Thanks, Carlomagno; that's what I was looking for.
Even though I know CR is probably trying to keep the charts "pure", it still might be interesting to incorporate these numbers into the raw data chart.
I used to be ski pretty aggressively when I was young (XC, downhill, telemark - everything but ski jump)... that first chart looks like a pretty gnarly run with nothing but a few moguls to break up what is a straight shot to the bottom.
So where's the bottom? My legs are getting wobbly.
I believe the only thing to stop the loss of so much money through real estate and poor sales of house is lower the value prices of all houses across America.
Agreed. As long as houses are overpriced, the housing market is like a pit trap for homebuyers.
Markets that misrepresent asset values are highly toxic to the economy as we're finding out.
That's why it scares me to hear people like Bill Gross saying that the Fed can't afford to have house prices fall 10% or more. They can't afford not to have them fall.
If people only think about short-term consequences, then we're all doomed according to complex computer simulations.
The bulls will view this as good. it can't get worse than this. We've hit bottom.
I'm a bear, but I don't see the number dropping much below 600k/yr. Maybe down to 500k/yr tops (Or should it be bottoms?). The more likely bad scenario is the level will remain low for several quarters with slighly lower mean and average prices.
To really understand how bad it is, need to look at the detail on the inventory side. Some might take a little bit of comfort that overall inventories have declined to 494K from 507K in Nov. and 537K a year ago. However, the inventories shown include houses at all stages, not started (basically improved lots) to under construction to finished homes. Virtually all the improvement is in the under construction side, at 227K down from 240K in Nov. and 285K a year ago. Not really surprising given the slowdown in starts. The not started catgory is down a little bit, 72K vs. 78K a year ago. However, the killer is the completed home inventory which actually rose to 195K from 193K in Nov. and is UP 12.1% from 174K a year ago. It gets uglier and uglier each month. Also big regional disparities this month, with NE actually up 6.0%, while South and West down 6.5% and 6.0%, respectively. Of course South and West much more important regions for homebuilding.
probert, OT: I must have accidentally removed Brad's blog - I'll add it back.
dryfly, it definitely looks like a steep slope. The good news is we are closer to the bottom than the top (since we've already fallen more than half way!).
This isn't just about credit though. You also have a population demographic that could care less about interest rates. The baby boomers are on the downhill side of homebuying. This downturn will last till the echo boomers buy in mass. Which is about a decade out from here.
CR said:
"dryfly, it definitely looks like a steep slope. The good news is we are closer to the bottom than the top (since we've already fallen more than half way!)."
did you really just say that? does it warm my real estate heart? closer to the bottom than the peak? more than half way there? the decline is mostly behind us?
charlie: It's good news IF (big if) the builders stop building. That will allow excess inventory to slowly (very slowly) work its way through the system like a mortgage pig through a python.
We'll be at the bottom when housing prices have returned to a traditional ratio vs. income (2x to 3x, max) - they may even overshoot to the underside. Considering the effects of the recession and high inflation, as well as massive losses of jobs, the "income" part of that equation will be shaky at best. So, the downturn has a long way to go, IMHO.
The demographics involve not just raw numbers, but the type of housing built. Aging boomers (I plead guilty) are looking for smaller energy-efficient housing that is in communities that are accessible on foot, by bicycle or by public transit. Unfortunately that is exactly the opposite of what the large public homebuilders have thrown up these last few years. I think some of the private local builders are on the ball, but the public ones-fugedabudit!
The reason to keep an eye on the monthly change is that it helps you see changes in trajectory. The 4.7% decline in December is bigger than the average for the past 12 months, and follows a bigger than average drop in November. This looks like an acceleration in the decline in sales. In fact, both November and December are 1 SD below the time trend for the past 24 months. Yikes.
Please don't call 600k a bottom (not talking to CR). New home sales will go below 500k for at least a couple of years. After the worst binge in history, we are due for the worst hangover in history. The pain will be almost intolerable for at least a couple more years.
--
"That's why it scares me to hear people like Bill Gross saying that the Fed can't afford to have house prices fall 10% or more."
That tells you a lot about Bill Gross, doesn't it? How come the Fed let home prices double and triple in many areas during 2000-2007? Always stay on the sidelines during bubbles and then aggressively intervene when the bubbles predictably burst? Are we dealing with Crooks or not?
Great blog, CR. Anecdotal tidbit - Cancellations appear to remain quite high in CA. The explanation I am getting on this is "the financing". This is of course a cover for a lot of difficulties prospective buyers are facing. One of the most pernicious is the buyer trying to sell a house to buy the new one. Buyers selling an existing home in this market are facing a few headwinds.
Wow so national inventory is 9.6 months and here outside DC in Charles County MD SFH inventory is 16.4 months. "And we are insulated due to proximity to DC." Jesus, glad i am still renting, so we need a little spreadsheet that will show the realtors how much as a percentage of listed price a house needs to come down to get to the theoretical 3 month inventory number.
Of course being more than halfway to the bottom in SALES does not imply that we're halfway to the bottom in PRICES. I would argue that inventory is proportional to the first derivitive of (real) price. So being halfway down in sales just means that we're nearing the point when prices hit terminal velocity on the way down. They can be at terminal velocity for awhile unitl they hit bottom.
You have never in your life seen one government and one Fed work so hard to pump up one equity market (U.S.) It's scary.
Whoever is behind this pump, it no longer has anything to do with world markets. It's only U.S. and it's scary.
Whether or not economies decouple, investment markets never will. If U.S. gets too out of line with the world, arbs will bring them back into alignment.
Powerful people know this. So, why are they pumping so hard to hold up the U.S. stock market? What are they so afraid of?
So where's the bottom? My legs are getting wobbly.
dryfly | 01.28.08 - 10:39 am | #
As that saying goes, it's not the fall that's the problem, it's the sudden stop at the end. Well, actually my analogy falls apart here. The fall is indeed painful and the bottom perhaps just as painful as the fall.
I noticed many home builder investors seem to shrug off the bad news, if that's indicated by builders' stock prices.
dc1000, yeah, the peak was in the 1.3 to 1.4 million rate range, and we are down to 600K. "More than half way" was meant as a joke - since we've fallen about 700K and we can't go to negative numbers on the Census report!
CalculatedRisk writes:
The good news is we are closer to the bottom than the top (since we've already fallen more than half way!).
Sir, have you considered the possibility of Home Builders plowing under previously started homes for a net negative number for new home construction? There's nothing to say "The Coyote" won't hit the bottom of the cliff and continue deeper to produce a spectacular hole. After all he did an admirable job of defying gravity when he first stepped off at the top. [beep, beep]
I get the fact that you have increasing rate of decrease, but just like the analogy of the frog in water, speaking of turning up the heat by an additional 4.7% doesn't provide the "shock and awe" that a 40% number does. The media usually licks its chops for numbers like that.
Purchases of new houses will fall another 15 percent this year, according to a forecast by the Mortgage Bankers Association. Sales of existing homes will drop 13 percent, the group said on Jan. 14.
Purchases of new houses will fall another 15 percent this year, according to a forecast by the Mortgage Bankers Association. Sales of existing homes will drop 13 percent, the group said on Jan. 14.
While researching sold data for an appraisal last week, the builder sales office manager said his company was in decent shape -- but they were in the process of reducing spec home inventory from 750 to 250. Going forward, they will focus on build to suit, and try to reduce the ratio of specs to presolds.
I don't know about others, but I just thought I'd mention that I don't really care for the new addition of bolded commenter's name above the thread entries. For some reason, it seems to interrupt the ebb and flow and personality of the comment threads. It might just be that I'm not acclimatized yet, but I'm finding myself skimming the threads instead of reading them.
