The HGX has been a very accurate indicator of the housing market, calling the peak almost within days. Given its current trend, the Soft Landing crowd has to be feeling good about their position:
Add to that the recent additions of billions in HB and building-related investments made by Gates, Buffet, pensions and hedge funds, and you would need to think objectively about the housing-lead recession, Doomsday Eventuality called for by some. When the HBs are priced at cash value, bad news no longer effects their stock prices, and even Ms. Ivy Zellman (what kool aid are you drinking (to Bob Toll) is upgrading them, you either re-evaluate your position or forfeit your right to question or complain when things dont go your way.
It still facinates me how quickly employment changed in 2000-2001. I had a graduating BA computer science major working part-time for me in the Spring of 2000. She was getting offers of $60,000 to start, and she was not a whiz by any means, in fact, she really couldn't program worth a damn. A year later, someone like that had zero chance of finding any kind of tech-related job.
Patrick, you just set off the tautology alert! People have bid up the homebuilders because they believe (hope) that things have bottomed, therefore, things must have bottomed....
Patrick, once Ms. Zellman see these stocks have value, then they actually will have value. But she doesn't. Her report rather provides an honest counterpoint to those with a vested interest who have claimed "bottom" for so long.
Ms. Zellman points out that indeed there is actually no evidence to support this view.
You're "the housing stock index is up so the housing market has bottomed" rationale is absurd.
Steve, I think the best way to look at it is: 350K is necessary for a recession, but not sufficient.
I doubt there would be a recession without 350K weekly claims (it could happen, but it seems unlikely). There have been several occurrences
of 350K+ claims and no recession.
If you see 400K (excluding special events like Katrina), the U.S. is probably already in recession.
Over time this threshold changes - but these numbers seem about right currently.
Patrick,
Can you post any links to support The B&M Gates Foundation, Bershire Hathaway or, Gates or Buffet individually, having made any material investments in BH stocks in the last year?
I just checked various HBs on Yahoo Finance and could not find any.
Thank you.
Claims probably need to hit a 4wk moving average in the high 300's to indicate a recession, and they are highly volatile at this time of year, so you really have to wait and see what Jan and Feb bring. Equally, I'd be very wary of using the recent HDX rally to pick a bottom in home builders or proclaim the soft landing. Ever hear of a little thing called a short-covering rally? The Dow had a very nice 20% short-covering rally from Jan-Apr. 1930, which is just one of many, many examples. Oh, but I almost forgot, it's different this time. I'd really prefer to believe that we'll have a soft landing, but the bear case is just too compelling to me.
Funny, that gender bit. And My Goodness, the photo is everything my ears told me it would be people. I'm in Love!
So, given AP can just make presumptions like this ("Ivy" is a strange name for a guy but...)[Or "Shoot man, some guys just have high voices, he knows what he's talkin about."] (Alright you transexuals I haven't forgotten your inalienable rights to confuse everybody.), what other presumptions can they be making?
Plenty.
And between AP and Reuters that's alot of presumptions.
Why I shop here: lots of help squashing presumptions.
On Housing: We should be careful to view homebuilding and home prices as different but related issues. If Buffet is buying homebuilders he is probably thinking that the strongest of them, after trimming down, can continue to make money even at much lower average selling prices, which is probably correct, especially with declining raw materials prices. Therefore, home builder stock prices and home prices can go in opposite directions.
On Soft vs Hard Landings: I am still not sure, but leaning toward the recession scenario. When yield curve, housing starts, and auto sales, all reliable predictors of recession in the past, point down, you have to pay attention. On the other hand, credit is still loose (anyone can borrow too much money) and real interest rates are not historically high. The unemployment chart you presented makes today look a lot more like '96 then '00. And, of course, the stock market is still bizarrely strong.
I am thinking we may have a situation more like England in the 90's then Japan in the same timeframe. Real Estate prices fell by about 40% (inflation adjusted) nationwide while the economy (after a fairly mild recession in '91) continued to grow, albeit very slowly. The FTSE stock market index grew steadily during that entire period.
Thanks Patrick,
I was searching with Yahoo and didn't see anything at first look. I'm fairly bearish on housing, especially here in the northeast. But, facts are facts.
godzilla, as for credit being loose, take a look at what's happening in subprime. Ever wonder how we got the homeownership rate from 65 to 70%?
So, for your spring bounce, you'll have no spec buyers, and now, considerably fewer first time buyers. And with prices still way way out of wack, affordability will actually worsen.
Patrick, I don't think anyone's going after your head on this blog, which is hardly one of those manic housing bubble blogs, but something quite different.
I don't regard stock prices as significant at the moment, because I think the bad news on this one will travel up from the ground quite slowly. But what I see on the ground (and I deal with number of banks) has been flagging a deep downturn for over a year and a half.
The credit quality in the loan portfolios and the securitized loans is not there, the earnings/home price ratio is not there, the loan loss reserves are not there, consumer debt is staggeringly high, and the wave of RE-secured loan defaults is just beginning, and will be exacerbated by this downturn.
