Starting right NOW

that exclamation point sure has a lot of excitement built into it.

What would be an interesting graph would be new home sales per capita (i.e. scaled for the national population in each year). It might be a more representative indicator of sales patterns.

We should just lower rates to -1%. That way it will stimulate the economy and all the banks wont lose any more capital. Lending will be cheap. LBO deals will come flooding back into the market. DOW 1000000. Forget inflation and a weakening dollar. Meaningless. The nation will fall apart, but atleast people will have their homes and corporate profits will soar.

Hope you guys caught it because its coming on pretty thick.

Cinch that Belt

source that diet

HARD--- RED---- WINTER----- WHEAT

921

Should bot wheat

If nyse program trading accounts for 70% of all trades and 80% of volume,
then is it a leap to assume the headline number is 'Controlled'?

"This should raise concerns about a possible consumer led recession - possibly starting right now!"

Agreed. On top of that Business Investment has been flat. So no help there.

And yet, the market doesn't seem to care. The only thing left for the Bears is that we get a Double Top on the DOW and the SP500. If not, we'll probably see a Tech Bubble like speculative frenzy as reality becomes temporarily irrelevant.

TheFinancialNinja

Wawawa,
Thanks for the Cramer video, it was fun and interesting.

5.1 Million and rising...Oh the sport of it all...

L.A. Land | L.A. Land is moving to Money & Company | Los Angeles Times 

This is incorrect. Population growth has been very robust over the last 20 years, averaging 1.1% per year

planet earth or island of america

sharon:

Here is link to ECRI's web site.

ECRI | About ECRI | Our Approach

They publish the WLI every Friday.
Despite what some believe, I have a lot of faith in their work. But that does not mean that they are infallible or that I ONLY look at their data. The Weekly Leading Index (WLI) is just one data point I consider for my macro view...but I do place a lot of weight on it.

I just spent over 1000 dollars at Macy's. I got enough clothes to last me two years. 70% off from the manufacturer suggested retail price.
What can I say, I am a value shopper.
No typo, 70% off. The clothes are
cheaper here than in chinese Malls.
Good thing we don't have an apparel
industry or we would accuse the Chinese of Dumping.

Can anyone post US R/E activity during the 1929-1933 window.

Can anyone post German R/E activity during the 1921-1924 window?

DH is gonna look SHarppppp in the soup line.

Poultion growth has decelerated in the current decade and i would have to disagree with CR's comment that it has been robust. Moreover, the household formation, which is a better metric to use to estimate new home demand, has fallen significantly. at 2007q1, only about 415k new households were added yoy. i have not seen the rate thru 2007q2, if someone has, please post.

in any event, historically about 1.2 new homes are built for every new household. in the year ending 2006, new housing starts approximated 1.78 of new households (5-year moving average), which was more than 2 standard deviations above the long-run average. Household growth averaged 1.396 million from 1971 to 2000. From 2001 to 2006, new household growth declerated to an annual average rate of 1.052 million.

keeping the historical 1.2 ratio constant, then we only needed about 1.26 new housing units. yet builders were delivering nearly 2 million units per year. hence, the new home market is way oversupplied. if builders delivered nothing new to the marketplace, it would take almost 2 years to work off the current excess. even longer if the household formation rate continues to run at 415k (implies only about 500k units needed, yet builders are adding at a 1.3m rate.)

i will have to take the under on your new home sale for 2007. unless there is an accleration in the household formation rate, new home sales will head to the 500k level, which is way under anyone's forecast at this time. it sounds extremely bearish, but that is what the historical relationships portend. the disruptions in the mortgage market and the diminishing chances that the baby boomers will be loading up on second homes are negative other factors (see tax code changes to 2nd homes to pay for loan mod bailout).

demand was skewed by the tax code change, zombie underwriting, and delusions of riches on the part of speculators. unfortunately, the homebuilders drank their own koolaid and extrapolated their growth plans from this nonsustainable demand. we are reverting back to the mean; fasten your seatbelts because it is going to get even bumpier!

technicals on the chart tells me new home sales would dip down to ~600k..

Great Stuff from Mish's Global Econonic Trend Analysis Blog --

Global Credit Crisis U.S. Style

This is truly stuff for the history books. As stocks blindly stumble to new highs, the risk is almost unimaginable as to what happens if/when this fails.</i>

Tanta - What if they are non-conforming Jumbo loans? Im assuming when you say agency-style, you mean GSE?

Jas:

I'm not claiming the WLI is perfect...far from it. IMHO no one index is perfect. I agree that going off the headlines it looks like the WLI inputs consist of some sometimes shakey data, but those are just some of the inputs. I for one don't consider the stock market input to be bad data, it is what it is and i DON'T believe the market can be controlled over the long-term...short-term perhaps - lomg-term no way.

