As with almost all government data, these numbers are totally bogus. If you take off true cancellation rates, new home sales would drop even further off the cliff. If this data was actually believable international currency traders would not be selling the U.S.$ on this supposedly "good" news. The smoke and mirrors show is wearing thin perhaps. Protect yourselves folks. Buy only physical gold and silver.
Permits in Arizona and zoning plan changes are dropping off a cliff. Now we start on that downhill side of the rollercoaster when you take a deep breath as we pick up speed.
Well, the entire world knows we are going into a recession, so we must go into a recession. Heaven knows that this administration won't do anything beyond "Your doing a heck of a job, Hank and Ben!"
Now I guess we pay our bills and wait for the end of this cycle with attendant busts. I am interested to see how many of the new financial innovations survive a real downturn.
just curious, i have never seen these demand/supply #s adjusted for demographics. does that make any sense to you? in other words, there are alot more people today than the 80s and 90s, which would mean that the # of sales today needed to produce a similar economic effect would need to be higher.
I like to check out the weekly numbers from housing tracker based on MLS listing. For the last week, listings were up in 43 of 55 markets and asking prices (median) were down in 51 of 55 markets.
Some of the 12 month data are interesting. Salt Lake City was supposed to be one of the stronger markets, or at least a late arrival to the bubble. Salt Lake City has an 84% increase in inventory and a 7.7% decrease in asking price over the last 12 months.
San Francisco held up better than most of CA, although it should now be hit especially hard by the Jumbo loan problems. SF inventory is up 20% and asking price down 7.7% for the last 12 months.
We may know when a panic in home selling hits if we start seeing declines in asking price of >2-3% in one week over several (or many) of these large markets. Some people don't really need to sell, but I expect a bit of panic among those who really want or need to sell in 2007.
I am done with the MSM. CNN Money has this headline
Oil jumps above $70 on strong housing data
Why do they need to make shit up. Hey assheads maybe just maybe the market is higher because it is, there isn't a reason. Do people even think before they type? Drivel, pure and simple, drivel.
Ughhhhhhhh, my command of the language is insufficient to describe my rage.
Jack, yes, I noted this in the first post on the New home numbers - cancellations are at record levels, so sales are overstated. Beside these sales numbers will likely be revised down.
All, we have to remember that 1) these are just preliminary numbers for one month, 2) housing is getting crushed, and 3) housing is about to get crushed even more. Once we put everything in the proper perspective, then we see these numbers as just another stepping stone towards the inevitable outcome.
Houston Chronicle
Home sales take unexpected turn upward - The Commerce Dept. reported today that new home sales rose 2.8 percent in July, after falling 4 percent in June...
The main headline on Reuters and most other old media sources: Housing surprise
Sales of new homes unexpectedly rose 2.8 percent in July, reversing two months of declines.
I think we might have a news push from the White House this morning.
I believe that we should be thankful for these numbers, while keeping in mind CRs point about the inevitable outcome of the housing situation. This momentary blip lowers the probability that the Fed will have reason to lower rates come September, or that a bail out will get as much air time (at least temporarily). IMHO, this could ensure housing corrects faster than otherwise. Straight down is bad, slow down is bad; down with a few hillocks is good--the true Goldilocks outcome.
August will be the real test. If the August numbers don't drop precipitously, then we will all know that the new home sales data has no credibility. I'm pretty confident the numbers will fail the test.
What's that line, "maestro crushing music please!" - perhaps Tanta can find something appropriate. So how much crushing. Three cases: 1) proportionate decrease matching prior peak-to-trough %, 2)crushed to prior trough averages, 3)given overhang in inventory plus over-valued homes something new post WW2, that is a new low trough to eat up the excess ? Or an extremely long, drawn-out working out over several years. Or a combination thereof.
Care to comment CR ? Anybody ?
However the new home sales in combination with the strong factory orders number show that we will not go into a recession this year. My view is still for an average of ~3% GDP growth in Q3 and Q4 (Q3 lower, Q4 higher). Next year, growth should pick up even furthers as we leave the mid-cycle downturn behind us.
I do expect a retest of the lows in the stock market before we'll go higher there, too.
I sort of take the fed at their word and feel they're concerned about inflation - Wage inflation. I think these bogus "good" numbers give them an excuse not to lower, so they can keep the cost of labor low. However if the credit markets start to veer toward seizure again, they'll have to drop the ff rate.
A tiny slice of the real world; My nephew sells real estate in Chicago and a good chunk of business comes from people who put money down on all the condo developments going up all over (and now coming to a grinding halt). He told me Tuesday that in the office he works in - as amongst others - that there has been a HUGE up tick in buyers just walking away from the sale, taking a loss on the deposit if non-refundable. There is no new business and done deals are being torn up.
The figures have dropped from 1400 to just over 800.
Recession marker?
