Pressure Off ‘Abnormal Price Growth’: NAR
Some economic numbers are out this morning. “Construction spending rose to a record level in February as home building hit an all-time high despite a weakening in home sales, the government said Monday.”
“Economists believe the housing sector, which has been booming for the past five years, will slow gradually this year under the impact of rising mortgage rates and slowing sales. New home sales posted a big decline in February while sales of existing homes have been down five of the past six months.”
And the pending home sales data. “Pending home sales are showing signs of leveling out, indicating that the housing market is entering a period of stabilization, according to the NAR. The Pending Home Sales Index,* based on contracts signed in February, slipped 0.8 percent to a level of 117.7 from an upwardly revised index of 118.6 in January, and is 5.2 percent below February 2005. David Lereah, NAR’s chief economist, said most of the cooling in the housing market has already occurred.”
“‘We can expect a historically strong housing market moving forward, earmarked by generally balanced conditions across the country and fairly stable levels of home sales with some month-to-month fluctuations,’ he said. ‘This normalization is healthy because it is taking a lot of the pressure off of the decision process for both home buyers and sellers, pressure that was driving abnormal rates of price growth across much of the country over the last few years.’”
“Regionally, the PHSI in the Northeast jumped 6.8 percent in February to 107.9 but was 1.2 percent below February 2005. In the Midwest, the index held even at 114.3 and was 6.0 percent below a year ago. The index in the South slipped 0.1 percent to 129.3 in February and was also 0.1 percent lower than February 2005. The index in the West fell 7.6 percent to a level of 110.9 in February and was 14.8 percent below a year ago.”
“Yield on benchmark U.S. Treasury debt climbed through 4.905 percent early on Monday to the highest since June 2002 amid general expectations the Federal Reserve Federal Reserve will continue to raise interest rates. Benchmark 10-year notes were down 13/32 in price for a yield of 4.907 early on Monday from 4.853 percent late on Friday. Bond yields move inversely to prices.”
“David Lereah, NAR’s chief economist, said most of the cooling in the housing market has already occurred.”
The NAR was behind the curve on the way up and now they’re behind it on the way down.
How many times has that jackass said, “There is no national housing market.” ? And now he’s making blanket statements about the national market?
“fairly stable levels of home sales with some month-to-month fluctuations,’”
Make that: “mostly unstable levels of home sales with much mouth-to-mouth resusitations,”
Strange how none of the “economists” who are quoted in the mainstream media ever talk about the huge housing inventory buildup and what it will mean. I guess they are just too locked into the world of real estate players and pundits to be able to take a truly objective look.
We have already seen slowing sales and a huge spike in inventory over the last few months. Now we learn that builders are continuing to build at a record pace.
Are the people on this blog the only ones who can put two and two together and see that we are looking at an implosion of the real estate market as unsold inventory soars higher and higher?
What 9000 pound purple elephant sitting in the living room. I don’t see anything.
lierah or others buying ? why not ask a bull that simple question
go RYJUX
I would love to know whether realtors are selling, and how much. Wouldn’t it be nice to know that “For sale listings by realtor-owned property skyrocketed to X while purchases by realtors fell to Y.”
“‘We can expect a historically strong … market moving forward,” said Goldman Sachs’ Abbey Joseph Cohen.
If you recall, Abby Cohen was the senior NASDAQ cheerleader in 99 and early 00.
What’s that bull dike up to these days?
Thanks DS. It’s not a discussion ’til someone starts making gratuitous ad hominem attacks.
Yes I remember her cheerleading about the stock market during the bubble. She is clueless.
A.J. is anything but clueless. She is enjoying a VERY comfortable retirement right now, I believe. What is infurianting is that the Abbeys and the de-Lereah’s know full well how this unfolds.
I propose, here, on Ben Jones’ Blog, an amendment to the U. S. Constitution, curtailing the right to free speech for those employed by bubble-sucking organizations like G/S and NAR. We should be allowed to put the cheerleaders in prison after the crash, or at least garnish their incomes, for the rest of their lives, as restitution.
Any takers?
It should be considered “commercial speech” and therefore subject to truth-in-advertising laws.
a scarlet “B” on her lapel would warn the public that she’s prone to & proficient at misguiding investors w/ overly bullish statements.
They’ve already sold their souls to the devil. Most public figures these days are their kind. Just be careful with your money. You made it through sweat and blood, so defend them as watchfully as you can.
Abby is a perma-bull - Her comments mean NOTHING!
