November 30, 2006

“The Slowdown Is Not Unexpected”: OFHEO

Some housing bubble reports from Wall Street and Washington. CNN, “Home prices rose in the third quarter but at a slower pace than in the second quarter, a government agency said Thursday, the latest sign that the housing market is still trying to find a bottom. The Office of Federal Housing Enterprise Oversight (OFHEO) said that housing prices nationally edged up just 0.9 percent from the prior quarter.”

“Five states; New York, Rhode Island, Michigan, New Hampshire and Massachusetts, recorded lower prices for the quarter, according to OFHEO, with Michigan also showing a year-over-year decline of 0.6 percent. It was the first time in six years any state reported falling prices over a 12-month period, according to the agency.”

From Reuters. “The data ‘provide more evidence that the long-forecasted national deceleration in house prices is occurring,’ said James Lockhart, the OFHEO director.”

“Quarterly price declines occurred in more than half the cities in California, OFHEO reported. The West and Northeast regions of the United States saw weak gains in the quarter.”

From MarketWatch. “The OFHEO index is considered the best gauge of home values, because it doesn’t depend on the mix of houses sold as do the median prices for new and existing homes. It compares apples with apples by tracking mortgages written for the same houses over time.”

“Prices fell on a quarter-to-quarter basis in 15 cities in California, including San Francisco, San Diego, Oakland and Sacramento. The biggest year-over-year declines were seen in Anderson, Ind.; Ann Arbor, Mich.; Springfield, Ohio; Holland, Mich.; and Greeley, Colo. In all, 18 cities recorded price declines over the past year.”

“‘The slowdown is not unexpected,’ said Lockhart. ‘There are still some areas where appreciation rates remain very high, but now they are the exception rather than the norm.’”

From Bloomberg. “A gauge of business activity unexpectedly showed a contraction in November as production and orders at U.S. companies weakened, according to a Chicago-based purchasing managers’ group.”

“The National Association of Purchasing Management-Chicago said today its business barometer fell to 49.9 this month, the lowest since April 2003, from 53.5 in October. A reading lower than 50 signals contraction.”

“The Chicago report ‘will likely raise concerns that the housing slump may be spreading, especially in the Midwest, where the weakened auto industry is especially important,’ said David Resler, chief economist at Nomura Securities International Inc.”

“Caterpillar Inc., the world’s largest maker of earthmoving equipment, said on Nov. 3 it plans to cut jobs at U.S. factories…to cope with a slowdown in the economy next year. ‘It will be a more challenging year than the past two,’ Caterpillar CEO James Owens said. ‘We’re going to hit some turbulence.’”

The Savannah Morning News. “Weyerhaeuser Co. announced Wednesday it will permanently close its Mountain Pine veneer and plywood mill, eliminating 340 jobs in the rural Arkansas town.”

“‘These are just really tough times for this industry,’ said Kathy Stacey, a Weyerhaeuser spokeswoman in Arkansas. ‘The housing market didn’t just fall off, it plummeted. It is tough all over the wood products industry.’”




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112 Comments »

Comment by Ben Jones
2006-11-30 10:29:07

A reader sent in this (warning) PDF of the 82 page OFHEO news release:

http://www.ofheo.gov/media/pdf/3q06hpi.pdf

Also this report. Check out the personal savings line item.

Comment by Andy
2006-11-30 10:42:56

So, from that report, would it be too much of a stretch to take the now positive rate of change of personal savings as being another indicator of a coming recession?

Comment by OB_Tom
2006-11-30 10:54:10

-0.6% is still negative. It is better than the -1.7% in summer, but look up the earlier years. Seems like people save less in the summer months.

 
Comment by arroyogrande
2006-11-30 10:54:25

“too much of a stretch”

I charted it in excel…to my untrained eyeballs, it doesn’t look like a trend towards positive savings at all.

 
Comment by waaahoo
2006-11-30 10:57:20

Depends on what they use to measure PS, but if the average joe is starting to restock his nut supply a lot of soft, rosy predictions are going to have to be revised I would imagine.

Comment by M.B.A.
2006-11-30 11:46:35

it’s about time avg joe restocks his nuts.

a slowing of consumer spending, while it has its ramifications, is just what the avg joe needs to do. as we all know, much of this was on credit and involves ’stuff’ nobody really needs….

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Comment by nyc-is-different
2006-11-30 10:59:38

I’d say so, if it continues for a few more months.

Comment by OCDan
2006-11-30 11:54:42

I have to agree with my fellow recessionists on this blog, concerning the negative savings rate. What worries me is that this item has been negative all year. With the debt load in this country and the constant war against inflation for those just “holding the line,” I don’t see this number reaching any significant positive levels in the near or foreseeable future. What this tells me is that this country is in serious trouble. You cannot continue to have a citizenry that piles up mounds of debt before the economy eventually dies. This coupled with the mortgages and “liberated” equity is going to mean big trouble in the coming years. And, even if the fed decides to turn on the helicopters, what good will come of that? Foreigners will flee like rats on the Titanic, not that they aren’t already. Take a look at the Pound and the Euro against the buck. New highs as we speak. I can’t believe the dollar is almost worth half a pound. I remember just 6 or 7 years ago when the rates were 1.30 to the pound and i thought that was high. On the other hand, raise interest rates and you will kill all the U.S. debtors and surely lock up the consumers who buy on credit. By these numbers the Fed and the economy are in the toilet.