Lancelot - figures from MBA have proven rather delusional recently. Since July the rise in inventory for completed new homes is about 7.7%. You have to use the tracked completed new homes for sale as a proxy for the total inventory including cancelled and Census-dropped inventory.
These numbers will cause the Street to be pretty sure that the Fed will cut another 50 bps at the regular meeting.
The median price of a new home plunged 10.9% to $219,200 in December from $245,900 in November (previously reported as $239,100). Prices were down 10.4% from $244,700 in December 2006. That was the worst year-over-year decline for this cycle ... in fact, it's the worst YOY fall since December 1970 (-11.2%). The median price of a new home is now the lowest since September 2004.
They were just talking about this on CNBC with Diana Olick and Herb Greenberg. One thing to keep in mind is that in inner city minority communities, none of this (predatory lending, foreclosures) is new. It's on the cover of Newsweek (like in the Paul Simon song) because it's hitting the burbs now.
I just checked the list of foreclosures in my county (Albany, NY). There are fewer than 50 and virtually all are inner city properties priced around $ 20-30K. So it's not just people buying more house than they could afford, since you can afford the mortgage on a $ 20K house on minimum wage.
WaMu's full page color ad in The Dallas Morning News introducing 'Savings for Success' product with 6.50% APY, 12 month term AND a huge graphic of money stuffed under the mattress of a sleek modern bed. There are even a couple of fallen bills lying on the polished wood floor. Makes me want to go modern.
If lenders require down payments, a cash reserve in the bank, and the available cash to pay closing costs then nothing much will sell. Which they are currently asking for.
If your area is a "declining area" do they not want more? More being higher down, less percentage of income going to the payment? Which is most of the large costal urban areas?
Realistically I do not think 3x income is even valid anymore. Not when you are funding your retirement, health care, rising energy and grocery prices, kids and college. I think 2.5 would be a stretch.
In the DC area the average SFH = 700K
(approx). That is at least 5x current income.
I do not think there is anyone really left who can buy at current prices with lenders requiring traditional financing.
rich, all those dollars outside the US held by SW funds and the PRC ? if equity prices fall hard enough, how much of us could those dollars buy up ?
Why would they buy equities in an economy that's only going to grow by 1-2% at most for the next decade when they could buy economies that will grow 5-6%?
Why would a SW fund want to buy into our health care, Social Security, national debt and trade deficit problems -- especially before they are fixed?
rich- Because they're forward-looking? And PEs in the economies that might grow 5-6% are sky-high vs the US? Because they think the dollar won't go lower? Because they think new leadership can make some progress?
Remember markets prefer bad but stable to good but getting worse.
Basing my figures on all (new and existing ) for my area. 16.4 months is unbelievable.
And of course every night no matter the channel i am starting to see NAR ads about all markets are local and now is a good time to buy. Never seen National NAR ads primetime before.
Off to lunch, agree 50-75bps...
trying to fix a ruptured appendix by putting a cast on the leg..BB doesn't get it.
STATEMENT OF OFHEO DIRECTOR JAMES B. LOCKHART ON CONFORMING LOAN LIMIT INCREASE
We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs regulator has all the necessary safety and soundness tools.
Regulator opposes stimulus plan's mortgage fix
Government agency takes stand against letting Freddie Mac and Fannie Mae buy higher-cost loan
According to OFHEO, Fannie and Freddie together have debt of more than $1.5 trillion, and have guaranteed mortgage backed securities of more than $3.3 trillion, a total debt of nearly $4.9 trillion.
And this debt isn't backed by a lot of cash. Both Fannie and Freddie have minimum capital requirements of just 3.25 percent of assets - considerably lower than the 4 percent required for private lenders - making the agencies, at least potentially, very vulnerable.
"OFHEO," said Mark Zandi, chief economist for Moody's Economy.com, "wants to make sure the GSEs are following sound procedures and have sufficient capital."
Is anyone else waiting for Bush to declare a "War on Foreclosures"?..
or maybe a "War on Cyclical Price Variations" for equities. I'd like to hear him pronounce that one.
"And of course every night no matter the channel i am starting to see NAR ads about all markets are local and now is a good time to buy."
If all real estate is local, there's no need for the National Association of Realtors. Realtor associations should be local, to deal with the strictly local nature of real estate and financing.
Agreed most of the houses in Colorado Springs are huge 3500-7000 sqft monsters they must be hell to heat. Also thats all the HB keep building here even though they aren't selling. People just can't afford these mauseliums anymore. Rephrase most people never could afford them.
SON OF ZINGER: "I noticed many home builder investors seem to shrug off the bad news, if that's indicated by builders' stock prices."
Stocks are forward looking so it all depends on how much bad news is priced in. You know you are somewhat close to the bottom when bad news has little impact on stock prices and good news causes price spikes. Life is probably getting tougher for the shorts... I say homebuilder stocks hit a bottom around 2Q08 (I'm thinking some will keep declining to bankruptcy but the rest should stabilize)...
New Homes Price leads the resale prices and that doesn't bode well for future foreclosures.
That's partly true -- new homes in new subdivisions tend to be far out in the suburbs, because that's where the vacant land is. Builders slashing prices to move inventory kills the homeowners who bought 2 years ago at a higher price with 100% financing and a 2/28 ARM. No refis, no sales that aren't short -- if they can't tough it out, FC here they come.
On the other hand, falling values in new subdivisions has little effect on older existing neighborhoods. Every sub area is a market unto itself, and some will go up while other decline.
And PEs in the economies that might grow 5-6% are sky-high vs the US?
Not really. Actually, it's the opposite, if you project a reasonable contraction in earnings during 2008-10. The U.S. market is the most over-valued on a P/E basis.
The U.S. economy is not stable right now. It's probably the most unstable it has been in 30+ years.
As strange as China's economy is and as imbalanced as India's is, they are more stable than the U.S. looking forward.
One aspect of a speculative bubble is for the bottom to be lower that the original, pre-bubble, level. If this housing bubble is truly speculative in nature (which it is, at least in part), then we haven't reached the bottom. Theoretically anyhow.
How sophisticated is the marketing arm (ok, the entire body) of NAR to persist with "now is a good time to buy" or "all markets are local...(unlike the marketing for it)"?
Does this teach the audience to ignore NAR or worse (Dangerfield comedy)?
Who pays for this? (miseducation, mistrust, misinformation, misconduct...)
Also agree with MOM about the implications for Jan 30, but still believe that the major market indices better represent the wealthy interests (than possibly soon to be discovered mere transients) and should these stage a significant bounce due to some externality (China warms up to Hank), the interest rate might "stay the course", now that there has been "bipartisan" support in providing a stimulus...no, really.
On the other hand, falling values in new subdivisions has little effect on older existing neighborhoods. Every sub area is a market unto itself, and some will go up while other decline.,/i>
The dynamics are different but all transects are going to be negatively affected. The chimera of the downtown residential revival is my candidate for the biggest mess.
AHEADOFTHECURVE: "And PEs in the economies that might grow 5-6% are sky-high vs the US?"
You raise a good point that is generally overlooked by most investors these days--especially the bears. Ignoring cases where you waltz into danger (like me & Ambac), more wealth is lost by buying overvalued assets than actually buying poor assets.
There was more wealth destroyed when famous, solid, growth stocks (like Coca-Cola, Pfizer, Microsoft, Cisco, Nortel, etc) collapsed in 2000 than in many no-name dot-coms. The no-name dot-coms, except for some rare cases, had small market caps often in the hundreads of millions. The overvalued growth stocks, on the other hand, were many billions overvalued.
