June 6, 2006

‘Some Housing Markets Have Become Vulnerable’: NAR

The NAR is calling for the Fed to hold rates steady. “The National Association of Realtors on Tuesday lowered its forecast for U.S. home sales in 2006 and called on the Federal Reserve to stop raising interest rates because parts of the housing market are ‘vulnerable.’”

“‘Experiencing a slowing from a hot market is a good thing because we need a solid housing sector to provide an underlying base to the economy, and slower appreciation will help to preserve long-term affordability,’ said David Lereah, the group’s chief economist.”

“‘But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable,’ he said.”

“The trade group, in its monthly forecast, said sales of existing homes should fall 6.8 percent to 6.60 million this year from the 2005 record of 7.08 million. Sales of new homes should decline 13.4 percent to 1.11 million from a record 1.28 million in 2005.”

“That is below the group’s earlier forecast of 6.62 million existing home sales and 1.13 million new homes sales in 2006.”

“NAR President Thomas M. Stevens said rising interest rates have slowed home sales in many high cost markets, while job growth has boosted sales in some moderately priced areas. ‘Broadly speaking, rising inventories have taken the pressure off of unsustainable home price growth,’ said Stevens. ‘For most of the nation, this means future home price gains will be much closer to the normal returns we expect from housing.’”

“‘Historically, home prices rise 1.5 to 2 percentage points faster than the rate of inflation, so the rise we anticipate in existing home prices this year is actually a little above the high end of historic norms,’ Lereah said.”

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Comment by txchick57
2006-06-06 07:41:46
Comment by Robert Cote
2006-06-06 08:48:53

Your same bet yesterday is down 10% in 30 hours so you need to see this double down bet (assuming same size) go up 4% to break even. So far this morning the double down is off 3% so half is off 10% and half is off 3%. Time will tell. The volitility is huge and the volume is in some HBs 3x normal.

Comment by txchick57
2006-06-06 08:49:51


Comment by anoninCA
2006-06-06 09:13:46

Heh, I could think of a couple meanings for GFY; is there a commonly accepted one?

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Comment by Backstage
2006-06-06 09:17:29

Yes, but we don’t use that kind of language here. LOL

Comment by Chip
2006-06-06 13:07:42

Good For You.

Comment by Robert Cote
2006-06-06 09:18:03

“GFY” -> Good for you?, okay but good for me doesn’t apply in this case. I am not shorting or long the HBs because IMO (that’s opinion aka worth nothing) the stocks are irrational. I don’t know how to invest in “irrationality” so I stay away. I’m just watching and keeping score since you annouced your long position entry yesterday morning. All data is good. 1PM the PHLX is -2.76% with every component in the red. TOL -4.75%, KBH -4.38%, DHI -6.81%. I admire people with a plan and the fortitude to see it through. I also admire people who know the difference between ones investments and the important things in life. That’s why I particularly admire people who don’t get emotional about inversting. It’s early and a bounce if not today then eventually could get you back out and the oft repeated pattern of afternoon squaring is sure to bring some back anyway. I wish you no ill but I am surprised that you got signals for a bounce yesterday and today in the teeth of a very strong trend. The opening trade gaps down do not have to be filled so you’ve piqued my interest so I am watching, that’s all.

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Comment by Auction Heaven in '07
2006-06-06 18:41:30

Do I smell romance in the air?

Or is that just gunpowder?

Comment by Ben Jones
2006-06-06 07:42:14

‘The trade group, in its monthly forecast, said sales of existing homes should fall 6.8 percent to 6.60 million this year’

They did the same thing last summer. Quite the forecasters, the NAR.

Comment by txchick57
2006-06-06 07:46:43

Don’t get me wrong. I’m the biggest housing bear around and think the sector is toast longer term but this is ridiculous today and yesterday. I think they can bounce for a decent upside trade. I certainly wouldn’t be dumping long positions down here.

Comment by waaahoo
2006-06-06 07:48:49

I want to see a few more downgrades and the CNBC floor reporters glancing nervously away at the tickers while they speak.

Comment by CA renter
2006-06-06 08:28:06

It’s a good couple of days to be short, no? :)

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Comment by waaahoo
2006-06-06 08:34:51

Been a nice couple of months to be short.

I short the NDX 100. Have done so at what I think are critical times since 02 primarily as insurance as I am directly tied to housing industry.

Comment by Chrisinpnw
2006-06-06 07:54:27

You are right of course unless this becomes a waterfall which is possible but not likely.
I doubt if anyone on this blog is long any housing or related stocks. I appreciate your posts & am also looking at move toTUS in the future.

Comment by fred hooper
2006-06-06 07:55:33

Playing with fire. Look at the whole market, possibly in for additional 5% haircut. HB’s will go with the market by a factor of 2 or more?

Comment by txchick57
2006-06-06 08:06:52

I think it’s more than 5%, more like 15% but the next 5% up rather than down?

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Comment by dannll
2006-06-06 13:26:31

Market should bounce a couple days after the Last Hour Lift off today… but HB’s? I guess nothing goes straight down. Be quick on the trigger, though.

Comment by Getstucco
2006-06-06 10:19:56

Fred — I would guess the HB’s have a beta of about 5 relative to the broad market (e.g., DJIA down by 1% translates into HB stocks off by 5%, kinda like today…)

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Comment by Sly_Ace
2006-06-06 07:56:01

You may be right, but it has been a hell of a run. 100% in HB puts and I have to keep increasing my stops every 30 minutes or so. I have not seen anything like this since the Naz collapsed.

Comment by txchick57
2006-06-06 08:04:50

Yep. Me, I’d take those profits, hoss.

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Comment by Only-A-Matter-Of-Time
2006-06-06 08:37:55

“‘Experiencing a slowing from a hot market is a good thing

Yearh, uh ha, right, tell the to the shmuck that listened to one of your members and purchased the property based on the fact real estate goes up only 20% a year and as for coming down????????????(Come On, your joking)

I have been an agent and broker for 16 years and this is the exact reason I refuse to join this corrupt outfit.

I hope the government liens on them so hard that their grand kids have headaches.

They have tried to destroy every discount brokers’ business and act like they are trying to protect the consumer.

How have they lasted this long I do not know.

Comment by Arwen U.
2006-06-06 08:43:05

“liens on them”

That was a great pun.

Comment by Sly_Ace
2006-06-06 12:54:49

Good advice: sold all the HB puts when the first stop hit; did not even wait for the others to hit. This has been a great run, but pigs get fed and hogs get slaughtered.

Thanks much to Ben and fellow bloggers. Where were you guys in February, 2000 when I was long the Naz?

Comment by dawnal
2006-06-06 09:38:37

Yep…Another sparkling day on Wall Street for the bubblers….


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Comment by Getstucco
2006-06-06 10:31:46


The interesting thing is that the homebuilder stocks have really tanked against a backdrop of very little correction in the broad market indexes. Once the DJIA and other broad indexes fully digest the fact that Bernanke is actually planning to do his job and maintain price stability and correct accordingly, the HB stocks will sink much closer to long-term trend than they already have thus far…


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Comment by Sly_Ace
2006-06-06 12:59:07

I agree. I suspect that I will re-enter, but the easy money has already been made. Also, I held on during the November to early January rally and again in March, so I am happy to sit and watch for a bit.

BMHC was one I hated to sell (the puts): it has been holding up rather well even though all of its HB customers have been getting hammered.

In a year, I strongly suspect there will be a few HBs on the brink of bankruptcy. That being said, they really have gotten killed the last few days and I fear a bounce.

