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The shorter answer: new home sales have been crushed, existing home sales are about to be crushed.
0_0
The shorter answer: new home sales have been crushed, existing home sales are about to be crushed.
Actually existing home sales ARE being crushed we just wont know about for a while.
"existing home sales are about to be crushed"
Problem - The NAR is in complete control of that information and the spring selling season makes the entire year. Any blemish on the March report will savagely crush sales so you can expect the NAR to pull out all the stops, misrepresenting, cherrypicking etc etc - so the MSM reports something other than the true state of affairs. And, I'm not a conspiracy theorist.
Luckydog, yes, I agree. And it will show up in the numbers soon.
Best Wishes.
barely, I do see an increase in sales.(at least in Central Florida) But I am afraid it is exactly like the clear sky before the hurricane. It never fails.
Sandy Weil and Chuck Prince cut their teeth on subprime loans.
They have exposure.
All this business about subprime "spreading", what about margin on the NY stock exchange being the highest it's ever been?
What about a negative savings rate for several years in a row?
Oh, I forgot, the savings rate is actually positive because Americans have accumulated so much equity in real estate.
My understanding is that existing home sales are reported at the close of escrow, whereas new home sales are reported at contract signing. That's several weeks. Sorry, no link for this, just off of memory based on what I've read before.
To repeat, ad nauseam: The NAR will revise the last month's numbers down when nobody is looking so that this month's numbers come in as a "nice upward surprise". At some point in the couple of weeks, they'll revise the Feb numbers much lower and then March will be an unexpected upward surprise (MOM, of course.) At the end of the day, the series tracks very well with new home sales as you can see, but the NAR will show positive MOM movement the entire time. Logically and statistically impossible, of course, but that's their modus operandi.
One trend not commented on is that over the time period of that graph the gap between the growth of new and existing home sales has consistently shifted in favor of existing homes... starting out negative in the 70's and now at its largest positive gap on the chart...
Why? I can speculate that what you are seeing is the effect of new home builders moving into less and less attractive communities...
Does this mean we can expect a fall off in existing home sales, probably, but I think it's also showing the effect of 30 years of build out where established communities have been favored over the new (e.g., closer to city centers, more desirable neighborhoods). It also means we need to think about how the overall numbers are reflected in local markets - e.g., the sales volatility is highest in the marginal markets - lowest in the most established - so while the overall trend may be negative - much of that overall negativity could be represented by a much smaller portion of the overall market... e.g., absolutely dead markets on the fringes and markets that mostly normal elsewhere...
Subprime Defaults May Spread to Auto Bonds, S&P Says (Update1)
Subprime Defaults May Spread to Auto Bonds, S&P Says (Update1) - Bloomberg.com
Uh Oh
Subprime Defaults May Spread to Auto Bonds
"It's a golden age for the repo business. One that will never end."
I got an offer to buy used car notes paying 12-15%-maybe not enough people were hooked. They were descibed as extremely subordinate.
CR, today I was looking at the cycle relatives for new home sales from 1964 to date. It looks like 2007 is going to be really grim. Have you put any data prior to '64 and, if so, are you willing to share it with us?
should read:
Have you put together any data...
sorry
mrl:
good point. Back in the 70's a city like San jose was the new build out now one has to drive 3 hours out to central valley for new affordable homes. In fact Centex has a new home development out in Yolo county, believe me it is way the F*xk in the boondocks and for 400K to 600K prices.
They are not selling very well.
Why do they put so much emphasis on comparing MOM verses YOY?? RE has some seasonality to it so yea March will probably see an increase in sales over Feb because March is typically better selling month, DUH! Right now the YOY numbers are just horrible. Of course if get to this time next month and MOM sales are down...........PANIC!
yourkillingmelarry,
MOM numbers are seasonally adjusted.
One trend not commented on is that over the time period of that graph the gap between the growth of new and existing home sales has consistently shifted in favor of existing homes... starting out negative in the 70's and now at its largest positive gap on the chart...
Why?
