One way to see how bad this is, is to compare how much inventory has risen vs how much the sales rate has fallen at this point in the turn of the cycle.
I havent looked yet, but my guess is that we have a relatively large number of homes being pushed to market and so far a relatively small decline in the sales rate.
Given the loan structures out there (ticking time bomb adjustables), the fact that prices are pretty much falling already in most regions(and once you factor in concessions they are surely falling)and that many people are going to be forced to sell, Im thinking this time around the months supply figure goes into the stratosphere. I think this is why there is so much potential for a bigger downside than people appreciate.
No big downside IMO. With interest rates falling, things will pick back up soon. Granted, we will have some excess spilloff from the 3 year mania, but normalized growth in RE will help keep the economy from tanking. Obviously that slow growth will end the economic boom of 2004-6, but things will not be overly bad, like so many think. I suspect by 2008, another economic boom will start back up, hopefully with better across the board job growth lifting all boats.
To many people on this board, like ac,Geoff or Roubini whine like this is going to be the worst thing ever. They are bent with more political gain than actually economic education. Either they don't like Bush or the RE industry. The lust for Recession right now is disturbing pattern of nihilism that infests America right now.
Lenny - snap out of it. It's not political. Whether I was a Republican, Democrat or Independent, I'd see this the same way - trouble. If Bush is a genious or moron, it doesn't matter to anyone who is doing analysis on the housing market, which, btw, Ive been doing for over a decade. Do you really want to put your education up vs mine? I seriously doubt it. It's not about political gain; it's about economic loss, which many of us are about to suffer, even those of us in denial.
I for one think the "disturbing pattern" isn't nihilism, it's the fact that so many people refuse to acknowledge reality and live on a world view built strictly on hope. Well, hope isn't a strategy my non-friend.
Geoff, you are exactly "ranting" about what I just said above: More and more Nihilism.
What is this "big economic loss"? Listen, I agree the current economy is unstable and it can't last. Which is why I said the runoff from the speculative mania will make things worse off. Many jobs will be lost in the RE sector, growth will be much weaker, growth weaker through 2007 and joblessness increasing.
However, the rest of the economy is finally starting to show signs of heating up. By 2008, we should have replaced the RE bust and growing new jobs for people of all classes, which we have not over the last 3 years. This has created areas of high unemployment in some areas, while extremely low in others.
I just don't see this major financial panic nor debt crisis. We will pay down our debts on loans and credit cards and will do so in a orderly and timely manner. Matter of fact, we already have begun.
Lenny, I appreciate that you took the time to carefully considered my arguments and you've earned my deepest respect -- few demonstrate such depth of character.
However it pains me that you think the case I make for recession is merely a feeble-minded attempt to fabricate some self-serving economic fantasy in which the failures of others distract me from my own, and indeed allow me to fault others as the sole cause of my own inadequecies.
I think I'm coming to understand... there is no national housing bust or looming recession. It is my own "inner housing market" that is crashing and leading to a recession of the soul.
What was I thinking? If I've caused unjustified anxiety, pessimism, or made someone miss that one chance at their dream home, then I deeply apologize.
One question still troubles me though:
What do falling interest rates have to do with that vast glut of uneeded homes that are crushing home prices, shutting down the homebuilding industry, and sending homeowners and prospective buyers running screaming for their lives to the exits?
Lenny, you have an annoying habit of bandying about words you dont understand the meaning of. It seems to be a particularly popular type of blog tic, prevalent amongst those with your mindset.
So, let's get to the facts. Neither of my posts can legitimately be construed as a rant. Im not scolding anyone and Im not excited or noisy. Im calmly stating an opinion, based on analysis.
As for nihilism - what is it about my post that makes you think I wish to deny the truth? Your using that word seems more like a projection to me than anything else. Did anything in my post advocate a revolutionary destruction of society, because I think it is so bad? No, I dont think so. Im simply talking about the housing market, plain and simple.
As for a big economic loss - consider this - purchase a house with an inflated appraisal and then find out that not only couldnt you afford it because of the mortgage rate reset and increased payments, but also that went the bank repossesses it or you are forced to sell, you have to bring cash to the table. Id say that's a big loss to me. How about you?
As for your perspective on job growth and strength in the rest of the economy, hmmm -- perhaps you found a different set of NIPA tables to look at. And also, how does paying down debt do anything good for consumer spending, which is nearly 3/4 of gdp growth? Hmm.
