Really excellent charts - the YOY% change technique makes things just leap out at you. Particularly like that these show the SCal markets flattening out in early '04. Which as I recall nobody was discussing though some of the econ/fin commentators were suggesting but didn't back up with analysis. So I wonder can we exrapolate forward then ? And ask what's the likly outcomes and impacts ?
Over on BigPicture there's an interesting cite of some housing spending multiplier effects: The Big Picture
DaveL, I remember there was some discussion in the Fall of '04 about whether that was the end of the housing boom. Unfortunately I wasn't blogging at that time or we could check my posts! Transaction volumes started picking up again at the beginning of '05 - and obviously '05 was a great year for housing.
There are many differences between the Fall of '04 and today: much more inventory, higher prices, higher interest rates, etc.
Looking forward, I think we will see transaction volumes continue to decrease and prices start to decline in LA and OC later this year. I'll write more on the probable impact on the economy ...
That piece, concerning multiplier effects, is interesting. I went to my local grocery store around 6:30 AM this morning, and the other people in the store were all constuction workers buying drinks / snacks as they prepared to work on a Saturday. That probably means builders are pushing projects to completion - hoping to sell before everyone else.
But it also says something about the multiplier effect. There are several businesses in town (the grocery store is one) that will see a drop in the number of customers as housing construction slows.
CR, that's an interesting anecdote about builders still pressing to get more homes built. And you only need to review the public builders' ratios of contracted to spec home building to confirm this. Yet still they decry the negative effect excess inventory has had on the housing market. Incredible and ironic.
They have yet to reduce home prices significantly. Instead, they are providing de facto reductions using a variety of creative incentives. Anything to avoid the price reductions that would impact their balance sheets.
Some of those incentives include sub-sub-prime introductory interest rates. This suggests they believe that lower interest rates will spur a recovery. Given the sales activity, it doesn't appear that any of these efforts are luring buyers back to the market. The primary problem is, and still remains, that there is little demand for houses at these historically high prices.
CR, good stuff. Rolling up my thoughts on the most recent entries.
I think we have to keep an eye on unemployment to know what will happen to housing and the economy. Right now, unemployment is at 4.8% and wages are growing. Hard to imagine a complete collapse as long as folks are going through their monthly routines.
I was listening to a real estate radio show. A caller from SF said he was underwater in 4 Las Vegas investment properties. He's renting them out, but taking a monthly loss. He plans on continuing to make payments, riding it out, and hoping for the best.
I think that describes what most are going through. So a catalyst like rising unemployment would throw a wrench in those kinds of plans...
Right now, unemployment is at 4.8% and wages are growing.
Fact is wages are growing nominally but not enough to keep up with inflation in peoples everyday expenses... leaving less and less that can be used to support their mortgages... And if they have ARMs is itself an increasing burden.
CR - coming from the West where we had builders racing to catch up with the first energy boom I remember one telling me about looking over his shoulder at all the people and money - a juggernaut that eventually crushed him when it went south. Different circumstances this time but the notion of both inertial momentum and not being able to face the brutal facts of an accelerating slowdown may be common.
Muckdog, et.al. - on employment. The nominal figure is 4.8%, though rising. But hasn't yet resulted in any increase in wages or real wages. That's the question, critically, that's never asked: if unemployment is so low and the economy so healthy why hasn't real wages/earnings been sky-rocketing ? That's a fundamental contradiction.
Part of that is due to the decline in labor force participation - if we had the same folks still looking for jobs now that were working and looking in '98/'99 we'd likely have 8-10% unemployment (and you can draw that conclsion from BLS data and discussions). This has been the lowest job generating 'recovery' on record and, as implied by CR in a slightly earlier post, we need in a recovery to not only get jobs but create the 150K/month we didn't create. Measured from Q100 to now I estimate that we're at least 2 million jobs short of where we should be if the economy had truly recovered.
So real wages are still declining, hidden unemployment is high and we haven't created the jobs necessary to get the economy back to internal, organic self-sustaining growth.
And the housing ATM appears to be in the early stages of disappearing. I think we're headed for the recession we avoided after the '98/'99 real economic peak that was disguised by the hangover fever of the '99/'00 boom and boost. Sort of partied hearty and missed the malaria symptoms.
muckdog , Unemployment has risen a bit from 4.6 to 4.8. Job growth has been anemic at best. A large proportion of jobs have been created in RE sector and offshoots. If housing cools it will create more unemployent and more unemploment will cause housing to cool more.
The fed has got the helicopters ready. Rate cuts should be here early next year.
DaveL, you're right. Looking at the sharp increase in re-fi activity this year, where people are actually taking on loans at higher interest rates, says a lot about the state of this economy.
And talk about stagnant wages -- I'm a software developer. In 2006, I am still earning about the same salary as I did in 2000. This is attributable somewhat to the excesses of the dot.com era, but wages in my particular profession have gone nowhere in the past 6 years and it's starting to tick me off.
I read elsewhere this weekend that the housing ATM phenomenon is partially about people making up the difference in stagnant wages using equity from their homes. I know that's true in my case.
Oh man I wish i would have bought in '04, i thought it was over priced then but prices in Tucson AZ are up 30-50% since then. Could've almost bought for the cost of renting, what the hell was i thinking?
Really excellent charts - the YOY% change technique makes things just leap out at you. Particularly like that these show the SCal markets flattening out in early '04. Which as I recall nobody was discussing though some of the econ/fin commentators were suggesting but didn't back up with analysis. So I wonder can we exrapolate forward then ? And ask what's the likly outcomes and impacts ?