Roubini just posted about this effect:
Why New Home Sales is a Much More Significant Measure of the Housing Recession than Existing Home Sales. And the Worsening Housing Recession
Not to quibble about February versur March, but 31 days is you know over 10% more than 28 days.
And the weather in February wasn't exactly nice in a lot of places. I expect a nice bounce MOM, but a double digit decline YOY.
--
"For the general economy, new home sales are far more important, because of the related employment and spending on materials. However, for those directly impacted by existing home sales (real estate agents, appraisers, mortgage brokers, home inspectors, etc.), the coming slump in existing home sales will have a larger impact."
CR,
Because there were so many Speculative buyers, i.e., Flippers, the crushing of existing homes will be brutal for those who are carrying them for now but soon will be forced to sell due to the crushing carrying costs. Many of these existing homes for sale are realatively new homes, some never lived in!
This time it is different -- Lot uglier than in the past due to the horrendous overhang of Vacant Units, Year Round.
When April and May Existing Home Sales report come out in 2-3 months it will be all over for stock market and economy bulls. The only question is in which of the months from Mar-May the economy will later be found to have entered recession. Only those who have been focusing on the lagging and coincident data for the economy will be surprised.
Jas
Not to quibble about February versur March, but 31 days is you know over 10% more than 28 days.
In 2005 sales actually jumped in February. That was the year Feb was 34 days long.
Seasonal adjustments are your friend.
mp, the new home data starts in '63, but I only have existing home data back to '69 - so that is what I plotted.
Best Wishes.
World News tonight doing a week long series (starting tonight) called "home-wreckers"
They are referring to Mortgage Cos as home-wreckers! LOL
CR: "mp, the new home data starts in '63, but I only have existing home data back to '69 - so that is what I plotted."
Yes, you are correct, 1963. Senile me. Having said that, I think you might agree that we are probably about to witness the worst new housing cycle in at least forty-three years.
This bubble is not a flu but more like a cancer. On the outside everything looks normal but when you examine this under MRI(Most Blogs, etc) you realize that it has effected most vital parts. Final disposition will be very brutal and painful.
mp, just look at the chart at the top of the previous post. That is probably the steepest decline since the Census Bureau started keeping data - but on a percentage basis (from top to bottom) it still has a way to go to match the early '80s (sales fell by more than half). To match that percentage drop, sales would have to fall to 650K - significantly worse than my 800K forecast.
BTW, it is amusing that people having been calling the bottom the entire way. Meanwhile housing has been in free fall. I was looking back at some of the Fed statements from last year - they were definitely wrong.
Best Wishes.
--
"They are referring to Mortgage Cos as home-wreckers!"
They were simply the front-line troops in the Scheme of Bankrupters and Fraudsters of New York City, with the blessing of the Fed, in their Plan to build and populate the Debt Concentration Camps all across America. The so-called Regulators are also in the pockets of BFNYC.
The fish rots from the head!
There is no business like Debt Business and BFNYC know this age-old fact. Housing was merely the vehicle for this Plan to turn Americans into Debt Slaves. Thru history, Debt has been the single most common mechanism of slavery.
Jas
BTW, it is amusing that people having been calling the bottom the entire way. Meanwhile housing has been in free fall. I was looking back at some of the Fed statements from last year - they were definitely wrong.
They're still at it:
Steep Drop In New-home Sales Linked To Bad Weather
"Look at total single-family home sales - that might still suggest a picture of stabilization in the housing market," DeQuadros said. "Housing may be less of a drag in 2007. Our feeling is that will be the case."
...
The Commerce Department also reported that there is an 8.1-month supply of new homes at the current sales rate. That rate could also be exaggerated by the weather, DeQuadros said.
"We are probably close to the bottom in many of these housing indicators," he said, adding that he still expects there to be a correction in home prices.
The housing market hits a new bottom every month.
CR
Did you look at last weeks H8 report?
