Incentives And Price Reductions On Speculative Homes
A report from Investors Business Daily. “KB Home shares saw a huge reversal on the stock market Tuesday — and led a decline in the homebuilding industry group — after its CEO warned about a long-term trend that could negatively impact earnings. During KB Home’s earnings conference call, CEO Jeffrey Mezger warned that the homebuilding profit margin drop it saw last quarter is the start of a longer-term trend that it anticipates. ‘We had an increased use of incentives and price reductions on (speculative) homes in the quarter,’ Mezger said.”
From Bloomberg. “KB Home’s results are ‘certainly disappointing — especially the commentary on forward margins,’ Megan McGrath, an analyst with MKM Holdings LLC in Stamford, Connecticut, said in a telephone interview. ‘It sounds like the higher incentives we started to hear about in the middle of 2014 perhaps got worse, at least for KBH, as the fourth quarter wore on.’ Inland California was ‘quite a bit softer’ and KB Home ‘pulled out of a couple of land transactions’ in the Houston area in the fiscal fourth quarter, Mezger said on today’s call. The Texas region has been hurt by the decline in oil prices.”
The Wall Street Journal. “Texas has long served as a key driver of new-home sales. But falling oil prices could put the brakes on home buying in the state. That’s bad news for many of the nation’s large, publicly traded home builders, some of which count on Texas for upward of 30% of their annual sales, according to Barclays. Texas accounted for 23% of KB Home’s revenue last year and 35% of its communities under construction. Sheryl Palmer, CEO of Taylor Morrison Home Corp., which Deutsche Bank Securities estimates has 38% of its portfolio in Texas, said the oil-price swoon ‘inevitably’ will result in layoffs in Texas this year.”
“It is difficult to overstate Texas’s importance to home builders. According to RBC Capital Markets, Texas accounted for 25% of D.R. Horton Inc. ’s completed home sales last year, 23% at Lennar Corp. and 21% at PulteGroup Inc. Smaller public builders, including LGI Homes Inc. (53%), have large portions of their portfolios in Texas, according to Deutsche Bank Securities. Texas accounted for 16% of U.S. building permits for single-family homes in the first 11 months of last year, according to J.P. Morgan Chase & Co. The state placed three metro areas in the top 10 nationally for residential-construction permits in that period, with Houston the runaway leader at 57,210, Dallas third at 36,342, and Austin eighth at 18,952, Commerce Department data show.”
“Wondering how far the drop in oil prices threatens to ripple across credit markets? Take a look at the nascent market for bonds backed by U.S. rental homes. Of the properties that were packaged into $531 million of such securities issued by Starwood Waypoint Residential Trust last month, 28 percent of them are located in one of the 10 U.S. metropolitan areas with the most jobs from oil and gas exploration, according to JPMorgan Chase & Co. analysts. Three deals from American Homes 4 Rent have at least 15 percent of their collateral concentrated in oil-producing regions.”
“Lower collateral values and weaker renters may hurt some of the $7.1 billion of rental-property bonds sold since a market for the debt was started in 2013. The danger to mortgage bonds may also extend to a type of risk-sharing securities that Fannie Mae and Freddie Mac started selling in 2013. The debt has a ‘great deal of exposure’ to oil-producing economies, the analysts said. Those deals are typically tied to loan pools with percentages of homes from the regions in the ‘high single digits,’ according to the report.”
From Builder Online. “Here are some of the more interesting articles that I pulled from the past couple of weeks and some thoughts on them: After 50 Years of New Homes: Prices Rise, Sales Fall (Donna Howell: Investors Business Daily, December 24, 2014). The bottom line to this article is that new home sales (an annualized 438,000 in November) are 20 percent below where they were 50 years ago (with a much larger current population to house and a population living longer and needing housing longer, too). However, the median new home price (currently $280,000) is slightly under 15 times higher than it was in 1964 ($19,300). That was a good headline grabber, but it got me running to Google to find out what the median income was in 1964 (it was $6080) and what it is currently ($53,981). The ratio of median new home price to median income back in 1964 was 3.17. It is now 5.18.”