Those who keep saying that China or India or Brazil or whatever have high growth rates hence are more attractive don't know what they are talking about. The most overvalued stocks in the world are not in USA but in China and India.
Once the economic slowdown is priced in, US assets will be far more attractive than practically any other country (with possibly Japan being the exception). This is especially true for foreigners like me (I'm Canadian ). Buying an undervalued asset with a low currency is a super combo...
The Federal Government will directly or indirectly, through GSE's, end up owning a lot of the housing stock in the country. That will require printing trillions of dollars with all of the international implications that will cause. This is going to be grist for PHD research for generations! It will also lower our standard of living. And the equity markets love it!.
rich- You seem to be assuming that US-listed companies are operating only in the US. The fact is that hundreds of US companies have brands that are global in nature. Look carefully at recent earnings reports. Many have flat US earnings but very healthy global growth. That is what foreign investors are buying.
Sivaram-I am a canuck as well. I actually think Canada has one of the brightest futures of any country. Just look at water alone. Build pipelines from Great Bear and Great Slave Lakes to the US southwest and Canada's future is assured.
I agree about the stock prices being a forward-looking indicator of a company's economic well-being (cash flow indicator, ultimately), but I was less than clear about what I was commenting on -- it was the change in stock prices that caught my eye. I had spoken too soon anyway. I hadn't seen the "this sucks so bad that Ben HAS to cut by 50+" change in expectations. The part where home builders benefit from all this is lost on me, but then their stocks have been beaten up so much in the past several months that an intra-day blip like this looks like noise in the line.
"FFDIC:
WaMu's full page color ad in The Dallas Morning News introducing 'Savings for Success' product with 6.50% APY, 12 month term AND a huge graphic of money stuffed under the mattress of a sleek modern bed. There are even a couple of fallen bills lying on the polished wood floor. Makes me want to go modern."
SV "You know you are somewhat close to the bottom when bad news has little impact on stock prices and good news causes price spikes"
I think you may be reading a little too much into stock movement ahead of news. Wall St is NOT a discounting mechanism. The stock market anticipates ONLY good news and prices it in well in advance. The stock market only prices in sour news well after it shows up in company reports. Even when the bad news is obvious well in advance. That's how the stock market works.
RICH: "Not really. Actually, it's the opposite, if you project a reasonable contraction in earnings during 2008-10. The U.S. market is the most over-valued on a P/E basis."
What is a "reasonable contraction"? Depending on the index you look at, US trailing P/E is around 17. If you project 20% drop in earnings, P/E will be around 21.
If you look at emerging markets, Asian EM has trailing P/E close to 20; Latin American and other EM have lower P/Es but they mostly are cyclicals and commodity exporters (hence a lower P/E).
I don't see how you can say the US is the most overvalued. Without even looking at intangibles (like lower political risk, lower taxes, no capital controls, better corporate goverance), US stocks are cheaper than almost anything else.
Buying an undervalued asset with a low currency is a super combo...
This is the second time I hear this and don't get it. Isn't the good thing to give away a currency which is overvalued - and about to get lower - in exchange for the stock? i.e. if you have a portfolio of U.S. dollars, you want the USD to be overvalued when you buy U.S. stocks, this way you not only make money on the stock, but the company you buy keeps making more money over the very-long-term as result of inflation (if they have pricing power). Buying assets is a hedge against inflation, not deflation... what don't I understand right in what you wrote?
AHEADOFTHECURVE: "
Sivaram-I am a canuck as well. I actually think Canada has one of the brightest futures of any country. Just look at water alone. Build pipelines from Great Bear and Great Slave Lakes to the US southwest and Canada's future is assured."
Yeah... Canada likely has a better future. But if USA goes down, so will Canada to some degree. I'm not bullish on commodities. I don't think you can build a sustainable future on them.
Furthermore, there are all sorts of side-effects. For example, you are correct in saying that Canada has a ton of fresh water. But if it is ever exported permanently, you are going to end up with empty lakes and rivers. I'm kind of exaggerating but the point is that you can't export water without causing all sorts of side-effects.
A seller's strike went on in my neighborhood (Tempe, AZ) for the last couple of months because folks didn't like the bids they were getting so they pulled the listings. 3 months later every single house is now re-listed (along with a bunch more houses) and if they didn't like the bids then they're gonna hate the ones they hear now.
A guy I know who owns rental properties in the same neighborhood(who was a RRE permabull) is now considering selling his negative cash flow units.
Obviously this isn't going to happen everywhere, but for a long time I thought city centers would be the lat to falter. If rental units are now being unloaded, that could cause comps in city centers to crumble.
PROBERT: "This is the second time I hear this and don't get it. Isn't the good thing to give away a currency which is overvalued - and about to get lower - in exchange for the stock? "
I am speaking from a foreigner's point of view (that's what the original poster was questioning). If you hold US$ then the US$ fluctuation won't really matter when looking at US$-denominated assets.
If you are a buyer, you want to buy a currency that is undervalued. The implication is that the currency will either stabilize or reach fair value (i.e. appreciate). IF you think the currency is going to keep declining, then, by definition, it is not undervalued and is a bad investment. Conversely, if the currency is overvalued then you will lose money if you invest in that asset.
So it comes down to whether you think the currency is undervalued--not just falling but undervalued and will rebound.
I agree wtih the rest of your thinking. Stocks are, in some sense, a hedge against inflation.
Furthermore, there are all sorts of side-effects. For example, you are correct in saying that Canada has a ton of fresh water. But if it is ever exported permanently, you are going to end up with empty lakes and rivers. I'm kind of exaggerating but the point is that you can't export water without causing all sorts of side-effects.
Side effects & unintended consequences galore.
Canada's taiga and sub-arctic are a virtual desert in terms of annual rainfall. The reason it is so wet up there is (1) its frozen for much of the year & sublimation results in slow transport compared to run off or evaporation... (2) a lot of the water locked up there is pre-historic (remnants from last ice age) and (3) it is so flat in much of the subartic it can't easily flow away. Point is if Canada 'mined' their water they would be very sorry quite soon.
Global warming might increase rain fall as warmer moister air infiltrated from Pacific Ocean or even up from the GOM... but I doubt it would happen fast enough to replace extraction. My guess is it would dry out and look a lot more like Mongolia and central Asia than say 'Illinois' after GM kicks in.
Using water available to support enterprise of the local inhabitants makes sens - mining it to sell doesn't.
BARELY: "I think you may be reading a little too much into stock movement ahead of news. Wall St is NOT a discounting mechanism. The stock market anticipates ONLY good news and prices it in well in advance. The stock market only prices in sour news well after it shows up in company reports. Even when the bad news is obvious well in advance. That's how the stock market works."
I disagree. I think your thinking is shaped by the last few years, where we had bull markets in almost every asset. During bull markets, the market tends to overemphasize the good news and ignore the bad news... I think the situation will be the opposite during a bear market. Even good companies get beaten up badly during bear markets.
At some point, the market will price in all the bad news in housing. I'm not sure when (i'm guessing 2Q) but it remains to be seen...
probert-I think it works as follows. The Euro is clos to 1.5 against the USD. So you buy stock in some US company at $ 30 (20 Euros). Now if the USD rises to 1.3 and the stock goes to $ 35, then you have 27 Euros, a 35 % gain. So you want to buy when the foreign currency is weak vs your own.
These numbers include 'purchases' of pror months' cancellations. Wait 'till the inventory of cancelled contract houses that were built get sold off at a discount and spec building virtually ends.
You're assuming the case of someone who has USD in a cash deposit. The point being made was that for a foreigner who currently has their money in another currency, buying USD denominated shares gives them a potential currency gain when they convert the shares back into their "home" currency, in addition to any upside to the shares. This obviously assumes that the USD is undervalued, and that the US stock market is undervalued, at least relatively speaking, which is open to discussion.
