Four Month Drop In Home Prices A Record
The existing home sales numbers are out. “Sales of existing homes managed to eke out a small increase in November but the price of homes sold fell for a fourth consecutive month, a real estate trade group reported Thursday. The median price for an existing home sold in November dropped to $218,000, down 3.1 percent from the price a year ago.”
“It was the first time on record that sales prices compared to a year ago have fallen for four straight months.”
“David Lereah, chief economist for the Realtors, predicted price declines would continue in December and probably for the early part of 2007. He said these were necessary adjustments that were luring buyers back into the market.”
“Year-over-year declines in home prices are relatively rare and are seen as a significant sign of weakness in the real estate market. Until it occurred in August, there hadn’t been such a drop in 11 years.”
“The pace of home sales, coming in at an annual rate of 6.28 million for the month, was 10.7 percent below year-ago levels of 7.03 million units.”
“‘Mortgage interest rates are the lowest they’ve been since January,’ said NAR President Pat Vredevoogd Combs. ‘This is increasing buying power at the same time that sellers are showing a willingness to negotiate price and terms. Combined with a plentiful supply of homes on the market, there’s a window for buyers now with conditions that we haven’t seen prior to the beginning of the housing boom in 2001.’”
“Existing condominium and cooperative housing sales were 13.6 percent below the 876,000-unit pace in November 2005. Existing-home sales in the Northeast were 4.5 percent below November 2005. The median existing-home price in the Northeast was $269,000, down 2.2 percent from a year earlier.”
“Existing-home sales in the West were 17.5 percent lower than a year earlier. The median price in the West was $351,000, down 0.8 percent from November 2005. Existing-home sales in the Midwest were 9.6 percent lower than November 2005. The median price in the Midwest was $165,000, which is 3.5 percent below a year ago.”
“Existing-home sales in the South 10.2 percent below a year ago. The median price in the South was $179,000, down 3.2 percent from November 2005.”
“Builders sold new homes at a faster rate last month than they did in October, the Commerce Department reported yesterday. When the numbers are not seasonally adjusted, the number of new homes sold in November, 72,000, was the lowest in almost four years. Inventories, a 7.7-month supply unadjusted, were the highest since December 1995.”
“‘There’s a relatively large adjustment factor here,’ said Michael Carliner, an economist with the National Association of Home Builders. ‘I wouldn’t read too much into those numbers.’”
“Sales of new homes are off 15.3 percent compared with a year earlier. ‘Although the rebound in sales is consistent with the housing slowdown bottoming out, it seems too early to rejoice,’ said economist Dimitry Fleming. ‘Supply is still high.’”
“The sales data from the last year is more sobering. The Northeast was hit particularly hard; sales fell 42.4 percent from a year ago. Sales in the South declined 19.2 percent, and they fell 9 percent in the West.”
“Permits for new home construction fell in November, the 10th consecutive decline, to a nine-year low, the Commerce Department said last week. Yesterday’s report on new homes showed the number of homes completed and waiting to be sold rose 51 percent to a record 169,000 in November from the same month last year.”
“Homeowners took a net $379.8 billion out of home equity at an annual rate last quarter, down 56 percent from the record reached a year earlier and the least since the fourth quarter of 2003, according to calculations by Fed economists. ‘The weakness in housing will continue to be a drag on overall economic activity into the first half of next year,’ Fed Bank of Richmond President Jeffrey Lacker said.”
“None of the bulls seem to have a good answer to the facts being laid out by David Rosenberg, the chief economist for North America at Merrill Lynch. Rosenberg’s contention is that when you take a close look at homes for sale, including those being completed and those under construction, the glut in supply seems likely to get worse, not better.”
“Rosenberg notes that in addition to the record 4.3 million residential units for sale as of October, there were 1.95 million home completions, the 12th-highest month since 1979. Units under construction were through the roof as well.”
“Rather than seeing supply dwindle and prices start to firm up in early 2007, Rosenberg says ‘it could be a year before the reduction in starts begins to put a meaningful dent into the inventory backlog.’”
“According to John Mauldin, even the current projection of housing sales may be overstated and thus the existing supply of homes greater than what is reported in the official data. The reason is that the Census Bureau fails to account for cancellations in home sales contracts. Cancellations ran as high as 40 percent for some major homebuilding firms last quarter.”
‘Yesterday’s report on new homes showed the number of homes completed and waiting to be sold rose 51 percent to a record 169,000 in November from the same month last year.’
You read it here first, although I didn’t know it was a record.
Posted earlier in the comments: ‘The American Trucking Associations’ advanced seasonally adjusted for-hire Truck Tonnage Index plunged 3.6 percent in November after falling 1.9 percent in October. ‘November 2006 marked the single worst month for for-hire truck tonnage since the last recession,’ said ATA Chief Economist Bob Costello. ‘Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. The most troubling number is the 8.8 percent contraction from November 2005, despite the fact that year-over-year comparisons are difficult due to the very robust volumes during the same month last year. One month certainly doesn’t make a trend, but if we continue to see year-over-year reductions of similar magnitudes in the next couple of months, it could indicate a greater economic slowdown than economists are projecting at this point.’
