I'm not sure it is the case in the instance you cite, but thre is a tendency among financial reporters to look at stock prices and then decide what the data mean. This is not only a tad shallow, but also risks mistaking investment flow complete unrelated to the data for implicit investor "comment" on the data.
And yeah, the trend after revisions is decidely worse than the trend before the revisions.
Every month it seems that there has been an announcement of a "rebound". And sure enough, more often than not it's simply the effect of comparing the new unrevised number to the previous month's revised number.
I realize that they aren't actively gaming these numbers, but at some point it becomes dishonest to not even try to take into account what the projected revision will be. The revision every single month has been a major downward revision due to cancellations, they should be taking that into account rather than simply taking the numbers at face value.
At this point the new housing numbers are nearly worthless until they've had a full month to get the full revisions in.
Well, the accelerating pace of revisions is what is so shocking.
Yeah, we expect revisions, but these are some pretty whomping revisions.
The total of completed homes for sale keeps rising too, and that doesn't even include all those recycled cancellations. Man oh man, we are not moving into 2008 with a very good outlook for builders!
K Harris, you got me laughing with the "tad shallow". Thanks.
this makes me laugh for some reason..."we're just a bond insurer, we don't guarantee things":
MBIA said today that a SIV it manages is seeking alternative financing after having difficulty funding itself in the asset- backed commercial paper market. MBIA said it manages the $1.8 billion invested in Hudson-Thames Capital Ltd., which sells short-term debt to finance purchases of longer-dated securities and profits on the difference. MBIA has invested $15.8 million in the Hudson-Thames capital notes. It has no obligation to provide liquidity support or guarantees.
Why is it that CR can give us the real story while these "News Outlets" are giving us crap?
Advertising sure does create biased media. By the way did the NAR and NAHB advertising departments get ahold of you yet CR? You must be one of the last to conform to thier agenda.
It is now moving into a confidence game...if you look down and see you how badly you're wounded, you'll pass out and not be any use to anyone. Keep your eyes up and keep moving!!
New home sales rose (!?) 4.8% to 770k the second weakest rate since 1996. Sales were expected to fall 3%, to 770k. August sales were revised from 795k to 735k. This is a truly horrendous data series, subject to huge revisions, this time amounting to -167k between June and August.
New home sales are measured at contract, not at closing, which means those who went into closings only to discover they had no mortgages thought to have had a big impact on yesterdays existing home sales were oblivious when counted in this survey. If they are forced to cancel their purchase, the big homebuilders report 20-50% cancellation rates, they will not be revised out of these figures in future months. The Census Bureau does not take cancellations into account when revising data.
For all of these reasons and more, the rise in September is far less important than the downward trend into September.
Bottom line: Despite the rise in new home sales reported in September, the housing sector is in real trouble. Sales are weak, prices are falling and homebuilders are in full retreat. Todays report is the one bright spot in an otherwise ugly string of recent housing reports. It should not change thinking at the Fed or in the markets.
CR, when you prepare these charts, do you go back and apply revisions to prior months so you always present the most recently revised figures?
Somehow I think it would be useful to carry 2 charts - Initial released and revised. These month-2-month numbers comparing prior month revised and current month initial are almost meaningless.
I'm pleased so many are onto this blatant (Tis so, you fast dwindling last holdouts! Get a Clue!) massaging of the New Home Sales data.
You (withit ontopofits) figure that this desperate interpretation is genuinely delusional [We needed the traditional cleansing fire...it is Nature's Way.] or something less noble (that's no wild fire in San Diego, that's my BBQ)?
Speakin of delusions, Elvis writes: Remember, new home sales will fall below 500k for at least a couple of years. Still a long way to go.
and dang if I don't remember what will happen...only what did happen.
Wrong planet, Elvis? --or is there some shot-in-the-dark that you made that is, a priori, just so much better than all those calculations that CR has troubled with to arrive at such a different number?
I mentioned in an earlier comment that I thought it was odd for the US Fed to "lend" two UK Banks 30B. Well it seems that part of this was to prevent the liquidation of Cheyne.
So, ya set up a hedge fund. Ya take risks but you cant lose 'cause you get bailed out.
Billionaire investor sees problems in the subprime market affecting consumers for up to 2 years, but expresses confidence in U.S. economy.
October 25 2007: 4:19 AM EDT
DAEGU, South Korea (AP) -- American billionaire investor Warren Buffett said Thursday that problems in the U.S. subprime mortgage market will likely weigh on consumers for up to two years, but that the U.S. economy will weather the storm.
The subprime problem "is having an impact," Buffett said on his first visit to South Korea. "It will have more of an impact."
Rising default rates among U.S. mortgage holders with poor credit histories have rattled global credit, stock and currency markets since August and raised concerns about a possible recession in the U.S. economy, a major export market for Asian companies.
"In the next 6 months, one year, two years the problems in the mortgage market can cause a lot of problems with consumers and hurt buying power in the United States," he said at a press conference after arriving earlier in the day from China on his private jet.
However, the U.S. economy has often had to face various difficulties and the present was no exception, Buffett said.
"Overall the economy will make progress," he said.
Buffett came to Daegu, located about 180 miles southwest of Seoul, to inspect Iscar Korea, a subsidiary of Iscar, the Israeli industrial tool manufacturer that his company, Berkshire Hathaway Inc. (Charts, Fortune 500), purchased last year for $4 billion, its first overseas acquisition.