A lot of multifamily buyers in Tempe were buying with ideas of converting the apartment complexes to condos.
That obviously failed to occur, and now many are stuck having overpaid for assets that are now overlevered that can't support a reasonable rental cash flow.
...for a long time I thought city centers would be the last to falter. If rental units are now being unloaded, that could cause comps in city centers to crumble.
This is the Planner Bongwater Kool-Aid. Like the more common Rellitter Bongwater Effect this is a case of smoking harsh stems for so long you'd swallow anything. Cenurbs are more expensive. Doesn't matter if they are "better" or any of those feel good rationalizations. When the problem is prices and affordability they perforce must be prime targets. Worse this time is the distortions caused by municipal subsidies. Worse still is that cenurban built environments are far harder to remodel via adaptive reuse. They will rot while the exurbs will adapt.
WaMu must be in trouble. When banks get into trouble they offer to borrow money at rates which will lose money for them. Whether it's citibank paying a 10% yield on preferred stock or WaMu paying 6.5% interest.
What kind of business model is it to pay 6.5% interest and loan at 6.0%?
NO more downhill runs - it's extreme cross-country skiing! Didn't you see the Times article today?
donna | Homepage | 01.28.08 - 11:54 am | #
donna - I used to do ridiculous back country XC skiing... hike all day up bare south facing slopes in the Rockies then ski down the deep fresh virgin powder on the north face... its something you can do at 20 but not so easily at 50.
back here in the Midwest I'd take my husky and go skijoring for 25-30 Km at a pop.
Now I go back country skiing in the flooded frozen backwaters and swamps of the Mississippi River... see eagles galore. But its flat and lazy and not extreme. I'm 'beyond extreme' now...
"What kind of business model is it to pay 6.5% interest and loan at 6.0%?"
There's an old Borscht Belt joke about a dry goods store that loses $ 1 on every shirt they sell. The punch line is: Yeah, but they make it up on volume...
When the problem is prices and affordability they perforce must be prime targets. Worse this time is the distortions caused by municipal subsidies.
And on the flip side of that equation is the huge hole about to be blown in municipal and state budgets by the sales freeze in these city-center markets.
Don't know how big a problem this is elsewhere, but on the East Coast, the real-estate "transfer tax" is a real linchpin for many localities. Hell, the city of Philly charges 3% off the top every time a property changes hands. (And I thought title insurers made a ton of money for doing nothing!)
If the prices go down by 15 or 20%, that's one thing. But when sales figures get cut in half or worse because sellers refuse to accept the need for those 15-20% price drops ... hoo boy, that's gonna leave a mark. And the aforementioned RE subsidies are going to seem like a mighty tempting target when city councils start discussing belt-tightening.
charlie writes:
WaMu must be in trouble. [...] What kind of business model is it to pay 6.5% interest and loan at 6.0%?
charlie | 01.28.08 - 12:50 pm | #
My bet is that this is a loss-leader: they pay ahead-of-the-game on the extra savings you agree to have transferred, and lock you in as a customer during a [likely] turbulent time. The fact that they have a maximum amount they will allow to be transferred each month suggests they are not trying to use this purely to raise funds.
(Nice kicker in the fine print: Early withdrawal penalty applies if withdrawals are made, automatic monthly transfers canceled, or if Saving for Success is closed by us or you, during term.) (italics mine)
By looking at the today's performance of the homebuilder's ETF, XHB, I sure hope there is more bad news coming out next month. My momentum tracking of this ETF shows it breaking into positive momentum territory and is one of the leading sectors on my charts. That tells me a lot of people believe we have seen the worst for housing.
Worse this time is the distortions caused by municipal subsidies. Worse still is that cenurban built environments are far harder to remodel via adaptive reuse. They will rot while the exurbs will adapt.
Exurbs will evolve a lot in the next half century - we won't recognize them.
The two issues that will haunt us the rest of this century will be 'logistics' & 'infrastructure'. I think these constraints will be far more problematic than actual 'supply'... and nowhere will that be felt more keenly than urban centers.
Early withdrawal penalties - so if Wamu goes titsup, they ding you? Exit strategy perhaps?
I was parsing the FDIC site about the bank that failed last Friday... my impression (from that) is that Early Withdrawal Penalties are suspended if the bank you have deposits in is absorbed into another instittution. FFDIC can you comment ? Might be good to know in the coming months.
RayOnTheFarm,
I believe that is correct in most assuming bank scenarios. The assuming bank does not want to do anything to cause the failed bank depositors to flee and lose the new deposit base it has just paid a premium to acquire. However, if the failed bank high interest rates were attracting 'hot' money the healthy bank is not likely to continue paying those high rates once the time deposits mature. We have seen healthy banks decline after assuming a failed bank's deposits and then be forced into chasing hot money as CDs mature or to gather new deposits. Again, refer to the FDIC's web site for the most accurate and up to date information. The OCC also has information about these matters on its site as well.
TradingStats | 01.28.08 - 11:23 am
"it's nuts, right?"
Sort of. It's grain and it's food and people will bid for it when they are hungry whether or not they need nickel or copper or cement or other commodities. (And it can't be printed.)
hei!! i loved ur site!! I'm mexican and i was doing a research about the american economy. but where did you get from your data for the graphs?? i would love to see it.
CR, when did housing cancellations start increasing? It would be interesting if you could overlay your rough estimate on inventory chart.
safe_as_apartments, check this post:
Calculated Risk: Q3 Adjusted New Home Inventory based on Cancellations
Thanks, Carlomagno; that's what I was looking for.
Even though I know CR is probably trying to keep the charts "pure", it still might be interesting to incorporate these numbers into the raw data chart.
Down 40.7% YOY, yet the -4.7% month to month decline is the one being talked about. Yikes!
safe_as_apartments, the cancellation data is quarterly. Here is the graph you asked for on a quarterly basis.
Best Wishes.
I used to be ski pretty aggressively when I was young (XC, downhill, telemark - everything but ski jump)... that first chart looks like a pretty gnarly run with nothing but a few moguls to break up what is a straight shot to the bottom.
So where's the bottom? My legs are getting wobbly.
dryfly-
That's why watching the downhill is so fun...
I believe the only thing to stop the loss of so much money through real estate and poor sales of house is lower the value prices of all houses across America.
Agreed. As long as houses are overpriced, the housing market is like a pit trap for homebuyers.
Markets that misrepresent asset values are highly toxic to the economy as we're finding out.
That's why it scares me to hear people like Bill Gross saying that the Fed can't afford to have house prices fall 10% or more. They can't afford not to have them fall.
If people only think about short-term consequences, then we're all doomed according to complex computer simulations.
CR,
I many blogs on the right side are missing. Any reason? I particularly enjoy Brad Sester's blog and those links remind me to check it out...
thanks.
UGLY ... flat out UGLY!
The bulls will view this as good. it can't get worse than this. We've hit bottom.
I'm a bear, but I don't see the number dropping much below 600k/yr. Maybe down to 500k/yr tops (Or should it be bottoms?). The more likely bad scenario is the level will remain low for several quarters with slighly lower mean and average prices.
To really understand how bad it is, need to look at the detail on the inventory side. Some might take a little bit of comfort that overall inventories have declined to 494K from 507K in Nov. and 537K a year ago. However, the inventories shown include houses at all stages, not started (basically improved lots) to under construction to finished homes. Virtually all the improvement is in the under construction side, at 227K down from 240K in Nov. and 285K a year ago. Not really surprising given the slowdown in starts. The not started catgory is down a little bit, 72K vs. 78K a year ago. However, the killer is the completed home inventory which actually rose to 195K from 193K in Nov. and is UP 12.1% from 174K a year ago. It gets uglier and uglier each month. Also big regional disparities this month, with NE actually up 6.0%, while South and West down 6.5% and 6.0%, respectively. Of course South and West much more important regions for homebuilding.