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Comment by CA Guy
2006-11-30 12:32:16

OCDan, good writing as always. We share the same concerns. How long ago was it that it took less than $1 to buy a Euro? Not far back. Needless to say, I doubt we’ll be heading to the UK or Europe any time soon.

P.S. My mother is also a librarian. It is pretty sad watching libraries having funding pulled left and right. People can go there and read financial magazines and books any time they like, not to mention wonderful literature. Instead they just buy People at the check out line.

 
Comment by Conrad
2006-11-30 12:48:39

People read People magazine that’s why you can fool half the people half the time.
They only care about Brittany somebody or Paris someone and who jumped up on Oprah’s couch.

 
Comment by Mike_in_Fl
2006-11-30 14:29:56

CNBC reported the all time low for the Dollar Index is around the 79 area … only a couple of points below where we are now. Gotta love the Treasury Department’s “strong dollar” policy, you know, the one we keep hearing about even as our currency sinks towards nothingness.

 
Comment by Patriotic Bear
2006-11-30 17:31:43

The Euro and Pound are not at new all time lows. They are not below the early 2004 lows. For example the low for the Euro was 135. While I agree with much of what this blog says, some of you get careless with the facts.

 
 
 
Comment by incessant_din
2006-11-30 11:21:13

Well, they reported the following:
Mo / PSR thru 9/06 / PSR thru 10/06
1 / -0.3 / -0.3
2 / -0.3 / -0.3
3 / -0.4 / -0.4
4 / -0.4 / -1.0
5 / -0.7 / -1.6
6 / -0.6 / -1.5
7 / -0.8 / -1.7
8 / -0.5 / -1.3
9 / -0.2 / -0.7
10/ — / -0.6

The revised significantly downward in this last set. Post-election move?

Comment by packman
2006-11-30 12:54:59

I noticed that as well. They normally do revise past quarters’ numbers each quarter, but this revision was quite a large delta compared with past revisions.

Also - what’s up with Aug ‘05 being -3.0? Surely that’s a miscalculation. It’s never been corrected. Was there some big spending event that month? Maybe that was the month the auto makers broke out the “employee pricing” or something like that.

If you graph the trend since 1959, it’s really sad. Savings went along pretty well, actually gaining as a trend until the early 80’s when it topped around 11-12%, and it’s been going down ever since. Hmmm - seems to correlate almost exactly with the national debt now that I think about it.

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Comment by incessant_din
2006-11-30 13:21:48

Hurricanes Katrina and Rita in August 05. Basically, income was cut in the effected areas, while spending stayed more or less on trend. The other big anomaly was Microsoft’s dividend in December 04.

 
Comment by packman
2006-11-30 14:08:06

Ah yes - thanks.

 
 
 
 
Comment by arroyogrande
2006-11-30 10:43:57

“the hype was designed to get people to take their houses off the market so the inventory would be lower”

I guess that the Saturday Night Live skit “Don’t Buy Stuff You Can Not Afford” didn’t have much impact…

Comment by CA Guy
2006-11-30 12:35:44

That is an all-time classic SNL skit! When I played it for my dad he busted up laughing. He always stressed the importance of not living beyond one’s means, and I am very grateful for that.

 
 
Comment by Conrad
2006-11-30 12:12:36

The OFHEO report only uses Fanniemai and Freddymac loans which currently are $417k max. What about all the 100% financing with nodoc loans or jumbo loans for homes in the 800k + range.? $417k leaves a lot of home in CA out of the report.
I wonder how that would affect their report.

Comment by Patriotic Bear
2006-11-30 17:34:50

Exactly. Report was total BS. An idiot knows that prices in the USA have declined over the last year.

 
 
 
Comment by nyc-is-different
2006-11-30 10:37:54

“…the housing market is still trying to find a bottom.”

Ha. Took 10 years to find a top but overnight they sniff around for a bottom. I love how the media disproportionately represents the sellers.

Comment by flatffplan
2006-11-30 11:25:06

sellers pay for ads

 
Comment by Peter T
2006-11-30 14:52:41

… and the realtors and the mortgage brokers and the banks …

There is no outspoken group with interest in lower prices. And because today’s journalist write their articles around viewpoints from outspoken groups, the articles become biased towards higher prices.

 
Comment by dannll
2006-11-30 14:56:08

No, you have it all wrong, this whole slow down is the “media’s” fault. Don’t you read the NAR/CAR press releases? If it wasn’t for the negative press prices could have climbed forever like they promised.

Comment by dimitris
2006-11-30 23:39:29

I agree. David Liarah also spoke about the ‘fundamentals’ not too long ago. I think housing is coming back and I’m looking to buy a few fixer uppers now so I can flip for the spring. I mean, seriously, they’re not making any more land and we have so many immigrants coming. HAHAHAAAAAAAAAAAAAAAAAAAAAHAHA

 
 
 
Comment by OB_Tom
2006-11-30 10:37:59

More bad news on the horizon:
http://www.shadowstats.com/cgi-bin/sgs/archives

“Monthly Commentary: Novermber 2006 Nov. 29, 2006
Dollar Selling Will Threaten Credit and Equity Markets / Economic Activity Continues to Crumble / Distorted Inflation Plunge Bottoms Out / Gold Prices to Rebound Further / The broad outlook for a deepening inflationary recession continued to intensify last month, at the same time that domestic and global political tensions increased sharply. Main Street U.S.A. dumped the Republican controlled Congress for a variety of reasons, not least of which were rapidly deteriorating pocketbook issues. Reflecting a growing market awareness of these problems, the U.S. dollar has come under some selling pressure. When the current minor selling turns massive, the foreign-capital-dependent domestic markets will face a terrible liquidity squeeze, with resulting interest rate spikes and equity selling. Gold should do well under the circumstances.”

