If I understand correctly cancelations are not measuered in the "new home sales" report.
whenthey are such high number as 38% - shouldn't the total (new+existing) be corrected to refelect cancelations ?
I don't understand why the high cancel rates: People think they can buy a house but can not get the money ? or is it peiople who thought "this is a good time to buy" and decided it is not ?
Yal, cancellations are probably increasing due to tighter lending standards for FTHB, but mostly because a lot of would-be purchasers of new homes already own a home and must sell that home first. Due to the tighter market, they are having trouble selling their current home and so don't close on the new home.
Thanks, CR, for your answers yesterday. One important question:
The Household Formation data that I have seen from David Rosenberg of ML(and sent you a copy) shows that for the past 12.25 years the average is somewhere between 0.75 to 1.0M a year with the range being -1.0 to + 2.0M (minus 1M to plus 2M). Is this correct?
We agree on most other aspects of housing except for the Fundamental Demand part.
I would also like to point out that the past 12.25 years have been Bubble Years for the US economy. Therefore, the Household Formation might have been inflated during the past 12.25 years including the massive influx of illegal immigrants. My forecast is that for the next 5-10 years the demand for new housing units would be well below 0.5M a year.
Clearly, the unfolding problem is the result of way way way too much debt pumped into residential RE.
But soon (no later than Q1 2008) our one-trick-pony central bank will decide that (you guessed it!) it is time to pump more more more debt into good old residential RE.
If several of the homebuilders now have cancelation rates of 37-38%, won't that increase the number of spec homes on the market? An over supply of spec homes has got to hurt the homebuilders and the existing homes in a given area. BK is right around the corner for some homebuilders.
There was a segement on Kudlow and Company (CNBC) last night, and while I try to never watch that crud, there was a housing debate between Shiller and some eternal optimist. The optimist said that housing is bottoming and the probable loss of 30-50 Billion dollars on CDO's and the like is already adsorbed. I had a funny thought which is kind of exostential in nature:
If 30-50 Billion in losses is no problem, how about 100 Billion, 200 etc? If money losses of this magnitude dont matter to the economy at all, then why do companies report earnings at all? Home Depot reported weak numbers and the stock is up today. Why dont all economic reports just read "We did business last quarter and had some financial stuff go on, but in the scheme of things whether we made 500 million or lost a billion dollars does not matter because its all the same in the end." At some point I figure the curent MEGA losses going on in real estate are going to matter big time, but maybe Im just a total idiot.
People are cancelling because as they drive back to from the sales office, they see a dozen REOs that Horton sold to some idiot last year and that are listed at 10% less than Horton's current price.
can someone translate this (for me) to any of the langugues I speak and understand:
``remain imperfectly anchored'' in part because the public doesn't know the central bank's goal for prices.
What inflation rate the Fed prefers is not fully known by private agents,'' Bernanke said in the text of a speech to the National Bureau of Economic Research in Cambridge, Massachusetts today.Long-run inflation expectations do vary over time,'' he added. ``They are not perfectly anchored.''
Variability in the public's outlook raises ``issues of credibility and institutional design,'' he said. Bernanke has sought to depersonalize policymaking and commissioned a study on Fed communication a year ago. As a Fed governor and academic, he was critical of the central bank for basing its credibility in the office of the chairman instead of the institution.
Still, Bernanke noted that expectations are more tethered than they have been in the past.
"But soon (no later than Q1 2008) our one-trick-pony central bank will decide that (you guessed it!) it is time to pump more more more debt into good old residential RE.
And away we will go once again."
Any money being pumped into the economy will not be going into RE. I f that happens it will find its way to the next bubble, my bet is that it goes to energy. RE is dead for a long while.
If investors, consumers and businesses feel confident that the Fed will keep prices stable, the Fed chief suggested, they may be less inclined to act in ways that could aggravate inflation. Bernanke also said that these groups may be less inclined in such circumstances to worry that inflation will eat away at investments and paychecks, and might feel better about longer-term financial planning. My Way - Money
Benny that why I get my money out of dollar, I know you inflate or die.
