No surprise with the employment number staying steady. English has not been the language-of-choice at construction sites around my neck of the woods for years. If jobs dry up, most these guys move on, under the radar.
I'll continue here from Previous thread. Why CFC maybe worse than FED, DSL ?
Because in the last 6 month, in an effort to apear "the last man standing" and to keep the mortgage biz alive CFC (and IMB) have been buying loans that other originated.
So while other may have the opportunity to unload CFC was loading more.
Employment is the minor issue here - the more important piece of data is that starts are beginning the next down leg towards something like 1.1 million SAAR.
Right now the builders are still starting too many units.
Bloomberg
(quote)
William Poole, president of the St. Louis Federal Reserve Bank, said yesterday that the subprime mortgage rout doesn't threaten U.S. economic growth, and only a ``calamity'' would justify an interest-rate cut now. The Fed's next scheduled meeting is on Sept. 18.
(end quote)
So when, not if, the rate is cut, you will offically know it is a calamity. Way to go Poole, calming the markets.
Here in Sacramento, a large 7,000 unit subdivision is still being built at full speed, even as spec inventory and foreclosures pile up less than a mile away.
Reuters, this morning:
(quote)
"The big question is, can Countrywide survive," wrote Paul Miller, a Friedman, Billings, Ramsey & Co. analyst.
He said if liquidity problems last more than a month, "Countrywide might be forced to sell assets at a deep discount, putting tremendous pressure on its book value and stock price.
"There is a scenario in which the current liquidity crises last for longer than three months and Countrywide is forced into bankruptcy; it will be ugly, but it can happen!" he said.
(end quote)
So 1 to 3 months to restore liquidity.
The helicopters have to be warming up now, Mr. Poole, if you would look out your window.
CR, is there any data on the total land being sold by home builders? I see ads virtually every day in the Washington Post about "Land for sale!" I'm trying to figure out how this fits into the larger picture.
High priced areas like NYC, where I live, and the west coast will fall. There are already cracks in the Manhattan RE market, even for the luxury buyers. A small drop here = big drops elsewhere.
Here in Sacramento, a large 7,000 unit subdivision is still being built at full speed, even as spec inventory and foreclosures pile up less than a mile away.
Truly something to behold.
Max | Homepage | 08.16.07 - 9:27 am | #
Cant stop an ocean liner on a dime, but whatever projects that are in the pipeline that CAN be withdrawn, will have the plug pulled. THEN the numbers will be devastating.
Ben may be warming up the helicopters, but I somehow feel that is going to be me (and the rest of the taxpayers) who will be footing the bill for the fuel.
Kevin L, I'm not aware of any national data on land - we could look at the top public builders and get an idea what is happening.
I have a friend who does the early stages of residential development - he buys raw land, gets the zoning, etc. - and then sells it to builders. He says raw land prices are still way too high to do any deals right now.
question for those of u familiar with FRBNY TOMO data. what is the "stop out"? how is the int rate given out to borrowers determined? bids? i thought that it would have been at 5.25?
A lot of these neighborhoods around here already look like ghost towns. I should make a video...
Took a tour through some of the newer divisions in the Natomas area (Northern Sacramento) two weeks ago. The contrast provided by a row of abandoned cars, broken glass, and dead lawns in front of houses built in 2005 was worthy of Dali.
--
Lest people forget the household formation and fundamental demand peaked during 1979-81 (peak in the divorce rate). Hence, the starts and permits must fall below 1.0M before any kind of bottom is reached. But, if one takes into account the excess building in this cycle then starts must fall below 0.5M to clear the inventory.
Q for CR: Is the excess inventory being worked off since the permits, starts and completions, are all below your estimate for the demand?
Ben may be warming up the helicopters, but I somehow feel that is going to be me (and the rest of the taxpayers) who will be footing the bill for the fuel.
Well, if a enough people keep on the lookout and howl and scream at the first sign of a "money rain" (as the Fed likes to call it), maybe it won't happen.
BTW, has anyone here opened a Swiss bank account before?
The announcement of a recession is a lagging indicator of a recession itself.
Here in Onard, Riverpark a large 2,900 unit subdivision is still being built at full speed, even as spec inventory and foreclosures pile up all around.
The "why" as to employment strength is not a mystey here. The homebuilders are scrambling to complete absolutely anything that has been started while they still have the employees and the credit lines. There is actually a labor shortage in some fields as the supply of workers shrinks with international repatriation and interstate relocation.
