It appears as if new home sales were falling even before the 2001 recession, although it was a very quick drop and then recovery as Greenscam reflated into the housing bubble. This is exactly how I remember 2001, so the graph makes sense.
Obviously, we're in for one heck of a recession (depression?) based on that cliff.
Cancellation rates of the public home builders seems to be in the 25-50% range clustered towards the high end of the range. Even accounting for resales of previously cancelled units it appears that the Census method misses at least 150,000 units (20% of 775,000 reported sales)
crispy&cole, yes, we could adjust these numbers by population or the number of households ... that would help compare the bottoms to the earlier housing busts.
If your estimate is correct then we are just over a year of supply (12.1 months) and the public homebuilders continue to complete...their individual incentives to complete are driving their collective ruin.
An interesting graph would be to show each vintage of revisions with a different line in a different color, ie first versions in red, first revisions in orange, second revisions in yellow, etc. Call it the Census Fan.
ECRIs Unrelenting Mantra of stronger housing activity During 07/06/07-11/16/07
Nov 16, 2007: The effect of higher rates and jobless claims was partially offset by stronger housing activity and higher stock prices, said Lakshman Achuthan, managing director at ECRI.
"NEW YORK, Sept 14 (Reuters) - A weekly gauge of future U.S. economic growth edged up due to higher stock prices, lower interest rates and stronger housing activity..."
"NEW YORK, Aug 10 (Reuters)...The fall in the index was partly offset by stronger housing activity, Achuthan said."
NEW YORK, July 13 (Reuters) - A gauge of future U.S. economic growth rose in the latest week due to measures of stronger housing activity, lower jobless claims and higher stock prices
NEW YORK, July 6 (Reuters) - A gauge of future U.S. economic growth edged up in the latest week due to lower interest rates and stronger housing activity
Talk about clueless economists, or dismal scientists. Where they blind to the reality or were they purposely misleading the public?
Not sure what kind of love you had in mind but cutting rates may not be one of his options.
"...Mr Leverett says the US could relatively soon become vulnerable to the kind of financial pressure that the strength of the dollar has allowed it to exercise in the past. In the classic example, Washington used the threat of a run on the pound to put pressure on the UK to withdraw troops from Egypt during the Suez crisis in 1956. In future, that kind of leverage may belong to China...
With all the reports of falling prices it seems rather stupid to buy a home now. But it seems there is only a relative shortage of stupid people, i.e. fewer now than in recent years.
I was wondering about how those numbers would look if asjusted for population as well. There is some scary data out there for the person willing to mine for it.
Nouriel Roubini is calling it the worst housing recession EVER.
Does anyone remember 8% interest rates? That used to be the benchmark for a decent mortgage rate, and is closer to the historic norm than anything we've seen since the BushCo Pirates siezed the Government.
With rates in the 6-7% range, the real estate bubble is still deflating. What would be an accurate risk pricing for mortgage rates? 8%? 10%? 12%? This is the a root cause of the credit crunch -- it is impossible to set an interest rate appropriate for the risk, without further eroding the asset value of real estate.
This is another fine mess you've gotten us in, Mr Greenspan.
It seems to me that existing homes would have stickier prices than new homes, what does that portend for the Monday release on existing home sales for November?
New homes are powerful drivers of cyclical economic activity. They directly employ construction workers, electricians, plumbers, inspectors, Realtors and many others.
They directly produce sales ranging from concrete, copper and plywood to kitchen sinks and carpets.
The ripple impact from direct employment and sales is X times greater.
The U.S. has now lost more of this economic stimulus in a brief time than ever before in U.S. history.
This chart alone tells you that other govt. numbers are rigged.
--
"Nouriel Roubini is calling it the worst housing recession EVER."
Preceded by the biggest Scam Market bubble ever in US history. One wonders why.
I am forecasting the biggest depression ever in US history beginning with the depression of 2008-10. Only a dope doesn't understand the causes of depression in US -- Bankers' Mischief.
The world has never seen such crooked bankers, including those at the Fed, as the US has had during the past 20 years. The future of a system of the crooks is never in any doubt. We can only debate the timing and the course of the misery planned for Americans. The planning was systemic. We are screwed.
The real "step function" drop in new home sales will come when the owners of land no longer have a sunk cost" incentive to build out land inventory.
That will occur as the ownership of land is transfered from builder to bank balance sheets. This process will last approximately two years as the builders wind their way through bankruptcy.
During that process, banks will dump the land at whatever price they can get -- their regulators will force them.