Now SoCal’s Middle Class Need Housing Aid
http://tinyurl.com/o6bmd
I love how the mainstream media always put a happy silver lining to end their articles, “but don’t worry everything is still OK”. The article you just posted from the LA Times shows the strain of high home prices in SoCal. They mention a handful of companies, schools and government agencies that are willing to compensate for these bloated home prices. What they don’t really mention are the vast majority of companies that don’t. Nobody in their right mind would uproot their family and move to California right now. As far as the traditional middle and upper middle class is concerned, they are simply not going to move into a bubble zone. This is one very important aspect of the bursting bubble. If companies cannot bring in new talent or have to subsidize that talent which increases their cost, many of those companies are going to pack up and leave. At the same time think of the new businesses not setting up shop in places like California. San Diego just posted a population decrease. The LA Times real estate reporting is a quasi platform for NAR talking points, they just don’t seem to address the 9000 pound purple elephant sitting in the living room.
You are right…we had some open positions here (SoCalEd) that went unfilled for quite a while because that talent we needed is mainly in the Midwest…the people from there balked at the cost of living increase to move here…
“Steve Cohen, manager of instructional media services at USC, said the university’s home-buying program made it possible for him and his wife, Carolyn, to buy a 108-year-old Craftsman-style house near the University Park campus south of downtown in 2001.
“It’s an amazing house,” said Cohen”
The house might be nice, but it’s getting dark, which means it’s time to run inside and lock up.
I went to SC in the early 70’s. At night there was a bus that ran from campus to the fraternity/sorority row. It probably still does. It was called “the rape secape”.
Is this growth in construction a clear indicator that home prices are out of whack with construction costs? If it costs $200K to buy the land and build the house, while retail used homes costs $400K, then builders can build until resale homes reach equalibrium . . . or am I crazy?
no u r not..this is what is happening..builders will OVERBUILD …
remember telecom bubble 5 yrs ago..that is so massively overbuilt, pain from that still lingers…
With excessive supply, the prices have no where to go but? Just like telecom.
would Len/Tol ticker trade in single digit. You bet.
Len has bought swamps in CA/FL for billions.
It won’t be Toll or KB “Miami”….It will be the “Holiday Builders” that will be toast…
You are correct LALAW….They have tremendous pricing power with their sub’s….and, if the construction market slows down they will have even more in that they will be the only game in town…
“We can expect a historically strong housing market moving forward”
Yes siree, Just moving right along this spring with flooding in Hawaii, tornadoes across the midwest, hail, record snow and we haven’t even hit the summer heat nor hurricane season. I wonder how many people would like to be able to pack up their house and run off with it to a better local?
Some MLS sales numbers for LA. This is for the following cities:
Rancho Palos Verdes
Palos Verdes Estates
Palos Verdes Peninsula
Rolling Hills
Rolling Hills Estates
Units Sold
Feb. ‘04 42
Feb. ‘05 33
Feb. ‘06 16
March ‘04 74
March ‘05 64
March ‘06 42
Not surprising considering that is some of the priciest r/e in SoCal. Who can afford homes there is beyond me.
My family friend who runs an escrow co. in Torrance says it’s dead. They only seem to be moving lower-priced properties in Gardena, Hawthorne, etc.
Good call… this is why they say it will be the 3rd best year since 2001. Translation…. this years sales will be down for the third year in a row, which is not surprising because prices were over-inflated for at least 3 years.
Just back after 2 weeks in Fla. ….Un- *#@*believable. You cannot believe the forsale signs..We drove from Daytona south to the keys then back up the west through the panhandle.No exaggeration…., along the coast there is a sign if not 3 on every corner. Some blocks had every house for sale especially on the panhandle…Truly mindboggling. What’s more is there are an unding line of strip malls with mostly 10-15 cars in each parking lot that I assume half must be employees? There is hardly an open space left anywhere it seemed that is unbuilt. This has got to be a pyramid scheme…Building everywhere while sales signs on every corner ,yet no people around to fill them..Isn’t this the height of the tourist season? We drove what,800 miles+ of coast with at least a sale sign every block and they are building every square inch…even if ! they could sell, I could’nt imagine the traffic on that old 2 lane hiway. What an absolute train wreck. It has to be reit investors, homebuilders, speculator scalping MM funds/ unwitting hedge investors???. I read here religiously ,yet still absolutely dumbfounded!
It’s just transfer of wealth to FL from other parts of the country. Lots of places in the US are completely built up and paved under… it was just FL’s turn.
