Home builders are asserting the advantage they hold over sellers of existing homes when they began to detect a softening of the market. They did not hesitate to bring out the incentives for buyers as well as more focused marketing to brokers and agents that often were not welcome in new home sales offices. There is often a strong surge before sales begin to fall off the table and builders are showing their experience and market savy by taking a large chunk of that surge.
No, Its not New Orleans.
Consumer confidence up, new home sales up, jobs up.
What feeds all this? Capital inflows. It was a record over 100 bn in sept if I remember correctly.
Seems like the FED raising rates actually stimulates consumption, because people invest in dollar assets, and what can they buy other than treasuries? MBS. MBS=consumption practically.
Check the spread between 30 yr mortgage and 3 month T-Bill, not even 200 bp! mortgages are down below 6% again.
It is the money making by the ECB keeping a negative real rate.
Compared to last year, West and South were up. Midwest and Northeast were down. West and South are the two biggest regions, so that reflected as well in the overall number.
Year to date numbers reflect the same trends.
For sale homes are pretty high too.
I have to say I'm surprised that the numbers came out so good when permits and construction starts are seemingly slowing.
The Fed raising rates is only really influencing short term rates rather than long term rates. That by itself is not a reason to invest in longer term treasuries.
However, in the North East, sales are down 16.5% from this month last year. So the North East corridor may still be cooling. I can tell you that NJ is much cooler than before (although mid-late November did see some sales)
The drop in gas prices may have increased consumer confidence. It may be that we'll see a surge in existing home sales in 1-2 months (because of lagging indicators) and the bubble takes one final hurrah.
the demise being premature is correct. the RE market cycle can last alot longer than anyone can imagine. i expect more of the same until either the money spigots slow down enough or an exogenous shock is introduced to the system. there is a chance end '06 through '07 could see a further slowing all on its own due to overleveraged borrowers and ARM resets.
gabor wrote, Seems like the FED raising rates actually stimulates consumption, because people invest in dollar assets, and what can they buy other than treasuries?
In addition to erg's point, there's also the issue of who's buying treasuries. AFAICT a lot of the demand is Asian central banks and hedge funds. ISTR ACBs even buying MBS's.
I suppose gabor has found the "geographical" (regional breakdown --not as much detail as some of us would like) information using the link. The impact of katrina is shown only in the m/m stat, the y/y stat is quite modest.
Generally, it sounds like CR is a little depressed at having been 'premature' and I'm ready to shore up confidence levels in the work done here.
It is an unexpectedly strong report (even given the documented freebees that new builders are throwing in as incentives to close the sales --enough to account for the new higher prices? prolly not, but the mere presence of those incentives tells the story) and although it could be revised next month, we should learn that the market is not as uniform or as well behaved as we thought. This could also be the last surge before a substantial pullback.
What did we miss? Didn't we think that the houses were getting too pricey and too expensive to finance? Did foreign investment decide that this near-peak of the market was the time to jump in? (Roach finds that the Middle East oil money is staying in the Middle East btw.) Did the sluggishness of the 10yr rates, despite increments in the prime, bring sales forward as the Fed seems intransigent about pushing the yield curve and those mortgage rates out? Is this robust report merely cocking the gun for a payback next month?
There are worse things than being premature or even mistaken. (Being right is nice but it could be merely accidental.) Being attentive and honest in our enquiry will take care of most of those accidents, no? No one said this was easy.
The numbers indicate the south is the primary driver in new home sales growth. I have just spent a week in New Orleans and would strongly argue that a significant portion of the new home sales is from people relocating from New Orleans. There are approximately 150,000 homes destroyed and more than 400,000 people displaced. I visited several neighborhoods, some that were totally destroyed (near the levee break and the 9th ward) and some that just had storm damage. The devastated areas are completely uninhabited and even the lesser impacted areas have seen many people leave because the economy of the city has basically stopped. The people I talked to said that almost everyone with savings or an insurance settlement was buying a house in another city.
Question, how are recorded sales for a home yet to be build ?
If they are recorded when the contract is signed, then it means that even when new home sales fall, construction may continue for a while.
If they are recorded when the house is inhabited and full money is paid (I doubt it), then there may be a lag and current high numbers are related to past sales.