This is having international repercussions. The Euro hit an alltime high against the dollar today as subprime worries made dollar assets less desirable. BTW Richard Duncan of ABN AMRO foresaw this whole scenario 3 years ago and wrote about it in his book, "The Dollar Crisis."
But soon (no later than Q1 2008) our one-trick-pony central bank will decide that (you guessed it!) it is time to pump more more more debt into good old residential RE.
you can lead a horse to water, but it takes a strong pair of hands around the neck to force his snout in the punch bowl
Trouble is, it's not just the Fed's decision anymore. They can't cut unless China says it's OK. Chances are China will play the game so they can keep their own people subverted and employed cranking out crap for us to buy, but you never know.
I've found MERKX a good hedge against dollar collapse. You don't get quite as much dividend payout as you would with a money market, but safer than weakening dollars. PLus, they hold some gold so you get some benefit if gold goes parabolic. Diclosure: 10% MERKX.
It's becoming clear, even for those who aren't wonks, that the fed doesn't know anything we don't. There was always the hope that they had the "real" info and would "take care of things".
I didn't understand much, but I do understand
"imperfectly"
and "looking for help"
So far my judgements about housing and the consumer have been closer to right than the Fed's.
David Pearson, good observation. Clearly Horton hasn't lowered prices far enough yet to stimulate sufficient demand to stabilize sales - so based on what the CEO said, I'd expect more price cuts are on the way.
Y. S. Wayne, yes - this means more spec houses and more supply. and the builders are still starting waaaay too many houses. We need to see starts fall significantly before the inventory will start to stabilize and eventually decline (with falling prices).
"We did business last quarter and had some financial stuff go on, but in the scheme of things whether we made 500 million or lost a billion dollars does not matter because its all the same in the end." - JJ
Makes perfect sense in country that wants 'sports without scores and education without grades'.
"When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, "Why are you doing this to me? Why don't you just put a sign on my lawn saying, 'I'm a schmuck?' " So you've got to give incentives instead of lowering prices because you don't want to be rude, crude and barbaric to your clients."
If that happens it [easy money] will find its way to the next bubble, my bet is that it goes to energy.
I second that. Or transportation (highways, light rail, etc.)... both infrastructures are great places for 'fiscal stimulus' via 'social investment' once monetary means of gassing the system have lost favor.
Plus they have VERY powerful lobbies on both sides of the isle... can't hardly lose that bet.
Well maybe another war instead... there is always that 'option'. Not as popular though as bridges to nowhere... everyone wants one of those.
"So you've got to give incentives instead of lowering prices because you don't want to be rude, crude and barbaric to your clients."
That works until a $400K purchase price (instead of $500k) is all that most of the prospective homebuyers can afford to finance. In other words, until credit gets tighter. Which, it is.
That works until a $400K purchase price (instead of $500k) is all that most of the prospective homebuyers can afford to finance.
In my neighborhood it would take 2-3 families to realistically finance that house... more if we counted illegals.
Prices have a long way down to go before real, sustainable, affordability is reached... either that or we need a whole lot more wage growth (real or otherwise).
It took about 7 months for the Implode-O-meter to get to 100 (it's pretty close now at 96). I wonder if it'll only take a couple of months to get to 200, especially given the news from S&P?
In my neighborhood it would take 2-3 families to realistically finance that house... more if we counted illegals.
Where I live, $400K would be a steal, even for a 60-year-old 2BR/1BA on a concrete slab. You could see it in a day at that price, even now. Which is why the illegals are living in garages, or six or eight to a 1-BR apartment, and schoolteachers and cops have to quit their jobs and leave the area if they want to buy. It's a desirable area, and there's a shortage of land to build on.
Yeah, home have to come down to somewhere near their break-even price as rental property -- in all but the most desirable areas. And I live in an area that has become desirable, so I expect prices to always stay a bit higher than they "should" be.
