Homebuilders ‘Kept Up The Momentum In February’
The Commerce department has the housing starts data. “The pace of U.S. housing starts fell less than expected last month. Builders broke ground on new homes at an annual rate of 2.12 million in February, down 7.9 percent from January’s revised 2.303 million, the Commerce Department said. Building permits, a sign of future construction, fell 3.2 percent to an annual rate of 2.145 million.”
“Builders kept up the momentum in February after unusually mild January temperatures let them get an early start on the construction season. Housing starts probably will slow later this year as mortgage rates and selling prices put new homes out of the reach of more would-be buyers.”
“‘Housing starts are still on a rising trend despite all this talk about housing cooling off,’ (economist) Kevin Logan. ‘With a lag we should see housing starts fade. The second quarter will really tell the tale.’”
“Economists expected starts to fall to a 2.03 million rate in February from the prior month’s originally reported 2.276 million, according to a survey. Permits were forecast to fall to a 2.11 million pace, from 2.217 million. Starts fell in three of four regions. Starts fell 23.5% in the U.S. Northeast, biggest drop since May 2001. Construction declined 11.2% in the South and 10.4% in the Midwest, but rose 7.9% in the West.”
“The number of homes under construction rose 0.6 percent last month to 1.428 million, the most since February 1974.” “As home sales decline, price increases will slow, said Ara Hovnanian, CEO of Hovnanian Enterprises Inc., the ninth biggest U.S. homebuilder by stock market value. ‘I think it’s very likely we’re going to see a leveling off or at least a slowing in the appreciation rate,’ Hovnanian said. ‘Our view is it’s going to be a very soft landing,’ for housing. The housing market accounted for 55 percent of economic growth last year, according to a Merrill Lynch & Co. report released last month.”
suddenly BB has to think hard about stagflation- here by July -imo
He had better also think hard about Miller’s short time at the Fed before Volcker was given the nod…
Welcome to the beginning of the ever-dodged recession. If 55% percent of the economic growthwas housing last year and now it is starting to cool(I prefer freeze) looks like alot of unemployeed people soon to be. This will hit the mortgage industry, RE’s, construction, materails and supply companies, stocks will fall….etc.
Not just housing, but EVERYTHING. Low to no price appreciation = no more using your house equity as an ATM to buy boats and cars and wave runners and lifestyle and bling = slowing sales = softer job market = people saving instead of spending = vicious cycle…
Look on the bright side: A higher unemployment rate will make Ben Bernanke’s job of maintaining price stability far easier!
Housing starts down 7.9%
Homebuilders will rally because it appears they are not overbuilding.
The inflation report was another reason for homebuilders to rally.
This is why I said about 7-10 days ago that shorting builders isn’t right at the moment. There will be a time for that, last summer was great for instance, but not right now.
I guess Joe is long the HBs. My recollection from the last round of discussions on this topic was that net new HH formation in the US runs at about 1.3m per year, while > 1.4m new homes are currently under construction. Then there is the growing mountain of used home inventory, condo conversions, and soon-to-be-dumped flipper properties to weigh on the market. So please explain again why there is no overbuilding, or is it just that my numbers are off?
GS,
He said it **appears** they are not overbuilding…
My bad.
Thanks, I should have used emphasis on appears…
Nevertheless, I wouldn’t be short the HBs just now.
look the “sheeple” aren’t supposed to be able to ADD.
NEW Mortgage applications have been droppping for 2 years, sitting @ 2002-3 low levels, while home construction (as reported) is at or near record highs….We sheeple are to believe the ‘flippers are paying cash? Despite comments from Toll Bros see a 30% decline in sales, & KBH seeing tremendous “cancellations” (oops there goes the backlog of buyers). While National Traffic index is averaging 44 now ( 50 considered good/ ok) But someone wants the sheeple to believe the builders can’t stop building just because the SLOW seasonal winter fell off the table. . These experts don’t see trouble, Why should you?. Since R.E. assoc. doesn’t count current cancellations against currently reported sales…the Real Estate industry & Government can continue to manufacture the DATA or the homes and the “sheeple” won’t ask questions becasuse all is well - so says all the experts.. Heck the Dow just made another 5 yr. high.. We can’t break the bubble UNLESS the home buyers don’t show up around Easter. Besides….we report
the CPI @ 0.1% per month every month even if every thinking person on the planet knows better [do not check the revisions due to be out 3 months later- heck that is old news]. ….{ lets not have a few facts like { the CPI is restated index from 1982 = 100 NOW ( not 1962 as pre Clinton)…. @ 198.++ So who will question that our USD’s ($)are really buying 1/2 of what it did 25 years ago, during this long lasting period of stable inflation fighting by Mr. greenspan.. Oh and lets not forget that current Government quoted $’s are NOW stated in 2000 dollars (Bush), NOT 1982 dollars any more. {PS - the sheeple are not supposed to know the “unadjusted” number, we might feel a little poorer.