Once land reaches levels that support 7-8% rental yields on houses, the market will clear and the recovery will begin. Rental yields in California are still around 4%, even with the latest drop.
"Considering the size of the bubble, wouldn't logic dictate that the recession should be the worst ever?"
If the bubble contains over leveraged, over priced items which can be returned to the bank at little added cost, then no.
If the punishment for mistreating the bank is denial of future credit, then definitely no.
If you believe American savings rate is too low, debt is too high, and that misuse of credit has warped the allocation of this decade's wealth, then the coming correction is jubilant.
It seems to me that existing homes would have stickier prices than new homes, what does that portend for the Monday release on existing home sales for November?
I think existing home sales are about a month behind the new home sales, but are a more reliable series. So it's kind of a backward looking number.
But the new home sales doesn't bode well for the existing home sales going foward.
Does anybody know the tickers for some of the existing home builders? It looks like they're going to be almost as bad off as the new home builders.
I pictured Jas wholed up in a blind valley with ample weaponry facing the advancing hungry hordes. As he picks them off one by one they stop and eat their dead.
The problem with ECRI's take on housing is that they apparently use mortgage applications for purchase as their weekly housing indicator. Like most model and index makers, they are stuck with what they have built. Applications for purchase are skewed upward by a couple of factors, but ECRI can't (doesn't?) adjust for that. As a result, their overall growth index, while now falling further every week, is still too high. The thing they could do, as you point out, is recognize that they have a problem and stop talking about housing when the housing series in question is a problem.
I don't see it either, but reality is always surprising people and their predictions.
Recessions always come with political and civil unrest, and something like a severe disruption in oil supplies (maybe from a speculator coup) or Al Qaeda getting control of Pakistan could really screw things up and turn a recession into a depression, or alternatively kick us out of recession by starting a major war.
Those are simply the kind of possiblilties you have to consider if you want to hold on to wealth longer term.
Given that there is still debate over the exact causes of the Great Depression I do not understand why so many people dismiss a similar event out of hand.
Just because most of us haven't experienced something doesn't mean it can't happen. This is a classic human bias and why we always seem to have "new eras." I think we just can't comprehend losing so much, so we just dismiss the possibility.
" Dec. 28 (Bloomberg) -- The dollar's share of global foreign-exchange reserves fell to a record low in the third quarter as demand for U.S. assets waned after the subprime- mortgage market collapsed.
The dollar accounted for 63.8 percent of reserves at the end of September, down from 65 percent three months earlier, the International Monetary Fund said today in Washington. The euro's share rose to 26.4 percent from 25.5 percent. IMF quarterly figures go back to 1999, the year the euro was introduced.
The figures suggest central banks diversified out of the dollar as it fell to the lowest level in a decade. Investors sold a record amount of U.S. securities in August when defaults on subprime mortgages rippled through financial markets and the Federal Reserve signaled it would cut interest rates.
..."
The problem with ECRI's take on housing is that they apparently use mortgage applications for purchase as their weekly housing indicator.
My general take on ECRI is the either they a) made the mistake of applying linear thinking to a non-linear situation (e.g. by not considering how the impact of housing on the credit markets would feed back into housing and the credit markets) or b) they got "bought out" by the hedge fund industry and became a shill (history would support the latter possibility, I suspect).
Realty reality: Housing prices are headed way down
Southland house prices have risen past sustainable levels for most homeowners.
By BY CHRISTOPHER THORNBERG
December 28, 2007
In 2002, the median price of a single-family home in Los Angeles was $270,000 and the median homeowner's income was $65,000. With a $50,000 down payment, the annual cost of that house (taxes, insurance and payment on a 30-year fixed-rate conventional mortgage) would add up to about 33% of the median household's income -- just under the 35% mark that the Federal Housing Administration calls the upper limit of "affordable."
By 2006, the cost of that same house doubled, to $540,000 -- pushed by unbridled speculation fueled by unparalleled access to mortgage capital. But median income rose a paltry 15%. So today that same set of costs come to 60% of gross income.
That might be a manageable burden when home prices are rising at double-digit rates, creating new equity that can be accessed to support spending -- but not when prices are flat and the home-equity ATM is closed.
Although we can all see the writing on the wall of the upcoming economic disaster, how many of us have actually planned to thrive during such conditions? Keep in mind too that the downward spiral will accelerate in 2008, giving us even less reaction time. Therefore, as history has taught us during the past 3000 years, buy physical gold and silver!