‘Turmoil is expected to continue shaking the Eastern Canadian forestry sector in 2007 after a year of thousands of job losses and the closure or idling of dozens of mills and woodcutting operations. Frank Dottori, former CEO of forestry giant Tembec Inc., said the coming year will be difficult but the industry has already hit bottom in its worst crisis since the 1930s.’
‘Almost 40% of Quebec’s industry is already shut down,’ Dottori said.’
home parts production is a big shipping item
record 4 months price decline ?
try 1990- to 1994
all down all the time
Sorry to be dense, but what exactly is “completed new homes”?
- Standing inventory of completed new homes not yet sold (a stock variable)?
- Just-completed inventory of completed new homes not yet sold (a flow variable)?
- Something else?
I tried to find a clear definition of this to no avail (please post a link if you have one).
unclear definition of completed new homes could mean: planned, built, displayed and sold!
Im sure this is old news ,but just saw it on CNBC. The ‘Realty-check’ lady on CNBC has you as her favorite blog…
http://www.cnbc.com/id/15837671/
but her second favorite is (puke) Casey Serin
Hmmm. Her comments are actually pretty good.
Her last name is “Olick”??? Cue the Beavis-and-Butthead nervous laughter…
This news will help those prices come roaring back:
Freddie Mac: 30-year mortgage averages 6.18% vs 6.13%
By Katherine Hunt
Last Update: 11:18 AM ET Dec 28, 2006
SAN FRANCISCO (MarketWatch) — The benchmark 30-year fixed rate mortgage average rose in the week ending Thursday, to 6.18% from 6.13%, according to Freddie Mac (FRE : Last: 68.09-0.50-0.73% 11:10am 12/28/2006) . The mortgage agency said its weekly survey showed the 15-year loan increased to 5.93% from 5.89%. The 1-year Treasury-indexed adjustable rate also rose, to 5.47% from 5.44%, while the 5-year hybrid ARM increased, to 5.98% from 5.96%. “Mortgage rates edged up over the week following news of a jump in consumer spending in November,” said Frank Nothaft, Freddie Mac chief economist, in a statement. “Financial markets were concerned that stronger spending could keep inflation elevated. These worries were further compounded by the releases of new and existing home sales for the same month, which both exceeded market forecasts and caused Treasury bond yields to continue to rise. On a positive note, both new and existing home inventories in November fell from recent highs suggesting the excess supply of homes on the market may be normalizing towards historical trends.”
Long bond ain’t liking this mornings news either.
The market does not have a clue about next year! When Joesixpack goes to get his HELOC next year he will soon find out that his house is not worth what he thought and there will be no HELOC. Which also means no new Hummer, 45 inch Plasma TV, etc.
I’m having to tell people daily that the ATM machins is out of cash. Yesterday I talked to a gal who bought a starter home last summer and was looking for a HELOC to pay off all the debt she built up fixing the place up and decorating it. She financed it, you guessed, 100% (I did’t do her loan. The reason she was coming to me now was she figured out after the fact that she got hosed on her purchase deal) But she figured, as did everyone else who bought last summer, it would’ve appreciated enough by now for her to refinace all the fixing up she planned on doing. She went sideways on me when I told her slice of the American Dream now comped out 30K less than her purchase price. When she asked me what she was supposed to do, I basically responded by telling her to plan on making your credit card payments for some time to come. Ah, but here’s the probem; the debt load she incurred along with her house payment is sinking her, fast. As long as I have been in this business, people still amaze me.
Dont you do 125 loans?
Can do ‘em, won’t do ‘em. I’ve been in this biz for 12 years and I’ve yet to be a party to someone borrowing more than their house is worth. If someone insists, I’ll give them a number, but I ain’t gonna do it.
Good for you!! We need more honest lenders like yourself!! Thank you!!
“What? I’ll have to pay my own bills? I thought that if I bought a house, the appreciation fairy was supposed to save me.”
Comment by nnvmtgbrkr
2006-12-28 11:20:43
Can do ‘em, won’t do ‘em. I’ve been in this biz for 12 years and I’ve yet to be a party to someone borrowing more than their house is worth. If someone insists, I’ll give them a number.
Not trying to stoke the coals with you here but isnt that a little contradictary to your original post? Say you gave that lady her purchase loan that she is now underwater on? Value is a fluctuating variable, some 125 loans i did were no longer overequity loans withing a year or two, even during the normal years.
I have my standards as well, wont/never did neg am, absurd stated income.
Comment by nnvmtgbrkr
“She went sideways on me when I told her slice of the American Dream now comped out 30K less than her purchase price.”
Could you elaborate on that a bit? My internal shadenfreude pleasure center is reeling at the prospect of the details like the exact look on her face. I wish I could be there to taste her sweet tears….