Seriously, consider an econ 101 class, then tell me how much I dont know. And also, maybe consider investing in a dictionary before investing in a house. But then again, be my guest and buy into this market. You might get a deal. Hahahaha..
its odd being educated about all this and then being in the trenches too. i just had two settlements today, we continue to have sales. we're generating architecture and design proposals daily. i'm ramping up manpower, increased my office space, invested in technology and have never been more profitable. my construction company has a year back log of residential construction. we can't find enough people.
but then i posted the DC data a few threads back and damn its gloomy. highest inventory since i can find data. prices coming down. but i'm doing millions of dollars in sales.
opera companies, fire place show rooms, office furniture show rooms, non profts, associations, pool halls, pizza parlors - they are lining up for our services.
i feel the economy humming along under my hands but then i read the data and the blogs and its blood in the streets. not my street.
now maybe i'm in denial or maybe blind - but i cant deny the fact that my multi faceted building industry focused business is seriously growing.
the stock market continues to push higher. ten year notes are dropping like rocks. unemployment super low.
Oy. Yes, the economy hums along every day, but what we are doing here is looking forward. You are just coming off the crest of a massive building bubble - of course you are busy. Take a peek at the building permit numbers and think about what you just said and how long you think you are going to remain so busy.
Ten year notes dropping like rocks...hmm, and inflation at over 4%, and PCE deflator at 3.5% and core cpi above 3%, with no slowdown in site. Yeh, those bond yields are telling you something too, but obviously you dont want to see it.
This is so ridiculous that Im just going to stop now before I get irritated beyond belief.
why so irritated? i'm not talking about past work i'm talking about on the margin happening today new business, tomorrow business. what i'm saying is the rate of change is increasing in my world, not decreasing.
what are you talking about regarding yields? seems to me that real yields are like 0%. or, that future expectations of inflation are quite low. liquidity is not an issue and neither seems to be inflation.
i'm not sure why you're agitated, i'm just telling you what i see and feel every day.
its not like i'm just a keyboard jockey talking hype.
and the stock market, which arugable looks forward at least 6 months is going up and looks strong.
i guess what people dont talk about is how that even if construction spending drops by 20% tomorrow, its still a multibazillion dollar industry that is still going to be here... its not like its just going to vanish.
"its not like i'm just a keyboard jockey talking hype."
You probably are. You sound just a little to hyped up for me. Exaggeration often reveals dirty secrets. That's why your booming business is probably nothing more but fiction.
dc1000, the stock market is not strong. It is in a secular bear. Just the housing decline itself will push it down. Right now, they are just starting to come to the realization the economy will be weaker over the next year. That doesn't make bull runs.
dc1000, the numbers show that nonresidential construction is still strong - and I wouldn't be surprised that D.C. is one of the stronger locations. I'm glad to hear your business is doing well.
This is the big question - will housing take down the rest of the economy, or will the rest of the economy cushion the housing slowdown?
So far we haven't really seen much of on an impact from the housing slowdown. By that I mean there have only been a few layoffs so far (they are coming), and MEW is still strong (at least in Q2). MEW will almost certainly start falling soon.
The stock market is strong?? S&P is the same spot as 7 1/2 years ago.
10 year dropping like a rock?? Better turn that degree back in.
Good luck to you, however, trying to mislead will only get you in trouble. With those kind of comments, which to me see untrue, I wonder how truthful the rest of what you are saying is?
I caught a report on the news last night about a British medical relief agency treating rural American patients for free...it looked like a scene from Africa or Bangladesh.
Then I saw a report on New Orleans residents still living in what's left of their homes.
This is happening near the peak of the business cycle...
The next recession, when it comes, may be a financial dust bowl.
The Washington DC area will suffer the same fate as other overpriced and overbuilt areas with falling sales and a glut of stuff on the market.
Washington area prices tanked from 1990-1996, when California and the rest of the northeast suffered- it is not different this time either. I love the Washington area- but its built on a swamp, damn hot and humid most of the summer, and suffers from monstrous traffic problems. DC ...Maryland and NOVA will not be immunued this time around.
As far as the stock market is concerned, most of the major players now are sunning themselves in the hamptons till after labor day. Volume has been low on the big board and Nasdaq.
The market has rallied on the so called benign inflation reports and the FEDS pause in lifting rates-
Wishful thinking about a rate pause continuing and a soft landing?
If the housing masacre continues, and the economy suffers badly, the FED may pause or even cut rates- even if inflation remains above their comfort level.
However, it may be folly to believe that this will quickly lead to a recovery in housing or the economy. The lid is off the can of snakes, and anything the FED does now may not prevent a recession.
