Actually, we are already seeing signs that the economy slowed down even more in the 3rd quarter due to falling durables, which is always a good sign of weakening economic growth. What part RE played in that fall is debateable at this point.
The problem with people is, they keep on thinking it is a fast slide into recession, but that is not how it works. It is a gradual decline as the big hulk slows, then "your favorite' statlines like Unemployment ete ete start kicking in. We should be another few months from that. But growth rates do look weak for H2 2006. Which sets up for a interesting 2007 as many have said.
Johnson, I agree it is a slow process. In the past I've referred to the housing bust as a "slow motion train wreck" and a form of chinese water torture.
In general I think Kohn is correct about there being little impact on the overall economy so far. Yes, the fall in Residential Investment hit GDP in Q2 (and will again in Q3), but it hasn't impacted other areas much yet. Good point on durables - I've been looking at that to see if the weakness continues.
But I think Kohn is a little optimistic going forward - of course that his is job - to be optimistic.
Durables represent the canaries in the coalmine type of phrase. Growth is really about the future, future for job creation and wealth. The economy grew at 4.1% during the 1H of 2006 which was pretty good. Thus why should unemployment/claims or consumption being rising/slowing yet?
Now, if the fall in durables is a sign of slowing economic growth, to say .8% in H2 2006, future job creation becomes negative and wealth decreases. Thus most likely negative job growth by early 2007 and falling earnings(which will effect stocks, maybe starting this month or next?). Kahn is making the same mistake the FED made with the dot.com bust. 2000 and 2006 are becoming Fraternal Twins.
They were so damned sure of a "soft landing" in 2000, they paniced when by H2 2001, when it had landed harder than expected(flat economy for a year) and over lowered rates in the process. I mean surprise surprise.
I am seeing the same 'passive' stance now. Yet, the signs of slowing economic growth are here. In 2007, the next step's take place. Bernanke's "speech" yesterday was good CYA and offered a bit more 'stronger' words with his 'substantial" correction bit yesterday about RE. He can be like, "well, I did say something about this being 'substantial".
CR - thanks for the time and trouble. Valuable perspective and data analysis. Given the Kohn-CRmod framework perhaps the key question will be a)overhangs (on which we've opined to the tune of 800K - 1.2mill as I recall ?) and 'natural' base rate - which might look more like 1.0 than 1.2+ mill ?
Beyond that MEW and construction employment are lagging variables (6-12 months) so if we've seen anything so far it's scarier on extrapolation. The proofs of the puddings will, it would seem to me, lie in the next 6-9 months ? Which means that within a slowing economy we have an increased risk of a housing induced recession ?
And in thie Goldilocks economy that's really Cinderella's where everything has to go right an increasing vulnerability to surprises and shocks.
That's my interpretation and interpolation of my take aways from you work. Fair ?
You got the demographics, but you left out demolitions. Fred Eggers, in a paper on Welcome | HUD USER (don't have the exact reference, but search on demolition) estimates over the 2 year period Spring 99 to Spring 01 that about 750K units were knocked down. So households are growin at 1.2M a year, and units would shrink by about 400K a year with no construction, meaning you need to add about 1.6M a year. I agree that there is a heck of an overhang that has to get run down first, but it might be a bit smaller than the numbers might imply - take out a couple of hundred thousand, courtesy of Hurricane Katrina.
DaveL, I'm working on it. I like the Cinderella comment!
mort_fin, I've been looking for that data - I'll try to find that paper. I added a comment earlier on demolitions.
It's important to realize that units are not New Home sales. I've posted on this before - and I'll try to come up with a clear estimate of how this might impact New Home sales.
Inflation at the bottom, at the cost end (i.e. energy, oil, commodities, raw materials, base metals) and defaltion at the top (i.e. real estate, labor wages, capital assets). In the middle of this malmstrom company profits are getting squeezed ever smaller, and the middle class is getting crushed, with stagnant or declining real wages and job losses through outsourcing to China and India. American economy has been gutted of it's productive capacity and all that remains are overpriced assets of tenuous attraction to foreign investing, and a evergrowing underclass of the social welfare recipients and prior middle class workers falling off their home perches.
The US government will ultimatley print vast sums of dollars to accommodate the ongoing asset liquidation and wealth redistribution. Declining tax revenues at home from a declining productivity, and increasing debt service and social welfare expenditures guarantee yawning deficits and an ever devaluing dollar for at least a generation. One better have some hard assets like silver and gold and land - only real things with international tangible value will fair well. US paper assets like stocks, bonds, real estate and domestic labor face a prolonged bear market.
Don't forget manufactured home shipments, which last year totaled 147,000 units. They are not counted as housing starts or permits, but they help to meet demographic demand.
sharkbait, this includes vacation homes (in the ratio of people per home). BTW, I've heard that vacation home buying has really slowed.
Stecc, I linked to that good retail story and I'll try to do some analysis when the actual numbers are reported (by the Census Bureau and BEA). Note that the Big Dog (WalMart) had a poor month (in comparison to 2005), and Walmart really impacts the overall sales.
Sharkbait asked about vacation homes. Census bureau has an estimate of that; don't recall where it is off the top of my head, but it was smaller than I expected. Hypothesis: I hang around with people who can afford second homes, so I expect many people have them. But were one to visit the Wal Mart parking lot and ask about second homes, the talk would be of tents and used campers.
Actually, we are already seeing signs that the economy slowed down even more in the 3rd quarter due to falling durables, which is always a good sign of weakening economic growth. What part RE played in that fall is debateable at this point.
The problem with people is, they keep on thinking it is a fast slide into recession, but that is not how it works. It is a gradual decline as the big hulk slows, then "your favorite' statlines like Unemployment ete ete start kicking in. We should be another few months from that. But growth rates do look weak for H2 2006. Which sets up for a interesting 2007 as many have said.
