Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 28 members and 146 guests online.
Recent Recommendations
CR you mean 528 for July? You estimated 830 for the whole year earlier, am I confused?
--
It would be nice if economists revised their estimates of the housing demand based on the actual data.
For example, during 2002 the Household Formations declined by TWO MILLION! But, that is an anomaly that should be ignored and never to be taken into account in estimates.
Jas
Very educational graph. They should show it on the mainstream outlets, but of course, they won't; they'd rather cheerlead.
CR,
Good point about the revisions. Have to say I was surprised that the June numbers were revised up, but as your graph shows there have been 5 other first time revisions up, and all but one of them have been subsequently reversed.
Still I hope that this is for real, esp combined with a drop in starts, it does lay the foundation for eventually working our way out of this mess. More work to do, but at least things appear (tentatively) to be starting to head in the right direction. We will need a few more months of data at least this strong, combined with starts continuing to head south in a big way to get things under control.
What did you make of most of the strength being at the high end, in the not started catagory, and so regionally concentrated in the west?
M-F, SAAR. I've change the text slightly to make it clear. The Census Bureau reported sales in July at as Seasonally Adjusted Annual Rate (SAAR) of 870 thousand - I expect that to be revised down.
bofiz, this is why blogs exist!
Best Wishes.
What's really interesting is since Jan '06, there's only been one month where the first revision wasn't the most overly optimistic and not ultimately revised considerably lower. Very clearly shows a built in bias to err on a bullish side of the housing industry. How about just calling a spade a spade and report what it is. I know.....
Dirk, the concentration of sales in the West makes me suspect a large downward revision!
BTW, It's weird in SoCal, you can drive around and see "For Sale" signs everywhere - and desperate pleadign type signs too - and the builders are still breaking ground on new houses. As you note, we need to see starts fall before we can get out of this mess.
Best Wishes.
On CRE - CNN claim these are some of the best paying jobs:
Hot 6-figure jobs now - More sales jobs (3) - CNNMoney.com
Hot 6-figure jobs now - Finance jobs - Construction (5) - CNNMoney.com
Today I feel like drinking the Kool-Aid. All is good. Sales are up. Life is great. Let's hold hands and sing together - I sure miss Dave Lereah.
13th!
i expect this to be revised down to 8th or so in the future.
CR,
The logic of builders is not your logic. SoCal in particular is so constrained by regulation that "breaking ground" represents commiting to the project 18 months ago or more. There is so much sunk capital that finishing and selling at any cost is their best path.
I wouldn't say it is biased toward the bullish side, I'd say it is biased toward a straight line; once a corner is turned you'd expect the up/down revisions to be distributed more evenly. By the same logic, you'd also expect consistent upward adjustments during a turn toward a growth period. That is, the first report should generally underestimate.
Stuart, I've looked back before - and it unfortunately takes some work digging through the old reports - and this bias happens during down turns only.
When sales are stable or rising, the Census' estimates have no discernible bias, high or low.
We also need to remember there are record cancellations right now - and the Census Bureau just ignore them. So sales are actually lower than reported and inventory higher.
Best Wishes.
Some interesting comments from Ambrose Evans-Pierce at the Telegraph (UK) 8/23/07
Be very careful. Interest rates in Europe and Asia are that much higher now, with delayed effects starting to bite hard. Japans economy has stalled to 0.1pc growth in Q2; the euro-zone has slowed to 0.3pc; and Chinas refusal to import (by currency manipulation) makes it a drain on world demand. Above all, the credit bubble that perpetuated the rally of the last eighteen months beyond its natural life has definitively burst.
Credit spreads on the iTraxx Crossover (a good barometer of corporate bonds) have ballooned 180 basis points since February. The cost of borrowing for most firms in Europe and North America has jumped from circa 6.5pc to 8.3pc, if they can get it.
Many cannot. Germanys Chamber of Industry told me yesterday that it had been flooded with distress calls from family Mittlestand firms unable to roll over credit lines. In Canada and Australia, junior mining finance has dried up almost entirely....
We already thought there was a 40pc chance of a US recession before all this happened, but the risks are now much higher and dont forget that rates on adjustable mortgages will keep rising until a peak next March, so the maximum pain will be in the second and third quarters of 2008, he said
There will be large bankruptcies, and liquidity is not going to help because too many people bet the farm at the top of the cycle, and theyre now insolvent. A lot more bodies are going to be floating to the surface before this is over, he said....Banks are still thirsty for credit, and the spreads have been amazing. This is not business as usual at all, said Julian Callow, chief Eurozone economist for Barclays Capital and an expert in the arcane field of central bank operations. (He used to work for the Bank of England.)
To clarify: the ECB allotted an extra Eu 45bn extra through a `weekly refi on Tuesday; and then Eu 40bn in a 3-month offer on Wednesday to stop the short-term commercial paper market seizing up.
What we know is that 146 banks bid for loans on Wednesday, some clearly in such distress that they were willing to pay up to 5pc interest a full 1pc above the ECBs benchmark rate.
