More on September New Home Sales

Submitted by
CalculatedRisk on Thu, 10/26/2006 - 7:58am (21 comments)
Geoff wrote on Thu, 10/26/2006 - 8:42 am

any info on cancellation rates back in the 90s bust? Perhaps you can do an adjusted new home sales number which gets at just how ugly it is out there. I dont think Ive heard that cancellations were anywhere near as bad in the early 90s slump.

It's funny, they (NAR, etc) add more and more polish to this turd each month, but the stink keeps rising, no matter how glossy the sheen they put on it.

anon wrote on Thu, 10/26/2006 - 8:44 am

Great, succinct post - this is one of the neatest summaries I've seen yet of the RE market's condition and its potential negative effect on the economy as a whole.

Paul wrote on Thu, 10/26/2006 - 8:55 am

CR-

To follow on question I posed to Tanta in an earlier discussion: Do we know what the average earnings/person for the construction industry is, and can we fairly multiply that by the projected job losses to arrive at an estimated net impact? I'd be curious, too, how that stacks up as a percentage of all personal income in the US. Or, as dryfly would put it, how much pookie is in that pile on the floor?

mp wrote on Thu, 10/26/2006 - 8:56 am

CR, have you done any work on the question of how quickly the expected job losses in residential construction will pass through to initial claims for unemployment insurance?

bob wrote on Thu, 10/26/2006 - 9:40 am

About income - the construction workers are usually paid well above average and they are also usually pretty... unqualified to do any other reasonably paid job.

The horde of former construction business workers are going straight into burger flipping business.

CalculatedRisk wrote on Thu, 10/26/2006 - 9:41 am

mp, I've been curious about that ... if this was a manufacturing slump, I'd expect job losses to feed directly into weekly claims. But for residential construction, many of these people are self employed subcontractors or work for small firms on a contract basis. My guess is many of them may not be eligible for unemployment insurance, so we may not see much of a jump in claims. This is just a guess!

Paul, I'll look for some data. Hopefully these people can find new jobs in other industries, but I've been concerned that their skills might not be applicable to other positions (at similar pay) so they might have to take a significant pay cut.

Geoff, I don't have any info on '90s cancellation rates. I doubt it was anything remotely close to the current rates.

Best to all.

Rational Actor wrote on Thu, 10/26/2006 - 9:44 am

What is truly astonishing is the way that the Commerce Department has used the "revisions" process to conceal the state of the market. From the last 12 press releases, the initial reported growth:

9/06 +5.3%
8/06 +4.1%
7/06 -4.3%
6/06 -3%
5/06 +4.6%
4/06 +4.9%
3/06 +13.8%
2/06 -10.5%
1/06 -5%
12/05 +2.9%
11/05 -11.3%
10/05 +13%

For eight of the last twelve months, the headline number was POSITIVE in spite of the fact that today's levels are 14% below last year's. Am I missing something, or are the numbers being manipulated to deceive an unsuspecting public?

Rational Actor wrote on Thu, 10/26/2006 - 9:45 am

Oops - counted wrong, only 7 of the last 12. But still, the question remains....

CA Guy wrote on Thu, 10/26/2006 - 9:50 am

I would agree with the above statement that construction workers make above the average wage, especially in CA. I'm not saying that they are raking it in, but the coming layoffs should significantly impact consumer spending. As a stereotype, construction workers also appear to be big spenders. The industry survives on debt, and the workers are no different. Not to mention, here in CA the majority of workers are hispanic and most likely lack other skills/education. I wonder what % will wind up back home? (i.e. not America)

CalculatedRisk wrote on Thu, 10/26/2006 - 9:52 am

Rational Actor, I think the Census Bureau does the best they can. There does appear to be systemic problem during down turns (something I've noted for some time).

Is the public deceived? I don't think so - except maybe Alan Greenspan: "Most of the negatives in housing are probably behind us,". Smile

Best wishes.

lloyd wrote on Thu, 10/26/2006 - 10:13 am

What are the odds that the GDP number tomorrow is higher than expected but then revised downward in a month or two?

