--
New Home Sales (SFH) down MORE THAN 50% from the peak in July 2005. The data is seasonally adjusted.
Completed New Homes For Sale at all-time high of 193K, three times the normal.
Bottom line is that Hopebuilders are still building, starting, and permitting more homes than the demand. They keep piling on. Who will benefit? Those who are waiting to buy homes and have the patience.
CR - what would be the chances of throwing the CR adj. est. of cancellations onto the sales figures and making the parallel adj. to months of inventory ? And of course to months of supply as well ? A shadow estimate. Just eyeballing it another 100K houses takes it up 20% and moves the supply figures quite a weights out also.
Fortune has quite an article on "How they got Housing Wrong ?" (Quick housing rebound a question after missed '07 forecasts - Dec. 28, 2007
Which, when you read it, doesn't site anybody like Economy.com et.al. who actually got it pretty well right (shall we mention the Economist's series from 3-4 years ago on the bubble ?). Let alone your stuff - which to the best of my recollection has been accurate and precise since I started reading in very early '06.
Homebuilders didn't anticipate the severity of this downturn and don't have the proper cost structure/flexibility to survive in this environment.
iceman
Ditto the banks that made land purchase and construction period loans to them.
CR,
Although I risk redundancy, I think if you show a 30 year graph of new homes, people will better understand the inventory problem. In 2000, the typical, cyclical downturn should have begun. Instead in 2001, the fed lowered rates too low for too long. As a result, new home sales went through the roof until this year. The area from 2001 to 2007 between the historical cyclical trend line (a downturn) and the actual new home s
Clever way to squeeze out that last bit of equity lurking in the system -
Reverse Mortgages: A Way Out
Of a Bind for Older Homeowners
"There, she found William J. Brennan Jr., a veteran housing attorney who, over the past 18 months, has developed a sophisticated model for settling subprime debts with reverse mortgages. After Ms. Forts received a foreclosure warning in October, Mr. Brennan connected her with Genie McGee, a reverse-mortgage specialist with Financial Freedom Senior Funding Corp., an Irvine, Calif., unit of IndyMac Bancorp Inc. "
I keep seeing these horrible numbers, with no evidence what so ever in my state, Texas. There are five or so states always referenced in all real estate horror stories I see. So are there still 40 or so states or areas doing fairly well? I understand population wise the 5 or so states in trouble make up a big chunk of people, but do any of you think there are areas that will skate through this whole mess with little or no damage?
OT: Buffet's bond insurance start-up may have broader ramifications. Imagine a well-capitalized Berkshire insurer with no CDS exposure from the get-go. What rating would you give it?
AAA you say?
OK, then what's the rating for the Ambac, MBIA and other competitors? AAA too? Hmmn...
Seems like the ratings agencies will be under yet more pressure to downgrade the insurers, or face a heightened risk of lawsuits.
Insurer downgrades, of course, would have an impact on all credit.
As far as six months no payment, be careful, there are likely strings attached, such as having to use the builders financing. One trick the pigmen use is rolling those "free" six months into the loan balance. You'll end up paying one way or another.
Market didn't like these #s. Here is some XHB (Philly housing index) cliff-diving, for those who like this sort of thing:
According to press reports, many recent muni issues have done without insurance because the borrowing cost is the same with or without it. If that's the case, there will certaintly be problems for portfolios that hold "AAA" munis insured by soon-to-be "AA" insurers, but in the reality based (as opposed to rules based) world, there isn't a lot of difference after ratings downgrades for insurers.
And yeah, having a well-capitalized bond insurer in the market is truly a disaster for those already there.
farmer, I think areas within regions are kind of moving sideways. Established neighborhoods with conforming loan values in cities like Atlanta, where I live, are okay, but in Atlanta, which registered flat to slightly negative price appreciation in the Case-Schiller survey, there are some pockets of bubble crisis, such as the single-lot in-fill McMansions, huge ridiculous houses built over tear-downs. Thirty 1,000,000 dollars houses just within a quarter mile of me in in-town Dekalb, and not one has sold within the past nine months. Also, I think the big 400 house subprime type developments in the outlying communities and counties are in big trouble.
