CR mentioned the downward revisions--The headline New Homes Sales numbers say "August New Home Sales up 4.1%". In my opinion, this is very misleading. Sales were 1.05 million in August. July was originally reported as sales of 1.072mm, which means August sales were actually down 2.1%. However, new home sales for June, July, and August were all revised downward. Therefore, the 4.1% "rise" in August New Home Sales were from the downwardly revised July New Homes Sales figure of 1.009mm units. YOY new home sale prices were down 1.3%, and this doesn't include heavy use of incentives, which by some accounts range from 3%-10% of actual sales price (and in some communities even higher). It is conceivable that sales could continue down each month but the headline number continues to show monthly sales being "up" should they keep revising prior months down.
I agree. Sales of single-family homes increased by 4.1% only from a 6.2% reduction in the previous month's figure, which was probably brought down mainly due to cancellations. If you look back, every month's figures have been revised downward for at least six months, and all the builders are experiencing high, and rising, cancellation rates.
As existing homes don't sell, then more new home contracts will be cancelled. Talked to a realtor client yesterday who is loosing a "sale" ,from two months ago, today because the builder's contract says the new home purchase contract is void today because buyer's "old" home does not have a sales contract yet.
cbazz, this is an ugly report. All revisions were down ... and any headline that said sales were up is misleading.
Given the recent revisions, there is a good chance that August was below the 1 million annual rate. I'm sure the Census Bureau does the best they can, but their approach continues to overestimate each month as housing falls (obviously with all revisions being down).
I look forward to the expanded discussion of the downward revisions issue. Perhaps this time without the personal venom. Yes, Aug new home sales first cut is down some 2% vice Jul first cut sales. I cannot imagine cancellation rates declining in this market so we can expect ever widening downward revisions going forward. As to supply; I'm not as sure rising inventory real is comparable. All those cancellations under contract just go on the market. Additionally the HBs are frontloading their inventories, completing anything already started and cancelling anything else in an attempt to cut operating costs in the future. It's still the sales that matter for new homes.
Just a further note: not only was July's figure revised downward in this report, so were those for May and June. June's figure has now been downwardly revised twice and May's three times.
why does sales activity equaling that of three years ago = recession and bust when three years ago = boom times?
i understand that expectations and the trend are downward, but in terms of actual activity - shouldn't the impact be as positive now as it was deemed then?
dc1000- the housing "boom time" was the only thing keeping the economy afloat in the aftermath of the tech crash. Going forward without the housing boom, tax cuts, large increases in gov't spending, and consumers willing to spend to the point of a savings rate that is now negative will all likely be fairly large headwinds for the economy, whereas they were all tailwinds a few years ago. Housing was THE underpinning of the economy for years (both in construction but also jobs, MEW, confidence, etc.), and with it going back to lower levels, what will take it's place?
dc1000, the answer lies partly in inventories. They are now 50% larger than they were three years ago, and where the trend was steady three years ago, now the trend is for lower sales and increasing inventories...
ANother thought on revisions and why they may increase:
New home sales are counted when a contract's signed.
1.) more people are walking away from contracts and losing deposits...
2.) to increase "sales", builders are lowering deposit requirements...
3.) this will increase the likelihood of people walking away from contracts...
It is noteworth that all of the "increase" in home sales were either in the not started (to 34k from 29K) or under construction (from 29k to 30k). I would think that a house where ground has yet to be broken is much more likely to be cancelled than one that is completed or nearly so. on the other hand, those that were for sale in August, mosre than all the increase was in the not started catagory (from 98k to 106K) while the total for sale rose from 564k to 569k. Houses under construction for sale fell to 315k from 325K and completed homes for sale rose from 141k to 148k.
as long as flippers are leaving the market, there prices will not appear to be falling as fast as they are. with the flippers cleared out in 2007 and 2008, prices might get really ugly...
Our government uses the National Association of Realtors' median sales price to gauge the health of American real estate prices. I think they may want to develop a new method if they want accuracy. The table below uses Orange County's Q2 median home sales to demonstrate the errors we are liable to run into when using the median price to determine the "average" health of a market in which speculators are leaving.