“Holy Beaver Cleaver, Batman! No wonder the current new home sales number has an anchor. To have the same kind of rough proportion, new housing prices would have to have a median of about $171,000, or a drop of almost 40% from where they are now. Since I don’t see improvement costs or impact fees dropping much, the conclusion is that land prices for new homes have to be considerably lower, most likely. Some of that land sitting on builder and developer books might be overvalued to achieve the velocities that people are projecting.”
The New York Times. “CitySpire, a skyscraping 72-story tower in Midtown, is one of the least occupied buildings in Manhattan, with more than 60 percent of its residential floors made up of investment properties and pieds-à-terre, according to data from the New York City Independent Budget Office. In Manhattan, the number of nonprimary residences is slightly higher than the citywide average, 29 percent, and in some neighborhoods favored by investors, such as Midtown, the share of nonprimary residences ranged as high as 44 percent.”
“‘Twenty-four percent of co-op and condo apartments citywide are not the primary residence of their owners,’ said George V. Sweeting, the deputy director of the budget office. ‘Not all of these units are pieds-à-terre; many are likely owned by investors or original sponsors renting out the units.’”
The New York Observer. “Just before the holidays, a handful of unusual business proposals made their way to the desk of Marlen Kruzhkov, an attorney at New York’s Gusrae Kaplan: Russian buyers were looking to flip closed real estate contracts. The half dozen offers were all apartments in Miami and the surrounding area, ranging from $5 to $12 million, initially purchased before the December collapse of the ruble. The buyers who approached the attorney and his clients had placed sizable down payments on the apartments but following Russia’s increased economic woes, no longer felt they had the liquid assets to carry on with the transaction.”
“‘They were offering to sell the contract at a loss, willing to take a fifty percent loss on a down payment as not to take a hundred percent loss. Due to the exchange rate, they did not have the liquidity to finish the transaction,’ Mr. Kruzhkov told the Observer. Second and in some cases third homes of this kind stopped being a priority for Russian buyers. ‘An apartment in Miami, even the most glorious beachfront apartment, is not a priority right now.’”
“Troubles with Russian buyers have also found their way to the New York real estate market, materializing in a slightly different way as buyers look to escape contracts during the negotiation process. Several wealthy Russian buyers canceled deals based on Russia’s increasingly strained relationship with the western world. ‘I have had Russian clients who were about to purchase properties in New York change their minds within days of Russian occupying Ukraine,’ attorney Petro Zinkovetsky told the Observer. One of the buyers was purchasing a $10 million home; another was looking to spend over $17 million. Mr. Zinkovetsky promptly canceled both deals.”
“A client of Mr. Zinkovetsky’s has owned a New York apartment for two years but spent only five collective weeks in the space. Last month, he decided it was time to rent it in an effort to level out the increasingly burdensome maintenance costs. ‘[Russian buyers] view United States real estate as a ’safe deposit box’ that occasionally comes with a good view. Their objective is to move money out of their home country and safeguard their assets by placing them in the U.S. real estate… [But] at this point, it becomes expensive to maintain a ’safe deposit box.’”
From Chicago Now. “Ann Lurie owns two of Chicago’s most expensive homes - a mansion and a co-op - and has been trying to sell them for close to 2 years now, without success. Yesterday the price was cut on both of these homes. The mansion at 1547 N Dearborn was originally listed in May 2013 for $18.75 MM. Since then it has gone through 3 price cuts: $15 MM on April 11, 2014. $13.75 MM on July 7, 2014. Yesterday it was further reduced to $11 MM and reactivated as a new listing.”
“And there was a realtor switch just before the second price cut because obviously it was the first realtor’s fault that it wasn’t selling.”
“The condo at 189 E Lake Shore, unit 1W was originally listed at $6 MM in January 2013 but the listing was yanked by May of that same year. Then it was reactivated in July 2014 with a new realtor for $6 MM. Yesterday the price was cut to $5.25 MM and a new listing activated.”
“I would love to be privy to a realtor’s conversation with a homeowner when suggesting price reductions like this because don’t you know that realtors get listings in the first place by extolling the virtues of their high end marketing system - the implication (or outright claim) being that only they can get a higher price.”
And so it goes KB Homes stock down 16 percent in one day and for a fundamental reason. How can this be allowed to happen. Let the talk of bail outs begin.
