BTW, the unexpectedly strong industrial production numbers from Japan are causing a bit of indigestion for the leverage monkeys today - that's the only reason global markets aren't up their daily 2% - but I suspect that will all be sorted out soon enough.
If the housing bust is going to bring on a recession I marvel that it has not happened yet. The economy seems completely resilient. People are overspending their incomes and getting the money from somewhere. Manufacturing is doing better than expected. Gas prices don't seem to be rising along with oil prices, etc., etc. Americans just keep spending and spending and they get the means to do so from somewhere. Tapped out? Hardly.
Jas,
I see where you want to go with those questions but they aren't addressing what was written. Yes, there was an "artifical" demand created by speculative investment. Yes, there are both an excess of demand via the 1997 tax exemption and an excess of demand from a demographic bubble. Some of the demand is frontloading (borrowing from the future) and some from a wealth effect making people think they can afford more housing and additional induced demand from the associated decline in average occupancy ratios.
Okay, there was a "false" demand signal. How much and how to dole out the blame? I don't think it is possible or worth the effort. This is stuff we find out after the fact.
CR,
The builders aren't building "too much." Do you think at this point they are nailing up even one stick more than is absolutely necessary? You are asking the HBs to internalize the needs of the greater market to their personal detriment. The HBs need to complete anything in the pipeline and get it off their books. They appear to be building exactly that much.
The problem I have with the Goldman Sachs forecast is the overhang of the cancelled sales which have dropped off the New Homes report. Obviously, we're not tracking them, but cancellation rates turned around and started a breathtaking rise this summer. When I add those into the picture, I still think there is a big discrepancy in the GS forecast.
As you note, this situation is anything but normal. We've also got a big flux back into rental from apt>condo conversions which have reverted, and now new condo projects being converted to apartments.
Sept. 28 (Bloomberg) -- More American homeowners are missing mortgage payments, pushing defaults on privately insured home loans up 30 percent last month according to a trade group.
Borrowers more than 60 days behind rose to 58,441 in August, Washington-based Mortgage Insurance Companies of America said today on its Web site.
James, the general economy has proven mightly resilient so far, but a couple of points:
There has been spillover, consumer spending is down (Aug. numbers notwithstanding) and GDP has fallen also. It just hasn't fallen into recession land yet.
Some of the macro effects of the housing bust have yet to hit. Prices have just begun to fall, and the residential construction job losses are in the first inning.
I'd compare the economy now to a punch-drunk boxer staggering in the ring. He's still alive, but his opponent Mr. Housing Bust has a few haymakers left.
Perhaps it would be helpful to divide starts into two major categories: Starts for homes that will be included in New Home sales, and All Other Starts. Unfortunately the Census Bureau doesn't provide this exact breakdown.
Census divides single-family housing starts into the following categories:
built for sale
built to rent
owner-built homes
contractor built homes
These series are only available on a quarterly basis from Census. New home sales are derived from the "built for sale" category. The most recent quarterly data are as follows:
Robert Coté, I mean the builders are building too many homes for the market to come back into balance - and starts will fall further. I agree that the buiders have reasons for overbuilding.
MaxedOutMama, I track cancellations and I'll try to include my estimate of the impact of cancellations on sales and inventory when I post this weekend. As you note, cancellations have increased again in Q3, meaning the numbers from the Census Bureau overstate actual sales (net of cancellations) and understate the increase to inventory.
Americans just keep spending and spending and they get the means to do so from somewhere. Tapped out? Hardly.
Somewhere isn't as vague as you think.
Somewhere is either income, savings or borrowing.
There's no free lunch.
The vast majority of Americans are smart enough not to keep spending until they are totally tapped out. They will start to spend less on big-ticket and discretionary items. You'll see it by Christmas.
If the housing bust is going to bring on a recession I marvel that it has not happened yet. The economy seems completely resilient...
One bubble offsets another. In any ordinary economy the severe downturn in housing would probably have dunked us into a recession already.
However the effects of the housing bust, thus far, have been offset by a worldwide super-bubble and a hurricane of easy money encircling the globe.
The bears keep habitually underestimating the power of bubbles to defer economic hangovers, and in the short-term they keep being wrong.
In this case we may be dealing with the biggest bubble of all.
