I don't think any of the financial and RE hypsters can find a silver lining in this disasterous report.
Look for all the builders to sink to new 52 week lows on this news.
One thing I do expect to see in future months is a smaller revision downward to previous numbers as builders have been reporting normalizing cancellation rates. Of course, absolute numbers are also down significantly, but we should be getting more accurate data going forward.
And big revisions all the way back to November. This is going to be a wake-up call to a lot of people.
I've seen the phrase "perfect storm" now in a couple of articles: falling home sales, falling constuction, lending contraction, business capital expendentures falling, falling job growth, MEW falling, consumer spending contracting, dollar falling....
I've haven't been in the doomsday camp til now, but I am going to go check my camping equipment...
"One thing I do expect to see in future months is a smaller revision downward to previous numbers as builders have been reporting normalizing cancellation rates."
The revisions have nothing to do with cancellations, we've been over this repeatedly here. Cancellations NEVER get factored into these figures.
I think it's time to remake the chart #1. First, it starts from only 2002, looks like we are below that year already. Second, there are so many fluctuations in the numbers, that it's better to make a thick 3-month average line over pale 1-month bars.
A couple of things stand out to me in this awful report:
January had already shown a sharp drop from December. So presumably, there should have been some bounce back. The fact there wasn't speaks volumes about weakness in the market.
The sales rate (848,000 units) is the worst going all the way back to June 2000. Sales were down in three out of four regions.
The supply of new homes for sale is rising again, and is only about 5% below its July 2006 high. For some historical perspective, 546,000 units is a monster level of inventory. The Census Bureau data goes all the way back to 1963. Even at the worst point in the 1970s, we never had more than 432,000 units on the market. It was customary to see 280,000 - 350,000 units throughout most of the 1980s and 1990s.
Ive been saying for a while that the housing market would remain depressed in 2007 that forecast looks spot on, given the deterioration evident in the Census Bureau figures. Its worth noting that the subprime mortgage market didnt really start falling apart until late February. That means these statistics do NOT include a big chunk of the fallout from tightening lending standards. Sales could be even worse in March, April, and May if lenders cut back on 100% LTV loans, stated-income financing, high-risk, short-term subprime ARMs, and more.
All, remember that New Home sales are reported when a contract is signed. So these buyers don't have loans yet. So there will probably be another surge in cancellations when these buyers can't sell their current homes - or can't get financing because of the sector specific credit crunch.
Should be another spike in cancellations. Builders do not know that the guy who ordered the home is already removed from the pool of buyers by new lending standards. He will not show up at closing date.
"According to the Census Bureau report, New Home Sales in January were at a seasonally adjusted annual rate of 1.233 million. December's sales were revised upwards slightly to 1.298 million."
Took the headline above from last months CR post. What a difference!
The 848K annual sales rate will give a strong boast to the inventory levels, would be interesing to know exactly geographic distribution. Also if these number hold up looks like we could easily be on the way to new building starts in the 400K to 600K level.
I am focusing on the jump in average selling price. To me that means the starter homes aren't selling, which is exactly what the subprime crisis is all about
At this point the slight rise in price makes perfect sense. The reset ARMs and tightened standards start at the bottom of the market.
Denial will persist, but a glut is a glut is a glut... eventually reality will assert itself and prices will fall heavily. The overall sales levels (dollars times volume) already have, obviously.
I am focusing on the jump in average selling price. To me that means the starter homes aren't selling, which is exactly what the subprime crisis is all about
JBA,
That's a good observation... I suspect you may be right. Also it could also be due to sales dropping off more in the condo market than the detached SFH market.
And this from FED Moscow, albeit ahead on the Monday sales release.
[Our best estimate is that it is in the process of stabilizing and that by the second half of the year, housing will start to pick up again," he said.]
We are looking at inventory builds in used & new homes to record levels, small price declines, credit tightening, REO inventory ramping, slowing/job contraction in housing/furnishings etc segment... and the FED is seeing an improvement!
What exactly is it they are seeing I wonder - or is this instead, wishing?
I am focusing on the jump in average selling price. To me that means the starter homes aren't selling, which is exactly what the subprime crisis is all about
No. Subprime mostly changed much later in the month.
Starter homes are not selling because...... A F F O R D A B I L T Y
I agree with most that these numbers do NOT reflect any impact from the sub prime crisis nor do they reflect the continued tightening in underwriting for all types of loans.