The stock market will likely fall, as the recession or slow down cuts into corporate profits. Having large amounts of money in equities/mutual funds right now is higly risky unless you are under 40 years old.
dc1000 gamely insists that all-in-all things are actually going pretty well for him and his business... suggests that the data from the markets isn't looking so shabby.... so he must not be real! (And anyway, a man falling off a fifty story building... you know the rest...)
hahahaha
Good for you CR for publishing economic opinions that suggest that maybe the apocalypse isn't right around the corner.
So while dc1000 is out running a business and making money and otherwise living an unauthorized life the rest of us can settle back into the warm, circular discussion of the preferred reality. I'll start:
MEW... negative savings rate... Asian bond purchases... catching a falling knife...
Washington area prices tanked from 1990-1996, when California and the rest of the northeast suffered
Not true. prices remained relatively flat over this period. DC faired much better than California and the northeast.
I've lived in the DC area since 1969 (I moved here whan I was 4). My parents bought a house for $52,000 in Potomac in 1969 and that house is probably worth close to $1Mil now. Real estate in DC has always done very well long term. My mom made a lot of money buying property in downtown DC that were destroyed during the MLK riots in 1968. She bought properties for very cheap and held them for 10 years and sold them for about 5x what she paid for them.
I'm not saying the DC area is immune from downturns. I suspect residential prices will drop about 20% from their 2005 peak when all is said and done, but that's after prices have more than doubled in the last 5 years.
The DC area is now the most highly educated metropolitan area in the country (probably the world too). We have a very high per capita income. I think the annual median family income is over $80,000. Almost all land within 15 miles of downtown DC has been developed, so anyone living with 5 miles of the beltway will likely see long term real estate appreciation. Not because of speculation, but because of supply and demand.
In my neighborhood, houses are selling as well as ever. Supply has gone way up, but this is because the higher home prices have caused people to list hoping to sell at a huge profit. It's not because demand has dropped. I think higher real estate prices have artificailly increased supply. Just like speculators artificially increased demand. As prices drop, many sellers will delist their homes and supply will drop. Eventually an equilibrium will be reached. I believe the equilibrium will occur after about another 15% drop. Prices have already dropped about 5% since last summer.
About all those new commericial construction projects: projects represent the owner's projection of the past four years rising income, donations and sales into the future. What I'm seeing in my market is that owners are pulling back on proposed projects because they are beginning to think they are not sure of having enough income to make payments on their new project. How much of your sales volumne depends on people having excess money to put into a fireplace, a pool table, a pool or going to the opera? The biggest consumer growth trend in the past five years has clearly been in non-essential spending such as spas, cosmetic surgery, $5.00 coffee, massages, granite countertops
or opera tickets (or donations). Where has the money come from? Are people making more real money these days or is it borrowed? Where is it borrowed from? Can they pay it back? People may not starve, but the top of the market for non-essential consumer products may be cut off flat. And, unfortunately, that is where most of the growth in the economy has come in the past few years. How many people went to a spa or had a massage therapist before 2000? How many people now think these are critical items to their well being? Perhaps people may not starve, but those that depend on those forms of consumer excess, including those people who build or manage properties for them, will suffer.
On the bright side, I am seeing a lot of projects by power and oil now, and oddly enough, advertising companies (maybe they figure future sales will require greater persuasion)
good point neal. i'm not personally in those businesses but i serve them.
what i'm saying is that today's decisions on the margin continue to indicate a perception that future demands for their services will be in place. people are expanding, relocating, upgrading all over the place - not to mention new commercial endeavours. i'm not talking about last years numbers. i'm talking about proposals i'm sending out today for business through the end of this year and into the next.
i'm almost completely out of the used home market as that one is completely toasted around here. new unit sales are better but not great. i wont be doing much more spec residential building except for some small unique loss leader type stuff in the foreseable future.
its all about commercial.
hell, it'll be great if there is a change in administration - just think of all the new lobbying firms and associations there will be in town....
