I suppose this shows that the housing slowdown is orderly - so far.
I disagree.
Despite large price cuts and incentives sales are still falling. If the builders were able to maintain the level of sales by this means I might be willing to say this is "orderly".
But this data suggests to me that homebuilders will have to continue cutting prices without any expectation of stablizing sales.
i disagree CR. there's been no level of stability achieved yet. the homebuilders are nibbling around the edges. if the declines however slight continue over time the homebuilders will continue to have to increase incentives/cut prices. when we find a stabilizing point for a few months we can call it orderly.
These declines aren't exactly slight, especially when you factor in incentives and the fact that these figures represent the peak of the buying season when we should see the most strength:
$244,900 Jan 2006
$250,800 Feb 2006
$238,800 Mar 2006
$253,800 April 2006
$235,000 May 2006
$231,300 June 2006
These data are for the national market but most of us are in local markets and they can run counter to national trends for a long time. As I recollect the SoCal market crashed in the 90's and the NorCal market was firm to advancing. I know too much data to present for a blog.
I think we've reached the inflection point. Last July's sales topped June; do you know anybody who thinks that will be the case this year?
If we just trend slightly downward over the next six months sales come in about 15 percent below last year.
I think the more likely scenario, which sadly includes a recession, is for even lower sales. I think we could get to about a 17 percent drop without getting a vicious cycle started. After that there is a no-man's land up to about 20-21 percent where it might go either way and over that, we'll be banging off sharp rocks on the way down, no doubt.
If real estate does start to seriously tank can it lower interest rates to get the market moving?
How bad can it let things get?
If the Fed does cut rates, wouldn't the central banks financing our lifestyle have to pull back on buying an asset (T-Bills) that almost certainly would be offering a negative return?
As expected months of inventory continue to trend higher. It seems that sales have come to a complete halt where sellers lower their prices a tiny amount and buyers just laugh.
This fall will show more pricing downside as sellers realize the top is past and prices must come down lower to attract a qualified buyer who is hesistant to buy.
I agree that the operative words are "so far". The housing market moves in slow motion, and even if the wheel is turned hard to port, there seems little chance we will miss the iceburg ahead.
"Is the Fed in a trap? If real estate does start to seriously tank can it lower interest rates to get the market moving?"
something I have read recently:
"Wages have to go up for people to pay their mortgages, yet this puts more pressure on the Fed to raise rates. It a vicous cycle.
If the Mortgage Backed Security market starts to crumble, mortgage rates could go up even with the Fed lowering short term rates. From what Ive read foreign investors have gone cold on buying MBSs and dealers on holding a lot of them. When the dealers start deciding its time to start unloading rates will go higher."
Taken by themselves, these figures are more positive than I would have expected. The YOY % decline in sales need to be viewed in the context of how high sales were last year. My understanding is that anything over 1m new units sold is very solid.
Having said that, the financial numbers from the homebuilders tell a different story, inventories, and any number of other indicators tell a different story. These national numbers also hide bad news in the "bubble" markets.
This is like a slow motion pile-up on a six-lane interstate. A few metropolitan markets (cars) have begun to skid, others are starting to swerve, and you can visualize the pile of cars that will be left when it is all over. It simply may take a while for markets to shake out.
I have a gut feeling that lowering interest rates enough to save recent homeowners would allow that huge amount of money that has been inflating home prices back out into the rest of the economy and cause 70s style runaway inflaiton. The only way to keep the huge M3 from causeing a giant jump in the CPI is for much of that money to disappear in defaults. I don't think we can avoid either massive inflation or massive defaults, but I wouldn't put it past the Fed to give us both by trying to thread a path between those two outcomes.
I've listened to a few recent public home builder conference calls and they are saying two things that I found of interest: 1) that their cancellation rates ski-rocketed in the Spring as speculators backed out of contracts and other buyers couldn't make contingencies -- they claim to see cancellation rates returning to historic norms. That sounds reasonable to me, but sales are still bad in most markets; 2) they claim that while interest rates are still attractive, many buyers are afraid of continued rate hikes and that if the Fed "takes its foot of the rate hike pedal" that this will reinvigorate the market. I think this is pure B.S.
What hasn't happened yet is that prices have not come down significantly. Face it, if interest rates are still attractive and people still aren't buying, the only thing that could be dissuading them is the high price. As interest rates go up, prices will have to come down that much farther. So I agree with CR to the extent that things are likely to get worse.
It must be noted that every month this year the new home sales numbers have been revised downward, so the drop is bigger than claimed.
I think the only thing that has kept prices high is that sellers haven't panic yet. They are not selling either, but still are holding out.
When it gets into their greedy little minds that prices are falling (real prices not this "median price" bullsh*t) and that the longer they wait the lower it will go, they will start to panic. Add to that speculators, foreclosures, FBs and things start going south. At that point buyers will continue to wait for prices to fall even more. It will be the catch a falling knife scenario.
