heard one of the dim bulbs (CNBS person) not Byron Wien say the Home Depot had great results, but failed to mention their overall profit has been down for 8 quarters. Gotta keep the party going. Tell 'em things are going fine even tho' the roof is collapsing.
Two modifiers that need to be mentioned wrt housing starts.
First is seasonality. July numbers lower than January numbers? Sure these are suposedly SAAR but a cursory glance at the ever excellent chart shows a typical January dip. We beat that with a July number.
Second population growth. Jul 1991 252,153,000 people. Jul 2007 304,500,000.
I think now the decoupling argument can return, as in, the U.S. has decoupled from itself....
...as in earnings and profit have decoupled from share-price...
...all we need to do is declare this a "new new" economy that has shed the old paradigms of supply/demand profit/shareprice, blah blah blah
Which is about when you get into the backyard bunker and wait a few years.
The longer the underlying fundamentals are shellacked over with positive thinking (only a flesh wound) the farther the cracks spread...this is already systemic, as in systemic in the group-think that it cannot happen here...
252m to 304m in 17 years is "only" a compound rate of 1.2% or so. The details are a combination of illegal immigration and the "baby echo" where 1990 was the largest birth year on record.
The only reason I think the cover ratio will even be that high is clueless institutionals and also the Treasury goosing a few key buyers. Third leg of the "successful" auction will be retail fear looking for safety. IMO the best thing would be a miserable failure to shock the Federal govt into realizing their cash window is closed too.
Thanks for saying your second point, I have been woondering if that has been going on in the background - and with fewer primary dealers that would seem an easier exercise to accomplish.
Aug. 19 (Bloomberg) -- Interest-rate derivatives are showing that investors are preparing for another round of turmoil in credit markets amid renewed concern that the U.S. will have to bail out Fannie Mae and Freddie Mac.
[snip]
The five-year swap spread traded at more than 104 basis points late yesterday. The spread moved above 100 on July 17 for the first time since March, then retreated later in the month. The spread peaked at 116 basis points on March 6, the most since at least 1988, when Bloomberg began compiling data.
Swap spread movements usually reflect changing perceptions of credit risk and expectations of Libor. Swap rates are higher than Treasury yields in part because the floating payments are based on interest rates that contain credit risk, such as the London Interbank Offered Rate, or Libor.
Still starting and permiting way too many. Once most homebuilders go BK, though, this will correct itself. How many homebuilders ae going to be around next summer? Not that many by today's standards, but still too many for the demand for new housing over the next 5 years. Instead of a moratorium on mortgages, cities should consider a moratorium on new home building for three years. I bet that would go over well.
There's always going to be building. Houses age out and need replacement but more importantly the current stock is not suited to future needs. Either in the wrong location or wrong size, etc.
Right, Jas. Your must have posted right after I started. When margins and demand are negative, companies should not be allowed to build for public policy reasons. Banks shouldn't give them money, and public companies' stock should be delisted.
If the gov't wants to stop the home price decreases to help stabalize the financial world, the best place to start is supply. Only when the oversupply starts to dwindle will prices bottom.
Elvis writes:
If the gov't wants to stop the home price decreases to help stabalize the financial world, the best place to start is supply.
You presume greatly Elvis. The govt cannot stop prices from returning to at least equilibrium. At best they can decide where the crash will occur. You sound just like Cchavez this morning complaining about the "collapse" of oil prices and how OPEC cannot allow it to happen.
Builders won't stop building. What else are they going to do for a living?
Building is what builders do.
As prices for land and materials drop, and builders are forced to work for lower wages to get any work at all, they'll build homes people can afford.
In my area, nearly everything built in the last five years is ludicrously over-large and over-priced. Last year there were 36 homes in a neighboring suburb -- nearly all vacant spec homes -- priced above $1 million. Though their prices have been lowered such that now only 21 are over $1 million, almost none have sold. They're not going to be building any more of these -- at current sale rates there is four to five years of inventory in the upper price ranges (probably more as we move into true recession).