For a short time, at least, all the old rules and reliable indicators go out the window and (honest) economists end up being repeatedly confounded and discredited.
I apologize for my ignorance of your previous posts on this topic.
Perhaps we are interested in different things. I first divide total starts into single-family and multifamily, then divide single-family into the categories I mentioned above. New home sales pertain only to single-family homes built for sale.
That said, your analysis is excellent and much appreciated.
What seems to be missing from CR's analysis of new housing supply/demand is REOs. Specifically, what portion of normal starts/new sales will be displaced by REOs coming back on the market.
Don't look to the charts for answers. This is uncharted territory, at least since early 90s.
Not at all. I just want to get the best estimate of the demand from data is available and not some kind of estimate based on population growth, etc. Households per unit can vary a lot based on economic conditions as well as cost.
My philosophy is: Why estimate when you can count!
I think that the demand can be calculated from the data as long as we can agree on what demand we are talking about. I just want clarification as to what demand we are talking about, thats all.
Steve, no. Builders are building too much - starts need to fall substantially because all else ins't equal.
They're also building the wrong things.
In my city the built tons and tons of big 4000+ sq/ft houses. There's simply no market for them here and they just sit and rot now.
There is a real need for modest starter homes with yards for young families/
Of course nobody built any of those because they weren't as high-profit (too much relative cost for the land) or coveted by speculators the way condos were.
--
"There is a real need for modest starter homes with yards for young families"
ac,
Businesses mostly react to the demand. Hopebuilders were responding to the move up mkt that arose out of the 1997 tax law chages, etc. As you said, they were looking to build more profitable homes. Shouldn't they?
In my city the built tons and tons of big 4000+ sq/ft houses. There's simply no market for them here and they just sit and rot now.
I don't know where you are but a friend of mine just told me his area is full of these kinds of homes too... huge overhang of inventory. He is from suburban Chicago, Elgin-Aurora area.
undercover, I think it's a little more complicated. The new home sales estimate reported by the Census Bureau includes only new single-family residential structures that include both the structure and the land. The Census Bureau defines single-family homes as either fully detached structures or certain attached homes with an unbroken ground-to-roof separating wall. This definition includes some condominiums (side by side units), but does not include condominium units with another unit above or below.
The starts report uses different definitions. Some of the condos included in the sales report are listed as "units in buildings with 2 units or more".
So when you look at the quarterly starts report that you referenced, you add one family units built for sale (fee simple, not total) and some of the "units in buildings with 2 units or more" built for sale.
The total one family units built for sale is probably close to the starts for the "new home sales" category, but that is because the number of non fee-simple homes is probably close to the number of side-by-side condos.
As least that is my understanding, after my eyes glazed over reading the various definitions at the Census Bureau!
CR,
Thanks for the clarification. It clears up an error I was making.
As to anyone thinking the consumer is in the clear... they haven't been looking at the debt reports. Nor to the layoffs going on in Nevada. Big ticket items like cars... Then its TV's, spa treatments, and eventually dining out. Oh wait... all of those industries are hurting. Next is going to be leisure travel (airlines/hotels).
People might have jobs, but that isn't the same as saying the same income. Besides, in many states, most of the jobs created since 2001 have been real estate related. Since we have the internet and that was an OK real estate year... expect to see those jobs disappear quickly.
I'm not seeing a bubble displacing another... I'm seeing a last chance borrowing against homes, credit cards, stocks...
We're one step away from desperation in the real estate market. Or did you miss the Case-Shiller? Hmmm??? Please, don't believe me. Go to open houses this weekend.
Clover goes to the gable wall and brings Benjamin with her. She asks Benjamin to read for her what is on the gable wall. All the commandments are gone, and all that is written there now is All animals are equal, But some animals are more equal than others.
Less than half of Americans, 47%, now have at least a fair amount of trust in the federal government to handle domestic problems. Gallup found a sub-50% reading on this measure only one other time, in 1976.
Obviously, you have delved deeply into the Census data. Thanks for the detailed info. I think the items you mentioned are small potatos, but I commend you for your detailed knowledge of the data.