One Salient Oversight,
Once you adjust the data backwards so that it's relative to GDP and population.. it suggests that we haven't experienced a decline similar to the late '70s, yet.
I'm fixated on the dollar volume spent on homes.. so I just multiply avg sales price times number of sales, and I graph that. Then, just divide by the data by the yearly population data to get a general sense of per capita expenditures.
Then, just inflate backwards for GDP. (I think inflation numbers are understated.. GDP really tells you how much money is swimming around in the economy)
Anyway, it looks like the flight of money from housing isn't even halfway done yet. (If you believe we'll have a situation similar to the late '70s.)
If one believes that, then either sales will drop another 50% or avg price will drop another 50% or some mix of the two. Avg price drops by 25% and sales rates drop by 33%.
Would that lead to recession? Probably, though, as CR has mentioned, the economy could provide another place for this money to flee to.. and this could mitigate the effects.
Personally, my imagination is so crummy I can't imagine where the money will go.. but maybe it will just sort of vibrate out into the universe and everything will be fine. That seems to be the plan..
rcyran -
That region covers a wide area. Would not read major news into it until we know more. Banks in these parts learned their lesson for the most part in the 80s or at least I like to hope they did. Only Cullen Frost (San Antonio based)survived in Texas then while all the others failed, merged, etc. Texas also had to change its banking laws to allow out of state banks to buy up failing Texas institutions. They swooped in and have been here since. Finally, the FDIC is full of boomers who are retiring each year. A few are dropping dead on the job including a fifty something examiner last month.
"1) proportionate decrease matching prior peak-to-trough %, 2)crushed to prior trough averages, 3)given overhang in inventory plus over-valued homes something new post WW2, that is a new low trough to eat up the excess"
Dave, I'll take door number 2, although prob not until 2008. I have to say though that today's numbers surprised me quite a bit. Anybody have any insight into what is happeneing out west to drive this, thats where all the strength is, MW and S basically flat and NE still sucking wind.
"Downturn blamed for mill's closing
Building materials company Louisiana-Pacific Corp. said Wednesday it will close a mill near Beaumont because of a home construction downturn.
The Silsbee mill, which makes oriented strand board, will shut down indefinitely starting Wednesday, the Nashville, Tenn.-based company said in a released statement. The mill has an annual production capacity of 350 million square feet and employs 147 people."
Y. S. Wayne, it's not that "I don't believe" these numbers, it's that I understand how the Census Bureau works - and what is happening in housing.
First, the Census Bureau tends to overestimate sales when housing is in decline. I've written about this before - and maybe it's time for another post on that subject.
Second, the above systemic error (over estimating sales during a decline) is compounded by the way the Census Bureau handles cancellations.
Third, the current turmoil is going to impact sales going forward.
If you look back over the last couple of years, there have been several reports that "surprised" to the upside. My reaction has always been the same: yawn.
The data is as good as it gets - IMO the Census Bureau does a good job. But just wait a couple of months and I believe the graph of New Home sales vs. recessions will show this month was either revised away or nothing more than a blip.
AllenM: Right across from where I live in Tucson a large area is being prepared for more homes. I don't understand it, but then I am not a builder. Do you?
If you compare one of the "worst" state housing markets (CA) with one of the "best" (NC) over the past 20 years or so you'll see exactly why they are the way they are.
For example, CA permits go through huge boom/bust-style swings, while NC permits grow at a far more-steady rate.
JMO, but CR's real value is that it shows you where the raw data is (the links provided when charts are posted) so you can look at it yourself and make your own determination as to what it means. I've learned considerable from this site...just not from what CR posts, which is always an argument in defense of his position, which may or may not be valid.
CR said: "But I do think you should add "CR has been right so far on housing" :-)"
In CA (or any of the states prone to heavy housing speculation), I'd absolutely agree. But I would have been royally screwed if I'd applied the same methodology to my local market, and I doubt I'm the only one.
Gotta jump in - while I have not always agreed with CR (mostly), ALL of them are valid - i.e., a logically consistent set of premises that advance a particular proposition. The question is not their 'validity,' rather it is whether or not you agree with the conclusion IMNSHO.
In CA (or any of the states prone to heavy housing speculation), I'd absolutely agree. But I would have been royally screwed if I'd applied the same methodology to my local market, and I doubt I'm the only one.
Sebastian,
CR's analysis has, from what I recall, been about the direction of the national numbers and what's occurring overall with nods to the particularity of individual markets..
I don't remember him telling you not to buy a house wherever it is you just purchased.
energyecon said: "...The question is not their 'validity,' rather it is whether or not you agree with the conclusion IMNSHO."
For the umpteenth time, it's not about what I think or believe. The validity of CR's views should be measured by whether other independent datasets with some kind of proven forecasting value confirm his position.
The residential construction jobs "conundrum" is a glaring example. It's only a conundrum because it doesn't fit his point of view. Construction job losses of the magnitude he expects occur during a nationwide recession, for which there is no evidence.