I know one week is not a trend, but over at Jim the Realator's site
bubbleinfo.com
Blog titled Current Read on SD Market (scroll down)
you can see a dramatic fall off on closed sales on a weekly basis in March. If this one week drop (going from 30% drop yoy to 50% drop yoy in terms of closing) is an indication of sub prime fallout, we could see a continued and dramatic fall off on sales below this already ugly report. I don't know what is uglier than ugly but I think we may soon find out.
And down here in OC I hear 1 in five jobs is tied to RE....but it is different here
regarding the issue of exactly where the inventory is located I found at least a regional breakdown on this site and provide a summary of the 06 new home sales by region:
just where in the South most of this inventory is located I don't know but a big part is probably in Fl.
Also the West is concentrated in AZ, NV, Inland Empire and Central valley
yesterday i got an ad for a condo apartment saying i could buy a unit for $2,500 down, that's a big change from a few months ago when you could move in for $1.
--
The best reporting, CR, on the housing and economy.
The number of completed but unsold homes of 179,000 is an all-time high, both in absolute and percentage terms. The high in previous cycles was 125K. The Fundamental Demand for house-dwellings (not Speculative Demand) in the US is only 1.4-1.45 million, including the replacement demand for demolished homes, based on the best available data. Permits, Starts, etc., are still higher then the demand.
I was fully anticipating this bad report on New Home Sales because the Existing Home Sales are 2-month old data and don't reflect the tightening lending standards.
Either the US economy already entered recession in March or it will definitely inter during April-May. IN A RECESSION THE FUNDAMENTAL DEMAND FOR HOUSING GOES NEGATIVE AND ALL THE NEW HOMES AND MORE GET ADDED TO THE VACANT UNITS.
20,000,000 Vacant Units, or 15,000,000 Year Round Vacant Units, before 2008 is out is my latest forecast. Depression in 2008 is unavoidable, Fed intervention or no Fed. Fed will be rendered impotent. It has misbehaved badly.
I think it's safe to say that our economy has placed it's utility bill money on the real estate craps table for March. If we hit, we only have to do it again in April, but if we crap out and sales (both existing and new) aren't good, we can either leave the casino or put down the mortgage payment in April. Which, based on recent experience is likely. If that goes down the tubes we will have a real summer of discontent.
Maybe we get lucky, but I have a feeling the dice have gone cold.
The median and average sales prices were up. Caution should be used when analyzing monthly price changes since prices are heavily revised.
And I don't interpret this as large houses selling, or SFH over condos... it is the simultaneous combination of price stabilizing & the drop in units sold telling me the builders are FINALLY waking up.
I think they are realizing that short term promotions, give aways & price cutting isn't going to get business back at the old levels & margins.
In fact cutting prices within the margins won't get their business levels back even without ANY margin.
So face up - quit giving the product away & start planning & prepping for a MAJOR step down in production volumes. Try to reorganize to first survive then thrive at that new level.
If I were looking for this, the first observable I would look for would be sales & production volume dropping but price firming (sellers saying no to price cuts & promotion even if it results in lost sales).
Second observable would be accelerated downsizing & job cuts as capacity is trimmed to match lower outputs.
Might be their subcontractors (1099s & aliens)... so it might not be as visible to the public but I'd guess we'll start hearing reports about stuff like this (more than we've already heard).
And it is 'positive news' because its the only way they survive the down draft - in the long run.
In fact if you were looking to pick winners who are the most likely to survive, look for those with the smallest 'fixed cost' foot print and then those who can cut fixed & variable the 'fastest and the mostest' without crippling their organization long term.
Being that I come from 'rust belt mfg' it is something I understand. But maybe that prejudices my interpretation.
I was kind of hoping that Steve could put a positive spin on this report because I'm just fresh out of optimistic goldilocks housing-has-bottomed rhetoric. Of course, I could fill up at CNBC if I really need to. For some inexplicable reason, there appears to be a large contingent that believes the Titanic will somehow turn around and 7 years of extreme bubble run-up (and another 5 before that of above-trend appreciation) will just be unwound in 18 months. Sorry guy, this will take many years and my guess is that we won't get a trend reversal until 2011 at the earliest, and maybe far beyond that. The real bloodbath hasn't even started yet (seller capitulation.) Sure, we've had some modest price declines in most markets, and some moderate declines in a few, but that was just the warm-up act. When REO's start flooding the market significantly below comps, then we've entered the 4th inning. This hasn't happened yet, so we're still in the 3rd.