I think what is important is the anemic growth in home prices. Sales will drop as soon as prices level off -- which should be soon. Undoubtedly the economy is getting a boost from Katrina rebuilding. If you are curious about inverted curves check out UK and Australian yield curves.
Let's not overlook September and October are the FY end for many public home building companies. By hook or crook these companies got people to the settlement table. Kick outs are wreaking havoc in November, sales have all but stopped in Northern Virginia and traffic is down. We are in a transition phase right now. The critical time will be Spring. Will we go up, down or remain stable?
The difference between new and old homes also point in the direction of falling prices. There's some probability that most "old" home prices are superior to land prices + cost of construction.
Could you make a new home/existing home ratio and track it?
What would it say ?
Does it have any relevance in forecasting price moves ?
New home sales are recorded when the contract is signed and a deposit is made. We just had two somewhat contradicting signs. Slower housing starts and permits (last week I think) but strong new home sales today.
thx.
Just watching the numbers posted these two days. I understand new home sales account for an ever bigger share of total home sales. Is the move significant ? Is there any precedent ?
There is not a lot of correlation between new homes sales and sales of existing homes. Former is a contract for future delivery. Latter is for immediate. Locational. and timing aspects are more important with existing home sales. Builders don't make markets they react. New home sales are more inelastic compared to existing home purchases. Isuspect listing inventory is level, listing time is up and listing prices are down or stable. The delta between listing price and sales price is probably adjusting closer, as well.
Indicental to housing, but on point to the question of financial inflows -there was a corporate tax giveaway program that will expire 12/31/2005.
It promised to allow foreign profits held (untaxed) offshore to be repatriated to the US at a 5% tax rate, compared to the normal 35% corporate profits tax rate.
EverBank and some others have estimated the inbound flows at $250 billion total, with app. $80 billion not yet brought back. These one-time flows created a demand for dollars. Once inside the US, these dollars had to go somewhere. This may account for part of the picture.
One reason given is fear of higher interest rates.
I don't think it a good sign. Nor do I think great retail sales are good. There is just too much debt and other problems. We have a significant portion of people who believe that all flows well on an optimistic economy, just as they think that naysayers cause all problems in Iraq, so when short term good news comes they risk more without knowing their risking.
In a speculative craze the last people in are not too bright or at a mimimum they have psychological problems, they must believe they are onto the sure thing. Just as people who borrow more to have a nice Christmas are counting on a wonderful economy to take care of problems.
I think these things increase the possibility of "hard landings."
ever the optimist, i'm happy to see this news. the margin of error is quite large however, so take it all with a grain of salt.
dec 8th is the day i'm waiting for as the nov data for DC will be released. then I can really understand whats been happening here in my area. Existing home sale numbers in 2 months will accurately reflect the same time period as these new home sales. then we'll know!
i for one am receiving an offer on a house we have listed. i also just closed a deal on a purchase for a client yesterday. there is still activity!
My understanding of the repatriotization of foreign earned income (the slang for giving the MNC a 30% tax gift) was that this money was intended to revitalize domestic employment. So maybe this did mean a boost for the housing industry and we are seeing it right before our very eyes.
But I think it has largely gone back into the stock market and M&A. (No plants spinging up in my backyard, yours?)
A note about CR's link: anyone notice what an outsized portion that the category '$300,000 and over' was taking compared to the 'under $100,000'. Time to shift out that axis to 'under $150k' and '$300k-$400k', 'over $400k'.
Could be the table misleads here and a graph of the profile would be more enlightening. They have the resources.
over here in a suburb of NYC, i'm still seeing ridiculously high asking prices and longer time on the market. i'm still seeing houses moving, albeit at a much slower rate and not all inventory is clearing. i'm waiting for the spring to see how strong the pent up buyer demand is, or isn't. also very curious on the inventory that has yet to hit the market by sellers licking their chops come the prime selling season. wouldn't surprise me if what transpires confounds everyone's prediction. pretty much been the way the market has responded so far.
It may LOOK like a very strong report, but this is a survey of home builders, NOT a report of FIRM sales! CNBC just reported it's got a fudge factor of up to 50%.