“How can this be allowed to happen.”
Truly, an outrage!
“Let the talk of bail outs begin.”
Yes! Do it for the children! And maybe for World Peace!
These publicly traded shack erectors are hacks. They’re the best used as an indicator of excess, manipulation, market distortion and capital misallocation.
That’s called our “economy”.
Donna Howell:
“the median new home price (currently $280,000) is slightly under 15 times higher than it was in 1964 ($19,300)…The ratio of median new home price to median income back in 1964 was 3.17. It is now 5.18.”
Donna, you might have missed that the houses are twice as big as they were back in 1960, and that the most exotic things in a 1960 house were refrigerator/freezers, Formica counters and maybe oak flooring in the front rooms.
What do you mean?
They aren’t 15 times bigger. And the incomes back then were from one income families not two. Five times income for a two income family.
I’m really glad Mr Casey is back and his write up addresses all this stuff. You should read it all if you have time. He’s getting at the root of the problem; why aren’t new houses selling? The builders are paying too much for the land and have to put more expensive houses on the lots to make money.
Isn’t it interesting that the details of the land transactions are never examined and there is a reason. These transactions are between local and regional governments and contractors. It is there you’ll find the reason that….. they’re never examined.
F.R.A.U.D.
F.R.A.U.D.
“These transactions are between local and regional governments and contractors.”
Huh?
Except for BLM auctions, land is typically sold between private parties. Often times agricultural land being converted to residential involved farmers and developers (who will put in the infrastructure). And those developers then sell to the builders. Sometimes homebuilders put in the infrastructure themselves.
It’s the entitlements where the governments get involved.
Nonsense. These are “partnerships”(fraud) between sellers and local and regional planning boards.
Wait, are you implying that the local and regional planning boards are buying from sellers?
You have no idea what you are talking about.
You know what I’m implying Rental_Fraud. You’re neck deep in it.
Comment by Ben Jones
2015-01-13 10:43:38
You know what predicted all this commodity stuff? Copper. It was there for anyone to see ??
Ben…If you can find it, look at the chart for copper back to 1989…I saw it this morning on bloomberg surveillance…Copper is back to 1989 levels…The chart shows China’s boom clearly….The Lehman low, the run-up and now the roll-over….
They don’t refer to it as “Dr. Copper” for nuthin’!
We’ve been pointing to that for many months, so it’s only a surprise if your eyes were covered.
ft dot com > Markets >
Commodities
Last updated: January 14, 2015 10:14 am
Copper slumps on Chinese selling
Henry Sanderson, Neil Hume and Josh Noble
Coils of copper being stored©Bloomberg
Copper slumped to its lowest levels in five-and-a-half years on Wednesday, driven down by aggressive selling in China as it became the latest commodity to be hit by nagging fears over slowing global growth.
The industrial metal, which is used extensively in construction and electrical applications, fell as much as 6.6 per cent on the London Metal Exchange after futures dropped more than 7 per cent in Shanghai overnight.
“Right now the fundamentals are irrelevant, it’s the macro overlay that’s driving everything,” said David Wilson at Citi. “There was massive selling on Shanghai overnight which has prompted more selling on the LME.”
Copper for delivery in three months on the London Metal Exchange was down $276, or 4.79 per cent, at $5,4999 a tonne, having earlier hit $5,353, the lowest level since July 2009. In the process, copper fell past levels that triggered put options, which are contracts that allow a holder to sell at a specified price, according to traders.
The red metal is the latest commodity to suffer in the wake of a collapse in the price of oil amid deteriorating sentiment over the global economy. Stock markets fell in Europe and Asia after the World Bank cut its forecast for global growth in 2015 to 3 per cent from an earlier figure of 3.4 per cent.
“The copper price is starting to take on the characteristics of oil with a 4 standard deviation move over night,” said Barclays in a report.
…
so it’s only a surprise if your eyes were covered ??
Your so smart….
You’re so deluded.
“There was massive selling on Shanghai overnight which has prompted more selling on the LME.” ??
Well Blue Skye, since you are razor sharp on this stuff you must have made a killing overnight…Now you can go buy one of these…
https://www.google.com/search?q=yachts&sa=X&biw=1343&bih=719&noj=1&tbm=isch&tbo=u&source=univ&ei=h6K2VMHlOIL4yQTIlYKYDA&ved=0CEoQ7Ak
Blue already has a very nice yacht.