The consumer is 70% of the US economy, and the median consumer has a negative savings rate, negative real income growth and a record level of debt. The housing market has clearly been the source of marginal finance for the consumer for the past 5 years, and this source of finance is rapidly drying up. Add to this a large cohert of the population that needs to increase its savings rate to prepare retirement in the next 10 years and it's very hard to be optimistic about the consumer going forward. Even in a recession, some sectors of the economy do well, but even if all other sectors were to do well (unlikely), it is still not enough to compensate for a consumer slowdown. The cost of home ownership to renting is historically 6 standard deviations expensive in the US, which borders on the statistically impossible, and indicates that the housing slowdown is only in the 1st inning and likely to be severe. I worked in Japan in the 1990's, and would say that people spent the first 7 years of the 15 year real estate bust that occured there in denial. I would much rather be an optimist going forward, but rational economic analysis and professional experience tell me otherwise. Relying on personal anecdotes to make broad economic conclusions is foolish - you have to look honestly at the big picture, and the big picture isn't pretty.
ok so in the face of booming new business what i am to do then? close up shop and get into consumer staples?
ive been reading setser and roubini for years before there was ever RGE. i'm familiar with the doomsday scenarios, the chinese connection, the vulnerable dollar, the 0 real interest rates, the odds that we're in a long term bear market for residential housing - i've sought out that knowledge and try to incorporate it into my planning - but when people are banging down the door to give me money am i supposed to turn it away and say no way -
the chinese social policies of moving peasants into the cities will stop soon and they will stop buying our debt and rates will explode, the dollar will crash and will all be screwed??
Incidently, I didn't buy into the gloom and doom scenarios after the Asian crisis or the Nasdaq bust, but the bursting of this consumer credit bubble could be both painful and lengthy. That doesn't mean I believe the dollar is about to crash, and that I need to horde gold, canned goods and ammunition. It does however mean that now is not a good time to be financially over-extended.
its the internet- punctuation capitalization and even spelling ain't that important.
but finding any reason to discount someone's points of view that differ from yours IS that important. rightie-o?
even if GDP were to conract by 2% in one quarter, doesn't that put us back to where we were at the beginning of last year, i.e. the worlds largest economy humming along at a multi trillion dollar pace? all these 100-200bp marginal changes just dont feel that big to me.
Give it a break, in any downturn there are groups and areas who will do just fine or even prosper. Of any place in America, DC, under the present era of governmental growth and open US checkbook, should be relatively insulated.
Personal examples don't make or break a trend, personal attacks don't disprove a personal experience. Missed capitals and mis-spellings don't prove ignorance or disprove experience.
"its the internet- punctuation capitalization and even spelling ain't that important."
dc1000
I'm just curious. Could you just show me with a sentence or two that you know how to capitalize, spell and punctuate? You don't have to, it's true. It is also true that incorrect spelling does not prove an argument incorrect.
It would only take a minute of your time. Its a simple request that you dont have to honor.
All: please stop the personal issues. dc1000 has been a long time contributor to this blog and I value his views.
ALSO, some of the posts signed "dc1000" in previous threads, were by someone else - so if anyone is carrying some anger forward, it might be misdirected.
On a purely ancedotcal note, one of the lunch discussions yesterday at work was about buying a house now or waiting a few months. The consensus was waiting a few months would save several tens of thousands on the purchase price. In my humble opinion, not backed up by any degrees in finance or business, is that home sales won't pick up much if any until us little guys think the drop in prices is over. Why buy now when the price is high when waiting maybe as long as a year will save a lot? I might add that I live in northern Utah where the economy in general is doing very well.
Prices fell significantly in the DC area from 1989-1996
The Boston area has much better colleges(compared to DC) and a highly educated workforce as well- and frankly has much more to offer then the DC area- but there was a stong price correction in real estate from 1989-1996.(and one is going on now)
It seems like the same old tired lies and spin we have heard before. San Diego is Paradise, New York is New York- yeah really its different here
so we have no worries. That is Bull shi*.- You say there will never ever be a correction- ha ha- They that in 2000 with cisco and a plethora of other IT companies.
The Washington DC area is nice- but it IS NOT immuned to a price correction in real estate. If you think otherwise join The New Paradigm crowd and see what happened to them. Yeah sure its really different this time. SURE.
One way to see how bad this is, is to compare how much inventory has risen vs how much the sales rate has fallen at this point in the turn of the cycle.
I havent looked yet, but my guess is that we have a relatively large number of homes being pushed to market and so far a relatively small decline in the sales rate.
Given the loan structures out there (ticking time bomb adjustables), the fact that prices are pretty much falling already in most regions(and once you factor in concessions they are surely falling)and that many people are going to be forced to sell, Im thinking this time around the months supply figure goes into the stratosphere. I think this is why there is so much potential for a bigger downside than people appreciate.
No big downside IMO. With interest rates falling, things will pick back up soon. Granted, we will have some excess spilloff from the 3 year mania, but normalized growth in RE will help keep the economy from tanking. Obviously that slow growth will end the economic boom of 2004-6, but things will not be overly bad, like so many think. I suspect by 2008, another economic boom will start back up, hopefully with better across the board job growth lifting all boats.