/just kidding….sort of
nvmtgbrkr said he didn’t write her original loan.
Mina
mina- thats why i said “suppose”. Even if he didnt do her loan he has done plenty in that market of depreciating homes; therefore, he as well as myself are lending money currently is or will be more than the value of the home.
Jeez - those spreads are amazingly small — how could anyone want anything but a 30 year fixed — there is almost no premium for taking on the 15 year, nor for the arms. If you somehow can’t qualify for the 30 year, but you can for the arm — for God’s sake, beg your relatives for the 5 or 10 or 20 grand that you can add to the downpayment and get the fixed rate.
Maybe I’m not financially sophisticated - but those spreads seem almost negligible - so why would anyone take them and forfeit the extra measure of security in a fixed mortgage?
“how could anyone want anything but a 30 year fixed”
That is a great question with a simple answer, once you run the numbers. By backloading the debt repayment schedule, suicide loans let you outbid other households of similar financial means. So long as readily-available suicide loan financing and a belief on the investment side that there is little risk in subprime lending remain part of the mortgage market landscape, GFs who don’t understand risk will be able to outbid old-fashioned precautious types in the competition for homes they cannot afford.
Bingo –well said! Which is precisely why no one here is interested in stepping foot in the RE market until all the price-distorting overlevereged retards are long gone. Whenever stupid money is bidding against smart money, stupid always “wins”.
Gresham’s law: Bad money drives out the good.
‘Whenever stupid money is bidding against smart money, stupid always “wins”.’
… unless traditional underwriting standards or unaffordably high interest rates block the money from finding its way into stupid borrowers’ hands.
Good point. I explained this to my wife the other day. We have saved a lot of money and busted our hump to get where we are. Why are we competing with some asshole without a nickle in their pocket? When the monopoly money is gone and reality is back, we will put our hard earned money back in the market.
Not before.
“According to John Mauldin, even the current projection of housing sales may be overstated and thus the existing supply of homes greater than what is reported in the official data. The reason is that the Census Bureau fails to account for cancellations in home sales contracts. Cancellations ran as high as 40 percent for some major homebuilding firms last quarter.”
How long can you hide an elephant under the living rug carpet?
rug room
Apparently pretty freakin’ long!
As long as the people keep sucking on the bong that keeps them stupid to the fact that they’re being duped, they’ll continue to buy the bull-sh*t they’re being fed. Seriously, in watching most folks these days, I’d say they won’t sober up to the facts until they’re standing in a bread-line.
No sh#t. This thing is going to have to run off a cliff.
This inspires me to make the connection with my attitude about global warming. Despite my being an atmospheric scientist and vouching for the absolute truth of every technical detail in Al Gore’s movie, I am absolutely opposed to Intervention until Joe6 and all his Asian counterparts are suffering so much from the heat that they collectively demand a change. Only then will people cooperate sufficiently. The RE thing is kind of similar. It has to be a disaster before behavior changes.
I think you could have made your point without the Global Warming opinion piece and algore stoking.
“stoking” should be “stroking”
People have pinned so much of their financial future on the home equity growth, they cannot psychologically face the fact that they’re completed screwed. I think you’re dead right about the bread-line. For some though, their “bread-line” will be foreclosure.
they’ll continue to buy the bull-sh*t they’re being fed. Seriously, in watching most folks these days, I’d say they won’t sober up to the facts until they’re standing in a bread-line.
Agreed there, nnv…
The distortion of economic numbers by government and attendent RE industry hacks is clearly reminiscent of the finest hour of Nazi propoganda minister Joseph Gobbels.
The masses haven’t a clue.
NNV -
I love to hear your stories (and posts). Sounds like you have more to tell.
In these articles about supply they never even mention expired listing, delisted properties or fsbo properties which their is a boatload of because of all the people who dont have equity for the commisions.
I watched DL on Bloomberg yesterday and lost my appetite for lunch. Here we have a guy obviously “in the know” spouting off about how a overall 1 month drop in inventory is a sign of a market bottom. Not a breath was mentioned about the normal seasonal drop in inventory the market experiences every year at this time. The fact that inventory hasn’t dropped off more than it has for this time of year should be freakin’ DL out, and it probably is, but this moron has to come on and spin it like it’s a return to good times. 3 months from now DL will be looking like and idiot again when we pass this years high of 7.3 months of inventory and hit double digits. There’s my prediction, a national average of 10+ months of inventory.
Give DL a break — the man is just doing the job he is paid to do.
Yes. DL is worth his pay several times over. You cannot fault a person for doing his job. Reminds me of the main character in “Thank You For Smoking.”
the man has no integrity - he lies for a living. Ooops!…I forgot, this is America - everyone does it.
It’s not like your average J6pack FB has any clue who he is. We’re the only consumers who have any idea who he is. The only other people listening to him are RE agents. If Mrs. 6pack is too stupid to realize that Suzanne is trying to SELL YOU SOMETHING…
Eye on the ball: the fault lies with Bloomberg, for legitimizing him. He’s a paid spinner they pawn on the public without question.