To keep food on the table, the surviving builders are going to have to build affordable housing, and they will. And it will undercut the market for existing homes, whose prices will be forced ever-lower by the need to compete with affordable new supply.
The glut will persist for a decade, and the myth that housing can only go up will be utterly and completely destroyed.
Red Dog,
I understand that the gov't is completely useless. I understand they are incapable of doing anything beneficial. I've known this for a long time. The point I was making in a purely obvious manner is that even the futile steps the gov't is making to "help" housing is on the demand side when it should be on the supply side, making a comedy of errors even more funny.
jm,
Yes, we know why there is still building occuring. That is why BK will only solve the problem. And affordable housing has already been built to saturate demand for many years. It just hasn't become affordable yet. And I emphasize yet.
BK won't solve the problem, because the BK builders will start over (and some will not go BK), and BK will make land and equipment (and even some materials) available at very low cost to those who survive or start over.
BK will just let them build more new housing even cheaper. It's the stuff already built that's going to take the wicked hit.
BK will help because credit is tight too. It won't be easy to get money to build. These guys won't be able to get financed to build at any type of large scale they are used to.
Especially when margins remain abysmal or negative (despite lower land prices, etc...). The foreclosure market will underprice the cost of new construction for many years to come.
all the builders scaled their businesses (DEBT LEVELS) for a run rate way above 1mm units. There's zero hope for many of them, and the defaults on their loans puts another leg down in the credit markets...
Wholesale inflation surged in July, leaving prices for the past year rising at the fastest pace in 27 years, according to government data released Tuesday.
Any number above ZERO is overbuilding. The demand is already negative.
Not completely true. There are lots of buyers at any given moment that not only want a new house in a new location, but want a choice of houses and a choice of locations. Not everyone buys from the bargain rack at the end of the season.
I expect a fair amount of housing to be built -- closer in to major metro areas, and higher density. There'll be a demand for housing people can afford, relatively near where their money comes from.
I used to live in a neighborhood of two-flat building in San Francisco; in my building, each flat had six big rooms plus one bath laid out in a line down one side of an 80-foot hallway. Parks and playgrounds within two blocks. People were still raising families in those units when I lived there. Except for parking, life was good.
Elvis writes:
"If the gov't wants to stop the home price decreases to help stabalize the financial world, the best place to start is supply. Only when the oversupply starts to dwindle will prices bottom."
The bank-owned FC inventory in 6 SoCal counties rose from 64,200 in June to 108,900 in July, up 70%. With REO sales of approximately 7100 in June and 8800 in July, the bank inventory "supply" has risen from 9 months end of June to 12 months end of July.
Continued bank REO accumulation and an end of summer seasonal sales slowdown will push the months of REO inventory higher, making an even steeper home price decline the likely scenario.
Gold is taken but maybe it can get a silver medal in cliff diving?
Any surprised?
heard one of the dim bulbs (CNBS person) not Byron Wien say the Home Depot had great results, but failed to mention their overall profit has been down for 8 quarters. Gotta keep the party going. Tell 'em things are going fine even tho' the roof is collapsing.
Is there any rule of thumb on how many full time employees it takes to build a house?
So if we were building 100,000 fewer homes that would mean approximately X fewer jobs?
vet-
hd Did have great results...
the lights were on and they are Well supplied.
that indicates many people still have sympathy for them.
Looks like some short covering is keeping the housing starts artificially elevated.
Two modifiers that need to be mentioned wrt housing starts.
First is seasonality. July numbers lower than January numbers? Sure these are suposedly SAAR but a cursory glance at the ever excellent chart shows a typical January dip. We beat that with a July number.
Second population growth. Jul 1991 252,153,000 people. Jul 2007 304,500,000.
I think now the decoupling argument can return, as in, the U.S. has decoupled from itself....
...as in earnings and profit have decoupled from share-price...
...all we need to do is declare this a "new new" economy that has shed the old paradigms of supply/demand profit/shareprice, blah blah blah
Which is about when you get into the backyard bunker and wait a few years.