Ben may be warming up the helicopters, but I somehow feel that is going to be me (and the rest of the taxpayers) who will be footing the bill for the fuel.
DonB | 08.16.07 - 9:49 am | #
All those municipal-worker's pensions, school district funding etc (and I mean etc.) that look toward steady, if not appreciating, property taxes to pay the bills! Not to mention Bush looking at all the capital gains taxes flowing in for 2007 to lower the deficit. If things continue spiraling down, that anticipated income would be no more. Where do local, state and federal governments turn to fill the gap?
--
"i read a while back that if the yen to dollar drops to 114 bad things could happen. it's now just above 114."
Several months ago I heard one of the best comments on the subject from some in far-East: "The yen carry-trade will stop and unwind only when something bad comes from America."
Well, something bad has originated in America, a country run by crooked bankers and financiers, and it is spreading to rest of the world.
What it means is that artificially low rates all over the world were fed by the borrowing in Yen at 0-1% and lending, or speculating, in higher-yielding currencies. With 10% leverage (10:1) one could make 50-80% returns! When something is too good to be true...
--
"Ben may be warming up the helicopters, but I somehow feel that is going to be me (and the rest of the taxpayers) who will be footing the bill for the fuel."
Helicopter drops can't be carried out. Here is what I write few days ago:
From Helicopter Ben to Bailicopter Ben
Helicopter money drops over Wall Street don't cause inflation, or can't fight deflationary pressures. They cause increased speculation, or help speculative party to go on longer.
Without people recognizing it, Bernanke-Greenspan gang did around the clock helicopter drops on households via the famous use of homes as ATMs. Those helicopter drops have been shut down by inclement weather. Deflation now has clear path as aggregate demand starts to fall in the absence of helicopter drops. No, employment income of many Americans isnt enough to be able to spend as much as they were doing it with the help of helicopter drops. Actually, the helicopter drops werent free; they were in exchange for IOUs that are coming due.
Households Helicopter Ben is turning into Wall Streets Bailicopter Ben.
""Many of them are disgusting: trash and animal feces everywhere, rotting food in a refrigerator crawling with maggots. We even find pets left in the house," said Morganroth, who sells foreclosed homes in Chandler and Gilbert for Realty Executives.
Her inventory, she said, is skyrocketing."
Wow! Sounds like the Rust Belt... except speeded up 1,000 times...
Far off topic: Apologies, but take a look at the gold stocks. Holy smoke! Down huge (HUI)!
I listen to Peter Schiff's radio show (yeah, I'm lame), and last week he mentioned he's got 70% of his portfolio in gold equities. His ultra-bearishness on housing, while appropriate, is founded on a view that the U.S. economy is virtually worthless vs. rest of world. Moral: Do your own investment research.
Hi Tanta and CR, since your site is so excellent, I am guessing Ben Bernanke or one of his staff must read it daily. So I have written him a little letter which I hope you don't mind me posting here, seeing as the Dow has just dropped to 12700:
Dear Mr Bernanke,
Please, please do not cut rates. I know everyone is clamouring for you to do so, but you are right to resist. Cutting short term rates will not help the housing market, because long rates wont budge. Remember the conundrum as rates were being raised? Well, imagine reverse conundrum. Indeed, cutting rates will only help those greedy investment banks and hedge funds who got themselves into this mess all by themselves in the first place. Let the market do its work and it will cut out the rot. Who cares what those horrible investment bankers think, its not like they say nice things about you and Mr Poole, is it?
The other think I think you need to keep in mind Mr Bernanke is the US Dollar. I know that is not strictly part of your remit, but I figure you are a big picture guy. If you cut rates, the dollar will fall. A lot. This will cause foreigners to invest their funds elsewhere, and interest rates will then have to go UP to attract buyers of treasury bonds. Plus, foreign suppliers (think oil) will demand higher prices to compensate them for the fact that the price in dollars is worth less in their currency. So America will end up with inflation. (Im oversimplifying but I think you know how this works).
So, as long as there is inflation (which there is) and full employment (still looks pretty good to me although-wink wink- we know those BLS numbers are pretty much made-up), you need to keep rates where they are. Just my humble opinion.