“You cannot fault a person for doing his job.”
That is what many Nazis said.
We all know what DL does and his agenda. I saw the interview too and was more annoyed by the woman who interviewed. She was desperately fishing for good news and tossing softballs. The US Bloomberg desk is awful. The UK and Asian journalists ask insightful questions and sometimes grill people. Bernard Lo (or whatever his name is from the HK desk) would have much more insightful questions.
What Bruce said!
“There’s my prediction, a national average of 10+ months of inventory.”
nnv — 10 months?!?!?!?
Without any doubt whatsoever, if inventory goes this high, there will be serious, serious pain. Pricing pressure will be unbearable.
I love these statistics and reports. Total b.s. These do not account for cancellations. That’s like the inflation numbers which, “Do not count food and energy (or property prices).” Why even bother considering these numbers? They mean nothing.
Except to manipulate commodities prices.
“David Lereah, chief economist for the Realtors, predicted price declines would continue in December and probably for the early part of 2007. He said these were necessary adjustments that were luring buyers back into the market.”
So the tiny increase in sales is an indication that buyers are entering the market? One more kick in the balls for you Mr. Pinocchio. I’ll be as tired as a one-legged man in an asskicking contest but you’ll get yours Liareah.
‘Mortgage interest rates are the lowest they’ve been since January,’ said NAR President Pat Vredevoogd Combs.
Rates have been really climbing the last week or so. It will be interesting to see what happens to housing if rates continue to climb.
I must admire their ability to turn any bit of news in any direction into a “great buying (selling) opportunity!”
“David Lereah, chief economist for the Realtors, predicted price declines would continue in December and probably for the early part of 2007. He said these were necessary adjustments that were luring buyers back into the market.”
I guess David is expecting the subprime lending meltdown to have no effect on the market?
‘About 20 percent of sub-prime mortgages granted in the last two years will end in foreclosure as owners struggle to make payments and home prices stagnate. That rate is almost double the 2002 level and could result in about 2.2 million U.S. borrowers losing their homes, the Center for Responsible Lending said in a report.’
‘There’s a very high rate of trouble in these loans,’ Kathleen Keest, senior policy counsel for the center, said in an interview. ‘Those of us who have been on the ground watching the foreclosures had been getting more and more concerned.’
I’m not sure how these little subprime motgage guys all over the nation operate, but if they have agreements to buy back bad loans and they do that, then would it not be their responsibility to do the foreclosure. If this is the case are they ready to take back property and own it. This is not a simple task, it takes resources.
I hear stories of mortgage companies trying to get the borrower to sell the property even after they have abandoned the property.
No, they don’t have the resources to do that. Look at what happened with Own-It Mortgage company just a few weeks ago. Here one and gone the next because their backers pulled their funding. We’re going to see a lot more of this happening in the near future…especially in the OC where a lot of these sub-prime companies are located.
I’m sure when and if they do find the resources to take back the property the first few will be made examples of. Full judical foreclosure, they will say we will make examples of them and then after that it will be Oh My God what have we done.
This is correct. Many of the subprime “Mortgage Companies” are just boiler-room sales offices. There is 1-2 managers, 4-5 loan officers, and 5-6 telemarketers dialing out to a specific targeted area. The telemarketers bring in the leads. The loan officers qualify the leads and make sales calls. The managers make sure everyone is motivated and bringing in the numbers.
This type of outfit can bring in 30-40 mortgages a month refi’ing them into Sub Prime mortgages.
I know this because I worked at one in the late 90’s
I can promise you that the managers/owners could care less about the loans they’re creating. All they care about is if they can get a lender to finance it.
If a small outfit like this was forced to buy back a mortgage they’ll just go belly up. And the owners won’t lose a cent becasue the company is set up as a LLC.
This type of outfit can bring in 30-40 mortgages a month refi’ing them into Sub Prime mortgages.
And all these originations go to one appraisal company or appraiser, who checks all the right boxes and rubber stamps the needed value to continue the fraud.
Let’s see hmmm…200 assignments from 5 boiler room operations @ $350 a pop…
That’s $70k a month or $840k per year gross.
Not bad for a high school degree and piece of paper from a license mill state regulatory agency.
The looting continues.
can this number be compared to the 90’s ?????
bet not
Subprime lending to people of color = the new predatory lending. At least it preempts accusations of redlining, though…
David thinks he can start a factory that manufactures firstime-buyers. That will boost manufacturing and create jobs. If he could just get credit companies to drop current standards of ‘anything with a pulse’ he could get his robots to qualify for subprime home loans. A brilliant plan, you must admit.
“Homeowners took a net $379.8 billion out of home equity at an annual rate last quarter, down 56 percent from the record reached a year earlier….”