You drive 98 through the Panhandle???
Nice to see someone else has witnessed what I see everyday up here…
It really does seem like this whole area is for sale, doesn’t it? I have never seen anything like this.
Here are some inventory #’s to support your observations… Homes, Condos/TH’s, and Lots within 25 miles of Destin, FL
Jun 6 05- 5361
Jul 6 05- 6391
Aug 6 05- 7372
Sep 6 05- 6954
Oct 6 05- 7479
Nov 6 05- 7859
Dec 6 05- 8174
Jan 6 06- 8862
Feb 6 06- 9265
Mar 6 06- 9979
Apr 3 06- 10166
I’m in Panama City. Just six weeks or so ago, there were not quite 6,000 properties in the area on the MLS. Now we’re just shy of 7,700.
I was out at the beach a few days ago and could not believe how much was for sale. It seems that every block had at least two or three for sale signs. And yet they are still building as fast as they can–there are cranes from one end of town to the other. I have heard that we have more than 20,000 condos either under construction or in planning, but condo sales dropped 60% last month over the previous year and more than 50% the month before that.
Maybe it’s just my pessimistic nature talking, but I don’t see any way there could not be a hard, ugly crash in this area.
DestinSM ……I was thinking of you as I drove through. You called it ,but it was beyond words or belief. Everyone is bailing….or trying anyway.
Miami’s inventory of residential sale properties has climbed 23% between February 1, 2006 and April 3, 2006.
One builder is giving away a Jeep Liberty with every home purchase. Lots of sellers are eating closing costs and throwing in extra sweeteners.
With interest rates and insurance costs up, hurricane season closing in, and loads of condo’s hitting the market, things look set for a “perfect storm” of residential collapse.
Lottsa drug money to be laundered in FL
I don’t think that this report says anything that is untrue. While people on this board can look at different sets of data and draw other conclusions, in the aggregate most of what you hear on this board is complete speculation. “It’s going to be a bloodbath!” has less supporting data than the NAR’s “It’s going to be a soft landing.”
In MA, were everyone is supposed to be moving away and there are no jobs (according to some) houses continue to sell. Sure they take longer, and the price is not higher than last year, but historically it’s not that bad. What the next year brings is unknown, but no evidence of significant drops. I guess the camp I fall into is the nationwide decline of 20% by 2010. This will produce larger drops on the coast. Note the stock markets didn’t hit bottom for almost three years, so this sounds right to me. So down 4-5% a year- not enough to watch like a sporting evident, but significant over the long haul.
Renting in MA - You’re pointing out that no one has “supporting data” to predict the future, then you lay out your own prediction. Isn’t that sort of odd?
You are right that no one knows. Not de-Lereah, not me, not you. The only guide we have is history, which, if accurate, does not provide a happy ending to today’s housing story. And just so you know, the stock market “correction” of 2000, that took two and a half years to play out, was unique, historically, in terms of timeframe. The markets, or rather, investors, bled to death over an abnormally long period of time. Historically, the guillotine is a more apt image than a “slowly deflating balloon.” Exactly how it plays out this time can’t be known, only the final ending.
There is no historical precedent for a “soft landing” after a speculative bubble. But you never know, it may be “different this time.”
I only laid out my prediction to point out that there are many possible outcomes. I am not making the case that no predictions should be made. I am tired of the constant “the bubble’s bursting” rants when I see very little evidence despite a vested interested and daily research (Not saying there’s not an issue, just nothing much happening April 3, 2006)
By the way there is not agreement that we are actually in a bubble. The NY Times had a long piece tracking housing prices on the same neighborhood in Amsterdam over 400 years. The article indicated that housing prices are more wavelike, not inflating and bursting.
See? There’s not even agreement on what we’re talking about.
the major point about the Herengracht index is that in the long term house prices track inflation/economic growth quite well. The ‘wavelike’ appearance is because of the eb and blow of the economy.
The index shows, like a few other longterm studies from other countries, that on average houseprices rise just a little above inflation (0.2-0.75% yoy) and so they are NOT a good investment but at most a good store of wealth (as long as you don’t buy at the wrong time …).
Housing bubbles often burst, although the steepest declines are relatively ‘local’. The Netherlands had a -40% decline in 1.5 years in 1979 (unfortunately, that is a few years after the end of the Herengracht index, so it doesn’t show up there).