They have updated their GDP growth estimate to -1.8%
http://www.shadowstats.com/cgi-bin/sgs/data

We’re in a recession. Merry Xmas. Gold jumped to $647 today.

Comment by GetStucco
2006-11-30 11:35:47

Bottom dropped out of the yield curve today (at least as of this comment, but don’t be surprised if it mysteriously “corrects” by day’s end…).

http://www.bloomberg.com/markets/rates/index.html

Comment by OB_Tom
2006-11-30 13:05:37

I don’t know. I’ve been watching in amazement how our treasury bills (we have most of our money in 28 day bills) keeps renewing at higher and higher rates (5.26% was the latest). Why invest in 3 - 6 month or longer when you can get so much higher rate short term? We might want to bail out of the Dollar anyway (should have done that already, I guess)

 
 
 
Comment by JCclimber
2006-11-30 10:39:26

Sellers, or rather home owners, are in the majority. And are likely to be buyers of MSM products. So, they cater to them.

 
Comment by Lisa
2006-11-30 10:42:18

In one of the reports Ben posted, negative savings rate in 2006 DOUBLED from -0.3% to -0.6%. Wait ’til folks see their precious equity disappear before their eyes.

 
Comment by GetStucco
2006-11-30 10:43:28

“The OFHEO index is considered the best gauge of home values, because it doesn’t depend on the mix of houses sold as do the median prices for new and existing homes. It compares apples with apples by tracking mortgages written for the same houses over time.”

But it is not perfect.

- It is backward looking — does not reflect the value of homes that are currently selling.

- It excludes new home sales, which we know have dropped by somewhere over 10% YOY.

- It misses the value of extra goodies (e.g., granite counter tops) thrown in to sweeten the deals after the market has turned.

- It naturally overweights the part of the sample which represents homes that are still rising in value, as sellers are reluctant to drop their prices in areas where market values have fallen.

- It misses the value of homes which have only sold once, which are also more likely to include homes whose market values have fallen.

In short, it understates the drop in market values at a turning point in the market.

Comment by david cee
2006-11-30 11:02:44

OFHEO tops out at FHA loan limits, somewhere in the $450,000 range. So it pretty much misses most of NY and CAL. Since these 2 states are close to 40% of the housing market, this guage is another totally useless government statistics. Is that what the FED uses to promote their agenda?

Comment by GetStucco
2006-11-30 11:10:49

Great point, David, and also worth noting that NY and CAL are also two states where local price measures suggest home prices are falling.
So I would suggest this is a serious source of (upward) bias in the OFHEO Index.

 
Comment by Tango in Uniform
2006-11-30 11:21:08

All good points. But in my (smaller) city, it’s the only public historic data for house prices that we have. So I’ll take it, even if it lags by 4.5 months.

One thing I’ve noticed is that OFHEO adjusts previous quarters’ figures. Keep every quarter’s spreadsheet and compare. It’s not a bunch, but one time they showed the most recent QOQ index UP, while the revised version (released the next quarter) show it DOWN for the same QOQ comparison.

 
 
 
Comment by turnoutthelights
2006-11-30 10:51:12

‘Personal consumption expenditures’ were up 3.61%, while ‘Personal interest payments’ (non-mortgage interest) is up 8%+. I take it that this is further proof of people paying for their lifestyles with personal debt.

 
Comment by oxide
2006-11-30 11:00:35

Great personal savings chart!

October 1964: 8.5%
October 1968: 7.8%
October 1972: 9.5%
October 1976: 9.0%
October 1980: 10.4%
October 1984: 11.4%
October 1988: 7.2%
October 1992: 7.1%
October 1996: 3.8%
October 2000: 2.3%
October 2004: 1.4%
October 2006: -0.6%

I picked October of Presidential election years to look for an obvious correlation between savings rates and which party had been in power for a few years, but I didn’t see one. Not much correlation with the general economy either — if that were the case, 2000’s rate should have been much higher.

My completely unsubstantiated first-approximation opinion is that the drop in personal savings rate — especially 1984-1988 — correlates best with the rise of computers which fueled the widespread use of credit cards and (bank, not house) ATM’s. Or when 401K plans became popular.

Comment by albrt
2006-11-30 11:22:14

It also coincides with the rise of the irrational “Morning in America” optimism/chauvinism meme.

Comment by Captain Credit
2006-11-30 11:25:03

Indeed it does Albert. What RayGun really meant was MOURNING in America.

Comment by Conrad
2006-11-30 12:57:26

Very good captain Credit, LOL.
RayGun, I love it.

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Comment by jag
2006-11-30 14:54:10

Yes, it followed the debacle of Jimmy “malaise” Carter as well.
It also followed Volker tightening the money supply viciously (as it had to be done).
So, was the optimism misplaced? Maybe you weren’t around back then but I was and NO ONE had any confidence in the economy post Jimmy. You can look it up, google Lester Thurow, MIT and read how he predicted Japan’s ascendency was certain because of their superior way of picking economic “winning” industries.
The end was near back then. Didn’t happen, no? Oh, and the dollar; despite worldwide disdain of Raygun, rose.

Not a bad outcome I’d say for a “chauvinist meme”.

