‘Record Inventories Discourage New Projects’
Bloomberg has the housing starts data. “Builders started work last month on the smallest number of new houses in a year, as rising mortgage rates and record inventories of unsold homes discouraged new projects. Housing starts declined 7.8 percent in March to an annual rate of 1.96 million, from 2.126 million in February.”
“Building permits, a sign of future construction, fell 5.5 percent to an annual rate of 2.059 million from 2.179 million.”
“Builders are breaking ground on fewer projects after new home sales declined in three of the last four months, falling in February by the most in nine years. ‘It’s clear that the housing market is cooling,’ (economist) Joel Naroff said before the report. ‘There are areas of the country where we are going to see pretty sharp declines in construction and in housing prices.’”
“Starts fell in all regions of the country. They decreased 16 percent in the West to an annual rate of 486,000, 8.2 percent in the Midwest to 291,000, 4.8 percent in the South to 994,000 and 0.5 percent in the Northeast to 189,000.”
“‘Buyers are going to be in a sweet spot in about three to six months,’ said (economist) Anthony Chan. ‘The speculators who are still holding properties will be panicking by then as their carrying costs mount. It won’t be a bloodbath, but that’s when prices should be at their lowest.’”
“Federal Reserve policymakers have been encouraging banks to tighten lending standards in recent months and make less use of tools favored by speculative home buyers, such as adjustable-rate and no-interest mortgages. These loans become more costly as the federal funds target rate increases.”
“‘We’re seeing that the investment side of housing looks like the edge is coming off because the carrying cost of doing these investments is getting higher,’ Federal Reserve Governor Susan Bies said.”
“KB Home reported a 12 percent decrease in orders in the December-February period. The decline was the first in four years at KB Home. ‘Some housing markets have moderated from the over-heated and, in some cases, speculative pace of growth of the past few years,’ Bruce Karatz, CEO said.”
‘Buyers are going to be in a sweet spot in about three to six months,’ said (economist) Anthony Chan..that’s when prices should be at their lowest.’
After a ten year housing boom, this economist thinks a three to six month correction is in store?
I agree Ben. What is with the three to six month comment? It always cracks me up when no real world experience economists trumpet out time frames and numbers like that.
I would like to see Mr. Chan’s crystal ball…
Yeah, I think the sweet spot will be in 3 to 6 YEARS!
‘Buyers are going to be in a sweet spot in about five to six years,’ said (economist) Anthony Chan..that’s when prices should be at their lowest.’
Anthony Chan, economist …
Berta’s Fundamental Law of Economic Rents.. “The only thing more dangerous than an amateur economist is a professional economist.
Boy, the stuff you learn in that mail-order, 1 week econ class!
who’s payiong this guy ? the taxpayers ?
3-6 years dude or dec 07 on Christmas eve cahs now, w 15 minutes to accept the deal !
I am getting sick of all those people that say the housing market is in good shape, that there is no bubble.
My wife and I have been looking for houses in brevard county fla for 6 months. We saw the market when housing prices wouldnt budge from their lofty dreams. People were turning in bidding wars and houses had a open auction starting above the appraised value.
Now that is gone. We have watched almost everyone drop their price by 20k to 30k. Those who havent, are still in that dream. Best of all, they still are not selling. I am so glad that i had to remodel and fix a lot of problems in our townhouse before we could sell. It probably is going to save me 50k to 100k. waiting was our best investment.
As for the median house price? My wife and i make about 70k/yr.
a 200k mortgage w/6% interest rate +hurricane insurance+large property tax= in upwards of 17,000 to 18,000 a month. too much for my blood. Also there are few if any houses at 200k.
I am also monitoring the number of foreclosures in the area to see what happens.
I predict a 40% decline, because it will come back in balance with wages in the area. Could be worse with the space industry being the major employer for the well-to-dos in the are.
I do think with the rapid price increases occuring since around 2002 or 2003 (starting off at a point where prices were already moderately high) that there will be a rapid unwinding. Mind you, it won’t take only 3 to 6 months, but it could take only 2 or 3 years. At that point, the bottom prices will be reached and then they’ll stagnate for a number of years thereafter, probably another 3 years. Adjusted for inflation, I predict the maximum value will be had in about six years.