And there's more. His view seems to be that there's a natiowide housing problem, yet there's no unifying factor.
Housing in CA is suffering from a too-high inventory at too-high prices, but there's no special problem with the CA economy.
States like Michigan and Ohio are also seeing housing weakness, not because of excessive overbuilding or too-expensive housing, but because they're seeing job-losses (almost certainly related to the domestic automobile industry).
Then there are states like mine with very reasonably-priced housing, slow-but-steady building, and a solid economy...and we're enjoying good housing appreciation.
In a genuine housing "bust", things would be "bad" virtually everywhere and for the same reason: Recession, which causes massive job-loss among even the best credit risks.
Look at 1972. There is a big relative gap between July and year end. I think this year will be similar, putting the total somewhere below 800,000.
If you are estimating 830,000 to 850,000 you don't have much of a relative drop off for this year, but financing has clearly changed, which should make for a more marked difference between July and Year end, I think? Is there some reason you think the rest of the year will stay more similar to July than 1972?
"Once we put everything in the proper perspective, then we see these numbers as just another stepping stone towards the inevitable outcome."
And the inevitable outcome is that housing prices will decline back to their historic trend, at prices last seen in 1997? Or what? When/if that occurs, doesn't most of the housing stock become underwater and possible REO? Do banks then make tens of millions of short sales to the Mooninites?
If you are estimating 830,000 to 850,000 you don't have much of a relative drop off for this year, but financing has clearly changed, which should make for a more marked difference between July and Year end, I think? Is there some reason you think the rest of the year will stay more similar to July than 1972?
MF,
I'm a believer in the potential for us having an asymmetrical outcome this year..
Doing a little hand waving and eyeballing, I'd say that we're looking at 780K - 790K new home sales this year (if you believe it will be similar to '73).
inOrlando - it really depends on your local market whether they fall to 1997 prices. Even then, it depends on which part of the local market and location * 3.
I am in Orlando also, and our little part is holding up relatively well. But a 5 miles down the road there is a big development (Avalon) where they are still building, and traffic is getting terrible and the are tons of renters and empty houses and dry lawns and for sale signs with little to distinguish one house form the next. They will go down harder and take longer to come back up.
Also, when the market goes bad, your lot really, really matters. If you are the lot right by the subdivision entrance, or backing on to a large road, you see larger price declines if there are lots of nice lots to choose from 50 yards in.
It is definitely going to get bad all around in Orlando, though, but Orlando still has pretty high net migration in, as well, the local employment market continues to outpace other local markets. (There were some articles 6 months ago which listed Orlando #1 in job growth... it has come a long, long way, but still does not have a sufficiently diverse economy.)
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.
Dirk - hope you're right. That would be the benign outcome. But given the inventory overhang wouldn't that contrawise imply a more drug(ed) out troughing ? On that note the monthly #'s are surprising - look at YoY% - only -10% ! But 3MoMA is -20% to make the data less noisy. That said it looks pretty abberational. CR's point about data revisions seems to speak to the issue.
I'd like to contribute a factually based observation about why I think Orlando suffered from a RE mania - tulip bulb/roaring '20s/NASDAQ style.
In 2000 I moved from Tulsa, OK to Orlando. Both metro areas had and still have similar pop. sizes, median household incomes, rental market rates, and fairly decent economies - though nothing that screams "move here for work."
Here's my point: in 2000, both Tulsa and Orlando had median house prices at about $100,000. In 2006, Tulsa's median house price was $117,000. Brace yourself...in 2006, Orlando's median house price was $250,000. What explains the difference? FUNDAMENTALS, RIGHT?!
Sebastian, do you even read back the ridiculous things you say, before you post them?
You wrote, The residential construction jobs conundrum is a glaring example. It's only a conundrum because it doesn't fit his point of view. Construction job losses of the magnitude he expects occur during a nationwide recession, for which there is no evidence.
I guess you dont find anything odd about miles of housing developments going up next to other half-empty housing developments where sales rates are negative (i.e. cancellations overwhelming sales)? I think CR and the other folks here have pretty well solved this conundrum though, with plenty of perfectly good explanations. Builders must continue building to monetize their land in order to survive, CRE building boom has helped keep some of the construction jobs alive, etc .
You wrote, And there's more. His view seems to be that there's a nationwide housing problem, yet there's no unifying factor.
My god, do you really not see the unifying factor for housing, stocks and all assets? Its called a credit bubble!
You wrote, Housing in CA is suffering from a too-high inventory at too-high prices, but there's no special problem with the CA economy.
Uh, yes there is a special problem with the CA economy. Its addicted to the credit bubble, which appears to be deflating, or even popping. Therefore, you will continue to see rapid loss of thousands of jobs, like you did this week with the lenders and mortgage brokers.
