The markets continue to underestimate the number of potential buyers that have been eliminated as the result of the consolidations in the Sub-Prime industry and the return of more traditional underwriting practices.
Prime borrowers are also being eliminated by rising rates and slowly increasing spreads on mortgage rates over the 10 year treasuries. There are also fewer low down payment programs available then there were in past years. Many more restrictions on lending practices are also being enacted by state and federal regulators.
This is going limit the numbers of qualified borrowers and keep pressure on home sales and real estate prices for a long time to come.
"Cancellations rose to approximately 37% of gross orders for the quarter, compared to 32% in the second quarter 2006 and 27% in the first quarter 2007."
Don't think you can attribute this anymore to buyers suddenly getting religion and backing out of deals. The cancellation rates are staying high 'cause buyers sign contracts and then can't get financing.
At this point some of those cancellations have got to be the HBs fault. They write contracts to book a sale and can then quietly cancel months later when the revisions are less noticable. And remember cancellations are not added back into the new/unsold inventory numbers.
simple supply and demand affects all markets even ones such as SFH, the current vacant home rates is the highest level ever recorded in the USA. The long term impact on the economy might even drive money into more productive area's rathe then add to the housing glut.
Below is a bit from a article relating to vacant homes:
That figure, an often-overlooked measure of how many homes for sale in the country are empty, has climbed to its highest level since the Census Bureau began tracking it four decades ago. Last week, the bureau said that in the final three months of 2006 there were about 2.1 million vacant homes for sale.
That brought the national homeowner vacancy rate to 2.7%, up from 2.0% a year earlier. Before 2006, the number had never risen above 2.0%. Like the housing economy more broadly, the measure varies by region: The South had a homeowner vacancy rate of 3.0%, the Midwest had a rate of 2.9%, the West had a 2.4% rate and the Northeast had a rate of 2.0%.
The report, which usually gets little attention, sparked fresh concerns about the housing market. Goldman Sachs economist Jan Hatzius concluded in a report last Monday that rising vacancies signal that excess housing supply continues to grow -- and that new construction has to decline further this year, even after a 13% decline in new home starts in 2006.
I live in one of the more desirable areas of the SF East Bay -- top public schools, close to BART and Cal. Where I live there are two neighboring homes -- one directly adjacent and another two doors away -- are vacant.
Psychology can't be discounted either. A prime borrower isn't immune to the bad news surrounding housing, and not all are interested in catching a falling knife.
" That figure, an often-overlooked measure of how many homes for sale in the country are empty, has climbed to its highest level since the Census Bureau began tracking it four decades ago. Last week, the bureau said that in the final three months of 2006 there were about 2.1 million vacant homes for sale"
The next decade is going to be high times for squatters.
The U.S.S. Titanic is sinking folks. Check out the move in gold, silver, and their respective mining shares over the past two days. Buy some physical gold and/or silver to buffer the losses elsewhere.
"The lack of grocery stores in Detroit long has been a problem for citizens, and the closing of two Farmer Jack stores this week will leave Detroit without a national chain grocer. The city is home to a few independent food stores, but many city residents rely on convenience stores for their grocery needs."
It discusses how debt-service burdens tends to rise during expansions and fall during recessions. But, in past recessions interest rates went down and here we have them going up.
Other important points:
"a short-lived surge in borrowing indicates that households are experiencing some financial stress" (I think we saw this two months ago for sub-prime, probably a couple more months for alt-a.)
one way to assess the impact of credit expansion is to ask whether
this expansion has facilitated consumption smoothing. (it definitely smoothed things over for a while, but rough days are ahead)
With 2.1 million vacant homes for sale, the new home building industry, currently churning out a greatly reduced 1.0 mio new homes plus 350k rental units per year, would have to completely shut down for a year to bring the number of vacant homes on the market, and the overall level of housing stock, to something approaching an equilibrium market clearing level. Even if new housing starts drop another 30%, market clearing is still 4-5 years away, if demand holds up at current levels, which seems unlikely. Clearly, a bottom for the housing market is imminent, Mr. Paulson.
I'm taking today's bounce in the HB's to buy some more Sept/Oct puts--although I wisk that I had sold more of the July positions. I guess that the HB's are oversold, since they are bouncing today even as interest rates raise. It will be interesting to see whether they come down this afternoon.
The only good news for home sales is somewhat lower rates during the past few weeks, but that does not seem likely to hold.
I am starting to see and hear some interesting comments.
1. Builders are renting out their new homes. Anything from a 1500 sq ft to a 6000 sq ft in a gated community.
2. Apratment rentals are suffering...there is a net reduction in number of apts leased lately. In Atlanta, that number was down about 5000.
3. Like the commercial building boom, there are tens of thousands of units under construction. One wonders how that will cash flow.
Be interesting to see the impact to the builder's balance sheets now that they are carrying the homes long term. And how the construction loans for all those apts will perform when all this plays out.
I can see why so many buyers are cancelling Monterey and Meritage homes what with their often high-prices, frequently builder priced based on when the real estate market was better in the past and not adjusted down for those who are still under construction or not yet closed. In addition, this builder has numerous compliants filed against them whioch can cause even more cancellations by worried buyers. Go here Monterey Homes Sucks Meritage Homes Sucks for more details.
The markets continue to underestimate the number of potential buyers that have been eliminated as the result of the consolidations in the Sub-Prime industry and the return of more traditional underwriting practices.
Prime borrowers are also being eliminated by rising rates and slowly increasing spreads on mortgage rates over the 10 year treasuries. There are also fewer low down payment programs available then there were in past years. Many more restrictions on lending practices are also being enacted by state and federal regulators.