Comment by david cee
2006-06-06 08:35:37

“The Trend is Your Friend”

Comment by txchick57
2006-06-06 08:49:24

Was the trend your friend in March of 2000?

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Comment by foobeca
2006-06-06 09:12:42

If you were short, then yes it was your friend.

Comment by sigalarm
2006-06-06 10:59:12

The tech world is much better today for the “power dump” that happened in March. As an IT guy, I cannot imagine just how useless and crappy the industry would be if we had not washed all the clowns out then.

Comment by pinch-a-penny
2006-06-06 11:11:08

Unfortunately there are a lot of IT guys who got taken to the cleaners because of that. People who had been in IT for 7-10 years got replaced with recent college grads, and the salaries for IT related jobs dumped accordingly.
If you managed to hold on to your job, you might have come out OK. I do know people that used to work with me in IT at a telecom company that have taken 6 consecutive 5% pay cuts. These are top notch SUN, and MS guys. Not pretty. Not finding other jobs.
Granted that there were, and are a whole bunch of hacks out there, but a lot of good people also got creamed, specially in MA, and have not recovered. A lot of them are doing RE now, as that seemed to be the only jobs available around here.

Comment by tauceti96
2006-06-06 12:47:52

sigalarm… is the industry really that much better now? We have mountains of shite code built up over the 6 year tech bubble period produced by chimps chained to keyboards. And the talented programmers have the honor of maintaining it. BTW why SIGALARM, why not SIGILL, SIGPOLL or SIGWINCH. mystruct *p = (mystruct *)malloc(sizeof(mystruct)); if (! mystruct) { /* kablam */ }. Glad to see some other bitheads out in bubble blog land.

Comment by Seattle Slacker
2006-06-06 11:23:33

The trend is your friend…
’till the end when it bends.

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Comment by azrenter
2006-06-06 09:17:48

on cnbc this morning the president of nar said its going to be a record year for 2nd home sales,on the same program 20 min later the home builder stock group was downgraded to sell!!!

Comment by Backstage
2006-06-06 09:22:51

Aren’t there better risk/rewards trades to make out there? The markets themselves are volitile enough. The HB’s are doubly so. Sounds like gambling.

Comment by Getstucco
2006-06-06 09:30:10


You really, really should read a copy of Taleb’s book “Fooled by Randomness.” Because lots of traders have blown up over the course of time by betting on an inexhaustible supply of greater fools willing to go long an asset (like a homebuilder stock under current conditions) which fundamentals suggest is headed down a bottomless pit. Eventually there are no more bear market rallies to save the last group to get in…

Comment by Sly_Ace
2006-06-06 13:02:14

It is a great book. In fact, the book underscores the fact that my recent success buying puts on the HBs is mostly luck but, like most people, I like to think it was skill. Oh well. Better lucky than good.

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Comment by oc-ed
2006-06-06 07:46:38

“‘But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable,’ he said.”

Now Jimmy, if you and your friends hadn’t hurt the kitty it would not be sick. We have to take the kitty to the vet now Jimmy and you can not play with it.
The kitty will need more medicine to get well again. Bad Jimmy, bad boy. Now off to bed with you and no kool aid tonight.

Comment by oc-ed
2006-06-06 07:47:39

Oops, Bad Davey, not Jimmy. Got my kids mixed up there …

Comment by David
2006-06-06 09:06:17

Remember the NAR’s anti bubble reports: http://tinyurl.com/bp9a4

Also: http://tinyurl.com/lody3


Comment by John Doe
2006-06-07 06:08:34

Gary Watts is still publishing an anti-bubble report. In June 06!

Comment by peterbob
2006-06-06 09:33:36

The Fed cannot be concerned with asset prices, but rather must monitor inflation and growth to some degree.

Comment by homewishes
2006-06-06 12:09:54

Give me a break! So interest rates should stay low to sustain ridiculous prices/debt? I’m sure they’re squirming over the inevitable pay cut that comes with lower prices. It’s shocking that they apparently believe that the economy runs off the housing industry alone.

Comment by norjacwy
2006-06-06 07:48:24

Lereah is worthless! A shameless cheerleader on the way up, and a master of the obvious on the beginning of the way down! Really, what value does he provide? My only wonder is, what the heck is Helicopter Ben thinking? Housing is the ONLY thing working for the average ‘Murikan and it’s one thing to take away the punch bowl, quite another to throw ‘em out into the street.

Comment by huggybear
2006-06-06 07:52:35

Maybe once Lereah is fired from the NAR he can become the new WH spokesman. Tony Snow isn’t very convincing but Lereah already has lots of experience lying with a straight face.

Comment by The_Lingus
2006-06-06 08:53:31

I surmise Lereah came from the WH considering the way he lies. There’s an implied thought in your statement the Tony Snow doesn’t lie. Don’t forget he’s been spewing lie after lie on Fox news for years. He is one of the most untrustworthy paid hacks for the corrupticans.

Comment by edhopper
2006-06-06 13:59:45

I think he is saying that Snow lies, but unconvincingly.

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Comment by We Rent!
2006-06-07 05:15:34

You’re not very cunning, Lingus.

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Comment by tom stone
2006-06-06 09:35:15

lereah is going to work for nambla,not the white house,it’s more respectable.

Comment by The_Lingus
2006-06-06 09:40:20

Comment by tom stone
2006-06-06 09:35:15
lereah is going to work for nambla,not the white house,it’s more respectable.
LMAO!!!! No doubt. On a more serious note, there are new rumors flying around about rampant homosexuality in the WH ala Jeff Gannon and the Log Cabin Republicans?

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Comment by Disillusioned
2006-06-06 10:16:49

Isn’t it interesting that Clinton got nailed for a BJ, yet Jeff “Me Sucky Sucky for $$” Gannon can gain unfettered access to the White House, some 147 times under a false name after hours and not one person bothers to sit up and take notice?

I can’t wait for the sordid details to come out in a tell all some 30 years from now. That’s about how long I’ll be holding my breath.

Comment by The_Lingus
2006-06-06 10:19:09

And oddly enough, what happened to the outrage over the Gannon scandal by the authoritarians posing as Christians? Not a word……….

Comment by feepness
2006-06-06 07:52:41

That’s like saying heroin is the only thing working for the average junkie.

Comment by tweedle-dee (not dumb...)
2006-06-06 07:53:42

Ben hasn’t even started to get tough. He has only warned the market at this point. I’ll bet that we see at least one 50 point hike before the end of the summer. I think it is great that we have a Fed that has a backbone.

Comment by Backstage
2006-06-06 09:31:11

Warning the market is like trying to get kids to clean their rooms. They will keep doing whatever they were doing until you force it to happen.

Comment by DC in LBV
2006-06-06 09:58:25

Ain’t that the truth!

and the average investor has the mentality of a child too.

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Comment by Getstucco
2006-06-06 10:49:01

The 50bps hike may come as soon as this Thursday in the Eurozone…

That would create pressure for the Fed to follow suit.


Comment by hoz
2006-06-06 08:24:21

Unfortunately, the Fed has too many problems with which to deal. The least important are the asste bubbles (stock market and housing - both 40%+ overvalued).
From the 2005 Financial Report of The United States Government

The recently renamed Government Accountability Office (GAO) has the job of certifying the government’s GAAP-based statements, but it has refused to do so, given material reporting deficiencies. With the Treasury touting a reduced 2005 budget deficit and unwilling to repeat 2004’s big picture cautions in this year’s “Management’s Discussion and Analysis,” the GAO offered (page 137):

“While we are unable to express an opinion on the U.S. government’s consolidated financial statements, several key items deserve emphasis in order to put the information contained in the financial statements and the “Management’s Discussion and Analysis” section of the Financial Report of the United States Government into context.