No spillover into the broader economy, right…
I figure that with the low rates and the frenzy of refis lately, they are milking out the last drops of home equity as we speak. There is very little left to tap into with housing prices stalled and dropping. It is over.
think how much equity they had to burn to get this out ?
future payments up the kazoo as they KNOW now that values are falling
100 year arm ?
100 year arm = I/O, for practical purposes
100 year loan could actually be a pretty good deal if you had reasonable caps and didn’t overpay to start with. It is basically interest only, but you have an option to really buy the house at the original price any time by paying off the loan. If inflation is so low that it never makes sense to buy, then you just live in the house until you die and then give it back to the bank.
I think that part of the story that is not being accurately told relates to the under construction segment. Housing supply tends to lag market demand, both on the way up and on the way down. There is lots of additional supply in the pipeline.
Fly into Phoenix and notice all the land in various stages of grading or development. No one but a few bond traders or folks who want to own a home at a reasonable price has a vested interest in the housing slowdown story. The folks who are making the decision to keep building because “the market will come back” have a financial interest in continuing to build and if it doesn’t work out… tell the sad story later.
As many on this board have pointed out, this is just getting started.
Good point, clogged drain. When this all comes crashing down to the point where it is painfully obvious, those who were behind the gross overbuilding will be sitting in their palaces or on a beach in the Caribbean. They have more money now then they can ever hope to spend. Many of the peons that do the gruntwork in housing are not that bright. I am still of the belief that much of CA will see a 40% drop from the peak.
“Combined with a plentiful supply of homes on the market, there’s a window for buyers now with conditions that we haven’t seen prior to the beginning of the housing boom in 2001.’”
Yeah, let me know when we have 2001 condidtions (like price/rent ratios a bit more in line) and I will step rigt up to the plate. I will take 2001 prices, that’s for sure.
So, basically, 2007 is going to be just like 2001, but with all the prices 2X-4X the level in 2001? Oh man, it’s going to be a great year! I can’t wait.
Yeah, there’s a window for buyers all right. I window to shovel money out of.
2007 will be the new 1929.
Seeing a comment from SLO Bear reminds me to continue with a project suggested by another poster last week. Poster said each of us should track some specific mkt on a weekly basis. I chose Morro Bay SFH under $600K. Last week the MLS inventory was 39, had been hovering in high 30’s for months. Average price of these was $463/sqft. This week it’s still 39 and it looks like the SAME 39. No wonder one of the places for rent is part of the Coldwell Banker office.
Mortgage interest rates are the lowest they’ve been since January,’ said NAR President Pat Vredevoogd Combs. ‘This is increasing buying power at the same time that sellers are showing a willingness to negotiate price and terms.
The FB’s are willing to negotiate but many still have pie-in-the-sky asking prices. Secondly, mortgage rates are totally irrelavent at this point in many markets. It doesn’t matter if the rate is 6%, 6.25% or even 6.5%. Unaffordable is unaffordable and the mortgage rate has nothing to do with your insuance and taxes. If I hear anymore talk about low rates I am going to puke.
interest expence used to be 1/2 of owning cost-now people buy like its 80%
You’re right. Housing is overpriced, period. In most bubble markets it is overpriced by 30% or more. A simple comparison to rents for similiar properties makes this evident. It is commonsense, which obviously many people lack.
Well Said!!
the dow is down almost 30 points. What happend? Did terrorists attack?
Economic terrorists are attacking the long bond. (Scroll down to see the upward lurch in the yield curve, which is a repeat of yesterday’s performance.)
http://www.bloomberg.com/markets/rates/index.html
I was joking. Evidently NOTHING can sink this market! If it goes down 10 points that is practically a miracle. I still can’t bring myself to buy any stocks right now - just goes against every grain of sensibility that I posess. Am I the idiot here???
Ask Gekko.
Just in case it gets lost in the other bits bucket thread, I’m reposting my thoughts on today’s EHS data …
(I also updated the blog with a chart showing the historical level of inventories. Hopefully this clears up just how little progress we’ve made working through the supply mountain built up during the boom)
http://interestrateroundup.blogspot.com
* Sales rose 0.6% on the month vs. forecasts for a 0.8% decline. The sales rate came in at 6.28 million units vs. 6.24 million a month earlier. But it’s down 10.7% from a year earlier (7.03 million units in 11/05).
* Inventory dropped a bit – 1% to 3.82 million units from 3.854 million units in October. That’s a 7.3 month supply at the current sales rate, just off the cycle peak of 7.4 months in October.
* Prices dropped again. The median price of all existing homes (condos + single family + co-ops) slipped to $218,000 in November from $219,000 in October and $225,000 a year ago. On a percentage basis, single-family only home prices dropped at a rate of about 3.6%. That’s the second-biggest decline ever, behind last month’s 4.2% drop.