Finally, if you do feel compelled to raise rates, would it be possible for you to us foreigners a little advance notice? This way we can quickly sell any dollar denominated assets we hold and move them back into our own currencies pronto. That would be really sweet. A little notice posted in one of the European papers or an announcement on BBC ought to do it. Cheers:)
Google up some "Minsky Moment Credit Cycle" or the ever cheerful uberbear Marc Faber and you should gain some insight into the whole gold story - forced sales due to margin calls are teeing up a more attractive entry point (when we have reached that point is another question lol).
High priced areas like NYC, where I live, and the west coast will fall. There are already cracks in the Manhattan RE market, even for the luxury buyers. A small drop here = big drops elsewhere.
Brian23 | 08.16.07 - 9:33 am | #
Im waiting to see how this 10west end goes.. plus the one right behind it on 59th
the hudson was finished last year , with promised views and 2 million(min) dollar top floor units, but 10WE stole there view....
A good portion of her listings were occupied by tenants who faced eviction because their landlords weren't paying the mortgage. "Some of these people had been paying the rent every month, but the owner wasn't paying the mortgage," she said. "They were forced to move and lost their security deposits, so they totally destroy the homes out of anger."
Can't really blame them, can you? Sounds like a blame should be at the lender and speculator. May they rot in HELL.
My cross post from Zacks.com (by the way folks, I'm not the only one to post there and the blog is part of the free site, so stop on over sometime)
This morning the data on July housing starts and permits was released. The good news was that they both tumbled to their lowest level in ten years. Why is that good news? Because we have far too many houses in this country that are waiting to be sold, both new and existing. The only way that we will work our self out of this mess is if we stop adding to supply. The first rule when you find yourself in a hole is to stop digging, and the slowdown in digging of foundations is thus good news. Of course it will act as a drag on the economy, but hey folks, that was baked into the cake a long time ago. There is enough strength elsewhere in the economy and around the globe that we will not plunge into a serious rescission because of it. Ok now for the details of the release:
Turning first to Starts, nation wide they fell to a seasonally adjusted annual rate of 1.381 million from 1.470 million in June (down 6.1%) and 1.746 million a year ago (down 20.9%). The weakness was concentrated in the South, which is by far the most important region of the country when it comes to housing, with over half the total starts year to date. Housing starts fell 11.0% for the month in Dixie, and are down 26.3% from a year ago. The monthly number may overstate things a bit, since in June the South actually saw a rise in starts, which ran counter to both the rest of the country and to the trend, so some of the monthly decline is simply payback for that aberration. Much more moderate monthly declines were seen in the Northeast (-1.3%) and the West (-3.7%). The Midwest actually saw a slight increase (up 2.6%). On a year over year basis, the South is faring the worst with a 26.3% decline followed by the West (down 21.5%) and the Midwest (down 17.5%). The Northeast is actually up 6.1% on a year over year basis, mostly on the strength of multifamily (aka apartments and condos) units.
Next lets look at Permits, which are a good indicator of where starts are likely to be in a month or so (in direction, not exactly in units since not all starts require a permit). Nationwide permits fell to 1.373 million (-2.8%) on a seasonally adjusted annual rate, from 1.413 million in June and down 22.6% from 1.774 million in July of 2006. Every region saw a decline in permits on both a monthly and a year over year basis. On a monthly basis, the decline was sharpest in the Midwest, down 4.8% (in other words, dont look for the uptick in starts for the region to last), followed by the West (-2.7%), the South (-2.6%) and the Northeast (-1.3%). On a year over year basis the South is down the most (-25.6%) followed by the Midwest (-22.2%), the West (-20.7%) and the Northeast (-12.5%).
With the recent tightening of mortgage lending standards pretty much across the credit spectrum, it is hard to see the numbers
With the recent tightening of mortgage lending standards pretty much across the credit spectrum, it is hard to see the numbers picking up significantly in the near future. As things stand now, it is extremely difficult to get a mortgage unless it conforms to the standards set by Fannie (FNM) and Freddie (FNM). In other words, a good credit score, a 20% down payment and a loan amount of no more than $417,000. Even if new home buyers meet those criteria to get a mortgage, most of the time they already have a house they have to sell, and they buyer of their old house might not meet those criteria. The housing market has not found a bottom, and it is not likely to any time soon. However, the decline in starts is a step in the right direction, since the LAST thing this market needs in a bigger inventory of homes sitting on the market. It is not good news for the homebuilders, but frankly their fate is less important than the overall fate of the housing market. Many of them are toast, we just dont know which ones yet. In the second quarter we were still spending more on residential investment as a percent of GDP than we have averaged since 1960. After the binge of the last few years, it is likely that we will have to go well below the historic averages. You just cant spend all night drinking a combination of Gin, Tequila, and Jack Daniels and not expect a nasty hangover in the morning.