According to the data, in Q2 2006, the median price of all homes in Orange County rose 2.6% year over year. Yet look at the median price of resale houses, condominiums, and new homes. Every segment of the housing market grew at a slower pace then the supposed "average" price of 2.6%. The price of resale houses only grew 1.5%, condominiums just 0.4%, and new homes were down -1.5% - but yet when these three groups are combined median prices were...higher?
How can this be? It all comes down to flippers leaving the housing market. The flippers like cheaper priced resale homes and condominiums, but they decided to stop buying them this year, and Orange County sales volumes dropped for these properties 30.3% and 40.6%, respectively. The sales volume of more expensive new homes, less likely to attract flippers, only dropped 15.2%. That means, as a share of total sales volume, the more expensive didn't lose buyers as much as the less expensive homes. The more expensive homes that get bought relative to cheap homes, the higher the median sales price will be even if the median price within the expensive homes subset is negative, like we see in the Orange County data.
So therein lies the fallibility of using the median as an average for home prices. Conceivably, the market price for all homes could be much worse, but if we take the median as the only gage of average price, the distortion that measurement causes would mislead us to believe things are fine. It's not hard to think of a situation where home prices register negative for all sections of the housing market, but an exodus of speculators keeps the median price positive.
So, if Orange County is any indication, it ironically looks like the departure of home flippers from the hot real estate markets may temporarily have a supportive effect on median home prices.
I think the above assessments are too negative. I view the results as reasonably good.
If 2004 and 2005 were normal housing markets, I would share your pessimism. However, the housing market last year (and in 2004) was overheated, fueled by speculative activity. A correction was inevitable; the only issue was the path downward. Sales remain within the range seen in 2003, which was a record year for housing at the time. This year will be the third (maybe fourth) best year for housing -- exceeded only by the overheated markets in 2004 and 2005. COnsidering that an adjustment was needed, that's not bad.
Financial markets have not taken your pessimistic tack. Interest rates increased after the release of the data, with investors apparently reassured that housing was not collapsing. Stock prices are up.
"Sales remain within the range seen in 2003, which was a record year for housing at the time."
Sales figures for telecom equipment in 2002 were probably within 1998 or 1997 levels, which were record years for telecom equipment purchases at the time.
Do you see the flaw in your statement's reasoning?
I think my point is still valid. Let me take a different approach. New home sales have increased at an average annual rate of 3.9 percent since 2000 (using 2000 as the starting point and average sales year-to-date for 2006 as the end point). Real GDP over this same period is up at an average annual rate of 2.6 percent. Even with the correction experienced thus far, housing has outperformed the economy. The market is squeezing the exuberance experienced in 2004 and 2005, but this needed to be done. The only issue is whether the correction is orderly or disorderly. With housing still outperforming the economy on average over the past several years, and with sales remaining close to 2003 levels, I judge the correction to be orderly.
Kater,
When you indicate that "New home sales have increased at an average rate of 3.9%", is that sales volume?
The comparison with Real GDP of 2.6% would have to be with transactional value of the homes sold. Then both would be extended value items, that is:
Units X Unit Price = Total
Comparisons of units with extended value are usually only valid when referring to one commodity.
Do you really feel that a single family home in California in a dumpy area is worth 550K? Or in Miami 400K- your analogy while cute- still does not show the corrections needed to make housing in those areas affordable- and in many other geographic regions.
kater, even if the housing market stabilizes at this level (2003 level), housing related employment will fall back to 2003 levels too ... and that is about 600K fewer jobs just in residential construction.
I think that is the best case: slow job and economic growth for the next year. If the housing market gets worse (as I expect) then obviously the outlook is bleaker.
All, I read the AP report and watched CNN report these numbers. I couldn't believe it was the same report I read this AM!
CR,
Of the 600k or so jobs likely to be lost in the construction trades, are there any estimates of how many of these would be non-US citizens?
What are some likely scenarios in terms of impact if many are....illegals?