Also, I agree with Fleck that the housing market will basically seize up in the next 3-6 months. It makes perfect sense. Then capitulation starts and all of the perma-bulls and closet bulls and REIC bull-trolls will finally get a taste of what we RE bears have been talking about. Just wait, you're about to get yours and the BS spin will finally stop (or at least it will be exposed for what it is). Down with the Pigmen and the useful idiots!!!
Fed will be rendered impotent. It has misbehaved badly.
I agree wholeheartedly, Jas. By the time the Fed takes a break from their fiddle concerto long enough to notice the housing market inferno, it will be too late.
Another way to look at the higher median is that buyers are making purchases in locations are are more expensive ( closer to employment centers and good transportation) and staying away from low priced cow pasture developments.
For example Centex has a series of developments in San Ramon and Pleasanton which are nice burbs of San Francisco with higher price tags vs their developments in merced, Modesto and Yolo which is anywhere from 3 to 5 hrs one way of road travel to major employment center.
It also could reflect higher number of sales coming from stronger employment areas along the West coast rather then the South or Midwest.
Christopher L. Cagan, Ph.D., Director of Research and Analysis of First American CoreLogic recently released Mortgage Payment Reset: The Issue and the Impact Study
The study found that the risk of default due to rate reset will result in some 1.1 million foreclosures, but they will be spread out over a total period of six to seven years.
We love to bag on the MSM. But it looks like they are new skewing things a bit on the negative side. (Not that I don't think things are goingto get tougher - I just mean reporting present conditions.)
WORST HOUSING MONTH SINCE 2001
Uh? Really? Was 2001 all that bad? It only sounds bad, because that was six years ago. Americans have short attention spans.
JBA, nice observation, and I would add that the specific McMansion overbuild may also be a factor.
Could be the incentives that can be applied there, not to mention the larger profit margins and larger liabilities, mean that prices there can be reduced significantly to at least minimize losses they see increasing in the next few months. Somewhere there are stats on these bargains that mirror the wealth distribution and not the simplistic notion that all house prices are rising.
The median price being up 7.5% either means there is far more elasticty to home prices at this poin than is the norm (unlikely) or the bifurcation in the market we talked about last week may be upon us.
thanks for posting the regional sales numbers. The HB inventory distribution is interesting to me and I am throwing darts but guess that much of it is in locations that people find undesirable for whatever reason. The 04/05/06 build it they will come mantra, may prove to be the HB biggest mistake.
I am throwing darts but guess that much of it is in locations that people find undesirable for whatever reason.
Or they have alternatives in those places OTHER than new build. In my neck of the woods you can buy a much nicer though slightly worn older home than you can a 'new build'. Generally better location & reasonable prices. Very few FTHB go new build around here... they are almost exclusively a 'move up' market. Not 100% true but a good generalization.
Probably not the case in regions that are more land locked... then the existing homes are about all you have & are expensive... so FTHB have to move way the heck out (Inbred Empire Syndrome).
I mean we have national builders & international capital markets but market conditions are still locally constrained to some degree.
Remembering that real estate person that Mish use to write about. He said that in a boom everything sales. In a bust only the really good stuff sales.
That fits best based on the data we have.
Figure sub prime starter homes are not the good stuff. Figure that salers are not going to fire sale into the best time of the years and buyers will buy only the good stuff leaving the not so good for the fire sales later.
bifurcation seems to be an active phase for the consumer market so why not RE. In Silicon Valley we have a group while not huge but good size that is making 150K to 250K in salary plus stock stock options and less then 35 years old. I am sure the entertainment industry in LA produces some extra dollars not to mention the current feeding by the Investment Banks. The pool of buyers may get smaller which helps some and hurts others.
Here is the quotes from Mish
In a soft market, marginal listings become flotsam and debris.
In a strong market, everything sells. Buyers understand that if they don't buy that house they are looking at quickly, someone else will. Never mind the lousy back yard or the poor floor plan. Buy it, wait a few years, sell it for a profit and buy something better. In a soft market, of course, that does not work. Buyers have plenty of time and plenty of listings from which to choose. There are just not enough buyers to go around so the left over marginal listings do indeed become flotsam and debris.
A good review of the typical Coast Bank/CCI docs that the borrowers signed. Perhaps a good example of bubble fraud. Here's a red flag to keep in mind for the future: title companies that make house calls for document executions.
