CR: Great find! The charts really make a compelling argument that indeed, we are only beginning to see the effects. Looking at history, there is no evidence supporting those who say the worst has already passed. I am too young to have been involved in the last big bust, but from what I've read this housing bubble dwarfs all others.
skytrekker, remember the consensus view is the housing boom was mostly based on fundamentals. So naturally the consensus view is the housing bust won't get much worse and will not have much of an impact on the economy.
CR - always enjoy the NT and Kasriel's stuff. Thoughtful, reality-based and grounded - let's the data speak by putting it thru the right kinds of filters to see what's going on. Independently my own looks at the data show that, for example, GDP growth hasn't been as bad or good in aggregate as the headlines. Been running around 3.2% YOY since Q405 in contrast to MtoM numbers. That's the good news - here's the first interesting indicator - YOY GDP was 2.86% which continues the downtrend visibile for several quarters but is ALSO a severe (relatively) break to the downside. Consumption, the driving engine, has now had two quarters under 3.0% (the only time since the receission being Q405 with Katrina) at 2.98% in Q206 and 2.8% this last quarter.
This is all before we see the a)ripples that Kasriel points out or b)the impacts of a broader housing malaise that you've analyzed.
Incidentally, I read this book "Ahead of the Curve" by Joseph Ellis (no, I am not trying to plug it). His premise is that consumer spending leads EVERYTHING. He points out that consumer spending (real PCE) peaked in 2003...and eventually will drag everything down with it. That was a little melodramatic, but you know what I mean. I found the book useful in learning his understanding about what leads and what lags.
If you have access to Barron's Online read the very bearish Robert W. Baird analyst piece on the flash memory market that was posted today. "Flash Memory Backlash"
"OUR CHECKS INDICATE very weak NOR flash-memory bookings for the month of December, in sharp contrast with the third quarter, and suggesting a drastic reduction in lead times."
"In NAND flash, we are getting additional feedback about weak Apple Computer iPod 8-gigbyte nano sales, suggesting further pricing weakness in November."
I'm a strong housing bear. However, the fact that other parts of the economy are slowing is not much proof that housing is the cause. Declines in loan applications are better evidence of the housing decline. If the recession is not already apparent by early 07, I think that we will see real panic during the spring "selling season" when inventory again rises and the buyers don't show up. At that point, cause and effect might be clearer, but will still be difficult to sort out convincingly. Maybe comparing this coming recession to historical recessions will provide the best evidence. In any case, it seems clear that unemployment is not the cause of the housing decline and the RE bulls seem to think that employment is a leading factor of housing declines.
Greetings again from Spain. As I wrote before I am watching with interest your blog because I believe that US housing market slowdown is leading a global slowdown in housing and economy elsewhere. Here in Spain, despite wide differences in the economy I notice many similarities in the economical situation (specially housing markets) with the US: dependence on personal comsumption and current account deficit. About housing markets, we are now experiencing a situation similar to the US's at the end of 2005. Home sales are declining since july and home prices stabilizing. I expect that the elasticity of house prices to changes in interest rates in Spain will parallel US's (due to over-construction and to customer sensitivity to rising financial costs). I also expect contagion from US markets. Also, consumer activity in Spain is expected to be very sensitive to refinance activity. Watching your blog is useful to anticipate much of the economical picture in this country during the following months. Be sure that european economy will not decouple from US's economy.
Good luck for everybody in this "interesting" situation.
The Treasury's advisory committee today opined that the housing sector is correcting, but that it is near balance. So yes, the conventional view is that housing is doing OK.
I worry that a combination of inventory overhang and a continued downward trajectory in applications for purchase, albeit on a less steep trend, is a bad combination.
For the record, I don't advocate hoarding gold, ammo and canned goods like the gold bug set behind this website, but this editorial clearly shows how the optimism bias survived in the face of something likely far worse than what we're in the early stages of.
kh, somehow I think that The Treasury does not represent the conventional view, but the government's view or more particularly, the administration's view. (You figure the terrorists have got to me and contaminated my previously clear and distinct views of this tricky conventional business?) The Treasury is marketing a view (with or without that advisory committee) under the direction of the WH...is my view (which is at the cutting edge of the conventional view, --cutting and snipping like there was no tomorrow, people, you?).
Not all of us (cutters and snippers) park these Treasury announcements in the Conventional Wisdom sack. No, we look at the herd to see how much they are swallowing and view that segment as 'the conventional view'... and bring out the shears to prune all the bad wood out of it. (This is a pretty good shearing place, no?)
That is my view. I'm sure it's hopelessly conventional, but I'm working on it, not like some.
CR: Great find! The charts really make a compelling argument that indeed, we are only beginning to see the effects. Looking at history, there is no evidence supporting those who say the worst has already passed. I am too young to have been involved in the last big bust, but from what I've read this housing bubble dwarfs all others.
