house, with a little movement (10% is not unreasonable).
Only when prices have dropped more than 10-20% will appraisals start slapping sellers who are grossly overpriced. But by then, only the silly sellers will be overpriced that much.
Slightly OT: I think it has been shown throughout these posts (esp. references to the removal of M3 and how the govt. calculates housing costs in determining inflation) that inflation has been largely underrepresented. Is there a scenario that we get stagnant prices, but with hyper inflation? Then the McMansion and condos could “stay flat” or “plateau” in dollars, but that their value erodes?
The underrepresented inflation is spot on and stagnation outcome is plausable LA…In effect the same thing happens on more of a slow bleed vs. a hemmorage…
When I considered this scenario, you have to take into account escalating wages (thereby making % of homes affordable increase) but I think this is harder to envision. I am young enough not to remember late 70’s early 80’s inflation (other than cartoons and my teacher’s names), but did wages increases track with inflation. Still although this scenario is theoretically possible, it seems unlikely given historical norms of price fluctuation.
The Fed’s goal, IMO, is to keep the “value” of the securitized collateral (houses) where it’s at. THe only way I see any hope of that happening is through massive injections of liquidity. But this course has highly negative long term effects for the dollar as the world’s reserve currency. What Greenspan and Barnanke are doing is tantamount to robbing a bank to pay the mortgage: short term fix for the problem and all is well until the act catches up to you. I think we are locked in a death spiral of self absorbed Washington politicians and a generally apathetic and dumbed down populace. Life in America during the Greenspan years was really like one giant frat party and this sort of mentality has been passed off as legitimate. Our enemies see this and are waiting to exploit this gaping vulnerability. The barbarians are not at the gate in the physical sense, but they are certianly there in the economic sense.
i like the frat party analogy, for a good many reasons!
really drunk on cheap beer, poker games to bet on, screwing– or hoping to– everything in sight…
it’s not high aspiration, that’s for sure! the aftermath might really smell, and leave some feeling like their drink had been spiked.
cheers!
Yahoo Finance has a whole page on “Get Ready for the Housing Slowdown”
http://biz.yahoo.com/special/3realestate06.html
ooh, that was a dreary page of story-leads! I haven’t delved into it, and it’s hard to want to go back frankly because Suze Orman’s fake-tanned frosted-haired smug mug is there to click past, but that was a dreary looking set of hooks..
do they tell us the sky is falling yet?!
OT, but GOOGOO is in a bit of a trough today …
http://tinyurl.com/zgeq6
In fact, if I were a conspiracy theorist, I would almost wonder if the PPT was not keeping them from crashing all the way down to their fundamental value (which is somewhere in the neighborhood of the fixed income securities they buy to generate their vaunted cash flow…)
Net giant undercuts Nasdaq
Google plummets
Shareholders on the run as CFO makes cautious remarks on growth.
—————————————————————————————-
Ben,
I seem to recall that you were once the CFO of a dot com. Do you have any opinions about why GOOG’s CFO would be making cautious remarks at this juncture?
My read is the hot money reacts quicly to a company that does not give forward guidance but I defer to CFO Ben….
GOOG needed to put the brakes on things because it was already reversing the correction from the recent earnings miss.
I got out of two Fidelity funds because they had so much GOOG. One of the things that drives the insanity is that the buying of “hot” stocks by fund managers drives a frenzy. The managers benefit by beating the averages. However, it sets up a major crash at some point. Also doesn’t help to have Cramer pumping the thing. GOOG CFO is right to dampen enthusiasm and avoid a more major issue in the future.
Barn door open … horses gone … time to shut the door!
Does this sound familiar?
There may be a recession in stock prices, but not anything in the nature of a crash.”
- Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929
“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”
- Irving Fisher, Ph.D. in economics, Oct. 17, 1929
“This crash is not going to have much effect on business.”
- Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929
“There will be no repetition of the break of yesterday… I have no fear of another comparable decline.”
- Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929
“We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices.”
- Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929
“We will not have any more crashes in our time.”