Buffett also expressed pessimism on the U.S. dollar.
"We still are negative on the dollar relative to most major currencies," he said.
. . .
barely, when I create the charts, I use all the revisions. It's amusing looking at the "as released" data - so many months were initially up during this incredible down turn.
That is why I did the analysis (see link in post) of revisions. During downturns, it's reasonable to expect about a 5% reduction in the as released number - so this month will probably be around 730K.
True at the time you posted, but no more. If you blinked you missed this latest rally and pullback, looking at my ticker XHB (ETF tracking builders) now nearly flat.
And to think that I got all excited about a put buying opportunity. This market really is fickle, it will change on you in a heartbeat.
Calmo,
Just look at the historical charts of new home sales. History does repeat itself. Compound that with the huge inventory surplus, the impending wave of homebuilder BKs, and the 10% down conforming mortgage trend, and it is fairly obvious that new home sales will be below 500k for at least a few years. I agree with CR on most, and I think ultimately his forecasts will be in-line with mine. Calm down, calmo, and think a little.
Whats up with another meltdown in Countrywide and Washington Mutual shares today? That $2B that Bank of America paid for Countrywide at $18 doesn't look so savvy now. Oh well, they'll save some money from laying off 3,000 investment bankers.
Is it just me or does the long run reasonable level of housing sales look like some 600,000 units per year?
Until 1999 the peaks rarely got over 700,000. Surely there is some extra demand for more recent illegal immigration but surely not enough, just in the last seven years, to raise long term demand to 900,000 per year.
The native population isn't growing at a rate high enough to justify a 50% increase in new housing over what was the norm only a decade or so ago, no?
"Every month it seems that there has been an announcement of a "rebound". And sure enough..."
Look in the glossary of any decent corporate finance text and you will find "six month sliding hockey stick" explained. Has something to do with normalized forward revenues and the Viterbi coefficient.
The funniest thing is watching the news orgs try to find a story - early in the day when the story first released AP was touting the rebound evidenced by the stock market moving up... Now (11:30 CST) the market has retraced to the negative and the market is 'down' on durable goods... whatever.
These guys also need to revisit the 'random walk'.
Anyway - today's release could have been a lot worse. Go back and read the reports from Pulte, MDC, Ryland from a few days ago - recall how they've reduced some of their inventory... sales that probably didn't show up in these dismal sales numbers (previous cancels don't).
There is so much information hidden - current orders yet to be cancelled, previous cancellations now selling, and 'hidden inventory' - its amazing we have any measure of how good, bad or ugly this story is.
From what I can see, the two best US recession leading indicators have been new home sales and oil prices. New home sales down around 30% = recession. Oil prices around their inflation-adjusted peak = recession. Maybe this time will turn out to be different, but these two historically reliable indicators are certainly flashing red. If the US does in fact enter a recession, it's not at all unreasonable to exptrapolate CR's new home sales chart down to around the 500k level.
Elvis, CR's calculation is reported to be "in the low 800s " (just cutanpastin recklessly...from the last paragraph in CR's post...a pretty reliable source, no?) [Ok, you B right, I clipped this bit: "the lowest level since 1997 (805K in '97)."] and your (imperturbable) analysis (500k) sees a much larger plunge going back to nearly the Cromagnon Era ('61-93).
So in your view Elvis, CR is downright conservative.
Elvis, on this planet after all, has calmed me down thinking that there is little on the horizon to support a rebound at the frothy '97 year level...such a radical.
And possibly right.
Dang.
And if anyone's wondering why the stock market isn't up today, the rumor de jour is AIG is going to announce a 10bio cdo hit. Yesterday's rumor de jour that Lehman was about to take a similar hit didn't materialize, though I suspect both will soon enough. I guess we're slowly finding out who the bagholders are.
re: the Countrywide and Wamu falling stock- I suspect the WSJ article the other day on option-arms was a wake up call for non-CR readers on dangers of neg am.
Wall Street now realizes that even if Countrywide can stop losing money on day to day loan writing operations, it will be killed by all the low-doc neg am loans it holds.
Rusty, check out the Census Bureau report (see previous post), they give the error estimates. For some reason, their initial estimate is always too high during a down turn - they are pretty good the rest of the time. It doesn't bother, since I know the initial estimate is too high.
For some reason the AP and others haven't figured this out. I see MarketWatch did a pretty good job with the numbers.
I'm beginning to think there is a much simpler answer. Someone (whoever that might be) decided there had to be an increase of around 4% for last months sales a few days (couple of weeks?) ago.
A note from the Field - I went looking at new houses this last weekend, and prices for new housing have now dropped significantly underneath resale prices in our area. Existing homeowners are now upside down on their prices. Further, many of these homeowners have no downside pricing ability because they are also upside down on their current mortgages. Short sales are increasingly falling into foreclosure for this reason. The pain is spreading rapidly.
Few days back CR posted the declining ABX indices and left with the question about what will blow up this time. We may have the answer now - the mortgage insurers. Look at ABK, MBI and RDN today. All down HUGE !!!
Few days back CR posted the declining ABX indices and left with the question about what will blow up this time. We may have the answer now - the mortgage insurers. Look at ABK, MBI and RDN today. All down HUGE !!!
I read somewhere that subprime mortgage remittance data is coming in now as 'we speak'... and the data is not good. ABX & all reflect this.
I can't find the link - went back through the cache trying to find it but I clear when I shut down.