Finally you said, In a genuine housing "bust", things would be "bad" virtually everywhere and for the same reason: Recession, which causes massive job-loss among even the best credit risks.
I think you need to consult your charts to learn about lag times. And then throw your charts out, because weve never had a credit bubble like this one before. There is no precedent upon which to predict how this goes.
Sebastian, I apologize if my comments above had an impolite tone...
I was responding (too passionately) to your comments, which I think totally disregard lots of fine analysis and evidence from CR and others here regarding "conundrums" and a "lack of unifying theme".
ShortCourage said: "Sebastian, I apologize if my comments above had an impolite tone...
I was responding (too passionately) to your comments, which I think totally disregard lots of fine analysis and evidence from CR and others here regarding "conundrums" and a "lack of unifying theme"."
Take a serious look at the things I'm talking about, and we'll call it even.
On one hand ...ignoring the last recession caused by the dot-com/911, all previous recessions seemed to start when new home sales crossed the 600(000) mark. We seem to be a year away from that unless new restrictive credit rules severely depress sales.
On the other hand ...1400 down to 800 is the biggest decline on the graph! Previous declines were only in the range of 800->600 before a recession began!
Conclusion ...given the magnitude of the housing bubble this time do we still wait to enter a recession when we hit 600, but ultimately drop to 200 to clear all the excess inventory created in the bubble?? I don't see how else this can play out ...even a huge Fed rate cut seems too little too late at this point.
Final Note: Anyone who thinks the latest blip indicates housing is going back up (or has even hit a bottom) needs to put down the crack pipe! 1991 to 2005 was the most bullish housing market in the history of the world. We still have a long climb down...
First of all I would like to thank Tanta and CR for their excellent graphics. They are the best I've seen that sumarize the whole situation.
As an individual working in real estate development in Socal, I welcome the latest numbers. We need fewer starts and lower prices to get the homebuilders going again.
Hopefully, once the mortgage market becomes liquid again and the foreclosures shakeout, the industry can recover early in 2009 (at least I hope).
By the way, I spoke to a friend who is a commercial lender for a major insurance company. He said that building owners were running to them because the conduit product had dried up so they were running to the Ins. guys, paying higher rates with more conservative coverage ratios. Surprisingly, a mortgage broker in our office says she is having no problems getting money for home loans lately, I was quite surprised.
In a genuine housing "bust", things would be "bad" virtually everywhere and for the same reason: Recession, which causes massive job-loss among even the best credit risks.
Sebastian is arguing recessions are the reason (cause) for housing busts. I subscribe to the idea that this is what happens most of the time when housing goes bust.
CR has done a pretty good job of
documenting a housing market that's busting without a recession
causing it. Indeed, this bust is being caused by hitting a credit/price/leverage ceiling, and now declining from that top with a credit crunch/price drop/deleveraging feedback loop.
If a recession follows in this case,
it won't be the cause but merely
a symptom of something we see
only on a 50-100 year time scale.
Sebastian - hopefully this clarifies why we're all arguing past each other most of the time?
First to say BS
Barry Ritholz has a good piece up on his blog from a CDO insider
The Big Picture
Of course, for CR readers, it's not like we didn't know.
As with almost all government data, these numbers are totally bogus. If you take off true cancellation rates, new home sales would drop even further off the cliff. If this data was actually believable international currency traders would not be selling the U.S.$ on this supposedly "good" news. The smoke and mirrors show is wearing thin perhaps. Protect yourselves folks. Buy only physical gold and silver.
Fireworks
Permits in Arizona and zoning plan changes are dropping off a cliff. Now we start on that downhill side of the rollercoaster when you take a deep breath as we pick up speed.
Well, the entire world knows we are going into a recession, so we must go into a recession. Heaven knows that this administration won't do anything beyond "Your doing a heck of a job, Hank and Ben!"
Now I guess we pay our bills and wait for the end of this cycle with attendant busts. I am interested to see how many of the new financial innovations survive a real downturn.
Someday this war's gonna end...
Apologies if this link previously posted (no time this AM to go back thru all):
The Big Picture
CR,
just curious, i have never seen these demand/supply #s adjusted for demographics. does that make any sense to you? in other words, there are alot more people today than the 80s and 90s, which would mean that the # of sales today needed to produce a similar economic effect would need to be higher.
houston, with existing home sales (a much bigger number), I've adjusted by the number of Owner Occupied Units (see here).
Clearly the same number of New Home sales in 2007, as say 1998, means less activity when compared to the total population.
Best Wishes.
Is it just my imagination or is the drop off in the first chart of new homes sales the largest and steepest decline in the last 30 years?
I like to check out the weekly numbers from housing tracker based on MLS listing. For the last week, listings were up in 43 of 55 markets and asking prices (median) were down in 51 of 55 markets.