Richard said:
"i expect more of the same until either the money spigots slow down enough or an exogenous shock is introduced to the system"
The FED will do exactly BOTH of these if this insanity doesn't simmer down soon. The FED is after the housing bubble big time but cannot say or play their hand too quickly making it obvious.
I see this as really terrible news for the US economy, for the higher this thing goes the harder it's going to fall when things eventually do fall apart.
Why do so many Americans think the economy is in a recession?
The statistics fly in the face of polls showing many Americans say the economy is in recession. A survey by the Manchester, New Hampshire-based American Research Group found that 43 percent of those questioned said the economy was in a recession, while 44 percent said it wasn't.
Sixty-two percent said they disapprove of the way President George W. Bush is handling the economy, according to the poll of 1,100 adults conducted between Nov. 19-22.
sharkbait: People's judgement of things is driven by what they see in their environment, not the technical definitions and indicator readings.
Similar with inflation (or lack thereof). When comparing the official CPIs with what I see on the street, I must be living in a weird parallel universe, where I see at the same time the official CPI number, and that universe's actual prices.
I figure the national averages are all fine, and everybody observes wild local aberrations for the worse.
I think that a lot of folks buy as long as they have the immediate means to do so. Credit magnifies this. I do not think they think they are going to have more income. I doubt they understand the consequences at the time.
Money is an intangable. Credit is an intangable. Managing both well requires tasks that must be learned and some folks never can process the concepts internally.
Our leaders do not encourage this beyond mouthing of words. Do you see ads on being frugle, or on savings. Do ads show the guy with the biggest car getting the girl or the guy with the biggest bank account. Are we encouraged to be a savings society or a spending society.
If our leaders are paid very well to be leaders, how come it is their followers that are blamed for failure.
Ah. Myself I don't complain the the survey variance. We just have to wait for another month or two for data to be revised to get a more precise number. What the survey shows is that 2005 is on track to be a better year than 2003 or 2004 for homebuilders (looking at year to date numbers).
It's better to have a survey that is regularly and frequently published, publicly available, free, and for which the methodology is documented, than having no data at all. The news outlets may just report the headlines numbers, but the report itself is available on the web in pdf and excel format.
Did anyone else notice the OFHEO conforming loan limit change (to $417,000)today? Looks like the Feds are doing their part to prop the market up, or at least fan the flames of the real estate market.
All, great comments. jl said it well: "It's better to have a survey that is regularly and frequently published, publicly available, free, and for which the methodology is documented, than having no data at all." I think New Home Sales is one of the better data sets - after the extensive revisions - so we need to wait a couple of months for the actual numbers.
I believe the story has changed for housing. The key indicator is the increase in inventories and some anecdotal sales / price evidence. But we really haven't seen confirming data of a significant slowdown - and any "bust" may take longer to play out than some people expect.
On Thursday, OFHEO will release the House Price Index for Q3. Maybe that will show some slower price appreciation - or even declines for some areas.
Spoke to my friend who is Wall St. real estate analyst.. He claims #s are high because home builders were very active in purchasing property. If you strip that out there was a decline in purchase by individuals.
How long can the builders keep buying their own products? Many comments about the large variance with these stats (not just this month but with this series)--why is that? And if it is 17% or so why do we bother? Is it on a par with the job numbers from the BLS? Are the revisions with these new housing stats large (as the variance number leads us to believe?)
I don't think properties purchased by builders are counted in the survey. To be counted the seller would have had to obtain a building permit and there would be a contract to sell the improved lot. The questionnaire has pretty detailed questions about whether construction was started, description of the unit and contract price.
The way I understand it, builders purchasing barren lots between each other or from a land owner would not count. On the other hand I imagine a builder converting a project to rentals will probably be counted.
I would say that revisions are on a smaller order than the job number from the BLS. But that's not really because the measurement is more precise. The reason is that the number of new home sales is actually an annual number, so revising the few last month doesn't seem to move the number substantially. While the BLS number are monthly number, so revisions seems huge.
I wonder if dc1000 is doing new constructions and would be familiar with the questionnaire.
Builders don't make markets they react. New home sales are more inelastic compared to existing home purchases.
viriniablue - I don't think that is so much true anymore... the builders are so big, national & vertically integrated from financing buyers to land acquisition to raw material buys... that they can manufacture demand - at least temporarily - much like automobile manufacturers do. If demand goes soft they sell hard, finance aggressively, offer incentives and if necessary lower prices & margins... but keep the cash flowing to feed the beast.