“First, while the reported $319 billion fiscal year 2005 unified budget deficit was significantly lower than the $412 billion unified budget deficit in fiscal year 2004, it was still very high given current economic growth rates and the overall composition of federal spending. Furthermore, the federal government’s reported net operating cost, which included expenses incurred during the year, increased to $760 billion in fiscal year 2005 from $616 billion in fiscal 2004.

“Second, the U.S. government’s total reported liabilities total more than $46 trillion, representing close to four times current GDP and up from about $20 trillion or two times GDP in 2000. …”

Comment by The_Lingus
2006-06-06 08:38:38

Heckuva job Brownie.

Comment by TheGuru
2006-06-06 10:02:26


This report has shown unfunded liabilities totaling the trillions for the last 2 decades. It’s called SS and Medicare and neither party will do a danm thing about it. Wake up man.

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Comment by crash1
2006-06-06 08:41:48

Unfortunately, the Fed has too many problems with which to deal.

If you had the opportunity to hear BB speak yesterday you would have noticed a bit of nervousness in his voice-much different than the last time I heard him speak. It had to take a lot of guts to stand up and tell it like it is. It would be interesting to know who had a piece of him before and after the speech. We’ll see if the tough talk is followed by tough action.

Comment by Darth Toll
2006-06-06 08:51:56

Heli-Ben really has no choice. As important as housing is, the dollar is actually more important and the Fed must continue to protect the dollar so we can keep selling our debt. The Fed is caught in their own CPI manipulation game. For a long time they liked to show rents and durable goods from Asia as features of the “Core” rate as these were about the only things kept in check by a monster housing bubble and Asian currency manipulation (Bretton Woods II currency regime.) Now that Asia is starting to get a little worried about inflation and the Japanese 0% carry-trade is coming to a close (not to mention rents rising due to the end of the housing bubble), Heli-Ben must continue far past where everyone thought he would end. A vicious cycle it is.

Comment by Neil
2006-06-06 09:49:11

I 100% concurr. The fed is in a pickle and they know it. Right now the #1 priority is defending the dollar and keeping forign investement coming in. Note: I’m not saying the dollar won’t slide a little even with Fed intervention. What I’m saying is that the slide must be gradual and predictable enough in the dollar’s value so that no one is spooked.

Gee… so sorry NAR. You’re going to lose this one.

Note: While I expect a 0.25% spike in the rate at the next Fed meeting, I accept this could be delayed. But I’m going to bet on inflation fighting.


Comment by Nikki
2006-06-06 10:40:35

I say 50 bp and then pause for the reminder of ‘06…

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Comment by robin
2006-06-06 21:42:18

I think most of us on this blog would actually welcome that. Get it over ASAP vs. 1,000 cuts or any other clever analogy that blows your skirt up!

Comment by John Doe
2006-06-07 06:14:02

There’s a reason for the saying “Don’t fight the Fed”

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Comment by John in VA
2006-06-06 07:50:15

“‘Historically, home prices rise 1.5 to 2 percentage points faster than the rate of inflation, so the rise we anticipate in existing home prices this year is actually a little above the high end of historic norms,’ Lereah said.”

Really? So when home prices were going up 25% per year we were supposed to forget about all of the old relationships to inflation, wages, rents, etc., and now we’re expected to believe that home price appreciation will suddenly snap back to it’s old relationship to inflation. It’s curious that Mr. Lereah didn’t choose to base his prediction on the relationship to rents, income growth, or inventory. I guess those historical relationships are still irrelevant.

Comment by peterbob
2006-06-06 09:39:04

In order to hit “average” growth rates, large increases in prices must be balanced by equally large decreases. Otherwise the long run average isn’t usefull.

More importantly, focusing on the price level rather than the rate of price change is more instructive. Right now, house price levels are so far above their fundamental values (based on rents and incomes) that the real price level has to fall. This means a quick one-time drop of 45% or a full decade of flat prices. I’m hoping for the former.

Comment by stever
2006-06-06 07:51:18

I wonder how much the “historic…rise of 1 to 2 points…above inflation per year” for housing reflects the fact that we have continued to build and occupy increasingly large homes. Its kind of like the evolution of elk antlers…not really necessary for survival and in fact an impediment to survival, but essential to their peculiar mating instincts. Note how the smaller antlered common deer have been able to survive in much wider and more diverse environs while the “megafauna” has become extinct.

Comment by stever
2006-06-06 07:52:54

Hunters refer to the impressive size a set of trophy antlers in terms of “points”.

Comment by Sunsetbeachguy
2006-06-06 08:35:40

Irish Elk went extinct due to sexual selection for large antlers.

That is a perverse incentive.

Comment by stever
2006-06-06 09:50:26

So is it the McMansion we can espect to go extinct or the FBs that purchase such perversions?

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Comment by Tulkinghorn
2006-06-06 10:45:54

The McMansion and the Hummer increases your reproductive fitness, ie, makes you more sexually attractive.

Like many traits that add to reproductive fitness, it shortens your lifespan and can take the entire species to extinction in the long run.

If it were not for sneaky beta-males there would be no people at all.

Comment by Sunsetbeachguy
2006-06-06 11:20:14

Well said, nice to see someone literate in biology as well as finance here.

Comment by stever
2006-06-06 13:45:02

Sneaky beta-males for everyone!

Comment by Tulkinghorn
2006-06-06 14:50:51

You men eat your dinner,
eat your pork and beans
I eat more chicken,
than any man ever seen, yeah, yeah
Im a renting man,
Your realtor don’t know
But the auctioneer understand!

Comment by Sammy schadenfreude
2006-06-06 12:37:54

I dunno…there’s a lot to be said for possessing a nice rack!

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Comment by Chip
2006-06-06 13:36:57

Sammy — well-timed.

Comment by PS
2006-06-06 07:51:50

“‘But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable,’ David Lereah said.”

Sorry Dave, but looks like BB didn’t hear your pleas to prolong the FB’s illusionary feelings of wealth. Gonna get ugly really really fast……


Comment by feepness
2006-06-06 08:03:04

This next FED meeting will be huge.

BB may have been using words to avoid having to use actual hikes:

If he raises 50 BPs then he will have credibility beyond words and gold will crumble and the dollar may be saved, though he will be villified in the short term.

If he raises 25 pts then he will still have gained some credibility and we will be back in the waiting game while reading the entrails of the Fed minutes.

If he halts he loses cred and the dollar crumbles, gold skyrockets. Interest rates may continue to rise at the long end.

If he lowers god help us all.

I normally dismiss watching the Fed meetings as just more grist for the CNBC mill. But this next one is important given how much Ben has talked recently and what has happened because of it.

I will also not be surprised if we have political leaders (either party) start chastising him for rattling the markets.

Comment by shel
2006-06-06 09:07:22

he can’t call himself a man and believe it if he doesn’t raise at least .25, and if he wants to show he’s in charge he’d do .5 I think.
‘Specially given his current rhetoric. He’ll look like a massive wimp or utterly in the pocket of the politicos if he doesn’t raise and that would be bad indeed…
The idea of markets rebounding on BB’s cowtowing to DL is too scary to contemplate for too long…

Comment by tj & the bear
2006-06-06 12:11:56

If he raises 50 BPs then he will have credibility beyond words and gold will crumble and the dollar may be saved, though he will be villified in the short term.

