I don't understand why housing starts have dropped like a rock recently, when the market remains historically strong. Sounds like to me builders have been brainwashed by the doom and gloom.
Pheeew-weeee. Hope you've got your seatbelt on. Nothing like shaving half a million jobs off the economy to slow things down.
The thing I'm dying to know is what percentage of residential-construction related employees have a "toxic mortgage" financing their homes? Is it more, less, or the same as the general population? Let's hope that it is less, or we will really be starting off the mortgage default cycle with a bang.
Lenny, builders have reacted to their increasing cancellation rates, accumulating unwanted inventory, lower gross orders and concomittent shrinking backlogs.
But tell us, what brand of brainwash are you using?
It looks to me like the housing industry has "dropped like a rock" back to more historical levels. The increase in housing starts and employment of the last 2-3 years were an anomolly (sp?) and unsustainable.
Elsewhere in comments someone wondered how many construction workers had "toxic home loans" and would not be able to make the payments when they lost their jobs. Back when I was doing insulation, most of the crew were kids , either still living at home or renting. Very few of them actually owned a home. Older carpenters, plumbers, electricians, etc. that is people with actual skills besides the abilty to work fast, were generally homeowners. I would guess those people with actual skills and tools will be able to find something, even if it is only side jobs. My experience was once my friends and aquaintences found out I could do some part of construction, I was always getting asked to spend a "few hours" on Saturday helping out. I could have had a good income under the table if I wanted to.
Builders have turned off the tap remarkably quick, which due to a certain inherent demand for housing is not good for our side. Comerade Calcurated Cyst is wise to ignore this and instead claim that 600,000 people will lose their jobs.
We will be lucky if it's only 600K whether comrade approves or not.
Usually these things overshoot, exec's get pink slip punch drunk... Where my wife worked, after 9/11, they shot everyone in sight & their dog too... ended up under-staffing by about 25%. It was hard to tell which was worse - keeping or losing your job.
Fortunately in construction a lot of these guys are subs & inde's - they know their way back to the job sites.
Well it is good to hear that not many construction workers own a home and so, therefore, aren't at risk of defaulting on their mortgages. Also, because they are living at home, it won't be a problem if their income is reduced. And finally, their income likely won't be reduced because either they will be work on commercial jobs or doing odd jobs for their friends.
So really, if I understand the issue, the reduction in people actually working on building houses (to either 2002 or other levels) would have no net effect on the economy. Dare I say that "it is different this time"?
I'm not predicting the end of the world. I just find it hard to believe that after the feverish pace of the last 7 years, and the resulting spectacular growth in construction-related employment (increased by 1 million workers between 2001 and 2005 or 40%), that a slow-down in home building isn't going to have some sort of measurable, negative effect on the economy. I guess we'll know in a year or two.
Jim you're view is quite antiquated. The strong housing market brought all sorts of people into the construction business who work full time, own homes and pay their taxes like the rest of us. This downturn is going to hurt alot more than previous busts.
I think we do not know what % of construction workers have homes or not. May not matter because the service folks who take their money for services do.
Hispanic folks will not buy stuff at Walmart or other places. Youth at home will not buy music, ipods, cars or electronics. Brokers will not buy fancy cars.
And so on. IMHO it does matter where on the food chain the toxic mortgages are, its their existance and the fragility of the wage earners that matter.
Since all money is born via bank credit, a reduction in construction loans should have quite a ripple effect.
Maybe the Fed and G.W. can engineer some kind of energy bubble next (start war with Iran). The Calorie Reclamation Project. People get paid high incomes for peddling on stationary bikes hooked up to electric generators. Provides monetary transmission mechanism for inflation, reduces aggregate healthcare costs, produces clean energy. I wish they made an Absurd Edition of Civilization (a video game).
Wondering if you had a chance to scan the latest Flow of Funds report at Flow of Funds
Per-capita net worth actually fell to $178,290 from $178,505 in the first quarter.
Meanwhile, consumer credit increased at a 6.6% rate in the second quarter, according to the
MarketWatch report this was the fastest increase in four years.
Ummm, PeePee? Retail hiring is quite weak so far this year. And our kind host has done some very clear, and so far, quite accurate work on timing. Could you maybe enlighten us as to the thought process behind you mockery?