Bernanke may be touting inflation targeting. The idea is that the Fed cannot explicitly publish an inflation target unless it gets the OK from Congress, and until then, public understanding of the Fed's inflation target is necessarily inperfect.
Emmanuel and wawawa,
Moore Capital bought 1.99 million shares of Beazer today, so Beazer may not be the first to go tango upsilon.
What good is the Fed targeting inflation,if their metric for inflation is bogus.? The fed needs to target monmey supply growth, including M3. Of course this isn't what Wall Street wants, and we know that Wall Street owns the Federal Reserve. Don't we? "Inflation is always and everywhere a monetary phenomena."
There is more activity in the oilfield than anytime since the early '80s.
$70/bbl will do that. Think how exciting it will be when it goes above $100/bbl.
Problem with the Oklahoma & Texas oil fields is its like walking the highway looking for pop cans just because the price of aluminum goes up (i.e. those fields are mostly played out)...
Problem with the Oklahoma & Texas oil fields is its like walking the highway looking for pop cans just because the price of aluminum goes up (i.e. those fields are mostly played out)...
A friend of mine a few years back started buying up idle wells around oilfields controlled by the big boys. Turns out the techniques used to boost production boosted yield in his wells also. So higher prices and higher output at a minimal investment.
It's not like any of this is any surprise, even to someone who just looks at the numbers over time. But just think, this is the PUBLIC info that is out there, and you gotta know that ole Hanky Paulson has a lot better info than the public info and yet, he has the arse kissing gall to state that the housing market is at a bottom. What a total unmitigated scam artist. If you are wondering what the PPT is, this is part of it. I think maybe the best trading strategy now is to find his speaking schedule and go long ahead of it, then sell the day after.
Bottom = Butt = Ass
Anyone calling for a bottom in housing now is an Ass, its just that simple. When will the bottom be, not for a long time. My best guess is when resedential investment falls to 4% or less of GDP. It has gotten there in every housing bust in the last 50 years or so, and the only housing boom that was comparable would be the "twin peaks" of the mid 1970's (pull out any of CR's handy dandy graphs and you will see what I am refering to). Back then there was a HUGE demographic reason for strong investment in housing, namely the baby boomers were entering the housing market for the first time. After all most people buy their first house when they are in their late 20's. The baby boom started in 1946. Do the math 1946 + 25 = 1971. No such demographic pressure today.
Don't underestimate digging holes and filling them in. It keeps the proles occupied, tired and far away from the elites.
But seriously, social stability will require massive public works programs to put money into the hands of the masses so that they will be able to buy food and shelter. I second the prediction of a massive public works program as the next bubble.
whenthey are such high number as 38% - shouldn't the total (new+existing) be corrected to refelect cancelations ?
which of the publicy traded homebuilders will be the first to declare bankruptcy?
BZH will be first to BK.
Yal, cancellations are probably increasing due to tighter lending standards for FTHB, but mostly because a lot of would-be purchasers of new homes already own a home and must sell that home first. Due to the tighter market, they are having trouble selling their current home and so don't close on the new home.
Cancellations may also be caused by people who see the same house priced significantly below their buying price minus the deposit amount.
--
Thanks, CR, for your answers yesterday. One important question:
The Household Formation data that I have seen from David Rosenberg of ML(and sent you a copy) shows that for the past 12.25 years the average is somewhere between 0.75 to 1.0M a year with the range being -1.0 to + 2.0M (minus 1M to plus 2M). Is this correct?
We agree on most other aspects of housing except for the Fundamental Demand part.
I would also like to point out that the past 12.25 years have been Bubble Years for the US economy. Therefore, the Household Formation might have been inflated during the past 12.25 years including the massive influx of illegal immigrants. My forecast is that for the next 5-10 years the demand for new housing units would be well below 0.5M a year.
Thanks again.
Jas
Clearly, the unfolding problem is the result of way way way too much debt pumped into residential RE.