Continuing with Evans-Prichard
Was it sharp practice, in the same way that foreigners were recruited by Lloyds of London in 1986 and 1987 before the impending asbestos losses were known and place like cannon fodder on spiral syndicates to absorb crippling losses? (Lloyds denies this occurred).
I am endebted to Randall W.Forsyth from Barrons for this delicious quote from a hedge-fund operator, recounting with disgust what happened this time in a letter to clients.
'Real money' (U.S. insurance companies, pension funds, etc.) accounts had stopped purchasing mezzanine tranches of U.S. subprime debt in late 2003 and [Wall Street] needed a mechanism that could enable them to 'mark up' these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!!
"These CDOs were the only way to get rid of the riskiest tranches of subprime debt. Interestingly enough, these buyers (mainland Chinese banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, U.K. banks) possess the 'excess' pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the U.S. in U.S. dollars, 2) petrodollar recyclers. These two pools of excess capital are U.S. dollar-denominated and have had a virtually insatiable demand for U.S. dollar-denominated debt . . . until now.
Shameless.
I don't know why some people are so surprised by an increase in July new home sales.
We know Census data reflects contracts entered, not closed.
We know homebuilders are beyond desperate to sign contracts so that they can unload land inventory, generate cash, and avoid ratings downgrades.
We know builders are cutting their prices faster than existing home prices are falling. Therefore, builders are stealing share from existing markets.
What we don't know is whether builders are relaxing standards, such as the downpayment required on signing. But suppose they are? Would you be shocked if a builder increased contracts by 5% in July, if that builder also lowered the downpayment from 10% to 5%?
Maybe "buyers" know that if markets stabilize, they can lock in at a decent price. If markets fall, they can walk. So, maybe they aren't buying homes at all. Maybe they are buying cheap options on homes.
CR:
I just want to be sure on one point. I know that new home sales are based on contracts and not closing and that cancellations are not included.
Are cancellations somehow taken into account in the "revisions."? Also, my understanding is that homes that are still for sale due to a cancellation are not counted in the inventory and are not counted as sales when they are eventually sold. Are these points correct?
I also wonder how many of the signed contracts are worthless unless lending standards should go back to the way they were a few months ago. Maybe we will see 50% concellation rates due, in part, to changes in lending standards, especially in regions requiring jumbol loans.
Very OT, but with the virtue of being timely, I bought a portfolio of small-caps today. That takes me to about 70% stocks and 30% cash, so I'm putting my money where my posts are.
Sebastia
Wow! Outstanding analysis, CR!
Hey, even I can see a pattern, there, and it almost looks like 'seasonality': modest downward, bigger downward, big downward.
Almost hilarious.
I don't know Sebastian. The tan man says a recession is on the way...
Bill, cancellations are not included in revisions.
Your understanding is correct: "... homes that are still for sale due to a cancellation are not counted in the inventory and are not counted as sales when they are eventually sold."
And yes, I also expect cancellations to soar as buyers have difficulty obtaining financing or selling their existing home.
Best to all.
The Fed is accepting asset-backed commercial paper. Does this mean CDOs and CMOs?
New York Fed Takes Step To Bolster Credit Market - WSJ.com
Sebastian, if you were as bullish as your posts, you'd be 70% in HBs and 30% in CDO equity tranches.
Ok, could someone spell this out for me? Take April 2007 for example. The first revision was down 5% (so sales went from originally reported 70,000 (I'm making that up), but the first revision put it at 67,500 (-5%))? Then the next revision was -7%, so we go from 67,500 to 62775 (7% lower than the previously revised number?). Then another 7.5% revision down (from 62775 to 58067)? Of is the last revision -7.5% from the originally reported number of 70,000 (so it would be 64750). Thanks in advance for enlightening an "ignorant American".
Very OT, but with the virtue of being timely, I shorted a portfolio of small-caps today. That takes me to about 70% cash and 30% shorts, so I'm putting my money where my posts are.
Gary said: " Sebastian, if you were as bullish as your posts, you'd be 70% in HBs and 30% in CDO equity tranches."
As I still own my own home and have no intention of selling, I'm already heavily overweight in housing with some nice profits.
S.
eli,
Hell - I would even go 750,000, what with so many people being knocked clear out of eligibility for financing in the past few weeks. This time the shock is not an oil shock, it is a shock which directly impacts the ability of people to finance a house.
M-F,
Yes.. I'm not sure what to guess on the final number. It definitely looks like we could enter into a "who the eff knows?" scenario.. with prices sticking and now credit dying.
I wouldn't kick that 750K sales number out of bed.
Neal> What I was putting in the comments section yesterday is featured by E-P. And nobody seems to grasp the obvious: 146 Banks and the bidding was up!
To me, this says systemic issues (big time!). Not one or two house that might be involved/impaired. And its not like it semms a casual coffee get together - rates were big up and no funds left.
CR> Toll gave us some indications of cancellations. They were not pretty as I recall.