Newsweek
Where Is the Economy Going? | Newsweek World | Newsweek.com
--
For sale at end of period Completed at all-time high of 195K. Normal is 65K.
Jas
As of right now, equities seem to be happy with these numbers.
TheFinancialNinja
probert, OT: I must have accidentally removed Brad's blog - I'll add it back.
dryfly, it definitely looks like a steep slope. The good news is we are closer to the bottom than the top (since we've already fallen more than half way!).
Best to all.
All hail, the bad news bulls are back.
Charlie,
This isn't just about credit though. You also have a population demographic that could care less about interest rates. The baby boomers are on the downhill side of homebuying. This downturn will last till the echo boomers buy in mass. Which is about a decade out from here.
In a year you will see people with fingers missing and we will know who the fools were that are buying houses now.
CR said:
"dryfly, it definitely looks like a steep slope. The good news is we are closer to the bottom than the top (since we've already fallen more than half way!)."
did you really just say that? does it warm my real estate heart? closer to the bottom than the peak? more than half way there? the decline is mostly behind us?
charlie: It's good news IF (big if) the builders stop building. That will allow excess inventory to slowly (very slowly) work its way through the system like a mortgage pig through a python.
We'll be at the bottom when housing prices have returned to a traditional ratio vs. income (2x to 3x, max) - they may even overshoot to the underside. Considering the effects of the recession and high inflation, as well as massive losses of jobs, the "income" part of that equation will be shaky at best. So, the downturn has a long way to go, IMHO.
I'm a bear, but I don't see the number dropping much below 600k/yr. Maybe down to 500k/yr tops (Or should it be bottoms?).
I must admit I was a bit surprised by this report. I expected at least a little bit of a bounce.
But if I recall correctly, most bears were expecting the NASDAQ to fall about 50%-60%, not the nearly 80% decline we got.
And even after recent price declines, a lot of these purchases will result in forclosures at these overinflated valuations.
01/20/09
The demographics involve not just raw numbers, but the type of housing built. Aging boomers (I plead guilty) are looking for smaller energy-efficient housing that is in communities that are accessible on foot, by bicycle or by public transit. Unfortunately that is exactly the opposite of what the large public homebuilders have thrown up these last few years. I think some of the private local builders are on the ball, but the public ones-fugedabudit!
Meltdown Man,
The reason to keep an eye on the monthly change is that it helps you see changes in trajectory. The 4.7% decline in December is bigger than the average for the past 12 months, and follows a bigger than average drop in November. This looks like an acceleration in the decline in sales. In fact, both November and December are 1 SD below the time trend for the past 24 months. Yikes.
Please don't call 600k a bottom (not talking to CR). New home sales will go below 500k for at least a couple of years. After the worst binge in history, we are due for the worst hangover in history. The pain will be almost intolerable for at least a couple more years.
--
"That's why it scares me to hear people like Bill Gross saying that the Fed can't afford to have house prices fall 10% or more."
That tells you a lot about Bill Gross, doesn't it? How come the Fed let home prices double and triple in many areas during 2000-2007? Always stay on the sidelines during bubbles and then aggressively intervene when the bubbles predictably burst? Are we dealing with Crooks or not?
Jas
Great blog, CR. Anecdotal tidbit - Cancellations appear to remain quite high in CA. The explanation I am getting on this is "the financing". This is of course a cover for a lot of difficulties prospective buyers are facing. One of the most pernicious is the buyer trying to sell a house to buy the new one. Buyers selling an existing home in this market are facing a few headwinds.
Wow so national inventory is 9.6 months and here outside DC in Charles County MD SFH inventory is 16.4 months. "And we are insulated due to proximity to DC." Jesus, glad i am still renting, so we need a little spreadsheet that will show the realtors how much as a percentage of listed price a house needs to come down to get to the theoretical 3 month inventory number.
Lancelot
Of course being more than halfway to the bottom in SALES does not imply that we're halfway to the bottom in PRICES. I would argue that inventory is proportional to the first derivitive of (real) price. So being halfway down in sales just means that we're nearing the point when prices hit terminal velocity on the way down. They can be at terminal velocity for awhile unitl they hit bottom.
You have never in your life seen one government and one Fed work so hard to pump up one equity market (U.S.) It's scary.
Whoever is behind this pump, it no longer has anything to do with world markets. It's only U.S. and it's scary.
Whether or not economies decouple, investment markets never will. If U.S. gets too out of line with the world, arbs will bring them back into alignment.
Powerful people know this. So, why are they pumping so hard to hold up the U.S. stock market? What are they so afraid of?
So where's the bottom? My legs are getting wobbly.
dryfly | 01.28.08 - 10:39 am | #
As that saying goes, it's not the fall that's the problem, it's the sudden stop at the end. Well, actually my analogy falls apart here. The fall is indeed painful and the bottom perhaps just as painful as the fall.
I noticed many home builder investors seem to shrug off the bad news, if that's indicated by builders' stock prices.
dc1000, yeah, the peak was in the 1.3 to 1.4 million rate range, and we are down to 600K. "More than half way" was meant as a joke - since we've fallen about 700K and we can't go to negative numbers on the Census report!
Best Wishes.
Not surprising, why build new when it's going to be a bloodbath for sellers this spring.
CalculatedRisk writes:
The good news is we are closer to the bottom than the top (since we've already fallen more than half way!).
Sir, have you considered the possibility of Home Builders plowing under previously started homes for a net negative number for new home construction? There's nothing to say "The Coyote" won't hit the bottom of the cliff and continue deeper to produce a spectacular hole. After all he did an admirable job of defying gravity when he first stepped off at the top. [beep, beep]
k harris-
I get the fact that you have increasing rate of decrease, but just like the analogy of the frog in water, speaking of turning up the heat by an additional 4.7% doesn't provide the "shock and awe" that a 40% number does. The media usually licks its chops for numbers like that.
--
Has anyone seen the Price data for New Home Sales?
CNBC reports more than 10% decline "sequentially," i.e., MoM.
If you see a source please post/confirm.
Jas
Purchases of new houses will fall another 15 percent this year, according to a forecast by the Mortgage Bankers Association. Sales of existing homes will drop 13 percent, the group said on Jan. 14.
woops sorry..
Purchases of new houses will fall another 15 percent this year, according to a forecast by the Mortgage Bankers Association. Sales of existing homes will drop 13 percent, the group said on Jan. 14.
Sales of New Houses in U.S. Fall More Than Forecast (Update3) - Bloomberg.com
"Powerful people know this. So, why are they pumping so hard to hold up the U.S. stock market? What are they so afraid of?"
rich, all those dollars outside the US held by SW funds and the PRC ? if equity prices fall hard enough, how much of us could those dollars buy up ?
While researching sold data for an appraisal last week, the builder sales office manager said his company was in decent shape -- but they were in the process of reducing spec home inventory from 750 to 250. Going forward, they will focus on build to suit, and try to reduce the ratio of specs to presolds.
Rob Dawg- It's likely in places like Stockton that some of the less salable developments will end up bulldozed. That will be part of the recovery
I don't know about others, but I just thought I'd mention that I don't really care for the new addition of bolded commenter's name above the thread entries. For some reason, it seems to interrupt the ebb and flow and personality of the comment threads. It might just be that I'm not acclimatized yet, but I'm finding myself skimming the threads instead of reading them.