Copper, iron and coal have been falling for a long time. It’s been a very strong (flashing red light) signal that the building mania in China has been over for a year. They have been the ones buying up all they could find for the past five years and telling us they are “growing”, while their credit has been exploding. Now the Chinese government is encouraging hoarders to “export”. This isn’t about being smart, it’s just about being curious. When the popular media starts reporting that there are cascading defaults in China, we will have been discussing it for six months here.
“nice yacht”
Yes, mine is the one with the naked redhead on deck.
Dave, you wake up rather angry. Try a glass of milk with a little brandy in it before bed.
“The builders are paying too much for the land and have to put more expensive houses on the lots to make money”
That was my takeaway from KB’s annual report, that and the fact it isn’t working.
Ben -
I have been looking about for land south of Denver - mind you much of this is unimproved land - we are talking wells, septic and if lucky a gas hook up in the road. For these unimproved lots asking price in Doug Co at present has been in the 200 to 250 per acre range and has been increasing over the last year.
Figuring at least 35 k per lot hook up for utilities if water and sewer are on the public system - the cost of land before one shovel of dirt is turned is high. Lots in and around a gold course near Parker in Doug Co (Colorado Golf Club) with million plus homes are over 350k per lot - and they are not and have not been moving. High end is cratering quick and me thinks that prices are gonna have to drop.
In the production areas I have noticed of late that lots are sitting and sitting and sitting and seems that builders have to carry this cost - taxes are still at 2k per for unimproved lots.
sorry gold = golf
“The ratio of median new home price to median income back in 1964 was 3.17. It is now 5.18.”
Hmmmm … “median income”, what does that mean?
Does it mean median personal income or does it mean median household income?
I would guess it means median household income, but that’s just a guess. Either way, buying houses sucks up a lot more household income than they used to.
buying houses sucks up a lot more household income than they used to. “The ratio of median new home price to median income back in 1964 was 3.17. It is now 5.18.”
The beauty of it, is it’s entirely due to interest rates; WHEN (not IF, but it might be a looooong time though, so patience, grasshopper) interest rates revert back to those of 1964 (or God forbid, those of 1980-1982), the ratio will revert back to 3.17 (or even lower if interest rates of 1980-1982). Uh-oh, Wiley-E Coyote moment for anyone drowning in gigantic mortgage debt when that happens. No more re-fi for those fools, do not pass go, head straight to foreclosure.
Neil, please pass the popcorn.
Housing prices are already cratering. No need to wait on interest rate movement.
for anyone drowning in gigantic mortgage debt when that happens. No more re-fi ??
As I have submitted before, I believe the repercussions of higher rates may have the effect of many people not moving or refinancing…3.5% loans are hard to let go of when the market may be 5% or more…
I remember that from the early 80’s in San Diego. People wouldn’t move, because that meant trading in their 6% mortgage for a 14% mortgage.
That’s as stupid as not taking profits off the table because you have to pay short term capital gains.
“…As I have submitted before, I believe the repercussions of higher rates may have the effect of many people not moving or refinancing…3.5% loans are hard to let go of when the market may be 5% or more…”
Yet another reason to not expect higher rates any time soon…
CEO Jeffrey Mezger warned that the homebuilding profit margin drop it saw last quarter is the start of a longer-term trend that it anticipates. ‘We had an increased use of incentives and price reductions on (speculative) homes in the quarter,’ Mezger said.
Start of long term trend. See that JFraud and Rfraud. Long.Term.Trend.
And given the fundamental causality and underlying economic linkages, we know what this implies. FBs getting cornholed with a Joshua Tree. Start of long term trend. Long.Term.Trend. Owww…
Lolz^
Yes. 20% profit margins are too high. Their profit margins fell from 20%ish to the high teens.
Gee Shillow, if only you had mentioned this in 2008-2010, I wouldn’t have purchase all the distressed real estate…….. for prices below reproduction costs ……and rented them for people to live in ……providing cash flow on my investments.
Not.
You got ripped off Jingle_Fraud.