Apart from that, I think your assumption about a slow decline over the coming years is realistic. Despite all the factors that people are mentioning here about the US being ‘different’ from the rest of the world, this is a worldwide housing bubble, the US is late to the party and (except for some isolated spots) there has not been any steep decline in housing prices in any other country.
As long as the easy money keeps flowing, I don’t think there will be any steep declines (although if you measure in gold instead of US$ the steep decline has already started). All the extra money that the central banks are pumping into the economy masks the reality and helps to bailout stupid buyers and speculators.
Also: I live in SE mass. There are few good paying jobs, even in Boston/Providence. The people who had good jobs pre 1999, and held on to them are doing fine. Same for people who bought houses pre 1999. Now, most of the high paying jobs are moving. Witness Fidelity moving to RI, and John Hancock being bought by a Canadian firm. Gillette is laying people off, and close to where I live, TI just sold its attleboro campus.
Now to housing: For the last 3 years people have bought being afraid of being priced out forever. Nice properties never even saw the market. A nice house in a nice neighborhood was sold within the RE cabal before you or I saw it on the MLS. Now I am seeing nice houses. Now I am seeing price reduced. Now I am seeing unsold houses for 12-13 months. Now my stepfather who is heavily into RE has told me to not buy RE.
Mass needs a severe adjustment to get back to normal. We stopped manufacturing in the 70’s, stopped investing in the 80’s, and stopped High tech in the 90’s and 00’s.
What exactly does MA have right now? Very expensive old houses. A RE cabal that took advantage of all of us. A welfare state. Old money that pays no taxes. A big hole in Boston.
If I find a job in another state, I will move. There are few things keeping me here…
wow, a sad but well-written summary….
I love that term ‘cabal’ for the RE people, use it all the time, so appropriate…
Pinch A Penny-You got it pretty much nailed for MA
“Welfare state with old money that pays no taxes”
Spot on…
Note the stock markets didn’t hit bottom for almost three years, so this sounds right to me.
The stock markets have a great deal more liquidity than the housing market. (ie, if I want to sell in the next 60 seconds, I can.) The implication for the length of the downturn is not good.
It’s all in the “bubble” analogy. The stock market (not even tech stocks) did not inflate, then “burst” at some point, and then blow back up again. It is on a 10 year sideways move. Housing could have the same thing.
sideways? not if you look at the EU stockmarkets (and probably many emerging markets as well)…
analysis over many years shows the US markets go up roughly 8 years and then sideways 14 years. This market went up from 1982 to 1997, longer than “normal” which is why it was a historic bull market, and then has been about at 1997 levels (obviously with the 1998- 2000 blip up and back) since then. It could be that way for a while.
The stock market (not even tech stocks) did not inflate, then “burst” at some point, and then blow back up again.
??? Naz peaked at 5000, dropped to 1500, today is at 2300. Perhaps you meant to write: The stock market (especially tech stocks) inflated, then “burst”, and still haven’t blown back up again.
When did the burst occur? Don’t say 2000, because many tech stocks continued to rise after that, and the NASDAQ as whole did not hit bottom until almost 2003, and it took the 9/11 recession to produce that. Also not all stocks fell. The point is that the housing market could decline in some areas, but not others, could take awhile, could rise and then fall back.
To Lingus below, the point is that not all stocks were affected immediately or equally. The stock market moves faster, so the housing downturn will probably take longer and not be uniform. Some NASDAQ stocks still rose throughout 2000, and some areas of the US may stay up also.
I regret to inform you that the nasdaq took a 70% hit and then went sideways.
Renting in MA, judging by your present and past posts, you’ve got to be one of the most impatient people on this board. I take it that your “vested interest” is what’s driving your urgent need for resolution to this asset conundrum.
If you are that frustrated with the market, log off the Internet and stop doing daily research about something that works on the order of years. After all, in your opinion, it’s “not enough to watch like a sporting event [correction]“.
Safe- I have been reading and posting here for a year. My goal has been to buy a house after a decent drop. In the pursuit of that goal I read everything can get on the topic. This board was at one point insightful, but it’s been treading water for the last nine months. Unless the posting names are different, its just new people saying the same thing over and over again “there a lot of signs on the corner near me”, as well as lots of expression of ill will towards other people.
Perhaps you’re right, I should stop reading this blog.
The market has turned, and no one knows what’s next. A year ago we all knew that the RE boom was going to end and we were contrarians. Now that it has ended, and there is no consensus about what happens next. All we can do is speculate.
There will be no information gleaned from this blog that will tell anyone what to do about housing or when any individual should buy. Information is not knowledge or wisdom. All you will get from teh Web is information.