But soon (no later than Q1 2008) our one-trick-pony central bank will decide that (you guessed it!) it is time to pump more more more debt into good old residential RE.
And away we will go once again.
"Cancellations may also be caused by people who see the same house priced significantly below their buying price minus the deposit amount." -charlie
You think American's have become rational actors?
Calculated Risk
If several of the homebuilders now have cancelation rates of 37-38%, won't that increase the number of spec homes on the market? An over supply of spec homes has got to hurt the homebuilders and the existing homes in a given area. BK is right around the corner for some homebuilders.
BTW I hope you will mention it when the Mortgage Implode O Meter goes of 100 later this month.
There was a segement on Kudlow and Company (CNBC) last night, and while I try to never watch that crud, there was a housing debate between Shiller and some eternal optimist. The optimist said that housing is bottoming and the probable loss of 30-50 Billion dollars on CDO's and the like is already adsorbed. I had a funny thought which is kind of exostential in nature:
If 30-50 Billion in losses is no problem, how about 100 Billion, 200 etc? If money losses of this magnitude dont matter to the economy at all, then why do companies report earnings at all? Home Depot reported weak numbers and the stock is up today. Why dont all economic reports just read "We did business last quarter and had some financial stuff go on, but in the scheme of things whether we made 500 million or lost a billion dollars does not matter because its all the same in the end." At some point I figure the curent MEGA losses going on in real estate are going to matter big time, but maybe Im just a total idiot.
People are cancelling because as they drive back to from the sales office, they see a dozen REOs that Horton sold to some idiot last year and that are listed at 10% less than Horton's current price.
can someone translate this (for me) to any of the langugues I speak and understand:
``remain imperfectly anchored'' in part because the public doesn't know the central bank's goal for prices.
What inflation rate the Fed prefers is not fully known by private agents,'' Bernanke said in the text of a speech to the National Bureau of Economic Research in Cambridge, Massachusetts today.Long-run inflation expectations do vary over time,'' he added. ``They are not perfectly anchored.''
Variability in the public's outlook raises ``issues of credibility and institutional design,'' he said. Bernanke has sought to depersonalize policymaking and commissioned a study on Fed communication a year ago. As a Fed governor and academic, he was critical of the central bank for basing its credibility in the office of the chairman instead of the institution.
Still, Bernanke noted that expectations are more tethered than they have been in the past.
sorry forgot the link:
Bernanke Says Expectations Are `Imperfectly Anchored' (Update4) - Bloomberg.com
"But soon (no later than Q1 2008) our one-trick-pony central bank will decide that (you guessed it!) it is time to pump more more more debt into good old residential RE.
And away we will go once again."
Any money being pumped into the economy will not be going into RE. I f that happens it will find its way to the next bubble, my bet is that it goes to energy. RE is dead for a long while.
Bernanke Cites Factors in Making Policy
If investors, consumers and businesses feel confident that the Fed will keep prices stable, the Fed chief suggested, they may be less inclined to act in ways that could aggravate inflation. Bernanke also said that these groups may be less inclined in such circumstances to worry that inflation will eat away at investments and paychecks, and might feel better about longer-term financial planning.
My Way - Money
Benny that why I get my money out of dollar, I know you inflate or die.
This is having international repercussions. The Euro hit an alltime high against the dollar today as subprime worries made dollar assets less desirable. BTW Richard Duncan of ABN AMRO foresaw this whole scenario 3 years ago and wrote about it in his book, "The Dollar Crisis."
The DHI report was notable in that a 9% sequential ASP decline did not result in an order pick-up. In fact, orders fell sequentially by about 15%.
But soon (no later than Q1 2008) our one-trick-pony central bank will decide that (you guessed it!) it is time to pump more more more debt into good old residential RE.
you can lead a horse to water, but it takes a strong pair of hands around the neck to force his snout in the punch bowl
Trouble is, it's not just the Fed's decision anymore. They can't cut unless China says it's OK. Chances are China will play the game so they can keep their own people subverted and employed cranking out crap for us to buy, but you never know.