KM4,
If the average American learned basic accounting, that would be 0%. I don't think the average person has a clue that there are enormous unreported liabilities are for entitlements. I believe the prescription drug plan is about $125,000 per person. That will all be paid in the future, but a company would have to book the liability now. Not so with Uncle Sam.
Well I am happy to have all the reasons why the housing bust hasn't created a recession YET, but somehow all of them remind me of explanations why the Second Coming hasn't come when expected. You know: "just you wait a bit" "it's around the corner" "don't think it isn't coming" "we're there almost" "not quite yet but soon", etc., etc. Get back to me when it's here. I don't have the patience to stay up sitting by the window waiting for it.
So given the level of sales, builders aren't building too much?
I think we should round up a bunch of people and hold a mock funeral for the dollar in front of the Federal Reserve building.
Only it wouldn't really be a mock funeral, of course.
BTW, the unexpectedly strong industrial production numbers from Japan are causing a bit of indigestion for the leverage monkeys today - that's the only reason global markets aren't up their daily 2% - but I suspect that will all be sorted out soon enough.
Give me leverage or give me death.
--
Since fundamental demand is the most important part of the equation, some Qs for CR for clarification purposes:
Q1: The demand estimate that you have is for Units Completed that are needed to satisfy the demand for housing?
Q2: Does that demand include those units that are added to the Vacant Units, Year Round?
Q3: Specifically, does the demand include the purely speculative demand (to be sold within two years for capital gains)?
Q4: Is the demand now, or your estimate, higher, lower, or the same as over the past 20 years?
TIA.
Jas
Quote from post:
"...but perhaps not as grim as some forecasts."
some of the grim isn't forecast any longer...its already worse than the moderates thought it would get.
Hey, does the black swan make an appearance in Oct? Indexes keep moving generally up...
General comment:
If the housing bust is going to bring on a recession I marvel that it has not happened yet. The economy seems completely resilient. People are overspending their incomes and getting the money from somewhere. Manufacturing is doing better than expected. Gas prices don't seem to be rising along with oil prices, etc., etc. Americans just keep spending and spending and they get the means to do so from somewhere. Tapped out? Hardly.
Steve, no. Builders are building too much - starts need to fall substantially because all else ins't equal.
I'll have more this weekend.
Best Wishes.
Jas,
I see where you want to go with those questions but they aren't addressing what was written. Yes, there was an "artifical" demand created by speculative investment. Yes, there are both an excess of demand via the 1997 tax exemption and an excess of demand from a demographic bubble. Some of the demand is frontloading (borrowing from the future) and some from a wealth effect making people think they can afford more housing and additional induced demand from the associated decline in average occupancy ratios.
Okay, there was a "false" demand signal. How much and how to dole out the blame? I don't think it is possible or worth the effort. This is stuff we find out after the fact.
CR,
The builders aren't building "too much." Do you think at this point they are nailing up even one stick more than is absolutely necessary? You are asking the HBs to internalize the needs of the greater market to their personal detriment. The HBs need to complete anything in the pipeline and get it off their books. They appear to be building exactly that much.
The problem I have with the Goldman Sachs forecast is the overhang of the cancelled sales which have dropped off the New Homes report. Obviously, we're not tracking them, but cancellation rates turned around and started a breathtaking rise this summer. When I add those into the picture, I still think there is a big discrepancy in the GS forecast.
As you note, this situation is anything but normal. We've also got a big flux back into rental from apt>condo conversions which have reverted, and now new condo projects being converted to apartments.
Pardon if a repeat post...this would be the folks 60 days late in August, so it would be before the turmoil, no?
Defaults on Insured Mortgages Rise 30 Percent (Update2)
By Hugh Son and Josh P. Hamilton
Sept. 28 (Bloomberg) -- More American homeowners are missing mortgage payments, pushing defaults on privately insured home loans up 30 percent last month according to a trade group.
Borrowers more than 60 days behind rose to 58,441 in August, Washington-based Mortgage Insurance Companies of America said today on its Web site.
[snip]
James, the general economy has proven mightly resilient so far, but a couple of points:
I'd compare the economy now to a punch-drunk boxer staggering in the ring. He's still alive, but his opponent Mr. Housing Bust has a few haymakers left.
Americans just keep spending and spending and they get the means to do so from somewhere. Tapped out? Hardly.