RE loans in Small Domestically Chartered Commercial Banks fell by 78.8B NSA See pg 10. I'm just not sure what it means for sure. Were they were packaged and sold or maybe writen off. Any thoughts?
FRB: H.8 Release--Assets and Liabilities of Commercial Banks in the US, Release Dates
Things for to think about. Many of these have been mentioned before.
-\tThis housing bust follows a spectacular and unprecedented runup that is remarkably similar to the dot.com runup in the late 90s. I mention this (again) because the crash was spectacular but not devastating-even for me caught up in the middle of it.
-\tThere will be another bubble to replace the housing bubble (see the too few assets link I posted a couple of times). We have to burn off a $trillion or three every few years.
-\tThe comparative labor impact of the bust is reduced by the larger participation of undocumented workers in the residential construction labor pool.
-\tThe near term impact of the bust will be to make housing more affordable for many people. Reduced inflation.
-\tThere is still a labor shortage in this economy even with millions of undocumented workers. Good for wages.
-\tThere is a severe skilled labor shortage. Good for wages.
-\tThe dollar continues to hold up in the face of the current account deficit.
-\tThe Asian economies prosper because of the advantage generated by holding their currencies down against the dollar. US exports to Europe are doing very well. This is a long tern dynamic that, when it unwinds, will help to offset some of those long term problems we all know about.
-\tHundreds of millions of people around the world are moving from poverty into the middle class.
-\tOld, inefficient industries continue to be weeded out (except in defense). Another short term dynamic that has long term benefits.
-\tHow bad can it really get if 20% of the people can produce all of the food, stuff and housing that we need? I think about this a lot and cannot form a conclusion.
For what it is worth, unemployment is still VERY low.
I should probably point out what it is worth I suppose.
Here's the entire list since 1960 of years when unemployment was lower than it is right now.
ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt
1965 to 1969
1998 to 2000
Great times to invest in the stock market. Great times!
I'm coughing on my own sarcasm, please excuse me.
For what it is worth, unemployment is still VERY low.
That really kind of puts things in perspective - unemployment was only 4.0% in 2000. Today doesn't look so hot by comparison.
At least we can deduce that 2000 was probably a good time to buy stocks and the economic future then was exceptionally bright.
CR, I have a theoretical question for you: Shouldn't you de-trend the data before regressing it? The data are obviously very correlated, but isn't the .87 a bit spurious?
I had coffee with a bankruptcy attorney i know in Santa Rosa today.she told me she had only one client with a subprime loan in the last few months.all the others were Alt-a.she is BUSY.she also told me that a mutual friend, who is an honest and competent real estate broker specializing in short sales told her there were no buyers.he has been in the business 15 years.
CR- "mp, just look at the chart at the top of the previous post. That is probably the steepest decline since the Census Bureau started keeping data - but on a percentage basis (from top to bottom) it still has a way to go to match the early '80s (sales fell by more than half). To match that percentage drop, sales would have to fall to 650K - significantly worse than my 800K forecast."
CR, I agree. However, in the early '80s the big drop began during September '81, towards the end of the annual cycle. Here, we find it at the beginning of the annual cycle, and I consider that ominous.
If one computes the cycle relatives using unadjusted data and December as the base, 2007 looks very ominous indeed.
"The housing market hits a new bottom every month"
Yep. Another chance for the NAR, the Fed, CNBC... to call the bottom each month for another few years. We need a running document with all these predictions cued up over a timeline.
My point is, and I'm not expressing myself very well, is that there should have been a bounce, but there was none. In February '82 there was bounce, but this damned thing has just kept dropping.
According to this bloomberg article. Foreclosure in Feb is up 12% compare with last year:
U.S. Foreclosure Filings Rise 12 Percent in February (Update3) - Bloomberg.com
I say it is BULLSH*T number they claim the Feb foreclosure is ONLY up 12% compare with last year. I have been watch this web site and I know it is MUCH MUCH worse than merely up 12%:
Foreclosure.com | Foreclosures | Foreclosure Listings
Last update: 03/26/07 8:14 PM
Foreclosures: 169,587
Preforeclosures: 218,273
Bankruptcies: 433,413
FSBOs: 27,730
Tax Liens: 611,291
LIVE AUCTIONS: 1
Total Listings: 1,460,295
The above is today's number. Back in Jan 20, 2007 the foreclosure number was 133,330. From 133,330 to today's 169,587, that is an increase of 27.2%. And it happened in just slightly over two months.