Regarding differences between inital and adjusted reporting of New Home Sales statistics...
The AP uses a canned format to report the Census release of "New Home Sales" data each month. They report the number of sales (adjusted) and the percent change from the previous month. The percent change is based on the REVISED number of sales, but this isn't stated, nor is the revised number reported.
As CR has pointed out, Census data revisions for new home sales are fairly significant.
As a result, so far during 2007 the initially reported sales have been on average 2.2 percentage points higher than the final ones, once data has been revised. Cumulatively, this year (through October) the over-reporting has amounted to nearly 24%.
If all you read are the headlines, you're getting the wrong information.
Depression would be in the works except that a groundswell is building for Hillary, Edwards and Obama to make a secret alliance and rule the country as a triumvarate for the next twenty four years ushering in the great era of global peace and prosperity.
Citigroup, Goldman Cut LBO Backlog With 10% Discounts (Update1)
"Dec. 28 (Bloomberg) -- Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. are offering discounts of as much as 10 cents on the dollar to clear a $231 billion backlog of high-yield bonds and loans.
The market can absorb all of these deals,'' said John Eydenberg, head of leveraged finance for the Americas at Deutsche Bank AG in New York.It is a question of time and price.''
While lenders reduced the overhang by 32 percent since July, they are struggling to unload debt from this year's record $438 billion of leveraged buyouts after losses from securities linked to subprime mortgages reduced demand for higher-yielding assets, according to data compiled by Bloomberg. They sold some bonds at a discount of 10 percent to face value and loans at 5 percent below par, according to London-based Barclays Plc.
..."
As long as we're at full employment the consumer will continue to consume. Once businesses start with layoffs and decreased investment then you'll have your recession - "consumer driven recession" is as much a non-sequitor as "military intelligence"
Paul Krugman is predicting on his blog that, given the large run up in house price to rent ratio, we have a long way to fall to revert to the mean.
Although nobody seems to want to talk about it, Robert Shiller's data always implied about a 44% peak-to-trough decline in values to get back to trend.
Of course bubbles usually overcorrect, and then there's the possibility of an even more hostile environment for housing due to declining homeownership.
If we had a deflationary environment, a 50 to 60 percent haircut in prices seems at least possible.
Whether this is poltically possible is a different matter.
""consumer driven recession" is as much a non-sequitor as "military intelligence""
If creditors turn off or even down the tap, "consumer-driven recession" becomes a sequitur. It's happened before. The scandanavian countries underwent a wrentching recession in the early 90s following a real-estate bust. Banks shut off lending and consumers buckled up. Moreover, because consumer spending is both a huge part of the ecomony and normally so stable, you only need a small change in habits to have a really big and unexpected effect. You are right though, in that mass firings certainly would contribute to the speed of a downturn.
amazing to me that today it seems that bad news about housing is weighing heavier on the market than the good news of Warren Buffet actually making an investment.
Even fake Buffet rumors were enough to get the market all frothy a few months ago. Now even the real thing isn't enough.
"There is no replacement for sound fundamentals and strict discipline. No system is any good if the players are not well-grounded in fundamentals. The proper execution of fundamentals can become instinctive if taught properly, just like breathing or walking."
there are still a number of homes completed 9+ months ago that are sitting vacant with still ridiculous prices. case in point house on my corner was on the market for sale to be built in may 2006 completed apr 2007 for $1.65 million. was dropped a few times to $1.4 million and recently relisted at $1.6 million. the builder cost was $1.2 million which i believe he could probably get for the house if he chose to but he's sitting. the high end in my town has many houses in this range just sitting as the buying pool has just dried up due to lack of move up buyers.
Another model thrown on the ever-growing heap of econometrics failures. The propeller heads have a lot to answer for. They didn't sell the drugs, or even refine them (the investment banks did that). No, they were the coca farmers of this credit cycle, toiling diligently in the fields, not imagining how dangerous their product could be. Except unlike coca farmers, they had PhD's, and they should have known better.
For all those that think no depression is on the horizon, (ac, crispy, etc.) may I suggest you look a little more at the K-Wave. Once every lifetime (currently around 78+ years) a K-Winter strikes, and this has been going on for hundreds of years. The last K-Winter struck 78 years ago in 1929-30. The reasons are simple really. All new generations need to re-learn the lessons from past credit bubbles and as the older generation dies off, there is nobody around to warn people what is coming. And the cycle gets longer as the lifespans increase.