We've been discussing this for months now - the parallels between the automotive world & the mega-home builders. The analogy is far from perfect but there are similarities... lotsa them.
Interesting point - I am on the road & logging in just north of Indianapolis IN... going around Indy today there were stretches of highway with more billboards pushing new developments by Pulte & Centex than billboards pushing autos... both mentioned incentives & marketed 'lifestyle'.
There is a convergence of the business model here in many ways.
Look for existing home sales & builder financials to be the leading indicator of a housing slow down. As long as the builders can buy or own land and buyers can borrow money (if from no other source but the finance arms of the builders themselves... then dumped on a willing & accepting worldwide MBS market)... then the build will continue.
from one of florida's newspapers:
"Single-family existing home sales dropped 48 percent in Miami-Dade and 44 percent in Broward compared to the same month a year ago, according to figures released Monday by the Florida Association of Realtors. Prices were still well up from a year ago, but declined -- by up to 3 percent in Broward -- from the month before." go figure?
The main economist of the AHB seems to be pretty skeptical of these numbers as well.
"I basically have a wait-and-see attitude with some healthy suspicion about this report," said David F. Seiders, chief economist at the National Association of Home Builders. "Either there is something that all of those other reports are not telling us, or this will get revised."
Heck, even Lereah who was on the Newshour yesterday (Online NewsHour: File Unavailable | PBS said that the numbers would probably be revised downward. In fact, Lereah was not the usual cheerleader of real estate he has been. He talked a lot about balloon deflating.
realist, this escaped my attention (hey it happens)
[That's why I'm here and not with Goldman]
(It could happen to almost anybody)
[It does]
--the conflicting picture between resales (Ok Beaters), ~4/5 of the market by volume (not value which might be a better measure?) which was down some 3%...
and...the new (Unbeaten and Unbeatable)sales which we are led to believe by some National Respectable Dissemblers of Information (ok that wasn't quite the outfit's name) was up 13%.
It can only be that the New Homes have just entered the New Economy where things are different now.
Better sit down and wait for next month's installment.
No sense testing gravity unnecessarily in this New Age.
CR writes, "The seasonally adjusted estimate of new houses for sale at the end of October was 496,000. This represents a supply of 4.3 months at the current sales rate."
Since these numbers are well in excess of the unit sales figures in CR's graphs, and there must have been some inventory in the market before the pace of construction started its takeoff in 2002, it would seem that there must be a lot more than 496,000 units in inventory.
And since the rate of population growth hasn't increased since the turn of the century, if the rate of construction in 2000 was about equal to the level of non-speculative demand at that time, then that rate must be approximately what the non-speculative demand level would have been through the intervening years. But as the statistics on percentage of people "owning" their own homes show, the home ownership rate has risen significantly. So we have no pentup demand -- rather the opposite -- and going forward, new home sales rates will drop significantly below 1,000,000 per year. So 496,000 units is a six-month inventory.
As foreclosures throw more of the existing housing stock back onto the market, and buyer psychology shifts, as it did in Japan, to "we'll wait a few years to buy -- homes will be even cheaper then," we will see an enormous glut of homes on the market in the not too distant future. When the leading edge of the baby boom hits retirement age in about five years, and starts to try to cash out and downsize, the glut will get even worse. Ten years from now, prices will be back to mid-90s levels.
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how about the geographical breakdown?
how about people forced to migrate out of New Orleans?
Home builders are asserting the advantage they hold over sellers of existing homes when they began to detect a softening of the market. They did not hesitate to bring out the incentives for buyers as well as more focused marketing to brokers and agents that often were not welcome in new home sales offices. There is often a strong surge before sales begin to fall off the table and builders are showing their experience and market savy by taking a large chunk of that surge.
No, Its not New Orleans.
Consumer confidence up, new home sales up, jobs up.
What feeds all this? Capital inflows. It was a record over 100 bn in sept if I remember correctly.
Seems like the FED raising rates actually stimulates consumption, because people invest in dollar assets, and what can they buy other than treasuries? MBS. MBS=consumption practically.