Over on BigPicture there's an interesting cite of some housing spending multiplier effects: The Big Picture
DaveL, I remember there was some discussion in the Fall of '04 about whether that was the end of the housing boom. Unfortunately I wasn't blogging at that time or we could check my posts! Transaction volumes started picking up again at the beginning of '05 - and obviously '05 was a great year for housing.
There are many differences between the Fall of '04 and today: much more inventory, higher prices, higher interest rates, etc.
Looking forward, I think we will see transaction volumes continue to decrease and prices start to decline in LA and OC later this year. I'll write more on the probable impact on the economy ...
That piece, concerning multiplier effects, is interesting. I went to my local grocery store around 6:30 AM this morning, and the other people in the store were all constuction workers buying drinks / snacks as they prepared to work on a Saturday. That probably means builders are pushing projects to completion - hoping to sell before everyone else.
But it also says something about the multiplier effect. There are several businesses in town (the grocery store is one) that will see a drop in the number of customers as housing construction slows.
Best Regards.
CR, that's an interesting anecdote about builders still pressing to get more homes built. And you only need to review the public builders' ratios of contracted to spec home building to confirm this. Yet still they decry the negative effect excess inventory has had on the housing market. Incredible and ironic.
They have yet to reduce home prices significantly. Instead, they are providing de facto reductions using a variety of creative incentives. Anything to avoid the price reductions that would impact their balance sheets.
Some of those incentives include sub-sub-prime introductory interest rates. This suggests they believe that lower interest rates will spur a recovery. Given the sales activity, it doesn't appear that any of these efforts are luring buyers back to the market. The primary problem is, and still remains, that there is little demand for houses at these historically high prices.
Anything to avoid the price reductions that would impact their balance sheets.
Incentives don't affect the 'comps' either... which in effect sets price expectations for future transactions.
Its similar to how auto mfgrs look at 'sticker prices' and 'rebates'. They are just 'temporary' right, right???
The market knows - its all a silly little charade.
CR, good stuff. Rolling up my thoughts on the most recent entries.
I think we have to keep an eye on unemployment to know what will happen to housing and the economy. Right now, unemployment is at 4.8% and wages are growing. Hard to imagine a complete collapse as long as folks are going through their monthly routines.
I was listening to a real estate radio show. A caller from SF said he was underwater in 4 Las Vegas investment properties. He's renting them out, but taking a monthly loss. He plans on continuing to make payments, riding it out, and hoping for the best.
I think that describes what most are going through. So a catalyst like rising unemployment would throw a wrench in those kinds of plans...
Right now, unemployment is at 4.8% and wages are growing.
Fact is wages are growing nominally but not enough to keep up with inflation in peoples everyday expenses... leaving less and less that can be used to support their mortgages... And if they have ARMs is itself an increasing burden.
Something has to give UNLESS this trend changes.
CR - coming from the West where we had builders racing to catch up with the first energy boom I remember one telling me about looking over his shoulder at all the people and money - a juggernaut that eventually crushed him when it went south. Different circumstances this time but the notion of both inertial momentum and not being able to face the brutal facts of an accelerating slowdown may be common.
Muckdog, et.al. - on employment. The nominal figure is 4.8%, though rising. But hasn't yet resulted in any increase in wages or real wages. That's the question, critically, that's never asked: if unemployment is so low and the economy so healthy why hasn't real wages/earnings been sky-rocketing ? That's a fundamental contradiction.
Part of that is due to the decline in labor force participation - if we had the same folks still looking for jobs now that were working and looking in '98/'99 we'd likely have 8-10% unemployment (and you can draw that conclsion from BLS data and discussions). This has been the lowest job generating 'recovery' on record and, as implied by CR in a slightly earlier post, we need in a recovery to not only get jobs but create the 150K/month we didn't create. Measured from Q100 to now I estimate that we're at least 2 million jobs short of where we should be if the economy had truly recovered.
So real wages are still declining, hidden unemployment is high and we haven't created the jobs necessary to get the economy back to internal, organic self-sustaining growth.
And the housing ATM appears to be in the early stages of disappearing. I think we're headed for the recession we avoided after the '98/'99 real economic peak that was disguised by the hangover fever of the '99/'00 boom and boost. Sort of partied hearty and missed the malaria symptoms.
muckdog , Unemployment has risen a bit from 4.6 to 4.8. Job growth has been anemic at best. A large proportion of jobs have been created in RE sector and offshoots. If housing cools it will create more unemployent and more unemploment will cause housing to cool more.
The fed has got the helicopters ready. Rate cuts should be here early next year.
DaveL, you're right. Looking at the sharp increase in re-fi activity this year, where people are actually taking on loans at higher interest rates, says a lot about the state of this economy.
And talk about stagnant wages -- I'm a software developer. In 2006, I am still earning about the same salary as I did in 2000. This is attributable somewhat to the excesses of the dot.com era, but wages in my particular profession have gone nowhere in the past 6 years and it's starting to tick me off.
I read elsewhere this weekend that the housing ATM phenomenon is partially about people making up the difference in stagnant wages using equity from their homes. I know that's true in my case.
It might be informative to ask those construction workers what they have lined up after the current project is finished.
Oh man I wish i would have bought in '04, i thought it was over priced then but prices in Tucson AZ are up 30-50% since then. Could've almost bought for the cost of renting, what the hell was i thinking?