I've found MERKX a good hedge against dollar collapse. You don't get quite as much dividend payout as you would with a money market, but safer than weakening dollars. PLus, they hold some gold so you get some benefit if gold goes parabolic. Diclosure: 10% MERKX.
It's becoming clear, even for those who aren't wonks, that the fed doesn't know anything we don't. There was always the hope that they had the "real" info and would "take care of things".
I didn't understand much, but I do understand
"imperfectly"
and "looking for help"
So far my judgements about housing and the consumer have been closer to right than the Fed's.
David Pearson, good observation. Clearly Horton hasn't lowered prices far enough yet to stimulate sufficient demand to stabilize sales - so based on what the CEO said, I'd expect more price cuts are on the way.
Y. S. Wayne, yes - this means more spec houses and more supply. and the builders are still starting waaaay too many houses. We need to see starts fall significantly before the inventory will start to stabilize and eventually decline (with falling prices).
And yes, I'll mention the Mortgage Implode O Meter
when it gets to 100.
Best Wishes.
"We did business last quarter and had some financial stuff go on, but in the scheme of things whether we made 500 million or lost a billion dollars does not matter because its all the same in the end." - JJ
Makes perfect sense in country that wants 'sports without scores and education without grades'.
Amusing quote from CEO Bob Toll in a Fortune mag interview:
Toll Brothers CEO forecasts real estate's recovery - Jul. 10, 2007
"When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, "Why are you doing this to me? Why don't you just put a sign on my lawn saying, 'I'm a schmuck?' " So you've got to give incentives instead of lowering prices because you don't want to be rude, crude and barbaric to your clients."
If that happens it [easy money] will find its way to the next bubble, my bet is that it goes to energy.
I second that. Or transportation (highways, light rail, etc.)... both infrastructures are great places for 'fiscal stimulus' via 'social investment' once monetary means of gassing the system have lost favor.
Plus they have VERY powerful lobbies on both sides of the isle... can't hardly lose that bet.
Well maybe another war instead... there is always that 'option'. Not as popular though as bridges to nowhere... everyone wants one of those.
"So you've got to give incentives instead of lowering prices because you don't want to be rude, crude and barbaric to your clients."
That works until a $400K purchase price (instead of $500k) is all that most of the prospective homebuyers can afford to finance. In other words, until credit gets tighter. Which, it is.
And yes, I'll mention the Mortgage Implode O Meter when it gets to 100.
Wooohooo!!! That'll be a party day for sure.
That works until a $400K purchase price (instead of $500k) is all that most of the prospective homebuyers can afford to finance.
In my neighborhood it would take 2-3 families to realistically finance that house... more if we counted illegals.
Prices have a long way down to go before real, sustainable, affordability is reached... either that or we need a whole lot more wage growth (real or otherwise).
It took about 7 months for the Implode-O-meter to get to 100 (it's pretty close now at 96). I wonder if it'll only take a couple of months to get to 200, especially given the news from S&P?
dryfly, investment in transit and infrastructure is exactly what this country needs. FDR set a good example back in the 1930s with the WPA.
instead we got the GWB plan: we dumped $600 billion into a senseless war and tied the hands of regulators for the past 6 years.
I will never vote for a Republican again as long as I live.
It's going to be ugly, and it never had to be this way.
In my neighborhood it would take 2-3 families to realistically finance that house... more if we counted illegals.
Where I live, $400K would be a steal, even for a 60-year-old 2BR/1BA on a concrete slab. You could see it in a day at that price, even now. Which is why the illegals are living in garages, or six or eight to a 1-BR apartment, and schoolteachers and cops have to quit their jobs and leave the area if they want to buy. It's a desirable area, and there's a shortage of land to build on.