Check the spread between 30 yr mortgage and 3 month T-Bill, not even 200 bp! mortgages are down below 6% again.
It is the money making by the ECB keeping a negative real rate.
Compared to last year, West and South were up. Midwest and Northeast were down. West and South are the two biggest regions, so that reflected as well in the overall number.
Year to date numbers reflect the same trends.
For sale homes are pretty high too.
I have to say I'm surprised that the numbers came out so good when permits and construction starts are seemingly slowing.
The Fed raising rates is only really influencing short term rates rather than long term rates. That by itself is not a reason to invest in longer term treasuries.
However, in the North East, sales are down 16.5% from this month last year. So the North East corridor may still be cooling. I can tell you that NJ is much cooler than before (although mid-late November did see some sales)
The drop in gas prices may have increased consumer confidence. It may be that we'll see a surge in existing home sales in 1-2 months (because of lagging indicators) and the bubble takes one final hurrah.
the demise being premature is correct. the RE market cycle can last alot longer than anyone can imagine. i expect more of the same until either the money spigots slow down enough or an exogenous shock is introduced to the system. there is a chance end '06 through '07 could see a further slowing all on its own due to overleveraged borrowers and ARM resets.
gabor wrote, Seems like the FED raising rates actually stimulates consumption, because people invest in dollar assets, and what can they buy other than treasuries?
In addition to erg's point, there's also the issue of who's buying treasuries. AFAICT a lot of the demand is Asian central banks and hedge funds. ISTR ACBs even buying MBS's.
I suppose gabor has found the "geographical" (regional breakdown --not as much detail as some of us would like) information using the link. The impact of katrina is shown only in the m/m stat, the y/y stat is quite modest.
Generally, it sounds like CR is a little depressed at having been 'premature' and I'm ready to shore up confidence levels in the work done here.
It is an unexpectedly strong report (even given the documented freebees that new builders are throwing in as incentives to close the sales --enough to account for the new higher prices? prolly not, but the mere presence of those incentives tells the story) and although it could be revised next month, we should learn that the market is not as uniform or as well behaved as we thought. This could also be the last surge before a substantial pullback.
What did we miss? Didn't we think that the houses were getting too pricey and too expensive to finance? Did foreign investment decide that this near-peak of the market was the time to jump in? (Roach finds that the Middle East oil money is staying in the Middle East btw.) Did the sluggishness of the 10yr rates, despite increments in the prime, bring sales forward as the Fed seems intransigent about pushing the yield curve and those mortgage rates out? Is this robust report merely cocking the gun for a payback next month?
There are worse things than being premature or even mistaken. (Being right is nice but it could be merely accidental.) Being attentive and honest in our enquiry will take care of most of those accidents, no? No one said this was easy.
The numbers indicate the south is the primary driver in new home sales growth. I have just spent a week in New Orleans and would strongly argue that a significant portion of the new home sales is from people relocating from New Orleans. There are approximately 150,000 homes destroyed and more than 400,000 people displaced. I visited several neighborhoods, some that were totally destroyed (near the levee break and the 9th ward) and some that just had storm damage. The devastated areas are completely uninhabited and even the lesser impacted areas have seen many people leave because the economy of the city has basically stopped. The people I talked to said that almost everyone with savings or an insurance settlement was buying a house in another city.
Question, how are recorded sales for a home yet to be build ?
If they are recorded when the contract is signed, then it means that even when new home sales fall, construction may continue for a while.
If they are recorded when the house is inhabited and full money is paid (I doubt it), then there may be a lag and current high numbers are related to past sales.
Who know in here ?
I think what is important is the anemic growth in home prices. Sales will drop as soon as prices level off -- which should be soon. Undoubtedly the economy is getting a boost from Katrina rebuilding. If you are curious about inverted curves check out UK and Australian yield curves.
Let's not overlook September and October are the FY end for many public home building companies. By hook or crook these companies got people to the settlement table. Kick outs are wreaking havoc in November, sales have all but stopped in Northern Virginia and traffic is down. We are in a transition phase right now. The critical time will be Spring. Will we go up, down or remain stable?
The difference between new and old homes also point in the direction of falling prices. There's some probability that most "old" home prices are superior to land prices + cost of construction.