Comment by albrt
2006-11-30 17:05:18

The faith-based irrationality and optimism are just as important as the chauvinism, and the meme was certainly not limited to Raygun. He and Charlie Daniels just got the ball rolling, and it grew steadily right up until the current NeoCon debacle. It is now faltering badly, and the reality-based community has an opportunity to come up with a competing meme. We shall see.

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Comment by Captain Credit
2006-12-01 05:31:49

Please castigate and demonize Carter some more. It does wonders for supply side apologies.

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Comment by Captain Credit
2006-11-30 11:23:36

PS can also be viewed in a way that suggests people aren’t earning enough to save. I’d be more inclined to look at it that way considering the general population is forced to compete in a labor market with 12 million illegal immigrants willing to work for beans and rice.

Comment by oxide
2006-11-30 11:52:14

Whatever the opinion of illegal immigration, the big drops, it seems, happened before that explosion. Anecdotally, I didn’t personally see the undocumented immigrants until ~2000. And undocumented immigrants were more likely to take jobs at the low end of the payscale, where savings are low to begin with. So what happened between 92 and 96? Nafta? Yuppies grow up and spendspendspend? Jack Welch and GE’s outsourcing? The early 90’s housing bust? Materialistic advertising? The downsizing/rightsizing of the early 90’s where computers ushered out people and ushered in the new high-pressure corner-cutting profit-maxing just-in-time lifestyle… This could be somebody’s master’s thesis…

Comment by Graspeer
2006-11-30 13:18:45

“This could be somebody’s master’s thesis…”

I suspect it was someone’s master’s thesis for their MBA some years ago and all is going according to the plan.

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Comment by M.B.A.
2006-11-30 11:53:24

which, in turn, corresponds to the fact that the inflation rates are drastically understated due to the fact they do not count things like ENERGY, i.e. I call them metrics for morons…

Anyway, the stars are truly aligning on this whole debacle- all sectors - just as the bloggers here have suggested.

Comment by OCDan
2006-11-30 12:03:58

Looking at Oxide’s numbers shows me that this economy is the last stages before death. One of the things that hardly ever gets mentioned is the “tipping point.” I think it is save to say we have reached that point. By that I mean, the point at which the ship can no longer be turned around. Basically, all these gurus and BS spokespeople are just trying to keep the (m)asses from revolting. It’s like Ross Perot said when he ran for president, “If I ran my compnay the way the government handles its business, the board would fire me.” I also agree, however, that regular middle of the road schmoes who are conservative are having a tough time of it. I wholeheartedly agree that there are many using debt just to survive. What this tells me is that corportations don’t care about people or this country. As long as gthe CEO and the board and the stockholders (maybe) get theirs, screw the productionline. You want what, $20 an hour, too bad. Some schlep in Mexico or India or right here in San Diego will work illegally or under the table for $5 and I don’t have to do any paperwork on it and he gets the $5 every hour, nothing taken out. Hey, aren’t we all happy as a clam!

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Comment by OutofSanDiego
2006-12-01 11:46:07

OC Dan, you are completely right stating that “As long as the CEO and the board and the stockholders (maybe) get theirs, screw the productionline.”

It is just the CEOs and Boards (along with their elite buddies) that make out. They take all the big bucks off the top, raping everyone else, even when their companies do poorly. Run a company into the ground and BK? Thats ok, the shareholders and workers get screwed and the Incorporated owners, CEOs, and board members just move on to the next gig and do it again. The money being “saved” by the companies on outsourcing is NOT going to the stockholders and definately not the workers who are getting screwed…it is going directly into their OWN pockets. PERIOD, that’s the truth. Our country is completely screwd and headed toward third world status if we continue to allow the complete errosion of decent middle-class white and blue collar jobs. I am very scared about the long term future of our nation.

 
 
 
Comment by oxide
2006-11-30 11:59:10

Whatever the opinion of illegal immigration, it seems the big drops happened just before that explosion. Anecdotally, I didn’t see large amounts of immigrants until 2000. And aren’t those jobs near the low end of the payscale, where the savings rate is low to begin with? There are a million other reasons for the 92-96 drop. I recall that that was when the real profit-maxing and corner-cutting started kicking in. And Sam Walton died in 1992, so Wal-Mart would have started its outsourcing supplier wars just after that.

 
 
Comment by Northeastener
2006-11-30 12:22:19

What’s really scary is that the personal savings rate has dropped so dramatically over the past 23 years, yet more families have two wage earners. In 1976, the average middle-class family would have had one wage earner and still managed to save 9% annually. Now the average middle-class family has two and is negative in savings annually…

Comment by Vermonter
2006-11-30 14:09:33

I don’t know - I think many people can “afford” to save. They just blow it stupid crap. It’s now longer part of the American phyche.

I know people who live on the financial “edge” financial - job to job, no benefits (and one income). There’s always money for cigarettes, potato chips, and toys for the kids and adults. But save for a rainy day?? Bah.

How many middle class Americans with higher incomes below ridiculous amounts of money on Starbucks, convenience food, and all the “must haves” of today? Granite counter tops are just another symptom of the problem.

It’s odd to say as a 32 year old, but compared to the rest of the we are so frickin spoiled. The folks living on $1 day in shacks maybe don’t make enough to save. Almost everyone working in the US has room to save in their budget - we just don’t.