"What are they so afraid of?"
What happened immediately after the last bubble?
Aheadofthecurve writes:
... places like Stockton that some of the less salable developments will end up bulldozed...
But, but... if they bulldozed parts of Stockton or Merced or Bakersfield or Victorville or Muiretta how could we tell?
I'm no commodity guru, but does'nt a 100+% rise in wheat warrant some attention.
INO Futures and Commodities - Grains and Oilseeds - HARD RED SPRING WHEAT Mar 2010 (E) (MGEX:MWE.H10.E) Price Chart and Quote
it's nuts, right?
CR:
i THINK you knew i was kidding.
but thanks for the clarification
Lancelot - figures from MBA have proven rather delusional recently. Since July the rise in inventory for completed new homes is about 7.7%. You have to use the tracked completed new homes for sale as a proxy for the total inventory including cancelled and Census-dropped inventory.
These numbers will cause the Street to be pretty sure that the Fed will cut another 50 bps at the regular meeting.
Jas, Interest Rate Roundup blog
Homebuilders rallying on the news. Must be another bottom.
I second Wetzel's comment.
They were just talking about this on CNBC with Diana Olick and Herb Greenberg. One thing to keep in mind is that in inner city minority communities, none of this (predatory lending, foreclosures) is new. It's on the cover of Newsweek (like in the Paul Simon song) because it's hitting the burbs now.
I just checked the list of foreclosures in my county (Albany, NY). There are fewer than 50 and virtually all are inner city properties priced around $ 20-30K. So it's not just people buying more house than they could afford, since you can afford the mortgage on a $ 20K house on minimum wage.
WaMu's full page color ad in The Dallas Morning News introducing 'Savings for Success' product with 6.50% APY, 12 month term AND a huge graphic of money stuffed under the mattress of a sleek modern bed. There are even a couple of fallen bills lying on the polished wood floor. Makes me want to go modern.
If lenders require down payments, a cash reserve in the bank, and the available cash to pay closing costs then nothing much will sell. Which they are currently asking for.
If your area is a "declining area" do they not want more? More being higher down, less percentage of income going to the payment? Which is most of the large costal urban areas?
Realistically I do not think 3x income is even valid anymore. Not when you are funding your retirement, health care, rising energy and grocery prices, kids and college. I think 2.5 would be a stretch.
In the DC area the average SFH = 700K
(approx). That is at least 5x current income.
I do not think there is anyone really left who can buy at current prices with lenders requiring traditional financing.
Why would they buy equities in an economy that's only going to grow by 1-2% at most for the next decade when they could buy economies that will grow 5-6%?
Why would a SW fund want to buy into our health care, Social Security, national debt and trade deficit problems -- especially before they are fixed?
--
Neal,
Thanks for the Price data. New Homes Price leads the resale prices and that doesn't bode well for future foreclosures.
Jas
rich- Because they're forward-looking? And PEs in the economies that might grow 5-6% are sky-high vs the US? Because they think the dollar won't go lower? Because they think new leadership can make some progress?
Remember markets prefer bad but stable to good but getting worse.
MoM,
Basing my figures on all (new and existing ) for my area. 16.4 months is unbelievable.
And of course every night no matter the channel i am starting to see NAR ads about all markets are local and now is a good time to buy. Never seen National NAR ads primetime before.
Off to lunch, agree 50-75bps...
trying to fix a ruptured appendix by putting a cast on the leg..BB doesn't get it.
For Immediate Release
January 24, 2008
STATEMENT OF OFHEO DIRECTOR JAMES B. LOCKHART ON CONFORMING LOAN LIMIT INCREASE
We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs regulator has all the necessary safety and soundness tools.
The page cannot be displayed
Try this also
Regulator opposes stimulus plan's mortgage fix - Jan. 26, 2008
Regulator opposes stimulus plan's mortgage fix
Government agency takes stand against letting Freddie Mac and Fannie Mae buy higher-cost loan
According to OFHEO, Fannie and Freddie together have debt of more than $1.5 trillion, and have guaranteed mortgage backed securities of more than $3.3 trillion, a total debt of nearly $4.9 trillion.
And this debt isn't backed by a lot of cash. Both Fannie and Freddie have minimum capital requirements of just 3.25 percent of assets - considerably lower than the 4 percent required for private lenders - making the agencies, at least potentially, very vulnerable.
"OFHEO," said Mark Zandi, chief economist for Moody's Economy.com, "wants to make sure the GSEs are following sound procedures and have sufficient capital."
Is anyone else waiting for Bush to declare a "War on Foreclosures"?..
or maybe a "War on Cyclical Price Variations" for equities. I'd like to hear him pronounce that one.
--
Talking-heads on CNBC are discussing the "Buyers' Strike" and "Sellers' Strike."
"Sellers' Strike?" That seems like a dopey idea if you need to sell, or have an empty unit. And what you do after you go on the strike?
Never a dull moment.
Jas
"And of course every night no matter the channel i am starting to see NAR ads about all markets are local and now is a good time to buy."
If all real estate is local, there's no need for the National Association of Realtors. Realtor associations should be local, to deal with the strictly local nature of real estate and financing.
ha!
You're either with the foreclosed, or you're against them.
Ahead of the curve,
Agreed most of the houses in Colorado Springs are huge 3500-7000 sqft monsters they must be hell to heat. Also thats all the HB keep building here even though they aren't selling. People just can't afford these mauseliums anymore. Rephrase most people never could afford them.
SON OF ZINGER: "I noticed many home builder investors seem to shrug off the bad news, if that's indicated by builders' stock prices."
Stocks are forward looking so it all depends on how much bad news is priced in. You know you are somewhat close to the bottom when bad news has little impact on stock prices and good news causes price spikes. Life is probably getting tougher for the shorts... I say homebuilder stocks hit a bottom around 2Q08 (I'm thinking some will keep declining to bankruptcy but the rest should stabilize)...
New Homes Price leads the resale prices and that doesn't bode well for future foreclosures.
That's partly true -- new homes in new subdivisions tend to be far out in the suburbs, because that's where the vacant land is. Builders slashing prices to move inventory kills the homeowners who bought 2 years ago at a higher price with 100% financing and a 2/28 ARM. No refis, no sales that aren't short -- if they can't tough it out, FC here they come.
On the other hand, falling values in new subdivisions has little effect on older existing neighborhoods. Every sub area is a market unto itself, and some will go up while other decline.
dryfly,
NO more downhill runs - it's extreme cross-country skiing! Didn't you see the Times article today?
Not really. Actually, it's the opposite, if you project a reasonable contraction in earnings during 2008-10. The U.S. market is the most over-valued on a P/E basis.
The U.S. economy is not stable right now. It's probably the most unstable it has been in 30+ years.
As strange as China's economy is and as imbalanced as India's is, they are more stable than the U.S. looking forward.
One aspect of a speculative bubble is for the bottom to be lower that the original, pre-bubble, level. If this housing bubble is truly speculative in nature (which it is, at least in part), then we haven't reached the bottom. Theoretically anyhow.
"As strange as China's economy is and as imbalanced as India's is, they are more stable than the U.S. looking forward."
rich,
That remains to be seen. Just wait another year, or two, and you will have a better idea.
Jas
How sophisticated is the marketing arm (ok, the entire body) of NAR to persist with "now is a good time to buy" or "all markets are local...(unlike the marketing for it)"?
Does this teach the audience to ignore NAR or worse (Dangerfield comedy)?
Who pays for this? (miseducation, mistrust, misinformation, misconduct...)