- John Maynard Keynes in 1927
“This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”
- R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
“Buying of sound, seasoned issues now will not be regretted”
- E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929
Just remember who David Lereah “works” for. Just because he predicts it does not make it true.
I am saddened to see J M Keynes on the list of fools who were irrationally exuberant back before the onset of the Great Depression. It does not bode well for the next twenty years, as we have just ended a 60-year up cycle in US asset prices which rode the back of Keynesian stimulus. (We are all Keynesians now, esp. “free market” Republican leaders …)
For the Pearce market letter look at what he recommended. I wish my father had invested in his recommendations. His recommendation was withdrawn from the DJIA because it was advancing to rapidly in a bearish environment. IBM
There are always good buys in any market.
Doesn’t seem like this fact is really being made clear anywhere in the media:
INVENTORY UP 36% YEAR OVER YEAR
MONTHS INVENTORY UP 43% Y/Y
Those numbers are HUGE. Prices are basically flat since June. As has been said many times on this blog, the public will awaken to the seriousness of the housing situation if/when the normal spring surge in prices does not appear.
I am with you Deb but keep in mind that the Lions share of the increased inventory has been in Condo’s “So Far”…
Don’t hold your breath for the media to report this; you have demonstrated one of the reasons God created blogs…
Yahoo has a poll on future of housing prices… check it out on the right side of this page:
http://biz.yahoo.com/special/3realestate06.html
See the article http://biz.yahoo.com/special/3realestate06_article1.html
Note:
what’s fascinating is that anybody can even pretend like growth in homeownership rates would be expected with wages stagnant. And why would we want that? “Debtorship” does not = “ownership”. Isn’t it nuts to want to increase rates of people with 3% equity on ever-increasing loan amounts?
somewhere recently i read some idiot saying that homeownership levels were going to increase. why? For a standard group of people, homeownership levels increase until they are 75. Since the boomers are only tickling 60, we have 15 more years of them dragging up homeownership levels nationwide. party-on!!
have you guys seen this link from housebubble.com ?
http://onlinejournal.com/artman/publish/article_541.shtml
brief, nicely written piece, clear.
when more of these appear all over we can be more hopeful that people will see the light…
cheers!
OK, let’s recap: 3 declined, 2 below, 2 dropped, 1 fell and 1 lower. Sounds like a return to normalcy to me.
Today is February 28th, 2006.
Tomorrow is March 1st.
The March of the Inventory- Part II…
…begins tomorrow.
Keep an eye on the totals over the next two weeks, folks.
The entire friggin’ nation goes on sale in March.
I agree… everyone lists in the spring…
I’m looking at the January EHS spreadsheet from NAR, and there’s something I don’t understand. http://tinyurl.com/l2svu
The seasonally adjusted YOY sales are down 5.2%, but the non seasonally adjusted YOY sales are only down 2.9%. WTF, how can a seasonal adjustment factor change between one January and the next?
Maybe there’s some super sophisticated algorithm altering the factor because of the number of weekends or maybe the weather between one year or the next. Maybe.
It’s also possible the NAR are quietly fiddling the seasonal adjustment factor so that if the spring bounce tanks in absolute sales there will be a buffer to push the seasonally adjusted (=headline) numbers up a bit. Perhaps I’m seeing things that aren’t there, but I might keep an eye on this.
Hmmmmmmmm. For both November (by 0.7%) and December (by 1.3%), the seasonally adjusted numbers YOY are better than the raw numbers YOY.
the fattest inventory glut since November 1996
This is in months sold. The last time this many homes were for sale was in the 80’s.
Lest We Forget….
What was David Lereah saying on March 2, 2005:
David Lereah, the NAR’s chief economist said,”What we’re seeing is that real estate is no longer just a place to live. It’s a viable alternative to stocks and bonds..Sept. 11 changed real estate forever.”
HAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!
This guy will say just about anything, and the fact that he is saying that the market is cooling should really be scaring the sh%t out of everyone at this point.
Eric in DC