So, the new meme is that the recession's over when GDP isn't negative? Flatlining typically isn't a good thing.

"Based on the housing starts report, investment in single family structures will probably increase in Q2 for the first time since Q1 2006. This doesn't guarantee that residential investment increased in Q2, because home improvement and the other categories might offset the gains in single family structure investment, but most of the drag on GDP should be gone."

CR, don't forget that you're looking at the number of starts, not the construction costs. Both square footage and cost per square foot have fallen since 2006. Remember when even incompetent contractors were flush with work? Remember when there were backlogs for many materials and copper prices were through the roof.

That was 2-3 years ago. Now it's smaller homes, less expensive materials and labor.

Are the builders going earn anywhere near as much as they did during the insanity?

sm_landlord,

Good bunch of listings of AZ & NV land available on loopnet, but damned if they're a bit pricey for subscriptions.

Who will buy these homes? Maybe the Chinese...

Is it possible to get a mortgage if you don't have a job?

CR,

Great summation. This is an oasis of clear thinking in a desert of business commentary.

broward, that accounts for some folks animosity towards my velvet fist of government call, but hey- if the government makes the recession go away, folks won't care how they did it.
your the meme roller- you know what I mean;-}

Someday this war's gonna end...

jg,

Yeah, "fall" makes for a rather convenient (and dark-humored) pun, does it not?

MrM - I don't necessarily want to quibble about the quote, and CR's post here is excellent, (especially the disaggregation, which I'd never seen before) but I did ask a slightly different question, whether calling a bottom in RE was important or material in the current crisis. I'm learning more, and figuring some conclusions that make sense to me personally (having no property in the US and not much involved in other credit classes either).

C

that accounts for some folks animosity towards my velvet fist of government call, but hey- if the government makes the recession go away, folks won't care how they did it.

It's extremely hard to purge oneself of conditioned responses and evaluate a problem without emotion. And in the current circumstance, even harder because there's clearly a strong herd instinct going on, possibly triggered by the economic threat of ongoing economic disruption. I've noticed a big cultural change since the 2001 Crash. More and more, what's important is fitting in and not being a threat, it's less and less important to possess skill or foresight.

Contrary to what you'd expect in a crisis.
I think Obama will eventually prove that.

C - My apologies if you feel I misquoted you. What I wanted to get at is what I think was the spirit of your question, whether it is about the bottom in RE in general or about the bottom in housing starts and residential investment in particular.

Skittles is confused. Skittles thinks house prices are still too high in relation to income. She thinks that building a lot more houses when jobs are disappearing is not good. She still thinks there is a gazillion ( technical term) houses in the shadow inventory that will pop on the market. Skittles wonders who is going to buy these new houses.

Skittles is a silly unicorn and needs a dosing of hopium.

piosec: yep. they're going for it, There's a canon of legal construction that basically says "where the law explicitly enumerates exclusions, then anything not excluded is valid." anyways, since there's no minimum age to file taxes, then there shouldn't be a minimum age to get a tax credit

from previous thread
Chris Dodd, Chuck Schumer, Nancy Pelosi and Larry Summers are each quite powerful.
Because of Ted Kennedy's continued absence, Chris Dodd is leading the Senate Committee on Health, Education, Labor, and Pensions. This means he's the most powerful person in Congress for both Banking and Health Care Reform.

It's so schizo. A culture screaming out for "more innovation" to create jobs even as the "different" and "innovative" are severely punished and ostracized.

Really interesting dichotomy.
Sad and scary and impossible to fight or change, I think.

Off to pool.

I expect housing prices in CA to keep falling through 2012. I also expect 2 million foreclosures and short sales in CA, and declining net outward migration at least through 2011.

In other words, perhaps we won't need so many more houses in the next 50 years as we needed in the last 50.

Houses, cars, boats, PWCs, ATVs... all kinds of things. Motorhomes may make a resurgence, though.