Comment by We Rent!
2006-11-30 14:33:36

Wife and I saved 57% of our take-home this month. :mrgreen:

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Comment by Vermonter
2006-11-30 15:27:26

We Rent! -

That’s awesome. It’s been a while since I looked at our savings rate but I know it’s over the standard 10% “recommend”.

Sorry about the poorly proofed rant - I just get very suspicious when people talking about “affording” to save in a country as affluent as ours. ;)

 
Comment by CA Guy
2006-11-30 15:43:47

Vermonter, I’m the same age as you. I think you are on to something regarding savings. It took me most of my twenties to finally realize that while I wasn’t reckless I was throwing away money on absolute crap, mostly beer! Don’t even get me started on the Starbucks obsession so many people have. It really is amazing how much you can save just by following the classic cliches: make your coffee and lunch at home, comparison shop and raise insurance deductibles, pay the CC bill in full each month, go to a matinee movie rather than evening, etc. My point is that I enjoy my life more now than I did before because I don’t have money stress. You really don’t miss all the unnecessary perks you treated yourself to before. We Rent! is the man! 57% is astonishing, my good sir!

 
Comment by albrt
2006-11-30 16:58:15

Hey, I’m all for cutting out Starbucks, movies, etc. but leave the beer out of it.

 
Comment by We Rent!
2006-11-30 18:00:34

Agreed, beer is an essential. Like clean water and shelter from the elements.

Disclosure on the savings: 31 & 29yo, but no kids (yet) and two earners (for now).

 
 
 
Comment by CA renter
2006-11-30 17:16:36

Having two wage earners actually depresses wages. Supply & demand: with women in the workforce, there are more workers competing for jobs. No difference between illegal immigrants and housewives entering the workforce. Most of these people just want to work, and will do so for below (previous) market wages. Notice how jobs which used to be “high end” like banking, accounting, even medical jobs used to be paid much more (inflation-adjusted) than they do now. Seems to correlate with more women entering those professions.

Just MHO — and I’m a woman, so not advocating keeping women “barefoot & pregnant”, but we should look at all the consequences of various social actions.

Comment by GetStucco
2006-11-30 21:21:51

“Having two wage earners actually depresses wages.”

Only in the aggregate, not at the household level…

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Comment by CA renter
2006-12-01 01:13:48

Yes, and no.

Although the gross HH income might go up, the per capita income will likely go down.

Of course, you also have to consider the tax situation (total of second income taxed at highest rate and can throw the HH into an even higher bracket). And in today’s commuter age, the cost of gas, insurance, maintenance and accelerated replacement costs must be factored in. Add to that child care costs (can easily be $700+/mo for **one** child), clothing costs, the “I work hard so I deserve to spend more” costs, etc. I believe most people are not getting anywhere near enough to make it worth it in a financial sense.

Also, you’d be surprised how much money can be saved by having someone at home to meet with contrators, etc. for home repairs — we’ve saved thousands over the years because I was able to interview/get estimates from a large pool of prospective plumbers, electricians, garage door installers, etc. (when we owned).

Anyhow, I just think people ought to really go over the numbers more carefully to really determine if it is worth the lost productivity and reduced advancement opportunities at work (if you have to leave by 5:00 p.m. and take time off all the time to tend to sick kids, see plays, etc., your chances of being promoted are greatly diminished, IMHO).

 
Comment by CA renter
2006-12-01 01:15:37

Oh…and the greatest cost of not having a parent at home: not being able to tend to spend time with your own kids.

Guess that should be too obvious to mention, but there it is.

 
 
 
 
Comment by jag
2006-11-30 14:39:31

In 1980 Treasury Bonds were going from 11% to 15% in 81 to 13% in 1984….money market rates were similarly high.

Why do you think people saved back then?

Comment by GetStucco
2006-11-30 21:23:06

1) Interest rates were sky-high (as you suggest).

2) The stock market, housing market and commodities market were all in the crapper.

3) Everyone was afraid of losing their jobs.

 
 
 
Comment by Vertical Drop
2006-11-30 11:01:58

OT - Quite a move up on the homebuilders after the analyst upgrade. I’m glad it’s winter here otherwise I might have been wearing shorts. The market action certainly sends a chill. Unbelievable, +8.98% for PHM and +8.9% for SPF.

Comment by david cee
2006-11-30 11:06:41

Pulte closes their year end books today, Nov 30. Why do I have a feeling their year end bonuses are based on todays closing price?
Could be some insiders at Pulte are buying back stock with company casj, and dating their options, and getting their friends at the mutual funds and the MSM to pump and dump? Can’t wait to hear Krammer jump on the bandwagon.

Comment by garcap
2006-11-30 11:14:44

Maybe they got Elvis in on the act, too.

 
 
Comment by GetStucco
2006-11-30 11:40:04

The analysts obviously know something you don’t: Homebuilders have historically done very well in past recessions (except for the past four… oh well).

Comment by CA Guy
2006-11-30 12:42:04

Good one!

 
Comment by bobbyj
2006-11-30 13:12:38

Volume was huge today for the homies. Who was doing all the buying?

Comment by Wovoka
2006-11-30 17:59:02

Obviously it was those people who never read this blog.

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Comment by Conrad
2006-11-30 13:14:54

The shorts are running for cover. Shareholders should sell on this rally. It’s a rally in a bear market in HB stocks.

Comment by CA renter
2006-11-30 17:23:04

Many of us have been waiting for the proverbial drop in HBs, but it’s getting difficult to maintain composure in this market.