What's the big mystery? Income growth is high. Unemployment remains low. Was there some sort of change where these things are irrelevant now?
You're only surprised that the consumer remains resilient if you believed that MEW is a significant driver of consumption.
CR
You wrote:
Perhaps it would be helpful to divide starts into two major categories: Starts for homes that will be included in New Home sales, and All Other Starts. Unfortunately the Census Bureau doesn't provide this exact breakdown.
Census divides single-family housing starts into the following categories:
These series are only available on a quarterly basis from Census. New home sales are derived from the "built for sale" category. The most recent quarterly data are as follows:
YEAR QTR (a) (b)
2006 1 313 285
2006 2 332 300
2006 3 276 251
2006 4 205 216
2007 1 202 214
2007 2 246 238
where (a) is starts built for sale and (b) is new home sales (both series NSA).
To see the data, go to:
New Privately Owned Housing Units Started in the United States by Purpose and Design
I hope you find this useful.
Robert Coté, I mean the builders are building too many homes for the market to come back into balance - and starts will fall further. I agree that the buiders have reasons for overbuilding.
MaxedOutMama, I track cancellations and I'll try to include my estimate of the impact of cancellations on sales and inventory when I post this weekend. As you note, cancellations have increased again in Q3, meaning the numbers from the Census Bureau overstate actual sales (net of cancellations) and understate the increase to inventory.
Best Wishes.
undercover, I've noted that exact data many times - It does NOT divide neatly into the two categories we want.
Best Wishes.
Somewhere isn't as vague as you think.
Somewhere is either income, savings or borrowing.
There's no free lunch.
The vast majority of Americans are smart enough not to keep spending until they are totally tapped out. They will start to spend less on big-ticket and discretionary items. You'll see it by Christmas.
If the housing bust is going to bring on a recession I marvel that it has not happened yet. The economy seems completely resilient...
One bubble offsets another. In any ordinary economy the severe downturn in housing would probably have dunked us into a recession already.
However the effects of the housing bust, thus far, have been offset by a worldwide super-bubble and a hurricane of easy money encircling the globe.
The bears keep habitually underestimating the power of bubbles to defer economic hangovers, and in the short-term they keep being wrong.
In this case we may be dealing with the biggest bubble of all.
For a short time, at least, all the old rules and reliable indicators go out the window and (honest) economists end up being repeatedly confounded and discredited.
One day, however, economic reality will return.
And with it will come a terrible vengance.
I apologize for my ignorance of your previous posts on this topic.
Perhaps we are interested in different things. I first divide total starts into single-family and multifamily, then divide single-family into the categories I mentioned above. New home sales pertain only to single-family homes built for sale.
That said, your analysis is excellent and much appreciated.
What seems to be missing from CR's analysis of new housing supply/demand is REOs. Specifically, what portion of normal starts/new sales will be displaced by REOs coming back on the market.
Don't look to the charts for answers. This is uncharted territory, at least since early 90s.
"How much and how to dole out the blame?"
Hello Robert,
Not at all. I just want to get the best estimate of the demand from data is available and not some kind of estimate based on population growth, etc. Households per unit can vary a lot based on economic conditions as well as cost.
My philosophy is: Why estimate when you can count!
I think that the demand can be calculated from the data as long as we can agree on what demand we are talking about. I just want clarification as to what demand we are talking about, thats all.
Jas
Steve, no. Builders are building too much - starts need to fall substantially because all else ins't equal.
They're also building the wrong things.
In my city the built tons and tons of big 4000+ sq/ft houses. There's simply no market for them here and they just sit and rot now.
There is a real need for modest starter homes with yards for young families/
Of course nobody built any of those because they weren't as high-profit (too much relative cost for the land) or coveted by speculators the way condos were.
--
James: "If the housing bust is going to bring on a recession I marvel that it has not happened yet. The economy seems completely resilient."
Yes, James, the economy is resilient until it falls into recession.
The recession is shallow until it slips into a depression.
A depression is manageable until it is not.
Jas
--
"There is a real need for modest starter homes with yards for young families"
ac,
Businesses mostly react to the demand. Hopebuilders were responding to the move up mkt that arose out of the 1997 tax law chages, etc. As you said, they were looking to build more profitable homes. Shouldn't they?