‘La Plata County in 2014 largely saw a continuation of trends that began in 2013. Building bounced back in a big way. So what does 2015 hold? The market will have strong demand for homes under $400,000, industry officials said.’
‘That price point is the heart of the market. Durango in-town homes sold for a median price of $390,000 during the third quarter of 2014. For La Plata County combined, the median sales price was $336,200.’
‘2014 also was notable for a comeback in million-dollar sales. That could be affected in 2015 by a number of factors, from volatility in the stock market to the price of crude oil.’
‘Many of the area’s luxury-home buyers earned their fortunes in the natural gas and oil industries in Texas and Oklahoma. Falling oil prices could make that demographic less willing to pay big bucks for a vacation home.’
‘Home prices rose 8.7 percent in Colorado from the third quarter of 2013 to the third quarter of 2014, Richard Wobbekind, executive director of the Business Research Division at the University of Colorado, said at the Southwest Business Forum last week.’
‘Fort Lewis College professor Robert “Tino” Sonora noted some analysts expect U.S. home prices to fall in 2015. If that happens, local market conditions will follow, he said. The notion that Durango exists in a bubble unaffected by market conditions has been disproved, he said. “We’re not any different it turns out,” he said.’
‘Sonora related one tip about Durango home prices, based on a former colleague’s research: Watch San Diego. The real estate market in La Plata County most closely follows what happens in San Diego, he said. If true, that could signal a slip in Durango home prices in 2015. The Case-Shiller Home Price Index for San Diego fell 0.26 percent for the three months preceding October.’
Case-Shiller of the three months before October? So data from four months ago or longer? How about data from yesterday from KB: Homebuilders are upping incentives and dropping price because demand is in the toilet.
CS is nothing more than a re-jiggered index with data so old it’s essentially worthless.
Actual current transaction data;
San Diego, CA Sale Prices Plunge 10% YoY
http://www.zillow.com/san-diego-ca-92130/home-values/
Prices aren’t dropping, they are moving forward negatively.
Yes. I forgot to invoke DenialSpeak. The mere suggestion of falling prices is evil.
Growth is “decelerating”. The market is “stabilizing”.
Crater!
Aren’t these indicators of it being a great time to buy, like the sky being blue?
Here’s what we know and understand;
-Cratering housing demand in every direction at 20 year lows
-Grossly inflated but falling prices
-25 million excess empty houses
-Rental rates half the monthly carrying costs of buying
-Prices of existing housing 250% higher than long term trend and 2X production cost of $55/sq ft(lot, labor, materials, profit)
Now what did you think was going to happen to housing?
‘The number of tall buildings dominating skylines around the world reached a new record in 2014, with some 97 buildings completed last year that soar over 200 metres in height. That includes some 11 super-tall buildings of 300 metres or higher, which was also a record.’
‘That list, which beat the previous record of 81 tall building completions set in 2011, includes everything from office towers to hotel developments and mixed-use projects such as Toronto’s Aura at College Park, the retail and residential complex at the corner of Yonge and Gerrard Sts.’
‘Construction on that 272-metre, 79-storey tower — for now, at least, the tallest condominium building in Canada — was completed last year. Residents of some 970 of its 985 units condo suites have moved in and finishing touches are just being put on the top floors.’
‘Still sitting largely empty, however, is Aura’s top floor. Originally, developer Canderel Residential Group had planned an $18.5-million, 12,000-square-foot single penthouse with a rare 360-degree view of the city. But instead, it’s been divided into four units, just one of which has been sold. The three remaining units remain listed at prices ranging from $2.4 million to $3.76 million.’
“Land prices are just getting so exponentially expensive that I think the tall building is going to be a standard now for the city. We’re going to see more 50- to 100-storey buildings,” says Riz Dhanji, vice-president of sales and marketing for Canderel. “People like those higher floors because they want a protected view for as long as possible.”
‘Dubai’s Burj Khalifa remains the tallest residential/office/hotel tower in the world, at 828 metres and 163 floors. The 1,000-metre, 167-storey Kingdom Tower in Jeddah, Saudi Arabia, is slated to kick the Burj Khalifa out of top spot when it’s completed in 2018.’