Could you make a new home/existing home ratio and track it?
What would it say ?
Does it have any relevance in forecasting price moves ?
New home sales are recorded when the contract is signed and a deposit is made. We just had two somewhat contradicting signs. Slower housing starts and permits (last week I think) but strong new home sales today.
thx.
Just watching the numbers posted these two days. I understand new home sales account for an ever bigger share of total home sales. Is the move significant ? Is there any precedent ?
There is not a lot of correlation between new homes sales and sales of existing homes. Former is a contract for future delivery. Latter is for immediate. Locational. and timing aspects are more important with existing home sales. Builders don't make markets they react. New home sales are more inelastic compared to existing home purchases. Isuspect listing inventory is level, listing time is up and listing prices are down or stable. The delta between listing price and sales price is probably adjusting closer, as well.
Indicental to housing, but on point to the question of financial inflows -there was a corporate tax giveaway program that will expire 12/31/2005.
It promised to allow foreign profits held (untaxed) offshore to be repatriated to the US at a 5% tax rate, compared to the normal 35% corporate profits tax rate.
EverBank and some others have estimated the inbound flows at $250 billion total, with app. $80 billion not yet brought back. These one-time flows created a demand for dollars. Once inside the US, these dollars had to go somewhere. This may account for part of the picture.
Anybody think the recent changes to the US Bankruptcy laws have had or could have an effect on housing demand?
One reason given is fear of higher interest rates.
I don't think it a good sign. Nor do I think great retail sales are good. There is just too much debt and other problems. We have a significant portion of people who believe that all flows well on an optimistic economy, just as they think that naysayers cause all problems in Iraq, so when short term good news comes they risk more without knowing their risking.
In a speculative craze the last people in are not too bright or at a mimimum they have psychological problems, they must believe they are onto the sure thing. Just as people who borrow more to have a nice Christmas are counting on a wonderful economy to take care of problems.
I think these things increase the possibility of "hard landings."
ever the optimist, i'm happy to see this news. the margin of error is quite large however, so take it all with a grain of salt.
dec 8th is the day i'm waiting for as the nov data for DC will be released. then I can really understand whats been happening here in my area. Existing home sale numbers in 2 months will accurately reflect the same time period as these new home sales. then we'll know!
i for one am receiving an offer on a house we have listed. i also just closed a deal on a purchase for a client yesterday. there is still activity!
My understanding of the repatriotization of foreign earned income (the slang for giving the MNC a 30% tax gift) was that this money was intended to revitalize domestic employment. So maybe this did mean a boost for the housing industry and we are seeing it right before our very eyes.
But I think it has largely gone back into the stock market and M&A. (No plants spinging up in my backyard, yours?)
A note about CR's link: anyone notice what an outsized portion that the category '$300,000 and over' was taking compared to the 'under $100,000'. Time to shift out that axis to 'under $150k' and '$300k-$400k', 'over $400k'.
Could be the table misleads here and a graph of the profile would be more enlightening. They have the resources.
over here in a suburb of NYC, i'm still seeing ridiculously high asking prices and longer time on the market. i'm still seeing houses moving, albeit at a much slower rate and not all inventory is clearing. i'm waiting for the spring to see how strong the pent up buyer demand is, or isn't. also very curious on the inventory that has yet to hit the market by sellers licking their chops come the prime selling season. wouldn't surprise me if what transpires confounds everyone's prediction. pretty much been the way the market has responded so far.
"This is a very strong report. The pronouncements of the demise of the housing market now appear premature."
Its not premature. Check out inventory. See my latest post.
Bubble Meter: It's the Inventory Stupid!
It may LOOK like a very strong report, but this is a survey of home builders, NOT a report of FIRM sales! CNBC just reported it's got a fudge factor of up to 50%.
Richard said:
"i expect more of the same until either the money spigots slow down enough or an exogenous shock is introduced to the system"
The FED will do exactly BOTH of these if this insanity doesn't simmer down soon. The FED is after the housing bubble big time but cannot say or play their hand too quickly making it obvious.
I see this as really terrible news for the US economy, for the higher this thing goes the harder it's going to fall when things eventually do fall apart.
Why do so many Americans think the economy is in a recession?