CR/Tanta,
What am I missing on New century(NEW) and morgan stanley (MS). Ms bought new's subprime portfolio for 97 pct on the dollar when abx (BBB) was down approx 20pct....now they are auctioning the portfolio?? Did I get my facts wrong or did I miss something???
Thanks for the link, Brian. Another classic example of how all this McBank Happy Loan crap has conditioned borrowers to think that the inconvenience of having to approve construction draws outweighs the risks of losing your flippin' shirt. The day I'd let a bank write interim draw checks to the builder without my signature, it'd be cold in hell. But "investments" should have no due diligence costs, right?
pjfny, as far as I can tell, MS made a desperation loan to NEW collateralized by its lovely porfolio of fab loans, in a last-ditch attempt to keep it afloat. Exactly what we all predicted would happen did happen, so MS had to "foreclose"--it called the loan and took title to the big stinking pile of "collateral," since NEW had no "money." And yes, now it's out there trying to unload these loans. If they had any value, of course, NEW might still be functioning.
So it's not that MS learned that the house always wins. They knew that. What they learned is that they are not, in fact, the house. Bummer, dude.
I don't think any of the financial and RE hypsters can find a silver lining in this disasterous report.
Look for all the builders to sink to new 52 week lows on this news.
One thing I do expect to see in future months is a smaller revision downward to previous numbers as builders have been reporting normalizing cancellation rates. Of course, absolute numbers are also down significantly, but we should be getting more accurate data going forward.
And big revisions all the way back to November. This is going to be a wake-up call to a lot of people.
I've seen the phrase "perfect storm" now in a couple of articles: falling home sales, falling constuction, lending contraction, business capital expendentures falling, falling job growth, MEW falling, consumer spending contracting, dollar falling....
I've haven't been in the doomsday camp til now, but I am going to go check my camping equipment...
"One thing I do expect to see in future months is a smaller revision downward to previous numbers as builders have been reporting normalizing cancellation rates."
The revisions have nothing to do with cancellations, we've been over this repeatedly here. Cancellations NEVER get factored into these figures.
Bob, I reckoned cancellations were factored in to the adjusted numbers.
I could be wrong ... and it wouldn't be the first time.
Hi CR,
I think it's time to remake the chart #1. First, it starts from only 2002, looks like we are below that year already. Second, there are so many fluctuations in the numbers, that it's better to make a thick 3-month average line over pale 1-month bars.
I mean - think BIG!
Not looking good for anything other than a Real Estate meltdown. Look at that inventory climbing through the roof!
A couple of things stand out to me in this awful report:
Ive been saying for a while that the housing market would remain depressed in 2007 that forecast looks spot on, given the deterioration evident in the Census Bureau figures. Its worth noting that the subprime mortgage market didnt really start falling apart until late February. That means these statistics do NOT include a big chunk of the fallout from tightening lending standards. Sales could be even worse in March, April, and May if lenders cut back on 100% LTV loans, stated-income financing, high-risk, short-term subprime ARMs, and more.
All, remember that New Home sales are reported when a contract is signed. So these buyers don't have loans yet. So there will probably be another surge in cancellations when these buyers can't sell their current homes - or can't get financing because of the sector specific credit crunch.
Ugly is the word of the day.
Best to all.
Should be another spike in cancellations. Builders do not know that the guy who ordered the home is already removed from the pool of buyers by new lending standards. He will not show up at closing date.
Ugly is an understatement.
This is an awful, horrible, hideous report.
"According to the Census Bureau report, New Home Sales in January were at a seasonally adjusted annual rate of 1.233 million. December's sales were revised upwards slightly to 1.298 million."
Took the headline above from last months CR post. What a difference!
The 848K annual sales rate will give a strong boast to the inventory levels, would be interesing to know exactly geographic distribution. Also if these number hold up looks like we could easily be on the way to new building starts in the 400K to 600K level.
I could make a comment about farting through silk, but instead I will point out CR's extraordinary panache:
Ugly is the word of the day.
Best to all.
Calculated Risk
I am focusing on the jump in average selling price. To me that means the starter homes aren't selling, which is exactly what the subprime crisis is all about
At this point the slight rise in price makes perfect sense. The reset ARMs and tightened standards start at the bottom of the market.