Actually, “in the short term” should have been at the end of your sentence. A 50bp hike will only accelerate the slide into depression, after which everything reverses (i.e., zero credibility, gold skyrockets, dollar implodes, etc.).

Comment by DinOR
2006-06-06 08:20:58

Hey what’s up! Good article, thanks. What DL is learning is what CEO’s from the 90’s already know. In a bull market you “manage the stock price” in a bear market you “manage the company”. In the 90’s with eager stock buyers further leveraging their E-Trade accounts they were tuned into the “words” of these CEO’s (managing the stock price). DL has excelled at this, guffawing at the notion that RE just might be overpriced! At this stage of the game “sound bites” work quite effectively. Once the market turns, investors re-focus of fundamentals. Uh, this will not bode well for DL b/c his macro picture is falling apart.

Comment by Jupiter-Renter
2006-06-06 08:24:57

It looks like NAR has gone from denial to panic, pretty quickly. I have been reading this blog since August which is when I sold the homebuilder short (SPF, PHM, CTX). Why is it that anonomous persons on this blog were able to predict what housing industry analyst and ecomomist could not conceive, a massive fall-off in sales?
Long term SPF, PHM, and CTX shares should fall to ~15, 10, and 20, respectively, in my view. I’m holding these shorts til 07, since my brokerage does not charge anything except cost of dividends to borrow the shares. Subprime lenders are still near historical peak values, and have not suffered the declines of the homebuilders. May be some room to fall for those shares.

Comment by holgs
2006-06-06 09:04:57

I’m short NDE which has dropped the tiniest bit but I think has a LOOOONG way to fall. (we shall see…)

Comment by Auction Heaven in \'07
2006-06-06 20:13:05

“Why is it that anonomous persons on this blog were able to predict what housing industry analyst and ecomomist could not conceive, a massive fall-off in sales?”

It has to do with herd mentality.

People on this blog, you see, come here to learn.

We aren’t ashamed to admit we need to learn.

Heck, some of us, myself included, are complete morons most of the time.

What makes us different on this blog, starting with the incredible Ben Jones, is that we are bold.

We dare to ask the question ‘why?’, when others might feel ashamed.

That’s pretty much it.

We all decided to ask ‘why?’ at pretty much the very same time.

And from there, we educated each other.

Comment by robin
2006-06-06 22:05:21

I’ve been amazed at the amount of real estate, investment, and economic knowlege that is available on this blog. I have learned a lot, and continue to do so every day.

Divergent opinions, great debates, and willingness to answer basic questions over and over for the newbies, often referred by some of us, who need it most. And a few wierdos, you know who you are :)

How many life-impacting mistakes have been avoided through this blog? I’ve helped and referred a small few. Some on this blog wax eloquently with humor and help make what is horribly distasteful somehow more palatable.

A diverse neighborhood, and happy to have you to share thoughts with!

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Comment by David
2006-06-06 07:55:12

“The National Association of Realtors on Tuesday lowered its forecast for U.S. home sales in 2006 and called on the Federal Reserve to stop raising interest rates because parts of the housing market are ‘vulnerable.’”

This is complete BS. According to the NAR’S very own anti-bubble reports: http://tinyurl.com/ohtow

“In the Philadelphia market “The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 12.5% in combination with 114,000 job losses could lead to a price decline.”

Check out:


Comment by Chip
2006-06-06 13:51:52

“In the Philadelphia market “The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 12.5% in combination with 114,000 job losses could lead to a price decline.”

This is probably the most outrageous statement, by someone in a supposedly credible position nationally, I’ve read to date. Hopefully, someone is collecting these nuggets (David?), to regurgitate when we have our “We Told You So” day in the sun.

Comment by athena
2006-06-06 14:56:50

Maybe we should all start being the anti-bubble theorists… shove their arguments down their throats using their own words… that there IS no bubble! We can see how long before they turn into the bubble bloggers.

Comment by Mike_in_FL
2006-06-06 07:57:19

How does that boy band song go? “Cry me a river … Cry me a river…” This moron and his merry band of idiots encouraged the masses to leverage up on real estate with ridiculous financing, promising the boom would last forever. Now, it’s all crashing down around him and he’s whining for the Fed to ride to the rescue. Waaaahhhhhh….

Comment by Derek H
2006-06-07 15:28:00

I’ve got the littlest frickin’ violin to accompany him.

Comment by LFC
2006-06-06 07:57:31

I have a quick question. What is the median income in cities such as San Diego, LA or San Francisco?

Comment by jbunniii
2006-06-06 08:20:33

Not sure about the others, but the median annual household income in San Francisco was about $75k last time I looked.

Comment by shel
2006-06-06 08:58:25

It’s so striking to see such numbers. They’re not much different in AA MI, and the house prices are still high enough to eat up 50% of net income per month. There’s just no way to buy houses out in the frothiest bubblelands without neg-am loans and living on credit cards to the max. How could such prices possibly be sustainable? *Prices*, that is, not “rates of appreciation”. There are just so many different credit card companies that people can juggle their balance transfers among, and then the bill for the depression and anxiety meds needed to keep it all going has to land somewhere too…

Comment by Sunsetbeachguy
2006-06-06 09:23:14

Here are the AGI’s for 94101 San Fran.

$47,637 in 2003.


Comment by JWM in SD
2006-06-06 08:29:53

About 55 to 60K in SD. GetStucco, chime in here if I’m wrong.

Comment by azrenter
2006-06-06 09:31:01

nw arizona is about 35,000 per year. try buying realestate with that income.

Comment by azrenter
2006-06-06 09:40:29

nw arizona is about 35,000 per year. try buying realestate with that income. 28,000 for golden valley

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Comment by Getstucco
2006-06-06 09:35:06

“Current estimates

According to estimates by the San Diego Association of Governments, the median household income of San Diego County in 2005 was $64,273 (not adjusted for inflation). When adjusted for inflation (1999 dollars; comparable to Census data above), the median household income was $52,192.”


Comment by CA renter
2006-06-06 08:35:37

I believe San Diego is around $55K to $60K. It’s known for being a low-income/high-cost area.

Comment by adk
2006-06-06 08:36:56

It’s around $55K in LA

Comment by Sunsetbeachguy
2006-06-06 08:37:45

You can get the census data from Wikipedia for most metro areas.

Census income figures aren’t all that accurate.

Melissa Data publishes AGI (tax info) by zip code. They also have a bunch of cool features.


Comment by MMAfia
2006-06-06 08:00:09

“what the heck is Helicopter Ben thinking”

he’s got bigger issues to deal with than the housing market- yes, bigger than the loss of consumer spending and slowdown in related industries and sectors.

the Fed has already made it clear in previous statements that housing market takes a back seat.

to what? inflation? officially- yes.

in reality, it’s all about protecting the USD to keep this crazy debt nightmare of an economy going. the unfathomable debt machine that the Fed has created is the real agenda here, and it needs to keep going. the housing market is but a mere component.

mark my words, there will be no mercy from the Fed when it comes to interest rates and the housing market.


Comment by The Economist
2006-06-06 08:04:10

Ill bet ole Ben’s chrome dome is beading up right now…He is probably trying to figure out what to leak to the press to stop the stock market from crashing.

Ben at happy hour with Paula Zahn:
Ah Ah Paula…..Ahh.. I may not raise rates or I may.

Ah Ah Paula…Im not really scared of inflation.

Ah Ah Paula…You look pretty hot tonite…

Comment by The Economist
2006-06-06 08:24:28

BB: So Paula, did you get my subliminal message?

Paula: What?…That you are not going to raise rates again?

