How do we explain that MEW is growing? Low unemployment is easy to explain away, because unemployment is a lagging indicator. It continues falling after a recession has started, giving people false hope that the economy is doing well.
Could be that those who purchased 3 years ago or earlier when their real estate values were a fraction of what they currently are can still use the MEW tap. With reports of falling house prices now, there is pressure to tap now rather than later.
Someone out there knows (has the data details) who is tapping now despite the higher refi rates.
With the likelihood of falling rates increasing as the housing market cools, there may be some who are betting that they can get better refi rates later on housing values that won't have eroded that much.
The retailers' marketing arm that makes these forcasts is a different arm than that which is employed by the domestic auto industry's, yes? Maybe losing $1.4B in the first half of the year gives you a different view.
I think calmo is right. Interest rates are still low and anyone who owns a house can testify to the veritable daily onslaught of come-ons from lenders eager to help you tap into your unexpectedly higher home equity.
Of course, that game can only go on for so long before it's time to pay the piper. Meanwhile the credit bubble continues to inflate, savings continue to grow more negative.
Where does that position this economy for the long-term?
it's still too early in the cycle... my guess is that there is still too much excess liquidity out there and we won't feel the full brunt for another 18 months, so i agree with the insider's view (albeit with a slight timing difference)...
merrill's david rosenberg said in his latest weekly newsletter says that overheating this year is worse compared to last year when you look at the home-price to income ratio... according to his research, 60% of the metros in the US are white hot (3 standard deviations above average) this year while last year 50% of the metros fell into the white hot category... so we have excess inventory piling up at a time when more and more of the country is experiencing a very overheated market... here's the link: http://rsch1.ml.com/9093/24013/ds/202_54_8.PDF
so the question is how far of a lagging indicator is the home-price to income ratio and how forward looking are homebuilder sentiment surveys and inventories? the market is cleary out of whack, it's just a question of when the floor drops out...
Alo,
I've also been hearing ads urging, "lock in to a fixed rate before it's too late". The banks must believe that fixed rates are going even lower, or they would not be trying to push people into fixed mortgages.
Speaking of retail sales it's such a noisy number it's hard to see but after showing a rising trend since Jan03, with major Mo-to-Mo variabilities of course, it appears to have started slowing in Jan06 and particularly so in the last two months. This is difficult to see on the MtT numbers but the YoY smooth things, and take away a lot of adjustments and seasonalities. Looking at Real Retail Sales then:
\tSales\tMtM%\tYoY%
Jan-06\t181780\t2.37%\t5.23%
Feb-06\t180148\t-0.90%\t3.64%
Mar-06\t180776\t0.35%\t4.46%
Apr-06\t180901\t0.07%\t3.32%
May-06\t180457\t-0.25%\t3.43%
Jun-06\t179374\t-0.60%\t1.02%
Jul-06\t180783\t0.79%\t0.45%
This also shows up on a Quarterly YoY looksee but when you compare it to GDP and Consumption all three indicators appear to be showing slight downtrends but mostly oscilating in a range of 2.5-5% for Retail Sales and approx. 3.5% for GDP and PCE.
So...things aren't as good as many would have and not as bad as the alarmist headlines would say...but turning points are the hardest things to call.
It would seem to me that it's time to head to the air raid shelters:
It was the inflation data, however, that surprised economists the most. Few had predicted that the core index would decline in August; it had been rising about 0.3 percent a month for most of the year, and the July decline of 0.3 percent might have been an anomaly. But the Labor Department said today that the core index fell 0.4 percent in August.
A friend of mine who went to business school (forgive me if I'm repeating myself) said that lowering prices is a sign of weakness. You don't lower prices if things are going well.
So, reduced "inflation" means people are having a harder time selling things. Yeesh.
I agree it's early, real early, to see any effect from any of the three factors - jobs, MEW % exotic loan default.
I think it will take more than a year to see anything and even then might not be that big of a drop rather more of a long sideways shift with inflation nibbling at us so that there are 'real' declines in standard of living but small or no nominal declines.
As per MEW - something like half of America has lived in their homes for 10 years or more (WAG off my head but read something like that recently). Only a relatively small number have bought & sold recently in the last 2-3 years & have little equity (like a quarter of the home owning population or less).
If they are like me (I've lived in my current home 20 plus years) then they've got considerable equity even if they live in a non-bubble zone. Especially if they have conventional mortgages (we've always had 15 year and in some cases 10 year pay back FRM loans).
I've mined my equity to put kids through college, paid a bunch back, mined some more to do some major structural repairs (almost 100 year old house), paid a bunch back... etc.
Like a REAL ATM... short period FRM loans paid back quickly, then taken out when needed, again paid back quickly.
I just KNOW there is a lot of equity still out there and not everyone is living high on the hog (my home price under best conditions wouldn't cover a down payment in Orange County - not that that seems to matter anymore, who makes down payments, right?).