Some of the 12 month data are interesting. Salt Lake City was supposed to be one of the stronger markets, or at least a late arrival to the bubble. Salt Lake City has an 84% increase in inventory and a 7.7% decrease in asking price over the last 12 months.
San Francisco held up better than most of CA, although it should now be hit especially hard by the Jumbo loan problems. SF inventory is up 20% and asking price down 7.7% for the last 12 months.
We may know when a panic in home selling hits if we start seeing declines in asking price of >2-3% in one week over several (or many) of these large markets. Some people don't really need to sell, but I expect a bit of panic among those who really want or need to sell in 2007.
Cancellations have also been increasing at most of the large builders. So wouldn't the true new home sales (net of cancellations) likely be lower?
Jack, yes, they would be lower. One number to watch is the months for sale, and that keeps slowly inching up. This report had it at 6.1.
Okay, look at the "New Home Sales and Recessions" graph.
Now look at 1979-1980.
The crash in that recession went from 700 to 400.
Now look at 2006-2008
The figures have dropped from 1400 to just over 800.
Recession marker?
OT but I had to comment.
I am done with the MSM. CNN Money has this headline
Oil jumps above $70 on strong housing data
Why do they need to make shit up. Hey assheads maybe just maybe the market is higher because it is, there isn't a reason. Do people even think before they type? Drivel, pure and simple, drivel.
Ughhhhhhhh, my command of the language is insufficient to describe my rage.
Jack, yes, I noted this in the first post on the New home numbers - cancellations are at record levels, so sales are overstated. Beside these sales numbers will likely be revised down.
All, we have to remember that 1) these are just preliminary numbers for one month, 2) housing is getting crushed, and 3) housing is about to get crushed even more. Once we put everything in the proper perspective, then we see these numbers as just another stepping stone towards the inevitable outcome.
Best to all.
Houston Chronicle
Home sales take unexpected turn upward - The Commerce Dept. reported today that new home sales rose 2.8 percent in July, after falling 4 percent in June...
I'm confused!
404 Error, No such article | Chron.com - Houston Chronicle
The main headline on Reuters and most other old media sources: Housing surprise
Sales of new homes unexpectedly rose 2.8 percent in July, reversing two months of declines.
I think we might have a news push from the White House this morning.
Well at least builders total inventory (# homes, not # months) is less YOY.
Better but they need an intervention.
No need to be confused, FFDIC! Once you get your cynicism level adjusted properly, everything will click into place.
"I think we might have a news push from the White House this morning."
I was wondering about that too. Spin and PR rule!
I believe that we should be thankful for these numbers, while keeping in mind CRs point about the inevitable outcome of the housing situation. This momentary blip lowers the probability that the Fed will have reason to lower rates come September, or that a bail out will get as much air time (at least temporarily). IMHO, this could ensure housing corrects faster than otherwise. Straight down is bad, slow down is bad; down with a few hillocks is good--the true Goldilocks outcome.
August will be the real test. If the August numbers don't drop precipitously, then we will all know that the new home sales data has no credibility. I'm pretty confident the numbers will fail the test.
What's that line, "maestro crushing music please!" - perhaps Tanta can find something appropriate. So how much crushing. Three cases: 1) proportionate decrease matching prior peak-to-trough %, 2)crushed to prior trough averages, 3)given overhang in inventory plus over-valued homes something new post WW2, that is a new low trough to eat up the excess ? Or an extremely long, drawn-out working out over several years. Or a combination thereof.
Care to comment CR ? Anybody ?
However the new home sales in combination with the strong factory orders number show that we will not go into a recession this year. My view is still for an average of ~3% GDP growth in Q3 and Q4 (Q3 lower, Q4 higher). Next year, growth should pick up even furthers as we leave the mid-cycle downturn behind us.
I do expect a retest of the lows in the stock market before we'll go higher there, too.
O-Joe
Calculated Risk
Please tell me you don't believe these numbers.
I must agree with safe_as_apartments comment. I like the headlines -- let the MSM think this is a blip of good news.
Less justification for the Carmers of the world to call Uncle Ben a bad guy and plead for rate cuts.
Hopefully more amo for Uncle Ben not to cut rates.
And hopefully more reason for politicians to focus on Iraq or healthcare and not bailing out those who bought what they could not afford.
Keep up the mis-leading headlines so we can keep politicians focusing and hurting us elsewhere and keep the Fed on its course of steady as she goes.
I sort of take the fed at their word and feel they're concerned about inflation - Wage inflation. I think these bogus "good" numbers give them an excuse not to lower, so they can keep the cost of labor low. However if the credit markets start to veer toward seizure again, they'll have to drop the ff rate.
Update on FDIC's letter to retired FDIC examiners...callback to work full time on 1 year contracts..
A tiny slice of the real world; My nephew sells real estate in Chicago and a good chunk of business comes from people who put money down on all the condo developments going up all over (and now coming to a grinding halt). He told me Tuesday that in the office he works in - as amongst others - that there has been a HUGE up tick in buyers just walking away from the sale, taking a loss on the deposit if non-refundable. There is no new business and done deals are being torn up.