Wasn’t Daniel Oppenheim (sp?) one of us (not a blogger, necessarily, but a RE bear)? All of a sudden he’s upgrading the HBs. What gives?

I keep thinking everyone else must know something we don’t. None of it makes any sense. If not for the amazing collective forecasting abilities of people on this blog (and we all seem to think we are just in the beginning phases), I’d almost be willing to believe the “bottom of the market” BS by these shills.

Comment by bobbyj
2006-11-30 20:35:23

If it was the bottom, would you consider buying into it?

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Comment by CA renter
2006-12-01 01:19:47

I’d almost always be willing to buy at the bottom of any market, but that’s just me. ;)

Of course, I believe we are just this side of the peak and only beginning our downward journey. I believe it will last for years and years…but I could be wrong!

 
 
 
 
 
Comment by WT Economist
2006-11-30 11:18:24

Great personal savings chart!
October 1980: 10.4%
October 2006: -0.6%

Recall that in 1980, all forms of consumer interest were tax deductable, and there were few forms of tax-deferred savings. This was to favor debtors (the poor) over investors (the rich). The incoming Republicans claimed that this discouraged “savings and investment.”

So all forms of consumer interest save mortgages were gradually made taxable. And with IRAs, 401Ks, 529s, Roth this and that, virtually all middle class investment returns were made tax exempt or deferred. For the better off, there were steep cuts in taxes on divideds and capital gains.

So we can now see clearly the importance of tax incentives in the financial choices of Americans! Theory to the dustbin of history! Culture matters more.

Comment by GetStucco
2006-11-30 11:23:58

“So we can now see clearly the importance of tax incentives in the financial choices of Americans!”

I guess 10%+ interest rates in 1980 against a backdrop of a mo-fo of a recession played no role?

 
 
Comment by OB_Tom
2006-11-30 11:18:37

I like the link on the CNN page. “Bubble proof markets” They include SF, LA and Boston. Great advice! Get your checkbook out and buy some condos.

Comment by flatffplan
2006-11-30 11:29:56

boston’s only off 15% so far
30% last time 1990-95
give it time

 
Comment by SFer
2006-11-30 11:39:48

Saw that, too. Such BS. Especially since prices in SF and Boston are already falling. Granted, SF and Boston will likely never turn into “ghost towns” like a lot of desert towns in the southwest, with thousands of empty stucco boxes.

But if the median home price in San Francisco is $750K and prices fall just 10%, somebody lost $75K, which is an average annual salary out here. Compare that cost/wage reduction to Vegas or Phoenix and then tell me these cities are bubble proof.

Comment by Conrad
2006-11-30 13:09:58

$675K does not make it much more affordable for someone making $75k per year. Still 9X gross income.

 
 
Comment by CA Guy
2006-11-30 12:47:11

I admit to having CNN Money bookmarked, but they are an absolute joke. More like entertainment than education. I saw that article as well and found it shocking, even for them. As you said, great advice! Maybe one of the mortgage guys on this blog can hook me up with someone who does neg-am 110% financing. If so, I want two of those SF condos!

 
 
Comment by flatffplan
2006-11-30 11:26:53

the only states hanging in pricewise drill oil/ngas
otherwise kerplop

Comment by Robb
2006-11-30 14:07:42

Like Colorado?

 
 
Comment by B-hamster
2006-11-30 11:27:57

Regarding personal savings, I read where the savings rate for the 25-34 age group is -16%…that’s a NEGATIVE.

I guess once the kids growing up leave the nest, they realize it cost $$$ to sustain that lifestyle they were raised on in the suburbs. Not to mention the mounting student loans only to be greeted by mediocre wages upon leaving college.

Comment by Andy
2006-11-30 11:46:18

Isn’t that where they think first-time buyers, with ~50k cash to spend on a down-payment, are supposed to come from according to the affordability index? LOL

Comment by lefantome
2006-11-30 11:58:25

How in the world will they service that new debt, with this financial picture. Two of my son’s friends who purchased condos this year (May and July, Sacramento and Concord) who I personally advised to NOT buy, are already upside down in their place. The one in Sac realizes he should have waited: The other has no clue what’s going on.

Comment by DinOR
2006-11-30 12:03:58

lefantome,

That may be more of a function of locale than intellect?

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Comment by lefantome
2006-11-30 12:40:21

Probably a combination of both. Sac is certainly in the ‘Kill Zone’ for the unraveling, but Concord surprised me as one area dropping first (Contra Costa County). Just sad to see that neither could wait and watch, but I guess they were in elementary school during the last ‘down market’. I pulled out all the stops in trying to convince them to hold off on the purchase (I can really get going with several glasses of wine). Finally Mrs. L gave me the “shut the H-up” look and we enjoyed the party. Apparently they had more to drink than me ……

 
Comment by CA renter
2006-11-30 17:26:01

At least you tried. Good for you!

 
 
 
Comment by imploder
2006-11-30 12:07:34

The last trickle of first time buyers in LA were for the most part from recent immigrants, often buying as a family group.

 
 
Comment by OCDan
2006-11-30 12:09:23

B, don’t even tell me about the student loans. As a librarian at 2 different graduate schools, I saw firsthand the massive debt these kids were taking on. Some left with 150K just for a Chiropractic or Psychology degree. Ouch, and this was in the early to mid-90s. How on earth are you going to make that payment coupled with housing and an office? I just don’t see it.

Comment by B-hamster
2006-11-30 12:43:36

I think an entire generation is raised on the social acceptance of carrying debt, whether for educational, consumer or whatever reason.