My thoughts on these numbers …
Like new home sales yesterday, existing home sales bounced in November. I expected this given the dip in mortgage rates we’ve seen lately. But are these numbers really all that good? I’d argue no, when you look at the big picture. Consider …
- The sales rate is basically going nowhere, up a miniscule 1.1% from the September low and well off the high (-13.6%) of 7.27 million units in June 2005. That’s not exactly a rip-roaring rally.
- Inventories? Yes, they’re down 1.1% from the July cycle peak of 3.86 million units. But when you consider the supply of homes for sale skyrocketed 117% from the pre-boom 2001 low of 1.77 million units through the July peak, that 1%-ish decline doesn’t look so impressive.
- That’s not all, either. It is absolutely normal and customary for for-sale inventory to stabilize or decline late in the year. People who don’t sell their homes during the peak spring and summer selling season often pull those homes from the market for the holidays. Then they re-list early in the following year.
You see that seasonal pattern time and time again. It happened in the boom years of 2001 … 2002 … 2003 … and 2004. Even in 2005, when the market had already started topping out, inventory levels stabilized late in the year, before surging again in early 2006. I expect supply to start rising again after the first of the year, and set a new cycle high by spring 2007.
There is simply no getting around a few basic facts:
1) While sales aren’t falling sharply anymore, they’re not improving much, either.
2) Supply is still at astronomically high levels and …
3) Homes remain relatively unaffordable, despite the recent decline we’ve seen in mortgage rates and home prices. It’s going to take bigger price concessions … more incentives … and most importantly, lots of TIME to work off these conditions. In other words, 2007 should be another weak year for the housing market
Awesome chart on inventories…
Interesting to see the growth at the beginning of each year, then a drop toward the end…. but starting at end of ‘05 it was more of a level off then another rocket taking off… looks to be what is also happening in end of ‘06; leveling off then another solid rocket booster kicks in… to the moon…
Great data Mike_in_FL!!!
folks are yanking listings like mad for the spring bounce !
like 06
Noticed signs coming down over the last month in my area (central FL). I can assure you that NONE of the properties were sold, just regrouping their sales efforts for spring. In the meantime, some new for sale signs have sprung up. When the old ones come back out (any day now), the overall effect will be spectacular.
It’s a shame Christmas season is over, otherwise you could string lights on all those little yard signs. It would be such a lift to the spirit on these long winter nights.
How about giant, inflatable for sale signs? An 8′ tall lighted RE agent looking like nothing so much as a novelty sexdoll wearing a pantsuit. Holding a sign that says FOR SALE.
PBB — I’m also in Central FL and see the same thing.
Location, Location, Location needs to be replaced by Cash Flow, Cash Flow, Cash Flow.
That’s when the proverbial sh*t hits the fan, when Cash Flow tightens up . . . and it is happening big time!!
Fewer RE deals = less RE commissions, appraisal work, title work, loan fees, etc. = layoffs.
Fewer cash out refis = less flat screens, granite countertops, hummers, theater rooms, etc. = layoffs.
Slow moving RE = more interest expense, more marketing expense, fewer starts, etc. = more layoffs.
How can this not get uglier before it gets better?? This problem will be far reaching due to greed and ignorance on the part of a lot of people.
P. S. Have a great day!
Exactly.
Rough arithmetic example from a recent Bloomberg on the money interview with a rational analyst:
1 million less homes sold
$270K avg price
8% load for fees, escrow, appraisal, loan points, etc.
= $21.6 Billion
Now, per your post, think about all the downstream inpacts of the tightening of cash flow, and don’t forget that there isn’t much in the way of real value being created for the $21.6 Billion, just title being transferred on a piece of real estate and some accounting entries to reflect the transfer of loan dollars.
Was down in el lay for the holidays and i’ve made a new game of my freeway drive, into the city of angels….
I look for the most awful location for a new condo/housing development, and as decent available land had already been built on, decades ago, it’s almost too easy~
This trip’s find was a hidden gem, just a few hundred feet from the truck lane @ the 5/14 split, looked like a 50 pack of condos, about 3/4’s done, no trees, no sound wall to absorb the notes coming loudly off the 5 freeway, at all hours of day, who is going to buy these white elephants?
Imagine the hum of the 5 freeway in your ears, forever?
5 and 14 Freeways split - Nice, safe neighborhood of Sylmar. Excellent schools to boot. Those condos will probably sell for $500K easy. If you don’t live in LA and don’t know Sylmar, I apologize.
These condos were in a box canyon, the only view being the majestic 5 freeway, not the Sylmar you are speaking of…
See for yourself, just use the truck lane, going north on the 5. It’s about 1/3rd of the way to the 5/14 split.
Neither grow lights nor weed have ears. The market really has changed in some ways, in particular with low desirability suburban and exurban spaces being used for small scale industrialized production.
My guess is that in time that construction will have to be destroyed and there won’t even be a movie made of that.
The headline in today’s SF Chronicle was “Housing Slump Apparently Ending” with regards to new home sales. Subtitle was “Experts see positive indications as sales of new homes rebound”.