The housing picture long term isn't about interest rates. It has only a little to do with housing starts.

The really important factors are income, immigration, and other debt.

I haven't talked much about nonmortgage debt. If a typical consumer wants to reduce their debt service cost, usually their mortgage is the hardest debt to pay off (unless you sell the house or get foreclosed on). Car loans are the easiest. They have a designated endpoint, usually 6 years or less from when you bought the car. For people who want to save or reduce debt service, simply paying off the car loan on time and not buying another for a while is pretty simple.

For people with only a little credit card debt, they might control other expenses and have them paid off in a few months. For people with $20k of credit cards it might take somewhat longer. However, the important point is paying off $20k of credit card debt with an aftertax interest rate of 20%+ will have a much bigger effect on your ability to spend or save than paying down an extra $20k on your 5-7% pretax mortgage.

The effect of paying off substantial credit card debt will be immense for the people who do it. The question is, what do they do with the new buying power? Buy consumer crap? A new house? A new car? Save it? Work fewer hours and become a slacker? How will the newly emancipated debt slaves behave?

CR - many thanks, as I was being serious for a change.

It's been a fairly combative week of real-side and financial economics at my end of the circus tent. One of my crowd just about ripped the head off a vp of risk at one point. I thought we were going to have to send him back with instructions on reassembly.

But what I think I've seen is that absent panic (ok, now, not precluding the future), there are some fundamentals and disciplinary influences coming back. And some politics, natch. When the house was on fire, it didn't so much matter who held the bucket, who passed, and who threw, and not much memoirism. I'm seeing more of that now.

C

Muse option: house music, in my bones...
YouTube - groove armada - in my bones

ok look so if i had to bet certainly i would go with CR's projections and opinions before mine

im not so smart

but still, when i drive up I-5 to seattle

why is it i see more homeless building encampments under the spokane street overpass (and the rest,) than i ever did before

btw, do these banana box shelters count as new home starts

Building houses that aren't needed is good because it will help the economy? Broken window fallacy?

generally accepted economic measures are getting to be quite misleading

With all the funny money dumped into various areas of the economy, I don't see how any of the normal rules apply. It's all one big fun house now.

I would think that at some point the 25% without jobs will just disappear and move into a tent city, back with Mom or under a bridge while the 75% who have jobs will have far less competition for housing and will find it more affordable than ever. They only thing that would make this situation even better is if we could get unemployment up to 50%. Think of the housing boom that would be created for the remaining 50% who still have a job. If we could get unemployment up to 90%, the remaining 10% would find so many deals that they could probably buy up all the excess housing inventory all by themselves and thereby the jobless "recovery" would be a complete success.

"A culture screaming out for "more innovation" to create jobs even as the "different" and "innovative" are severely punished and ostracized."

Depends on which budget and which culture. They are multiple.

boom and bust and boom and bust and boom and bust and finally broken.

First time poster but long time reader.

On the Housing Start & New Home Sales, can you further analyze this by region? For example I'd expect in the peak bubble areas, say Las Vegas, you won't have starts rising for a long period until the stock is worked off. However I think there are some markets, like in many parts of the Northeast & Southeast (ex Florida) which are less overbuilt and could see some growth.

Hard to be busted when it's an unlimited rebuy event.

Only as long as the global casino keeps taking our markers, and they're generosity is waning.

"Only as long as the global casino keeps taking our markers, and they're generosity is waning."

........I've been waiting for this ship to destroy itself since the early 1990s, this is but an intermission.

p.s.: BSR, check out sm_landlord's comments above.