My two cents concur with the reality that..........
anything like the magnitude of this bubble just slips on by with just a tiny whimper?
Wishful thinking of desperate analysts.
skytrekker, remember the consensus view is the housing boom was mostly based on fundamentals. So naturally the consensus view is the housing bust won't get much worse and will not have much of an impact on the economy.
Best to all.
CR - always enjoy the NT and Kasriel's stuff. Thoughtful, reality-based and grounded - let's the data speak by putting it thru the right kinds of filters to see what's going on. Independently my own looks at the data show that, for example, GDP growth hasn't been as bad or good in aggregate as the headlines. Been running around 3.2% YOY since Q405 in contrast to MtoM numbers. That's the good news - here's the first interesting indicator - YOY GDP was 2.86% which continues the downtrend visibile for several quarters but is ALSO a severe (relatively) break to the downside. Consumption, the driving engine, has now had two quarters under 3.0% (the only time since the receission being Q405 with Katrina) at 2.98% in Q206 and 2.8% this last quarter.
This is all before we see the a)ripples that Kasriel points out or b)the impacts of a broader housing malaise that you've analyzed.
CR
Fundamentals as weak as a 10000 pound elephant on toothpick legs-
sadly those legs are beginning to splinter
your sarcasm is understood.
Incidentally, I read this book "Ahead of the Curve" by Joseph Ellis (no, I am not trying to plug it). His premise is that consumer spending leads EVERYTHING. He points out that consumer spending (real PCE) peaked in 2003...and eventually will drag everything down with it. That was a little melodramatic, but you know what I mean. I found the book useful in learning his understanding about what leads and what lags.
If you have access to Barron's Online read the very bearish Robert W. Baird analyst piece on the flash memory market that was posted today. "Flash Memory Backlash"
"OUR CHECKS INDICATE very weak NOR flash-memory bookings for the month of December, in sharp contrast with the third quarter, and suggesting a drastic reduction in lead times."
"In NAND flash, we are getting additional feedback about weak Apple Computer iPod 8-gigbyte nano sales, suggesting further pricing weakness in November."
...more hints that consumer spending is tanking?
I'm a strong housing bear. However, the fact that other parts of the economy are slowing is not much proof that housing is the cause. Declines in loan applications are better evidence of the housing decline. If the recession is not already apparent by early 07, I think that we will see real panic during the spring "selling season" when inventory again rises and the buyers don't show up. At that point, cause and effect might be clearer, but will still be difficult to sort out convincingly. Maybe comparing this coming recession to historical recessions will provide the best evidence. In any case, it seems clear that unemployment is not the cause of the housing decline and the RE bulls seem to think that employment is a leading factor of housing declines.
Dear CR,
Greetings again from Spain. As I wrote before I am watching with interest your blog because I believe that US housing market slowdown is leading a global slowdown in housing and economy elsewhere. Here in Spain, despite wide differences in the economy I notice many similarities in the economical situation (specially housing markets) with the US: dependence on personal comsumption and current account deficit. About housing markets, we are now experiencing a situation similar to the US's at the end of 2005. Home sales are declining since july and home prices stabilizing. I expect that the elasticity of house prices to changes in interest rates in Spain will parallel US's (due to over-construction and to customer sensitivity to rising financial costs). I also expect contagion from US markets. Also, consumer activity in Spain is expected to be very sensitive to refinance activity. Watching your blog is useful to anticipate much of the economical picture in this country during the following months. Be sure that european economy will not decouple from US's economy.
Good luck for everybody in this "interesting" situation.
CR,
The Treasury's advisory committee today opined that the housing sector is correcting, but that it is near balance. So yes, the conventional view is that housing is doing OK.
I worry that a combination of inventory overhang and a continued downward trajectory in applications for purchase, albeit on a less steep trend, is a bad combination.
For the record, I don't advocate hoarding gold, ammo and canned goods like the gold bug set behind this website, but this editorial clearly shows how the optimism bias survived in the face of something likely far worse than what we're in the early stages of.
1927-1933 Chart of Pompous Prognosticators
kh, somehow I think that The Treasury does not represent the conventional view, but the government's view or more particularly, the administration's view. (You figure the terrorists have got to me and contaminated my previously clear and distinct views of this tricky conventional business?) The Treasury is marketing a view (with or without that advisory committee) under the direction of the WH...is my view (which is at the cutting edge of the conventional view, --cutting and snipping like there was no tomorrow, people, you?).
Not all of us (cutters and snippers) park these Treasury announcements in the Conventional Wisdom sack. No, we look at the herd to see how much they are swallowing and view that segment as 'the conventional view'... and bring out the shears to prune all the bad wood out of it. (This is a pretty good shearing place, no?)
That is my view. I'm sure it's hopelessly conventional, but I'm working on it, not like some.
Turbo - it is never a bad thing to hoard gold, ammo or canned goods, if nothing else it will give your heirs a good laugh when they go through it all.
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