I agree with Kater. The number is not all that bad. Briefing.com had a consensus estimate of 1.04MM new home sales for August, and their own estimate called for 1.02MM. Even if the numbers are likely to be revised downward (thanks to James Bednar's compelling comment), this is not a bad result. More importantly, I think that the fundamentals have recently stopped deteriorating:
Dirk van Dijk points out (above) that more and more sales are coming from homes under construction, whereas the unsold inventory is getting skewed toward completed homes. If that is so (I haven't looked at the raw data), it suggests that builders are getting more rational, i.e. are not committing the resources to build, until they have a signed sales contract. Such improved discipline should help bring down inventory over the coming months. In addition, let's keep in mind that interest rates are coming down fast and hard: Despite today's small increase, the 10yr Treasury yield is 65bp below the peak of late June, and only slightly higher (30bp), than 2005's average. With that, it seems implausible to expect that lack of financing or ARM resets will choke off the market. Employment and wages aren't weighing on the real estate market, either. Together, these factors should provide support for demand in the coming months.
Of course residential real estate is going to be an underperforming sector for a while, and that will be bad news for the hundreds of thousands of construction workers that will lose their jobs, and the scores of realtors who will have to work so much harder to buy their next Porsche. But the melt-down scenario that envisions real estate values dropping by 20%+ in significant parts of the country seems more and more unlikely to pass. It will be an Imperfect Storm.
Home sales are volumr figures (i.e. real figures). So , I am comparilg apples to apples (real to real).
Skytrekker,
Some areas are overvalued and will fall in price. That will be part of the adjustment process. I don't deny this. It's a question of orderly or disorderly. So far, I think orderly
That is the other dimension: CNN et al interpret the report for those who are not in the habit of thinking (kudos to poster reason) for themselves [not us by Jiminey!] --making the remainder plenty nervous.
Is the cake so bad that THAT much whipping cream needs to be applied?
Of course this dimension, this little blog pool, is just full of habitual skeptics. Just look at dare devil Tom's comment for instance.
Kater,
I think I made my question clear, but didn't fell short with my other point.
Total GDP increases should be compared with increases in Total Value of Homes Sold. In that case, we can directly analyze the dollar value data. Using that comparison, the housing sector performed remarkably in the last 6 years.
I guess you could also compare the units of homes sold with the total dollars spent on washing machines, but that also introduces some intermediary noise that distorts the relationships.
I was not questioning the validity of the data. I was questioning the application.
Matthias,
Are you assuming that the ARM resets are generally eligible for refinancing at rates comparable to the initial teaser rate that is expiring? Do you also think banks will be as willing in 2007 as they were in 2004 to originate these loans for the same value?
Also, many down payments for 30 year fixed mortgages were made with personal loans with resets.
Both of the above were peddled to immigrants who had no understanding of the possible outcomes.
I wish you were right.
While I agree that the builders are starting to reduce their activity, and thus not keep adding to the supply, I don't think it's correct to assume that demand will remain where it is.
Remember that in the last few years, the percentage of homeowners has risen quite a lot above long term norms. Essentially what happened was that demand was borrowed from the future - ie people who would normally be buying over the next few years have already bought. It doesn't matter what happens to interest rates and the supply of houses now, the demand for housing will be below normal (whatever that is), for quite some time to come.
Doesn't strike me as providing any support for prices
Insider- The number reported today was slightly better than expected. In my book that means it was "not bad".
Since later downward revisions have been the norm for quite a while, as was pointed out, the consensus expectation for today's release should discount such revisions. If you have evidence that it doesn't, please share.
Matthias,
I do have some anecdotal evidence that well funded investors are interested in buying blocks of unsold new homes. Apparently they will try to rent them and wait out the downturn.
That could help stablize inventory. I don't know what the scale is and obviously can't name the source.
Lama-
Yes I think that lenders will continue to do everything in their power to keep the real estate market going. That's simply in their interest. If they could finance themselves in 2007 at rates similar to those in 2004, then they would write conventional mortgages at similar terms. Right now, it looks like ARMs will reset to higher rates, but the step-up looks to be a lot less severe than we would have expected back in June/July. As far as the exotic/toxic/innovative end of the mortgage market is concerned, you are certainly right, though.