BB: No…That I want to take you to bed!

Comment by freeloading roommate
2006-06-06 08:09:41

Awwwwwwwwwwww…. =.(

Comment by thejdog
2006-06-06 08:11:24

I’m going to make the prediction that David Lereah quietly “resigns” due to “wanting to spend more time with my family” within one year.

The dude has lost all credibility not only with the public but the realtors he represents. Wait until the y-o-y price decreases start to hit starting in
Sacramento in 2 weeks..

Comment by DinOR
2006-06-06 08:33:21

Kind of suprised it hasn’t happened already? What is keeping him in his role? Credibility? No, that can’t be it. Uh, when we tally up all of the foreclosures, short sales and neg. equity the losses will dwarf the stock market crash many times over. I say he’s earned his place in history.

Comment by Sunsetbeachguy
2006-06-06 08:39:50

He was an economic cheerleader for the last bubble.

He had a book with a similar title in the late 1990s for tech stocks.

He may be the next serial bubble blower. Maybe he will get into commodities.

I think commodities may be headed into a bubble since I am seeing TV ads for buying gold with all the typical gold bug phrases.

Comment by DC in LBV
2006-06-06 10:19:19

He can’t resign until he sells all of his rental condos. He is just trying to keep the market up long enough to sell his own stuff, then he’ll change his tune…

Comment by slo-ca
2006-06-06 11:49:09

David Lereah’s theme song? “It’s Hard Out Here for a Pimp.”

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Comment by johndicht
2006-06-06 08:11:29

I just heard from Ben Bernanke, director of the morgue, that the body of Housie America just arrived. The memorial service will be held in 6 months. Grave was dug by David Lereah, Housie’s one-time helper, 2 years ago.

Comment by robamherst
2006-06-06 08:14:09

Bobbleheads on CNBC now critical of Bernanke, saying he has forced his hand (due to his comments yesterday) and now must tighten. Attention to the Lereah’s and other bobbleheads - Bernanke must make his mark as a Fed Chairman. He will do that by first overtightening and then letting the reins go once he has shown a visible reduction in inflation. The short-term effects on the economy are not his main concern. The reasoning is he must either do it now or suffer inflation and maybe have to tighten even worse down the road. This is a common tactic used by incoming Fed Chairmans.

Comment by Chip
2006-06-06 08:25:35

I’m in the apparent minority here who think that the increase will be a half point instead of a quarter. If this is the Fed’s intent, is it better to leak the news of an increase, to soften up the market, or just hit it Wham! with the big one?

Comment by fred hooper
2006-06-06 08:38:16

I tend to agree with you, and have been waiting for the CNBC crew to mention this possibility. I think they’re afraid they might be throwing more gas on the fire, a fire that is close to getting out of control. FYI, Faber has been quite visible lately on Bloomberg this am and also:


Comment by PS
2006-06-06 08:43:23

Chip, I’m with you as well. Half point is a done deal. If the Fed raised the rate a quarter point last month based on Bernanke’s assessment that “it was appropriate today to keep inflation from rising and promote sustainable economic expansion”, then imagine what they’ll do after his comments this morning that the Fed “will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained.”

Last time I checked, 1+1 still equaled 2…..or in this case 0.5.

Comment by Darth Toll
2006-06-06 09:17:04

One thing I can say for Ben is that he definitely speaks English and not Greenspeak. If Ben says he is concerned about rising inflation and calls it an “unwelcome development”" and that they must remain vigilant, than a hike is most assuredly in the cards this month. I’m still on the fence as the whether it will be .5 or .25, but I’m leaning towards .5 unless the language softens up in the next week or so.

On David Liar’s comments: Liar can easily say that the reason housing burst is that the darned Fed just kept raising and they should have stopped!!! He’s setting up those statements as we speak.

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Comment by Sammy schadenfreude
2006-06-06 12:35:16

I’m in the .5 camp too. Bernanke knows full well that inflation is back in force and the US dollar will tank hard without a vigorous defense. I think he’s also anxious to shed his “Helicopter Ben” moniker by showing he’s capable of taking tough, decisive action, even if it makes him intensely unpopular with the FBs and speculators.

Comment by athena
2006-06-06 15:06:58

I’m in the .5 camp too… I think this meeting will be a “take your medecine, baby” day.

Comment by Claudia
2006-06-06 15:13:31

I’m in the 50 bps camp too.

It seems like a lot of us are now. It wasn’t this way just a few days ago.

Comment by JanniFL
2006-06-06 17:12:58

Put me in at 0.5 also.

Comment by CA renter
2006-06-06 08:47:51

I agree with you, Chip. IMO, it looks like BB has a lot to worry about. There is still WAAAY too much liquidity sloshing around right now. He **needs** to tighten, irrespective of housing or it will only get worse.
“NAR President Thomas M. Stevens said rising interest rates have slowed home sales in many high cost markets, while job growth has boosted sales in some moderately priced areas.”
Does this quote bother anyone else? IMO, sales have slowed in the BUBBLE markets because the affordability ceiling was reached, even with suicide loans. Sales have picked up in the less-expensive markets because the idiot speculators think prices there will grow to match bubble areas. Has anyone else noticed that there is less premium for more “desirable” areas (coastal, urban cores with good jobs, etc) and historically cheaper, less-desirable areas (Arizona, Nevada, parts of Florida, the Carolinas, etc.)? It seems the price ratios are getting smaller. IMO, that shows that prices right now are determined by the credit market rather than what a house is really worth, based on jobs, income, location, etc. The kamikaze-loan speculators are running around the country driving prices of homes into the $500K+ range, regardless of what makes sense for the area. It seems the max the average person qualifies for is around $500K-$600K. When prices reach that point in a given area, the speculators move on to greener pastures.

Comment by dannll
2006-06-06 13:59:43

“There is still WAAAY too much liquidity sloshing around right now. He **needs** to tighten, irrespective of housing or it will only get worse.”

Big difference between tightening and raising rates. Bennie and the Feds have been raising rates while still keeping the Godspan fire hose open to flood money into the system. It just costs more.

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Comment by OrangeGirl
2006-06-06 15:17:03

Can Rainman create lyrics for “Bennie and the Feds”, to the tune of “Benny and the Jets? It would make my week.

Comment by Comrade_Chairman_Greenspan
2006-06-06 15:54:49

Spot on. The theory is that rates are raised by tightening, but they’ve just kept pumping and let the market tighten on its own.

It’s also important to keep an eye on foreign tightening. The BOJ looks like it may actually be doing what the Fed has only claimed to do thus far. The best coverage I’ve seen for this issue is at xanga.com/russwinter.

Comment by Comrade_Chairman_Greenspan
Comment by MC_White
2006-06-06 19:46:06

OMFG. OMFG. OMFG. And for good measure, LMAO ROFL.

That is all.

Comment by Neil
2006-06-06 09:53:59

I think the half point is required as is the best *long term* solution.

However, will BB step up to the plate? As I posted earlier, I even question the quarter point increase. Not that I feel it isn’t obviously justified, but pressure is there to preserve housing jobs.

That said, the sad fact is that we cannot preserve those jobs. Oh, I’m not going to cry over a realtor losing their job, but I do feel for the drywaller, plaster guy, and all of those who actually earn their paycheck.