A senior U.S. Securities and Exchange Commission official said on Thursday insider trading appeared to be "rampant" among Wall Street professionals and the agency has formed a working group to focus on it.
Re: MBI if my math is correct these folks have 600B of insurance liabilities w/ only 7B is assets. I hope they were really good at assessing all those MBSs and CDOs
Was anyone on the call? From the time the call was scheduled share price has tanked 19%.
Banker, the earnings data to-date of (7%) is, in part, why I state that the 'weighing' is leading the 'voting', i.e., though the objective data is negative, market sentiment is still positive.
Next visit to the confessional:
"Analysts at Thomson Squawk Box said there's speculation among traders that the company could record a writedown of as much as $10 billion from its structured products guarantee group. In their comment at 11:52 a.m. Eastern Time, they also noted that five-year credit default swaps on the company's debt have widened out, suggesting 'smart money' players are lending some credence to the talk"
And CR is only prokecting 800k for this year? Elvis you are projecting for a number of years.
The last two corrections were 5 years in length. the 77 corrected 50% the 87 corrected a third. Unless some Brain thinks this is over today, I would have to say that 50% correction is at least in the cards.
Yahoo finance shows all the signs of responsible journalism...
"Stocks Down Despite New Homes Sales Rise"
Expect that new home sales are actually down, as August was revised harshly lower and September's numbers were less than expected. Do people just not take relativity into account when they're writing headlines? Pretty absurd.
Ministry, I'm a longstanding employee of the "biased media," and advertising has nothing to do with it. What you're saying, essentially, is that reporters looked at the Census data today on new home sales and said to themselves, "I gotta spin this to please our advertisers who are trying to sell cars, mutual funds and airplane tickets."
It doesn't work that way.
When someone's actions can be attributed either to ignorance or malevolence, you'll usually be right if you chalk it up to ignorance. In this case, you're talking about reporters and mathematics. Generally, the two don't mix.
I must admit, I spent the morning slack-jawed in amazement at the poor analysis of these home sales numbers, and I blogged about it. 83,000 new homes were sold in April, 79,000 in May, 73,000 in June, 68,000 in July, 63,000 in August and 60,0000 in September. The numbers are right there on the second page of the Census Bureau's pdf. Only the innumerate would describe that as anything other than an unrelentingly downward trend.
CR points out that the bureau's seasonally adjusted annual rates go out of whack in a declining market. That's obvious if you keep track of the original estimates and the revisions. We need to ignore the SAAR for the next couple of years.
Holden, news is a business these days and there are many stories of reporters not being able to report unbiased due to corporate pressure. At Fox news it is not a secret that every morning a focus email goes out to everyone on what to report for the days events.
Ministry,
Fox's daily memo is a manifestation of political pressure, not economic pressure, and it's internal, not external.
Every once in a while, I read assertions such as yours -- that reporters spin the news to please advertisers -- and I realize what it feels like when any professional reads an inaccurate article about their profession. So I thank you, because you remind me to be careful.
ABX Indexes Plunge Amid Release of Monthly Delinquency Reports
2007-10-25 15:36 (New York)
By Jody Shenn
Oct. 25 (Bloomberg) -- ABX indexes plunged, suggesting the
perceived risk of subprime-mortgage bonds rose, as monthly reports
on the underlying loan performance were released.
An index of credit-default swaps tied to 20 subprime-loan
bonds rated AAA and created in the second half of 2006 fell
2.8 percent to a mid-price of 86.5, a new low, according to a note
to clients from Deutsche Bank AG in New York. The ABX index tied
to BBB- rated bonds backed by the same loan pools fell 8.6 percent
to a low of 18.5.
Delinquencies and foreclosures among the mortgages continued
to rise during September collections, according to analysts at
London-based Barclays Plc who reviewed the first 11 of 80 reports
on performance being released. Prepayment speeds were as much as
two-thirds below typical rates, suggesting borrowers were having
difficulty refinancing into lower payments, the analysts wrote.
The reports do not paint a rosy picture,'' they said.
Investors and analysts follow ABX indexes as a gauge of the
subprime-bond market, tied to home loans to borrowers with poor
credit or high debt. They track the performance of mortgages that
back securities by looking at figures bond trustees typically
release on the 25th of each month.I don't think they're going to be good: It's not as if the
overall economy strengthened in the last quarter,'' said Andrew
Chow, who manages about $7 billion in asset-backed bonds at SCM
Advisors LLC in San Francisco. ``The second-quarter GDP growth
rate was probably the high water mark for this year.''
U.S. gross domestic product grew at a 3.8 percent annual rate
during the second quarter.
Bond Issuance Falls
Subprime borrowers face limited opportunities to refinance
out of adjustable-rate loans because of falling home prices and a
collapse of the mortgage market amid the highest default rates on
record.
Third-quarter issuance of securities backed by subprime
mortgages fell 70 percent to $30 billion from a year earlier,
according to newsletter Inside Mortgage Finance. Subprime
originations by Calabasas, California-based Countrywide Financial
Corp., the largest U.S. home lender, tumbled 92 percent from a
year earlier in September to $255 million.
New ABX indexes are created every six months by securities
firms, including Goldman Sachs Group Inc. and Deutsche Bank AG,
and London-based Markit Group Ltd. The indexes indicate prices for
credit-default swaps linked to 20 bonds, not for swaps on each.