A strong yen versus the dollar actually will hurt Japan more than the US in that Japanese manufacturers(i.e. autos) get less yen per dollar when they bring the cash from sales in the US back to Japan. One of the major implications in an unwinding of the carry trade relative to Japan is that it would hurt Japanese exporters badly. Needless to say, in the current US economic situation, the Japanese automakers can't raise prices to offset the exchange rate problem.
Brian,
By 2012 the housing market will have a different problem. The leading edge of the baby bomers start to retire in 2011. How many people have houses that they bought 20-30 years ago that are worth 10x or more what they paid for them? Lots. For may people, selling the big house and living off the gain is a big chnuk of the retirement plan. As they all start to do it at the same time...
There's NO MYSTERY with construction employment vs. starts; our economy is TOO STRONG to lose jobs. Period.
No surprise with the employment number staying steady. English has not been the language-of-choice at construction sites around my neck of the woods for years. If jobs dry up, most these guys move on, under the radar.
I'll continue here from Previous thread. Why CFC maybe worse than FED, DSL ?
Because in the last 6 month, in an effort to apear "the last man standing" and to keep the mortgage biz alive CFC (and IMB) have been buying loans that other originated.
So while other may have the opportunity to unload CFC was loading more.
Well, if the credit crunch is prolonged those unemployment numbers are going to get much worse, regardless of the housing situation.
Employment is the minor issue here - the more important piece of data is that starts are beginning the next down leg towards something like 1.1 million SAAR.
Right now the builders are still starting too many units.
Best to all.
Bloomberg
(quote)
William Poole, president of the St. Louis Federal Reserve Bank, said yesterday that the subprime mortgage rout doesn't threaten U.S. economic growth, and only a ``calamity'' would justify an interest-rate cut now. The Fed's next scheduled meeting is on Sept. 18.
(end quote)
So when, not if, the rate is cut, you will offically know it is a calamity. Way to go Poole, calming the markets.
Big losses in less mature stock markets due to hedge funds trying to scrape up cash.
Here in Sacramento, a large 7,000 unit subdivision is still being built at full speed, even as spec inventory and foreclosures pile up less than a mile away.
Truly something to behold.
Only about 100 weeks to go before hitting rock bottom of this recession!
There's NO MYSTERY with construction employment vs. starts; our economy is TOO STRONG to lose jobs. Period.
TOO STRONG and TOO BODACIOUS!!!
Period.
Housing prices need another 10-15% ,national, correction. This should take us until 2009.
Reuters, this morning:
(quote)
"The big question is, can Countrywide survive," wrote Paul Miller, a Friedman, Billings, Ramsey & Co. analyst.
He said if liquidity problems last more than a month, "Countrywide might be forced to sell assets at a deep discount, putting tremendous pressure on its book value and stock price.
"There is a scenario in which the current liquidity crises last for longer than three months and Countrywide is forced into bankruptcy; it will be ugly, but it can happen!" he said.
(end quote)
So 1 to 3 months to restore liquidity.
The helicopters have to be warming up now, Mr. Poole, if you would look out your window.
CR, is there any data on the total land being sold by home builders? I see ads virtually every day in the Washington Post about "Land for sale!" I'm trying to figure out how this fits into the larger picture.
High priced areas like NYC, where I live, and the west coast will fall. There are already cracks in the Manhattan RE market, even for the luxury buyers. A small drop here = big drops elsewhere.
Here in Sacramento, a large 7,000 unit subdivision is still being built at full speed, even as spec inventory and foreclosures pile up less than a mile away.
Truly something to behold.
Max | Homepage | 08.16.07 - 9:27 am | #
Cant stop an ocean liner on a dime, but whatever projects that are in the pipeline that CAN be withdrawn, will have the plug pulled. THEN the numbers will be devastating.
Recession is now about two months old, unemployment rate will skyrocket during next year.
Ben may be warming up the helicopters, but I somehow feel that is going to be me (and the rest of the taxpayers) who will be footing the bill for the fuel.