Foo-
Good point on the borrowed demand. But I will disagree with you on the importance of interest rates. I think inflation, and therefore interest rates are key. For home ownership rates to go down, there needs to be a catalyst. With population growth, wages, and employment levels intact, the only one potential catalyst I can see, is people being priced out of their adjustable mortgages. That was THE nightmare scenario 3 months ago, and it could still come to pass. But during the last three months, the risk has come down.
Matthias I can give you some support here but not all that much. Rates are unlikely to continue to fall. This is as low as the 10Y is going to go until we see some decent layoffs. And even when we do get layoffs the 10y will not fall much more. I think layoffs will come due to slowing housing activity? Why? Cause slowing housing will slow down manufacturing. Once that happens there will be less job growth and wage growth -- the two things now that are propping up housing. Housing needs to to continue to weaken because housing activity is still at historically high levels. Well -- I mean things are not that bad in the housing market now -- its just that its headed south.
When you go to buy a new house now you can expect about 15% in incentives. Eventually builders will stop offering incentives and sell houses for 15% less. Soon after existing houses will sell for 15% less .... then builders will start building less causing land prices to fall ... then there will be less equity withdrawal leading to less spending causing more layoffs in the rest of the economy causing less demand for housing causing prices to fall causing a recession causing interst rates to fall .... and then finallt a recovery.
If wages, GDP, housing prices, existing home sales, total employment, retail sales, etc., were to go down to 2003 levels (as new home sales have), even though each of those items may have been at a record at the time, wouldn't that portend a very bad outcome for the economy?
CR mentioned the downward revisions--The headline New Homes Sales numbers say "August New Home Sales up 4.1%". In my opinion, this is very misleading. Sales were 1.05 million in August. July was originally reported as sales of 1.072mm, which means August sales were actually down 2.1%. However, new home sales for June, July, and August were all revised downward. Therefore, the 4.1% "rise" in August New Home Sales were from the downwardly revised July New Homes Sales figure of 1.009mm units. YOY new home sale prices were down 1.3%, and this doesn't include heavy use of incentives, which by some accounts range from 3%-10% of actual sales price (and in some communities even higher). It is conceivable that sales could continue down each month but the headline number continues to show monthly sales being "up" should they keep revising prior months down.
I agree. Sales of single-family homes increased by 4.1% only from a 6.2% reduction in the previous month's figure, which was probably brought down mainly due to cancellations. If you look back, every month's figures have been revised downward for at least six months, and all the builders are experiencing high, and rising, cancellation rates.
As existing homes don't sell, then more new home contracts will be cancelled. Talked to a realtor client yesterday who is loosing a "sale" ,from two months ago, today because the builder's contract says the new home purchase contract is void today because buyer's "old" home does not have a sales contract yet.
cbazz, this is an ugly report. All revisions were down ... and any headline that said sales were up is misleading.
Given the recent revisions, there is a good chance that August was below the 1 million annual rate. I'm sure the Census Bureau does the best they can, but their approach continues to overestimate each month as housing falls (obviously with all revisions being down).
Best to all.
I look forward to the expanded discussion of the downward revisions issue. Perhaps this time without the personal venom. Yes, Aug new home sales first cut is down some 2% vice Jul first cut sales. I cannot imagine cancellation rates declining in this market so we can expect ever widening downward revisions going forward. As to supply; I'm not as sure rising inventory real is comparable. All those cancellations under contract just go on the market. Additionally the HBs are frontloading their inventories, completing anything already started and cancelling anything else in an attempt to cut operating costs in the future. It's still the sales that matter for new homes.
Just a further note: not only was July's figure revised downward in this report, so were those for May and June. June's figure has now been downwardly revised twice and May's three times.
easy question:
why does sales activity equaling that of three years ago = recession and bust when three years ago = boom times?
i understand that expectations and the trend are downward, but in terms of actual activity - shouldn't the impact be as positive now as it was deemed then?
dc1000- the housing "boom time" was the only thing keeping the economy afloat in the aftermath of the tech crash. Going forward without the housing boom, tax cuts, large increases in gov't spending, and consumers willing to spend to the point of a savings rate that is now negative will all likely be fairly large headwinds for the economy, whereas they were all tailwinds a few years ago. Housing was THE underpinning of the economy for years (both in construction but also jobs, MEW, confidence, etc.), and with it going back to lower levels, what will take it's place?
dc1000, the answer lies partly in inventories. They are now 50% larger than they were three years ago, and where the trend was steady three years ago, now the trend is for lower sales and increasing inventories...
