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Wow, that is weaker than I would have guessed. The rate of unravel would seem to be accelerating. Although it is interesting to watch unfold, I feel a little guilty knowing that behind these nicely made bar graphs, and date collation, are a lot of Americans under deep stress and facing financial catastrophre. I have to remember that along with the bathwater (flippers, realtors), there are a lot of other people not so deserving of this fate.
"Aug '07 sales were the lowest August since 1995 (63,000)."
This about sums it up. We'll have reached bottom a couple years after you can substitute a specific year for "Aug 07"
Fast Fist Freddy, these are ugly numbers - and they will probably be revised down too! (The Census Bureau estimates high during down trends).
The credit weakness is showing up in New Home sales first - next month existing home sales will likely take a big hit.
Geoff, yeah, I had to dig hard to find an August this low. All the way back to '95 ... this is REALLY ugly.
Best to all.
Given the recent firesales of inventory by the likes of Hovnanian and DR Horton, its likely that inventory-levels have peaked, but sales prices are dropping sharply. My guess is that the capitulation on pricing that we're seeing by the big builders is one of the first positive steps for the industry.
ice,
Look at starts...
Just wait until the August revisions and the 66% cancellation rates are announced. That will be ugly.
It also looks like Aug 07 sales were down from July 07. This bucks the general trend of recent years; sales generally get a bump from July to Aug.
This report fell out of the ugly tree and hit every branch on the way down...
Looked at the starts yesturday and finally builders are reducing the fuel - 20-30% less year over year - as a sales rate increase doesn't look promising.
the numbers are very ugly
...and the ugly stick has only begun the beating.
Housing is even uglier than that.
I feel that there is a real hard landing in store.
www.treasure-coast.us
(Goes back to lurking)
"The median sales price of new houses sold in August 2007 was $225,700; the average sales price was $292,000."
It would be interesting to see the distribution.
Errr...and why did KB just shoot up 2.6%?
The 529,000 units of inventory is slightly below the levels of the last year.
No doubt Seb would trumpet this tidbit as good news.
" Errr...and why did KB just shoot up 2.6%?"
because there is no shortage of morons in this country.
CR,
I'm curious why you think that these numbers are very ugly. It strikes me that if you found comparable August sales in 1995, presumably just before the current lax credit cycle began, then this is just a return to "inherent" demand versus the "inherent + speculative" demand created by the rapid price growth resulting from loose lending.
OT, but can anyone tell me why, when the fed lowered interest rates to near zero, it fueled the housing bubble, but now when it lowers, rates are tied to LIBOR so it doesn't make a difference anymore? Thanks - here to learn.
Breathtakingly ugly--August compares closely to January and February of this year.
I knew there would be and edge off of which to fall, but I'm surprised it is happening now, and not in Q108.
If we combine the new with the existing, how many total unsold homes are there? And what would be the total months of inventory for the combined inventory?
Errr...and why did KB just shoot up 2.6%?
They did a deal with Disney to offer Mickey Mouse houses.
Youn'un:
The builders have been down almost every day since the Wednesday after the Fed rate cut. If you look at the "5 day oscillator" it's down about as far as it can go. So we can expect a bounce in housing over the next days, perhaps. However, I think that we will see the pattern of lower highs and lower lows.
Young'un, you got the bit about low interest rates right but you haven't added in loose lending practices to your answer.
When the bubble was really getting crazy, it was really, really easy to finance a house purchase. Some places didn't require anything beyond a pulse. Now, 2-3 years later, getting credit is much more difficult. With asking prices so high that only a few can afford credit--also read as "are likely to pay back this loan on the terms in the agreement"--purchases are drying up. At this point, relatively low interest rates are nice for a few but for the rest of us it's the monetary equivalent of pushing on a string.
The stock market seems to have "discounted" all of this already. The disconnect is certainly very striking.
Last year at this time I recall the euphoria in the market when you saw that bump in new home sales from July to August.
There was a bunch of CNBC talk about Housing having bottomed.
A few weeks later Greenspan made several remarks indicating the housing bust was likely at a bottom:
"Most of the negatives in housing are probably behind us," Greenspan said. "The fourth quarter should be reasonably good, certainly better than the third quarter." Business & Financial News, Breaking US & International News | Reuters.com
The stock market rallied on the news that month moving the S&P from the low 1300's to almost 1400.
It's now at 1529 and the news has only gotten worse.
My point is that had we known then what we know now what would the stock market have done? Would you have guessed that it would go up another 130 points?
The bad news is moving so slow that the water is closer to the boiling point and the frog is still unaware.
The market is not a forward indicator as everyone is still saying.
Remember in early 2001 when Greenspan lowered rates and the market rose 18% into the summer before plunging over the next several years leaving the Nasdaq still 2300 points away from it's high.
Greenspan calls a bottom.
Stocks are forward looking.
Home prices never go down.
There are alot of "universal truths" going the way of the dodo.
(just some observations that may seem "obvious" a few years from now. Remember how optomistic everyone is on stocks. If or when they drop, you'll hear everyone say that they knew it, or it was easily predicatable).