Far more significant than homebuilding prices, to me, is the fact that the Triangle (Raleigh-Durham) now seems wary. That has one of the best economic mixes in the country, yet it is feeling the brunt of this somewhat.
Current mortgage rates are very positive, but how many new buyers will be available to avail themselves of them without further significant price decreases in many areas? Not as many as I would have expected a few months ago, it seems. The new demand has been eaten up for quite some time.
I hope (and literally pray) that there are more reserves and more latent stimuli out there than I am seeing at this point. But what I SEE is that this was too big a boom to unwind quietly, and that the unwinding has barely begun.
One of the things that few analysts appreciate is how much small business proprietors rely on real estate for seed money loans. Tightened lending standards and tightened appraisals are going to cut into that. The collateralization for a lot of these seconds and HELOC's is insufficient, and will be a drag on small business spending for some time to come.
Mortgage rates and terms for marginal borrowers are going to have to go up considerably. If mortgage rates for traditional borrowers stay as low as they are now in many areas, and if the Fed cuts early, the HELOC crunch may ease a bit.
What I see is that a huge number of consumers and a huge number of lenders walked right up to the edge of the sustainability cliff, just admiring the awesome view. Within one six month period, everyone's all going to start quietly inching back from that brink, one step at a time. But the cliff edge will be crumbling as they back up.
MoM executes a convincing post..a compelling post that plays on my fear of falling. We even have a natural response/reaction to this (the arms going out to break the fall thingie) as infants, yes?
And this general housing business commentary of 'stalling' or 'falling' may have some deeper connection to this general acrophobia, on account of our, well, dead-cat bouncability.
Ok, I'm not going outside today...
If Buffet is buying homebuilders he is probably thinking that the strongest of them, after trimming down, can continue to make money even at much lower average selling prices, which is probably correct, especially with declining raw materials prices. Therefore, home builder stock prices and home prices can go in opposite directions.
Buffet also bought Fruit-of-the-Loom but that wasn't a statement on the strength of the US textile industry.
The HGX has been a very accurate indicator of the housing market, calling the peak almost within days. Given its current trend, the Soft Landing crowd has to be feeling good about their position:
http://finance.yahoo.com/charts#chart3:symbol=^hgx;range=5y;indicator=volume;charttype=line;crosshair=on;logscale=off;source=undefined
Add to that the recent additions of billions in HB and building-related investments made by Gates, Buffet, pensions and hedge funds, and you would need to think objectively about the housing-lead recession, Doomsday Eventuality called for by some. When the HBs are priced at cash value, bad news no longer effects their stock prices, and even Ms. Ivy Zellman (what kool aid are you drinking (to Bob Toll) is upgrading them, you either re-evaluate your position or forfeit your right to question or complain when things dont go your way.
It still facinates me how quickly employment changed in 2000-2001. I had a graduating BA computer science major working part-time for me in the Spring of 2000. She was getting offers of $60,000 to start, and she was not a whiz by any means, in fact, she really couldn't program worth a damn. A year later, someone like that had zero chance of finding any kind of tech-related job.
Patrick, you just set off the tautology alert! People have bid up the homebuilders because they believe (hope) that things have bottomed, therefore, things must have bottomed....
Patrick, once Ms. Zellman see these stocks have value, then they actually will have value. But she doesn't. Her report rather provides an honest counterpoint to those with a vested interest who have claimed "bottom" for so long.
Ms. Zellman points out that indeed there is actually no evidence to support this view.
You're "the housing stock index is up so the housing market has bottomed" rationale is absurd.
CR,
Are you saying that a 4-week MA above 350K might signal a recession? Or would indicate a recession.
I've always read 400K is sort of the cutoff between expansion/contraction in labor market.
Steve, I think the best way to look at it is: 350K is necessary for a recession, but not sufficient.
I doubt there would be a recession without 350K weekly claims (it could happen, but it seems unlikely). There have been several occurrences
of 350K+ claims and no recession.
If you see 400K (excluding special events like Katrina), the U.S. is probably already in recession.
Over time this threshold changes - but these numbers seem about right currently.
Best Wishes.
Just an FYI - the Gate's Foundation thing was a rumor - totally untrue. But keep spreading it if you wish.
SR
Patrick,
Can you post any links to support The B&M Gates Foundation, Bershire Hathaway or, Gates or Buffet individually, having made any material investments in BH stocks in the last year?
I just checked various HBs on Yahoo Finance and could not find any.
Thank you.
No problem:
Business & Financial News, Breaking US & International News | Reuters.com
The WSJ also reports on this in more depth (subscription only).
Also, is it "Time To Buy Horrible HB Stocks?":
Time to buy horrible home-builder stocks - MSN Money
I await calls for my head.
Claims probably need to hit a 4wk moving average in the high 300's to indicate a recession, and they are highly volatile at this time of year, so you really have to wait and see what Jan and Feb bring. Equally, I'd be very wary of using the recent HDX rally to pick a bottom in home builders or proclaim the soft landing. Ever hear of a little thing called a short-covering rally? The Dow had a very nice 20% short-covering rally from Jan-Apr. 1930, which is just one of many, many examples. Oh, but I almost forgot, it's different this time. I'd really prefer to believe that we'll have a soft landing, but the bear case is just too compelling to me.