The statistics fly in the face of polls showing many Americans say the economy is in recession. A survey by the Manchester, New Hampshire-based American Research Group found that 43 percent of those questioned said the economy was in a recession, while 44 percent said it wasn't.
Sixty-two percent said they disapprove of the way President George W. Bush is handling the economy, according to the poll of 1,100 adults conducted between Nov. 19-22.
Care to comment on the variance seen in their data?
Up 13% with an error of plus or minus 17.7%?
I'm sorry, I can't put much faith in the a number that can range from -4.7% to 30.7%.
You can call it spin, you can call it being selective, but an error margin that wide? Sorry, I don't see any value in those numbers.
grim
Northern New Jersey Real Estate Bubble
sharkbait: People's judgement of things is driven by what they see in their environment, not the technical definitions and indicator readings.
Similar with inflation (or lack thereof). When comparing the official CPIs with what I see on the street, I must be living in a weird parallel universe, where I see at the same time the official CPI number, and that universe's actual prices.
I figure the national averages are all fine, and everybody observes wild local aberrations for the worse.
Well, that is at least everybody who complains.
Republican
I think that a lot of folks buy as long as they have the immediate means to do so. Credit magnifies this. I do not think they think they are going to have more income. I doubt they understand the consequences at the time.
Money is an intangable. Credit is an intangable. Managing both well requires tasks that must be learned and some folks never can process the concepts internally.
Our leaders do not encourage this beyond mouthing of words. Do you see ads on being frugle, or on savings. Do ads show the guy with the biggest car getting the girl or the guy with the biggest bank account. Are we encouraged to be a savings society or a spending society.
If our leaders are paid very well to be leaders, how come it is their followers that are blamed for failure.
A survey of home builders with a +/- 55% variance? Why aren't these flaws revealed when the so called "data" is initially reported?
Ah. Myself I don't complain the the survey variance. We just have to wait for another month or two for data to be revised to get a more precise number. What the survey shows is that 2005 is on track to be a better year than 2003 or 2004 for homebuilders (looking at year to date numbers).
It's better to have a survey that is regularly and frequently published, publicly available, free, and for which the methodology is documented, than having no data at all. The news outlets may just report the headlines numbers, but the report itself is available on the web in pdf and excel format.
Did anyone else notice the OFHEO conforming loan limit change (to $417,000)today? Looks like the Feds are doing their part to prop the market up, or at least fan the flames of the real estate market.
All, great comments. jl said it well: "It's better to have a survey that is regularly and frequently published, publicly available, free, and for which the methodology is documented, than having no data at all." I think New Home Sales is one of the better data sets - after the extensive revisions - so we need to wait a couple of months for the actual numbers.
I believe the story has changed for housing. The key indicator is the increase in inventories and some anecdotal sales / price evidence. But we really haven't seen confirming data of a significant slowdown - and any "bust" may take longer to play out than some people expect.
On Thursday, OFHEO will release the House Price Index for Q3. Maybe that will show some slower price appreciation - or even declines for some areas.
Best to all. Thanks for all the comments.
Spoke to my friend who is Wall St. real estate analyst.. He claims #s are high because home builders were very active in purchasing property. If you strip that out there was a decline in purchase by individuals.
How long can the builders keep buying their own products? Many comments about the large variance with these stats (not just this month but with this series)--why is that? And if it is 17% or so why do we bother? Is it on a par with the job numbers from the BLS? Are the revisions with these new housing stats large (as the variance number leads us to believe?)
I don't think properties purchased by builders are counted in the survey. To be counted the seller would have had to obtain a building permit and there would be a contract to sell the improved lot. The questionnaire has pretty detailed questions about whether construction was started, description of the unit and contract price.
The way I understand it, builders purchasing barren lots between each other or from a land owner would not count. On the other hand I imagine a builder converting a project to rentals will probably be counted.
I infer this information from reading New Residential Sales Documentation
.
I would say that revisions are on a smaller order than the job number from the BLS. But that's not really because the measurement is more precise. The reason is that the number of new home sales is actually an annual number, so revising the few last month doesn't seem to move the number substantially. While the BLS number are monthly number, so revisions seems huge.
I wonder if dc1000 is doing new constructions and would be familiar with the questionnaire.