When things return to the mean. When affordability is at the normal historic levels. When mortgages are given to people who can pay them back. Then we will have stability. It's a long way down before that.
Time for my monthly codicile. Once again we see the previous months' preliminary estimates "revised" downward and once again we see this months' data compared to the revised figure. There's a word for a preliminary estimate that gets revised downward 9 times in the last 6 months; we call them lies. 105,000 actual sales in a month that traditionally is one of the top four in volume tells me that there is no chance for a million new home sales this year.
Oh, and when comparing "cancellation rates" it is best to remember that the terms and conditions for recent contracts are likely to be far diferent than those of 6 months ago.
Its hard to imagine a real estate crash with Bernanke at the helm. Do you hear the helicopters coming?
The only thing causing a problem will be oversupply which will have to be absorbed over a few years. Buts that should just cause prices to rust not bust.
So the "so far" should hold for a long while still
Q: "If real estate does start to seriously tank can it lower interest rates to get the market moving?
the FRAME of this question presumes that Monetary Policy is either THE or one of many causes of "Housing Slowdown" apparent.
I would say that it is not the Cost of Capital, nor is it the supply of capital = liquidity, that is affecting New Home Sales; Rather, it is the Cost of New Homes, and supply of New Homes, that is affecting New Homes Sales statistics.
Though we (academics) are correct when we say, "People don't buy Homes, they buy Loans," alas, the vast majority of (retail) buyers and sellers do not perceive themselves that way, nor do they act / react with such rational correlation to the ticks and tocks of the benchmark Ten-Year Treasury Bond benchmark.
while i am ranting away wit' and again' my fellow dismal scientists {grin} i would like to say that the graphics posted here would cause Tufte to toss his cookies, they are THAT bad; and that even without running these data through a simple Time Series de-composition programme, the Visual Displays alone reveal residual SEASONALITY apparent in supposed de-seasonalized data. to wit, this meal has been under-cooked; the sauce conclusions, over-wrought.
I suppose this shows that the housing slowdown is orderly - so far.
I disagree.
Despite large price cuts and incentives sales are still falling. If the builders were able to maintain the level of sales by this means I might be willing to say this is "orderly".
But this data suggests to me that homebuilders will have to continue cutting prices without any expectation of stablizing sales.
i disagree CR. there's been no level of stability achieved yet. the homebuilders are nibbling around the edges. if the declines however slight continue over time the homebuilders will continue to have to increase incentives/cut prices. when we find a stabilizing point for a few months we can call it orderly.
These declines aren't exactly slight, especially when you factor in incentives and the fact that these figures represent the peak of the buying season when we should see the most strength:
$244,900 Jan 2006
$250,800 Feb 2006
$238,800 Mar 2006
$253,800 April 2006
$235,000 May 2006
$231,300 June 2006
These data are for the national market but most of us are in local markets and they can run counter to national trends for a long time. As I recollect the SoCal market crashed in the 90's and the NorCal market was firm to advancing. I know too much data to present for a blog.
I like your "so far."
I think we've reached the inflection point. Last July's sales topped June; do you know anybody who thinks that will be the case this year?
If we just trend slightly downward over the next six months sales come in about 15 percent below last year.
I think the more likely scenario, which sadly includes a recession, is for even lower sales. I think we could get to about a 17 percent drop without getting a vicious cycle started. After that there is a no-man's land up to about 20-21 percent where it might go either way and over that, we'll be banging off sharp rocks on the way down, no doubt.
Question Time:
Is the Fed in a trap?
If real estate does start to seriously tank can it lower interest rates to get the market moving?
How bad can it let things get?
If the Fed does cut rates, wouldn't the central banks financing our lifestyle have to pull back on buying an asset (T-Bills) that almost certainly would be offering a negative return?
As expected months of inventory continue to trend higher. It seems that sales have come to a complete halt where sellers lower their prices a tiny amount and buyers just laugh.
This fall will show more pricing downside as sellers realize the top is past and prices must come down lower to attract a qualified buyer who is hesistant to buy.
I agree that the operative words are "so far". The housing market moves in slow motion, and even if the wheel is turned hard to port, there seems little chance we will miss the iceburg ahead.
"Is the Fed in a trap? If real estate does start to seriously tank can it lower interest rates to get the market moving?"
something I have read recently:
"Wages have to go up for people to pay their mortgages, yet this puts more pressure on the Fed to raise rates. It a vicous cycle.
If the Mortgage Backed Security market starts to crumble, mortgage rates could go up even with the Fed lowering short term rates. From what Ive read foreign investors have gone cold on buying MBSs and dealers on holding a lot of them. When the dealers start deciding its time to start unloading rates will go higher."
"So far" indeed.