‘Next year, China is slated to temporarily take the No. 2 spot, with completion of the 632-metre, 128-storey Shanghai Tower. Three other “super-talls” are now under construction in China and scheduled for completion between 2016 and 2020, at which point China should account for four of the top five buildings in the world.’
‘Some 74 of the 97 tall buildings completed in 2014 were in Asia, CTBUH reported. For the seventh year in a row, China led the way with 58 buildings of 200 metres or more. In China, the skyscrapers are seen not only as status symbols, but also as huge economic drivers.’
‘The Philippines was second in the world for tall building completions, with five towers over 200 metres last year. The United Arab Emirates and Qatar tied for third place, with four completions each. Behind them were the U.S., Japan, Indonesia and Canada tied in fourth, with three 200-metre-plus completions each, including the iconic, 541-metre One World Trade Center tower in New York.’
‘Japan and Chile both saw completion of their first super-tall, 300-metre-plus towers, according to CTBUH.’
Good thing they don’t have earthquakes in Japan and Chile…
And we all have heard of the Skyscraper Index, right?
http://en.wikipedia.org/wiki/Skyscraper_Index
Thanks — I was just about to search for that.
There is always the Olympic Games Host index. Also seems to be holding.
Brazil seems to be ahead of the curve though.
Boston is in the running…
There’s one under construction in Bogota also, although it will top out at 260 meters. Few people outside of Kunstler ever comment on how dehumanizing it is to build on a scale like that. There also are a lot of obvious comparisons to societies that completed their most grandiose building projects right before a precipitous decline. I remember walking around Tikal, thinking that the Mayan elite of that time likely had no idea what was coming.
Has anyone here been inside the Burj Khalifa? Way back when, I had a job interview high up in the Sears Tower in Chicago; just getting to that floor from ground level took awhile.
Someone I know recently moved to Panama City and sent me pictures - holy cow do they have a lot of highrises.
Per wikipedia: “There are more than 110 high-rise projects under construction, with 127 already built.” All in a city where 40 percent of the population lives on less than $2 a day. So I looked up an explanation:
“Construction Boom in Panama is Based on Drug Money” http://www.reuters.com/article/2007/12/31/us-panama-skyscrapers-idUSN2053334120071231
I lived there for many years growing up. My former barrio, which had perhaps two dozen apartment towers back then, now has been totally deformed into something akin to a science fiction film set. The city has become a Latin American Dubai.
To me, it’s obvious that money laundering is going on. It’s not a rich country. And without the canal and banking shenanigans, there isn’t much of an economy beyond agriculture for which the country does not have a competitive advantage.
‘Relatively smaller economies like Ukraine, Greece, and even Argentina-Venezuela are more vulnerable to the financial intrigues and maneuvers of global shadow bankers—the overwhelming majority of which originated and are still based in the USA and the UK. Shadow banks are definitely a phenomenon of Anglo-American global finance that re-emerged on a global scale several decades ago, expanded in the 1980s, became truly global in the 1990s, played a central precipitating role in the global financial crash of 2007-09, and have come to represent in the 21st century one of the defining characteristics of global capitalism today.’
‘Shadow banks are that exploding growth segment of global finance capital that share the following characteristics: they are largely unregulated, they invest primarily in financial asset securities of various kinds (i.e. stocks, government and corporate junk bonds, foreign exchange, derivatives, etc.) instead of real asset investment (plant, equipment, software, etc.), they target high risk-high return opportunities based on asset price appreciation and volatility to realize financial capital gains, their investments are highly leveraged and debt driven, their investment targets are highly liquid financial markets worldwide that enable a quick entry, price appreciation, and subsequent just as quick short term profit extraction.’
‘Their client base is predominantly composed of the global finance capital elite – i.e. the roughly 200,000 worldwide ultra and very high net worth individuals with net annual additional income from investment flows of $20 million or more—for whom they invest individually as well as for themselves as shadow bank institutions.’
‘Shadow bank ‘forms’ include private equity firms, hedge funds, asset and wealth management companies, mutual funds, money market funds, investment banks, insurance companies, boutique banks, trust companies, real estate investment trusts – to note just a short list – as well as dozens of other forms and newly emerging initiatives like peer to peer lending networks, online investment funds, and the like.’