But there are still all the established neighborhoods throughout the metro area which have reasonable valuations to rent. The marginal houses in those neighborhoods are in trouble, and everyone's house takes longer to sell, but the current values are still relatively viable. I think most of Atlanta is going to go sideways for a few years, or maybe lose a bit to inflation, but you won't have the armies of upside down debt slave families like Florida or California.
Now the banks providing lines of credit to homebuilders are going to start reviewing and possibly not renegotiating.
We have all been waiting for the shoes to fall on wallstreet, and now there is no more convenient cover that homebuilders represent deep value- just giant sucking holes of money eating activities.
No more profits to be made building houses for the next decade.
Not going to be a fun place to be, a building trade show;-}
Nothing more to say about building homes other than the smart builders have made their crystal bowl saying "So long, and thanks for all the fish!
re: what Buffett just did to Ambac and MBIA. To paraphrase Larry Munson (UGA football announcer), Buffett just "kicked in their faces with a hob-nailed boot."
With nregard to the median sales price it is worth looking at the distribution of new homes sold by price. Starter homes ($500K) were also weak at 8K vs. 11K, while those in the middle held up pretty well at 24K vs 25K. A 5k slide at the low end vs. a 1k fallin the middle and a 3K fall atr the high end will slide the median price upwards (same with mean, but by how much is hard to say). A Year ago the sales were 26K for starter, 38K for Move up and 13K fro McMansions. Thus on a longer term basis all were down hard. Sort of like the regional data where the MW and NE got slammed this month witht he S "just" down 6.4% and the W actually up 4%, but on a yr/yr basis all are down very hard ranging from down 28.1% in the NE to down 38.7 in the MW.
farmer -- You are right that the problems in real estate are the worst in the formerly red-hot markets - Arizona, California, Florida, Nevada, and so on. But the percentage of markets that are having problems is increasing -- just look at the Case-Shiller figures, which showed prices falling YOY in 17 of 20 top metros, vs. 15 of 20 a month prior.
Moreover, if you look at the regional breakdown in today's new home sales report, you see volume was down in 3 of 4 regions: -6.4% in the South, -19.3% in the Northeast and -27.6% in the Midwest (the West was +4%).
If you want to look at the longer term to strip out month-to-month volatility, you see new home sales down (approximately) 56% from the 10/04 peak in the Northeast ... down 64% from the 8/03 peak in the Midwest ... down 49% from the 2/05 peak in the South ... and down 64% from the 7/05 peak in the West. So while there is some variation in terms of percentage decline and the month each regional market peaked, the story overall is the same -- all regions of the country are suffering a notable downturn in sales volume.
KP, I think you're wrong on Buffet's timing. He only announced he's starting a new bond insurer . . . he's not investing in one of the existing dogs. This announcement throws a shovel full of dirt on the headless chickens that are Ambac, MBIA, ACA. A shrewd move.
CR, I reiterate my wager from last month . . . October will be revised further, below 700.
Lastly, recall the euphoria that the raw October number of 728 beat the sharply revised September 716 (from 770)? Good times, good times.
I feel he is wrong, not because of the status of the other insurers, but because the risk to the Muni's tax receipts in the near to midterm future is to the downside. The days of REALLY easy money in Muni insurance are over.
At least with the railroads, the future is less pessimistic.
There's an interesting discrepency in the bond markets. Insured bonds are selling for lower prices than uninsured bonds by the same issuer (and roughly same duration etc.)
This doesn't seem to make much sense, unless buyers think the premiums are wasted.
I think it's obvious that Buffett is going to eat the existing bond insurers lunch, but I wonder if there's some other interesting wrinkles here - arbitrage, could bonds with insurance switch insurance etc..
I wonder if we are near the max on months of supply (adj for cancellations)? And if not, what could the maximum be?
Nearly a year of supply is an amazing figure. Prices may be sticky when going downward, but at some point reality kicks in for both sellers and homebuilders.
CR and Tanta, does the existing inventory take into account inventory removed from the market (MLS) without a sale? I have been watching in the CD area and it appears that people are removing inventory without a corresponding sale. If appears that owners are assuming that next year, sales will be better. I am assuming that inventory is drastically under reported due to unlisted inventory. Also, do you have any information on the new mortgage loan forgiveness act? I understand that Congress and the President passed the act but I thought it was only on mortgage debt forgiveness when the home owner (renter) stays in the house. Is this correct?