Taken by themselves, these figures are more positive than I would have expected. The YOY % decline in sales need to be viewed in the context of how high sales were last year. My understanding is that anything over 1m new units sold is very solid.
Having said that, the financial numbers from the homebuilders tell a different story, inventories, and any number of other indicators tell a different story. These national numbers also hide bad news in the "bubble" markets.
This is like a slow motion pile-up on a six-lane interstate. A few metropolitan markets (cars) have begun to skid, others are starting to swerve, and you can visualize the pile of cars that will be left when it is all over. It simply may take a while for markets to shake out.
Can we get the same numbers/graphs for SoCal. Those should tell a different story.
Angela
Q: "If real estate does start to seriously tank can it lower interest rates to get the market moving?
How bad can it let things get?"
A: The Fed wouldn't be able to lower interest rates a whole lot, given the somewhat "disappointing" inflation numbers we've seen recently.
Angela, the Census Bureau doesn't release New Home data by state - just region: Northeast, Midwest, South and West.
Best to all.
I have a gut feeling that lowering interest rates enough to save recent homeowners would allow that huge amount of money that has been inflating home prices back out into the rest of the economy and cause 70s style runaway inflaiton. The only way to keep the huge M3 from causeing a giant jump in the CPI is for much of that money to disappear in defaults. I don't think we can avoid either massive inflation or massive defaults, but I wouldn't put it past the Fed to give us both by trying to thread a path between those two outcomes.
I've listened to a few recent public home builder conference calls and they are saying two things that I found of interest: 1) that their cancellation rates ski-rocketed in the Spring as speculators backed out of contracts and other buyers couldn't make contingencies -- they claim to see cancellation rates returning to historic norms. That sounds reasonable to me, but sales are still bad in most markets; 2) they claim that while interest rates are still attractive, many buyers are afraid of continued rate hikes and that if the Fed "takes its foot of the rate hike pedal" that this will reinvigorate the market. I think this is pure B.S.
What hasn't happened yet is that prices have not come down significantly. Face it, if interest rates are still attractive and people still aren't buying, the only thing that could be dissuading them is the high price. As interest rates go up, prices will have to come down that much farther. So I agree with CR to the extent that things are likely to get worse.
It must be noted that every month this year the new home sales numbers have been revised downward, so the drop is bigger than claimed.
I think the only thing that has kept prices high is that sellers haven't panic yet. They are not selling either, but still are holding out.
When it gets into their greedy little minds that prices are falling (real prices not this "median price" bullsh*t) and that the longer they wait the lower it will go, they will start to panic. Add to that speculators, foreclosures, FBs and things start going south. At that point buyers will continue to wait for prices to fall even more. It will be the catch a falling knife scenario.
When things return to the mean. When affordability is at the normal historic levels. When mortgages are given to people who can pay them back. Then we will have stability. It's a long way down before that.
Time for my monthly codicile. Once again we see the previous months' preliminary estimates "revised" downward and once again we see this months' data compared to the revised figure. There's a word for a preliminary estimate that gets revised downward 9 times in the last 6 months; we call them lies. 105,000 actual sales in a month that traditionally is one of the top four in volume tells me that there is no chance for a million new home sales this year.
Oh, and when comparing "cancellation rates" it is best to remember that the terms and conditions for recent contracts are likely to be far diferent than those of 6 months ago.
CR:
Could you post an updated graph of "New Home Sales and Recessions" posted Sunday, March 19, 2006 & Friday, March 24, 2006? It would be appreciated.
Its hard to imagine a real estate crash with Bernanke at the helm. Do you hear the helicopters coming?
The only thing causing a problem will be oversupply which will have to be absorbed over a few years. Buts that should just cause prices to rust not bust.
So the "so far" should hold for a long while still
OH GIVE ME A HOME, WHERE THE LOANRATE DON'T ROAM
Q: "If real estate does start to seriously tank can it lower interest rates to get the market moving?
the FRAME of this question presumes that Monetary Policy is either THE or one of many causes of "Housing Slowdown" apparent.
I would say that it is not the Cost of Capital, nor is it the supply of capital = liquidity, that is affecting New Home Sales; Rather, it is the Cost of New Homes, and supply of New Homes, that is affecting New Homes Sales statistics.
Though we (academics) are correct when we say, "People don't buy Homes, they buy Loans," alas, the vast majority of (retail) buyers and sellers do not perceive themselves that way, nor do they act / react with such rational correlation to the ticks and tocks of the benchmark Ten-Year Treasury Bond benchmark.
while i am ranting away wit' and again' my fellow dismal scientists {grin} i would like to say that the graphics posted here would cause Tufte to toss his cookies, they are THAT bad; and that even without running these data through a simple Time Series de-composition programme, the Visual Displays alone reveal residual SEASONALITY apparent in supposed de-seasonalized data. to wit, this meal has been under-cooked; the sauce conclusions, over-wrought.
Oh, Waiter? Cheque, please.