Denial will persist, but a glut is a glut is a glut... eventually reality will assert itself and prices will fall heavily. The overall sales levels (dollars times volume) already have, obviously.
The Weather Excuse: Did the Dog Really Eat the Homework?
Winter (Economic and Market) Watch » The “Weather Excuse”: Did the Dog Really Eat the Homework?
I am focusing on the jump in average selling price. To me that means the starter homes aren't selling, which is exactly what the subprime crisis is all about
JBA,
That's a good observation... I suspect you may be right. Also it could also be due to sales dropping off more in the condo market than the detached SFH market.
When will see a test:
NYSE, New York Stock Exchange > About Us > News & Events > Media Resources > Media Resources
And this from FED Moscow, albeit ahead on the Monday sales release.
[Our best estimate is that it is in the process of stabilizing and that by the second half of the year, housing will start to pick up again," he said.]
We are looking at inventory builds in used & new homes to record levels, small price declines, credit tightening, REO inventory ramping, slowing/job contraction in housing/furnishings etc segment... and the FED is seeing an improvement!
What exactly is it they are seeing I wonder - or is this instead, wishing?
I am focusing on the jump in average selling price. To me that means the starter homes aren't selling, which is exactly what the subprime crisis is all about
No. Subprime mostly changed much later in the month.
Starter homes are not selling because...... A F F O R D A B I L T Y
I agree with most that these numbers do NOT reflect any impact from the sub prime crisis nor do they reflect the continued tightening in underwriting for all types of loans.
I know one week is not a trend, but over at Jim the Realator's site
bubbleinfo.com
Blog titled Current Read on SD Market (scroll down)
you can see a dramatic fall off on closed sales on a weekly basis in March. If this one week drop (going from 30% drop yoy to 50% drop yoy in terms of closing) is an indication of sub prime fallout, we could see a continued and dramatic fall off on sales below this already ugly report. I don't know what is uglier than ugly but I think we may soon find out.
And down here in OC I hear 1 in five jobs is tied to RE....but it is different here
regarding the issue of exactly where the inventory is located I found at least a regional breakdown on this site and provide a summary of the 06 new home sales by region:
http://www.census.gov/const/quarterly_sales.pdf
total sales: 1061 2006
south: 567 53%
West : 267 25%
midW : 163 15%
N.E. : 64 .06
just where in the South most of this inventory is located I don't know but a big part is probably in Fl.
Also the West is concentrated in AZ, NV, Inland Empire and Central valley
yesterday i got an ad for a condo apartment saying i could buy a unit for $2,500 down, that's a big change from a few months ago when you could move in for $1.
--
The best reporting, CR, on the housing and economy.
The number of completed but unsold homes of 179,000 is an all-time high, both in absolute and percentage terms. The high in previous cycles was 125K. The Fundamental Demand for house-dwellings (not Speculative Demand) in the US is only 1.4-1.45 million, including the replacement demand for demolished homes, based on the best available data. Permits, Starts, etc., are still higher then the demand.
I was fully anticipating this bad report on New Home Sales because the Existing Home Sales are 2-month old data and don't reflect the tightening lending standards.
Either the US economy already entered recession in March or it will definitely inter during April-May. IN A RECESSION THE FUNDAMENTAL DEMAND FOR HOUSING GOES NEGATIVE AND ALL THE NEW HOMES AND MORE GET ADDED TO THE VACANT UNITS.
20,000,000 Vacant Units, or 15,000,000 Year Round Vacant Units, before 2008 is out is my latest forecast. Depression in 2008 is unavoidable, Fed intervention or no Fed. Fed will be rendered impotent. It has misbehaved badly.
Jas
I think it's safe to say that our economy has placed it's utility bill money on the real estate craps table for March. If we hit, we only have to do it again in April, but if we crap out and sales (both existing and new) aren't good, we can either leave the casino or put down the mortgage payment in April. Which, based on recent experience is likely. If that goes down the tubes we will have a real summer of discontent.
Maybe we get lucky, but I have a feeling the dice have gone cold.
Well there is one silver lining...
The median and average sales prices were up. Caution should be used when analyzing monthly price changes since prices are heavily revised.
And I don't interpret this as large houses selling, or SFH over condos... it is the simultaneous combination of price stabilizing & the drop in units sold telling me the builders are FINALLY waking up.
I think they are realizing that short term promotions, give aways & price cutting isn't going to get business back at the old levels & margins.
In fact cutting prices within the margins won't get their business levels back even without ANY margin.