I agree with KP; the falling dominos will clearly ravage many/all state/municipalities' wherewithal to pay. Last place I would want to be, insuring munis (notwithstanding Robyn's calming words to the contrary).
And, during the forthcoming fall into the depression (Jas is right), WB could have gotten those railroads a lot cheaper, I'm certain.
Maybe all that recent hanging out with our future saviors, the Dems, has clouded the old boy's judgement.
I can't wait to see Berkshire Hathaway Assurance topping the INC 500 when he qualifies (though I don't think they allow financials)
Warren Buffet, entrepreneur at 77. Can't you just see him in one of those Amex TV ads for the Plum card: mousing his hair, driving his new Bentley to the clubs where he gets caught making out with Kim Kardashian?
JG - Municipal issuers can raise taxes or fees. They can also cut spending but they rarely seem to do that. They can also issue bonds (which many places do on a continuing basis). Municipal defaults were very small even during the Great Depression.
FLL Renter - Your 1995 comment caught my eye - because that's when I sold my last place and started to build a new one. I recall the market as being a little slow - took six months to sell. But not horrible (we finally got close to full asking price). Perhaps everything seems so gloomy now because the last few years were simply excessive.
What's really scary, CR, is the increase in inventories. They aren't budging, even during the seasonally slowest period for home sellers.
I expect prices will decline at an accelerating pace.
Lowest home sales # since 1995.
The dow will probably hit 15,000 today, based on this news.
Most builders in our area are all offering no payments for 6 months.
Can you say "Rooms to Go"
time for a new round of bottom calling.....
If your estimate of cancellations is correct, we have about 11.2 months of inventory then...
--
New Home Sales (SFH) down MORE THAN 50% from the peak in July 2005. The data is seasonally adjusted.
Completed New Homes For Sale at all-time high of 193K, three times the normal.
Bottom line is that Hopebuilders are still building, starting, and permitting more homes than the demand. They keep piling on. Who will benefit? Those who are waiting to buy homes and have the patience.
Jas
Homebuilders didn't anticipate the severity of this downturn and don't have the proper cost structure/flexibility to survive in this environment.
CR - what would be the chances of throwing the CR adj. est. of cancellations onto the sales figures and making the parallel adj. to months of inventory ? And of course to months of supply as well ? A shadow estimate. Just eyeballing it another 100K houses takes it up 20% and moves the supply figures quite a weights out also.
Fortune has quite an article on "How they got Housing Wrong ?" (Quick housing rebound a question after missed '07 forecasts - Dec. 28, 2007
Which, when you read it, doesn't site anybody like Economy.com et.al. who actually got it pretty well right (shall we mention the Economist's series from 3-4 years ago on the bubble ?). Let alone your stuff - which to the best of my recollection has been accurate and precise since I started reading in very early '06.
Ditto the banks that made land purchase and construction period loans to them.
CR,
Although I risk redundancy, I think if you show a 30 year graph of new homes, people will better understand the inventory problem. In 2000, the typical, cyclical downturn should have begun. Instead in 2001, the fed lowered rates too low for too long. As a result, new home sales went through the roof until this year. The area from 2001 to 2007 between the historical cyclical trend line (a downturn) and the actual new home s
woops...sales equals the oversupply. This is roughly 4M new homes.
Clever way to squeeze out that last bit of equity lurking in the system -
Reverse Mortgages: A Way Out
Of a Bind for Older Homeowners
"There, she found William J. Brennan Jr., a veteran housing attorney who, over the past 18 months, has developed a sophisticated model for settling subprime debts with reverse mortgages. After Ms. Forts received a foreclosure warning in October, Mr. Brennan connected her with Genie McGee, a reverse-mortgage specialist with Financial Freedom Senior Funding Corp., an Irvine, Calif., unit of IndyMac Bancorp Inc. "
Search - WSJ.com
Reverse Mortgages: A Way Out Of a Bind for Older Homeowners - WSJ.com
anyone composing a list for the day of reckoning?