Housing is even uglier than that.
I feel that there is a real hard landing in store.
www.treasure-coast.us
07
(Goes back to lurking)
Woosta | 09.27.07 - 10:45 am | #
Very interesting link.
When new home sales are released, I like to remind everyone that new home sales will fall below 500k for at least a couple of years. We have a lot more pain to go. The kind of pain that will BK over half the public builders and send Robert Toll and Angelo Mozillo to jail.
We've already had the hard landing...question is whether it will turn into a crash landing.
As always, excellent work CR. August 95 comparison is really stark. I think it was last bottom.
Also, KB Home reported 50 pct cancellation.
A seasonally adjusted decline of ~-$18 billion in ABCP...
Asset Backed Commercial Paper Declines Modestly
Homebuilders are like sharks, in that they have to keep swimming or die.
The way they build now:
Preplanned major infrastructure in conjunction with school districts (mello roos) and cities (sewers, streets, etc) and other builders (several builders in one large pre-planned neighborhood that must be completed or the builders pay HOA's etc), all this means that they can only cut production so much.
They either overbuild or stop altogether and die (BK). They can't just slow down to allow the market to catch up.
I'm not sure how slow that is (400k?, 500k?). Who knows, we may already be there and we're just waiting for the shark to starve of oxygen.
Steep discounts and inventory barely budges. I wonder what the cancellation rate will be post crunch.
We will need a HB implode site soon.
A lot of money is being dumped into the system - and seems a lot more requests for $$ was denied. A lot of behind the scene action going on. I read where 39 billion was released today.
Temporary Open Market Operations - Federal Reserve Bank of New York
"OT, but can anyone tell me why, when the fed lowered interest rates to near zero, it fueled the housing bubble, but now when it lowers, rates are tied to LIBOR so it doesn't make a difference anymore? Thanks - here to learn.
young'un | 09.27.07 - 10:55 am |"
Lower Fed rates made leveraging the MBS (Mortgage Backed Securities) easier for commercial banks and hedge funds.
The last rate cut still leaves the Fed Funds Rate higher than all but the longest maturity Treasuries, still not low enough to reflate the bubble in Mortgage-backed securities.
LIBOR: London Inter-Bank Exchange Rate is used for the reset rate on the ARMs. I don't know what was used for the intro teaser rates.
Its lots higher now because European banks have a bunch of paper (their own MBS, not just ours) thats gone down enough that they can't sell them to raise enough cash for normal bank operations (e.g. clearing depositors' checks). And banks can't borrow using them as collateral, because the counterparty lending banks don't know what they (the MBS and, indirectly, the borrower banks) are worth now.
....and conspicuously absent, is any indication by CR that we are closer to the bottom than the top....
""OT, but can anyone tell me why, when the fed lowered interest rates to near zero, it fueled the housing bubble, but now when it lowers, rates are tied to LIBOR so it doesn't make a difference anymore? Thanks - here to learn."
Short answer: the supply of greater fools has been exhausted. If assets can't be passed on to the next fool the whole house of cards comes tumbling down.
"A lot of money is being dumped into the system - and seems a lot more requests for $$ was denied.[ TC ]"
You're right, I count 4 Temporary Operations, instead of the usual singleton.
But its the last day of a 14-day Fed Maintenance Period. Some member banks choose to satisfy their required reserves by following an Average over the 14-day maintenance period, rather than doing reserve adjustments every day.
Today's "last day" more orderly than some. I've seen overnight rates spiking to 6% or 7% (high, NOT weighted-average).
There are always a lot more Submitted than Accepted. The Primary Dealers are obligated to respond to Fed requests for bids in an abundant fashion if they want to continue to be Primary Dealers.
Which reminds me, why is Countrywide Securities Corporation still a primary dealer? Is it a different company suffering from an unfortunate coincidence in name, or is Mozillo about to be nominated for one of the spots on the Fed Board of Governors?
psychodave | 09.27.07 - 11:47 am | #
Thanks for the lesson on Temporary Open Market Operations
Last I looked, housing starts were at 1.4M.
Sales (excluding cancellations) are at 795,000. I'm hearing, via hearsay, builders are cutting staffing 35%. So if I assume this translates into production of 900,000 units/year...
We still have a growing problem.
And yes, I see 500 "starts" near where I rent going nowhere. But let's pretend the real figure was less... that still implies YEARS to burn down the current inventory! In other words, that 1Q08 meltdown could still happen.
Great charts!
Neil
I don't know what was used for the intro teaser rates.
Well, you're in good company there.
All "intro rates" (whether you call it "discounted" or "teaser") are in relation to index plus margin, not just index. So these "teaser rates" are less than index plus margin, but not very often less than index.
In other words, if a loan was originated when 6-month LIBOR was 4.00%, back in 2005, and the margin was 3.50%, then anything less than 7.50% would be a "discounted" start rate. If the start rate was, say, 6.50%, it was still higher than the index value at the time of origination.