Given nthe crunch CFC is in and the problems in the "comercial paper" market - isn't the credit crunch worse than last week ?
More types of credit papers are not absorbed by the market.
Will this drive the Fed to drop rates ? I don't know if it would help but what else can they do ?
hi,
i read a while back that if the yen to dollar drops to 114 bad things could happen. it's now just above 114.
what does this mean?
Kevin L, I'm not aware of any national data on land - we could look at the top public builders and get an idea what is happening.
I have a friend who does the early stages of residential development - he buys raw land, gets the zoning, etc. - and then sells it to builders. He says raw land prices are still way too high to do any deals right now.
Best to all.
Max, here is a list of potential mnames for that 7,000 unit development. I like "Rhyolite".
Nevada Ghost Towns
question for those of u familiar with FRBNY TOMO data. what is the "stop out"? how is the int rate given out to borrowers determined? bids? i thought that it would have been at 5.25?
A lot of these neighborhoods around here already look like ghost towns. I should make a video...
Took a tour through some of the newer divisions in the Natomas area (Northern Sacramento) two weeks ago. The contrast provided by a row of abandoned cars, broken glass, and dead lawns in front of houses built in 2005 was worthy of Dali.
Yeah, I think a video is in order.
--
Lest people forget the household formation and fundamental demand peaked during 1979-81 (peak in the divorce rate). Hence, the starts and permits must fall below 1.0M before any kind of bottom is reached. But, if one takes into account the excess building in this cycle then starts must fall below 0.5M to clear the inventory.
Q for CR: Is the excess inventory being worked off since the permits, starts and completions, are all below your estimate for the demand?
Jas
Ben may be warming up the helicopters, but I somehow feel that is going to be me (and the rest of the taxpayers) who will be footing the bill for the fuel.
Well, if a enough people keep on the lookout and howl and scream at the first sign of a "money rain" (as the Fed likes to call it), maybe it won't happen.
BTW, has anyone here opened a Swiss bank account before?
The announcement of a recession is a lagging indicator of a recession itself.
Here in Onard, Riverpark a large 2,900 unit subdivision is still being built at full speed, even as spec inventory and foreclosures pile up all around.
The "why" as to employment strength is not a mystey here. The homebuilders are scrambling to complete absolutely anything that has been started while they still have the employees and the credit lines. There is actually a labor shortage in some fields as the supply of workers shrinks with international repatriation and interstate relocation.
ac-yes i have one with Credit Suisse. very easy to set up but not alot of flexibility.
Ben may be warming up the helicopters, but I somehow feel that is going to be me (and the rest of the taxpayers) who will be footing the bill for the fuel.
DonB | 08.16.07 - 9:49 am | #
All those municipal-worker's pensions, school district funding etc (and I mean etc.) that look toward steady, if not appreciating, property taxes to pay the bills! Not to mention Bush looking at all the capital gains taxes flowing in for 2007 to lower the deficit. If things continue spiraling down, that anticipated income would be no more. Where do local, state and federal governments turn to fill the gap?
--
"i read a while back that if the yen to dollar drops to 114 bad things could happen. it's now just above 114."
Several months ago I heard one of the best comments on the subject from some in far-East: "The yen carry-trade will stop and unwind only when something bad comes from America."
Well, something bad has originated in America, a country run by crooked bankers and financiers, and it is spreading to rest of the world.
What it means is that artificially low rates all over the world were fed by the borrowing in Yen at 0-1% and lending, or speculating, in higher-yielding currencies. With 10% leverage (10:1) one could make 50-80% returns! When something is too good to be true...
A currency speculator for 20 years,
Jas
--
"Ben may be warming up the helicopters, but I somehow feel that is going to be me (and the rest of the taxpayers) who will be footing the bill for the fuel."
Helicopter drops can't be carried out. Here is what I write few days ago:
From Helicopter Ben to Bailicopter Ben
Helicopter money drops over Wall Street don't cause inflation, or can't fight deflationary pressures. They cause increased speculation, or help speculative party to go on longer.
Without people recognizing it, Bernanke-Greenspan gang did around the clock helicopter drops on households via the famous use of homes as ATMs. Those helicopter drops have been shut down by inclement weather. Deflation now has clear path as aggregate demand starts to fall in the absence of helicopter drops. No, employment income of many Americans isnt enough to be able to spend as much as they were doing it with the help of helicopter drops. Actually, the helicopter drops werent free; they were in exchange for IOUs that are coming due.