The figures have dropped from 1400 to just over 800.
Recession marker?
One Salient Oversight,
Once you adjust the data backwards so that it's relative to GDP and population.. it suggests that we haven't experienced a decline similar to the late '70s, yet.
I'm fixated on the dollar volume spent on homes.. so I just multiply avg sales price times number of sales, and I graph that. Then, just divide by the data by the yearly population data to get a general sense of per capita expenditures.
Then, just inflate backwards for GDP. (I think inflation numbers are understated.. GDP really tells you how much money is swimming around in the economy)
Anyway, it looks like the flight of money from housing isn't even halfway done yet. (If you believe we'll have a situation similar to the late '70s.)
If one believes that, then either sales will drop another 50% or avg price will drop another 50% or some mix of the two. Avg price drops by 25% and sales rates drop by 33%.
Would that lead to recession? Probably, though, as CR has mentioned, the economy could provide another place for this money to flee to.. and this could mitigate the effects.
Personally, my imagination is so crummy I can't imagine where the money will go.. but maybe it will just sort of vibrate out into the universe and everything will be fine. That seems to be the plan..
According to the report, the margin of error is plus or minus 12. So, the data came in at 2.8%, but it could range from -9 to +15.
FFDIC-
Should we read anything into the fact that 20% are being sent to Dallas? Or is probably just understaffing in that office.
I find it hard to believe anyone needs to buy a house now, since everyone and his dog could qualify in the last two years.
rcyran -
That region covers a wide area. Would not read major news into it until we know more. Banks in these parts learned their lesson for the most part in the 80s or at least I like to hope they did. Only Cullen Frost (San Antonio based)survived in Texas then while all the others failed, merged, etc. Texas also had to change its banking laws to allow out of state banks to buy up failing Texas institutions. They swooped in and have been here since. Finally, the FDIC is full of boomers who are retiring each year. A few are dropping dead on the job including a fifty something examiner last month.
"1) proportionate decrease matching prior peak-to-trough %, 2)crushed to prior trough averages, 3)given overhang in inventory plus over-valued homes something new post WW2, that is a new low trough to eat up the excess"
Dave, I'll take door number 2, although prob not until 2008. I have to say though that today's numbers surprised me quite a bit. Anybody have any insight into what is happeneing out west to drive this, thats where all the strength is, MW and S basically flat and NE still sucking wind.
FFDIC,
I think today's HC business section headline writers didn't read yesterday's business section.
404 Error, No such article | Chron.com - Houston Chronicle
"Downturn blamed for mill's closing
Building materials company Louisiana-Pacific Corp. said Wednesday it will close a mill near Beaumont because of a home construction downturn.
The Silsbee mill, which makes oriented strand board, will shut down indefinitely starting Wednesday, the Nashville, Tenn.-based company said in a released statement. The mill has an annual production capacity of 350 million square feet and employs 147 people."
Best,
Y. S. Wayne, it's not that "I don't believe" these numbers, it's that I understand how the Census Bureau works - and what is happening in housing.
First, the Census Bureau tends to overestimate sales when housing is in decline. I've written about this before - and maybe it's time for another post on that subject.
Second, the above systemic error (over estimating sales during a decline) is compounded by the way the Census Bureau handles cancellations.
Third, the current turmoil is going to impact sales going forward.
If you look back over the last couple of years, there have been several reports that "surprised" to the upside. My reaction has always been the same: yawn.
The data is as good as it gets - IMO the Census Bureau does a good job. But just wait a couple of months and I believe the graph of New Home sales vs. recessions will show this month was either revised away or nothing more than a blip.
Best to all.
Houstonians consider Silsbee Louisiana swamp governed by French/Cajun/Voodoo law vividly written about by Ann Rice. Time for a mint julep.
Welcome To Anne Rice.com!
AllenM: Right across from where I live in Tucson a large area is being prepared for more homes. I don't understand it, but then I am not a builder. Do you?
For anyone who wants to get some insight into how their own housing market might behave, get the permits data for your state here:
C40 Residential Housing Units by State - Table 2
If you compare one of the "worst" state housing markets (CA) with one of the "best" (NC) over the past 20 years or so you'll see exactly why they are the way they are.
For example, CA permits go through huge boom/bust-style swings, while NC permits grow at a far more-steady rate.
JMO, but CR's real value is that it shows you where the raw data is (the links provided when charts are posted) so you can look at it yourself and make your own determination as to what it means. I've learned considerable from this site...just not from what CR posts, which is always an argument in defense of his position, which may or may not be valid.
Sebastia
Sebastian, I've always argued people should do their home analysis - and I try to provide the links to the data.
But I do think you should add "CR has been right so far on housing"
Best Wishes.