BTW, you know those old folks who used to bury money in the mattress and who walked around with thousands in cash and didn't trust banks. We call them ignorant old-timers that don't know any better. But they know exactly what is coming. They know a tidal wave has formed and is moving towards shore at a rapid pace. Too bad there are so few of them left to send out the warning. As Mises said, all credit booms must end in a bust and this has been the largest credit boom the world has ever seen.
But I'm sure you're right, there is no depression coming...
We call them ignorant old-timers that don't know any better. But they know exactly what is coming. They know a tidal wave has formed and is moving towards shore at a rapid pace.
Nah. I think you're mistaken. They're all at the casinos gambling their S.S. checks.
K-Waves. Haven't heard about them in ages. Darth Toll - How about a little EWT too (smile)?
You know the old saying - it's a recession when your neighbor loses his job. It's a depression when you lose yours. So how does the employment picture look like in the parts of the world where all of you people live?
Things are looking ok here. Not great - not terrible. OK. Unemployment is up some YOY - but still below 4%.
I'm surprised so many can see a recession but not a depression. IMO I can't see how we can avoid it. Current conditions are arguably far worse than those preceding the Great Depression.
Someone please explain to me what exactly is supposed to keep us out of one.
p.s.: It's human nature not to easily grasp events outside people's life experience, but this group is brighter than most.
"Get lost Jas. Post your meaningless drivel somewhere else. You have been wrong about even the simple recession call for more than an year.
Sebastian | 12.28.07 - 12:33 pm | #"
This is another fake "Sebastian" post, and from the content I know precisely who's doing it, when I only suspected before.
So, (name withheld to give you one more chance to straighten up and fly right), cut it out. Now that I know your identity it should be a simple matter for CR to ban all of your posts, regardless of the identity you use. Okay?
New Home Sales and Rescessions
Historically, % drops of 40%+ lead to 3/4 yr to 1 yr recessions.
The current drop is nearly 60%, yet no recession yet. Nor has the drop yet bounced.
It appears as if new home sales were falling even before the 2001 recession, although it was a very quick drop and then recovery as Greenscam reflated into the housing bubble. This is exactly how I remember 2001, so the graph makes sense.
Obviously, we're in for one heck of a recession (depression?) based on that cliff.
Cancellation rates of the public home builders seems to be in the 25-50% range clustered towards the high end of the range. Even accounting for resales of previously cancelled units it appears that the Census method misses at least 150,000 units (20% of 775,000 reported sales)
CR-
The annual sales are not population adjusted. Therefore in terms of population, this is some serious cliff diving...
ew home sales should be plotted as a percentage of total households to correct for a growing population.
crispy&cole, yes, we could adjust these numbers by population or the number of households ... that would help compare the bottoms to the earlier housing busts.
This is a pretty impressive Cliff Dive!
Best Wishes.
Robert C.,
If your estimate is correct then we are just over a year of supply (12.1 months) and the public homebuilders continue to complete...their individual incentives to complete are driving their collective ruin.
An interesting graph would be to show each vintage of revisions with a different line in a different color, ie first versions in red, first revisions in orange, second revisions in yellow, etc. Call it the Census Fan.
Looks like new home sales will go below 500k for at least a couple of years. Not surprising at all.
Time to rethink projections for '08 housing starts?
--
Since there are ECRI fans here...
ECRIs Unrelenting Mantra of stronger housing activity During 07/06/07-11/16/07
Nov 16, 2007: The effect of higher rates and jobless claims was partially offset by stronger housing activity and higher stock prices, said Lakshman Achuthan, managing director at ECRI.
"NEW YORK, Sept 14 (Reuters) - A weekly gauge of future U.S. economic growth edged up due to higher stock prices, lower interest rates and stronger housing activity..."
"NEW YORK, Aug 10 (Reuters)...The fall in the index was partly offset by stronger housing activity, Achuthan said."
NEW YORK, July 13 (Reuters) - A gauge of future U.S. economic growth rose in the latest week due to measures of stronger housing activity, lower jobless claims and higher stock prices
NEW YORK, July 6 (Reuters) - A gauge of future U.S. economic growth edged up in the latest week due to lower interest rates and stronger housing activity
Talk about clueless economists, or dismal scientists. Where they blind to the reality or were they purposely misleading the public?
Jas
Nouriel Roubini is calling it the worst housing recession EVER.
RGE - Worst Housing Recession Ever: No End in Sight
--
"Time to rethink projections for '08 housing starts?"