The rise in foreclosures over the past year probably only marks the beginning of the problem,'' Jan Hatzius, a Goldman, Sachs & Co. economist, wrote in a March 23 report.The main reason to expect further deterioration is that house prices are likely to fall significantly in 2007, with further declines possible in subsequent years.'
http://pix.nofrag.com/ea/69/41199ca0416da998dd4bd13fa7fa.jpg
Good coments on the NAR backward revision ploy. Have to wonder when the MSM will stop assigning them any credibility.
I'd wager the bottom of the housing cycle will be when the NAR and other cheerleaders are thoroughly reviled by the MSM. The media has a knack for picking the worst time to wake up.
I don't see how anyone can say that the problem won't "spread" when the problem is over-indebtedness.
Over-indebtedness isn't limited to the housing market.
The housing market is just getting all the attention right now.
When the stock market goes belly up, it will be "shitting in my pants" not "farting through silk".
Margin calls hurt.
And that's what's happening in the real estate industry right now:
MARGIN CALLS
What's the difference between a subprime lender discovering it can't cover the money it got from the sale of its crappy loans and a margin call?
Hello all, I'm almost afraid to post on here, I'm just a "regular" person not a bigwig.
But anyway, here's my first hand account of being caught in the credit crunch. I have a ready buyer for my house, we are 24 days past scheduled closing. They are on their 3rd loan program. My buyer is an appraiser, she tried a neg am loan, approved then lender yanked it, no longer offered, then 80/20 I/O, approved then yanked by lender, now she's trying straight 80/20 with an investor, will know tomorrow if this will be approved or not.
Ready buyer with good credit score, not subprime, being denied credit, I'm a willing seller who has made price concessions and offering buyer incentives to move my home. I'm just praying that it closes.
Heaven help us, March 12th was a Huge day for credit crunching.
Tony in WA
Bloomberg News
Interesting bloomberg interview
CR and or Tanta,
All lot of us still have some memory of what the S&L crisis and '90-'94 real estate correction was like. The same is probably not true of the '80-'82 correction. It seems to have been a steep one in many ways, and yet it also occurred in a period of higher (but falling) inflation and also high home-price-to-income ratios. I don't believe it produced notable nominal declines in prices.
If the two of you, or board posters, have an idea of how the whole thing evolved, and what the parallels might be, it would be useful to hear it.
Thanks!
"It also means we need to think about how the overall numbers are reflected in local markets - e.g., the sales volatility is highest in the marginal markets - lowest in the most established - so while the overall trend may be negative - much of that overall negativity could be represented by a much smaller portion of the overall market... e.g., absolutely dead markets on the fringes and markets that mostly normal elsewhere...
mrl | 03.26.07 - 7:54 pm | #"
wise post.
this weekend i'm going to a black-tie 'charity' event put on by the real estate community here in DC. its a swanky affair at the Regan center. Monopoly is the theme. It should be a great representation of the auto-black-slapping hot-damn-we're-smart attitude that one finds here in an especially smoking hot commercial real estate market.
its kinda ironic too, the monopoly theme. best costume gets an award. remember how in that game "mortgaging" your property was the worst thing you could do??
Greenspan`s next conundrum: "If people used ARMs like I told them to, why are they loosing their houses?
Dear Cal
That Bloomberg interview you link to is interesting. Especially, to me anyway, the comments those two economists made about the own to rent ratio and its effect on inflation.
As I recall, it was not so long ago that the economists were commenting that because so many people owned their home and the values of those homes were growing this was keeping inflation in check!
What the heck??!