CR said: "But I do think you should add "CR has been right so far on housing" :-)"
In CA (or any of the states prone to heavy housing speculation), I'd absolutely agree. But I would have been royally screwed if I'd applied the same methodology to my local market, and I doubt I'm the only one.
Sebastia
Seb,
Gotta jump in - while I have not always agreed with CR (mostly), ALL of them are valid - i.e., a logically consistent set of premises that advance a particular proposition. The question is not their 'validity,' rather it is whether or not you agree with the conclusion IMNSHO.
AND you point about the particular conditions of RE are VERY local is well taken.
In CA (or any of the states prone to heavy housing speculation), I'd absolutely agree. But I would have been royally screwed if I'd applied the same methodology to my local market, and I doubt I'm the only one.
Sebastian,
CR's analysis has, from what I recall, been about the direction of the national numbers and what's occurring overall with nods to the particularity of individual markets..
I don't remember him telling you not to buy a house wherever it is you just purchased.
energyecon said: "...The question is not their 'validity,' rather it is whether or not you agree with the conclusion IMNSHO."
For the umpteenth time, it's not about what I think or believe. The validity of CR's views should be measured by whether other independent datasets with some kind of proven forecasting value confirm his position.
The residential construction jobs "conundrum" is a glaring example. It's only a conundrum because it doesn't fit his point of view. Construction job losses of the magnitude he expects occur during a nationwide recession, for which there is no evidence.
And there's more. His view seems to be that there's a natiowide housing problem, yet there's no unifying factor.
Housing in CA is suffering from a too-high inventory at too-high prices, but there's no special problem with the CA economy.
States like Michigan and Ohio are also seeing housing weakness, not because of excessive overbuilding or too-expensive housing, but because they're seeing job-losses (almost certainly related to the domestic automobile industry).
Then there are states like mine with very reasonably-priced housing, slow-but-steady building, and a solid economy...and we're enjoying good housing appreciation.
In a genuine housing "bust", things would be "bad" virtually everywhere and for the same reason: Recession, which causes massive job-loss among even the best credit risks.
Sebastia
CR,
Look at 1972. There is a big relative gap between July and year end. I think this year will be similar, putting the total somewhere below 800,000.
If you are estimating 830,000 to 850,000 you don't have much of a relative drop off for this year, but financing has clearly changed, which should make for a more marked difference between July and Year end, I think? Is there some reason you think the rest of the year will stay more similar to July than 1972?
Sorry that was 1973 not 1972.
"Once we put everything in the proper perspective, then we see these numbers as just another stepping stone towards the inevitable outcome."
And the inevitable outcome is that housing prices will decline back to their historic trend, at prices last seen in 1997? Or what? When/if that occurs, doesn't most of the housing stock become underwater and possible REO? Do banks then make tens of millions of short sales to the Mooninites?
If you are estimating 830,000 to 850,000 you don't have much of a relative drop off for this year, but financing has clearly changed, which should make for a more marked difference between July and Year end, I think? Is there some reason you think the rest of the year will stay more similar to July than 1972?
MF,
I'm a believer in the potential for us having an asymmetrical outcome this year..
Doing a little hand waving and eyeballing, I'd say that we're looking at 780K - 790K new home sales this year (if you believe it will be similar to '73).
inOrlando - it really depends on your local market whether they fall to 1997 prices. Even then, it depends on which part of the local market and location * 3.
I am in Orlando also, and our little part is holding up relatively well. But a 5 miles down the road there is a big development (Avalon) where they are still building, and traffic is getting terrible and the are tons of renters and empty houses and dry lawns and for sale signs with little to distinguish one house form the next. They will go down harder and take longer to come back up.
Also, when the market goes bad, your lot really, really matters. If you are the lot right by the subdivision entrance, or backing on to a large road, you see larger price declines if there are lots of nice lots to choose from 50 yards in.
It is definitely going to get bad all around in Orlando, though, but Orlando still has pretty high net migration in, as well, the local employment market continues to outpace other local markets. (There were some articles 6 months ago which listed Orlando #1 in job growth... it has come a long, long way, but still does not have a sufficiently diverse economy.)
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.
Dirk - hope you're right. That would be the benign outcome. But given the inventory overhang wouldn't that contrawise imply a more drug(ed) out troughing ? On that note the monthly #'s are surprising - look at YoY% - only -10% ! But 3MoMA is -20% to make the data less noisy. That said it looks pretty abberational. CR's point about data revisions seems to speak to the issue.
Beazer trading below $10 a share despite new housing data"surprise" to the upside and general market rise ... paging Dr. Kevorkian?
other dude in Orlando,
Thanks for your perspective.
I'd like to contribute a factually based observation about why I think Orlando suffered from a RE mania - tulip bulb/roaring '20s/NASDAQ style.