ANother thought on revisions and why they may increase:
New home sales are counted when a contract's signed.
1.) more people are walking away from contracts and losing deposits...
2.) to increase "sales", builders are lowering deposit requirements...
3.) this will increase the likelihood of people walking away from contracts...
New Home Sales (in thousands)
January
Initial - 1,233
Revised - 1,173 (Down 4.9%)
February
Initial - 1,080
Revised - 1,038 (Down 3.9%)
March
Initial - 1,213
Revised - 1,121 (Down 7.6%)
April
Initial - 1,198
Revised - 1,121 (Down 6.4%)
May
Initial - 1,234
Revised - 1,101 (Down 10.8%)
June
Initial - 1,131
Revised - 1,091 (Down 3.5%)
July
Initial - 1,072
Revised - 1,009 (Down 5.8%)
It is noteworth that all of the "increase" in home sales were either in the not started (to 34k from 29K) or under construction (from 29k to 30k). I would think that a house where ground has yet to be broken is much more likely to be cancelled than one that is completed or nearly so. on the other hand, those that were for sale in August, mosre than all the increase was in the not started catagory (from 98k to 106K) while the total for sale rose from 564k to 569k. Houses under construction for sale fell to 315k from 325K and completed homes for sale rose from 141k to 148k.
Wild prediction: August sales will be revised down.
as long as flippers are leaving the market, there prices will not appear to be falling as fast as they are. with the flippers cleared out in 2007 and 2008, prices might get really ugly...
How "Median Home Price" can mask market weakness - Daniel L Charts's MySpace Blog |
How "Median Home Price" can mask market weakness
Our government uses the National Association of Realtors' median sales price to gauge the health of American real estate prices. I think they may want to develop a new method if they want accuracy. The table below uses Orange County's Q2 median home sales to demonstrate the errors we are liable to run into when using the median price to determine the "average" health of a market in which speculators are leaving.
According to the data, in Q2 2006, the median price of all homes in Orange County rose 2.6% year over year. Yet look at the median price of resale houses, condominiums, and new homes. Every segment of the housing market grew at a slower pace then the supposed "average" price of 2.6%. The price of resale houses only grew 1.5%, condominiums just 0.4%, and new homes were down -1.5% - but yet when these three groups are combined median prices were...higher?
How can this be? It all comes down to flippers leaving the housing market. The flippers like cheaper priced resale homes and condominiums, but they decided to stop buying them this year, and Orange County sales volumes dropped for these properties 30.3% and 40.6%, respectively. The sales volume of more expensive new homes, less likely to attract flippers, only dropped 15.2%. That means, as a share of total sales volume, the more expensive didn't lose buyers as much as the less expensive homes. The more expensive homes that get bought relative to cheap homes, the higher the median sales price will be even if the median price within the expensive homes subset is negative, like we see in the Orange County data.
So therein lies the fallibility of using the median as an average for home prices. Conceivably, the market price for all homes could be much worse, but if we take the median as the only gage of average price, the distortion that measurement causes would mislead us to believe things are fine. It's not hard to think of a situation where home prices register negative for all sections of the housing market, but an exodus of speculators keeps the median price positive.
So, if Orange County is any indication, it ironically looks like the departure of home flippers from the hot real estate markets may temporarily have a supportive effect on median home prices.
I think the above assessments are too negative. I view the results as reasonably good.
If 2004 and 2005 were normal housing markets, I would share your pessimism. However, the housing market last year (and in 2004) was overheated, fueled by speculative activity. A correction was inevitable; the only issue was the path downward. Sales remain within the range seen in 2003, which was a record year for housing at the time. This year will be the third (maybe fourth) best year for housing -- exceeded only by the overheated markets in 2004 and 2005. COnsidering that an adjustment was needed, that's not bad.