The swaps offer protection if the securities aren't repaid as
expected, in return for regular insurance-like premiums.
The indexes have tumbled this year, suggesting a similar drop
in the prices of the underlying debt, as investors expected
Oil up to $90 a barrel, but here in Tucson gasoline prices are FALLING.
I guess paying any attention to bad news is silly and a waste of time. The US exists in an alternate universe where bad is good and up is down, etc., etc.
"Ministry, I'm a longstanding employee of the "biased media," and advertising has nothing to do with it. What you're saying, essentially, is that reporters looked at the Census data today on new home sales and said to themselves, "I gotta spin this to please our advertisers who are trying to sell cars, mutual funds and airplane tickets. It doesn't work that way."
Holden, I call bullsh** on that. Of course it literally doesn't work that way. Reporters know what the zeitgeist is of the newsroom, what pleases the PTB, what doesn't.
Note: You'd have to be retarded to call yourself a business reporter and not be able to engage in elementary trend analysis.
Take off the white robes, I'm sick of the pontificating excuses, people who work in newsrooms have to compromise like all the rest of us to put food on the table...
And from what I've seen you and your contemporaries have all the courage of the Dems in displaying some kahunas (or at least creative strategy to get the truth past your bottom line driven editors).
I was a reporter for a number of years, before I lost the stomach for it (and got a degree).
There are real institutional barriers to fully reporting unbiased news. One main reason is a journalist students with a BA from Cal Northridge probably isn't THAT skilled at interpreting highly complex financial data. Another way that reporters adopt institutional biases is in the way that its easier to glean most "newsworthy information" from sources that are either a) respected in the field or b) generally liked already in the newsroom.
If you have 20 minutes to get a some copy out about data in a press release that you don't really understand, first you read the AP/Rueters headlines, and then you call the Real Estate desk and ask them what to write.
Forgive me, but there are two people putting out a wealth of information day in day out on this blog. You're telling me an entire news organization can't muster the resources to write about the subject accurately? That the pressure of putting out an accurate 2" x 3" column is just too much to bear? Or, excuse me, that you should actually have do the leg work to develop proficiency in a topic before writing about it. It is possible you know, I believe Tanta's degree is in English Lit.
Andrew "entire news organizations" have been pared to the bone of late, suffering from declining ad revenus, reader interest and higher costs of print and distribution.
There used to be robust fact-checking and copy desk departments - not so much now. You'd be startled to learn how much news orgs depend on newbie journalists and interns to cover every topic.
So the business side has indeed influenced the editorial side- heavily- by whittling it away in the name of next quarter's profit margins. And in other ways too. A company desperate for ad revenue will bend to the wishes of the revenue suppliers -- you see this played out in the pages of many Real Estate Sections as the market teeters and reporters still manage to tease out positive spin instead of sound alarms. That is not serving readers - it's serving advertisers' short-term interests.
The end game of this strategy, however, is a sad one -- same kind of nest-fouling results as letting the unfettered "market" determine who can get home loans. Great profits in short run, devastating losses (in money, and in the crown jewel of credibility) in long run.
It's a sorry thing to watch these media giants bleed themselves to death, but a great thing we have blogs like this one to turn to instead.
I'm not sure it is the case in the instance you cite, but thre is a tendency among financial reporters to look at stock prices and then decide what the data mean. This is not only a tad shallow, but also risks mistaking investment flow complete unrelated to the data for implicit investor "comment" on the data.
And yeah, the trend after revisions is decidely worse than the trend before the revisions.
The builders are up 2% to 6% on this report.
Every month it seems that there has been an announcement of a "rebound". And sure enough, more often than not it's simply the effect of comparing the new unrevised number to the previous month's revised number.
I realize that they aren't actively gaming these numbers, but at some point it becomes dishonest to not even try to take into account what the projected revision will be. The revision every single month has been a major downward revision due to cancellations, they should be taking that into account rather than simply taking the numbers at face value.
At this point the new housing numbers are nearly worthless until they've had a full month to get the full revisions in.
Remember, new home sales will fall below 500k for at least a couple of years. Still a long way to go.
Well, the accelerating pace of revisions is what is so shocking.
Yeah, we expect revisions, but these are some pretty whomping revisions.
The total of completed homes for sale keeps rising too, and that doesn't even include all those recycled cancellations. Man oh man, we are not moving into 2008 with a very good outlook for builders!
K Harris, you got me laughing with the "tad shallow". Thanks.
this makes me laugh for some reason..."we're just a bond insurer, we don't guarantee things":
MBIA said today that a SIV it manages is seeking alternative financing after having difficulty funding itself in the asset- backed commercial paper market. MBIA said it manages the $1.8 billion invested in Hudson-Thames Capital Ltd., which sells short-term debt to finance purchases of longer-dated securities and profits on the difference. MBIA has invested $15.8 million in the Hudson-Thames capital notes. It has no obligation to provide liquidity support or guarantees.
MBIA Reports First Loss on Slump in Mortgage Debt (Update3) - Bloomberg.com
Why is it that CR can give us the real story while these "News Outlets" are giving us crap?
Advertising sure does create biased media. By the way did the NAR and NAHB advertising departments get ahold of you yet CR? You must be one of the last to conform to thier agenda.
It is now moving into a confidence game...if you look down and see you how badly you're wounded, you'll pass out and not be any use to anyone. Keep your eyes up and keep moving!!