Even if 6L were still 4.00% today, a resetting 2005 loan with a 3.50% margin (and a 2.00% cap at the first adjustment) would still go up from a start rate of 6.50% to the fully-indexed rate of 7.50% (4.00 index plus 3.50 margin). 6L would have to drop to 3.00% for that loan to stay unchanged at 6.50%. It would have to drop under 3.00% for the loan rate to go down.
The problem is that we did, in fact, originate a bunch of ARMs at a historical low in index values. That is historically unusual; you normally originate fixed when prevailing rates are low, and ARMs when rates are high and people don't want "30-year protection" for a very high interest rate.
The problem is that having originated them at such a low index value, you can't do anything to make them not adjust upward at least once. You just can't. Even if the indices drop to 2003 levels, these loans still have a margin on them and the rate is not going to "rediscount" at adjustment.
I really don't know where the idea is coming from that Fed action with interest rates can affect ARM adjustments at this point. We gave up that "powder" when we originated ARMs at the bottom of the rate cycle. This isn't the early 90s, when falling short rates really helped out a book of high-rate ARMs leftover from the 80s.
I'm hearing, via hearsay, builders are cutting staffing 35%
Will this show up in the Death column of the BD model?
The problem with pricing new discounts on new ARMs is, well, those margins. In an environment of terrible credit losses, you aren't going to see ARM investors reducing margins; rather you see the opposite. So the drop in the index value has to fight against pressures in rising margins.
Since Sebastian has slunk off to his lair, let me pose the devil's advocate question. If housing has fallen off the cliff (demonstrably) and the financial system still facing "challenges" especially in Europe, and the retailers starting to roll over, why are the stock market averages going up? There is a tremendous supply of capital from oil countries, Japan, China, and regular IRA depositors (clinging right into those S&P futures). Someone bought all the way up the dot-com bubble when there were no earnings, will they still keep buying into the equities bubble, even though earnings will falter?
TC -
'This week provides an instructive opportunity to observe this in real time. On Thursday, September 27th, an unusually large $24 billion amount of repurchase agreements will come due, leaving only about $7 billion of repos outstanding. It should come as no surprise, then, that the Federal Reserve will most likely enter into a seemingly enormous $24 billion or so in new repurchase agreements by Thursday afternoon. This will undoubtedly be reported with great fanfare, and will be interpreted as a “massive injection of reserves into the banking system” by the Federal Reserve, as if these funds are new liquidity. This interpretation will be utterly incorrect. It will be nothing but a rollover of existing repurchase agreements that the Fed routinely enters into in order to maintain a stable amount of reserves in the banking system.'
See Will Toto Pull Back the Curtain?
See Will Toto Pull Back the Curtain?
MLM | 09.27.07 - 12:43 pm | #
Another lesson, thanks. I tried your link, got an error.
Well, that's probably because Haloscan is smarter than I am (hard to believe it has come to this).
Try:
Winter (Economic and Market) Watch » Will Toto Pull Back the Curtain
"Well, you're in good company there...[etc.]"[Tanta]
Thanks.
Sincerest regrets to all:
Yesterday was the last day of the maintenance period.
Today is just the day the H3 is released.
MLM"unusually large $24 billion amount of repurchase agreements will come due" is a better explanation.
"Housing is even uglier than that.
I feel that there is a real hard landing in store.
www.treasure-coast.us 07
(Goes back to lurking)
Woosta | 09.27.07 - 10:45 am | # "
A great read.
Foxtons, a West Long Branch-based real estate company that made a splash with its discounted commissions, said Wednesday night it is closing because of a downturn in the housing market.
The company said it is contemplating bankruptcy for an orderly shutdown, and it will continue only with a skeleton crew; it is laying off 350 of its 380 employees.
APP.com | Monmouth and Ocean counties | Asbury Park Press
-K
Well, looking through Lennar's SEC filing was instructive. They have dropped their margins by 6% on all homes sold, to roughly 14%. So they can still slash prices to that break even level to move a house. That 14% drop will cause a lot of markets to move lower to compete, pushing house prices down for everyone. Lennar (and most of the other builders) has a further problem, as house prices drop, their landbank drops also, so their writeoffs balloon and emergency sales of land will no longer work to gain temporary liquidity.
Lennar walked away from deposits and money spent prepping 15,000 lots. Huge money just evaporated in terms of assets- leaving those assets that had been on the books much more sparse to cover that $3 billion plus in debt. Cancellations are running 33%, and with price decreases they will mod their sales contracts to give the last price to the home buyer to keep the contract.
I predict some death spirals out there in home builder land due to impaired asset values leading to impaired ability to secure reasonable operating financing and not shrinking fast enough. Still not brave enough to pick putative survivors, that day will be when most of these guys are single digit midgets.
In short homebuilding still has to catch up to the new reality of a severely impaired real estate market.
I have a bad feeling about this...
Oops! My link wasn't properly pasted in.
www.treasure-coast.us
weekly update for the 09 23 07
www.treasure-coast.us
Anyhow, housing is toast for a while.
Woosta
CR: 2nd-to-last graph should be new houses for sale... the click-though graphic is correct.
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