I am a firm believer in Milton Friedman, Inflation is always and everywhere a monetary phenomenon.
still they think this is just a "sub-prime" issue:
Dodd faults regulators in subprime mortgage fiasco - Mar. 26, 2007
Can someone explain what 'seasonal adjustments' means? I obviosly thought that February means the calendar month of February. Much to my surprise a more astute poster informed me that there were 34 days in February for 2006.
Also, though new home sales and existing home sales are closely correlated although a bit offset due to when a sale is 'counted' at time of signed contract versus clearing escrow. Can the two diverge when times get tough? In a dog-eat-dog situation, existing homes have stickier prices than builders who are offering incentives to 'clear inventory' and get cash flow. Could new home sales and REOs start to cannibalize existing home sales where homeowners stubbornly stick to their price?
"acted ina way high rate of foreclosures inevitable." - 404 Not Found
Dear Cal
That Bloomberg interview you link to is interesting. Especially, to me anyway, the comments those two economists made about the own to rent ratio and its effect on inflation.
Yeah, I thought that was a good interview too. Dave Seiders is actaully a pretty sensible guy, especially compared to David Lereah.
Also they both make good points about inflation - notably that it grossly lags the business cycle, which a lot of folks seem to overlook today when talking about "stagflation", etc.
Got another new home sales confirmation data point this AM. Can't see how it could be good for their shareprice. Check out what Lennar has to say about 2007!
["Given the state of the market, we do not expect to achieve our previously stated 2007 earnings goal, and we are not comfortable providing a new earnings goal at this time," said CEO Stuart Miller. ]
Their gain seems a little suspect once one-time charges are considered. Let's see how Wall St likes the report.
dc1000
All kinds of irony. Monopoly was a game of the depression, designed to get folks minds off of it.
Mortgages were only for 50 percent of the value of the property.
Improvements sold for 50% of the cost.
Well maybe it is an unintended prophecy.
Is is possible that the subprime problems delayed sales enough to create a January and February problem - "sorry your lender dissappeared" - 1 week delay is 25% of sales.
Off topic, but just wanted to note that regular poster here Mike_in_Fla kicked some serious butt when he was on CNBC this morning. Mike, I would have congradulated you on your blog, but you dont have a comments section on it. Good job.
Just want to point out that a significant portion of existing homes sales increase was a 14% rise in the Northeast.
Can anyone say year end Wall Street bonus?
Just an FYI...I thought this was a different take on the same topic.
U.S New Home Sales Plunge — Will the Rest of the Sector Follow?
In short, his suggestion is that sellers of existing homes are much quicker to drop prices than builders. This accounts for much of the difference and "lag" that we see in the data.
new home development out in Yolo county, believe me it is way the F*xk in the boondocks and for 400K to 600K prices.
I remember Yolo county as flood overflow plain for the Sacramento river and some farming ground. I guess it is like Stockton becoming a bedroom community to San Jose.
I haved always had mixed feelings about the internet. The easy access to pornography is very very destructive. But the wealth of knowledge available, from blogs like this, is empowering. Ten years ago, the average guy like me, who didn't work in the RE business, wouldn't have been able to understand exactly what happened and what was happening. The mainstream media cannot be trusted. I know this now. Thanks to everyone here for taking the time to educate me.
Its been widely reported that home builders are building less on spec and more on signed contracts. In fact, I've been on some earnings calls where the builder said they were only breaking ground once the actual mortgage has been approved.
What impact do you think this would have on new home sales/new home starts figures? Would seem to me that builders being more strict about who they sell to would cause the new home sales figure to fall more so than otherwise would be. That doesn't portend well for construction jobs, but might overstate how bad the consumer's situation is.
Many home buyers jump into the market in anticipation for the new guidelines on sub prime mortagages, early in the year many lenders pass some rumors about guidelines about to change (we now know that those rumors became reality, higher fico scores of 680 or more to qualify, cash reserves of 3 months or even in some cases 5% down payment) that is the "real reason" for the rally in the home buying market during the month of February.