In 2000 I moved from Tulsa, OK to Orlando. Both metro areas had and still have similar pop. sizes, median household incomes, rental market rates, and fairly decent economies - though nothing that screams "move here for work."
Here's my point: in 2000, both Tulsa and Orlando had median house prices at about $100,000. In 2006, Tulsa's median house price was $117,000. Brace yourself...in 2006, Orlando's median house price was $250,000. What explains the difference? FUNDAMENTALS, RIGHT?!
Sebastian, do you even read back the ridiculous things you say, before you post them?
You wrote, The residential construction jobs conundrum is a glaring example. It's only a conundrum because it doesn't fit his point of view. Construction job losses of the magnitude he expects occur during a nationwide recession, for which there is no evidence.
I guess you dont find anything odd about miles of housing developments going up next to other half-empty housing developments where sales rates are negative (i.e. cancellations overwhelming sales)? I think CR and the other folks here have pretty well solved this conundrum though, with plenty of perfectly good explanations. Builders must continue building to monetize their land in order to survive, CRE building boom has helped keep some of the construction jobs alive, etc .
You wrote, And there's more. His view seems to be that there's a nationwide housing problem, yet there's no unifying factor.
My god, do you really not see the unifying factor for housing, stocks and all assets? Its called a credit bubble!
You wrote, Housing in CA is suffering from a too-high inventory at too-high prices, but there's no special problem with the CA economy.
Uh, yes there is a special problem with the CA economy. Its addicted to the credit bubble, which appears to be deflating, or even popping. Therefore, you will continue to see rapid loss of thousands of jobs, like you did this week with the lenders and mortgage brokers.
Finally you said, In a genuine housing "bust", things would be "bad" virtually everywhere and for the same reason: Recession, which causes massive job-loss among even the best credit risks.
I think you need to consult your charts to learn about lag times. And then throw your charts out, because weve never had a credit bubble like this one before. There is no precedent upon which to predict how this goes.
Hey Sebastian
Thanks for stating your objections clearly, succinctly, and politely. I don't agree, but it's necessary to reflect on the other side.
Sebastian, I apologize if my comments above had an impolite tone...
I was responding (too passionately) to your comments, which I think totally disregard lots of fine analysis and evidence from CR and others here regarding "conundrums" and a "lack of unifying theme".
ShortCourage said: "Sebastian, I apologize if my comments above had an impolite tone...
I was responding (too passionately) to your comments, which I think totally disregard lots of fine analysis and evidence from CR and others here regarding "conundrums" and a "lack of unifying theme"."
Take a serious look at the things I'm talking about, and we'll call it even.
Sebastia
RECESSION OR NOT?
On one hand ...ignoring the last recession caused by the dot-com/911, all previous recessions seemed to start when new home sales crossed the 600(000) mark. We seem to be a year away from that unless new restrictive credit rules severely depress sales.
On the other hand ...1400 down to 800 is the biggest decline on the graph! Previous declines were only in the range of 800->600 before a recession began!
Conclusion ...given the magnitude of the housing bubble this time do we still wait to enter a recession when we hit 600, but ultimately drop to 200 to clear all the excess inventory created in the bubble?? I don't see how else this can play out ...even a huge Fed rate cut seems too little too late at this point.
Final Note: Anyone who thinks the latest blip indicates housing is going back up (or has even hit a bottom) needs to put down the crack pipe! 1991 to 2005 was the most bullish housing market in the history of the world. We still have a long climb down...
First of all I would like to thank Tanta and CR for their excellent graphics. They are the best I've seen that sumarize the whole situation.
As an individual working in real estate development in Socal, I welcome the latest numbers. We need fewer starts and lower prices to get the homebuilders going again.
Hopefully, once the mortgage market becomes liquid again and the foreclosures shakeout, the industry can recover early in 2009 (at least I hope).
By the way, I spoke to a friend who is a commercial lender for a major insurance company. He said that building owners were running to them because the conduit product had dried up so they were running to the Ins. guys, paying higher rates with more conservative coverage ratios. Surprisingly, a mortgage broker in our office says she is having no problems getting money for home loans lately, I was quite surprised.
Sebastian says:
In a genuine housing "bust", things would be "bad" virtually everywhere and for the same reason: Recession, which causes massive job-loss among even the best credit risks.
Sebastian is arguing recessions are the reason (cause) for housing busts. I subscribe to the idea that this is what happens most of the time when housing goes bust.
CR has done a pretty good job of
documenting a housing market that's busting without a recession
causing it. Indeed, this bust is being caused by hitting a credit/price/leverage ceiling, and now declining from that top with a credit crunch/price drop/deleveraging feedback loop.
If a recession follows in this case,
it won't be the cause but merely
a symptom of something we see
only on a 50-100 year time scale.
Sebastian - hopefully this clarifies why we're all arguing past each other most of the time?
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What You Need to Know About Real Estate and Terrorism Risk
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