Or, as Murray Rothbard just pointed out to me in "America's Great Depression", population growth doesn't have a thing to do with residential housing growth. The question is, do these people have the money?

I think we know the answer to that one.

Another beautiful Dummy-Deconstruction by CR! Bravo! If we could just swap out the dummies and idiots for those that can really do some intelligent analysis the way we can change out old burnt-out sparkplugs from our cars we might actually get the economy running normally again.

Actually, the missing portion of his analysis is obvious-it's time for everyone to step up to the plate and buy a couple more of houses each.

Everything will be OK then. It'll be cool, each family member with their own house-just like living in the Kennedy compound at Hyannisport or the Bush compund at Kennebunkport.

The demand will make builders busy, the economy will boom, house prices will rise because of demand, everyone will be wealthy because of RE wealth, you could use your equity in your existing house to buy the others....

Couple of points on the Fitch report-

*estimates of 4-6 trillion in investable assets

*accounted for 58% of CDS trading volume last fall, 1/3 of trading volume in structured credit products, ie CDO, CDS, etc CDS market estimated at 29 trillion at the end of 2006

*active buyers of second lien leveraged loans and CDO equity

*no prime broker yet has reported rasing margin requirements due to spread levels at historical lows

*continued pressure to relax credit terms

*hedge funds may use multiple prime brokers, thus eliminating the prime brokers ability to monitor position concentration

*leverage distorted due to derivative use

*CDO equity may be financed on margin reportly up to 50% if desks have familiarlity with the transaction(liquidity comes to mind as a potential concern, ie if you can't sell what you wish, you sell whatever you can)

Due to the above, is my interpretation of the potential for correlation in the credit markets

*Fitch believes that liquidity risk is one of the more important issues facing creadit investors today.

*CCC issuance or lower at the end of March 125B, debt service coverage barely 1.0x

Very comprehensive, and I might add, likely pro-active

Here's my arithmetic on the housing overhang.

Per the U.S. Census Bureau, currently, we have 2.38 folks per housing unit (home, apartment). In 1980, the ratio stood at 2.56; in 1970, the ratio stood at 2.96.

Personal consumption started running amok in the early '80s. Thus, 1970 and 1980 may be good back of envelope markers for 'normal' times.

If our housing density 'should be' 2.56 folks per housing unit (1980 standard), we have 9.2MM 'excess' housing units, today. If our housing density 'should be' 2.96 folks per housing unit (1970 standard), we have 24.8MM excess housing units, today.

Historically, the number of homes and apartment units built annually runs ~2.0MM. An 'overhang' of 9-25MM housing units means that no new housing units be built for 5-12 years.

Simplified analysis, certainly. But, it gives a reasonable approximation as to how overbuilt we are, today.

jg,

The average household number would not return to 1980 values and returning to 1970 values is a pure fiction. Americans would have to have a lot more children, namely there would need to be another baby boom.

You cannot have larger number of persons in a households without children. Adults do not like to live with more than one adult. And single households are common and will be even more common with widowing boomers.

CR, have you given a more detailed post about how you calculated your 1.7 mil demand?

I would guess that the explosion of population and the decrease in people per household were related to relative ease people had in having a family they could afford and having a house they could afford.

In the "old money days" not much money was created from thin air. Money from thin air began to be developed towards the current scale as the Gold standards were dismantled.

So i think it is the perception of endlessly increasing borrowing that has created the notion that people can have endlessly increasing standards of living and bigger and better houses with fewer and fewer people in them.

When my mum and dad bought their house in the 1950's this represented a massive financial committment to them. Progressively it has become less and less of a committment until we reach the current absurd position.

The problem for the Bankers is that the Dr from WF has to be right. If he is wrong then the whole thing unwinds so we go back to sound money again and we are more or less debt free again. No banker wants that.

Worried - By "sound money" to you mean backed by gold (or silver or something)?

Thank you CR for debunking this lousy analysis. I wanted to post a comment on this over at the Register but figured it would be over the heads of most if the comment was posted at all. If it weren't for you and Tanta all we would have is useless spin.

The Fitch report cited above reminds us that its not just assets that matter -- its liabilities: who funds them, how sticky they are, and whether they all get pulled at the same time.

The fact is our pool of $8tr in mortgage credit is financed, on the margin, by hedge funds that are subject to massive, correlated margin calls. Such a "liquidity event" would cause a step-function decline in the amount of credit available for mortgages. This, given the stock of unsold homes, would in turn cause a collapse in housing prices.

Here's the Fitch excerpt (via Mish):

The inherent instability of hedge funds as an investor class — arising in large part from their reliance on short-term, margin-based leverage — is distinctly different from more traditional buy-and-hold institutional investors and relationship-oriented bank lenders. Given the continued growth of hedge funds in the credit markets, the potential for a more synchronous, forced unwind of credit assets cannot be discounted. For example, Amaranth was reported to have sold leveraged loans and residential mortgage-backed securities to meet margin calls on its natural gas positions.

David,

absolutely cannot be discounted. If you can't sell what you want to, you sell everything you can, thus the ability to have correlation amongst non-correlated assets.

I want to see the pension fiduciaries get to the point where they force regulation and ultimately take responsibility for the hedge exposure, unfortunately, this may come at the expense of future returns or lack thereof.

I would also argue that you are seeing leveraged-based derivatives effects now, dollar down, gold down, interest rates up.

The system is overrun with the leverage, the distortions could be immense and as I have stated will force a repricing of risk premiums, particularly in the HY space. This will have a pronounced effect on the PE and LBO space, thus my contention that that shit is over.

Go, Weatherman!

Wasn't there a pretty big shift underway in where we lived, how we lived, and so on? If we were on the way from a lower to a higher rate of home ownership back in the 1970s, don't we need to compare the size of the existing housing stock then and now to get some idea of the comparability of data on the flow of new homes?

Ya just gotta love 'unsustainably low'. What a hoot. Just built right into it is marketing con-artistry, and an obvious mix of 'right to profit', and an incredibly naive 'nothing can ever really change attitude'. That is just about the most empty, self serving, delusional phrase I've seen in 7 years of empty delusional self serving con-artistry.

And all in only two words. This guy definitely has a future in marketing.

I'd nominate him as the next David Learah.

Great info. Is there a more detailed study taking into account issues as pointed out in jm's comments above (population segmentation) and perhaps also taking into account segment of population more likely to own a 2nd home has grown ? This is quite an education. If anyone has questions re: framing lumber, I could help. jamesvoyager@hotmail.com

So hootable 'Wilderness opines:

Ya just gotta love 'unsustainably low'. What a hoot.

and I have to agree that his association with the industry and not our (freely elected) representatives (with or without full deep freezers) does make this easy...given our finely honed skills from years of squashing Lereah statements.

But in keeping with that training, I think it's important to note that CR doesn't opt for

"Any confidence in the Swanson analysis is unsustainably low...and about disappear altogether."

Now that might be the end result of taking this (Dr of medicine maybe?) Swanson's argument apart but only after the work is done --starting with "This analysis is incorrect."

Wells is counting the 100MM illegals they want to bring in over the next 15 years. They'll need somewhere to live right?

poszi, I think that we have a big, big slowdown coming (due to the record household debt/income ratio). With that, taxes will be going down, social programs will be going down, and employment will be going down.

I think that there will be a return to more-folks-per-household as kids move back with parents and retirees move back with grown children, all in a move to economize.