‘Shadow banks have been estimated to have investable assets (i.e. relatively short term and liquid) of about $75 trillion globally as of year end 2014, a total that does not include revenue from ‘portfolio’ shadow-shadow banking. That is projected to exceed $100 trillion well before 2020.’
‘Shadow banks and their finance capital elite clients make money when financial asset prices are volatile, i.e. when such prices rapidly rise or fall or both. It is thus in their direct interest to cause asset price volatility and instability—whether in provoking a rapid rise in government bonds rates(Greece), in contributing to the collapse in currencies (Venezuela, Argentina), or in IMF-enforced ‘firesales’ of companies (Ukraine). Their strategy is to exacerbate, or even create, financial price inflation in the targeted market and financial instruments, be they stocks, junk bonds, real estate, foreign exchange, derivatives, etc. That same financial price instability, however, is what causes havoc with the real economies of countries—like those in southern Europe in recent years, in Asia in the late 1990s, Japan in early 1990s, and which led to the global financial crash of 2008-09 itself.’
‘A study by JP Morgan Bank in 2012 estimated that the shadow banking sector in China grew from only several hundred billions of dollars in total assets under management in 2008, to more than $6 trillion by the end of 2012. In percentage terms, shadow banks assets accelerated 125 percent in just the second half of 2009, followed by another 75 percent growth in 2010. Shadow bank assets grew additional 35 percent and 33 percent in each of the two years, 2012-13. By 2013 the total had risen to more than $8 trillion, according to the research arm of Japan’s Nomura Securities company. Shadow bank total assets rose another14 percent and $1 trillion in 2014—to more than $9 trillion.’
Frisco, TX Sale Prices Crater 13% YoY On Plunging Oil
http://www.zillow.com/frisco-tx-75034/home-values/
Copper Mar 15 (HGH15.CMX) -COMEX Watchlist
2.53 Down 0.12(4.44%)
if the world has a copper roof
Ben Dover
A couple of years ago we were talking about how Chinese pig farmers could buy a bar of copper and leverage it into great fortunes by borrowing against it here, there and everywhere. Then the money got invested in high rise condos.
I’m thinking in 2015 we will hear some stories about crushing defaults based on the copper bar model. Maybe not, maybe that pig farmer has already been sent to the jail house. Owing money that you cannot pay back is still a jailable crime last I heard.
‘Fewer Americans are working: Another red flag is the number of people who have jobs or are actively looking for one — the so-called labor force participation rate. It’s fallen to 62.7%, the lowest since Jimmy Carter was president.’
‘What that means is nearly four in 10 Americans aren’t in the labor force. There are logical reasons for this: They could be disabled or taking care of children. There are also demographic shifts with the Baby Boomers retiring, so we would expect some drop off. But people could be so discouraged that they have given up on finding a job.’
‘Even among those still in the labor force, almost 3 million have been looking for work for about half a year or longer.’
“The bottom line is that there are still way too many unemployed people and way too many people working part-time who would prefer full-time employment to call what we saw in December 2014 anything other than nice, but distinctly subpar,” says James Smith, who runs Econforecaster.’
‘But a few are beginning to question whether America is in a “new normal” — a place where jobs are plentiful again, but wages aren’t going up as expected. That’s a far scarier place to be. Allen Sinai of Decision Economics believes we are “normal for a situation where companies basically do not want to hire people because they are maximizing shareholder value.”
‘Then there’s technological change and the ability for companies to make much faster changes that they once did. “The point is that change is occurring so fast that equilibrium is impossible,” says Bill Watkins, head of the Center for Economic Research and Forecasting at California Lutheran University.’
‘Then there’s technological change and the ability for companies to make much faster changes that they once did. “The point is that change is occurring so fast that equilibrium is impossible,”
It will equilibrate. Prices will continue falling until they match wages.
Only if falling wages cease to be balanced by rising debts, as they were during the period from 1980 to 2008 and during the “recovery.”
That’s the only economy we’ve got.
labor force participation rate. It’s fallen to 62.7%, the lowest since Jimmy Carter was president.’
and that’s w the % of wymin working going up big time since the 70’s
and that’s w the % of wymin working going up big time since the 70’s
True, but the numbers of olds is also at an all time high.