I keep seeing these horrible numbers, with no evidence what so ever in my state, Texas. There are five or so states always referenced in all real estate horror stories I see. So are there still 40 or so states or areas doing fairly well? I understand population wise the 5 or so states in trouble make up a big chunk of people, but do any of you think there are areas that will skate through this whole mess with little or no damage?
OT: Buffet's bond insurance start-up may have broader ramifications. Imagine a well-capitalized Berkshire insurer with no CDS exposure from the get-go. What rating would you give it?
AAA you say?
OK, then what's the rating for the Ambac, MBIA and other competitors? AAA too? Hmmn...
Seems like the ratings agencies will be under yet more pressure to downgrade the insurers, or face a heightened risk of lawsuits.
Insurer downgrades, of course, would have an impact on all credit.
Check the price action on MBI and ABK today. Davis ain't sending Christmas cards to Berk-Hath next year.
Truly a brilliant move by Buffet. Vicious, but brilliant.
As far as six months no payment, be careful, there are likely strings attached, such as having to use the builders financing. One trick the pigmen use is rolling those "free" six months into the loan balance. You'll end up paying one way or another.
Market didn't like these #s. Here is some XHB (Philly housing index) cliff-diving, for those who like this sort of thing:
10 am plunge
David,
According to press reports, many recent muni issues have done without insurance because the borrowing cost is the same with or without it. If that's the case, there will certaintly be problems for portfolios that hold "AAA" munis insured by soon-to-be "AA" insurers, but in the reality based (as opposed to rules based) world, there isn't a lot of difference after ratings downgrades for insurers.
And yeah, having a well-capitalized bond insurer in the market is truly a disaster for those already there.
farmer, I think areas within regions are kind of moving sideways. Established neighborhoods with conforming loan values in cities like Atlanta, where I live, are okay, but in Atlanta, which registered flat to slightly negative price appreciation in the Case-Schiller survey, there are some pockets of bubble crisis, such as the single-lot in-fill McMansions, huge ridiculous houses built over tear-downs. Thirty 1,000,000 dollars houses just within a quarter mile of me in in-town Dekalb, and not one has sold within the past nine months. Also, I think the big 400 house subprime type developments in the outlying communities and counties are in big trouble.
But there are still all the established neighborhoods throughout the metro area which have reasonable valuations to rent. The marginal houses in those neighborhoods are in trouble, and everyone's house takes longer to sell, but the current values are still relatively viable. I think most of Atlanta is going to go sideways for a few years, or maybe lose a bit to inflation, but you won't have the armies of upside down debt slave families like Florida or California.
Bond Insurers Brace for Buffett - WSJ.com
Someone with brains and good sense getting into the bond insurance business. Panic ensues. LOL
Now the banks providing lines of credit to homebuilders are going to start reviewing and possibly not renegotiating.
We have all been waiting for the shoes to fall on wallstreet, and now there is no more convenient cover that homebuilders represent deep value- just giant sucking holes of money eating activities.
No more profits to be made building houses for the next decade.
Not going to be a fun place to be, a building trade show;-}
Nothing more to say about building homes other than the smart builders have made their crystal bowl saying
"So long, and thanks for all the fish!
Someday this war's gonna end...
re: what Buffett just did to Ambac and MBIA. To paraphrase Larry Munson (UGA football announcer), Buffett just "kicked in their faces with a hob-nailed boot."
I wonder how the guys at Warburg-Pincus are feeling today.
Buffet is probably right in the long run, but just like the railroads....he got in a bit early. And he's gonna pay for it.
With nregard to the median sales price it is worth looking at the distribution of new homes sold by price. Starter homes ($500K) were also weak at 8K vs. 11K, while those in the middle held up pretty well at 24K vs 25K. A 5k slide at the low end vs. a 1k fallin the middle and a 3K fall atr the high end will slide the median price upwards (same with mean, but by how much is hard to say). A Year ago the sales were 26K for starter, 38K for Move up and 13K fro McMansions. Thus on a longer term basis all were down hard. Sort of like the regional data where the MW and NE got slammed this month witht he S "just" down 6.4% and the W actually up 4%, but on a yr/yr basis all are down very hard ranging from down 28.1% in the NE to down 38.7 in the MW.
farmer -- You are right that the problems in real estate are the worst in the formerly red-hot markets - Arizona, California, Florida, Nevada, and so on. But the percentage of markets that are having problems is increasing -- just look at the Case-Shiller figures, which showed prices falling YOY in 17 of 20 top metros, vs. 15 of 20 a month prior.