Yeah, home have to come down to somewhere near their break-even price as rental property -- in all but the most desirable areas. And I live in an area that has become desirable, so I expect prices to always stay a bit higher than they "should" be.
Yal,
Bernanke may be touting inflation targeting. The idea is that the Fed cannot explicitly publish an inflation target unless it gets the OK from Congress, and until then, public understanding of the Fed's inflation target is necessarily inperfect.
Emmanuel and wawawa,
Moore Capital bought 1.99 million shares of Beazer today, so Beazer may not be the first to go tango upsilon.
Gary - I'm all for useful infrastructure but we don't need more bridges to nowhere just to keep 'people working'. Not good.
There has to be better accounting & some checks-n-balances. I fear that in a serious downturn there won't be either.
You can call me paranoid, just don't call me late for supper - not if they're serving pork.
From what I have seen in TX & OK the next bubble will be energy. There is more activity in the oilfield than anytime since the early '80s.
ok, dryfly...
great subject...
I see useless quasi activity going on all the time in my travels.
ie... freeway onramp triangle beutification project's in the desert, with irrigation piping and all
how do we/where do we re-direct labor surplus for the betterment of society, and keep people fed at the same time....
What good is the Fed targeting inflation,if their metric for inflation is bogus.? The fed needs to target monmey supply growth, including M3. Of course this isn't what Wall Street wants, and we know that Wall Street owns the Federal Reserve. Don't we? "Inflation is always and everywhere a monetary phenomena."
There is more activity in the oilfield than anytime since the early '80s.
$70/bbl will do that. Think how exciting it will be when it goes above $100/bbl.
Problem with the Oklahoma & Texas oil fields is its like walking the highway looking for pop cans just because the price of aluminum goes up (i.e. those fields are mostly played out)...
how do we/where do we re-direct labor surplus for the betterment of society, and keep people fed at the same time....
I don't know. Digging holes and filling them isn't the answer though.
Problem with the Oklahoma & Texas oil fields is its like walking the highway looking for pop cans just because the price of aluminum goes up (i.e. those fields are mostly played out)...
A friend of mine a few years back started buying up idle wells around oilfields controlled by the big boys. Turns out the techniques used to boost production boosted yield in his wells also. So higher prices and higher output at a minimal investment.
dryfly, 100% agree that bridges to nowhere are not the answer.
for my money, a national highspeed rail network, improved freight rail infrastructure, and local mass transit are a good place to get started.
wind and solar energy installations are another.
It's not like any of this is any surprise, even to someone who just looks at the numbers over time. But just think, this is the PUBLIC info that is out there, and you gotta know that ole Hanky Paulson has a lot better info than the public info and yet, he has the arse kissing gall to state that the housing market is at a bottom. What a total unmitigated scam artist. If you are wondering what the PPT is, this is part of it. I think maybe the best trading strategy now is to find his speaking schedule and go long ahead of it, then sell the day after.
Bottom = Butt = Ass
Anyone calling for a bottom in housing now is an Ass, its just that simple. When will the bottom be, not for a long time. My best guess is when resedential investment falls to 4% or less of GDP. It has gotten there in every housing bust in the last 50 years or so, and the only housing boom that was comparable would be the "twin peaks" of the mid 1970's (pull out any of CR's handy dandy graphs and you will see what I am refering to). Back then there was a HUGE demographic reason for strong investment in housing, namely the baby boomers were entering the housing market for the first time. After all most people buy their first house when they are in their late 20's. The baby boom started in 1946. Do the math 1946 + 25 = 1971. No such demographic pressure today.
The baby boom started in 1946. Do the math 1946 + 25 = 1971. No such demographic pressure today.
Well not in America anyway... which reminds me, anyone see that immigration bill lately?
dryfly,
Don't underestimate digging holes and filling them in. It keeps the proles occupied, tired and far away from the elites.
But seriously, social stability will require massive public works programs to put money into the hands of the masses so that they will be able to buy food and shelter. I second the prediction of a massive public works program as the next bubble.
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