Unbelievable. Put lipstick on the pig and hope for the best.
Same s**t as on p.3 of today’s WSJ.
I’m still waiting for the experts to explain how all their happy talk will make the inventory mountain disappear before our very eyes.
The experts can just click their heels three times and all will be good.
The SF Chronicle is a rag, pretty much worthless. It is just so disgusting that no one challenges these industry hacks who CLEARLY have a conflict of interest when it comes to telling the truth. I’m not saying they have to worship Roubini or other super bears, but damnit I am just so frustrated that no one seems to care about being led to slaughter. The average person in the USA absolutely does not want to hear anything that might negatively affect them. They seem to have lost every shred of objectivity.
You almost can’t blame the desperate bastards. Spin is the only card they have left to play.
They have to report things like that. Otherwise it would just be day after day of “housing is still going down” (like “Franco is Still Dead”).
Based on the cancellation rates of the “apparent sales” of those new houses, they needed a cooked number, to let a little daylight through and keep the charade going, an always look on the bright side of life, kinda gig, if you know what I mean, and I think you do.
Staging companies are very busy in the Hamptons right now as sellers are getting ready to relist their properties after their holiday rests. The spring market is just around the corner. But if sellers don’t make very large price cuts, it’ll more than likely be a silent spring. The wall street bonuses will undoubtedly result in a few big sales which the RE PR machine will attempt to spin into a buying frenzy. That said, for every such sale, I’ll bet there will be dozens of properties that just sit, sit and sit.
One way out is to rent out for the summer rather than sell - a decision that will have to get made poste haste. There are hordes of cash strapped over stretched investors out east who got sucked in for the quick sure buck who now have it dawning on them that they are in seriou7s trouble.
I could be wrong but I’m not sure these Wall Street big bonus payouts are going to be poured into property at this point. These Wall Street guys know the market and more to the point, they know people who are “in the know” as to where interest rates are going, what the real numbers are, what the chances of a recession are, how much damage the resets will do, etc.
It’s pretty obvious to anyone that the bubble has burst. Wall Street types are not dumb enough to put money into what is possibly a seriously declining asset. They are more likely to know when it’s best to get out - and to get back in. They are also fully aware of the “Blood on the streets,” saying and, right now, the blood isn’t really flowing. It’s trickling. It will flow at some point and that could be 2007 or 2008. If it’s going to be a bad year for property and a strong possibilty of a recession, they are also aware of that.
In fact, come to think of it, if a LOT of these bonus payouts are used to buy property, it might be an indication that we have reached bottom. If they put that bonus money somewhere else….it will mean something.
those wall street bonus babies is all you hear about from the local shills, what a load of crap
there were big bonus’ last year and we all know how that
went over. the smart money is on the sidelines
let the fools go “bargain hunting” after the superbowl if they want to im waiting and so is everyone else i have spoken to
“im waiting and so is everyone else i have spoken to”
And there it is…the number one reason to refute this idea of the 2007 Spring Bounce. Over the holidays, I heard party talk of folks in my area waiting to buy because “they know the market’s going down.”
An earlier poster commented that buyer psychology has changed… Goodbye, housing boom.
If the smart money stays on the sidelines, the market is screwed. And any area where smart money is disproportionately represented will be particularly screwed.
Lots of smart money exiting US $ by hook/crook
“David Lereah, chief economist for the Realtors, predicted price declines would continue in December and probably for the early part of 2007. He said these were necessary adjustments that were luring buyers back into the market.”
Uhh, I’ll be “lured” back to the market when prices are back to decent affordability for the average joe. Then I’ll be sure that a nosedive in values isn’t ahead.
Lereah would make such a good politician. I guess he already is one, really.
As spokesman for the NAR, Lereah is in an interesting position. His PhD in econ from a strong program suggests that he knows what is going on, but his high media profile also tempts him to spin the facts in a direction which he believes will help his constituents (Realtors) make more money. It worked really well for the past seven years while prices were going up at a record clip. Now we get to see whether spin can actually avert a crash, or merely prolong it. My prediction is the latter…
Ben
I don’t know if this can be done but it would be interesting to track these predictions quoted in interviews by David Liar and use them by comparison. I’m sure if we could look back on his quotes and compare what he said at some other time, he would look like a total clown. Most of us on this blog know he’s a clown but the majority watching him on tv think he’s an “expert” and is thus telling the truth. Just one liners would be enough. “Now is the time to buy.” “We are nearing the bottom.” “This is a healthy correction.” “Property prices can only go up.” “2007 will see a turn around.” “Current statistics show buyers are moving back into the market.” “There is no bubble.” “Interest rates have never been lower.” “Arms loans have no effect.”
The thing which annoys me is that David Liar gets so much tv air time to spin his crap. On the other hand, anyone (like Schiller) gets almost zero tv time to explain the real facts as opposed to David Liar’s non-factual (or distorted facts) realtorwhore sales spin.
http://davidlereahwatch.blogspot.com
which was just mentioned in the Wall Street Journal
David
Thanks for the link.