From Chris Low, economist at FTN:
New home sales rose (!?) 4.8% to 770k the second weakest rate since 1996. Sales were expected to fall 3%, to 770k. August sales were revised from 795k to 735k. This is a truly horrendous data series, subject to huge revisions, this time amounting to -167k between June and August.
New home sales are measured at contract, not at closing, which means those who went into closings only to discover they had no mortgages thought to have had a big impact on yesterdays existing home sales were oblivious when counted in this survey. If they are forced to cancel their purchase, the big homebuilders report 20-50% cancellation rates, they will not be revised out of these figures in future months. The Census Bureau does not take cancellations into account when revising data.
For all of these reasons and more, the rise in September is far less important than the downward trend into September.
Bottom line: Despite the rise in new home sales reported in September, the housing sector is in real trouble. Sales are weak, prices are falling and homebuilders are in full retreat. Todays report is the one bright spot in an otherwise ugly string of recent housing reports. It should not change thinking at the Fed or in the markets.
Here is the census bureau's analysis of revisions to monthly seasonally adjusted estimates of new residential sales statistics.
New Residential Sales - Analysis of Revisions
It's got to be rough for the census bureau as it is trade off between "fast data vs reliable data"
This graph shows New Home Sales vs. Recession for the last 35 years.
that's as far as I got before uncontrollable fits of laughter set in...
are you sure you did'nt time scale magnify the right hand side of chart?
CR, when you prepare these charts, do you go back and apply revisions to prior months so you always present the most recently revised figures?
Somehow I think it would be useful to carry 2 charts - Initial released and revised. These month-2-month numbers comparing prior month revised and current month initial are almost meaningless.
I'm pleased so many are onto this blatant (Tis so, you fast dwindling last holdouts! Get a Clue!) massaging of the New Home Sales data.
You (withit ontopofits) figure that this desperate interpretation is genuinely delusional [We needed the traditional cleansing fire...it is Nature's Way.] or something less noble (that's no wild fire in San Diego, that's my BBQ)?
Speakin of delusions, Elvis writes:
Remember, new home sales will fall below 500k for at least a couple of years. Still a long way to go.
and dang if I don't remember what will happen...only what did happen.
Wrong planet, Elvis? --or is there some shot-in-the-dark that you made that is, a priori, just so much better than all those calculations that CR has troubled with to arrive at such a different number?
I mentioned in an earlier comment that I thought it was odd for the US Fed to "lend" two UK Banks 30B. Well it seems that part of this was to prevent the liquidation of Cheyne.
So, ya set up a hedge fund. Ya take risks but you cant lose 'cause you get bailed out.
Federal Reserve Starting Hyperinflationary Bailout of British Banks
Warren Buffet - Subprime Pain not over.
Business, financial, personal finance news - CNNMoney.com
Billionaire investor sees problems in the subprime market affecting consumers for up to 2 years, but expresses confidence in U.S. economy.
October 25 2007: 4:19 AM EDT
DAEGU, South Korea (AP) -- American billionaire investor Warren Buffett said Thursday that problems in the U.S. subprime mortgage market will likely weigh on consumers for up to two years, but that the U.S. economy will weather the storm.
The subprime problem "is having an impact," Buffett said on his first visit to South Korea. "It will have more of an impact."
Rising default rates among U.S. mortgage holders with poor credit histories have rattled global credit, stock and currency markets since August and raised concerns about a possible recession in the U.S. economy, a major export market for Asian companies.
"In the next 6 months, one year, two years the problems in the mortgage market can cause a lot of problems with consumers and hurt buying power in the United States," he said at a press conference after arriving earlier in the day from China on his private jet.
However, the U.S. economy has often had to face various difficulties and the present was no exception, Buffett said.
"Overall the economy will make progress," he said.
Buffett came to Daegu, located about 180 miles southwest of Seoul, to inspect Iscar Korea, a subsidiary of Iscar, the Israeli industrial tool manufacturer that his company, Berkshire Hathaway Inc. (Charts, Fortune 500), purchased last year for $4 billion, its first overseas acquisition.
Buffett also expressed pessimism on the U.S. dollar.
"We still are negative on the dollar relative to most major currencies," he said.
. . .
barely, when I create the charts, I use all the revisions. It's amusing looking at the "as released" data - so many months were initially up during this incredible down turn.
That is why I did the analysis (see link in post) of revisions. During downturns, it's reasonable to expect about a 5% reduction in the as released number - so this month will probably be around 730K.
Best Wishes.
The builders are up 2% to 6% on this report
True at the time you posted, but no more. If you blinked you missed this latest rally and pullback, looking at my ticker XHB (ETF tracking builders) now nearly flat.
And to think that I got all excited about a put buying opportunity. This market really is fickle, it will change on you in a heartbeat.
Calmo,
Just look at the historical charts of new home sales. History does repeat itself. Compound that with the huge inventory surplus, the impending wave of homebuilder BKs, and the 10% down conforming mortgage trend, and it is fairly obvious that new home sales will be below 500k for at least a few years. I agree with CR on most, and I think ultimately his forecasts will be in-line with mine. Calm down, calmo, and think a little.
Whats up with another meltdown in Countrywide and Washington Mutual shares today? That $2B that Bank of America paid for Countrywide at $18 doesn't look so savvy now. Oh well, they'll save some money from laying off 3,000 investment bankers.
LIBOR/FF spread all the way back to "normal". liquidity crisis over! hooray!