So face up - quit giving the product away & start planning & prepping for a MAJOR step down in production volumes. Try to reorganize to first survive then thrive at that new level.
If I were looking for this, the first observable I would look for would be sales & production volume dropping but price firming (sellers saying no to price cuts & promotion even if it results in lost sales).
Second observable would be accelerated downsizing & job cuts as capacity is trimmed to match lower outputs.
Might be their subcontractors (1099s & aliens)... so it might not be as visible to the public but I'd guess we'll start hearing reports about stuff like this (more than we've already heard).
And it is 'positive news' because its the only way they survive the down draft - in the long run.
In fact if you were looking to pick winners who are the most likely to survive, look for those with the smallest 'fixed cost' foot print and then those who can cut fixed & variable the 'fastest and the mostest' without crippling their organization long term.
Being that I come from 'rust belt mfg' it is something I understand. But maybe that prejudices my interpretation.
"20,000,000 Vacant Units, or 15,000,000 Year Round Vacant Units, before 2008 is out is my latest forecast."
Huh? Anticipating mass suicides? Or is everyone moving to the south of France?
I was kind of hoping that Steve could put a positive spin on this report because I'm just fresh out of optimistic goldilocks housing-has-bottomed rhetoric. Of course, I could fill up at CNBC if I really need to.
For some inexplicable reason, there appears to be a large contingent that believes the Titanic will somehow turn around and 7 years of extreme bubble run-up (and another 5 before that of above-trend appreciation) will just be unwound in 18 months. Sorry guy, this will take many years and my guess is that we won't get a trend reversal until 2011 at the earliest, and maybe far beyond that. The real bloodbath hasn't even started yet (seller capitulation.) Sure, we've had some modest price declines in most markets, and some moderate declines in a few, but that was just the warm-up act. When REO's start flooding the market significantly below comps, then we've entered the 4th inning. This hasn't happened yet, so we're still in the 3rd.
Also, I agree with Fleck that the housing market will basically seize up in the next 3-6 months. It makes perfect sense. Then capitulation starts and all of the perma-bulls and closet bulls and REIC bull-trolls will finally get a taste of what we RE bears have been talking about. Just wait, you're about to get yours and the BS spin will finally stop (or at least it will be exposed for what it is). Down with the Pigmen and the useful idiots!!!
Fed will be rendered impotent. It has misbehaved badly.
I agree wholeheartedly, Jas. By the time the Fed takes a break from their fiddle concerto long enough to notice the housing market inferno, it will be too late.
Darth Toll,
When did I say housing has bottomed?
I don't know what is uglier than ugly but I think we may soon find out.
Bob | 03.26.07 - 11:35 am | #
I believe the scale goes:
Ugly
Fugly
Mo-fugly
dryfly:
Another way to look at the higher median is that buyers are making purchases in locations are are more expensive ( closer to employment centers and good transportation) and staying away from low priced cow pasture developments.
For example Centex has a series of developments in San Ramon and Pleasanton which are nice burbs of San Francisco with higher price tags vs their developments in merced, Modesto and Yolo which is anywhere from 3 to 5 hrs one way of road travel to major employment center.
It also could reflect higher number of sales coming from stronger employment areas along the West coast rather then the South or Midwest.
Christopher L. Cagan, Ph.D., Director of Research and Analysis of First American CoreLogic recently released Mortgage Payment Reset: The Issue and the Impact Study
The study found that the risk of default due to rate reset will result in some 1.1 million foreclosures, but they will be spread out over a total period of six to seven years.
?? seems a little low
It also could reflect higher number of sales coming from stronger employment areas along the West coast rather then the South or Midwest.
Here's the breakdown in sales:
Northeast: -26.8%
Midwest: -20%
South: -7%
West: +24.6%
We love to bag on the MSM. But it looks like they are new skewing things a bit on the negative side. (Not that I don't think things are goingto get tougher - I just mean reporting present conditions.)
WORST HOUSING MONTH SINCE 2001
Uh? Really? Was 2001 all that bad? It only sounds bad, because that was six years ago. Americans have short attention spans.
JBA, nice observation, and I would add that the specific McMansion overbuild may also be a factor.
Could be the incentives that can be applied there, not to mention the larger profit margins and larger liabilities, mean that prices there can be reduced significantly to at least minimize losses they see increasing in the next few months. Somewhere there are stats on these bargains that mirror the wealth distribution and not the simplistic notion that all house prices are rising.