Moreover, if you look at the regional breakdown in today's new home sales report, you see volume was down in 3 of 4 regions: -6.4% in the South, -19.3% in the Northeast and -27.6% in the Midwest (the West was +4%).
If you want to look at the longer term to strip out month-to-month volatility, you see new home sales down (approximately) 56% from the 10/04 peak in the Northeast ... down 64% from the 8/03 peak in the Midwest ... down 49% from the 2/05 peak in the South ... and down 64% from the 7/05 peak in the West. So while there is some variation in terms of percentage decline and the month each regional market peaked, the story overall is the same -- all regions of the country are suffering a notable downturn in sales volume.
Hope this helps a bit.
"OK, then what's the rating for the Ambac, MBIA and other competitors? AAA too?"
The ratings are headed the way of the Good Housekeeping seal of approval.
KP, I think you're wrong on Buffet's timing. He only announced he's starting a new bond insurer . . . he's not investing in one of the existing dogs. This announcement throws a shovel full of dirt on the headless chickens that are Ambac, MBIA, ACA. A shrewd move.
CR, I reiterate my wager from last month . . . October will be revised further, below 700.
Lastly, recall the euphoria that the raw October number of 728 beat the sharply revised September 716 (from 770)? Good times, good times.
I feel he is wrong, not because of the status of the other insurers, but because the risk to the Muni's tax receipts in the near to midterm future is to the downside. The days of REALLY easy money in Muni insurance are over.
At least with the railroads, the future is less pessimistic.
Re bond insurers-
There's an interesting discrepency in the bond markets. Insured bonds are selling for lower prices than uninsured bonds by the same issuer (and roughly same duration etc.)
This doesn't seem to make much sense, unless buyers think the premiums are wasted.
I think it's obvious that Buffett is going to eat the existing bond insurers lunch, but I wonder if there's some other interesting wrinkles here - arbitrage, could bonds with insurance switch insurance etc..
kp, I agree with you that the rr's have a brighter future.
this 60 year domination of america by the car culture has had incredibly negative effects, from the environment to obesity.
I wonder if we are near the max on months of supply (adj for cancellations)? And if not, what could the maximum be?
Nearly a year of supply is an amazing figure. Prices may be sticky when going downward, but at some point reality kicks in for both sellers and homebuilders.
CR and Tanta, does the existing inventory take into account inventory removed from the market (MLS) without a sale? I have been watching in the CD area and it appears that people are removing inventory without a corresponding sale. If appears that owners are assuming that next year, sales will be better. I am assuming that inventory is drastically under reported due to unlisted inventory. Also, do you have any information on the new mortgage loan forgiveness act? I understand that Congress and the President passed the act but I thought it was only on mortgage debt forgiveness when the home owner (renter) stays in the house. Is this correct?
Sign on new empty starter homes in Houston, 1985:
"99 cent Move-In"
I agree with KP; the falling dominos will clearly ravage many/all state/municipalities' wherewithal to pay. Last place I would want to be, insuring munis (notwithstanding Robyn's calming words to the contrary).
And, during the forthcoming fall into the depression (Jas is right), WB could have gotten those railroads a lot cheaper, I'm certain.
Maybe all that recent hanging out with our future saviors, the Dems, has clouded the old boy's judgement.
I can't wait to see Berkshire Hathaway Assurance topping the INC 500 when he qualifies (though I don't think they allow financials)
Warren Buffet, entrepreneur at 77. Can't you just see him in one of those Amex TV ads for the Plum card: mousing his hair, driving his new Bentley to the clubs where he gets caught making out with Kim Kardashian?
JG - Municipal issuers can raise taxes or fees. They can also cut spending but they rarely seem to do that. They can also issue bonds (which many places do on a continuing basis). Municipal defaults were very small even during the Great Depression.
FLL Renter - Your 1995 comment caught my eye - because that's when I sold my last place and started to build a new one. I recall the market as being a little slow - took six months to sell. But not horrible (we finally got close to full asking price). Perhaps everything seems so gloomy now because the last few years were simply excessive.