The longer the underlying fundamentals are shellacked over with positive thinking (only a flesh wound) the farther the cracks spread...this is already systemic, as in systemic in the group-think that it cannot happen here...
...on the other hand, go exports!
5 yr auction this morning. Cover ratio? Put me down for a pathetic 2.1:1.
Looks like we're doomed to repeat the past
"SF housing starts lowest since 1991"
"Wholesale prices surge at fastest pace since 1981"
Things have sure turned around...and started reversing course.
We Added over 50 Million people in just 16 years!?
I knew we went from ~150 Million to ~300 Million from 1950 till now, but I didnt realize most of the growth was in the last 15 years.
Its pretty obvious that Illegal Immigration is the major cause of that jump.
Rob Dawg,
Now there are some plots that would be scaaaary kids - cover ratios over time for various debt auctions - including (especially?) the GSE's...
252m to 304m in 17 years is "only" a compound rate of 1.2% or so. The details are a combination of illegal immigration and the "baby echo" where 1990 was the largest birth year on record.
The only reason I think the cover ratio will even be that high is clueless institutionals and also the Treasury goosing a few key buyers. Third leg of the "successful" auction will be retail fear looking for safety. IMO the best thing would be a miserable failure to shock the Federal govt into realizing their cash window is closed too.
RD,
Thanks for saying your second point, I have been woondering if that has been going on in the background - and with fewer primary dealers that would seem an easier exercise to accomplish.
wait until the DOW gets back to 11K.....something about a bazooka methinks....
Fresh new Alphabet soup auction for 28 days announced today as well.
Temporary Open Market Operations - Federal Reserve Bank of New York
to go along with the always present daily one.
Ciao
MS
Follow up: the pennant has been broken. Repeat: the pennant has been broken. Can the break hold? Stay tuned...
Ummm-hmmm, more soup - here is where we are after our past four or five course alphabet soup banquet -
Five-Year Swap Spread Tops 100 on Risk Aversion
By Liz Capo McCormick
Aug. 19 (Bloomberg) -- Interest-rate derivatives are showing that investors are preparing for another round of turmoil in credit markets amid renewed concern that the U.S. will have to bail out Fannie Mae and Freddie Mac.
[snip]
The five-year swap spread traded at more than 104 basis points late yesterday. The spread moved above 100 on July 17 for the first time since March, then retreated later in the month. The spread peaked at 116 basis points on March 6, the most since at least 1988, when Bloomberg began compiling data.
Swap spread movements usually reflect changing perceptions of credit risk and expectations of Libor. Swap rates are higher than Treasury yields in part because the floating payments are based on interest rates that contain credit risk, such as the London Interbank Offered Rate, or Libor.
[snip]
A skosh over 1.0 again...
TED Spread on Bloomberg
Bouncing around 70 - 90 bps or so...
Federal Reserve: Commercial Paper
--
Any number above ZERO is overbuilding. The demand is already negative.
Total Vacant Units have gone up 4.5M in 7.5 years and the over-all vacancy rate has gone up by 4% during the same period.
Don't expect CR to focus on these because he is clueless about the actual demand.
Jas
Still starting and permiting way too many. Once most homebuilders go BK, though, this will correct itself. How many homebuilders ae going to be around next summer? Not that many by today's standards, but still too many for the demand for new housing over the next 5 years. Instead of a moratorium on mortgages, cities should consider a moratorium on new home building for three years. I bet that would go over well.
There's always going to be building. Houses age out and need replacement but more importantly the current stock is not suited to future needs. Either in the wrong location or wrong size, etc.
CUT...
Right, Jas. Your must have posted right after I started. When margins and demand are negative, companies should not be allowed to build for public policy reasons. Banks shouldn't give them money, and public companies' stock should be delisted.
If the gov't wants to stop the home price decreases to help stabalize the financial world, the best place to start is supply. Only when the oversupply starts to dwindle will prices bottom.