And long over due "time to rethink" for CR on his estimate of the housing demand.
Jas
400k looks attainable
Maybe 200k if Bernanke doesn't blast some love into these markets fast.
Not sure what kind of love you had in mind but cutting rates may not be one of his options.
"...Mr Leverett says the US could relatively soon become vulnerable to the kind of financial pressure that the strength of the dollar has allowed it to exercise in the past. In the classic example, Washington used the threat of a run on the pound to put pressure on the UK to withdraw troops from Egypt during the Suez crisis in 1956. In future, that kind of leverage may belong to China...
FT.com / Comment / Analysis - America faces a diplomatic penalty as the dollar dwindles
Considering the size of the bubble, wouldn't logic dictate that the recession should be the worst ever?
With all the reports of falling prices it seems rather stupid to buy a home now. But it seems there is only a relative shortage of stupid people, i.e. fewer now than in recent years.
I look forward to your projections for 2008.
Crispy and CR,
I was wondering about how those numbers would look if asjusted for population as well. There is some scary data out there for the person willing to mine for it.
Nouriel Roubini is calling it the worst housing recession EVER.
Does anyone remember 8% interest rates? That used to be the benchmark for a decent mortgage rate, and is closer to the historic norm than anything we've seen since the BushCo Pirates siezed the Government.
With rates in the 6-7% range, the real estate bubble is still deflating. What would be an accurate risk pricing for mortgage rates? 8%? 10%? 12%? This is the a root cause of the credit crunch -- it is impossible to set an interest rate appropriate for the risk, without further eroding the asset value of real estate.
This is another fine mess you've gotten us in, Mr Greenspan.
--
Q for CR: Do you have any reason to believe that the SFH wouldn't go to the previous lows below 400K?
TIA.
Jas
And Monday we get existing sales, no?
It seems to me that existing homes would have stickier prices than new homes, what does that portend for the Monday release on existing home sales for November?
New homes are powerful drivers of cyclical economic activity. They directly employ construction workers, electricians, plumbers, inspectors, Realtors and many others.
They directly produce sales ranging from concrete, copper and plywood to kitchen sinks and carpets.
The ripple impact from direct employment and sales is X times greater.
The U.S. has now lost more of this economic stimulus in a brief time than ever before in U.S. history.
This chart alone tells you that other govt. numbers are rigged.
Mr. Housing, meet Mr. Avalanche.
.
--
"Nouriel Roubini is calling it the worst housing recession EVER."
Preceded by the biggest Scam Market bubble ever in US history. One wonders why.
I am forecasting the biggest depression ever in US history beginning with the depression of 2008-10. Only a dope doesn't understand the causes of depression in US -- Bankers' Mischief.
The world has never seen such crooked bankers, including those at the Fed, as the US has had during the past 20 years. The future of a system of the crooks is never in any doubt. We can only debate the timing and the course of the misery planned for Americans. The planning was systemic. We are screwed.
Jas
Get lost Jas. Post your meaningless drivel somewhere else. You have been wrong about even the simple recession call for more than an year.
The real "step function" drop in new home sales will come when the owners of land no longer have a sunk cost" incentive to build out land inventory.
That will occur as the ownership of land is transfered from builder to bank balance sheets. This process will last approximately two years as the builders wind their way through bankruptcy.
During that process, banks will dump the land at whatever price they can get -- their regulators will force them.
Once land reaches levels that support 7-8% rental yields on houses, the market will clear and the recovery will begin. Rental yields in California are still around 4%, even with the latest drop.
Jubak on MSN estimates for each a 1% decline in US consumer spending we would need a 7% increase in consumer spending by China, Russia, and India.
What is your prediction for decline in consumer spending in US and increase elsewhere?
I don't think there is a chance that things will even out, but I'm wondering how long wall street will be able to keep this ship full of holes afloat.
"Considering the size of the bubble, wouldn't logic dictate that the recession should be the worst ever?"
If the bubble contains over leveraged, over priced items which can be returned to the bank at little added cost, then no.
If the punishment for mistreating the bank is denial of future credit, then definitely no.
If you believe American savings rate is too low, debt is too high, and that misuse of credit has warped the allocation of this decade's wealth, then the coming correction is jubilant.
It seems to me that existing homes would have stickier prices than new homes, what does that portend for the Monday release on existing home sales for November?
I think existing home sales are about a month behind the new home sales, but are a more reliable series. So it's kind of a backward looking number.
But the new home sales doesn't bode well for the existing home sales going foward.