If you look at California from 1989/1990 through 1995/1996, this is how that played out as far as the total time frame, though I think the decline took longer. This time, the decline will be more dramatic both because the bubble is much larger and because of all the flippers that simply are out of their financial league and absolutely cannot afford the costs.
The bigger the boom, the bigger the bust. And most of the time the market will overcorrect itself and things will be undervalued for a couple of years. I see that as being the case in about four or five years. The reason for this is all the real estate yahoos who currently think real estate is a “can’t miss” investment will think anyone touching real estate five years from now is crazy (because of their bankruptcies and their memories of losing 100’s of ks with their “can’t misses”).
Right. The sell off is often faster than the build-up. It takes greed a while to lull buyers. But it takes panic not very long at all to spook sellers.
All you potential knife-catchers out there; listen to the man!!
His time frame may not be exactly right, but he’s sure as hell right about the post-bottom stagnation.
Unless you are specifically looking for distress sales, there’s going to be plenty of time to get in at a good price.
Wonder if this time around we will see the emergence of a new paradigm called “panic buying” once some real and substantial declines start? R/E can be an addiction and I bet some will bite on the first round of declines. Predicting the bottom is just as tough as predicting the top, isn’t it?
By the way, how do you predict the bottom? Is it inventory decreasing for a few months in a row? Or mayabe it is as simple as inventory at 6 months or less. Anybody done analysis on the last bust on what the stats did in 1999 that changed? I think everybody agrees that 1999 is when things started to upturn.
predicting the bottom? how about you won’t hear people talk about RE any more. DOM will be record high, real investors can make money at the auction of foreclosures, unemployment rate will be much higher than now, Real Estate jobs will be at the bottom of people’s list, RE will be considered a bad investement, etc. > 30% drop from current prices.
By the way, how do you predict the bottom?
1) How much of the talk around the office is about investing in the next stock IPO, or gnashing of teeth about recent losses in IPO stocks? When it gets to the point that everybody who could be screwed by a lousy real estate market has been screwed for so long that it’s not even conversation any more, you’re about there.
2) Wait for that Time or Newsweek cover story, complete with too-cute wordplay as the title, something like “House-Partied Out” or somesuch. You’re almost always within 6 months one way or the other at that point. (Look inside the magazine as well. Business Week’s July 19, 1999 article (not a cover story) “Gold Is Losing Its Glitter” marked the very bottom of the 20-year bear market in gold.)
Look for the Time cover story “The End of Homeownership in America” which will champion the wisdom of renting over buying, because real estate has permanently changed in some fundemental way and will never again be a good investment.
CSM had a story on that
http://search.csmonitor.com/search_content/0418/p09s02-coop.html
“Starts fell in all regions of the country. They decreased … 8.2 percent in the Midwest to 291,000…”
I think all 291,000 housing starts are within 5 miles of my house.
HB stocks have been declining nicely lately. I think we’ll see a good drop in that group today. Shorts are getting their just rewards.
Any idea when will the mortgage cos will start dropping?
yeah, what’s going on with the Mid-West. We are planning on moving there this summer and it seems like the prices are still going up in the Chicago area even though inventory is sooo high. Hopefully while we rent the prices will come down.
I read somewhere over the weekend (NYT?) that an annual start rate below 2M was going to shake Wall Street. Should be a wild ride !
Yep sure was 200 DJI on the upside…investors or “PPT” plunge protection team, must have felt the LAST of the bad news is in! ???
The investing side of housing has lost its edge…well in Las Vegas the wheels have come off….see my post in 1st article (top)today!
Hard monet lender goes BK $900 million in loan assets.
That why its a more “normalized market” and the market is taking a rest after the past few years, silly. There’ll be no crash, popping of bubble, blood on the streets.
Simmsays…
Wackiest Products for Your Dog
http://www.AmericanInventorSpot.com
Don’t use the phrase blood in the streets. There are some very sensitive people who post here. LOL.
Hemoglobin on the Highway…at least I have sensitivity training
“Hemoglobin on the Highway”
Ha! I have to remember that one.
“Humanity will soon have to choose between utopia or oblivion…. Do we work only for ourselves or for our planet?” Buckminster Fuller
Slightly OT but related.