To many people on this board, like ac,Geoff or Roubini whine like this is going to be the worst thing ever. They are bent with more political gain than actually economic education. Either they don't like Bush or the RE industry. The lust for Recession right now is disturbing pattern of nihilism that infests America right now.
Lenny - snap out of it. It's not political. Whether I was a Republican, Democrat or Independent, I'd see this the same way - trouble. If Bush is a genious or moron, it doesn't matter to anyone who is doing analysis on the housing market, which, btw, Ive been doing for over a decade. Do you really want to put your education up vs mine? I seriously doubt it. It's not about political gain; it's about economic loss, which many of us are about to suffer, even those of us in denial.
I for one think the "disturbing pattern" isn't nihilism, it's the fact that so many people refuse to acknowledge reality and live on a world view built strictly on hope. Well, hope isn't a strategy my non-friend.
Geoff, you are exactly "ranting" about what I just said above: More and more Nihilism.
What is this "big economic loss"? Listen, I agree the current economy is unstable and it can't last. Which is why I said the runoff from the speculative mania will make things worse off. Many jobs will be lost in the RE sector, growth will be much weaker, growth weaker through 2007 and joblessness increasing.
However, the rest of the economy is finally starting to show signs of heating up. By 2008, we should have replaced the RE bust and growing new jobs for people of all classes, which we have not over the last 3 years. This has created areas of high unemployment in some areas, while extremely low in others.
I just don't see this major financial panic nor debt crisis. We will pay down our debts on loans and credit cards and will do so in a orderly and timely manner. Matter of fact, we already have begun.
Lenny, I appreciate that you took the time to carefully considered my arguments and you've earned my deepest respect -- few demonstrate such depth of character.
However it pains me that you think the case I make for recession is merely a feeble-minded attempt to fabricate some self-serving economic fantasy in which the failures of others distract me from my own, and indeed allow me to fault others as the sole cause of my own inadequecies.
I think I'm coming to understand... there is no national housing bust or looming recession. It is my own "inner housing market" that is crashing and leading to a recession of the soul.
What was I thinking? If I've caused unjustified anxiety, pessimism, or made someone miss that one chance at their dream home, then I deeply apologize.
One question still troubles me though:
What do falling interest rates have to do with that vast glut of uneeded homes that are crushing home prices, shutting down the homebuilding industry, and sending homeowners and prospective buyers running screaming for their lives to the exits?
Lenny, you have an annoying habit of bandying about words you dont understand the meaning of. It seems to be a particularly popular type of blog tic, prevalent amongst those with your mindset.
So, let's get to the facts. Neither of my posts can legitimately be construed as a rant. Im not scolding anyone and Im not excited or noisy. Im calmly stating an opinion, based on analysis.
As for nihilism - what is it about my post that makes you think I wish to deny the truth? Your using that word seems more like a projection to me than anything else. Did anything in my post advocate a revolutionary destruction of society, because I think it is so bad? No, I dont think so. Im simply talking about the housing market, plain and simple.
As for a big economic loss - consider this - purchase a house with an inflated appraisal and then find out that not only couldnt you afford it because of the mortgage rate reset and increased payments, but also that went the bank repossesses it or you are forced to sell, you have to bring cash to the table. Id say that's a big loss to me. How about you?
As for your perspective on job growth and strength in the rest of the economy, hmmm -- perhaps you found a different set of NIPA tables to look at. And also, how does paying down debt do anything good for consumer spending, which is nearly 3/4 of gdp growth? Hmm.
Seriously, consider an econ 101 class, then tell me how much I dont know. And also, maybe consider investing in a dictionary before investing in a house. But then again, be my guest and buy into this market. You might get a deal. Hahahaha..
its odd being educated about all this and then being in the trenches too. i just had two settlements today, we continue to have sales. we're generating architecture and design proposals daily. i'm ramping up manpower, increased my office space, invested in technology and have never been more profitable. my construction company has a year back log of residential construction. we can't find enough people.
but then i posted the DC data a few threads back and damn its gloomy. highest inventory since i can find data. prices coming down. but i'm doing millions of dollars in sales.
opera companies, fire place show rooms, office furniture show rooms, non profts, associations, pool halls, pizza parlors - they are lining up for our services.
i feel the economy humming along under my hands but then i read the data and the blogs and its blood in the streets. not my street.
now maybe i'm in denial or maybe blind - but i cant deny the fact that my multi faceted building industry focused business is seriously growing.
the stock market continues to push higher. ten year notes are dropping like rocks. unemployment super low.
what the heck?