Also agree with MOM about the implications for Jan 30, but still believe that the major market indices better represent the wealthy interests (than possibly soon to be discovered mere transients) and should these stage a significant bounce due to some externality (China warms up to Hank), the interest rate might "stay the course", now that there has been "bipartisan" support in providing a stimulus...no, really.
On the other hand, falling values in new subdivisions has little effect on older existing neighborhoods. Every sub area is a market unto itself, and some will go up while other decline.,/i>
The dynamics are different but all transects are going to be negatively affected. The chimera of the downtown residential revival is my candidate for the biggest mess.
AHEADOFTHECURVE: "And PEs in the economies that might grow 5-6% are sky-high vs the US?"
You raise a good point that is generally overlooked by most investors these days--especially the bears. Ignoring cases where you waltz into danger (like me & Ambac), more wealth is lost by buying overvalued assets than actually buying poor assets.
There was more wealth destroyed when famous, solid, growth stocks (like Coca-Cola, Pfizer, Microsoft, Cisco, Nortel, etc) collapsed in 2000 than in many no-name dot-coms. The no-name dot-coms, except for some rare cases, had small market caps often in the hundreads of millions. The overvalued growth stocks, on the other hand, were many billions overvalued.
Those who keep saying that China or India or Brazil or whatever have high growth rates hence are more attractive don't know what they are talking about. The most overvalued stocks in the world are not in USA but in China and India.
Once the economic slowdown is priced in, US assets will be far more attractive than practically any other country (with possibly Japan being the exception). This is especially true for foreigners like me (I'm Canadian
). Buying an undervalued asset with a low currency is a super combo...
The Federal Government will directly or indirectly, through GSE's, end up owning a lot of the housing stock in the country. That will require printing trillions of dollars with all of the international implications that will cause. This is going to be grist for PHD research for generations! It will also lower our standard of living. And the equity markets love it!.
rich- You seem to be assuming that US-listed companies are operating only in the US. The fact is that hundreds of US companies have brands that are global in nature. Look carefully at recent earnings reports. Many have flat US earnings but very healthy global growth. That is what foreign investors are buying.
Sivaram-I am a canuck as well. I actually think Canada has one of the brightest futures of any country. Just look at water alone. Build pipelines from Great Bear and Great Slave Lakes to the US southwest and Canada's future is assured.
SivaramVelauthapillai,
I agree about the stock prices being a forward-looking indicator of a company's economic well-being (cash flow indicator, ultimately), but I was less than clear about what I was commenting on -- it was the change in stock prices that caught my eye. I had spoken too soon anyway. I hadn't seen the "this sucks so bad that Ben HAS to cut by 50+" change in expectations. The part where home builders benefit from all this is lost on me, but then their stocks have been beaten up so much in the past several months that an intra-day blip like this looks like noise in the line.
"FFDIC:
WaMu's full page color ad in The Dallas Morning News introducing 'Savings for Success' product with 6.50% APY, 12 month term AND a huge graphic of money stuffed under the mattress of a sleek modern bed. There are even a couple of fallen bills lying on the polished wood floor. Makes me want to go modern."
Here's the online version - Dallas Morning News | Dallas - -
Dig that serious lumbar support. WaMu's gone Countrywide.
SV "You know you are somewhat close to the bottom when bad news has little impact on stock prices and good news causes price spikes"
I think you may be reading a little too much into stock movement ahead of news. Wall St is NOT a discounting mechanism. The stock market anticipates ONLY good news and prices it in well in advance. The stock market only prices in sour news well after it shows up in company reports. Even when the bad news is obvious well in advance. That's how the stock market works.
RICH: "Not really. Actually, it's the opposite, if you project a reasonable contraction in earnings during 2008-10. The U.S. market is the most over-valued on a P/E basis."
What is a "reasonable contraction"? Depending on the index you look at, US trailing P/E is around 17. If you project 20% drop in earnings, P/E will be around 21.
If you look at emerging markets, Asian EM has trailing P/E close to 20; Latin American and other EM have lower P/Es but they mostly are cyclicals and commodity exporters (hence a lower P/E).
I don't see how you can say the US is the most overvalued. Without even looking at intangibles (like lower political risk, lower taxes, no capital controls, better corporate goverance), US stocks are cheaper than almost anything else.
I know things are bad when I hear Realtor (NAR) ads every single day on TV and radio.
Buying an undervalued asset with a low currency is a super combo...
This is the second time I hear this and don't get it. Isn't the good thing to give away a currency which is overvalued - and about to get lower - in exchange for the stock? i.e. if you have a portfolio of U.S. dollars, you want the USD to be overvalued when you buy U.S. stocks, this way you not only make money on the stock, but the company you buy keeps making more money over the very-long-term as result of inflation (if they have pricing power). Buying assets is a hedge against inflation, not deflation... what don't I understand right in what you wrote?
AHEADOFTHECURVE: "
Sivaram-I am a canuck as well. I actually think Canada has one of the brightest futures of any country. Just look at water alone. Build pipelines from Great Bear and Great Slave Lakes to the US southwest and Canada's future is assured."
Yeah... Canada likely has a better future. But if USA goes down, so will Canada to some degree. I'm not bullish on commodities. I don't think you can build a sustainable future on them.
Furthermore, there are all sorts of side-effects. For example, you are correct in saying that Canada has a ton of fresh water. But if it is ever exported permanently, you are going to end up with empty lakes and rivers. I'm kind of exaggerating but the point is that you can't export water without causing all sorts of side-effects.
I don't know... just my feeling...
Anecdotal info
A seller's strike went on in my neighborhood (Tempe, AZ) for the last couple of months because folks didn't like the bids they were getting so they pulled the listings. 3 months later every single house is now re-listed (along with a bunch more houses) and if they didn't like the bids then they're gonna hate the ones they hear now.
A guy I know who owns rental properties in the same neighborhood(who was a RRE permabull) is now considering selling his negative cash flow units.
Obviously this isn't going to happen everywhere, but for a long time I thought city centers would be the lat to falter. If rental units are now being unloaded, that could cause comps in city centers to crumble.
Sol,
WaMu's California ad features a bongwater bed to push its products. Groovy.
PROBERT: "This is the second time I hear this and don't get it. Isn't the good thing to give away a currency which is overvalued - and about to get lower - in exchange for the stock? "
I am speaking from a foreigner's point of view (that's what the original poster was questioning). If you hold US$ then the US$ fluctuation won't really matter when looking at US$-denominated assets.
If you are a buyer, you want to buy a currency that is undervalued. The implication is that the currency will either stabilize or reach fair value (i.e. appreciate). IF you think the currency is going to keep declining, then, by definition, it is not undervalued and is a bad investment. Conversely, if the currency is overvalued then you will lose money if you invest in that asset.
So it comes down to whether you think the currency is undervalued--not just falling but undervalued and will rebound.
I agree wtih the rest of your thinking. Stocks are, in some sense, a hedge against inflation.
Furthermore, there are all sorts of side-effects. For example, you are correct in saying that Canada has a ton of fresh water. But if it is ever exported permanently, you are going to end up with empty lakes and rivers. I'm kind of exaggerating but the point is that you can't export water without causing all sorts of side-effects.
Side effects & unintended consequences galore.
Canada's taiga and sub-arctic are a virtual desert in terms of annual rainfall. The reason it is so wet up there is (1) its frozen for much of the year & sublimation results in slow transport compared to run off or evaporation... (2) a lot of the water locked up there is pre-historic (remnants from last ice age) and (3) it is so flat in much of the subartic it can't easily flow away. Point is if Canada 'mined' their water they would be very sorry quite soon.
Global warming might increase rain fall as warmer moister air infiltrated from Pacific Ocean or even up from the GOM... but I doubt it would happen fast enough to replace extraction. My guess is it would dry out and look a lot more like Mongolia and central Asia than say 'Illinois' after GM kicks in.