Johnson, I agree it is a slow process. In the past I've referred to the housing bust as a "slow motion train wreck" and a form of chinese water torture.
In general I think Kohn is correct about there being little impact on the overall economy so far. Yes, the fall in Residential Investment hit GDP in Q2 (and will again in Q3), but it hasn't impacted other areas much yet. Good point on durables - I've been looking at that to see if the weakness continues.
But I think Kohn is a little optimistic going forward - of course that his is job - to be optimistic.
Best Wishes.
Durables represent the canaries in the coalmine type of phrase. Growth is really about the future, future for job creation and wealth. The economy grew at 4.1% during the 1H of 2006 which was pretty good. Thus why should unemployment/claims or consumption being rising/slowing yet?
Now, if the fall in durables is a sign of slowing economic growth, to say .8% in H2 2006, future job creation becomes negative and wealth decreases. Thus most likely negative job growth by early 2007 and falling earnings(which will effect stocks, maybe starting this month or next?). Kahn is making the same mistake the FED made with the dot.com bust. 2000 and 2006 are becoming Fraternal Twins.
They were so damned sure of a "soft landing" in 2000, they paniced when by H2 2001, when it had landed harder than expected(flat economy for a year) and over lowered rates in the process. I mean surprise surprise.
I am seeing the same 'passive' stance now. Yet, the signs of slowing economic growth are here. In 2007, the next step's take place. Bernanke's "speech" yesterday was good CYA and offered a bit more 'stronger' words with his 'substantial" correction bit yesterday about RE. He can be like, "well, I did say something about this being 'substantial".
CR - thanks for the time and trouble. Valuable perspective and data analysis. Given the Kohn-CRmod framework perhaps the key question will be a)overhangs (on which we've opined to the tune of 800K - 1.2mill as I recall ?) and 'natural' base rate - which might look more like 1.0 than 1.2+ mill ?
Beyond that MEW and construction employment are lagging variables (6-12 months) so if we've seen anything so far it's scarier on extrapolation. The proofs of the puddings will, it would seem to me, lie in the next 6-9 months ? Which means that within a slowing economy we have an increased risk of a housing induced recession ?
And in thie Goldilocks economy that's really Cinderella's where everything has to go right an increasing vulnerability to surprises and shocks.
That's my interpretation and interpolation of my take aways from you work. Fair ?
Well, I really need people to keep clapping until after November, at least - hubby and I are counting on a good launch for the PS3!
C'mon, everyone clap louder!!!!
You got the demographics, but you left out demolitions. Fred Eggers, in a paper on Welcome | HUD USER (don't have the exact reference, but search on demolition) estimates over the 2 year period Spring 99 to Spring 01 that about 750K units were knocked down. So households are growin at 1.2M a year, and units would shrink by about 400K a year with no construction, meaning you need to add about 1.6M a year. I agree that there is a heck of an overhang that has to get run down first, but it might be a bit smaller than the numbers might imply - take out a couple of hundred thousand, courtesy of Hurricane Katrina.
DaveL, I'm working on it. I like the Cinderella comment!
mort_fin, I've been looking for that data - I'll try to find that paper. I added a comment earlier on demolitions.
It's important to realize that units are not New Home sales. I've posted on this before - and I'll try to come up with a clear estimate of how this might impact New Home sales.
Thanks again.
Inflation at the bottom, at the cost end (i.e. energy, oil, commodities, raw materials, base metals) and defaltion at the top (i.e. real estate, labor wages, capital assets). In the middle of this malmstrom company profits are getting squeezed ever smaller, and the middle class is getting crushed, with stagnant or declining real wages and job losses through outsourcing to China and India. American economy has been gutted of it's productive capacity and all that remains are overpriced assets of tenuous attraction to foreign investing, and a evergrowing underclass of the social welfare recipients and prior middle class workers falling off their home perches.
The US government will ultimatley print vast sums of dollars to accommodate the ongoing asset liquidation and wealth redistribution. Declining tax revenues at home from a declining productivity, and increasing debt service and social welfare expenditures guarantee yawning deficits and an ever devaluing dollar for at least a generation. One better have some hard assets like silver and gold and land - only real things with international tangible value will fair well. US paper assets like stocks, bonds, real estate and domestic labor face a prolonged bear market.
Don't forget manufactured home shipments, which last year totaled 147,000 units. They are not counted as housing starts or permits, but they help to meet demographic demand.
Bill, good point. The paper recommended by mort_fin also addresses mobile homes.
I'm going to post portions of the paper.
Best Wishes.
CR how are vacation homes taken into account? Is number of people per house dropping because of vacation homes?
So is this the worst bubble is history? The bubble to beat the south seas/tulips/1929/dot.com?
Hell yeah! (but I would love some trough to peak ratios)
The previous bubbles were localised. It is looking increasingly likely that this bubble is an Atlantic/China disaster
Stecc.
CR, what about a clear and concise analysis of the latest sales figures
Yahoo! 404 - Page Not Found
Stecc.
sharkbait, this includes vacation homes (in the ratio of people per home). BTW, I've heard that vacation home buying has really slowed.
Stecc, I linked to that good retail story and I'll try to do some analysis when the actual numbers are reported (by the Census Bureau and BEA). Note that the Big Dog (WalMart) had a poor month (in comparison to 2005), and Walmart really impacts the overall sales.
Best Wishes.
Nice job Bubbleboy Billy. Keep it spinning our way.
Sharkbait asked about vacation homes. Census bureau has an estimate of that; don't recall where it is off the top of my head, but it was smaller than I expected. Hypothesis: I hang around with people who can afford second homes, so I expect many people have them. But were one to visit the Wal Mart parking lot and ask about second homes, the talk would be of tents and used campers.