Is it just me or does the long run reasonable level of housing sales look like some 600,000 units per year?
Until 1999 the peaks rarely got over 700,000. Surely there is some extra demand for more recent illegal immigration but surely not enough, just in the last seven years, to raise long term demand to 900,000 per year.
The native population isn't growing at a rate high enough to justify a 50% increase in new housing over what was the norm only a decade or so ago, no?
"Every month it seems that there has been an announcement of a "rebound". And sure enough..."
Look in the glossary of any decent corporate finance text and you will find "six month sliding hockey stick" explained. Has something to do with normalized forward revenues and the Viterbi coefficient.
That first graph just freaks me out, everytime I look at it.
CR, do you know the standard error of the estimates? Just curious how much weight we should put on point value.
Housing Prices
The funniest thing is watching the news orgs try to find a story - early in the day when the story first released AP was touting the rebound evidenced by the stock market moving up... Now (11:30 CST) the market has retraced to the negative and the market is 'down' on durable goods... whatever.
These guys also need to revisit the 'random walk'.
Anyway - today's release could have been a lot worse. Go back and read the reports from Pulte, MDC, Ryland from a few days ago - recall how they've reduced some of their inventory... sales that probably didn't show up in these dismal sales numbers (previous cancels don't).
There is so much information hidden - current orders yet to be cancelled, previous cancellations now selling, and 'hidden inventory' - its amazing we have any measure of how good, bad or ugly this story is.
From what I can see, the two best US recession leading indicators have been new home sales and oil prices. New home sales down around 30% = recession. Oil prices around their inflation-adjusted peak = recession. Maybe this time will turn out to be different, but these two historically reliable indicators are certainly flashing red. If the US does in fact enter a recession, it's not at all unreasonable to exptrapolate CR's new home sales chart down to around the 500k level.
Elvis, CR's calculation is reported to be "in the low 800s " (just cutanpastin recklessly...from the last paragraph in CR's post...a pretty reliable source, no?) [Ok, you B right, I clipped this bit: "the lowest level since 1997 (805K in '97)."] and your (imperturbable) analysis (500k) sees a much larger plunge going back to nearly the Cromagnon Era ('61-93).
So in your view Elvis, CR is downright conservative.
Elvis, on this planet after all, has calmed me down thinking that there is little on the horizon to support a rebound at the frothy '97 year level...such a radical.
And possibly right.
Dang.
And if anyone's wondering why the stock market isn't up today, the rumor de jour is AIG is going to announce a 10bio cdo hit. Yesterday's rumor de jour that Lehman was about to take a similar hit didn't materialize, though I suspect both will soon enough. I guess we're slowly finding out who the bagholders are.
CR, this is really excellent work and commentary.
Thank You, again!
CR, do you know the standard error of the estimates? Just curious how much weight we should put on point value.
Rusty - Big Picture has your answer:
The Big Picture
Summary: 'rebound' is mostly noise & the longer term trend hasn't changed much.
re: the Countrywide and Wamu falling stock- I suspect the WSJ article the other day on option-arms was a wake up call for non-CR readers on dangers of neg am.
Wall Street now realizes that even if Countrywide can stop losing money on day to day loan writing operations, it will be killed by all the low-doc neg am loans it holds.
Rusty, check out the Census Bureau report (see previous post), they give the error estimates. For some reason, their initial estimate is always too high during a down turn - they are pretty good the rest of the time. It doesn't bother, since I know the initial estimate is too high.
For some reason the AP and others haven't figured this out. I see MarketWatch did a pretty good job with the numbers.
Best Wishes.
I'm beginning to think there is a much simpler answer. Someone (whoever that might be) decided there had to be an increase of around 4% for last months sales a few days (couple of weeks?) ago.
So, revise whatever to get it.
A note from the Field - I went looking at new houses this last weekend, and prices for new housing have now dropped significantly underneath resale prices in our area. Existing homeowners are now upside down on their prices. Further, many of these homeowners have no downside pricing ability because they are also upside down on their current mortgages. Short sales are increasingly falling into foreclosure for this reason. The pain is spreading rapidly.
Few days back CR posted the declining ABX indices and left with the question about what will blow up this time. We may have the answer now - the mortgage insurers. Look at ABK, MBI and RDN today. All down HUGE !!!
Currency rates look terrible now also.
Few days back CR posted the declining ABX indices and left with the question about what will blow up this time. We may have the answer now - the mortgage insurers. Look at ABK, MBI and RDN today. All down HUGE !!!
I read somewhere that subprime mortgage remittance data is coming in now as 'we speak'... and the data is not good. ABX & all reflect this.
I can't find the link - went back through the cache trying to find it but I clear when I shut down.
Anyone have info on this?
A senior U.S. Securities and Exchange Commission official said on Thursday insider trading appeared to be "rampant" among Wall Street professionals and the agency has formed a working group to focus on it.
has formed a working group to focus on it.
GDP positive
jpb growth positive
redundant government employees
Priceless
"insider trading appeared to be "rampant" among Wall Street professionals"
that might be the dumbest "eureka" moment I've ever seen in my life.
In related news, Californians appear to be speeding on I5, and there appears to be some discontent between the Western and Muslim world.
Duh.
You know it's bad when even CNBC does a story about it asking how the market could move so much BEFORE reported information.
YTL
http://www.markit.com
select Indices.