When I was growing up someone that took out a “second mortgage” was in pretty dire financial straits. Now they market them as “home equity loans” and the stigma disappears.

 
Comment by Vermonter
2006-11-30 17:39:47

I’ve felt for a while that part of the reason that some members of gen X are so “okay” with the big huge numbers associated with this housing bubble is because we got used to them as student loan debt. The people with the largest mortgages I know also have the most student loans.

Student loan debt deserves a whole another blog - I know that I’m planning to do everything I can to encourage my kids avoid educational loans. Cheap college is fabulous, most education is currently overpriced.

 
 
 
Comment by Rdub9000
2006-11-30 11:28:07

I’ve been a visitor to this blog for quite awhile.
Figured you all might get a kick out of this song I came up with yesterday, much influenced by our current economical situation.

It is called “Water Breaks”. Since My wife and I are having a baby and are trying to wait out this mess…

You can download the song off my myspace site. Let me know what you think. Hopefully you don’t have to sign up for an account to have a listen. It is VERY raw, as I don’t have much time to do professional recording.

Here is the link.

http://www.myspace.com/rdub9000
—-

What will become of our future?
Our actions emerge once their devised.
When will the threads of our sutures?
Be tied around our reprise.

What path will our lives take
Once the water breaks?
Dreams of embroidery,
For our new baby.

Will I be a good Dad?
Calm my temper when I get mad?
Questions with the answers,
That the years will decide.

To my dear wife, please have some patience.
The days and months soon will pass.
Please humor my clairvoyance.
Our life without a home will soon be recast.

What path will our lives take
Once the water breaks?
Dreams of embroidery,
For our new baby.

Will I be a good Dad?
Calm my temper when I get mad?
Questions with the answers,
That the years will decide.

Seek not the bondage of a mortgage
That in years we will despise.
Settle not for a home that you’ll hate eventually.
Impatience is the devil in disguise.

Slaves of the lifestyle,
Debt grows the whole while.
How much is it worth,
for granite over tile?

With long hours of driving,
It’s our loved ones we’ll deprive
Not of our money,
But of our time.

Undervalued at our jobs.
Find ourselves wasting precious hours.
The challenges are gone, seconds slow to a crawl.
The active mind of youth is fading fast.

Slaves of the lifestyle,
Debt grows the whole while.
How much is it worth,
for granite over tile?

With long hours of driving,
It’s our loved ones we’ll be depriving.
Not of our money,
But of our time.

The value of the dollar, is declining…
I sure don’t see our wages rising.
Baby Boomers ain’t retiring.
Dreams of filot mignon turn to fries.

Slaves of the lifestyle,
Debt grows the whole while.
How much is it worth,
for granite over tile?

With long hours of driving,
It’s our loved ones we’ll be depriving.
Not of our money,
But of our time.

Rdub 11-30-2006

Comment by OCDan
2006-11-30 12:13:53

I loved your comment about Filet Mignon. As a T Rex myself, this has been the one item I have used to tell that our money is getting cheaper. Either that, or Filet Mignon is getting scarce. When my wife and I got married 13 years ago, Filet Mignon cost about $6-7 for nice filet. Now, I just about dropped dead the last time I looked. Anywhere from $12-13. So, your going to tell me that Filet Mignon appreciates about 5.5% annually? Don’t think so, more like inflation is running anywhere around 5-7% annually and these nut jobs in the fed are telling us it is about 1%. Yeah, and I have anice bridge I would like to sell you.

Comment by ric
2006-11-30 12:25:46

FedLogic says you and your wife would have long ago substituted burgers for those filets, and therefore there is no inflation.

Comment by albrt
2006-11-30 12:35:07

Based on the comment “I just about dropped dead the last time I looked” it appears OCDan did indeed substitute burgers for steak. The Fed is right again. Next we will substitute soylent green for burgers.

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Comment by bluto
2006-11-30 13:12:19

Interestingly, in the last 5 or so years luxury goods have apreciated pretty dramatically in the last few years while staple type goods haven’t seen as dramatic price increases. I’d be curious if Chicken or hamburger has increased as quickly. It’s not just fillet (check the forms index of living well). Lots of hypothesis as to why, but I’m not sure of any of them yet.

 
Comment by OutofSanDiego
2006-12-01 11:57:55

Maybe it’s supply and demand. Those HELOCs haven’t just been buying Hummers and BMWs, those FB’s must also like Filet Mignon (why not…they couldn’t afford it with their salaries at $7 /lb, but HELOC money is like funny money and their house equity only goes up…right? So Filet Mignon for everyone!). I too was shocked at prices of Filet Mignon (looked at it at COSTCO the other week), however, I have always limited myself to Top Sirloin, and (when on sale) is about the same price now as it was 15 years ago. Same as with a lot of other “normal” consumer items I buy (i.e. milk, cereal, mac & cheese, etc.). Maybe so-called luxury goods have gone up a higher percentage because there are some many people now that want and expect them and can buy them on easy credit. I don’t think my middle class parents ever served a Filet Mignon in the house my entire childhood and neither have I…maybe being raised by depression era parents is why I am wise with my money. When I buy the Top Sirloin at COSTCO, I almost feel like the other shoppers in the meat department who are scooping up the Filets and N.Y. Strips are looking at me like I’m a poor sap. I bet I have a higher net worth and income than all of them…but I still am not going to pay $12 /lb for meat or a friggen $20 for a Lobster tail which I used to get for $3.99 (whole lobster) off the docks in Rhode Island a few years ago.