PS i have BS in econ and MA in international finance and have a dictionary.
Oy. Yes, the economy hums along every day, but what we are doing here is looking forward. You are just coming off the crest of a massive building bubble - of course you are busy. Take a peek at the building permit numbers and think about what you just said and how long you think you are going to remain so busy.
Ten year notes dropping like rocks...hmm, and inflation at over 4%, and PCE deflator at 3.5% and core cpi above 3%, with no slowdown in site. Yeh, those bond yields are telling you something too, but obviously you dont want to see it.
This is so ridiculous that Im just going to stop now before I get irritated beyond belief.
why so irritated? i'm not talking about past work i'm talking about on the margin happening today new business, tomorrow business. what i'm saying is the rate of change is increasing in my world, not decreasing.
what are you talking about regarding yields? seems to me that real yields are like 0%. or, that future expectations of inflation are quite low. liquidity is not an issue and neither seems to be inflation.
i'm not sure why you're agitated, i'm just telling you what i see and feel every day.
its not like i'm just a keyboard jockey talking hype.
and the stock market, which arugable looks forward at least 6 months is going up and looks strong.
i guess what people dont talk about is how that even if construction spending drops by 20% tomorrow, its still a multibazillion dollar industry that is still going to be here... its not like its just going to vanish.
existing home sales very well might however.
"its not like i'm just a keyboard jockey talking hype."
You probably are. You sound just a little to hyped up for me. Exaggeration often reveals dirty secrets. That's why your booming business is probably nothing more but fiction.
dc1000, the stock market is not strong. It is in a secular bear. Just the housing decline itself will push it down. Right now, they are just starting to come to the realization the economy will be weaker over the next year. That doesn't make bull runs.
dc1000, the numbers show that nonresidential construction is still strong - and I wouldn't be surprised that D.C. is one of the stronger locations. I'm glad to hear your business is doing well.
This is the big question - will housing take down the rest of the economy, or will the rest of the economy cushion the housing slowdown?
So far we haven't really seen much of on an impact from the housing slowdown. By that I mean there have only been a few layoffs so far (they are coming), and MEW is still strong (at least in Q2). MEW will almost certainly start falling soon.
It will be interesting to see how this plays out.
Best Wishes.
The stock market is strong?? S&P is the same spot as 7 1/2 years ago.
10 year dropping like a rock?? Better turn that degree back in.
Good luck to you, however, trying to mislead will only get you in trouble. With those kind of comments, which to me see untrue, I wonder how truthful the rest of what you are saying is?
Also keep in mind that DC is a special market, which is directly/indirectly driven by a govt customer that is not market driven.
Those areas that do not have this special relationship are having problems.
True Vader,
I caught a report on the news last night about a British medical relief agency treating rural American patients for free...it looked like a scene from Africa or Bangladesh.
Then I saw a report on New Orleans residents still living in what's left of their homes.
This is happening near the peak of the business cycle...
The next recession, when it comes, may be a financial dust bowl.
DIA one year ago approx 10,500
today 11,300
am i missing something?
charts also show that is broken out of a recent range and is moving higher
ten year treasury is at 4.79....how recently was it over 5.10 or higher? more than a quarter point move? since when is that insignificant??
especially! with supposed inflation expectations?
am i looking at different numbers than everyone else?!
The Washington DC area will suffer the same fate as other overpriced and overbuilt areas with falling sales and a glut of stuff on the market.
Washington area prices tanked from 1990-1996, when California and the rest of the northeast suffered- it is not different this time either. I love the Washington area- but its built on a swamp, damn hot and humid most of the summer, and suffers from monstrous traffic problems. DC ...Maryland and NOVA will not be immunued this time around.
As far as the stock market is concerned, most of the major players now are sunning themselves in the hamptons till after labor day. Volume has been low on the big board and Nasdaq.
The market has rallied on the so called benign inflation reports and the FEDS pause in lifting rates-
Wishful thinking about a rate pause continuing and a soft landing?
If the housing masacre continues, and the economy suffers badly, the FED may pause or even cut rates- even if inflation remains above their comfort level.
However, it may be folly to believe that this will quickly lead to a recovery in housing or the economy. The lid is off the can of snakes, and anything the FED does now may not prevent a recession.