Does anybody know the tickers for some of the existing home builders? It looks like they're going to be almost as bad off as the new home builders.
Nouriel Roubini is calling it the worst housing recession EVER.
I thought we saw a 90% decline in homebuilding activity during the Depression.
ac, existing home builders? Try HD for one.
I want everyone to take a deep breath and repeat after me,
This will be contained to housing. This cannot and will not spread to the economy at large.
I feel better already.
"Get lost Jas"
I pictured Jas wholed up in a blind valley with ample weaponry facing the advancing hungry hordes. As he picks them off one by one they stop and eat their dead.
Its ugly but some day his war will end
Draw the blue bar already! The suspense is killing me.
Name's comment is actually rather on target.
The reason the French, for example, are a nation of savers is that the "Great Depression" went deeper and lasted longer than it did in the US.
Nothing like a really severe depression to up the savings rate.
Jas-
I have beleived this would end in a serious recession once the credit spigot turned off since.
Depression - no way, I just dont see it...
If one reads Floyd Norris in the Times about corporate credit today, one might come away with the idea that Jas is Mr. Norris.
I pray, I sincerely pray, that Jas is wrong.
"the Census Bureau initially overestimates sales"
So watch out for the revision - it will be even lower. Seems that those revisions aren't sticky.
(I had to use the year's buzzword once before 2008).
_
Jas,
The problem with ECRI's take on housing is that they apparently use mortgage applications for purchase as their weekly housing indicator. Like most model and index makers, they are stuck with what they have built. Applications for purchase are skewed upward by a couple of factors, but ECRI can't (doesn't?) adjust for that. As a result, their overall growth index, while now falling further every week, is still too high. The thing they could do, as you point out, is recognize that they have a problem and stop talking about housing when the housing series in question is a problem.
Depression - no way, I just dont see it...
I don't see it either, but reality is always surprising people and their predictions.
Recessions always come with political and civil unrest, and something like a severe disruption in oil supplies (maybe from a speculator coup) or Al Qaeda getting control of Pakistan could really screw things up and turn a recession into a depression, or alternatively kick us out of recession by starting a major war.
Those are simply the kind of possiblilties you have to consider if you want to hold on to wealth longer term.
The real world is hairy and wants all your money.
Depression - no way, I just dont see it...
crispy&cole | Homepage | 12.28.07 - 12:46 pm | #
Given that there is still debate over the exact causes of the Great Depression I do not understand why so many people dismiss a similar event out of hand.
Just because most of us haven't experienced something doesn't mean it can't happen. This is a classic human bias and why we always seem to have "new eras." I think we just can't comprehend losing so much, so we just dismiss the possibility.
OT - An article on Bloomberg on the IMF's reporting of reserve currency holdings and the dollar's relative drop as a reserve currency.
Dollar's Share of Currency Reserves Falls, IMF Says (Update3) - Bloomberg.com
" Dec. 28 (Bloomberg) -- The dollar's share of global foreign-exchange reserves fell to a record low in the third quarter as demand for U.S. assets waned after the subprime- mortgage market collapsed.
The dollar accounted for 63.8 percent of reserves at the end of September, down from 65 percent three months earlier, the International Monetary Fund said today in Washington. The euro's share rose to 26.4 percent from 25.5 percent. IMF quarterly figures go back to 1999, the year the euro was introduced.
The figures suggest central banks diversified out of the dollar as it fell to the lowest level in a decade. Investors sold a record amount of U.S. securities in August when defaults on subprime mortgages rippled through financial markets and the Federal Reserve signaled it would cut interest rates.
..."
This article from the Financial Times lays out America's future in the world resulting from its economic malaise:
FT.com / Comment / Analysis - America faces a diplomatic penalty as the dollar dwindles
Americans believe in guns and war. That's just the way it is. The future is grim, very, very, grim.
Recall that economic unrest led Germany into WWII.
The problem with ECRI's take on housing is that they apparently use mortgage applications for purchase as their weekly housing indicator.
My general take on ECRI is the either they a) made the mistake of applying linear thinking to a non-linear situation (e.g. by not considering how the impact of housing on the credit markets would feed back into housing and the credit markets) or b) they got "bought out" by the hedge fund industry and became a shill (history would support the latter possibility, I suspect).
--
Realty reality: Housing prices are headed way down -- latimes.com
Realty reality: Housing prices are headed way down
Southland house prices have risen past sustainable levels for most homeowners.