Re: MBI if my math is correct these folks have 600B of insurance liabilities w/ only 7B is assets. I hope they were really good at assessing all those MBSs and CDOs
Was anyone on the call? From the time the call was scheduled share price has tanked 19%.
OT -- earnings in aggregate are coming in terrible:
The Wall Street Journal Online - WSJ.com Log In
Qtr -- no. of cos. reporting -- YOY growth:
Q1 06 -- 4,113 -- 19%
Q2 06 -- 4,048 -- 12%
Q3 06 -- 4,202 -- 29%
Q4 06 -- 4,021 -- 33%
Q1 07 -- 4,232 -- 8%
Q2 07 -- 4,211 -- 13%
Q3 07 -- 1,221 (as of 10/24) -- (7%)
Marked slowdown, eh?
Looks like a recession to me.
is that 7% supposed to be bracketed? as in neg growth?
Banker, the earnings data to-date of (7%) is, in part, why I state that the 'weighing' is leading the 'voting', i.e., though the objective data is negative, market sentiment is still positive.
C'mon sentiment, catch up to the data!
TAN MAN is a great Trader..
he timed his sales perfectly...
no inside scoop, just shrewd
12.50
i wonder if he's still selling
Next visit to the confessional:
"Analysts at Thomson Squawk Box said there's speculation among traders that the company could record a writedown of as much as $10 billion from its structured products guarantee group. In their comment at 11:52 a.m. Eastern Time, they also noted that five-year credit default swaps on the company's debt have widened out, suggesting 'smart money' players are lending some credence to the talk"
Yes, C-, the (7%) means that, to-date, Q3 07 earnings are running 7% below Q3 06 earnings.
Ugly.
OT - oil futures within sniffin' distance of $90/barrel again.
[Cue Clint Eastwood]
C'mon Ben, go ahead and lower rates next Tuesday, make my day. Do ya feel lucky, punk, do ya?
Elvis I agree with you .
I have my own projections at between 400-500 k
And CR is only prokecting 800k for this year? Elvis you are projecting for a number of years.
The last two corrections were 5 years in length. the 77 corrected 50% the 87 corrected a third. Unless some Brain thinks this is over today, I would have to say that 50% correction is at least in the cards.
McGraw-Hill Construction, a unit of McGraw-Hill Cos., said Thursday it expects a 2 percent decline in construction starts in 2008
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
Fascinating days, these. Daily announcements of writedowns, BKs, defaults, while simultaneously raging oil & gas & gold prices.
There is an epic battle raging between deflationary forces and inflationary forces (Fed pumping, war spending, deficit spending, over-consumption).
The only reason to be long stocks right now is if you believe the inflationary forces will win.
Yahoo finance shows all the signs of responsible journalism...
"Stocks Down Despite New Homes Sales Rise"
Expect that new home sales are actually down, as August was revised harshly lower and September's numbers were less than expected. Do people just not take relativity into account when they're writing headlines? Pretty absurd.
The only reason to be long stocks right now is if you believe the inflationary forces will win.
Or have a VERY long time horizon since in the long run inflation ALWAYS wins in a fiat system... otherwise I agree 100%.
maybe we can make a buck by selling ring side seats to that epic battle... inflation vs deflation... sorta like rasslin'...
"Advertising sure does create biased media."
Ministry, I'm a longstanding employee of the "biased media," and advertising has nothing to do with it. What you're saying, essentially, is that reporters looked at the Census data today on new home sales and said to themselves, "I gotta spin this to please our advertisers who are trying to sell cars, mutual funds and airplane tickets."
It doesn't work that way.
When someone's actions can be attributed either to ignorance or malevolence, you'll usually be right if you chalk it up to ignorance. In this case, you're talking about reporters and mathematics. Generally, the two don't mix.
I must admit, I spent the morning slack-jawed in amazement at the poor analysis of these home sales numbers, and I blogged about it. 83,000 new homes were sold in April, 79,000 in May, 73,000 in June, 68,000 in July, 63,000 in August and 60,0000 in September. The numbers are right there on the second page of the Census Bureau's pdf. Only the innumerate would describe that as anything other than an unrelentingly downward trend.
CR points out that the bureau's seasonally adjusted annual rates go out of whack in a declining market. That's obvious if you keep track of the original estimates and the revisions. We need to ignore the SAAR for the next couple of years.
But dryfly, which one is the face and which one is the villain?
Holden, news is a business these days and there are many stories of reporters not being able to report unbiased due to corporate pressure. At Fox news it is not a secret that every morning a focus email goes out to everyone on what to report for the days events.
Ministry,
Fox's daily memo is a manifestation of political pressure, not economic pressure, and it's internal, not external.
Every once in a while, I read assertions such as yours -- that reporters spin the news to please advertisers -- and I realize what it feels like when any professional reads an inaccurate article about their profession. So I thank you, because you remind me to be careful.
You updating your ABX indices?
ABX Indexes Plunge Amid Release of Monthly Delinquency Reports
2007-10-25 15:36 (New York)
By Jody Shenn
Oct. 25 (Bloomberg) -- ABX indexes plunged, suggesting the
perceived risk of subprime-mortgage bonds rose, as monthly reports
on the underlying loan performance were released.
An index of credit-default swaps tied to 20 subprime-loan
bonds rated AAA and created in the second half of 2006 fell
2.8 percent to a mid-price of 86.5, a new low, according to a note
to clients from Deutsche Bank AG in New York. The ABX index tied
to BBB- rated bonds backed by the same loan pools fell 8.6 percent
to a low of 18.5.