Worth noting: The decline of housing ripples on..Norlanco Credit Union (Colorado) was seized by Regulators today.
"We had construction loans on the books from around the country," including Florida, said John Olienyk, Chairman
Note it is the same J.O. who is the associate dean of the College of Business at Colorado State University.
Link here: http://www.coloradoan.com/apps/pbcs.dll/article?AID=/20070823/NEWS01/708230378/1002
Good for you, Sebastian! Two qualities which I admire are fortitude and honor. Its nice to see that you're not a "Do as I say, not as I do" person.
I wish you success with your decisions. As for me, I'm all cash (except for the principal residence and one residential income property) at the moment. I'll wait until the dust settles and the smoke clears before I change any of that.
More on topic: I've an acquaintance who's a sales agent for one of the more successful, well established residential builders in the area (40 miles north of Tampa). I chatted with him yesterday, and he is just absolutely dying. Developers are continuing to solicit County approval for new projects though. I swear I just don't know which kool-ade punchbowl they've been swimming in.
I believe I should invest in a company that makes signage for resales. Lordy, those signs are everywhere!
Tank, these are cumulative revisions from the initial report.
Say the initial report was 1 million SAAR.
The first revision was down 5% at 950K.
The second revision was down 7% at 930K (7% from the initial report).
And the third (final) revision was down 6% or 940K.
If I graphed the change for each revision, the graph wouldn't be readable (too much noise). I think this is what we want to know - how much the revisions change from the initial report.
Best Wishes.
Gurus,
Are the large tract builders ever contractually obligated to finish projects for which they have either pulled permits or for have substantially installed the infrastructure?
Robert Cote makes the valid point about sunk costs (a.k.a. spilt milk), but I'm wondering if there are penalties on top of the Costs of Goods?
Thanks,
Sebastian,
I'm glad you're sitting on some tidy profits on your house. I hope you haven't taken out equity to buy those small-cap stocks.
Am I recalling correctly that you're in NC, perhaps the triangle area? I saw this today. Just remember that things are just getting started.
NewsObserver.com | 404 - Page not found
Great idea for a blog. Keep it up!!
mak
Find All Debt Consolidation Here.
online finance information.
Finance Dollar.
ShortCourage - that article is right, too. Triangle housing softened for two quarters, then took a step down in the second. In the third, the numbers show that both jobs and tax receipts are impacted.
That has to be the least appropriate comment spam ever.
lama | 08.24.07 - 3:56 pm ...
Down here in Florida I am pretty sure in larger tract developments the builders post a bond to complete at least the basic infrastructure. The amount of completed subdivisions with just roads and street light is freakin nuts.
I guess for some builders here in Florida it is cheaper to walk than finish.
That said,10 miles north at exit 179 off I75,Centex broke ground on a development with 3500 homes for 55 plus. This is not going to end well in south Florida.
Chris
"Very OT, but with the virtue of being timely, I bought a portfolio of small-caps today. That takes me to about 70% stocks and 30% cash, so I'm putting my money where my posts are."
You're looking to lose some serious dough, if you plan on holding them for the next 6-12 months. The Russell 2000 ($RUT), currently at 798, is in a confirmed A-B-C down to 570 - OUCH!
I posted this earlier. Does this make sense to anyone else?
New home sales increasing in July is actually very bad news for builders. A significant number of contracts will not close, thus leaving the builders with additional unwanted existing inventory. When buyers contract and then cancel while demand is simultaneously falling drastically, the builder are stuck with huge liabilities (empty houses) that they will have to dump at lower and lower prices.
This is great that so many posters have my best interest at heart.
To ShortCourage, MaxedOutMama, and inOrlando, the same response: Don't bet on it.
Sebastia
Sebastian,
Nobody can time markets perfect, certainly not me. My idea is to invest after the lunar eclipse Aug. 28 and before the solar eclipse Sept. 8, most likely Sept. 5 or 6. I expect one more pull back and re-test of the recent lows before we'll take off again seriously. We may take off here already.
Congrats to everyone for owning a house already BTW. We'll purchase next year.
O-Joe
In the interest of full disclosure, I'm short Sebastian.
Friday afternoon, Wells Fargo branch in small city central OR. I am withdrawing a thousand in cash. The teller is apologetic as she counts it out in fifties and twenties.
"I'm sorry, we're out of hundreds and almost out of fifties."
I have dealt almost entirely in cash transactions for years, and it's the first time this has ever happened to me. Is this an isolated incident?
Or have the runs begun?
My mistake.
After all this reading today, I was thinking the +2.8% was Y-O-Y (not M-O-M).
The New York Times
As woes Grow, Mortgage Ads Keep Up Pitch...
For the love of God somebody sue these bastards.
Even as Industry's Troubles Grow, Mortgage Ads Keep Up the Pitch - NY Times
why are new home sales reported relative to previous month while home prices are reported relative to last year? Did I get this right?
Sebastian-
Good luck. It should pay off big if the shorts capitulate. As for me, I continue to stay in cash and my home is owned outright.