CR as an ex-developer with 25 years of dev and res building in the rear view mirror, i'm always delighted by your analysis which i find very complex. I especially like it because i went down the tubes at least three times in the game, growing bigger each rebirth, the last time with five big hundred lot properties in various stages, and it would have been nice to see the world then, as i see it now, especially with all this great knowledge base available in the public domain. Some comments on this editorial, the RE market is an expression of so many other markets, the cost of money especially. This particular market is entirely unpredicable in my opinion, although one thing for certain, prices are not going up any time soon, in a decade perhaps. As regards your comment about construction costs bottoming, on a cost sheet, land is included. Land has not bottomed. There will be deals everywhere held by banks as the principle lender. They will dump it for years to come. Builders build in the trough bottom to liquify land holdings. Land is usually about 1/4 to even 1/3 the cost of the finished product.
Cheers!
KR

Will these new homes be of the type and priced to attract the new breed of buyer? I doubt it. It is going to take a dope slap to reorient home bulders to the new realities. "A nice place to live at a price I can afford and no appreciation premium" is not a business model they understand. They are still stuck on pergraniteel and community amenities. Calling those plus features "free" isn't going to fool the new buyer classes.

Unusual listing in today's freebie local paper ... guess somebody has decided RE is not the place to make money or can no longer afford the carrying costs.

510-516 Tyndall Street, Los Altos (CA)
- Land for sale - 8 Unit Townhome Development
- Townhomes range in size from1,354 sq ft to 1,785 sq ft each with 2 car garages
- Excellent Los Altos location
- Approved permit ready plans - start construction the day after you close escrow
Offered at $2,950,000

980-990 Alice Lane, Menlo Park
- Land for sale - 4 unit single family detached development
- Homes range in size from 2,193 sq ft to 2,264 sq ft with 2 car garages
- Seller will provide buyer full city planning approval at close of escrow
- New price - #3,195,000

First time I've seen ads like this.

RIF - for the very first time, since I have a moment, amazingly, I watched that. Not sure what it means. Looks like a cop-out anthem. There's an ol gal neckin pills at 2:03. Is that part of the solution? Erk. Not sure who this "we" movement is either. Billy Joel's Wees?

The marketing team is NOT going to like that.

C

KR, thanks for the comments from inside. If you make a few more from time to time, I'm sure a few of us would appreciate it, despite the reaction you may get from a few more emotional posters who are mad at developers/builders.

Administration Weighs More Foreclosure Aid

New Administration Proposal Would Let Foreclosed Borrowers Rent Their Homes - washingtonpost.com

Lucifer, nothing has changed. When anyone of any note says anything that could boost asset prices, the media gives it prominence.

"Calling those plus features "free" isn't going to fool the new buyer classes."

Well, it's sort of a trade-off, isn't it? Tract housing built recently has zero lot lines, and inferior materials, construction practices, and workmanship. Without the BS "amenities", it's an even worse deal. That's why scrapers are so popular around here - you can get a house with an actual yard, and you can supervise the construction and materials selection. Yes, it costs more, but it's so much better than a tract house that it's almost not comparable. I would rather have a real foundation than a concrete slab, and would do without the pergraniteel as a cost trade-off. And who needs community amenities when you have a back yard?

Alert, alert, Lucifer has discovered BOLD CAPS.

Flee my friends, for your future is otherwise boldly writ...

Ghesh.

C

"Alert, alert, Lucifer has discovered BOLD CAPS."

It's a good thing that there isn't a "blood of virgins" font face available on this blog.

Nah.. I just use them to get attention once in a while..

//Alert, alert, Lucifer has discovered BOLD CAPS.//

I am not catholic..

//It's a good thing that there isn't a "blood of virgins" font face available on this blog.//

ResistanceIsFeudal,

So what happens in Pennsylvania in 2 weeks?

Workers Protest Budget Crisis At Rendell's Home
Lack Of Payment To Pennsylvania State Workers Forced A Protest Outside Of Gov. Ed Rendell's Home - cbs3.com

Ben Simmoneau PHILADELPHIA (CBS 3) ―

Pennsylvania's budget crisis has now hit thousands of state workers where it hurts the most: their wallets. The state issued just partial paychecks Friday. Workers scheduled to get paid saw just 70 percent of their pay.