I can't understand how anyone can look at this report and say "things are looking GOOD" or even better.

bailey wrote on Thu, 10/26/2006 - 10:56 am

CR, good job. Personally, I'm looking for a price reversion to '01 levels so I especially love your longer term graphs. I just don't see how current earnings can support '03 price levels. (Maybe lower rates will help but they would certainly bring their own problems?)
If you'll recall, Dean Baker did some wonderful work back in '03 on elevated housing prices & little's changed to refute a long-term mean growth rate argument for housing prices.

Richard wrote on Thu, 10/26/2006 - 11:18 am

say what you will, but the malls around me are packed packed packed with people spending money hand over fist. i'm unsure how much a construction job layoff spell is going to have on overall GDP. also never count the consumer out. he's been left for dead before and somehow revived himself. still history is no guarantee of future trends. strange times indeed...

Richard wrote on Thu, 10/26/2006 - 11:22 am

01' price levels bailey? you doth dream too much. would be nice but not likely with the creative financial lending instruments concocted by our wonderful lending institutions.

CalculatedRisk wrote on Thu, 10/26/2006 - 11:40 am

Richard, as I wander around I'm also not seeing any signs of a weak economy yet. And, no question, betting against the U.S. consumer has been a bad bet.

Still there will be some impact from the housing bust - and I believe that impact is ahead of us, not behind us. Although I think the price pressure will last for years (declining real housing prices), the major impact on the economy should come in the next few quarters (if I'm looking at this correctly).

Bailey, thanks. Dean Baker has done some awesome work!

As far as how far prices will fall, I doubt nominal prices will fall to '01 levels. It even seems unlikely that real prices will fall that far.

As an example, according to DataQuick, the San Diego median price was $273K in Jan 2002. The price peaked at $518K last year. So even a 40% decline in real terms would only take prices back to mid '02 prices in San Diego. I think that is possible if we see the slow steady price declines over several years like what happened in the early '90s. If this bust is similar, prices in nominal terms would still be well above $400K - a long way from '01 levels.

Best Wishes.

Name wrote on Thu, 10/26/2006 - 12:05 pm

"New Home sales were falling prior to every recession of the last 35 years"

But over the last 35 years there was not a recession every time new home sales fell.

calmo wrote on Thu, 10/26/2006 - 12:26 pm

A quick peak at the BLS for carpenter's wages shows you just how well they are paid. (~$8/hr) And how many of those illegal immigrants are dilluting that particular trade's compensation.
I've seen a figure as high as 1/4 of residential construction is performed by these people who may or may not be counted (let's just discover another 810,000 like the benchmark adjustment), so I think these job losses will be under-reported and the losses to related industies likely higher if one uses the construction stats as a basis.
Do these immigrants have transferable skills? Yes, and transferable attitudes: they are willing to do just about any manual labor you can imagine.
Lucky us!

CalculatedRisk wrote on Thu, 10/26/2006 - 12:47 pm

Name, every time New Home sales have fallen 20%+ in less than a year there has been a recession (I've posted on this before). Not every little downturn in sales has led to a recession, but every major downturn has led to a recession in the last 35 years.

That doesn't mean this time won't be different - it might.

Best Wishes.

charts wrote on Thu, 10/26/2006 - 2:40 pm

CR, any data on yield curve spreads? i know the fed puts a high probability of a recession when the spread is -38 bps betwen the 3M and 10Y.

a cursory look at the my charts tells me that in the past 50 years, everytime treasury spreads get as inverted as now, we've gotten a recession.

does your data confirm or reject?

chanelle_andrew wrote on Fri, 10/27/2006 - 3:52 am

Great presentation of statistics on new home sales in September.
How many people may have opted for home loan? any statistics?

chanelle_andrew wrote on Fri, 10/27/2006 - 3:55 am

Great presentation of statistics on new home sales in September.
How many people may have opted for home loan? any statistics?

Login or register to post comments
Syndicate content