Using water available to support enterprise of the local inhabitants makes sens - mining it to sell doesn't.
BARELY: "I think you may be reading a little too much into stock movement ahead of news. Wall St is NOT a discounting mechanism. The stock market anticipates ONLY good news and prices it in well in advance. The stock market only prices in sour news well after it shows up in company reports. Even when the bad news is obvious well in advance. That's how the stock market works."
I disagree. I think your thinking is shaped by the last few years, where we had bull markets in almost every asset. During bull markets, the market tends to overemphasize the good news and ignore the bad news... I think the situation will be the opposite during a bear market. Even good companies get beaten up badly during bear markets.
At some point, the market will price in all the bad news in housing. I'm not sure when (i'm guessing 2Q) but it remains to be seen...
SV-I was only kidding about the lakes.
probert-I think it works as follows. The Euro is clos to 1.5 against the USD. So you buy stock in some US company at $ 30 (20 Euros). Now if the USD rises to 1.3 and the stock goes to $ 35, then you have 27 Euros, a 35 % gain. So you want to buy when the foreign currency is weak vs your own.
These numbers include 'purchases' of pror months' cancellations. Wait 'till the inventory of cancelled contract houses that were built get sold off at a discount and spec building virtually ends.
Straight down in 2008.
Probert,
You're assuming the case of someone who has USD in a cash deposit. The point being made was that for a foreigner who currently has their money in another currency, buying USD denominated shares gives them a potential currency gain when they convert the shares back into their "home" currency, in addition to any upside to the shares. This obviously assumes that the USD is undervalued, and that the US stock market is undervalued, at least relatively speaking, which is open to discussion.
Alec,
A lot of multifamily buyers in Tempe were buying with ideas of converting the apartment complexes to condos.
That obviously failed to occur, and now many are stuck having overpaid for assets that are now overlevered that can't support a reasonable rental cash flow.
Happening all across the country....
Broken condos.
...for a long time I thought city centers would be the last to falter. If rental units are now being unloaded, that could cause comps in city centers to crumble.
This is the Planner Bongwater Kool-Aid. Like the more common Rellitter Bongwater Effect this is a case of smoking harsh stems for so long you'd swallow anything. Cenurbs are more expensive. Doesn't matter if they are "better" or any of those feel good rationalizations. When the problem is prices and affordability they perforce must be prime targets. Worse this time is the distortions caused by municipal subsidies. Worse still is that cenurban built environments are far harder to remodel via adaptive reuse. They will rot while the exurbs will adapt.
WaMu must be in trouble. When banks get into trouble they offer to borrow money at rates which will lose money for them. Whether it's citibank paying a 10% yield on preferred stock or WaMu paying 6.5% interest.
What kind of business model is it to pay 6.5% interest and loan at 6.0%?
NO more downhill runs - it's extreme cross-country skiing! Didn't you see the Times article today?
donna | Homepage | 01.28.08 - 11:54 am | #
donna - I used to do ridiculous back country XC skiing... hike all day up bare south facing slopes in the Rockies then ski down the deep fresh virgin powder on the north face... its something you can do at 20 but not so easily at 50.
back here in the Midwest I'd take my husky and go skijoring for 25-30 Km at a pop.
Now I go back country skiing in the flooded frozen backwaters and swamps of the Mississippi River... see eagles galore. But its flat and lazy and not extreme. I'm 'beyond extreme' now...
"What kind of business model is it to pay 6.5% interest and loan at 6.0%?"
There's an old Borscht Belt joke about a dry goods store that loses $ 1 on every shirt they sell. The punch line is: Yeah, but they make it up on volume...
What kind of business model is it to pay 6.5% interest and loan at 6.0%?
a business that the Fed allows to loan $900 at 6% for every $100 of deposits.
FFDIC - 'pitch' perfect response. You've made the #1 spot on my daily find the humor' parade.
Sol,
Thanks. I'm in a good mood. A couple of young lesbian friends are having their baby today and Bush gives his last SOTU. Life is good.
When the problem is prices and affordability they perforce must be prime targets. Worse this time is the distortions caused by municipal subsidies.
And on the flip side of that equation is the huge hole about to be blown in municipal and state budgets by the sales freeze in these city-center markets.
Don't know how big a problem this is elsewhere, but on the East Coast, the real-estate "transfer tax" is a real linchpin for many localities. Hell, the city of Philly charges 3% off the top every time a property changes hands. (And I thought title insurers made a ton of money for doing nothing!)
If the prices go down by 15 or 20%, that's one thing. But when sales figures get cut in half or worse because sellers refuse to accept the need for those 15-20% price drops ... hoo boy, that's gonna leave a mark. And the aforementioned RE subsidies are going to seem like a mighty tempting target when city councils start discussing belt-tightening.
charlie writes:
WaMu must be in trouble. [...] What kind of business model is it to pay 6.5% interest and loan at 6.0%?
charlie | 01.28.08 - 12:50 pm | #
My bet is that this is a loss-leader: they pay ahead-of-the-game on the extra savings you agree to have transferred, and lock you in as a customer during a [likely] turbulent time. The fact that they have a maximum amount they will allow to be transferred each month suggests they are not trying to use this purely to raise funds.
(Nice kicker in the fine print: Early withdrawal penalty applies if withdrawals are made, automatic monthly transfers canceled, or if Saving for Success is closed by us or you, during term.) (italics mine)
Offer only good in TX, GA, and IL!
Wamu is not giving 6.5%.
Unless you call $500 maximum deposit per month an account.
Early withdrawal penalties - so if Wamu goes titsup, they ding you? Exit strategy perhaps?
By looking at the today's performance of the homebuilder's ETF, XHB, I sure hope there is more bad news coming out next month. My momentum tracking of this ETF shows it breaking into positive momentum territory and is one of the leading sectors on my charts. That tells me a lot of people believe we have seen the worst for housing.
Worse this time is the distortions caused by municipal subsidies. Worse still is that cenurban built environments are far harder to remodel via adaptive reuse. They will rot while the exurbs will adapt.
Exurbs will evolve a lot in the next half century - we won't recognize them.
The two issues that will haunt us the rest of this century will be 'logistics' & 'infrastructure'. I think these constraints will be far more problematic than actual 'supply'... and nowhere will that be felt more keenly than urban centers.
JMHO.
Early withdrawal penalties - so if Wamu goes titsup, they ding you? Exit strategy perhaps?
I was parsing the FDIC site about the bank that failed last Friday... my impression (from that) is that Early Withdrawal Penalties are suspended if the bank you have deposits in is absorbed into another instittution. FFDIC can you comment ? Might be good to know in the coming months.
Ray
RayOnTheFarm,
I believe that is correct in most assuming bank scenarios. The assuming bank does not want to do anything to cause the failed bank depositors to flee and lose the new deposit base it has just paid a premium to acquire. However, if the failed bank high interest rates were attracting 'hot' money the healthy bank is not likely to continue paying those high rates once the time deposits mature. We have seen healthy banks decline after assuming a failed bank's deposits and then be forced into chasing hot money as CDs mature or to gather new deposits. Again, refer to the FDIC's web site for the most accurate and up to date information. The OCC also has information about these matters on its site as well.
TradingStats | 01.28.08 - 11:23 am
"it's nuts, right?"
Sort of. It's grain and it's food and people will bid for it when they are hungry whether or not they need nickel or copper or cement or other commodities. (And it can't be printed.)
hei!! i loved ur site!! I'm mexican and i was doing a research about the american economy. but where did you get from your data for the graphs?? i would love to see it.
i hope u can answer. thanks!!