"Mortgage debt increased at a 9% rate, the slowest pace since the recession of 2001. Borrowing under a home-equity loan increased by about 19% annualized, the largest growth in a year. Home-equity loans represented 10% of the $9.84 trillion in outstanding mortgage debt, up from 7.9% in 2002."
for some historical perspective - in q191, permit declines hit their low point, falling 40%, year over year. I just put in a forecast for permits through q407, based on a similar pattern, with permits falling 30% yoy, at max, before the decreases start moderating. A model built on a 3 quarter lag shows residential construction employment down by nearly 20% by mid 07, and as much as 30% by end of the year. Id say, based on the extent of overbuild in this cycle, that that's a conservative estimate, because the permit numbers could easily prove to be much worse.
Pinning down the correct number for residential construction employment is tricky, but if you use CRs 3300, we are still talking about 1 million jobs disappearing in the next 5 quarters.
They go into great detail analyzing a Best Buy promo for big screens & whether its good for the consumer, good for the company, both or neither. It takes them a couple days to figure out the fine print... they think they got it... but it's never quite resolved.
Now I ask you... do you think the average Best Buy buyer understands all that? How about the Best Buy sales guys or even their managers, they much sharper? Well what tickled me is I've taken MBA classes with a few of their exec's and I bet they wouldn't get it either.
And what's coolest of all is they book those sales 'now' - this period - and the money gets paid.... when? And this situation is repeated... how often? And at how many different retail venues?
Hell who has to lay off and close up if you can book sales with no money!!! We haven't seen that since.... telecomm in 1999 or 2000 at least.
If only Wimpy were still around, he'd have a motto for them.
I still think there is going to be a blizzard of pink slips in retail... that and bankruptcies associated with the builders, financiers & developers of the malls when the rents don't get paid. Maybe somebody will be able to make a buck tearing them all up & turning them back into bean fields... after all people will still have to eat.
I may have to wait a bit longer to see it happen, but my guess is when it does the 'optimists' will cry 'how did all that happen?' instead of 'ya, saw it coming - should have known better - we had all gone a little over the top'.
"I still think there is going to be a blizzard of pink slips in retail... that and bankruptcies associated with the builders, financiers & developers of the malls when the rents don't get paid. Maybe somebody will be able to make a buck tearing them all up & turning them back into bean fields... after all people will still have to eat."
Right. Tearing down malls and planting beans.
You're the guy who people smile politely at while moving swiftly away from, right?
I liked the "blizzard of pink slips" even better because you've been standing dirt-faced and urine-smelling on the corner hollering it into your battered megaphone for so long.
There's no need for pink slips in retail. It's a business that typically has more than 100% turnover of help each year. Just stop hiring for a few months and you can easily reduce headcount by 50%. The retailers pretty much have been doing this since January.
CR need you help with this one. Someone told me they estimate that housing starts will stabilize in the 1.4MM range so that the excess inventory gets bought up. Dont know if they used 7m supply as they input or more. I think we go to 10m at least? Please give me your best shot at a starts projection.
BTW this blog is getting busy with comments. You people sure werent here when the bubble was still bubbling.
In Ohio, the jobless rate has sharply turned up in late summer, maybe we/they are already feeling the construction layoffs since the economic conditions are weak, they probably started a few months earlier than the rest. The Columbus area, especially, had one of those San Diego/Tampa styles bubbles, though mini compared to the big boys. But layoffs are layoffs.
Just think, back in 1999, people in Ohio were complaining about to low of unemployment was threatening future growth........
I don't understand why housing starts have dropped like a rock recently, when the market remains historically strong. Sounds like to me builders have been brainwashed by the doom and gloom.
Pheeew-weeee. Hope you've got your seatbelt on. Nothing like shaving half a million jobs off the economy to slow things down.
The thing I'm dying to know is what percentage of residential-construction related employees have a "toxic mortgage" financing their homes? Is it more, less, or the same as the general population? Let's hope that it is less, or we will really be starting off the mortgage default cycle with a bang.
After they've "dropped like a rock" they are still at 2002 levels. Its too early for hyperbole.
Its like MacBeth. You know the ending, but they make you read it anyway.
Lenny, builders have reacted to their increasing cancellation rates, accumulating unwanted inventory, lower gross orders and concomittent shrinking backlogs.
But tell us, what brand of brainwash are you using?
