I would be tempted to say that overbuilding happened on the west side of that peak, too, maybe begnning on 2003 or 2004. Even though sales rose then, too, we are now finding that some of those sales were not sustainable.

Let's start a guessing contest about which or what banks. I bet on Citigroup or Wachovia or Lehman. Of course there is also MER and MS to think about, not to mention....well, let's see.....so many others to choose from LOL

What constitutes a "big" bank? 10 billion in market cap; 25 billion?; 50 billion?

CR,

We need a built for flipping tally.

Sales and closing sales prices are not working in builders' favor in a rapidly declining market. The price builders actually get for those ~25% of homes that suffer cancellations will be a lot lower 6 months after the original contract was signed.

Builders are hurting, a lot.

Tim,

http://finance.yahoo.com/echarts?s=%5EGSPC#chart3:symbol=^gspc;range=19990401,20080818;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on

Looks like a decade long double bottom to me.

I respectfully apologize to all traders. Give um hell.

Conjure says, "CR is tops!"

mp: help an ignorant guy out - What or who exactly is a conjure bag?

CR,
It is really all semantics. However, I believe overbuilding started in 2001 and continues today. Sure, homebuilders practically sold all homes during the bubble years as fast as they could build them, but, the amount sold over the LT cyclical new home sale average (adjusted for population growth) was really just phantom demand caused by speculators and easy credit. As a result, overbuilding has occurred since 2001 and continues today, since the massive inventory overhang negates the need for new housing (except in very isolated local situations). When there is massive excess supply, why is there need for new housing? Except for demand from the collapsing number of people who want and can afford a custom home, the demand for new housing is non-existent and not viably competitive (ie homebuilders will continue to lose their asses even when they sell homes). Existing overhang inventory (ie foreclosures and future foreclosures of recently built bubble houses)is a perfectly acceptable substitute for new housing. We still have about 4 million overbuilt houses to work through before any significant demand/need for new housing will occur. At demand less than 500k for new homes for at least the next couple of years and starts still above 500k, the removal of the inventory overhang is way off. Way off in a galaxy far far away,

"When there is massive excess supply, why is there need for new housing?"

If the excess supply is 50 miles off in the wrong direction, or the wrong kind of house for the population's demands, then there can be a need for new housing. Just not the same kind in the same place.

That said, there definitely is room for housing sales to keep dropping, and the death of easy credit is one of the reasons. The fear of continued housing price deflation is another one.

Lacker: Credit stress not a good reason not to hike rates

Lacker says Fannie, Freddie should be privatized

>
Its Lacker's turn to talk down inflation.

sammi-

Builders selling more homes than they are starting doesn't mean that overall excess inventory is being worked off. It simply means they are pricing the existing units low enough to sell to keep cash flowing.

They are starting less for many reasons including
1) Insufficient funding
2) Inability to sell at a profit

This is only positive in the sense that the overbuilding is decreasing, but offers no indication of how long it will be until the excess is truly worked off, how long it will be before starts bottom, etc.

"how do you come to the conclusion that it's a good idea to sell a March option for $2?"

You don't...options pricing has been utterly ridiculous for well over a year...and ETF's?? Ha!!! tracking percentage moves is just another way to obfuscate...

Honestly I almost feel like somebody is writing those things just to make a market without any consideration that they might inadvertently end up funding 10 years of somebody's retirement.

Either that or the have some "Handbook of Statistically Probable Currency Movements" written in the 1980s.

I agree that housing has been overbuilt since around 2000. I liken it right now to ink pens or vice versa. Why in the world are we manufacturing new ink pens? There are plenty of good used pens in the world. There are probably several pens/person in the world right now. Other than just being wasteful there cannot be any reason to manufacture a new ink pen. They are everywhere for free. There is an abundant supply of existing homes - both new/used to satisfy the current credit/sales environment. There is no valid reason on a macro level to build a new house now.

Can we have a bottom callers hall of hubris? Now Toll is doing it...

"We Might Be At Bottom" Says Toll Brothers CEO - CNBC

Seems as tho a few folks are sided against LEH, huh?

jim --

Let's start a guessing contest about which or what banks. I bet on Citigroup or Wachovia or Lehman.

Citi is unlikely, unless the world really is ending.

Wachovia is probably in for some serious pain, but I doubt they go under.

Lehman is very possible.

If we are starting a pool, though, put me down for WaMu.

ylsp, i don't know where you live, but i couldn't disagree with you more. We've lived in a house we bought almost 30 years ago that was built in the 20's, and it never ceases to amaze us how well-built it was. Brick firewalls between the floors, the molding, the heavy wood floors that will stand up to sanding, the cabinets that were built to last...I could go on and on. One of the features that we've come to really appreciate in the last couple of years is all the doors, allowing us to close off rooms if we don't need to be heating them all.

The new houses are made of crap, cheap materials, and a lot of the stuff that has been all the rage, the high ceilings and the big open areas, are very expensive to maintain.

Even the old double-hung windows can be very energy efficient when they are cleaned up and maintained.

I do disagree.

I forgot the word "new"

"It costs a lot of money to make a NEW house energy efficient..."

National City Bonds Show Defaults KeyCorp Can't Deny

I've been at National City for 30 years and a month and for 29 of those we've seen nothing like it,'' Thomas Richlovsky, National City's 57-year-old treasurer, said in a telephone interview.In past cycles certainly lending, or credit, has gotten more difficult. The cost of credit would go up. In this particular phenomenon of the last year it's not like you can borrow money and the price went up. No, the market's closed.''