Households Helicopter Ben is turning into Wall Streets Bailicopter Ben.
Jas
Re ghost towns:
Homes left behind leave messes for neighbors
Homes left behind leave messes for neighbors
""Many of them are disgusting: trash and animal feces everywhere, rotting food in a refrigerator crawling with maggots. We even find pets left in the house," said Morganroth, who sells foreclosed homes in Chandler and Gilbert for Realty Executives.
Her inventory, she said, is skyrocketing."
Wow! Sounds like the Rust Belt... except speeded up 1,000 times...
Far off topic: Apologies, but take a look at the gold stocks. Holy smoke! Down huge (HUI)!
I listen to Peter Schiff's radio show (yeah, I'm lame), and last week he mentioned he's got 70% of his portfolio in gold equities. His ultra-bearishness on housing, while appropriate, is founded on a view that the U.S. economy is virtually worthless vs. rest of world. Moral: Do your own investment research.
CR,
For when do you expect the low in building starts in this cycle and at what level?
Thanks, Joe
Hi Tanta and CR, since your site is so excellent, I am guessing Ben Bernanke or one of his staff must read it daily. So I have written him a little letter which I hope you don't mind me posting here, seeing as the Dow has just dropped to 12700:
Dear Mr Bernanke,
Please, please do not cut rates. I know everyone is clamouring for you to do so, but you are right to resist. Cutting short term rates will not help the housing market, because long rates wont budge. Remember the conundrum as rates were being raised? Well, imagine reverse conundrum. Indeed, cutting rates will only help those greedy investment banks and hedge funds who got themselves into this mess all by themselves in the first place. Let the market do its work and it will cut out the rot. Who cares what those horrible investment bankers think, its not like they say nice things about you and Mr Poole, is it?
The other think I think you need to keep in mind Mr Bernanke is the US Dollar. I know that is not strictly part of your remit, but I figure you are a big picture guy. If you cut rates, the dollar will fall. A lot. This will cause foreigners to invest their funds elsewhere, and interest rates will then have to go UP to attract buyers of treasury bonds. Plus, foreign suppliers (think oil) will demand higher prices to compensate them for the fact that the price in dollars is worth less in their currency. So America will end up with inflation. (Im oversimplifying but I think you know how this works).
So, as long as there is inflation (which there is) and full employment (still looks pretty good to me although-wink wink- we know those BLS numbers are pretty much made-up), you need to keep rates where they are. Just my humble opinion.
Finally, if you do feel compelled to raise rates, would it be possible for you to us foreigners a little advance notice? This way we can quickly sell any dollar denominated assets we hold and move them back into our own currencies pronto. That would be really sweet. A little notice posted in one of the European papers or an announcement on BBC ought to do it. Cheers:)
Best regards,
meant cut rates, final para
inOrlando,
Google up some "Minsky Moment Credit Cycle" or the ever cheerful uberbear Marc Faber and you should gain some insight into the whole gold story - forced sales due to margin calls are teeing up a more attractive entry point (when we have reached that point is another question lol).
Best of luck to all
High priced areas like NYC, where I live, and the west coast will fall. There are already cracks in the Manhattan RE market, even for the luxury buyers. A small drop here = big drops elsewhere.
Brian23 | 08.16.07 - 9:33 am | #
Im waiting to see how this 10west end goes.. plus the one right behind it on 59th
the hudson was finished last year , with promised views and 2 million(min) dollar top floor units, but 10WE stole there view....
Housing prices need another 10-15% ,national, correction. This should take us until 2009.
Brian23
Try 30-60%, and 2012
Dale, from the AZ Central article:
A good portion of her listings were occupied by tenants who faced eviction because their landlords weren't paying the mortgage. "Some of these people had been paying the rent every month, but the owner wasn't paying the mortgage," she said. "They were forced to move and lost their security deposits, so they totally destroy the homes out of anger."
Can't really blame them, can you? Sounds like a blame should be at the lender and speculator. May they rot in HELL.