Of course they’re overbuilding. They have growth numbers to be concerned about - NEGATIVE GROWTH = A SEVERE CRUSHING ON WALL ST!
They also have land and prior commitments to work through. All this simply adds up to fuel on the fire. Look at the inventory build!! Gonna get very ugly. I’m gonna short going into the quarterly reports…
Here’s an indicator. The contractor who built most homes here is putting his new lakefront McMansion on the market after only 3 years. I’m wondering if he’s looking at his AGI experiencing some changes that aren’t in sync with his current mortgage.
“a leveling off”
“slowing in the appreciation rate”
“a very soft landing”
Wow, Hovnanian got all three. The triple threat. Impressive!
To borrow from the dry drunk in chief’s over used joke.
a trifecta!
Yea, but I think he missed “Permanently High Plateau”.
When did they revise? When they realized that builders have continued to lay up ever more stucco boxes? What a bunch of double talk.
Hovnanian said, “Our view is it’s going to be a very soft landing,”
Now it’s a “very soft landing”.
What a load of $hit from the slimeballs.
This is great news. The more inventory on the market, the more supply side pressure to push down prices. A lot of builders bought land at very cheap prices and they can build with a profit at prices lower than current resales of existing homes. If they decide they want to undercut that market; hey, its great news to hear!!
Well, maybe for some areas but the northeast dumped approx.25%.
I was thinking the same thing. Inventory, Inventory, Inventory.
My evil side said, “party time, excellent.”
Maybe if its a brand new track the developers can undercut , but , major problems undercutting a track in its third or forth release of
inventory .
Would you really want to buy that house the developers are losing money on? And want to live with all his shortcuts?
The media is going to as usual fixate on every piece of news- good or bad. You cannot view each release of data in a vacuum. One report does not make a trend and we all know that they never revise the numbers after they have been release to obtain the desired effect at the time of release.
Next week there will be another new report and the media will once again pounce on that as an indicator of what is to come.
Look at the trend. A fool can see that the market has clearly slowed. It is mereley a matter of how much that is in question at this point.
I suspect the media is complicit in the effort to create seesawing perceptions of the strength of the stock market and the housing market. So long as investors are sufficiently bipolar with respect to the future outlook, shares will quickly change hands and middlemen will make beauceau buckaroos.
Whoooaaa!!!
—————————————————————————
Fed’s Kohn says Fed won’t act to preserve high home prices
By Greg Robb
Last Update: 10:04 AM ET Mar 16, 2006
WASHINGTON (MarketWatch) - The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday. “If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,’ Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany. In his remarks, Kohn attacked the popular ‘Greenspan put’ theory that Fed policy would always protect investors from sharp asset market drops while doing nothing to restrain these markets when prices. “This argument strikes me as a misreading of history,” Kohn said. “Conventional policy as practiced by the Federal Reserve has not insulated investors from downside risk,” he said.
That is an interesting story.
It validates many points made months ago on this very blog.
Hello to all the Federal Reserve governor’s and their staff reading Ben’s blog. Nice to have you here.
To blow my own trumpet for a second, I made this exact point a week or so ago, and Ben picked up on it. I was taking an inference from another speech (I can’t remember if it was by Kohn or another governor).
Still, it’s interesting to see that Kohn is now spelling it out. Seems to me the Fed. might be belatedly covering its collective butt so it can resist cutting rates if (when? :)) the market tanks.
When judging the Fed’s intentions, I suggest reading their lips, not their speeches…
I believe this is the most significant statements from the Fed on the housing bubble yet. Why? Because this is the first time they’ve acknowledge the fact that the bubble can burst. No fed speak, no confusing greenspanese, clear english.