We’re in for a doozy of a correction…

Comment by Pasadena Renter
2006-06-06 10:32:18

I think you are slightly optimistic, but not too much. Right now, because of BB remarks, everybody is thinking about the last cpi, while forgetting the more recent job data.
There is no question that the likelihood for a half point increase is higher than for a pause. If BB pauses after the cpi and more importantily after what he has said in spite of the job number, the speculators will come back in full force and the dollar will take a tremendous hit (more so in view of the certain BCE increase this week, maybe but half a point).
By the way, a few months ago the general concensus in this blog was the FED would go up to 4.75 and then stop. Somebody pointed out the heresy (heresy even for this bear blog) of maybe reaching 5.25/5.50 …

Comment by The_Lingus
2006-06-06 08:56:24

And we’ll see if Lying Larry Kudlow begins to jump from sinking supply side ship.

Comment by Getstucco
2006-06-06 10:33:40

Those CNBC commentators probably do not realize what happened yesterday: BB deliberately lashed himself to the mast, as his comments have commited him to at least a 1/4 point hike at the next meeting. Apparently the markets caught on, though…

Comment by lainvestorgirl
2006-06-06 08:14:53

This is pure comedy. Now we have the realtors dictating fed policy to prop up housing prices?!

Comment by DinOR
2006-06-06 08:28:50

Precisely! How did it come to this? 5 years ago nobody knew DL’s name. Now he’s a “rock star”? Give me a break. HE’S “jawboning” the FED? Oh please. There has almost an aura of his being a spokesman for America. Like, what’s good for RE is good for America and the FED just dosen’t get it. It’s like DL is drumming up support at the grass roots level rallying all the FB’s to his side for “the common good”. Enough.

Comment by anoninCA
2006-06-06 10:01:08

DinOr, LAIG,
Exactly what I was thinking! Is this upside down or what?
I’d like to see BB b!tchslap DL a good one while yelling “Who’s your daddy!?!?”

Comment by bacon
2006-06-06 09:01:57

if they ever had a sit down, it would take wild horses to keep BB from throttling that clown.

Comment by optioned unarmed
2006-06-06 12:46:13

Real Estate Industry was the third largest industry contributor to the Bush campaign. They gave 4 times as much money as did the Oil and Gas industry. http://www.opensecrets.org/presidential/indus.asp?id=N00008072&cycle=2004

(they gave to the Dems too)

Comment by Les Pendens
2006-06-06 08:19:22

The Bubble Builders are continuing to crash.

I mean they are crashing HARD.

Witness the bloodbath:

Comment by Sammy schadenfreude
2006-06-06 12:43:02

Oh, the humanity!

Comment by Brad
2006-06-06 08:31:29

“‘But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable,’ he said.”
When the fed was reducing rates, did he say it’s time to stop lowering because housing was overheating and being overrun with speculators? Noooooo!!

Comment by PS
2006-06-06 08:33:07

Brilliantly put Brad. Brilliantly put….

Comment by DinOR
2006-06-06 08:38:37

OUTSTANDING! I did! On the other side of the equation was a lot of retirees that were trying to live off a 3% yield! Uh, it takes a whole lotta critical mass to live off a 3% return! But wtf, at this pace DL was doubling home prices every fourth year! What’s not to like?

Comment by arlingtonva
2006-06-06 08:31:45

Check out the new ride at six flags: The Northern Virginia Great Adventure

Comment by crispy&cole
2006-06-06 08:40:41

Please dont’ post this per the NAR - no bubble here. Move along…

Seriously though, this chart is UGLY!

Comment by thejdog
2006-06-06 08:42:01


Comment by WArenter
2006-06-06 08:52:59

Yikes! Looks scary to me.

Comment by Arwen U.
2006-06-06 09:11:28

The June upgrade will be even better !

Comment by Neil
2006-06-06 10:20:07

Wow! That chart is a rocket.

Does the NAR really not understand how information is desseminated via the web?

They’ve run out of GF’s…

I love the analogy of the six-flags coaster… Its going to be one wild ride! I’m sure everyone noticed that in May the inventory added *almost* as many units as the March ‘05 *total* inventory.

Grab the popcorn, the show is about to start!

What’s “normal” inventory for that area? I would guess 2,000… What was the 1996 inventory and what has been the increase in population. That is the best way to get a “hard estimate” from my perspective.

Comment by Nikki
2006-06-06 11:06:57

Unfortunately, they have NOT run out of GF’s. They are “less” GF’s than those of the past few months, but GF”s nonetheless…it seems the new tactic my way is to initially list for waaaay over last years comps, and then slash after a week or ten days, like $30K or $40K off a $400K house (that they paid $285K for three years ago, but I digress…), and then piddly drops. Those homes seem to go off the market in under 30 days. People see price reduced and think they’re getting a deal..idiots. 10% off of 10% jacked prices ain’t no deal.

Comment by gt
2006-06-06 13:35:25

it isnt a roller coaster when the ride goes up up up and never comes back down. more like a nasa project, maybe challenger. boom

Comment by Price_Doubt
2006-06-06 14:15:27

Way cool. You should post that graph often. And far and wide. It’s awesome!

Comment by Homoaner
2006-06-06 08:33:51

Harvard’s Joint Center for Housing Studies has just published The State of the Nation’s Housing 2006. The press release is embargoed until June 13th, so I’ll just post the urls to the interesting parts (it’s all in .pdf format).

The report in full is at

The executive summary is at

The press release is at

The fact sheet is at

My summary: Pie in the sky will make for a soft landing even as the housing market softens. Foreign-born and minority buyers will be entering the market, wealthy boomers will be buying and selling, there doesn’t look to be large job losses or overbuilding, so the risk of price declines is low. Hardly anyone has an adjustable-rate mortgage that’ll reset this year, and most ARMS have longer terms before resetting, allowing families ample time to refi, sell, or increase their income before the day of reckoning arrives. So there’s really nothing to worry about.

(Where’s a sarcasm font when you need one?)

Tear into it, guys!

Comment by LowTenant
2006-06-06 09:59:49

I’m going to hide my degree and start telling people I went to Princeton.

Comment by Nikki
2006-06-06 11:17:14

I dismiss that as cheeleading in it’s greatest form. Overbuilding is a relative term, and I’d like to see numbers for years subsequent to a run-up of doubling home prices in 4 years in some metro areas and a ~60% runup in prices nationally over that same time. Oh wait, I forgot, that’s never happened! So all historic models and the like are less than useless–why is this not mentioned in any analyses? While job losses and overbuilding (which hot areas aren’t overbuilt compared to historical averages? Not many, I’d guess) will exacerbate the situation, affordability is the issue now, and nobody is addressing that fact. If everyone in America moves into the middle states, maybe the average wage earner could buy the average home–as it stands, there arent’ enough people making enough money to maintain prices at these levels. I think it’s funny that they mention wage growth, of which we’ve had zero since the boom began. So zero wage growth plus astronomically increasing prices equals total sustainability outside of layoffs and too many homes–right. What’s your inventory looking like compared to last year? An area may not be overbuilt with new homes, but everyone and their brother is trying to sell their house,new or “used”, so why is “oversupply” not the term of choice?

Comment by tweedle-dee (not dumb...)
2006-06-06 08:34:52

“Historically, home prices rise 1.5 to 2 percentage points faster than the rate of inflation”

I totally agree with this statement. Given this, why would anyone pay 30x rent for a house like they have been ?

The reason everyone is so jittery on interest rates is because the consumer was living on cheap money. Borrow, borrow, borrow, spend, spend, spend. Like there was no end in sight.

Now Bernanke wants to do the prudent thing and be more fiscally responsible than Greenspan was and people are complaining ! Wow. I think Bernanke is doing a great job.

Comment by Price_Doubt
2006-06-06 14:36:12

Well said!