About 5 minutes ago, I had to forward an inquiry from a young lady who wanted food stamps because she bought a house she couldn’t afford and maxxed out her credit cards.
She maxxed out her credit cards! Hellooooooooo. Time to get a HELOC like everyone else and pay them off. Sheesh. Some people!
About 5 minutes ago, I had to forward an inquiry from a young lady who wanted food stamps because she bought a house she couldn’t afford and maxxed out her credit cards.
This is not going to be pretty or nice.
Bubbles are never nice when they end. The pigs always get slaughtered, but renters will do just fine.
I do think the renter’s need to take caution too. As people start to lose their homes, they need to go somewhere. In areas where there is only a small rental market, that could really impact rates….especially if those people still hold jobs in that area.
That’s when existing renters, who have been wise to not pay inflated prices for homes, will then place fair-market-value bids (about 40% of today’s prices) on the auctioned houses that these people loose, thereby keeping the rental supply and demand relatively constant. In the beginning though, there might be a squeeze, but hopefully you’ll be locked in with your rental rate.
Yes, 60% off today’s prices (about 40% of today’s prices)
Still remember that first home purchase when we were looking at $2200 rents around Boston yet bought our first home for pti of $700. It was small but bigger than any rental and in great shape. On a nice treed acre lot less than a mile from ocean too. I still say rental supply is its own variable….and it will depend on local market.
http://realestate.msn.com/Rentals/Article.aspx?cp-documentid=262101>1=8012
Above in MSNrealestate today although it blames rent on high housing prices. My argument is rental supply.
I think there is a ton of hidden supply in the market. The single woman with a dog who bought a 4 bedroom house won’t go away quietly and give back the home. She’ll rent out a room (or two) to a local junior college student. I suspect renters won’t get hit as hard as people think.
If you talk to people who have been through a bad housing cycle, they’ll tell you that they rented out rooms to divorcee’s, local college students, etc., anything to help make ends meet.
Remember, before the housing boom, all those new buyers had places to stay, rents were higher in many markets, and today, there are going to be lots of condos, and investor houses that need to be rented . . .
Agreed. I also wouldn’t be surprised to see a lot of “underground economy” cash transactions between renters and cash-strapped homeowners (home occupiers, anyway). Back in my younger days, I shared a house with a gov’t GM-15 (senior management) who rented rooms in a great house to me (a student) and a girl (32, mental age 14) who was going through a divorce. It was a good arrangement for all of us, and a lot more cost-effective than renting my own apartment.
To be fair we do need to differentiate between renting and lodging here.
There have been times in my own city in Australia where lodgings for single people or couples without kids were plentiful, but rental accomodation suitable for a family was scarce and very expensive.
I read a story (online) in the Christian Science monitor (posted at Patrick.net/housing/crash) that said there are more rentals available now than at anytime in the last 10 years, with national vacancy rates around 10%. Apparently this is a side effect of the housing bubble. Also, if folks start losing their homes, those house will probably end up in the rental market somehow. I don’t think there will be a shortage of rentals…maybe a shortage of the exact kind of rental you want, but not an overall shortage.
I assume she didn’t max out her credit cards buying canned goods.
DHI’s numbers are nominally quite excellent, but it’s rear-view mirror stuff. They’re down two per cent just about a half hour into trading, which makes them the poorest-performing homebuilder stock so far today.
Gonna be a nasty day for the HB stocks. I couldn’t even get filled on a very-below-bid short in the early rise this morning, with an excuse that they just simply made up.
The inflation number out today is either nasty (briefing.com notes that the 0.5% “headline” number is “the worst since December”) or benign (CBS MarketWatch prefers the 0.1% “core” number, “the best since November”). Ah the financial press.
Just got a call back from my broker. This explanation makes sense, as improbable as it is:
There are no more shares of HOV to short today. None! Try again tomorrow.
Wow!
D*mn. Thanks for the insight.
David
http://bubblemeter.blogspot.com
Yep, the Fed f’s the shorts again today. I’ve written it here before and I’ll write it again — they’re as crooked as the pimps CNBC trotted out in front of the cameras every time the DJII was down 100 points or more back in internet-bubble days.