Elvis writes:
If the gov't wants to stop the home price decreases to help stabalize the financial world, the best place to start is supply.
You presume greatly Elvis. The govt cannot stop prices from returning to at least equilibrium. At best they can decide where the crash will occur. You sound just like Cchavez this morning complaining about the "collapse" of oil prices and how OPEC cannot allow it to happen.
Builders won't stop building. What else are they going to do for a living?
Building is what builders do.
As prices for land and materials drop, and builders are forced to work for lower wages to get any work at all, they'll build homes people can afford.
In my area, nearly everything built in the last five years is ludicrously over-large and over-priced. Last year there were 36 homes in a neighboring suburb -- nearly all vacant spec homes -- priced above $1 million. Though their prices have been lowered such that now only 21 are over $1 million, almost none have sold. They're not going to be building any more of these -- at current sale rates there is four to five years of inventory in the upper price ranges (probably more as we move into true recession).
To keep food on the table, the surviving builders are going to have to build affordable housing, and they will. And it will undercut the market for existing homes, whose prices will be forced ever-lower by the need to compete with affordable new supply.
The glut will persist for a decade, and the myth that housing can only go up will be utterly and completely destroyed.
the vis count indicator is not working today....
because today is going to be VERY ugly. count only 148
Red Dog,
I understand that the gov't is completely useless. I understand they are incapable of doing anything beneficial. I've known this for a long time. The point I was making in a purely obvious manner is that even the futile steps the gov't is making to "help" housing is on the demand side when it should be on the supply side, making a comedy of errors even more funny.
jm,
Yes, we know why there is still building occuring. That is why BK will only solve the problem. And affordable housing has already been built to saturate demand for many years. It just hasn't become affordable yet. And I emphasize yet.
Elvis,
BK won't solve the problem, because the BK builders will start over (and some will not go BK), and BK will make land and equipment (and even some materials) available at very low cost to those who survive or start over.
BK will just let them build more new housing even cheaper. It's the stuff already built that's going to take the wicked hit.
Any number above ZERO is overbuilding. The demand is already negative.
That is hillarious. Sadly, it is true.
BK will help because credit is tight too. It won't be easy to get money to build. These guys won't be able to get financed to build at any type of large scale they are used to.
Especially when margins remain abysmal or negative (despite lower land prices, etc...). The foreclosure market will underprice the cost of new construction for many years to come.
all the builders scaled their businesses (DEBT LEVELS) for a run rate way above 1mm units. There's zero hope for many of them, and the defaults on their loans puts another leg down in the credit markets...
This is like totally about asphalt and inflation:
Wholesale inflation surged in July, leaving prices for the past year rising at the fastest pace in 27 years, according to government data released Tuesday.
So, CR, what's the conclusion? A decade of reduced home building?
Jas Jain writes:
Any number above ZERO is overbuilding. The demand is already negative.
Not completely true. There are lots of buyers at any given moment that not only want a new house in a new location, but want a choice of houses and a choice of locations. Not everyone buys from the bargain rack at the end of the season.
I expect a fair amount of housing to be built -- closer in to major metro areas, and higher density. There'll be a demand for housing people can afford, relatively near where their money comes from.
I used to live in a neighborhood of two-flat building in San Francisco; in my building, each flat had six big rooms plus one bath laid out in a line down one side of an 80-foot hallway. Parks and playgrounds within two blocks. People were still raising families in those units when I lived there. Except for parking, life was good.
Elvis writes:
"If the gov't wants to stop the home price decreases to help stabalize the financial world, the best place to start is supply. Only when the oversupply starts to dwindle will prices bottom."
The bank-owned FC inventory in 6 SoCal counties rose from 64,200 in June to 108,900 in July, up 70%. With REO sales of approximately 7100 in June and 8800 in July, the bank inventory "supply" has risen from 9 months end of June to 12 months end of July.
Continued bank REO accumulation and an end of summer seasonal sales slowdown will push the months of REO inventory higher, making an even steeper home price decline the likely scenario.