The stock market will likely fall, as the recession or slow down cuts into corporate profits. Having large amounts of money in equities/mutual funds right now is higly risky unless you are under 40 years old.
dc1000 gamely insists that all-in-all things are actually going pretty well for him and his business... suggests that the data from the markets isn't looking so shabby.... so he must not be real! (And anyway, a man falling off a fifty story building... you know the rest...)
hahahaha
Good for you CR for publishing economic opinions that suggest that maybe the apocalypse isn't right around the corner.
So while dc1000 is out running a business and making money and otherwise living an unauthorized life the rest of us can settle back into the warm, circular discussion of the preferred reality. I'll start:
MEW... negative savings rate... Asian bond purchases... catching a falling knife...
I live in a maryland suburb of DC.
Washington area prices tanked from 1990-1996, when California and the rest of the northeast suffered
Not true. prices remained relatively flat over this period. DC faired much better than California and the northeast.
I've lived in the DC area since 1969 (I moved here whan I was 4). My parents bought a house for $52,000 in Potomac in 1969 and that house is probably worth close to $1Mil now. Real estate in DC has always done very well long term. My mom made a lot of money buying property in downtown DC that were destroyed during the MLK riots in 1968. She bought properties for very cheap and held them for 10 years and sold them for about 5x what she paid for them.
I'm not saying the DC area is immune from downturns. I suspect residential prices will drop about 20% from their 2005 peak when all is said and done, but that's after prices have more than doubled in the last 5 years.
The DC area is now the most highly educated metropolitan area in the country (probably the world too). We have a very high per capita income. I think the annual median family income is over $80,000. Almost all land within 15 miles of downtown DC has been developed, so anyone living with 5 miles of the beltway will likely see long term real estate appreciation. Not because of speculation, but because of supply and demand.
In my neighborhood, houses are selling as well as ever. Supply has gone way up, but this is because the higher home prices have caused people to list hoping to sell at a huge profit. It's not because demand has dropped. I think higher real estate prices have artificailly increased supply. Just like speculators artificially increased demand. As prices drop, many sellers will delist their homes and supply will drop. Eventually an equilibrium will be reached. I believe the equilibrium will occur after about another 15% drop. Prices have already dropped about 5% since last summer.
dc1000
About all those new commericial construction projects: projects represent the owner's projection of the past four years rising income, donations and sales into the future. What I'm seeing in my market is that owners are pulling back on proposed projects because they are beginning to think they are not sure of having enough income to make payments on their new project. How much of your sales volumne depends on people having excess money to put into a fireplace, a pool table, a pool or going to the opera? The biggest consumer growth trend in the past five years has clearly been in non-essential spending such as spas, cosmetic surgery, $5.00 coffee, massages, granite countertops
or opera tickets (or donations). Where has the money come from? Are people making more real money these days or is it borrowed? Where is it borrowed from? Can they pay it back? People may not starve, but the top of the market for non-essential consumer products may be cut off flat. And, unfortunately, that is where most of the growth in the economy has come in the past few years. How many people went to a spa or had a massage therapist before 2000? How many people now think these are critical items to their well being? Perhaps people may not starve, but those that depend on those forms of consumer excess, including those people who build or manage properties for them, will suffer.
On the bright side, I am seeing a lot of projects by power and oil now, and oddly enough, advertising companies (maybe they figure future sales will require greater persuasion)
good point neal. i'm not personally in those businesses but i serve them.
what i'm saying is that today's decisions on the margin continue to indicate a perception that future demands for their services will be in place. people are expanding, relocating, upgrading all over the place - not to mention new commercial endeavours. i'm not talking about last years numbers. i'm talking about proposals i'm sending out today for business through the end of this year and into the next.
i'm almost completely out of the used home market as that one is completely toasted around here. new unit sales are better but not great. i wont be doing much more spec residential building except for some small unique loss leader type stuff in the foreseable future.
its all about commercial.
hell, it'll be great if there is a change in administration - just think of all the new lobbying firms and associations there will be in town....