Builders don't make markets they react. New home sales are more inelastic compared to existing home purchases.
viriniablue - I don't think that is so much true anymore... the builders are so big, national & vertically integrated from financing buyers to land acquisition to raw material buys... that they can manufacture demand - at least temporarily - much like automobile manufacturers do. If demand goes soft they sell hard, finance aggressively, offer incentives and if necessary lower prices & margins... but keep the cash flowing to feed the beast.
We've been discussing this for months now - the parallels between the automotive world & the mega-home builders. The analogy is far from perfect but there are similarities... lotsa them.
Interesting point - I am on the road & logging in just north of Indianapolis IN... going around Indy today there were stretches of highway with more billboards pushing new developments by Pulte & Centex than billboards pushing autos... both mentioned incentives & marketed 'lifestyle'.
There is a convergence of the business model here in many ways.
Look for existing home sales & builder financials to be the leading indicator of a housing slow down. As long as the builders can buy or own land and buyers can borrow money (if from no other source but the finance arms of the builders themselves... then dumped on a willing & accepting worldwide MBS market)... then the build will continue.
This really is a brave new world.
from one of florida's newspapers:
"Single-family existing home sales dropped 48 percent in Miami-Dade and 44 percent in Broward compared to the same month a year ago, according to figures released Monday by the Florida Association of Realtors. Prices were still well up from a year ago, but declined -- by up to 3 percent in Broward -- from the month before." go figure?
The main economist of the AHB seems to be pretty skeptical of these numbers as well.
"I basically have a wait-and-see attitude with some healthy suspicion about this report," said David F. Seiders, chief economist at the National Association of Home Builders. "Either there is something that all of those other reports are not telling us, or this will get revised."
Heck, even Lereah who was on the Newshour yesterday (Online NewsHour: File Unavailable | PBS said that the numbers would probably be revised downward. In fact, Lereah was not the usual cheerleader of real estate he has been. He talked a lot about balloon deflating.
What do people think the OFHEO data will show ? My guess -- significant appreciation YoY, but drop from last quarter. In some markets, bigger drop.
realist, this escaped my attention (hey it happens)
[That's why I'm here and not with Goldman]
(It could happen to almost anybody)
[It does]
--the conflicting picture between resales (Ok Beaters), ~4/5 of the market by volume (not value which might be a better measure?) which was down some 3%...
and...the new (Unbeaten and Unbeatable)sales which we are led to believe by some National Respectable Dissemblers of Information (ok that wasn't quite the outfit's name) was up 13%.
It can only be that the New Homes have just entered the New Economy where things are different now.
Better sit down and wait for next month's installment.
No sense testing gravity unnecessarily in this New Age.
According to US Census Bureau stats New Privately Owned Housing Units Started in the United States by Purpose and Design
, single-family housing unit starts 1998-2004 were:
1998 1,271,000
1999 1,302,000
2000 1,231,000
2001 1,273,000
2002 1,359,000
2003 1,499,000
2004 1,611,000
CR writes, "The seasonally adjusted estimate of new houses for sale at the end of October was 496,000. This represents a supply of 4.3 months at the current sales rate."
Since these numbers are well in excess of the unit sales figures in CR's graphs, and there must have been some inventory in the market before the pace of construction started its takeoff in 2002, it would seem that there must be a lot more than 496,000 units in inventory.
And since the rate of population growth hasn't increased since the turn of the century, if the rate of construction in 2000 was about equal to the level of non-speculative demand at that time, then that rate must be approximately what the non-speculative demand level would have been through the intervening years. But as the statistics on percentage of people "owning" their own homes show, the home ownership rate has risen significantly. So we have no pentup demand -- rather the opposite -- and going forward, new home sales rates will drop significantly below 1,000,000 per year. So 496,000 units is a six-month inventory.
As foreclosures throw more of the existing housing stock back onto the market, and buyer psychology shifts, as it did in Japan, to "we'll wait a few years to buy -- homes will be even cheaper then," we will see an enormous glut of homes on the market in the not too distant future. When the leading edge of the baby boom hits retirement age in about five years, and starts to try to cash out and downsize, the glut will get even worse. Ten years from now, prices will be back to mid-90s levels.
You're late to the discussion jm and with such a compelling analysis.
Please take an earlier bus.
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