Jas
In my city the built tons and tons of big 4000+ sq/ft houses. There's simply no market for them here and they just sit and rot now.
I don't know where you are but a friend of mine just told me his area is full of these kinds of homes too... huge overhang of inventory. He is from suburban Chicago, Elgin-Aurora area.
undercover, I think it's a little more complicated. The new home sales estimate reported by the Census Bureau includes only new single-family residential structures that include both the structure and the land. The Census Bureau defines single-family homes as either fully detached structures or certain attached homes with an unbroken ground-to-roof separating wall. This definition includes some condominiums (side by side units), but does not include condominium units with another unit above or below.
The starts report uses different definitions. Some of the condos included in the sales report are listed as "units in buildings with 2 units or more".
So when you look at the quarterly starts report that you referenced, you add one family units built for sale (fee simple, not total) and some of the "units in buildings with 2 units or more" built for sale.
The total one family units built for sale is probably close to the starts for the "new home sales" category, but that is because the number of non fee-simple homes is probably close to the number of side-by-side condos.
As least that is my understanding, after my eyes glazed over reading the various definitions at the Census Bureau!
Best Wishes.
CR,
Thanks for the clarification. It clears up an error I was making.
As to anyone thinking the consumer is in the clear... they haven't been looking at the debt reports. Nor to the layoffs going on in Nevada. Big ticket items like cars... Then its TV's, spa treatments, and eventually dining out. Oh wait... all of those industries are hurting. Next is going to be leisure travel (airlines/hotels).
People might have jobs, but that isn't the same as saying the same income. Besides, in many states, most of the jobs created since 2001 have been real estate related. Since we have the internet and that was an OK real estate year... expect to see those jobs disappear quickly.
I'm not seeing a bubble displacing another... I'm seeing a last chance borrowing against homes, credit cards, stocks...
We're one step away from desperation in the real estate market. Or did you miss the Case-Shiller? Hmmm??? Please, don't believe me. Go to open houses this weekend.
Got popcorn?
Neil
rich, I wrote: "Of course all else isn't equal these days in the housing market - the outlook is especially grim".
My complete analysis is not missing the excessive inventory or REOs. Those aren't mentioned here because this is the ceteris paribus situation.
All things are not equal.
Best Wishes.
All things are not equal.
Clover goes to the gable wall and brings Benjamin with her. She asks Benjamin to read for her what is on the gable wall. All the commandments are gone, and all that is written there now is All animals are equal, But some animals are more equal than others.
Animal Farm by George Orwell
Animal Farm by George Orwell. Search, Read, Study, Discuss.
Sorry but I couldn't resist.
Less than half of Americans, 47%, now have at least a fair amount of trust in the federal government to handle domestic problems. Gallup found a sub-50% reading on this measure only one other time, in 1976.
CR
Obviously, you have delved deeply into the Census data. Thanks for the detailed info. I think the items you mentioned are small potatos, but I commend you for your detailed knowledge of the data.
Steve,
You're only surprised if you think millions of people who live in houses they can't afford can perpetually keep borrowing more money and blowing it.
CR, Thanks for the clarification. I didn't get the Latin part.
does the black swan make an appearance
show me a white swan, and i'll show you a can of empty white paint
of big 4000+ sq/ft houses
my 5x8 storage locker in manhattan runs $100/month
scoop a 4g sq ft house, put up some 'cubicles' and rent it out as storage...
at $50/box you stillcan get a nice Spread
eighbor-'wassup with the uhaul here everyday, 3x per'
you-'nunya
KM4,
If the average American learned basic accounting, that would be 0%. I don't think the average person has a clue that there are enormous unreported liabilities are for entitlements. I believe the prescription drug plan is about $125,000 per person. That will all be paid in the future, but a company would have to book the liability now. Not so with Uncle Sam.
Well I am happy to have all the reasons why the housing bust hasn't created a recession YET, but somehow all of them remind me of explanations why the Second Coming hasn't come when expected. You know: "just you wait a bit" "it's around the corner" "don't think it isn't coming" "we're there almost" "not quite yet but soon", etc., etc. Get back to me when it's here. I don't have the patience to stay up sitting by the window waiting for it.