Delinquencies and foreclosures among the mortgages continued
to rise during September collections, according to analysts at
London-based Barclays Plc who reviewed the first 11 of 80 reports
on performance being released. Prepayment speeds were as much as
two-thirds below typical rates, suggesting borrowers were having
difficulty refinancing into lower payments, the analysts wrote.
The reports do not paint a rosy picture,'' they said.
Investors and analysts follow ABX indexes as a gauge of the
subprime-bond market, tied to home loans to borrowers with poor
credit or high debt. They track the performance of mortgages that
back securities by looking at figures bond trustees typically
release on the 25th of each month.I don't think they're going to be good: It's not as if the
overall economy strengthened in the last quarter,'' said Andrew
Chow, who manages about $7 billion in asset-backed bonds at SCM
Advisors LLC in San Francisco. ``The second-quarter GDP growth
rate was probably the high water mark for this year.''
U.S. gross domestic product grew at a 3.8 percent annual rate
during the second quarter.
Bond Issuance Falls
Subprime borrowers face limited opportunities to refinance
out of adjustable-rate loans because of falling home prices and a
collapse of the mortgage market amid the highest default rates on
record.
Third-quarter issuance of securities backed by subprime
mortgages fell 70 percent to $30 billion from a year earlier,
according to newsletter Inside Mortgage Finance. Subprime
originations by Calabasas, California-based Countrywide Financial
Corp., the largest U.S. home lender, tumbled 92 percent from a
year earlier in September to $255 million.
New ABX indexes are created every six months by securities
firms, including Goldman Sachs Group Inc. and Deutsche Bank AG,
and London-based Markit Group Ltd. The indexes indicate prices for
credit-default swaps linked to 20 bonds, not for swaps on each.
The swaps offer protection if the securities aren't repaid as
expected, in return for regular insurance-like premiums.
The indexes have tumbled this year, suggesting a similar drop
in the prices of the underlying debt, as investors expected
Products and Services Overview
ABX falling off the cliff again.
OT: Bizarre economy.
Housing bust has little effect on stock market.
Oil up to $90 a barrel, but here in Tucson gasoline prices are FALLING.
I guess paying any attention to bad news is silly and a waste of time. The US exists in an alternate universe where bad is good and up is down, etc., etc.
CFC was as low as $12.07 today. Then, of course, everything eventually moved up on a upbeat note.
Huge trades at the end of the day. Not surprising, Earnings are out tomorrow.
Great summary on MBIA
Why Is MBIA Down So Big?-Minyanville
"Ministry, I'm a longstanding employee of the "biased media," and advertising has nothing to do with it. What you're saying, essentially, is that reporters looked at the Census data today on new home sales and said to themselves, "I gotta spin this to please our advertisers who are trying to sell cars, mutual funds and airplane tickets. It doesn't work that way."
Holden, I call bullsh** on that. Of course it literally doesn't work that way. Reporters know what the zeitgeist is of the newsroom, what pleases the PTB, what doesn't.
Note: You'd have to be retarded to call yourself a business reporter and not be able to engage in elementary trend analysis.
Take off the white robes, I'm sick of the pontificating excuses, people who work in newsrooms have to compromise like all the rest of us to put food on the table...
And from what I've seen you and your contemporaries have all the courage of the Dems in displaying some kahunas (or at least creative strategy to get the truth past your bottom line driven editors).
I was a reporter for a number of years, before I lost the stomach for it (and got a degree).
There are real institutional barriers to fully reporting unbiased news. One main reason is a journalist students with a BA from Cal Northridge probably isn't THAT skilled at interpreting highly complex financial data. Another way that reporters adopt institutional biases is in the way that its easier to glean most "newsworthy information" from sources that are either a) respected in the field or b) generally liked already in the newsroom.
If you have 20 minutes to get a some copy out about data in a press release that you don't really understand, first you read the AP/Rueters headlines, and then you call the Real Estate desk and ask them what to write.
Conspiracy? No. Biased. Yes.
Forgive me, but there are two people putting out a wealth of information day in day out on this blog. You're telling me an entire news organization can't muster the resources to write about the subject accurately? That the pressure of putting out an accurate 2" x 3" column is just too much to bear? Or, excuse me, that you should actually have do the leg work to develop proficiency in a topic before writing about it. It is possible you know, I believe Tanta's degree is in English Lit.
Andrew "entire news organizations" have been pared to the bone of late, suffering from declining ad revenus, reader interest and higher costs of print and distribution.
There used to be robust fact-checking and copy desk departments - not so much now. You'd be startled to learn how much news orgs depend on newbie journalists and interns to cover every topic.
So the business side has indeed influenced the editorial side- heavily- by whittling it away in the name of next quarter's profit margins. And in other ways too. A company desperate for ad revenue will bend to the wishes of the revenue suppliers -- you see this played out in the pages of many Real Estate Sections as the market teeters and reporters still manage to tease out positive spin instead of sound alarms. That is not serving readers - it's serving advertisers' short-term interests.
The end game of this strategy, however, is a sad one -- same kind of nest-fouling results as letting the unfettered "market" determine who can get home loans. Great profits in short run, devastating losses (in money, and in the crown jewel of credibility) in long run.
It's a sorry thing to watch these media giants bleed themselves to death, but a great thing we have blogs like this one to turn to instead.