It wouldn’t be half so bad if housing prices weren’t at levels that are generally a stretch for people with full-time jobs to afford.
Just for historical perspective, the last time the oil price crashed in 1985, it was followed by “Black Monday” in 1987. The Northeast followed the Southwest into the worst economy either has experienced since (these areas fared relatively well in the Great Recession).
Of course markets move faster today.
You have a hole in your history. The last time the crude oil price fixing scheme imploded was 2008.
Debt is dumb and unfashionable among the keenly aware. Keep yer cash and don’t do something stupid like buy a house or car at today’s inflated prices.
Wait on falling prices.
‘We had an increased use of incentives and price reductions on (speculative) homes in the quarter,’ Mezger said.”
Transcription error by IBD? I think Mezger said “spec homes” as in standard tract home built to specifications, not speculative.
Houses aren’t built to specification? lol
Built “on spec”. Built “to spec”. English confuses people.
Why would they lower the price if it was already sold? BTW, builders lead the price drop years ago. We’ve been seeing these reductions for some time; in Las Vegas and Phoenix. But now they are showing up in quarterly CEO statements. Where’s the IE King?
As opposed to run down 50 year old obsolete shacks?
You’re drawing a distinction without a difference.
Ok…. Bank failures as a result of cratering oil prices.
What banks are on the list?
Update: Oil Craters again, Dow Craters, Copper Craters
http://www.marketwatch.com/
Don’t look now, but cotton is off 30% as well. China is the big dog.
dismal retail? w free gas in every tank ………..
Um…..what’s up with this?
As of 1.14.2015 – UBS Stock index ticker for housing in percent gain or loss
1 yr 2yr 5yr
KBH -24.78 -17.24 -13.68
LEN +19.70 +11.75 +179.88
PULT +13.88 +14.54 +97.95
DRH +16.44 +20.00 +105.22
Anecdote: This after talking with a builder at length from the Denver area today. We kinda got in a ‘frictioned’ discussion about the cost of housing against what is a very difficult economy and job market.
I had to disagree with him (mind you without this data)in his belief that things are going to keep going up and the market is sustainable. He is pushing the discourse along as builders do - maybe a head in the sand moment for him. But I still think mostly due to the headwinds of the oil market and demographic damage done to first time home buyers’ debt loads the market is horribly overpriced in the mid and high end and it appears that inventory is sitting longer and ‘the folks’ are starting to balk at prices for homes on the market. Value (different than cost) is not evident to me. He disagreed with me whole heartily and I wonder now given these stats. Granted I was talking with a semi custom builder but still when I look at the production outfits - what is there not to like in these invest return stats outside of the crap that KB builds?
Frankly I don’t know what to believe anymore but my gut just says things are really screwed up all over the place.
Couple of things I learned - in the very high end market there are many in that stratum who are starting to vacate the notion of living on large lots really close to the city in high end school and house districts. They are heading to points further out to obtain really nice housing at 20% or more less cost. What this is doing inturn is forcing the folks like me who a couple of years ago would have considered these peripheral areas to re-think everything as the high enders are pushing prices up more and more in the outlying areas.
The other thing I learned and I think very telling is these folks now that their stawks have recovered are buying ‘comfort’ at a premium. They don’t want I guess to end up where they were a few years ago - concerned about a non-recovering ‘asset’ i.e. a house and losing their ‘comfort’ due to factors way beyond their control - i.e the Stawk market. Bottom line - people will pay for their comforts even at very high rates. The one thing they can control is the level of comfort in their lives even if the house becomes a ‘nonrecoverable asset’.
Right now I am very discouraged at the cost relative to value in many locales around the country. I have to really wonder where folks are getting the financing for what are very expensive homes. Would love to own a reasonable home for my tired old bones but I cannot justify spending over 200.00 per foot for an ‘asset’ that I believe will be worth less in a few years time than today!! I think Goon is right - I won’t like it.
Owner? Pm? Super?
Look, Houston, Austin, Fort Collins-Greely and most Denver, “GOING TO SEE A MASS SELL AND LEAVE.”
As far as selling 18 million dollar mansions, yes they are not like selling 180k houses, takes time, time, and more time?