David, congrats on making the Journal! Lereah is such a piece of crap. IMO, a fancy degree means squat if you are completely full of it. He brushes you (and us, indirectly) off and says he is just being positive. That is all fine and dandy to be happy go lucky, but this shill does not even acknowledge all the evidence that points to a big bust. His conflict of interest is beyond disgusting. He must be a student of WW 2 history and the German/Japanese propaganda ministries. Lereah blows; keep up the good work! BTW, I agree with your 20-65% decline estimate.
Thanks. The 20 - 65% price declines are real dollars (inflation adjusted).
Here is an interesting article in the Washington Post from yesterday regarding immigrants that can’t find work in construction because of the housing slowdown.
I like these quotes from the article in particular:
Sorry the quotes disappeared for some reason:
“Guzman left El Salvador at age 18 in 1999 and landed in Manassas. Soon he had $15-an-hour jobs cutting lumber, driving nails and running a Bobcat loader. He got a car, got married. The Washington region was hungry for houses, houses, houses, and word of the boom reached Mexico and Central America, drawing thousands more eager, jobless men like him.
Buy This Photo
Julian Cabrera, 42, who arrived in the area from El Salvador in 2004, says that a year ago he was getting hired three times a week, but as of mid-December he hadn’t worked in 15 days.
Then sometime last year, Guzman said, the rush began to go bust, little by little, month by month. The contractors stopped hiring. The phone stopped ringing. Washington, it seemed, had all the houses it could hold.”
Also, they included some interesting numbers about housing starts in DC area:
“According to the National Association of Realtors, housing starts have fallen 23.5 percent between October 2004 and October 2006, and data released this month by the Northern Virginia Association of Realtors show home sales in that area plunged 45 percent between November 2004 and November 2006. Home sales in suburban Maryland are down 34 percent between November 2004 and November 2006, according to the Maryland Association of Realtors.”
This whole bubble keeps reminding me of the story of Easter Island.
http://en.wikipedia.org/wiki/Easter_island#Moai-carving_culture_.2810th_century_AD_-_16th_.2F_17th_century_AD.29
Time to learn to read Rongo-Rongo.
When the new home sales were announced yesterday, with the Northeast showing the only real strength, it was suggested that Wall Street bonuses might be the culprit. I thought “Eh .. I dunno” But now, with the existing sales, we see that without the Northeast surge, the numbers for November would have been pretty bad. Maybe there actually IS something to that theory.
there has been so much negative information in regards to housing
for the last few months and the numbers come out yesterday and the bleeding is all of a sudden over?
bulls*** i say
it is all about affordablity which is pretty much non-existant
I would caution everybody about the recently released statistics regarding home sales.
Statistics are only useful in a “non transitional zone” meaning when yesterday looks like tomorrow.
Right now we find ourselves in a period of transition, which means statistics become notoriously fickle as yesterday looks nothing like tomorrow.
A prime example is the non calculation of the cancellation data. Ordinarily cancellation rates hover around 5%. Currently they are estimated to be in the 40% range. This is obviously a significant variance. However it is not included in todays data as “the model” works on a (historical) 5% cancellation rate. The result though is to render today’s data as largely meaningless, which by definition is exactly what happens in a statistical model finding itself in transition.
“Rosenberg notes that in addition to the record 4.3 million residential units for sale as of October, there were 1.95 million home completions, the 12th-highest month since 1979. Units under construction were through the roof as well.”
Compare the 1.95 million home completions for October 2006 to the data in this old report, which states completions were running at 1.49 million per year in March 2001. Meanwhile, headlines scream a slight increase in new home sales from a rather low level near 1 million per year. Why does the media let the soft landing crowd get away with ignoring this gaping abyss between the rates of new home production and new home purchases?
“SUMMARY OF FINDINGS
This report provides monthly statistics on the number
of new privately owned housing units completed
and under construction. This report is released jointly
by the U.S. Census Bureau and the U.S. Department of
Housing and Urban Development.
New housing units were completed in March 2001 at
a seasonally adjusted annual rate of 1,490,000. This is
6 (±7) percent below the revised February rate of
1,586,000, and 14 (±7) percent below the March 2000
rate of 1,728,000.
The March 2001 rate of single-family housing
completions was 1,214,000. This is 2 (±7) percent
below the revised February rate of 1,238,000. The rate
for units in buildings with five units or more was
250,000, and the rate for units in buildings with two to
four units was 26,000.
Through March 2001, there have been 325,900
housing units completed compared with 361,500
completions during the same time period last year. This
is a decrease of 10 (±4) percent.”
http://www.census.gov/prod/2001pubs/c22-0103.pdf
How long can you hide an elephant under the living rug carpet?
Until it takes a $–T !!!!
Dennis, keep your pooper scooper and bleach handy. I think your moment of truth is just around the corner. Say….. spring 2007.