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CR,
I count (roughly) 10 declines in your top chart that didn't predict or lead to a recession in that time frame. Am I reading it right or is their some seasonality that isn't smoothed out?
Also, I have a question. Do you know offfhand what percentage of GDP has been RI historically? I'm going to go find it myself, but I wonder if you had an easy source.
Great chartfest btw. Thanks.
--
Remembering that the Fundamental Demand is down 30%+ from the peak demand of 1979 we have a lot farther to go to the down side. Also, SFHs were built disproportionately higher in the latest boom, which means that we should hit a new low around 20K a month or 250K a year rate.
Add to this the probability of a depression and the bottom could be around 100K a year rate for SFHs. The price would be so low that noi builder would be able to make profit. This means that only some private building will take place in few area. Otherwise, the building would pretty much shut down for all practical purposes.
Jas
Jas
can the stock market bubble support the housing by year end..heck w/ 10-15% return, there would be money left to buy a few condos..
CR,
I found the data. In the time frame we are talking about here, RI as a % of GDP hasn't changed dramatically though of course has been highly volatile. A big never mind on that one.
I would like to see the trends if you factored in (standardized) population growth (households) from the data.
Banker, for recessions, it's the speed and depth of the drop that matters. I use a different graph (I'll post it again) to try to predict recessions - but this is a good one to show why we should be concerned.
Best Wishes.
CR,
OK, I get that, but if I look at the chart with that in mind then the inference I'm supposed to draw is that first quarter GDP reporting on Friday should already show negative growth, shouldn't it?
You can really see how Al aborted the normal business cycle back in '98 and got the US economy high on the class of drugs known as "easy money" for almost 10 years... maybe longer.
Happy times.
OK, I get that, but if I look at the chart with that in mind then the inference I'm supposed to draw is that first quarter GDP reporting on Friday should already show negative growth, shouldn't it?
If you were to only go by that chart (which I don't think CR is suggesting), a recession probably should have started last year.
I would question whether starts above 1M are a sustainable rate based on true demand. Perhaps even the sales pace of 860K is above true demand. Builders were building for borrowers that can't afford to buy and for speculators that had multiple properties... many remain vacant.
Once the inventory overhang is cleared what IS the sustainable rate? What is the degree of overcapacity in the system, with all those national builders and their bloated overhead?
This is why the ABX have been going down- it is called "Alt-A" - anyone know what it is ?
S&P More Than Doubles Alt A Mortgage Bonds It May Cut
S&P more than doubles Alt-A mortgage bonds it may cut:
S&P More Than Doubles Alt A Mortgage Bonds It May Cut
Oops -sorry double post -Yal beat me to it
Spain R/E is imploding and now is India next:
Death knell for India property boom?
Alo,
it is OK this is the most important news of the day.
Also, S&P 500 P/E ratios now approaching 1929 levels:
S&P 500 P/E Ratios
Freddie mac study on why people are in default on their mortgages:
2006 Drop in Delinquencies Show Shifting Reasons Behind Single Family Late Payments, Says Freddie Mac - News Archive - Freddie Mac
Freddie is backing up the truck and loadin 'er up:
"Solid Q1 at Freddie
First quarter purchases and issuances totaled $147 billion, Freddie Mac said in its monthly summary released Wednesday. Business climbed more than $20 billion from the fourth quarter, the Virginia-based company reported. Secondary purchases were nearly $15 billion better than the first quarter 2006. "
Real estate comments in the beige book just released by the Philly Fed. look mixed to me with some markets improving and some not.
Beige book mostly like the last one. Business conditions stable overall, expect continued below trend growth for the time being.
Just when I think this pig may finally crash to earth, I find something like this.
Go FICO Yourself: Selling Your Credit Score
The Big Picture
Kenneth Harney explains how this loophole is now being used:
"When your credit scores don't qualify you for the home mortgage you want, where do you turn? That's an especially timely question now, as banks and mortgage companies tighten underwriting standards for applicants with less than perfect credit.
But federal and state authorities fear that some borrowers are turning to a fast-growing business on the Internet: companies that claim to boost credit scores by transplanting the credit DNA of people with excellent payment histories into the credit files of people with subpar histories -- ostensibly without breaking any law.
The companies claim to raise FICO credit scores by 50 to 250 points by adding low-scoring borrowers as "authorized users" on the credit card accounts of people with FICO scores well in excess of 700. The positive payment information from such cardholders then flows into the files of the persons with subpar credit."
This takes advantage of a loophole in the Federal credit law, which does not limit the number "authorized users permitted on any single credit card account."
As this article makes clear, the law does not "prohibit the rental or sale of authorized user designations. Exploiting that loophole, numerous companies have popped up on the Internet offering to buy and rent out the credit card "trade lines" or accounts of credit card holders with high limits combined with perfect payment histories.
down 60%:
Business & Financial News, Breaking US & International News | Reuters.com
ASTR.MC
Once the inventory overhang is cleared what IS the sustainable rate? What is the degree of overcapacity in the system, with all those national builders and their bloated overhead?
Geeze, if we could figure that out, we'd make some real money!
I'm late to the party, and wondering how inventory can be flat when completions far exceed sales. I know cancellations are not included in inventory and many homes are not built for sale. Still, when homes are being completed at a rate of 1.5 million or higher and sales have been below a SAAR of 900,000 in recent months, shouldn't we expect inventory to rise?
JED those are annual rates. The monthly difference is obviously much smaller.
Okay, I understand that, but it seems to me that the monthly difference between a SAAR for completions of 1.5 million (for the month of March, say, 140,000 units) and the 84,000 units sold in March would have caused inventory to rise a smidge. I also understand that inventory is seasonally adjusted, but I am having trouble with the absence of a change.
Yes, is it your common sense that needs tuning up or is it a case like rising OER (the housing proxy which is climbing in the face of record inventory which suggests the compiled proxy has been tinkered with to enable an interpretation that there is an inflation scare): that against all your better judgement, things are rigged to present an improved picture.
How about this: Things take time. Houses can be built in a month's time but most take longer; the inventory will "rise a smidge" in response to this burst in the next quarter.
Now about that largish Start stat: would you rather add to high inventories now or even higher inventories later? Would you rather face declining house prices now or even lower declined house prices later? Would you rather keep doing something you know and make less or take a sabbatical that you can't afford?
CR said: "Banker, for recessions, it's the speed and depth of the drop that matters..."
That's what I used to think, too. However, it's the reason that matters, not the speed or depth.
Things like panic over transient concerns that simply evaporate once the "crisis" is over can cause drops of incredible speed and depth, too.
That's what's happened with the housing "bust." There's been a short-term "panic" as a result of subprime fallout and tightened lending standards, but that's not a large or persistent problem.
Rising unemployment and poor job creation, those are serious, persistent issues that can cause long-term problems for housing. Since that's not the case, there's good reason to think the housing "bust" is over and even a possibility that it will snap-back quickly.
Sebastia
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