Comment by salinasron
2006-06-06 08:36:41

Did anyone catch the financial news this am with Lereah. One dollar loss in equity (paper value) equals a $0.07 loss in buying power (consumer spending)…….

Comment by tj & the bear
2006-06-06 12:01:31

Reverse “wealth effect”. Estimates were that every dollar up in equity resulted in $.06 to $.07 in new spending. Nothing like a 12% to 14% swing, eh?

Comment by Markmax33
2006-06-06 08:37:44

They showed a chart this morning that markets predicted a quarter point hike at the June meeting. There was an 80% chance or so of the fed hiking. I wonder what the chances of a 50% hike are? I think they are pretty low, but it would stun the markets…

Comment by Markmax33
2006-06-06 08:39:00

.50 point not 50%

Comment by thejdog
2006-06-06 08:43:58

Maybe a 5% chance of a .50bps hike…I’d be shocked. That would cause a
correction in the equity markets that make the current one look like a picnic.

Comment by shel
2006-06-06 09:34:55

I’ve been wondering more and more about that…
this whole balance game between the moves related to easy credit versus the moves based on fundamentals…wouldn’t it be a scary thing if there was a truly huge correction just because BB “saw signs of inflation” and did a ‘two-fer’ in the 25 points-a-meeting-endlessly game? Especially when the ’signs of inflation’ are so generally clear? I would find that so scary that I’d wait a little, see if it was sustained, and then be so worried about the overall picture that I’d add to the sell-off!

Comment by Closer
2006-06-06 08:43:06


You are a guru. I always get the picture of your home or office looking like NORAD in Cheyene Mountain, Colorado– with screens, buttons, flashing lights etc..tracking the market like we track nukes & military.

I’ve learned so much here than in college. Scary.

Comment by feepness
2006-06-06 10:09:00

Ah that’s what GFY means. Guru For You!

Comment by Brad
2006-06-06 08:44:09


Bernanke, Buffett news
(disclosure: BRK long)

Comment by slo-ca
2006-06-06 11:51:53

He can afford to bet big.

(disclosure: BRK long)

Comment by robin
2006-06-06 22:42:38

Disclosure: 25% of main IRA.

Comment by salinasron
2006-06-06 08:47:25

I’m for the half-point. Let’s get to it and then clean up the debris.

Comment by eastcoaster
2006-06-06 08:55:13

I second that!

Comment by Peter
2006-06-06 17:54:51

It is better to give the markets time to adapt. The FED should raise by .25 each in two more consecutive FED meetings and should announce that the rises will continue until inflation (CPI that is) is contained.

Comment by Brad
2006-06-06 08:48:00

Harrah’s insurance coverage increases 50%, some rates 20x higher


Comment by Chip
2006-06-06 18:24:16

Brad — that’s an impressive article. Waaaay out of my league, but very interesting nonetheless. Thanks.

Comment by bostonbubble
2006-06-06 08:49:20

Quote: we have some interest-sensitive housing markets that have become vulnerable

I don’t suppose he was nice enough to say which markets, was he?

Comment by PS
2006-06-06 08:56:02

Sorry but had to share this visual with you all. Does the song ‘Stairway to Heaven’ come to mind?


Comment by Mo Money
Comment by Bob the Banker
2006-06-06 08:56:43

From an article posted on the WSJ today:

“Generalized angst about interest rates is almost certainly contributing to builders’ pain. What’s also not helping today is a rather startling cri de coeur from the National Association of Realtors, which cut its forecast for new and preowned home sales this year. More interestingly, NAR chief economist David Lereah called for the Fed to stop this instant with interest-rate increases, warning the economy depends on a strong housing market.

But the Fed’s rate increases still haven’t had much of an effect on the long-term rates most critical to the housing market, independent economist Bob Brusca pointed out. The 10-year note is still yielding just 5%, and 30-year mortgage rates are still historically reasonable. In that light, Mr. Lereah’s demand “smacks of desperation,” Mr. Brusca says, and might cause enough alarm to make potential first-time home-buyers more likely to stay on the sidelines. “I would see this as a mistake [on Mr. Lereah's part] and not an indicator of bad things to happen,” Mr. Brusca said, adding: “Except for home builders.” ”

It would be ironic if Lereah himself accidently drove the housing market down.

Comment by Getstucco
2006-06-06 09:40:25

“More interestingly, NAR chief economist David Lereah called for the Fed to stop this instant with interest-rate increases, warning the economy depends on a strong housing market.”

David to Ben: “Please, please, please spike the punch bowl just one more time, for old-times’ sake. Because if housing demand is no longer driven by speculative mania, and only depends on the demand from people who just want a place to live, then housing prices will have to drop pretty much everywhere, even though there is no national housing bubble, or any housing bubble for that matter. We need strong speculative demand from investors in order to keep housing prices up on the permanently high plateau which they have achieved.”

Comment by Larry Littlefield
2006-06-06 09:00:42

(‘Historically, home prices rise 1.5 to 2 percentage points faster than the rate of inflation’)

I thought that was at the rate of inflation, not above, historically. And the inventory being sold continually improves due to the addition of new housing units, meaning the value of existing homes falls relative to inflation.

In more desirable areas the value falls to the value of the land, and you get a teardown. In less desirable areas, units get passed down to less and less affluent households until they are abandoned.

Note that in 1940 few suburbs existed, and much of the urban and rural housing stock consisted of shacks and tenements without full plumbing. All abandoned and replaced (or gut rehabbed) now.

A home is a durable consumer good with a very long life, not an investment. Only the land, if it is well located, and the building shell, if it is of high quality, retain value.

Comment by libertas
2006-06-06 10:03:22

Actually it *is* slightly above the rate of inflation (per Shiller) because it is tied to incomes. And real incomes have been slowly rising over the long term (that is people getting better off in real terms and therefore able to spend more on housing) although not recently. But that is not adjusting for quality - houses getting bigger, etc. The prices of resales when you look at the same house sale after sale pretty much follow inflation. So you are both right.

Comment by yensoy
2006-06-06 11:57:26

Don’t forget location. What was an outer suburb 30 years ago is probably center city today. There is an implied value increase due to the fact that cities grow.

Comment by Getstucco
2006-06-06 09:48:33

Today seems like a good day to take stock of where Toll Bros share prices have gone so far this year, and where they seem headed:

- Down so far from a 2006 high near $40/share to around $26/share currently (that would be a 35% YTD loss).

- Down about 10% since it became obvious yesterday that BB has no plans to bail out housing speculators (should have been obvious already — the Fed already started warning on this point with Governor Kohn’s speech of Spring 2005, but apparently not many specuvestors heard the message)

- The DJIA is now south of 11K (I admit I was wrong on my conjecture that the index would be “magically propped up” at 11K), and the beta of HB stocks with the DJIA is positive and much larger than 1.

Anyone care to catch a falling knife and go long on Toll Bros stock?


Comment by Robert Cote
2006-06-06 11:36:52

Txchik is long TOL as of yesterday morning. Down about 10% since then.

Comment by Getstucco
2006-06-06 11:44:38

She has more cojones than I will ever hope to have…

Comment by Robert Cote
2006-06-06 12:31:11

Agreed but as of now those “eggs” are getting shaved mighty close. As I said elsewhere, I’ve got a bad case of contraction. This lake is too cold and dark to swim in. My afternoon warming happened again so the HGX settled down only -2.8%. Champion finished flat and PMI was up a fraction but TOL -3.73%, DHI -5.64%. Even my beloved Weyerhaeuser is at a new recent low.