It gets worse next week as Pennsylvania is rapidly losing its power to spend money. Workers scheduled to get paid next Friday will get just 20 percent of their pay. After that, no more paychecks will be issued until a three-week long budget impasse has ended. Yet workers are still expected to show up for work.

Hey Luci, here's a lullaby from your end of town... Everyone else, you have been warned.

YouTube - Swans: She Lives!

Umm, dum de dum, bom bom, mmm.

C

ResistanceIsFeudal,

Yep.. but I have always believed that people do not act until it starts hurting them.. now many state government employees in Pennsylvannia and other states might experience that..

A plane crash in '83 wouldn't have been the worst thing for Columbia Records or the american songbook

patientrenter, when it comes to RE, i don't say much about it because as a developer/builder i never did this type of sophisticated analysis, actually, i don't know any that do, but i'm sure they exist. Developers are like any other manufacturer, they exist in a dog eat dog world, and most get eaten eventually. 1 in 19 survive crashes like this one.

My only advice would be that RE is wholly dependend on the health of the economy. While i enjoy the analysis of the RE market, it tends to risk detachment from the reality of a (fake) economy. Its all about the economy, RE movements are a reflection of the greater economy (should be). This market will be soft for a decade, it's already in the cards.

Lucifer (profile) wrote on Sat, 7/18/2009 - 8:38 pm

Yep.. but I have always believed that people do not act until it starts hurting them.. now many state government employees in Pennsylvannia and other states might experience that..

Lucifer, fresh out of college I worked for a start-up out here in the midwest. I successfully extracted a paycheck for about a year and a half, and suddenly they just stopped coming. I realized earlier that investor funding had dried up and there was effectively no money yet I still expected to see a check in the mail, like magic. When the money was gone, there was no magic left.

I'll second patientrenter's comments.

KR, please stick around and comment whenever you can. Your insight is definitely valued here.

Dreams I'll Never See

Holly Macthete'

Southern Rock Masters.

*it got weird didnt it?

Yep, KR, I basically don't get it, so what you say is really helpful.

Thanks. And c'mon it's Saturday night. Anyone else up for gratuitous rock blogging?

Bueller?

C

KR...
it's great to have somebody who's been on the inside. Hell, I'll even listen to Goldmanites.

Duke - you WOULD listen to glodmanites. We know where you've been.

C

AEP has quite a flair for the dramatic.
Fiscal ruin of the Western world beckons  

Question: What would stimulate developers to build in a down market?
-Decreased costs for materials, land, labor, taxes and local development fees.
- An attitude that if you don't seize the moment and build then when the recovery starts you'll lose out on the "temporary" cost savings and large profits.
-You will have the ability to undercut your competitor who is still locked in from the higher associated costs from 2005-2008.
-Developers develop and if you don't develop then no one gets paid.

More malinvestment of capital? I believe so but the entire structure of municipal government depends on the process of growth(building) to survive. Many, many decision makers depend on this flow of funds and will make decisions to ensure the development continues with any rationalization or justification necessary.

Fish gotta swim, birds gotta eat.

I am noticing many more listings of land with a picture of your dream home. Translated: If you can get the loan call us and we will build for you on property we already own but need a buyer to finance the building part. Maybe this is part of the upturn being witnessed?

Fiscal ruin of the Western world beckons: For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state.
Fiscal ruin of the Western world beckons  

By Ambrose Evans-Pritchard
Published: 5:40PM BST 18 Jul 2009

Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15pc of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap. A further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already 12pc and heading for 16pc next year. Education must be cut 8pc. Scores of rural schools must close, and 6,900 teachers must go. "The attacks outlined in this report would represent an education disaster and light a short fuse on a social timebomb", said the Teachers Union of Ireland.

"Even though the state treasury has money to pay Pennsylvania's employees, it is not authorized to do so for work done in the new fiscal year, which began July 1, without a new budget. Gov. Ed. Rendell said the state Constitution prohibits it."