Funny, that gender bit. And My Goodness, the photo is everything my ears told me it would be people. I'm in Love!
So, given AP can just make presumptions like this ("Ivy" is a strange name for a guy but...)[Or "Shoot man, some guys just have high voices, he knows what he's talkin about."] (Alright you transexuals I haven't forgotten your inalienable rights to confuse everybody.), what other presumptions can they be making?
Plenty.
And between AP and Reuters that's alot of presumptions.
Why I shop here: lots of help squashing presumptions.
On Housing: We should be careful to view homebuilding and home prices as different but related issues. If Buffet is buying homebuilders he is probably thinking that the strongest of them, after trimming down, can continue to make money even at much lower average selling prices, which is probably correct, especially with declining raw materials prices. Therefore, home builder stock prices and home prices can go in opposite directions.
On Soft vs Hard Landings: I am still not sure, but leaning toward the recession scenario. When yield curve, housing starts, and auto sales, all reliable predictors of recession in the past, point down, you have to pay attention. On the other hand, credit is still loose (anyone can borrow too much money) and real interest rates are not historically high. The unemployment chart you presented makes today look a lot more like '96 then '00. And, of course, the stock market is still bizarrely strong.
I am thinking we may have a situation more like England in the 90's then Japan in the same timeframe. Real Estate prices fell by about 40% (inflation adjusted) nationwide while the economy (after a fairly mild recession in '91) continued to grow, albeit very slowly. The FTSE stock market index grew steadily during that entire period.
Re: Buffets new investment in Lowes and USG (building products) google search and take your pick.
Thanks Patrick,
I was searching with Yahoo and didn't see anything at first look. I'm fairly bearish on housing, especially here in the northeast. But, facts are facts.
Overall, the long-term trend still looks to be down.
godzilla, as for credit being loose, take a look at what's happening in subprime. Ever wonder how we got the homeownership rate from 65 to 70%?
So, for your spring bounce, you'll have no spec buyers, and now, considerably fewer first time buyers. And with prices still way way out of wack, affordability will actually worsen.
We really have only seen the beginning here...
Patrick, how many times did the nasdaq deadcat bounce 20% or more during it's trip from 5000 down to it's low?
We're on bounce number two here for the homebuilders.
Patrick, I don't think anyone's going after your head on this blog, which is hardly one of those manic housing bubble blogs, but something quite different.
I don't regard stock prices as significant at the moment, because I think the bad news on this one will travel up from the ground quite slowly. But what I see on the ground (and I deal with number of banks) has been flagging a deep downturn for over a year and a half.
The credit quality in the loan portfolios and the securitized loans is not there, the earnings/home price ratio is not there, the loan loss reserves are not there, consumer debt is staggeringly high, and the wave of RE-secured loan defaults is just beginning, and will be exacerbated by this downturn.
Far more significant than homebuilding prices, to me, is the fact that the Triangle (Raleigh-Durham) now seems wary. That has one of the best economic mixes in the country, yet it is feeling the brunt of this somewhat.
Current mortgage rates are very positive, but how many new buyers will be available to avail themselves of them without further significant price decreases in many areas? Not as many as I would have expected a few months ago, it seems. The new demand has been eaten up for quite some time.
I hope (and literally pray) that there are more reserves and more latent stimuli out there than I am seeing at this point. But what I SEE is that this was too big a boom to unwind quietly, and that the unwinding has barely begun.
One of the things that few analysts appreciate is how much small business proprietors rely on real estate for seed money loans. Tightened lending standards and tightened appraisals are going to cut into that. The collateralization for a lot of these seconds and HELOC's is insufficient, and will be a drag on small business spending for some time to come.
Mortgage rates and terms for marginal borrowers are going to have to go up considerably. If mortgage rates for traditional borrowers stay as low as they are now in many areas, and if the Fed cuts early, the HELOC crunch may ease a bit.
What I see is that a huge number of consumers and a huge number of lenders walked right up to the edge of the sustainability cliff, just admiring the awesome view. Within one six month period, everyone's all going to start quietly inching back from that brink, one step at a time. But the cliff edge will be crumbling as they back up.
MoM executes a convincing post..a compelling post that plays on my fear of falling. We even have a natural response/reaction to this (the arms going out to break the fall thingie) as infants, yes?
And this general housing business commentary of 'stalling' or 'falling' may have some deeper connection to this general acrophobia, on account of our, well, dead-cat bouncability.
Ok, I'm not going outside today...
If Buffet is buying homebuilders he is probably thinking that the strongest of them, after trimming down, can continue to make money even at much lower average selling prices, which is probably correct, especially with declining raw materials prices. Therefore, home builder stock prices and home prices can go in opposite directions.
Buffet also bought Fruit-of-the-Loom but that wasn't a statement on the strength of the US textile industry.