My cross post from Zacks.com (by the way folks, I'm not the only one to post there and the blog is part of the free site, so stop on over sometime)
This morning the data on July housing starts and permits was released. The good news was that they both tumbled to their lowest level in ten years. Why is that good news? Because we have far too many houses in this country that are waiting to be sold, both new and existing. The only way that we will work our self out of this mess is if we stop adding to supply. The first rule when you find yourself in a hole is to stop digging, and the slowdown in digging of foundations is thus good news. Of course it will act as a drag on the economy, but hey folks, that was baked into the cake a long time ago. There is enough strength elsewhere in the economy and around the globe that we will not plunge into a serious rescission because of it. Ok now for the details of the release:
Turning first to Starts, nation wide they fell to a seasonally adjusted annual rate of 1.381 million from 1.470 million in June (down 6.1%) and 1.746 million a year ago (down 20.9%). The weakness was concentrated in the South, which is by far the most important region of the country when it comes to housing, with over half the total starts year to date. Housing starts fell 11.0% for the month in Dixie, and are down 26.3% from a year ago. The monthly number may overstate things a bit, since in June the South actually saw a rise in starts, which ran counter to both the rest of the country and to the trend, so some of the monthly decline is simply payback for that aberration. Much more moderate monthly declines were seen in the Northeast (-1.3%) and the West (-3.7%). The Midwest actually saw a slight increase (up 2.6%). On a year over year basis, the South is faring the worst with a 26.3% decline followed by the West (down 21.5%) and the Midwest (down 17.5%). The Northeast is actually up 6.1% on a year over year basis, mostly on the strength of multifamily (aka apartments and condos) units.
Next lets look at Permits, which are a good indicator of where starts are likely to be in a month or so (in direction, not exactly in units since not all starts require a permit). Nationwide permits fell to 1.373 million (-2.8%) on a seasonally adjusted annual rate, from 1.413 million in June and down 22.6% from 1.774 million in July of 2006. Every region saw a decline in permits on both a monthly and a year over year basis. On a monthly basis, the decline was sharpest in the Midwest, down 4.8% (in other words, dont look for the uptick in starts for the region to last), followed by the West (-2.7%), the South (-2.6%) and the Northeast (-1.3%). On a year over year basis the South is down the most (-25.6%) followed by the Midwest (-22.2%), the West (-20.7%) and the Northeast (-12.5%).
With the recent tightening of mortgage lending standards pretty much across the credit spectrum, it is hard to see the numbers
Continued:
With the recent tightening of mortgage lending standards pretty much across the credit spectrum, it is hard to see the numbers picking up significantly in the near future. As things stand now, it is extremely difficult to get a mortgage unless it conforms to the standards set by Fannie (FNM) and Freddie (FNM). In other words, a good credit score, a 20% down payment and a loan amount of no more than $417,000. Even if new home buyers meet those criteria to get a mortgage, most of the time they already have a house they have to sell, and they buyer of their old house might not meet those criteria. The housing market has not found a bottom, and it is not likely to any time soon. However, the decline in starts is a step in the right direction, since the LAST thing this market needs in a bigger inventory of homes sitting on the market. It is not good news for the homebuilders, but frankly their fate is less important than the overall fate of the housing market. Many of them are toast, we just dont know which ones yet. In the second quarter we were still spending more on residential investment as a percent of GDP than we have averaged since 1960. After the binge of the last few years, it is likely that we will have to go well below the historic averages. You just cant spend all night drinking a combination of Gin, Tequila, and Jack Daniels and not expect a nasty hangover in the morning.
Im not as pessimistic as 2012 on the housing collapse, but I could see it hitting 2010 and 30% in high more areas.
A strong yen versus the dollar actually will hurt Japan more than the US in that Japanese manufacturers(i.e. autos) get less yen per dollar when they bring the cash from sales in the US back to Japan. One of the major implications in an unwinding of the carry trade relative to Japan is that it would hurt Japanese exporters badly. Needless to say, in the current US economic situation, the Japanese automakers can't raise prices to offset the exchange rate problem.
So the Q4 06 BED data seems to confirm that the establishment data without the B/D model is fairly accurate when it comes to construction.
Starts did have a slight bump up in Q4 06 and the shrinking of job losses corresponded.
Perhaps a chart where the non B/D adjusted employment numbers should be included in the charts if possible.
If the model is solid, then residential construction jobs should be closer to 3 million.
Brian,
By 2012 the housing market will have a different problem. The leading edge of the baby bomers start to retire in 2011. How many people have houses that they bought 20-30 years ago that are worth 10x or more what they paid for them? Lots. For may people, selling the big house and living off the gain is a big chnuk of the retirement plan. As they all start to do it at the same time...