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Add to the despair pile - steel-mill layoffs:
Wheeling-Pitt Plants Expect Layoffs
FHA reform bill passed the Senate..
I met with a broker yesterday who told me a public builder is getting ready to sell lots in Victorville, CA for $50,000 per finished lot. The finished lot price includes approximately $30K in fees and $20 to $40K in grading, paving costs etc. At 4 lots per acre, this means that residual land value ranges from $0 to -$20K per acre. Pretty astounding!!!
Can we have our Friday fix of some ABX charts?
[congrats on the MSM mention!]
Barley,
Here's ABX-HE-AAA
So.. the fear doesn't look to be there like it was.. this has been recovering since the november low (in the ABX's and the market).
This suggests to me that the market players are throwing a tantrum and the ultimate collapse isn't necessarily beginning.
Alo -
The guys running Wheeling Pitt/Esmark are idiots. I'm certainly no bull on the US steel industry right now, but those guys have managed to lose $150 million so far this year while the rest of the industry is recording record profits.
2008 will be tough for the steel industry, but Wheeling Pitt/Esmark should have been downsizing 10+ years ago.
Thanks for the post - these were the same guys who've been telling the union that would be adding jobs not cutting them when they came in a year ago. My guess is that their bankers finally forced them to get a clue.
O/T Denial.
BCE Inc. is today issuing a statement in response to certain rumours in the market regarding the status of its definitive agreement to be acquired by
CNNMoney.com: 404 Page Not Found
Thanks eli. But there is something about CR's presentation and sidebar comments that makes it all so exciting!
I'm thinking...
BLACK MONDAY to kick off the holiday season.
If anyone thinks the current housing market is a disaster, watch what would happen if the next president and congress monkey with the tax codes and folks think the $500,000 home sale exclusion might disappear. The supply of homes for sale will sky rocket as people try to capture whatever would be left of the gains on their houses. Good thing realtors have deep pockets and a strong lobby in Washington, at least for the moment!
Thanks eli. But there is something about CR's presentation and sidebar comments that makes it all so exciting!
ya.. there's not a lot of romance to some of my presentations. I just sort of plop it out there.
CR takes his time, and I'm sure many really appreciate that approach.
CR,
As usual, I see you are ahead of the curve.
ice chart. I don't accept the implied premise that a 6%/year turnover in the housing market would be par for a healthy and stable housing market because that is what the average was 20 years ago. Changes in the housing market over the last 20 years have, imo, significantly increased that benchmark. Firstly condos make up a larger percentage of the housing stock now (condos have a turnover rate), secondly people are more mobile now, thirdly closing costs as a percentage of sale are down considerably from 20 years ago. My guesstimate would be that today a healthy and stable housing market, sans the current economic turmoil, would exhibit a turnover rate of about 8%.
Question: There was a steep fall-off in sales from 1979 to 1982. What happened to inventory in that period? Did it go up, or did sellers just take their homes off the market in despair?
Could someone explain how existing sales could only drop a million from 2007 to 2008 while mortgage terms have tightened significantly, CDO sales have dropped to almost nothing, there are currently 204 mortgage lenders out of business since last year, banks are having big problems and are trying to figure out how to sell off the MBS they already have, and the average person is very skittish about buying a house now that prices are falling? It doesn't make any sense to me.
O/T but it talks to housing/foreclosures (apart from the 401k withdrawls)
At the East Side Organizing Project in Cleveland, six home owners recently went in for group foreclosure counseling. When asked if any had taken out payday loans, four hands shot up.
Expired
mbass100,
You have to pay for land in Victorville?!?
Sorry couldn't resist.
Cheers,
Biotech guru,
I was a tween back then, but my mom was in RE and I remember a lot of housing moved via assumable loans.
Cheers,
I was a tween back then...
Sorry Misean... I can no longer take you seriously..
..just kidding
..i never took you seriously anyhoo..
nono.. i'm kidding there too..
"My guesstimate would be that today a healthy and stable housing market, sans the current economic turmoil, would exhibit a turnover rate of about 8%."
I agree with your premise that our recent economic arrangements require substantial housing turnover. I do not agree with your premise that this situation can be characterized as healthy or stable.
Poeple who are only going to be somewhere for a year or two do not need to buy a house. It is much more sensible and efficient for them to rent. That includes people who buy condos in college towns when they send their kids off to college, etc.
A lot of these phenomena are going to disappear, along with a big slice of our economy that consists of financial parasites like mortgage brokers and Wall Street MBS packagers. They've killed the host. Without a large corps of highly paid cheerleaders, transaction velocity has no reason not to go down for a while.