Financial markets have not taken your pessimistic tack. Interest rates increased after the release of the data, with investors apparently reassured that housing was not collapsing. Stock prices are up.
"Sales remain within the range seen in 2003, which was a record year for housing at the time."
Sales figures for telecom equipment in 2002 were probably within 1998 or 1997 levels, which were record years for telecom equipment purchases at the time.
Do you see the flaw in your statement's reasoning?
I think my point is still valid. Let me take a different approach. New home sales have increased at an average annual rate of 3.9 percent since 2000 (using 2000 as the starting point and average sales year-to-date for 2006 as the end point). Real GDP over this same period is up at an average annual rate of 2.6 percent. Even with the correction experienced thus far, housing has outperformed the economy. The market is squeezing the exuberance experienced in 2004 and 2005, but this needed to be done. The only issue is whether the correction is orderly or disorderly. With housing still outperforming the economy on average over the past several years, and with sales remaining close to 2003 levels, I judge the correction to be orderly.
Kater,
When you indicate that "New home sales have increased at an average rate of 3.9%", is that sales volume?
The comparison with Real GDP of 2.6% would have to be with transactional value of the homes sold. Then both would be extended value items, that is:
Units X Unit Price = Total
Comparisons of units with extended value are usually only valid when referring to one commodity.
Thanks for any reply,
Kater
Do you really feel that a single family home in California in a dumpy area is worth 550K? Or in Miami 400K- your analogy while cute- still does not show the corrections needed to make housing in those areas affordable- and in many other geographic regions.
Frankly uou are smoking the peace pipe.
kater, even if the housing market stabilizes at this level (2003 level), housing related employment will fall back to 2003 levels too ... and that is about 600K fewer jobs just in residential construction.
I think that is the best case: slow job and economic growth for the next year. If the housing market gets worse (as I expect) then obviously the outlook is bleaker.
All, I read the AP report and watched CNN report these numbers. I couldn't believe it was the same report I read this AM!
Best to all.
CR,
Of the 600k or so jobs likely to be lost in the construction trades, are there any estimates of how many of these would be non-US citizens?
What are some likely scenarios in terms of impact if many are....illegals?
Thanks,
I agree with Kater. The number is not all that bad. Briefing.com had a consensus estimate of 1.04MM new home sales for August, and their own estimate called for 1.02MM. Even if the numbers are likely to be revised downward (thanks to James Bednar's compelling comment), this is not a bad result. More importantly, I think that the fundamentals have recently stopped deteriorating:
Dirk van Dijk points out (above) that more and more sales are coming from homes under construction, whereas the unsold inventory is getting skewed toward completed homes. If that is so (I haven't looked at the raw data), it suggests that builders are getting more rational, i.e. are not committing the resources to build, until they have a signed sales contract. Such improved discipline should help bring down inventory over the coming months. In addition, let's keep in mind that interest rates are coming down fast and hard: Despite today's small increase, the 10yr Treasury yield is 65bp below the peak of late June, and only slightly higher (30bp), than 2005's average. With that, it seems implausible to expect that lack of financing or ARM resets will choke off the market. Employment and wages aren't weighing on the real estate market, either. Together, these factors should provide support for demand in the coming months.
Of course residential real estate is going to be an underperforming sector for a while, and that will be bad news for the hundreds of thousands of construction workers that will lose their jobs, and the scores of realtors who will have to work so much harder to buy their next Porsche. But the melt-down scenario that envisions real estate values dropping by 20%+ in significant parts of the country seems more and more unlikely to pass. It will be an Imperfect Storm.
Lama,
Home sales are volumr figures (i.e. real figures). So , I am comparilg apples to apples (real to real).
Skytrekker,
Some areas are overvalued and will fall in price. That will be part of the adjustment process. I don't deny this. It's a question of orderly or disorderly. So far, I think orderly
That is the other dimension: CNN et al interpret the report for those who are not in the habit of thinking (kudos to poster reason) for themselves [not us by Jiminey!] --making the remainder plenty nervous.
Is the cake so bad that THAT much whipping cream needs to be applied?