2002 levels is bad enough, next thing you know, it will be 1983 levels.
Lenny
It looks to me like the housing industry has "dropped like a rock" back to more historical levels. The increase in housing starts and employment of the last 2-3 years were an anomolly (sp?) and unsustainable.
Elsewhere in comments someone wondered how many construction workers had "toxic home loans" and would not be able to make the payments when they lost their jobs. Back when I was doing insulation, most of the crew were kids , either still living at home or renting. Very few of them actually owned a home. Older carpenters, plumbers, electricians, etc. that is people with actual skills besides the abilty to work fast, were generally homeowners. I would guess those people with actual skills and tools will be able to find something, even if it is only side jobs. My experience was once my friends and aquaintences found out I could do some part of construction, I was always getting asked to spend a "few hours" on Saturday helping out. I could have had a good income under the table if I wanted to.
If the US population added 2.8 million people last year shouldn't we be building about 1.2 million houses a year?
Seems like we're still running a bit hot.
Builders have turned off the tap remarkably quick, which due to a certain inherent demand for housing is not good for our side. Comerade Calcurated Cyst is wise to ignore this and instead claim that 600,000 people will lose their jobs.
Stop dipping your cigars in formaldehyde, Fidel.
Its like MacBeth. You know the ending, but they make you read it anyway.
Trouble is they don't read McBeth in business schools so they wouldn't know about 'endings'... all they know is 'process'.
We will be lucky if it's only 600K whether comrade approves or not.
Usually these things overshoot, exec's get pink slip punch drunk... Where my wife worked, after 9/11, they shot everyone in sight & their dog too... ended up under-staffing by about 25%. It was hard to tell which was worse - keeping or losing your job.
Fortunately in construction a lot of these guys are subs & inde's - they know their way back to the job sites.
Well it is good to hear that not many construction workers own a home and so, therefore, aren't at risk of defaulting on their mortgages. Also, because they are living at home, it won't be a problem if their income is reduced. And finally, their income likely won't be reduced because either they will be work on commercial jobs or doing odd jobs for their friends.
So really, if I understand the issue, the reduction in people actually working on building houses (to either 2002 or other levels) would have no net effect on the economy. Dare I say that "it is different this time"?
I'm not predicting the end of the world. I just find it hard to believe that after the feverish pace of the last 7 years, and the resulting spectacular growth in construction-related employment (increased by 1 million workers between 2001 and 2005 or 40%), that a slow-down in home building isn't going to have some sort of measurable, negative effect on the economy. I guess we'll know in a year or two.
Jim you're view is quite antiquated. The strong housing market brought all sorts of people into the construction business who work full time, own homes and pay their taxes like the rest of us. This downturn is going to hurt alot more than previous busts.
I think we do not know what % of construction workers have homes or not. May not matter because the service folks who take their money for services do.
Hispanic folks will not buy stuff at Walmart or other places. Youth at home will not buy music, ipods, cars or electronics. Brokers will not buy fancy cars.
And so on. IMHO it does matter where on the food chain the toxic mortgages are, its their existance and the fragility of the wage earners that matter.
Since all money is born via bank credit, a reduction in construction loans should have quite a ripple effect.
Maybe the Fed and G.W. can engineer some kind of energy bubble next (start war with Iran). The Calorie Reclamation Project. People get paid high incomes for peddling on stationary bikes hooked up to electric generators. Provides monetary transmission mechanism for inflation, reduces aggregate healthcare costs, produces clean energy. I wish they made an Absurd Edition of Civilization (a video game).
Too funny. I remember before last xmas wizard's like dryfly were sure it would be "raining pinkslips" in the consumer/retail sector.
Oh I forgot: "The fundemantals are easy, timing is the bitch". You ladies should make that your motto.
Great entertainment.
Dear CR
Wondering if you had a chance to scan the latest Flow of Funds report at Flow of Funds
Per-capita net worth actually fell to $178,290 from $178,505 in the first quarter.
Meanwhile, consumer credit increased at a 6.6% rate in the second quarter, according to the
MarketWatch report this was the fastest increase in four years.
More grist for your mill?
Regards,
Ummm, PeePee? Retail hiring is quite weak so far this year. And our kind host has done some very clear, and so far, quite accurate work on timing. Could you maybe enlighten us as to the thought process behind you mockery?