This is going limit the numbers of qualified borrowers and keep pressure on home sales and real estate prices for a long time to come.
"Cancellations rose to approximately 37% of gross orders for the quarter, compared to 32% in the second quarter 2006 and 27% in the first quarter 2007."
Don't think you can attribute this anymore to buyers suddenly getting religion and backing out of deals. The cancellation rates are staying high 'cause buyers sign contracts and then can't get financing.
A brick wall is being formed, and home sales will run smack into it before the end of October.
At this point some of those cancellations have got to be the HBs fault. They write contracts to book a sale and can then quietly cancel months later when the revisions are less noticable. And remember cancellations are not added back into the new/unsold inventory numbers.
simple supply and demand affects all markets even ones such as SFH, the current vacant home rates is the highest level ever recorded in the USA. The long term impact on the economy might even drive money into more productive area's rathe then add to the housing glut.
Below is a bit from a article relating to vacant homes:
That figure, an often-overlooked measure of how many homes for sale in the country are empty, has climbed to its highest level since the Census Bureau began tracking it four decades ago. Last week, the bureau said that in the final three months of 2006 there were about 2.1 million vacant homes for sale.
That brought the national homeowner vacancy rate to 2.7%, up from 2.0% a year earlier. Before 2006, the number had never risen above 2.0%. Like the housing economy more broadly, the measure varies by region: The South had a homeowner vacancy rate of 3.0%, the Midwest had a rate of 2.9%, the West had a 2.4% rate and the Northeast had a rate of 2.0%.
The report, which usually gets little attention, sparked fresh concerns about the housing market. Goldman Sachs economist Jan Hatzius concluded in a report last Monday that rising vacancies signal that excess housing supply continues to grow -- and that new construction has to decline further this year, even after a 13% decline in new home starts in 2006.
Vacant Homes for Sale Cloud U.S.'s Economic Outlook - WSJ.com
I live in one of the more desirable areas of the SF East Bay -- top public schools, close to BART and Cal. Where I live there are two neighboring homes -- one directly adjacent and another two doors away -- are vacant.
One has been empty for about 6 mos.
Psychology can't be discounted either. A prime borrower isn't immune to the bad news surrounding housing, and not all are interested in catching a falling knife.
" That figure, an often-overlooked measure of how many homes for sale in the country are empty, has climbed to its highest level since the Census Bureau began tracking it four decades ago. Last week, the bureau said that in the final three months of 2006 there were about 2.1 million vacant homes for sale"
The next decade is going to be high times for squatters.
The U.S.S. Titanic is sinking folks. Check out the move in gold, silver, and their respective mining shares over the past two days. Buy some physical gold and/or silver to buffer the losses elsewhere.
Fireworks
Dear CR,
This report may be of interest to you. From the Detroit News:
Grocery closings hit Detroit hard
"The lack of grocery stores in Detroit long has been a problem for citizens, and the closing of two Farmer Jack stores this week will leave Detroit without a national chain grocer. The city is home to a few independent food stores, but many city residents rely on convenience stores for their grocery needs."
C-stores often more expensive.
Reminder that the Federal Reserve G.19 Consumer Credit report should be released later today.
I'm reading an excellent article at http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2006/weinberg.pdf.
It discusses how debt-service burdens tends to rise during expansions and fall during recessions. But, in past recessions interest rates went down and here we have them going up.
Other important points:
this expansion has facilitated consumption smoothing. (it definitely smoothed things over for a while, but rough days are ahead)
With 2.1 million vacant homes for sale, the new home building industry, currently churning out a greatly reduced 1.0 mio new homes plus 350k rental units per year, would have to completely shut down for a year to bring the number of vacant homes on the market, and the overall level of housing stock, to something approaching an equilibrium market clearing level. Even if new housing starts drop another 30%, market clearing is still 4-5 years away, if demand holds up at current levels, which seems unlikely. Clearly, a bottom for the housing market is imminent, Mr. Paulson.
I'm taking today's bounce in the HB's to buy some more Sept/Oct puts--although I wisk that I had sold more of the July positions. I guess that the HB's are oversold, since they are bouncing today even as interest rates raise. It will be interesting to see whether they come down this afternoon.
The only good news for home sales is somewhat lower rates during the past few weeks, but that does not seem likely to hold.
10 year yield is at 5.19% - which is above a year ago level.
I am starting to see and hear some interesting comments.
1. Builders are renting out their new homes. Anything from a 1500 sq ft to a 6000 sq ft in a gated community.
2. Apratment rentals are suffering...there is a net reduction in number of apts leased lately. In Atlanta, that number was down about 5000.
3. Like the commercial building boom, there are tens of thousands of units under construction. One wonders how that will cash flow.
Be interesting to see the impact to the builder's balance sheets now that they are carrying the homes long term. And how the construction loans for all those apts will perform when all this plays out.
re: Vacancies:
1st qtr 2007 data here:
Housing Vacancies and Homeownership - First Quarter 2007: Table 1
Housing inventory
Housing Vacancies and Homeownership - First Quarter 2007: Table 4
Some regional information
Housing Vacancies and Homeownership - First Quarter 2007: Table 2
I can see why so many buyers are cancelling Monterey and Meritage homes what with their often high-prices, frequently builder priced based on when the real estate market was better in the past and not adjusted down for those who are still under construction or not yet closed. In addition, this builder has numerous compliants filed against them whioch can cause even more cancellations by worried buyers. Go here Monterey Homes Sucks Meritage Homes Sucks for more details.