Grim
Northern NJ Real Estate Bubble
Yeah, someone “official acknowledged a “BUBBLE” in housing?
It only took someone to resign and look at his own bank’s balance sheet and realize that his Fed District lent 78% of all loan (their assets) to real estate related…………..Largest number ever reported as in the highest since the Fed reported this data. (inception)..
Okay, so why does this bother me?:
“If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,’ Kohn said in a speech…”
So, can they expect to see **some** of the recent gains to be preserved by the Fed?
It is this firmly entrenched belief held by the majority, including the people who make up the Federal Reserve, that is partially responsible for the size of this bubble: the belief that the Federal reserve can control the economy along with the belief that the Federal Reserve is going to preserve the value of the inflated assets. In the next 4 years it will become abundantly clear that it is market conditions and social mood that controls the economy, and that the Fed was just going along with social mood these last 60 years, not controling it.
NO! see Bankruptcy law…changes…
Kohn has said more-or-less the same thing in his speeches for a year now (don’t expect the Fed to come to the rescue when the value of your real estate investments tank). Has anyone listened?
And the mad rush to the exits begins!
I don’t think buyers think they can bargin on new homes like they can in the resale market . Usually at new home sales offices your given a price sheet and maybe a available inventory sheet with set prices .
Builder’s are on the hampster treadmill.
It’s build or die in order to keep the cash flow going, hoping that the Feds can keep the whole rotten RE game afloat.
Either that, or the drug cartels and 3rd World foreign aid embezzlers got a whole boat-load of money to get out on the street.
Well said.
Or…perhaps the large HBs are the biggest bears of all. They don’t think they’ll see today’s prices for many years (decades…if ever?) to come. If that were the case, we’d be seeing exactly what we are seeing now, IMHO. I think the insider transactions at the public HB companies speak volumes (BTW, they’ve been getting out since mid 2004 — it’s not just recent).
Good thing the builders have so many homes under construction around San Diego, as this will lead to more affordable housing, and help stem the tide of outmigration currently underway for the first time in several decades…
http://tinyurl.com/ze38d
That article kinda of puts a little chink in the everyone wants to live here argument. If you spend anytime on the freeways here, they’re not leaving fast enough.
There are three distinct possibilities with respect to this news:
1) Homebuilders have, despite a “soft” market and massive oversupply, price breaks, discounts and widespread “incentives” to encourage weak sales, continued to start new houses with the intention of cashing in quick before a crash, thereby potentially hastening the crash, OR
2) The Commerce Department, which doesn’t ACTUALLY call to verify 2.13 MILLION new houses, is basing its data on extrapolations and guesswork, and the homebuilders’ real actions aren’t being accurately reported; or
3) Homebuilders intend to do slow builds to place the current properties on the market in 24-36 months, thereby avoiding a short-term slowdown, in which case the data is not really a valid short-term indicator at all.
Condos for everyone!
————————————————————————
Picket Fence to Skyline View: Big Builders Come to Town
By MOTOKO RICH
Published: March 16, 2006
FOR decades, home builders have fed the seemingly endless appetite for the suburban four-bedroom house with the backyard and the picket fence. But increasingly, they are recasting the American dream as a two-bedroom condominium with a gym in the basement and a skyline view from the living room.
Some of the biggest names in suburban home building are getting into urban condominium development or greatly expanding their presence there. In the New York metropolitan area, urban condos now represent nearly a third of sales for K. Hovnanian Homes, a national suburban home builder based in Edison, N.J., up from 5 percent five years ago. KB Home, a national developer that has built more than 146,000 homes in suburban subdivisions in the last five years, launched a new urban division last year, which is now building its first project, 200 condo units on top of a hotel in downtown Los Angeles.
http://tinyurl.com/kombb
At least 10 yrs ago, when I worked in downtown LA, it was a ghost town as far as offices go after 6 pm. The only folks there were the ones I wouldn’t want to be mingling with. Add to that, it is dirty, smoggy, etc. Has something changed in 10 yrs that people would actually want to live there, and pay big bucks. I can buy the not wanting to commute, as the traffic sucked 10 yrs ago. I am sure it is worse now.
CA as a whole pretty much bites the big one. Here is hoping for a big fall, and no rescue from the FEDs. Caveat Emptor
Home builders can just keep on building, undercut existing home prces and still make a profit. They don’t have any equity to protect.