Dear CR
Also this from the funds flow Marketwatch report:
"Mortgage debt increased at a 9% rate, the slowest pace since the recession of 2001. Borrowing under a home-equity loan increased by about 19% annualized, the largest growth in a year. Home-equity loans represented 10% of the $9.84 trillion in outstanding mortgage debt, up from 7.9% in 2002."
Homes as ATMs...nuff said!
"The fundemantals are easy, timing is the bitch". You ladies should make that your motto.
It is my motto.
But at least it won't be... "Damn, did you get the license plate of the truck?"
for some historical perspective - in q191, permit declines hit their low point, falling 40%, year over year. I just put in a forecast for permits through q407, based on a similar pattern, with permits falling 30% yoy, at max, before the decreases start moderating. A model built on a 3 quarter lag shows residential construction employment down by nearly 20% by mid 07, and as much as 30% by end of the year. Id say, based on the extent of overbuild in this cycle, that that's a conservative estimate, because the permit numbers could easily prove to be much worse.
Pinning down the correct number for residential construction employment is tricky, but if you use CRs 3300, we are still talking about 1 million jobs disappearing in the next 5 quarters.
Back on 'retail'... here's one of my recent 'favorite' postings on the subject:
Big Picture by Barry R
They go into great detail analyzing a Best Buy promo for big screens & whether its good for the consumer, good for the company, both or neither. It takes them a couple days to figure out the fine print... they think they got it... but it's never quite resolved.
Now I ask you... do you think the average Best Buy buyer understands all that? How about the Best Buy sales guys or even their managers, they much sharper? Well what tickled me is I've taken MBA classes with a few of their exec's and I bet they wouldn't get it either.
And what's coolest of all is they book those sales 'now' - this period - and the money gets paid.... when? And this situation is repeated... how often? And at how many different retail venues?
Hell who has to lay off and close up if you can book sales with no money!!! We haven't seen that since.... telecomm in 1999 or 2000 at least.
If only Wimpy were still around, he'd have a motto for them.
I still think there is going to be a blizzard of pink slips in retail... that and bankruptcies associated with the builders, financiers & developers of the malls when the rents don't get paid. Maybe somebody will be able to make a buck tearing them all up & turning them back into bean fields... after all people will still have to eat.
I may have to wait a bit longer to see it happen, but my guess is when it does the 'optimists' will cry 'how did all that happen?' instead of 'ya, saw it coming - should have known better - we had all gone a little over the top'.
Well Dryfly the optimists and the mainstream media 'still do not see it'. Not even a mention of Housing today on CNN Biz news ...
This kind of collapse of such am important componet of the economy (housing) cannot go out with a wimper-
"I still think there is going to be a blizzard of pink slips in retail... that and bankruptcies associated with the builders, financiers & developers of the malls when the rents don't get paid. Maybe somebody will be able to make a buck tearing them all up & turning them back into bean fields... after all people will still have to eat."
Right. Tearing down malls and planting beans.
You're the guy who people smile politely at while moving swiftly away from, right?
Right. Tearing down malls and planting beans.
I thought you might like that peepee, lol. It was for you.
Don't feed the troll...
I liked the "blizzard of pink slips" even better because you've been standing dirt-faced and urine-smelling on the corner hollering it into your battered megaphone for so long.
PeePee will obviously see that blizzard of pink slips as a ticker tape parade
There's no need for pink slips in retail. It's a business that typically has more than 100% turnover of help each year. Just stop hiring for a few months and you can easily reduce headcount by 50%. The retailers pretty much have been doing this since January.
CR need you help with this one. Someone told me they estimate that housing starts will stabilize in the 1.4MM range so that the excess inventory gets bought up. Dont know if they used 7m supply as they input or more. I think we go to 10m at least? Please give me your best shot at a starts projection.
BTW this blog is getting busy with comments. You people sure werent here when the bubble was still bubbling.
In Ohio, the jobless rate has sharply turned up in late summer, maybe we/they are already feeling the construction layoffs since the economic conditions are weak, they probably started a few months earlier than the rest. The Columbus area, especially, had one of those San Diego/Tampa styles bubbles, though mini compared to the big boys. But layoffs are layoffs.
Just think, back in 1999, people in Ohio were complaining about to low of unemployment was threatening future growth........