People are saying across the board that this is something that no one has ever seen before,'' said John Bartko, a banking analyst at S&P in New York.This market has deteriorated deeper and over a longer period of time than many people thought and as time goes on we're becoming increasingly concerned. We're simply not seeing really any indications of stability.''
National City Bonds Show Defaults KeyCorp Can't Deny (Update1) - Bloomberg.com

elvis, could you give us a link?
3. Read the "Essential Guide to What White People Buy."

i can't find what you're talking about.

tia

All of our kids who live near us have bought new homes in the last five years. The word underwater is an action word here. I went on their inspections with them, and I was impressed with building qualities. One Centex, one independent builder, and one Pulte. Insulation qualities, R factors, and their custom made siding were a plus. Windows and outside doors were thermopane. Fireplaces were too small, but thats part of the package. Gutters and downspouts were custom made by them. My house built by alcoholic carpenters, has about one bent nail, for each sunk nail. It came with a cracked foundation too. Mine was a lot cheaper, and has a lot replaced too, over the years. Overall I could afford mine much easier, than they could. New is nice, and cheaper.

Stirred up a bit of a hornets nest... I still think its an interesting question.

I've posed this question to my co-workers as well and a few have told me that the older housing stock (1970s and pre) used redwood beams. I'm still not sold though on getting a used house especially with expensive energy. I don't think its as cut and dry, yes and no answer... more likely case by case... depending on locality. Its a lot easier to put solar into a house designed for it; or put a gray (or even blackwater) system into a house design for such. Definately not talking about a 3000 sqft monster here either... I can't imagine the heating/cooling bill on some of those with high ceilings...

Sorry, the book is called "The Definitive Guide To Stuff White People Like, The Unique Taste of Millions" by Christian Lander. It is hilarious and pokes fun at the herd mentality of why (white) people do things even though they are often counter intuitive.

thanks, elvis.

We had a fire in our house about 10 years ago, and in the reconstruction found 3 other houses in the area built by the same builder. I could just hug him, the stuff is so beautiful.

But I live in the Northeast, in a neighborhood of old, well-built houses. When i visit people in the newer stuff i am struck by how spoiled I am. We did buy a lot cheaper because it was an old house that needed a lot of work.

Lefty-

Construction quality varies a lot. I've seen new construction that doesn't any wood for the exterior walls, just some drywall stuff inside of the siding.

We have come quite a ways with insulation and roofing, and heating and AC have gotten more efficient, but really the mainstream has only done a small fraction of what is possible.

There is a ton of ideas and innovation wrt building energy efficient, durable structures that are low cost. Unfortunately very little of it has hit the mainstream.

Just to set the record straight, because it was originally misreported by Reuters: NYC's mini boom in construction starts wasn't prompted by changes in the building code but rather in the expansion of a requirement that developers claiming a certain tax break provide affordable rentals in exchange. Residential developers, not surprisingly, rushed to get their foundations into the ground before the new rules took effect.

We here in NYC are anxiously waiting to see whether our boomlet will endure. Before all you free marketeers start up, note that developers in Manhattan have gladly taken the tax break and delivered the affordable housing (though formerly it could be done off-site).

ac:

The house we are now in is the newest construction home that we've ever had - it's the fourth home we've purchased - and it fairly screams "conspicuous consumption". We were on the market for 4 bedrooms on one level in a specific school area and this fit the bill; but I've never been in a house with outlets specifically for electric candle placement. Also flipped a switch two months ago and fried teh family PC as it was loading.

Definitely prefer older homes w/better construction standards and workmanship.

... just not the same "new teepee smell"...

I suppose I can see new energy efficient focused home-builders eating all of the old guys' lunches... ala Toyota riding the Prius to glory.

I have no idea why houses in SoCal haven't come with solar pre-installed for the past 10 years... it's the biggest no-brainer in the history of mankind!!!!!

Are we sure he didn't say "banks", plural?

He used the singular for BIG banks, plural for lots of others.

callow writes:
Its amazing what qualifies as "old housing" out on the west coast where I assume most of you live.

Where I live, old is considered pre-civil war. My house was built in 1820 and is solid brick (not that bullshit brick facade) no studs at all...

My aunt's former house (Framingham) had an Indian attack hidey-hole that was really needed.

The old windows leak like a sieve, but the brick acts like a cave - wants to naturally keep at 65degrees year round so no big energy bills here. Plus being small helps keep the bills down as well.

Yup. That said, it appears you have to have a doctorate in urban planning before you can appreciate all the changes since. My 1961 era manse has rafters no amount of air pressure could nail into. The poor roofers had to follow along behind and hand nail the last half inch. Look at Home Depot lumber and see 5 growth rings rather than 20. Not that it is all bad, just that it is less durable in the long run.

YLSP writes: "I can't imagine the heating/cooling bill on some of those with high ceilings..."

People's desire for space varies. Some can live happily in burrows like moles and some need the space of eagles. I can't imagine living in a house and not appreciating the beauty of cathedral ceilings. Some people are attuned to penny pinching and I hope they live happily in their cramped and practical houses. To me low ceilings feel cave like. I guess if you are short or don't expect much out of your surroundings then cramped is beautiful. I'd rather pay extra for more room and a roomier feeling.

It's the same thing with the space between houses. Some people appreciate a small lot that lets you hear a neighbor three doors down pass gas. It has something to do with how communal you are.