If we're about to enter a recession in 2008 (I think we will based on other considerations, some of which this blog helped me with), then WLI is right about where it should be for this timeframe. Where it goes from here is critical.

Short on time now so can't really continue this. I respect your opinion, so we'll have to agree to disagree.

thanks

Jas, you are almost always too early.
You have to learn to pace yourself.

Household formation is going to be very interesting and unpredictable due to a couple of factors that are beyond estimation. For instance, should immigration from Mexico slow drastically and some reverses occur due to lack of employment, demand for houses could easily fall in areas that have previously depended on succession migration to fill the bottom rungs of the economic ladder (southern California, Nevada, Arizona, Utah, Texas, Florida, other states with burgeoning immigrant populations). That is just a slowdown in growth hypothesis.
A large drop in growth to stagnation would be devastating to people on the bottom of the economic ladder, combined with possible anti-immigrant measures like employment verification (already a reality Jan 1 in Arizona), could lead to a drop of up to 200k in household formations from the immigrant stream.

Ugly, and no better way to put it, and possible bleak in terms of counting on Generation Y to form independent households in the face of a national recession. Boomerang kids aren't buying houses sleeping in their own beds.

Jas, take a deep breathe, and when you are right for the most part, slow down. This economy is so large that changes at the margin take a very long to time to propagate through the entire system. Just look at how sticky house prices are...

Brian23

They did try exactly that in Japan. But, it wasn't a panacea. It took a great while for the Japanese economy to come out of the liquidity trap.

This is a good discussion about demographic trends and their relationship with new home sales.

Jas, for household figures i used data from census provided via moody's/economy.com. i had access to data via haver, but they should be identical. ot, i used the moody's data rather than haver beacuse they provide estimates (not just historical) and they tag data with geo code that allows for easier mapping).

i think your 10-year average for household growth is a bit low; i get an annual average of 1.194m from 1996 to 2005.

households

1994 97.817m
1995 99.131m
1996 100.432m
1997 101.782m
1998 103.115m
1999 104.444m
2000 105.765m
2001 106.886m
2002 107.959m
2003 108.948m
2004 110.004m
2005 111.072m
2006 112,148m

still, the 1.194 average over that 10-year period is well below the historical average of 1.348m from 1971 to 2006. in any event, not trying to get in a pissing contest on the most accurate formation rate. i think everyone can agree that it has decelerated.

tanta asked a question:

If "household formation" is just how population decides to occupy homes (owned or rented) at a given density, then how is it a metric to estimate demand rather than another way of describing demand?

i am not an economist by training, but a highly trained financial analyst that has worked with a number of economists with PHDs (permanent head damage), so you can disregard my answer if you like.

HH formation rate provides a better estimate of housing demand than say job or population growth. job growth can provide a false signal about demand especially if the wage rate is not sufficient to buy homes (this is where local analysis is needed as wage and house prices vary tremendously; also job figures could include people getting multiple part-time jobs). population growth as a proxy for housing demand is a bit better, but it may have some problems as well. this is where the distribution of the population becomes important. if growth is centered in the 16 and under cohort, then obviously they would not be demanding housing. there are numerous studies showing ownership rates by age cohorts. in this cycle, ownership rates rose among the under 35 cohort (particularly women), which implies that some future demand was pulled forward. remember the mantra - "buy now or forever be priced out."

the interesting fraud perpetuated in the bubble was that immigrants were fueling demand for housing. even CR's figure show population growth of about 1.1 percent. hence, at best, immigrants were sustaining population growth and the demand curve for housing. this falsehood was spun as if immigrants had shifted the demand curve for housing upward. perhaps, you could convince me they sustained the demand curve. you occasionally here this blather today and it is irritating as a proper fundamental analysis of demographic trends does not support this conclusion.

moreover, typically the immigrants this decade do not make enough money to purchase a

Jas,
I respect your opinion too, but it certainly seems deep-rooted in distrust stemming from Moore vs Achuthan & Co. and/or willingness to quantify a probability. I presume that distrust has served you well.

You say, "I think that they are hiding something. And there is pressure on them from their customers."

Those statements don't make sense to me. Why would paying customers put pressure on them not to forecast a recession when that's the information the customer is paying them to get. Are you implying that they will privately forecast a recession to their paying customers (or provide probabilities) but not go public with the same information? Just want to better understand where you coming from on your distrust of these guys.

Duceswild, Have you ever been a consultant? Many customers will pay you to tell them what they want to hear. I'm happy to be able to turn down such gigs...

Jas has a point about a negative household formations rate.

All very well to say the obvious that people prefer to live in their own home but as relative wealth declines households do combine and do live in smaller and smaller spaces.

Mcmansions will become flats and so forth. Or even cut in two remodeled and moved to where people want to live:-)