The consumer is 70% of the US economy, and the median consumer has a negative savings rate, negative real income growth and a record level of debt. The housing market has clearly been the source of marginal finance for the consumer for the past 5 years, and this source of finance is rapidly drying up. Add to this a large cohert of the population that needs to increase its savings rate to prepare retirement in the next 10 years and it's very hard to be optimistic about the consumer going forward. Even in a recession, some sectors of the economy do well, but even if all other sectors were to do well (unlikely), it is still not enough to compensate for a consumer slowdown. The cost of home ownership to renting is historically 6 standard deviations expensive in the US, which borders on the statistically impossible, and indicates that the housing slowdown is only in the 1st inning and likely to be severe. I worked in Japan in the 1990's, and would say that people spent the first 7 years of the 15 year real estate bust that occured there in denial. I would much rather be an optimist going forward, but rational economic analysis and professional experience tell me otherwise. Relying on personal anecdotes to make broad economic conclusions is foolish - you have to look honestly at the big picture, and the big picture isn't pretty.
ok so in the face of booming new business what i am to do then? close up shop and get into consumer staples?
ive been reading setser and roubini for years before there was ever RGE. i'm familiar with the doomsday scenarios, the chinese connection, the vulnerable dollar, the 0 real interest rates, the odds that we're in a long term bear market for residential housing - i've sought out that knowledge and try to incorporate it into my planning - but when people are banging down the door to give me money am i supposed to turn it away and say no way -
the chinese social policies of moving peasants into the cities will stop soon and they will stop buying our debt and rates will explode, the dollar will crash and will all be screwed??
Make hay while the sun shines, take the money and invest wisely, quit when you want and find a pleasant place to live. It is good to be fortunate.
Incidently, I didn't buy into the gloom and doom scenarios after the Asian crisis or the Nasdaq bust, but the bursting of this consumer credit bubble could be both painful and lengthy. That doesn't mean I believe the dollar is about to crash, and that I need to horde gold, canned goods and ammunition. It does however mean that now is not a good time to be financially over-extended.
" PS i have BS in econ and MA in international finance and have a dictionary."
dc1000,
Maybe it's just my little quirk, but I expect a person with an advanced degree to capitalize I and understand how to punctuate independent clauses.
Its probably something I missed during my education.
its the internet- punctuation capitalization and even spelling ain't that important.
but finding any reason to discount someone's points of view that differ from yours IS that important. rightie-o?
even if GDP were to conract by 2% in one quarter, doesn't that put us back to where we were at the beginning of last year, i.e. the worlds largest economy humming along at a multi trillion dollar pace? all these 100-200bp marginal changes just dont feel that big to me.
i suppose a 10-20% contraction in GDP would.
Give it a break, in any downturn there are groups and areas who will do just fine or even prosper. Of any place in America, DC, under the present era of governmental growth and open US checkbook, should be relatively insulated.
Personal examples don't make or break a trend, personal attacks don't disprove a personal experience. Missed capitals and mis-spellings don't prove ignorance or disprove experience.
"its the internet- punctuation capitalization and even spelling ain't that important."
dc1000
I'm just curious. Could you just show me with a sentence or two that you know how to capitalize, spell and punctuate? You don't have to, it's true. It is also true that incorrect spelling does not prove an argument incorrect.
It would only take a minute of your time. Its a simple request that you dont have to honor.
All: please stop the personal issues. dc1000 has been a long time contributor to this blog and I value his views.
ALSO, some of the posts signed "dc1000" in previous threads, were by someone else - so if anyone is carrying some anger forward, it might be misdirected.
Best to all.
On a purely ancedotcal note, one of the lunch discussions yesterday at work was about buying a house now or waiting a few months. The consensus was waiting a few months would save several tens of thousands on the purchase price. In my humble opinion, not backed up by any degrees in finance or business, is that home sales won't pick up much if any until us little guys think the drop in prices is over. Why buy now when the price is high when waiting maybe as long as a year will save a lot? I might add that I live in northern Utah where the economy in general is doing very well.
Prices fell significantly in the DC area from 1989-1996
The Boston area has much better colleges(compared to DC) and a highly educated workforce as well- and frankly has much more to offer then the DC area- but there was a stong price correction in real estate from 1989-1996.(and one is going on now)
It seems like the same old tired lies and spin we have heard before. San Diego is Paradise, New York is New York- yeah really its different here
so we have no worries. That is Bull shi*.- You say there will never ever be a correction- ha ha- They that in 2000 with cisco and a plethora of other IT companies.
The Washington DC area is nice- but it IS NOT immuned to a price correction in real estate. If you think otherwise join The New Paradigm crowd and see what happened to them. Yeah sure its really different this time. SURE.
The DC area has medicore public schools
and the University of Maryland is mediocre as well- Yes Georgetown is good, but where is Yale, Harvard, MIT-?
I was born and brought up in the DC area- and frankly- I am not all that impressed with the intellectual capital there.
Anyone who thinks housing increases at 7-10 times the rate of inflation is sustainable or sane is in denial.
And a successful business owner like dc1000 wouldn't have so much time to post on a silly blog.
Good luck.
rc helicopter
Tactical Flashlights
video game