I personally think that prices in my area are 10% off the peak (for the agressive, patient buyer), but are headed lower. I forsee bad times ahead and am comfortable having a pile of money and renting. I won’t make prognostications about 25%, 35%, 50% drops, because they will fail to be true. I will buy when it feels right again.
Also Renting in MA, if he/she wants to buy should buy when the finances make sense to him or her.
Some homeowners struggle to keep up with adjustable rates
http://tinyurl.com/pe48p
“Now, the real estate market is cooling, interest rates are rising and tens of thousands more Americans are starting to have trouble paying their mortgages. Nearly 25% of mortgages — 10 million — carry adjustable interest rates. And most of them went to people with subpar credit ratings who accepted higher interest rates, according to the Mortgage Bankers Association…
“Already, in West Virginia, Alabama, Michigan, Missouri and Tennessee, about one in five homeowners with a high-interest (subprime) ARM was at least 30 days late at the end of last year, according to the Mortgage Bankers Association. After 90 days, the foreclosure clock starts ticking.”
A must-read article. Glad to see it in a widely-read paper like USA Today.
powerful story. the resets are coming. it’s not just a one time bee-sting either. the new higher amount can continue to grow yet even more with each passing year.
it’s gonna look like king kong shaking natives off a rope bridge.
I like this comment:
“What worries experts such as Christopher Cagan at First American Real Estate Solutions are the adjustable-rate loans made in 2004 and 2005, at the end of the housing boom”
MSM says it’s over! must be true. We have known this for a long time.
You feel sorry for a couple in their late 70’s, in trouble with their loan.
But then again, you have to ask: what the heck are they doing with any mortgage at all after living there 45 years?!? The home should have been paid off years ago- they’ve got only themselves to blame for re-financing foolishness.
If history repeats itself, then Abby’s word will just crush the market:
12/18/99 - Nasdaq rises a 9th consecutive week (3752) and is now up 71% on the year. Dow, 11257.
Abby Cohen issues her 2000 forecast, calling for Dow 12300 by year-end.
…
11/18/00 - Dow Jones 10629…Nasdaq 3027
Abby Cohen said stocks were as attractive as they’ve been all year.
…
12/16/00 - Dow Jones 10434…Nasdaq 2654
Abby Cohen called for S&P 500 to rise to 1650 over the next 12 months.
…
Today:
Dow: 11,227
Nasdaq: 2349
Abby Cohen said stocks were as attractive as they’ve been all year.
She is the biggest pump and dumper butch-dike on WS. A lot of people who listen to her got burned in 2000. She was the one that said by Lucent at $55 and Cisco at $82. What a POS!!!
I’m tired of that retread from Planet of the Apes!!
Her advice is usually good for about 30 seconds.
If you are going to insult someone, you should at least know how to spell the insult.
PHSI (seasonally adjusted)
Aug 05 128.2
Sept 126.3
Oct 123.5
Nov 120.7
Dec 117.6
Jan 06 118.6
Feb 117.7
A steady sloope of -19%.
Don’t you just love when all these R.E. “experts” say not to worry about the slowdown we’ve seen in December, January, February, etc. They claim it’s just the “slow season” so the low readings don’t matter.
But the #$#@!&$ numbers are seasonally ADJUSTED. That means last August’s high number should, in theory, be completely comparable to the crappy February number. Ergo, sales are down 19% AFTER adjusting for the normal drop. Grrr.
Waiting for someone (hey maybe a reporter??) to ask NAR where exactly in the northeast are pending home sales booming. Since NYC realtors keep hiding their data (and there is too much anecdotal evidence-even from realtors-about sluggish open house attendance, etc), I’m sure it’s not here (and not Pittsburgh - see Ben’s item right below this one) - so where exactly is this happening and why? Same weird stats in NE on existing home sales too.
sorry meant “home sales contracts”
‘This normalization is healthy because it is taking a lot of the pressure off of the decision process for both home buyers and sellers, pressure that was driving abnormal rates of price growth across much of the country over the last few years.’
Old buyer paradigm: “I need to hurry up and buy now, before I am priced out forever.”
New buyer paradigm: “Maybe I will wait a while to figure out which experts are telling the truth — the ones who say prices will keep going up forever this time around, even though they won’t go up as fast? Or the ones who say that, like at the end of every other real estate boom in modern history, this one will end in a bust with the markets formerly known as bubbly experiencing significant price declines.”
Well said GetStucco.