By BY CHRISTOPHER THORNBERG
December 28, 2007
In 2002, the median price of a single-family home in Los Angeles was $270,000 and the median homeowner's income was $65,000. With a $50,000 down payment, the annual cost of that house (taxes, insurance and payment on a 30-year fixed-rate conventional mortgage) would add up to about 33% of the median household's income -- just under the 35% mark that the Federal Housing Administration calls the upper limit of "affordable."
By 2006, the cost of that same house doubled, to $540,000 -- pushed by unbridled speculation fueled by unparalleled access to mortgage capital. But median income rose a paltry 15%. So today that same set of costs come to 60% of gross income.
That might be a manageable burden when home prices are rising at double-digit rates, creating new equity that can be accessed to support spending -- but not when prices are flat and the home-equity ATM is closed.
...
Seb - "Get lost...Post your meaningless drivel somewhere else...You have been wrong...."
Said the Pope to Galileo.
.
Paul Krugman is predicting on his blog that, given the large run up in house price to rent ratio, we have a long way to fall to revert to the mean.
Housing: How far is down? - Paul Krugman Blog - NYTimes.com
What is existing home sale number that came out today.
I can not find any info for it.
Although we can all see the writing on the wall of the upcoming economic disaster, how many of us have actually planned to thrive during such conditions? Keep in mind too that the downward spiral will accelerate in 2008, giving us even less reaction time. Therefore, as history has taught us during the past 3000 years, buy physical gold and silver!
Fireworks
oh, and also hide the treasure map.
.
Regarding differences between inital and adjusted reporting of New Home Sales statistics...
The AP uses a canned format to report the Census release of "New Home Sales" data each month. They report the number of sales (adjusted) and the percent change from the previous month. The percent change is based on the REVISED number of sales, but this isn't stated, nor is the revised number reported.
As CR has pointed out, Census data revisions for new home sales are fairly significant.
As a result, so far during 2007 the initially reported sales have been on average 2.2 percentage points higher than the final ones, once data has been revised. Cumulatively, this year (through October) the over-reporting has amounted to nearly 24%.
If all you read are the headlines, you're getting the wrong information.
Depression would be in the works except that a groundswell is building for Hillary, Edwards and Obama to make a secret alliance and rule the country as a triumvarate for the next twenty four years ushering in the great era of global peace and prosperity.
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This is funny...
BofA Cuts Soup and Bathroom Hand-soap for Employees!
Just reported on CNBC. They warned people to check who they shake hands with from BofA.
You know that things are really bad.
Jas
This is what we call Cliff Diving!
Nah. Slope isn't steep enough. Anyone caught on that slope is going to bounce several times, breaking another bone on each impact.
Poor homebuilders. Someone call the BK court and tell them to set up triage.
Interesting.. Looks like the pier holders are getting nervous.
Citigroup, Goldman Cut LBO Backlog With 10% Discounts (Update1) - Bloomberg.com
Citigroup, Goldman Cut LBO Backlog With 10% Discounts (Update1)
"Dec. 28 (Bloomberg) -- Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. are offering discounts of as much as 10 cents on the dollar to clear a $231 billion backlog of high-yield bonds and loans.
The market can absorb all of these deals,'' said John Eydenberg, head of leveraged finance for the Americas at Deutsche Bank AG in New York.It is a question of time and price.''
While lenders reduced the overhang by 32 percent since July, they are struggling to unload debt from this year's record $438 billion of leveraged buyouts after losses from securities linked to subprime mortgages reduced demand for higher-yielding assets, according to data compiled by Bloomberg. They sold some bonds at a discount of 10 percent to face value and loans at 5 percent below par, according to London-based Barclays Plc.
..."
As long as we're at full employment the consumer will continue to consume. Once businesses start with layoffs and decreased investment then you'll have your recession - "consumer driven recession" is as much a non-sequitor as "military intelligence"
This economy is looking in worse and worse shape everyday......
Paul Krugman is predicting on his blog that, given the large run up in house price to rent ratio, we have a long way to fall to revert to the mean.
Although nobody seems to want to talk about it, Robert Shiller's data always implied about a 44% peak-to-trough decline in values to get back to trend.
Of course bubbles usually overcorrect, and then there's the possibility of an even more hostile environment for housing due to declining homeownership.
If we had a deflationary environment, a 50 to 60 percent haircut in prices seems at least possible.
Whether this is poltically possible is a different matter.