Of course this dimension, this little blog pool, is just full of habitual skeptics. Just look at dare devil Tom's comment for instance.
So if they are "revised" down to .990, that is not a "bad result"?
Kater,
I think I made my question clear, but didn't fell short with my other point.
Total GDP increases should be compared with increases in Total Value of Homes Sold. In that case, we can directly analyze the dollar value data. Using that comparison, the housing sector performed remarkably in the last 6 years.
I guess you could also compare the units of homes sold with the total dollars spent on washing machines, but that also introduces some intermediary noise that distorts the relationships.
I was not questioning the validity of the data. I was questioning the application.
Matthias,
Are you assuming that the ARM resets are generally eligible for refinancing at rates comparable to the initial teaser rate that is expiring? Do you also think banks will be as willing in 2007 as they were in 2004 to originate these loans for the same value?
Also, many down payments for 30 year fixed mortgages were made with personal loans with resets.
Both of the above were peddled to immigrants who had no understanding of the possible outcomes.
I wish you were right.
While I agree that the builders are starting to reduce their activity, and thus not keep adding to the supply, I don't think it's correct to assume that demand will remain where it is.
Remember that in the last few years, the percentage of homeowners has risen quite a lot above long term norms. Essentially what happened was that demand was borrowed from the future - ie people who would normally be buying over the next few years have already bought. It doesn't matter what happens to interest rates and the supply of houses now, the demand for housing will be below normal (whatever that is), for quite some time to come.
Doesn't strike me as providing any support for prices
Insider- The number reported today was slightly better than expected. In my book that means it was "not bad".
Since later downward revisions have been the norm for quite a while, as was pointed out, the consensus expectation for today's release should discount such revisions. If you have evidence that it doesn't, please share.
Matthias,
I do have some anecdotal evidence that well funded investors are interested in buying blocks of unsold new homes. Apparently they will try to rent them and wait out the downturn.
That could help stablize inventory. I don't know what the scale is and obviously can't name the source.
and the numbers "reported" today are not the "final numbers". Again, if they are revised down to .990, that is not good. Your reaching.
Lama-
Yes I think that lenders will continue to do everything in their power to keep the real estate market going. That's simply in their interest. If they could finance themselves in 2007 at rates similar to those in 2004, then they would write conventional mortgages at similar terms. Right now, it looks like ARMs will reset to higher rates, but the step-up looks to be a lot less severe than we would have expected back in June/July. As far as the exotic/toxic/innovative end of the mortgage market is concerned, you are certainly right, though.
Foo-
Good point on the borrowed demand. But I will disagree with you on the importance of interest rates. I think inflation, and therefore interest rates are key. For home ownership rates to go down, there needs to be a catalyst. With population growth, wages, and employment levels intact, the only one potential catalyst I can see, is people being priced out of their adjustable mortgages. That was THE nightmare scenario 3 months ago, and it could still come to pass. But during the last three months, the risk has come down.
Matthias I can give you some support here but not all that much. Rates are unlikely to continue to fall. This is as low as the 10Y is going to go until we see some decent layoffs. And even when we do get layoffs the 10y will not fall much more. I think layoffs will come due to slowing housing activity? Why? Cause slowing housing will slow down manufacturing. Once that happens there will be less job growth and wage growth -- the two things now that are propping up housing. Housing needs to to continue to weaken because housing activity is still at historically high levels. Well -- I mean things are not that bad in the housing market now -- its just that its headed south.
When you go to buy a new house now you can expect about 15% in incentives. Eventually builders will stop offering incentives and sell houses for 15% less. Soon after existing houses will sell for 15% less .... then builders will start building less causing land prices to fall ... then there will be less equity withdrawal leading to less spending causing more layoffs in the rest of the economy causing less demand for housing causing prices to fall causing a recession causing interst rates to fall .... and then finallt a recovery.
Good luck!
Kater,
If wages, GDP, housing prices, existing home sales, total employment, retail sales, etc., were to go down to 2003 levels (as new home sales have), even though each of those items may have been at a record at the time, wouldn't that portend a very bad outcome for the economy?