$500,000 only if you are stupid enough to let your spouse own half your home.
mbass100,
The thing is there is no value in residential lots right now (generally) with the cost of improvements and the margins (or negative margins) on new home sales factored in. That is why homebuilder and dead men walking. They paid an irrational amount of money for huge inventories of land during the boom(some exceeding 10 years of inventory while the market was at full steam) and now that land is worthless while the debt remains. They are SOL and essentially BK today.
Misean- But still sales were down, according to the graph. I'm just wondering what happened to inventory? Maybe it didn't go up so much, because builders were small local guys who stopped building when they couldn't sell the houses. seems the large homebuilders just keep building regardless of sales
If prices will fall enough (20%-30%) NAR forcast may be true but if prices remain high we may see less than 4M sales.
Everywhere I hear people that are waiting for prices to fall.
"I do not agree with you premise that this situation could be charactized as helathy or stable"
I did not say that. I went out of my way to qualify what I said by adding 'sans the current ecomoic turmoil'.
"If prices will fall enough (20%-30%) NAR forcast may be true but if prices remain high we may see less than 4M sales.
Everywhere I hear people that are waiting for prices to fall."
And if prices do fall, but confidence in real estate falls more, they'll continue waiting.
They've seen the people who bought at $500K now $100K underwater. Even if they buy at $250K, they'll need to feel sure that that level is stable. At this point, I would expect many buyers to understand the "catch a falling knife" concept, even if they don't know it by that name.
How much prices will fall eventually will depend on the local conditions to some extent. In many mid-size cities, like where I live, single-family rentals in good neghbourhoods are very hard to find. Monthly costs to buy vs rent are pretty close here even now, so buying probably makes sense, provided you expect to stay at least 5 or more years to cover closing costs. Throw in the fact that an amortizing mortgage pays down principal and I'm not sure renting for 10 years makes sense. Obviously, where prices went up alot more, that equation will be very different.
eli,
I don't take Misean seriously either...Oh wait.
Cheers,
Anon, thanks for the details!
I've been wondering since I took a look at the chart indicating # of homeowners with zero or negative equity in the event of 20% or 30% decline in housing prices how that number relates to the total number of homeowners in the US.
If I extrapolate from the sales projections quoted here, it looks like there are about 76M owner occupied units in the US. If so, at a 20% housing decline, 18% of "owners" will have zero or negative equity (13.7/76). At a 30% decline, 27% of "owners" will have zero or negative equity (20.3/76). If we sub out the 33% of owners I see quoted on this blog as having no mortgage debt, at a 30% decline something like 40% of people who hold a mortgage will be at zero or below. Am I interpreting this correctly? And if I'm not, let me just say "Sweet Fancy Moses."
I might have determined the percentages incorrectly when I put this graph into my own Excel sheet, but I get a 1969-2007 average of 6.2% and a median of 6.1% (rather than the reported 6%; I am curious if I am wrong or was rounding done?).
I am calling this "churn". I am curious as to what is the normal "churn by necessity" (job change, exiting college, getting old, etc.) versus "churn by choice" (I can get a better house, I have a internet job so I can live anywhere, I better sell to take advantage of the rising prices).
I agree with JD above that somethings have changed in our society and that the total "churn" is probably higher at this point in time; thus the churn average should be a slanted up line rather than a straight line across from 1969 to 2007 (could be achieved by only raising the 2007 end or, and what I think is more likely the case, to also lower the 1969 end). It seems quite reasonable to assume that cheap credit has increased the "churn by choice"; but I can't figure out a way to pull out by how much.
It seems to me that unless a recession puts downward pressure on hiring there is an implied floor to how much the sales can go down (to around the true "churn by necessity" rate). However, not hard to think that the floor will be busted by the foreclosures caused by the ill-advised "churn by choice" people. I just want to be ready to recognize the bottom of the curve here; I am using it as a proxy for prices of homes in San Diego.
Any one with ideas or suggestions; please make them. I really want to move from Seattle to San Diego. I am tired of the rain...but I can't do it unwisely.
Actually, I am waiting for Congress to change the tax loss run for short sales and short forclosure sales. When this goes through with the Realtor's lobbying, think about the housing inventory increase. Remember, the Realtors only care about having increased transactions.
4.3 million in 08, 4.1 million in 09, slight recovery to about 4.6 million in '10. The bottom is reached in terms of existing home sales in 2Q of 09.
Here is this morning's housing news for the metro area where I live. The volume figures are actually more interesting than the price figures.
Housing market stuck in doldrums | Jacksonville.com
Note that this is a regular quarterly report in our local paper - both through good times and bad. There is a zippy graphic in the print edition which unfortunately does not appear on-line. Roby
Moody's is actually predicting 5.07M for 2008 and a 35% peak to trough decline. (They look at either the monthly or the quarterly SAAR, not the annual total, when identifying the peak to trough.)