 
 
Comment by Andy
2006-11-30 12:29:21

My headphones are broken, so I can’t listen to the actual song at work, but I dig the bearish lyrics.

 
 
Comment by Catherine
2006-11-30 11:46:26

I believe when companies like Caterpillar and Weyenhaeuser state bad numbers, we are getting some actual facts, instead of NAR realtor-speak, like “souffle”, “softening”, and other crap-like adjectives they toss around like pastel colored Excel sheets.
Look to the equipment and supply guys for what’s really down the road. The big truss company right next door to our business is almost shut down…cut down from 24 hour shifts to 4 day 6-8 hour shifts with almost no one working. Their workers have been beating our door down trying to find work. The hard numbers are in their wallets, not some jackass realtor’s Lexus glovebox.

Comment by DinOR
2006-11-30 12:02:04

Catherine,

Exactly, and well said. One more “crepe” comment and I swear!!! CAT (to a certain degree) is using this as a “crutch” b/c North America hasn’t been their growth market for sometime but it WILL impact them and I further agree that we’ll continue to get dour assessments from the guys that make toothpicks out of logs.

No offense but these “engineered trusses” are one of the scarier prospects of looking at newer homes. Every time “I” drive by a job site they are warped and don’t look all that structurally sound. Or is this just another aspect of the “new building techniques” that a lay person knows nothing about?

 
 
Comment by DinOR
2006-11-30 11:51:28

“The housing market didn’t just fall off, it plummeted”

Falling lumber prices just may be the last straw for builders attempting to shore up prices. My neighbor finished his dream house in OCT 2005 and said lumber prices had been through the roof at the time. Granted there’s not a lot of lumber in new homes but that didn’t stop the REIC from claiming it was a major pricing factor on the upswing! Right now these clowns need this like “another” hole in the head b/c as this becomes more public the more obvious it’s going to be that they way over paid for the lots! Good luck quelling that.

 
Comment by OCDan
2006-11-30 12:18:33

DinOr that last line said it all. When these FBs find out that the 750K McMansion Faux Chateaux is really only worth 200K in parts, labor and land AND that no one would really pay more than 250K, they are going to be squealing. Couple this with the negative savings and the coming recession and wee have as some have called it on this blog, “The Perfect Storm.”

 
Comment by Suzy K
2006-11-30 12:38:00

Yeah it plummetd all right, right off a cliff. My sister, a broker up in the Tahoe area, has been in RE for over 20 years is now out of a job as of last Monday. Her office also did property managment and home building/remodeling. She’s said she’s going to have to stike out on her and start a business in very tough climate. That’s an understatement. She seems to think it will get better in the spring. So i had to ask “What EXACTLY is going to be different or “better” in the spring??” She had no answer. So I ask all of you now…What the HECK are all these RE PUNDITS basing this “It’s going to be better in the Spring” on??? What EXACTLY is going to better??

Comment by Housing Wizard
2006-11-30 13:33:49

It’s called wishful thinking . It’s to bad that the real estate community spend the money they earned during the golden 7 years of real estate from 1998 to 2005 .If the RE agents and morgage brokers would of saved even a portion of the commissions they earned by the mania they would not be in a mess . So many of the RE crowd were speculators also .
It’s only going to get worst because a major correction in markets is in order . Better that alot of these agents just find another job now .

 
Comment by Mozo Maz
2006-11-30 18:21:56

That’s a good point.

It was actually somewhat defensible in December of 2005 to say “Things are great! They’ll be great in the spring of 2006 too!” After all, things don’t change fast in economics. A few months down the road probably will resemble the present.

So….. What are things like now? (Going to shit.) Spring of 2007 is only a few months from now…. Why would it be much different?

 
Comment by Mozo Maz
2006-11-30 18:25:51

[Ugh. Stupid filter. I'm gonna repost.]

Your point is quite valid.

It was actually somewhat defensible in December of 2005 to say “Things are great! They’ll be great in the spring of 2006 too!” After all, things don’t change fast in economics. A few months down the road probably will resemble the present.

So….. What are things like now? (Going to $h!t.) Spring of 2007 is only a few months from now…. Why would it be much different?

 
 
Comment by jag
2006-11-30 14:58:18

The best thing optimists in RE can hope for is another massive drop in interest rates ala 2003 rates (1%). Ain’t gonna happen.
Even if rates fall a point or so it won’t be enough to stem the avalanche of inventory that will be on line in the spring.

Comment by Mozo Maz
2006-11-30 18:23:55

How many times do we have to go over this? An interest rate drop will NOT bring the bubble back.

Comment by CA renter
2006-12-01 01:23:45

But it might drag the dead body through the streets for a few extra years. Best to just get on with it and raise rates. Yes, there will be tremendous financial (and social, IMO) pain, but we need to begin the process of clearing out all the market distortions (is that even possible at this point?).

 
 
 
Comment by Mozo Maz
2006-11-30 18:29:03

OK, this is a serious question. WHAT happens when a savings rate goes negative? Can anyone point to some trends from another country that came out of that okie-dokie?

Or does it normally lead to recessions? The USA can’t be the first population to do this.

Comment by GetStucco
2006-11-30 21:30:44

Go here and click on the usbank 2007 Economic Forecast Update link for invaluable insights on your question (caution: pdf file) …

http://www.coloradoeconomy.com/

 
 
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