First the SF Governor, Yellen, starts yapping about how they’re “almost done” (that makes it at least six meetings in a row by my count that at least one Fed Governor has given the “almost done” short-squeeze signal), and then at 2 PM their Beige Book minutes come out and we get squeezed a second time. (Because as we all know, the only thing keeping the housing market from collapsing is that mortgage rates are 6.5% instead of 7.5%, not anything else like massive overbuilding, single-digit affordability index, etc.)
The worst of it is knowing that these squeezes last only a day or two but I can’t add on to my short position right now at a transparently fake level.
Isn’t it about time for Learah to put out another PR touting the everpresent housing “bull” market?
You really cant look at housing on a monthly basis. We just posted the Q1 housing starts and completions data. It’s pretty interesting- and not becouse the numbers went down:
BubbleTrack.blogspot.com
Nice! Thank you.
Wow - impressively tart quote re: housing bubble from MSM (Bloomberg)
Builder Optimism
Optimism among U.S. homebuilders fell this month to the lowest level since November 2001, The National Association of Home Builders said yesterday. Since October, the group’s gauge of optimism has fallen the most in any six-month period since it began in 1985.
http://quote.bloomberg.com/apps/news?pid=10000006&sid=adOYIo9RsIGI&refer=home
This time might actually be different.
Perhaps changes are happening more quickly in this early turn of the cycle.
My initial gut level reaction was identical to Ben’s, then after reading some of the posts I felt that there’s a deeper message here. Saying that 3 to 6 months down the road the speculators will be washed out b/c of the carrying costs is a pretty bold admission. It acknowledges the presence of speculators in the market by an insider and that’s a FIRST! Further, Anthony Chan recognizes that their presence isn’t entirely welcome. Another big step. While careful not to describe what will be a bloodbath as a bloodbath he also says that prices will actually go lower in the future. These are major steps and the kind of language that prefaces all out acknowledgement of a crash.
“Buyers are going to be in a sweet spot in about three to six months,” said Anthony Chan…It won’t be a bloodbath, but that’s when prices should be at their lowest.”
He’s also letting it be known that the sweet spot is IN THE FUTURE (no matter how immediate that future is). That in itself is big. He’s basically telling people to wait at least 3 to 6 months before buying.
It’s time for people in the industry relearn how to be honest again, if they ever were. If I were to buy a home now, only realtors who are telling the truth like
this one that gave a 1-1 ratings on realtytimes will get my business
Interesting CNN article
Real Estate Insiders bearish in blogs. CNN has been pretty bearish on RE lately. The CW is changing.
“Even some of Inman’s bloggers are not totally bearish. One poster wrote, “Northern CA - oddly enough, higher priced inventory (luxury homes) still moving.”
The super rich with hundreds of million or billion networth just buy a home for its primary purpose, a home, that even if the value of the home drops 50% a few years down the road, the loss doesn’t matter much to them.
O/T: If you look at FNM on today’s chart, you’ll see what looks like an “oops” moment for a trader(???). Someone sold for $50.00…looks like a typo or?
Almost certainly some kind of typo somewhere along the line.
BTW, what’s up with the HB stocks? From what I’ve seen, they are UP. Perhaps investors see it the way we do. Many of us liked the high starts because it meant more inventory. Reduced starts might be what long investors were looking for. I know they seemed baffled when the starts were increasing during an obvious slowdown.
Nope, they were down properly this morning on the poor Starts data and DHI & LEN’s pre-open numbers which acknowledged that things are slowing down.
But then the Fed bailed them out again by telling one of their Governors (it was Yellen’s turn apparently) to make some blah-blah-blah about how they’re “almost done raising rates” and the short squeeze was on.
Rentors getting less disgruntled by the minute.
Mr. Chan is a wall street Hack
3-6 months buyers in a ’sweet spot’- Mr. Chan needs to get a frontal end lobotomy- in 3-6 months the fun will just be starting.
Here’s an update on housing starts in Chicago. The builders admit that they are interested in meeting their projections whether or not the house is under contract.
http://www.chicagotribune.com/business/chi-060418housing-story,1,7222932.story?coll=chi-business-hed