""consumer driven recession" is as much a non-sequitor as "military intelligence""
If creditors turn off or even down the tap, "consumer-driven recession" becomes a sequitur. It's happened before. The scandanavian countries underwent a wrentching recession in the early 90s following a real-estate bust. Banks shut off lending and consumers buckled up. Moreover, because consumer spending is both a huge part of the ecomony and normally so stable, you only need a small change in habits to have a really big and unexpected effect. You are right though, in that mass firings certainly would contribute to the speed of a downturn.
amazing to me that today it seems that bad news about housing is weighing heavier on the market than the good news of Warren Buffet actually making an investment.
Even fake Buffet rumors were enough to get the market all frothy a few months ago. Now even the real thing isn't enough.
"There is no replacement for sound fundamentals and strict discipline. No system is any good if the players are not well-grounded in fundamentals. The proper execution of fundamentals can become instinctive if taught properly, just like breathing or walking."
Where have you gone, John Wooden...
wow. that cbo graph of price/rent ratio from Krugman's blog is pretty stark.
there are still a number of homes completed 9+ months ago that are sitting vacant with still ridiculous prices. case in point house on my corner was on the market for sale to be built in may 2006 completed apr 2007 for $1.65 million. was dropped a few times to $1.4 million and recently relisted at $1.6 million. the builder cost was $1.2 million which i believe he could probably get for the house if he chose to but he's sitting. the high end in my town has many houses in this range just sitting as the buying pool has just dried up due to lack of move up buyers.
Sebastian is picking up the pretty seashells as the tide goes out(laughing as he watches Jas run through the village screaming).
Most of the village is reassuring each other the tsunami will only touch the edge of the village.
Jas and a few others are running for the hills.
The majority are fools, even if they get lucky one more time.
ECRI uses mortgage apps?
You must be kidding!
Another model thrown on the ever-growing heap of econometrics failures. The propeller heads have a lot to answer for. They didn't sell the drugs, or even refine them (the investment banks did that). No, they were the coca farmers of this credit cycle, toiling diligently in the fields, not imagining how dangerous their product could be. Except unlike coca farmers, they had PhD's, and they should have known better.
O/T: Macy's is closing nine stores.
Ho-hum to O-Joes, perhaps, but irrefutable proof of a consumer-led recession.
For all those that think no depression is on the horizon, (ac, crispy, etc.) may I suggest you look a little more at the K-Wave. Once every lifetime (currently around 78+ years) a K-Winter strikes, and this has been going on for hundreds of years. The last K-Winter struck 78 years ago in 1929-30. The reasons are simple really. All new generations need to re-learn the lessons from past credit bubbles and as the older generation dies off, there is nobody around to warn people what is coming. And the cycle gets longer as the lifespans increase.
BTW, you know those old folks who used to bury money in the mattress and who walked around with thousands in cash and didn't trust banks. We call them ignorant old-timers that don't know any better. But they know exactly what is coming. They know a tidal wave has formed and is moving towards shore at a rapid pace. Too bad there are so few of them left to send out the warning. As Mises said, all credit booms must end in a bust and this has been the largest credit boom the world has ever seen.
But I'm sure you're right, there is no depression coming...
Kondratieff wave
We call them ignorant old-timers that don't know any better. But they know exactly what is coming. They know a tidal wave has formed and is moving towards shore at a rapid pace.
Nah. I think you're mistaken. They're all at the casinos gambling their S.S. checks.
K-Waves. Haven't heard about them in ages. Darth Toll - How about a little EWT too (smile)?
You know the old saying - it's a recession when your neighbor loses his job. It's a depression when you lose yours. So how does the employment picture look like in the parts of the world where all of you people live?
Things are looking ok here. Not great - not terrible. OK. Unemployment is up some YOY - but still below 4%.
I'm surprised so many can see a recession but not a depression. IMO I can't see how we can avoid it. Current conditions are arguably far worse than those preceding the Great Depression.
Someone please explain to me what exactly is supposed to keep us out of one.
p.s.: It's human nature not to easily grasp events outside people's life experience, but this group is brighter than most.
"Get lost Jas. Post your meaningless drivel somewhere else. You have been wrong about even the simple recession call for more than an year.
Sebastian | 12.28.07 - 12:33 pm | #"
This is another fake "Sebastian" post, and from the content I know precisely who's doing it, when I only suspected before.
So, (name withheld to give you one more chance to straighten up and fly right), cut it out. Now that I know your identity it should be a simple matter for CR to ban all of your posts, regardless of the identity you use. Okay?
Sebastia