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Comment by Chip
2006-06-06 18:30:22

Robert — good call or bad, I admire TxChick for posting what she did. There has to be a winner and a loser on each side of every bet, but feww people, including on this blog, stick their necks out and call their bet before the cards are turned. You both are great posters. I hope your jousting stays within the bounds of good sport, since many of us enjoy and profit greatly from such exchanges. I’ll likely repeat this tomorrow, for the benefit of those who tend to remind us that we did so.

Comment by Getstucco
2006-06-06 11:59:39

There is a God afterall… The DJIA has “magically” climbed back up above 11K, perfectly timed for that all-important closing-bell figure which will be published and discussed at length over the next 17 hours or so…


Comment by Price_Doubt
2006-06-06 14:59:40

Yes, but part of that may be attributed to flight TO the dollar and dollar denominated assets.

What is the most undervalued asset these days?

Got US Dollars?

Comment by Sly_Ace
2006-06-06 13:15:59

TOL was my primary HB short for a long time, since last August. I sold my puts a few days ago when it was not falling with the rest of the HBs. No way would I ever go long, though I could see a bounce.

Currently, WCI, JOE, and BMHC, and KBH look like they have more potential downside.

Comment by Getstucco
2006-06-06 14:43:27

The reason why Toll has farther to fall than most of its peers is that its business model (selling McMansions to McMillionaires with access to other peoples’ money) will fall apart with the next recession. And as much as I hate to point it out, this current expansion is growing long in the teeth…

Comment by Getstucco
2006-06-06 14:55:10

One more reason Toll may turn out worse than some expect: Share buybacks. These have been often discussed here as a means by which some companies (like Toll) artificially pump up their share price. Unfortunately, doing so has the unintended consequence of inflating the stock price above the level which fundmentals would dictate. Eventually fundamentals matter, and in the case of companies like Toll whose price was artificially inflated, a larger drop will be needed to get the price and fundamentals back in line.

Comment by Mort
2006-06-06 10:08:05

I support Ben Bernanke raising interest rates. This will encourage the few fiscally responsible people left in this country to save their money. Liareah is a pitchman. IMO if BB goes up .5 then he will have to follow up with more .25 raises. If it is .25 then he may pause. A pause, however, does not indicate rates are coming back down any time soon. The sooner we get the economy on track with working on energy independence, the better, IMO. (Sorry, peak-oiler slip there).

Comment by Robert Cote
2006-06-06 11:48:12

The few fiscally responsible people are not going to put their money in USD denomiated investments. This is the biggest “different this time” part of the scenario.

The salvation mat be China. They are pursuing massive photovoltaic manufacturing capacity. Their money problems and our sunshine may combine to rejuvenate America. If they can cut PV prices 50% 1/3rd of the residences in the US can effectively go off the grid. That crushes natgas and by fungibility oil prices. Imagine your total energy bill cut in half. Stagnant wages won’t matter when the Exxon card and Edison bill are way down. Peak oil fear goes away as well as proven reserves double under weakened demand.

BB will bump 25bp and people will be grateful he didn’t go with 50bp. Problem is it won’t work. He’s lost control of the components he wishes to effect.

Comment by stever
2006-06-06 13:56:17

There is also a major investment in thermionic and other conservation type energy technologies. The productivity gains from these, if they can be deployed in the next 5 years (

Comment by stever
2006-06-06 13:58:33

I meat to say productivity from energy scavengy if deployed soon could catch the falling liquidity but it is unlikely. I vote for the .50bbp

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Comment by shel
2006-06-06 18:53:25

really? so China is gonna be the leader in alternative energy manufacturing? how depressing…

Comment by ajh
2006-06-06 21:48:08

Hmmmmm, maybe it’s time to dust off Might-Be-Long-Term-Moneymaker #3 and look for some land which gets plenty of sunlight, is therefore too dry to farm or run stock on, and is too flat and boring to be a tourist attraction (which means cheap and easy construction).

Idea is to hold for use as energy farm if PV’s ever get cheap enough.

Where I live (Australia) there’s literally a million square miles of land meeting the criteria, much of which can be obtained for less than a hundred dollars an acre.

Comment by shel
2006-06-07 18:57:06

ah, yes! I like that idea! Sign me up for an energy farm in Australia….

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Comment by robin
2006-06-06 23:47:30

Softly sold, my friend, but likely something a lot of us have been hoping for. How to invest cautiously and frugally?

Best news in a long time!

Comment by tom stone
2006-06-06 10:14:10

thanks,larry.i suspect that the interest rate for mortgages will divorce from the 10 yr treasury…there has been essentially no risk premium on mortgage loans for 5 years…..and lenders are about to lose a big chunk of their asses…er,assets.one subprime lender has already failed because it was unable to resell its loans on the secondary market…and the others are still making loans that will clearly not be repaid…this paper just reeks…and pretty soon no one will buy it…so say goodbye to our subprime market….except for those who can come up with a serious downpayment and pay 15% or more rates…i expect to see this before 6-1-07

Comment by Mort
2006-06-06 10:27:10

I hope you are right.

Comment by mrincomestream
2006-06-06 10:46:09


15% before 6-1-07, Tell me you jest. Or should I say I hope you jest. That would be bad bad bad. I’d actually really have to make sure I’m stocked on guns and powder if that happened. Grown men jumping off of cliffs and crying in the streets.

Comment by Mort
2006-06-06 10:54:17

Crap! I didn’t read that last part right. I thought he meant 15% down.

Tom, If that happens nobody will benefit.

Comment by tj & the bear
2006-06-06 12:06:32

Mean reversion applies to credit, too!

Comment by mrincomestream
2006-06-06 12:23:25

Understood, but 9 points in a yr. You don’t think that will be devastating. When I read Tom’s post I immediately had images of Mad Max in the Thunder Dome.

Comment by tj & the bear
2006-06-06 13:45:19

That’s just it… I do think it will be devastating. :-(

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Comment by Price_Doubt
2006-06-06 15:09:57

No, not really. It would be great for people like me. BRING IT ON! The higher, the better! :)

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Comment by tauceti96
2006-06-06 13:26:09

I can’t see them jacking the rate by than .5 bps at a time, what I won’t speculate on is how long they’ll do it for. If they did that for 4 years you’re sitting at 13.5%, which seems really aggressive to me, but still doable. This scenario would lay waste to the housing and asset markets and put the dollar on steroids. Volker did it. What’s the greatest hike that has come out of a single Fed meeting? .75? 1.0?

Comment by Price_Doubt
2006-06-06 15:18:35

The best thing for the FED to do is to increase at the same rate at each meeting. In this way, the markets know what to expect, and the results will be more measureable.

The FED should increase by .25 this month, and at the next meeting. We don’t want to shock the markets with uncertainty. Yes, they’ll squeal and complain, but the FED is currently on the best course, and there is no need to deviate from it.

Comment by Price_Doubt
2006-06-06 15:28:21

We “need” a recession, unfortunately, to flush out the excesses in the markets, to reuce the price of energy, and to bring the housing market back down to reasonable levels. The alternative is to become a bannana republic with rampant inflation and a destroyed economy.

It’s important to mention that there is NO lender of last resort in this scenario- we ARE the lender of last resort. Therefore, interest rates must rise to protect the US Dollar.

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Comment by Baldy
2006-06-06 21:15:57

I don’t know how people can afford homes out west. I pay 16% of my gross (22% of after tax) income in rent. It’s cheap for my neighborhood, where there are multi million dollar homes (and $100K homes). I’m a cheapie. They raised rent 5.5% this year, first raise in several years. Before that, it went up every year.

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