I've said all along the thing will get ugly once the job loss spreads OUTSIDE of real estate to related manufacturing & services. If that doesn't happen then there won't be a big problem. But I do expect that to happen, just think it will take more time & be more gradual.
As for the CPI... don't eat the cyanide just yet. I've talked to a lot of the companies I sell for and input costs have been dropping AND look to be continuing to drop. Result is if you are a manufacturer & you anticipate margins improving - then you don't have to necessarily push through increases immediately.
I was sensing that in the summer - but hadn't really thought about it too hard - but many of the folks I sell for had quit bitching about material cost increases about then. The silence was deafening.
I'm not suggesting lower CPI is 'bullish'... I'm just suggesting a lower CPI doesn't mean it's all of a sudden 'real weak'.
Manufacturing & consumer sales are somewhat weak for sure - but I feel the CPI backing off is due to a lot more than just soft or mediocre sales.
:::::
How much of the drop was due to 'autos'? August is usually a big discount month leading up to the new year releases.
Seems like there would be a lag in the reduction in homebuilding -- i.e. you already own the land (instead just an option) or you've already started pouring slabs. So it seems likely that there would be a lag in the loss of construction jobs, too.
I'm wondering if construction companies' will "downsize" simply by not hiring workers back after the winter down-time? This would avoid actually "firing" anyone and allow them to complete their current commitments. The question is does this really show up in "unemployment" is it just a drop in the # of people employed?
Either way, it means fewer paychecks to be spent on HDTVs at Walmart. Interesting times ahead.
MEWs in the Atlanta area are as strong as any time in the last 3 years. People of all shapes and sizes continue to tap their equity even as purchases and refinances have fallen off a cliff.
One sad (funny) thing happened last week... we did a HELOC for a customer where the lender (a major US Bank) had to send over a special document acknowledging that they were going into a 4th lien position. Yes, four mortgages... I've seen a lot of third mortgages in this business, but never a fourth mortgage. Wow! This was on a million dollar property mortgaged to the hilt.
Almost 100% of these loans are stated-income by the way.
Wrong time to ask this. Come back a year from now when the production for 2007 has been slashed back causing joblessness and prices fall. Patience.
How do we explain that MEW is growing? Low unemployment is easy to explain away, because unemployment is a lagging indicator. It continues falling after a recession has started, giving people false hope that the economy is doing well.
Could be that those who purchased 3 years ago or earlier when their real estate values were a fraction of what they currently are can still use the MEW tap. With reports of falling house prices now, there is pressure to tap now rather than later.
Someone out there knows (has the data details) who is tapping now despite the higher refi rates.
With the likelihood of falling rates increasing as the housing market cools, there may be some who are betting that they can get better refi rates later on housing values that won't have eroded that much.
The retailers' marketing arm that makes these forcasts is a different arm than that which is employed by the domestic auto industry's, yes? Maybe losing $1.4B in the first half of the year gives you a different view.
I hear a lot of ads now urging people to withdraw all the equity they can "before interest rates go up."
An easy sell to the already debt-addicted.
I think calmo is right. Interest rates are still low and anyone who owns a house can testify to the veritable daily onslaught of come-ons from lenders eager to help you tap into your unexpectedly higher home equity.
Of course, that game can only go on for so long before it's time to pay the piper. Meanwhile the credit bubble continues to inflate, savings continue to grow more negative.
Where does that position this economy for the long-term?
it's still too early in the cycle... my guess is that there is still too much excess liquidity out there and we won't feel the full brunt for another 18 months, so i agree with the insider's view (albeit with a slight timing difference)...
merrill's david rosenberg said in his latest weekly newsletter says that overheating this year is worse compared to last year when you look at the home-price to income ratio... according to his research, 60% of the metros in the US are white hot (3 standard deviations above average) this year while last year 50% of the metros fell into the white hot category... so we have excess inventory piling up at a time when more and more of the country is experiencing a very overheated market... here's the link:
http://rsch1.ml.com/9093/24013/ds/202_54_8.PDF
so the question is how far of a lagging indicator is the home-price to income ratio and how forward looking are homebuilder sentiment surveys and inventories? the market is cleary out of whack, it's just a question of when the floor drops out...
Alo,
I've also been hearing ads urging, "lock in to a fixed rate before it's too late". The banks must believe that fixed rates are going even lower, or they would not be trying to push people into fixed mortgages.