Ugh, Ugh and Ugh.
The median price being up 7.5% either means there is far more elasticty to home prices at this poin than is the norm (unlikely) or the bifurcation in the market we talked about last week may be upon us.
Terrible month.
Fed will be rendered impotent. It has misbehaved badly.
I prefer the term 'irrelevant'. Impotent can be fixed with medication, don't you watch TV?
US if fortunate, it has two central banks... PBoC & BoJ. They share a 'branch office' in Washington called 'the fed'.
Extreme. Sarcastic. But unfortunately a small sliver of truth.
steve:
thanks for posting the regional sales numbers. The HB inventory distribution is interesting to me and I am throwing darts but guess that much of it is in locations that people find undesirable for whatever reason. The 04/05/06 build it they will come mantra, may prove to be the HB biggest mistake.
I am throwing darts but guess that much of it is in locations that people find undesirable for whatever reason.
Or they have alternatives in those places OTHER than new build. In my neck of the woods you can buy a much nicer though slightly worn older home than you can a 'new build'. Generally better location & reasonable prices. Very few FTHB go new build around here... they are almost exclusively a 'move up' market. Not 100% true but a good generalization.
Probably not the case in regions that are more land locked... then the existing homes are about all you have & are expensive... so FTHB have to move way the heck out (Inbred Empire Syndrome).
I mean we have national builders & international capital markets but market conditions are still locally constrained to some degree.
Remembering that real estate person that Mish use to write about. He said that in a boom everything sales. In a bust only the really good stuff sales.
That fits best based on the data we have.
Figure sub prime starter homes are not the good stuff. Figure that salers are not going to fire sale into the best time of the years and buyers will buy only the good stuff leaving the not so good for the fire sales later.
banker:
bifurcation seems to be an active phase for the consumer market so why not RE. In Silicon Valley we have a group while not huge but good size that is making 150K to 250K in salary plus stock stock options and less then 35 years old. I am sure the entertainment industry in LA produces some extra dollars not to mention the current feeding by the Investment Banks. The pool of buyers may get smaller which helps some and hurts others.
Vader: The Mish quote makes sense.
The hogh end has the biggest margins so they can cut more easily, offer more incentives... to sell the gravy.
Here is the quotes from Mish
In a soft market, marginal listings become flotsam and debris.
In a strong market, everything sells. Buyers understand that if they don't buy that house they are looking at quickly, someone else will. Never mind the lousy back yard or the poor floor plan. Buy it, wait a few years, sell it for a profit and buy something better. In a soft market, of course, that does not work. Buyers have plenty of time and plenty of listings from which to choose. There are just not enough buyers to go around so the left over marginal listings do indeed become flotsam and debris.
Sonnypage's Third Rule of Real Estate.
Soft Market Debris
Excellent Vader, thanks!
Tanta,
A good review of the typical Coast Bank/CCI docs that the borrowers signed. Perhaps a good example of bubble fraud. Here's a red flag to keep in mind for the future: title companies that make house calls for document executions.
http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20070326/BUSINESS/703260491/-1/140154
CR/Tanta,
What am I missing on New century(NEW) and morgan stanley (MS). Ms bought new's subprime portfolio for 97 pct on the dollar when abx (BBB) was down approx 20pct....now they are auctioning the portfolio?? Did I get my facts wrong or did I miss something???
Mr. David Lereah
Chief Economist
National Association of Realtors
Dear David:
Do you know how to spell i-m-p-l-o-s-i-o-n?
Thanks for the link, Brian. Another classic example of how all this McBank Happy Loan crap has conditioned borrowers to think that the inconvenience of having to approve construction draws outweighs the risks of losing your flippin' shirt. The day I'd let a bank write interim draw checks to the builder without my signature, it'd be cold in hell. But "investments" should have no due diligence costs, right?
pjfny, as far as I can tell, MS made a desperation loan to NEW collateralized by its lovely porfolio of fab loans, in a last-ditch attempt to keep it afloat. Exactly what we all predicted would happen did happen, so MS had to "foreclose"--it called the loan and took title to the big stinking pile of "collateral," since NEW had no "money." And yes, now it's out there trying to unload these loans. If they had any value, of course, NEW might still be functioning.
So it's not that MS learned that the house always wins. They knew that. What they learned is that they are not, in fact, the house. Bummer, dude.