Whatever the reason may be, this is a symptom of dysfunction in the social body.

Ritual cleansing has been a part of my life.

On the Unwillingness of Economists to Recant, Even in the Face of Evidence
On the Unwillingness of Economists to Recant, Even in the Face of Evidence « naked capitalism

From a newly minted PhD, via e-mail:

I ran into another Harvard student who recently had a chat with a senior economics faculty member who is telling students the following anecdote. Apparently the professor is involved in some way with the American Economics Review.

The AER has a backlog of two to three years between when papers are submitted and when they appear in print. Some of the papers currently in the pipeline, submitted before the crisis broke, predicted that the U.S. or global economy would remain prosperous and stable for many years to come. The professor wrote to all of these authors, asking them if they would like to withdraw their articles or at least modify them. All refused. Consequently, for something like the next three years, the AER will interleave articles explaining why the crisis occurred with articles explaining why the crisis could not occur.

Mortgage Pig's retirement?

these Caribbean pigs are swimming in crystal clear ... | World max Travel

Hehe, Luci, your whitey thing has some funny implications. I personally wouldn't do it, but it's your choice.

C

[Kerrist, sorry, just got some kind of thread post explosion, back soon]

story in the Times onn Real Estate:

Just ask Adam Rogers, 45, a United Nations spokesman, who only a year ago thought he had it made when he was transferred to Switzerland from New York.
Until then, Mr. Rogers, his wife, Gillian, and their two small children had been comfortably ensconced in a four-bedroom, 2,000-square-foot condo in Clinton Hill, Brooklyn. The couple bought it for $599,000 in cash in January 2006, after selling the Hell’s Kitchen apartment they had outgrown for $920,000 at the height of the market, and pocketing a profit that was three times what they had paid.
They hoped to make a similar killing by buying into another gentrifying neighborhood.
“I used what I called the Starbucks index,” Mr. Rogers said. “There were no Starbucks around in Hell’s Kitchen when I bought there, and when I sold there were four. There were no Starbucks here either when I bought.”
.....
his last price on the market is 599,000 of which he will lose 60K in transaction costs....
.....
hey, he made a killing off his first dump so what's he complaining about? a grandiose sense of yuppie entitlement? guess that mark to Starbucks model didn't work so well...

Not the part of the views Luci, the aggregate. That's where it's really funny.

C

So you are creating fictional profits to cover real losses.. great!

JPMorgan, U.S. Lenders Lean on Investment Banking for Profits
JPMorgan, U.S. Lenders Lean on Investment Banking for Profits - Bloomberg.com

By Michael J. Moore

July 18 (Bloomberg) -- Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc., the three biggest U.S. lenders, reported a total of $10.2 billion in profits for the second quarter that relied on investment banking and asset sales to counter growing losses on consumer loans.Goldman Sachs Group Inc., which gets almost none of its revenue from retail consumer banking, had a record quarter, reporting earnings of $3.44 billion.

or entrail readers?

//Might as well consult astrologers.//

"making money off of fear is the most dangerous game"

It's the only game.

CRE Broker: "Insult me with an offer"

pavel.chichikov (homepage, profile) wrote on Sat, 7/18/2009 - 9:13 pm

Government is only the most visible actor. It is all of us, and the way we think of ourselves and our relationship to each other. The financial/economic crisis is much more than that. There are solutions, and I fear them.

In an ideal sense, the power of the government derives from the consent of the governed. But if no consent has ever been given, it is a matter of how effectively it has lied, stolen from and exploited us, and bribed us in various ways to keep quiet about the facts of the crime.

"being "

begin

The primary reason for the big jump in new home sales is the tax incentive. California gave away $10K to each new home buyer. On top of $8K from the Feds that pushed a large number of people into the market in the country's biggest state. As of the end of June the California money has all been used up. The Federal tax credit ends in November. Will the trend continue without the government subsidy?