Speaking of retail sales it's such a noisy number it's hard to see but after showing a rising trend since Jan03, with major Mo-to-Mo variabilities of course, it appears to have started slowing in Jan06 and particularly so in the last two months. This is difficult to see on the MtT numbers but the YoY smooth things, and take away a lot of adjustments and seasonalities. Looking at Real Retail Sales then:
\tSales\tMtM%\tYoY%
Jan-06\t181780\t2.37%\t5.23%
Feb-06\t180148\t-0.90%\t3.64%
Mar-06\t180776\t0.35%\t4.46%
Apr-06\t180901\t0.07%\t3.32%
May-06\t180457\t-0.25%\t3.43%
Jun-06\t179374\t-0.60%\t1.02%
Jul-06\t180783\t0.79%\t0.45%
This also shows up on a Quarterly YoY looksee but when you compare it to GDP and Consumption all three indicators appear to be showing slight downtrends but mostly oscilating in a range of 2.5-5% for Retail Sales and approx. 3.5% for GDP and PCE.
So...things aren't as good as many would have and not as bad as the alarmist headlines would say...but turning points are the hardest things to call.
5% yoy sales increases is inflation plus population growth.
It would seem to me that it's time to head to the air raid shelters:
It was the inflation data, however, that surprised economists the most. Few had predicted that the core index would decline in August; it had been rising about 0.3 percent a month for most of the year, and the July decline of 0.3 percent might have been an anomaly. But the Labor Department said today that the core index fell 0.4 percent in August.
A friend of mine who went to business school (forgive me if I'm repeating myself) said that lowering prices is a sign of weakness. You don't lower prices if things are going well.
So, reduced "inflation" means people are having a harder time selling things. Yeesh.
I wonder if I'll still fit under the desk.
uh oh core cpi down!
I agree it's early, real early, to see any effect from any of the three factors - jobs, MEW % exotic loan default.
I think it will take more than a year to see anything and even then might not be that big of a drop rather more of a long sideways shift with inflation nibbling at us so that there are 'real' declines in standard of living but small or no nominal declines.
As per MEW - something like half of America has lived in their homes for 10 years or more (WAG off my head but read something like that recently). Only a relatively small number have bought & sold recently in the last 2-3 years & have little equity (like a quarter of the home owning population or less).
If they are like me (I've lived in my current home 20 plus years) then they've got considerable equity even if they live in a non-bubble zone. Especially if they have conventional mortgages (we've always had 15 year and in some cases 10 year pay back FRM loans).
I've mined my equity to put kids through college, paid a bunch back, mined some more to do some major structural repairs (almost 100 year old house), paid a bunch back... etc.
Like a REAL ATM... short period FRM loans paid back quickly, then taken out when needed, again paid back quickly.
I just KNOW there is a lot of equity still out there and not everyone is living high on the hog (my home price under best conditions wouldn't cover a down payment in Orange County - not that that seems to matter anymore, who makes down payments, right?).
I've said all along the thing will get ugly once the job loss spreads OUTSIDE of real estate to related manufacturing & services. If that doesn't happen then there won't be a big problem. But I do expect that to happen, just think it will take more time & be more gradual.
As for the CPI... don't eat the cyanide just yet. I've talked to a lot of the companies I sell for and input costs have been dropping AND look to be continuing to drop. Result is if you are a manufacturer & you anticipate margins improving - then you don't have to necessarily push through increases immediately.
I was sensing that in the summer - but hadn't really thought about it too hard - but many of the folks I sell for had quit bitching about material cost increases about then. The silence was deafening.
I'm not suggesting lower CPI is 'bullish'... I'm just suggesting a lower CPI doesn't mean it's all of a sudden 'real weak'.
Manufacturing & consumer sales are somewhat weak for sure - but I feel the CPI backing off is due to a lot more than just soft or mediocre sales.
:::::
How much of the drop was due to 'autos'? August is usually a big discount month leading up to the new year releases.
Seems like there would be a lag in the reduction in homebuilding -- i.e. you already own the land (instead just an option) or you've already started pouring slabs. So it seems likely that there would be a lag in the loss of construction jobs, too.
I'm wondering if construction companies' will "downsize" simply by not hiring workers back after the winter down-time? This would avoid actually "firing" anyone and allow them to complete their current commitments. The question is does this really show up in "unemployment" is it just a drop in the # of people employed?
Either way, it means fewer paychecks to be spent on HDTVs at Walmart. Interesting times ahead.
MEWs in the Atlanta area are as strong as any time in the last 3 years. People of all shapes and sizes continue to tap their equity even as purchases and refinances have fallen off a cliff.
One sad (funny) thing happened last week... we did a HELOC for a customer where the lender (a major US Bank) had to send over a special document acknowledging that they were going into a 4th lien position. Yes, four mortgages... I've seen a lot of third mortgages in this business, but never a fourth mortgage. Wow! This was on a million dollar property mortgaged to the hilt.
Almost 100% of these loans are stated-income by the way.
"but I feel the CPI backing off is due to a lot more than just soft or mediocre sales."
Ho Ho Ho! Yes indeed. There are many economic forces playing out in the world these days. What is going on?
Patience comerades. Things are good now but will be bad at some future point.