Here's my two cents on the latest figures, for what it's worth (I guess that'd be two cents, right?)
I hope your seatbelts were fastened coming into this new home sales number, because sales came to a screeching halt! The seasonally adjusted annual rate of sales was a paltry 937,000 in January, down a whopping 16.6% from Decembers 1.123 million SAAR. The January sales rate is the weakest going all the way back to February 2003, almost four years ago. The one-month decline was the single worst drop in 13 years.
Inventories remain elevated a seasonally adjusted 536,000 homes for sale in January. Thats roughly unchanged from Decembers 537,000 and down from the 573,000 peak in July. But its up about 2.7% from a year ago. Its also far above the roughly 280,000 370,000 range that persisted throughout most of the 1990s.
On a months supply at current sales pace basis, we had 6.8 months of homes on the market in January. Thats just shy of the cycle peaks 7.2 months in October and July. Keep in mind that the new home inventories figures fail to account for order cancellations. Specifically, if you contract to buy a house, its recorded as a new home sale but if you later back out of that contract, the home is not added back to the overall inventory count.
Median prices remain roughly stagnant. They were roughly unchanged month-over-month ($239,800 in 1/07 vs. $239,400 in 12/06). But they are well off the high of $257,000 in April 2006 and they were down 2.1% from a year ago in January. That was the second biggest YOY decline reported for this cycle (behind September, when prices were down 5.7%)
Lets cut to the chase these numbers were ugly. While the month to month changes in new homes sales figures can be volatile, the magnitude of the decline is impressive almost five times worse than the consensus forecast (-3.6%). This speaks volumes about the ongoing weakness in the housing sector. Inventories remain elevated. Housing affordability remains low, historically speaking. And now, mortgage lending standards are tightening. All of this bodes ill for the 2007 spring selling season. I dont expect a true, lasting rebound in housing until at least 2008.
I wonder if this drop is not finally a result of this shadow supply of canceled houses. Builders are definitely selling this shadow supply that is no longer recorded. I listened to the WCI conference call and they said they are heavily discounting these canceled units and offer them much below the prices of not started ones. I also remember that some of the homebuilders reported lower percentage of cancellation on lower sales.
When cancellations increase, the sales are overstated but when they decline (or even stabilize with increasing sales of canceled units), they are understated. So maybe the data reported for January are lower than in reality. But the former months were overstated.
I like this blog and read it every day, but most of the comments relate only to CA, south FL, and a few to AZ and NV. Does anyone know where I can get collected data for the Chicago area? I can collect it from the Cook County Assessor and Recorder web sites, but Im a lazy so and so and would rather someone else collect it and present it to me.
Here's one anecdote: The Chicago Tribune reports that the prices for condos in the new Trump Tower (still under construction) have gone up so much (I heard 50%) that The Donald has exercised his contract rights to cancel units sold under the Friends and Family Program and resell them at the current going rate. We have a few large bonus type professionals in Chicago, but nothing like in NY. Any guess at what is happening in Chicago?
"Its 72 degrees year 'round in Chicago - indoors" according to the convention bureau.
Mike in FL - know year end sales were bad - reflected in January NAR sales (which is closings). Waiting for January "pending index" which is a more current indicator, due 3/1.
The West got killed in this report - off 50.4% from last January? Building and selling houses is basically our entire economy in Phoenix.
Sale of invisible inventory is almost certainly cutting into the sale of visible inventory, but either way it looks like they don't need to build any additional houses for a while.
Latest update on Coast Bank. On second thought, maybe not!
"Bank savior turns out to be a seller
For Coast Bank of Bradenton, the knight in shining armor turned out to be Mr. Love-'em-and-leave-'em. St. Louis banker James Dierberg bought nearly 10 percent of Coast in early February for $5.3-million, raising speculation he was a buyout prospect for the financially strapped bank. Dierberg revealed Monday he has since sold about two-thirds of that stock - at a loss, no less."
Roubini's posted an interesting discussion suggesting that the fraction of subprime and problem loans has been greatly understated. It's worth a look: RGE - Nouriel Roubini's Global EconoMonitor
Based on the volume, I'm assuming that Chicago is in Cook County?
Sebastian, don't do that kind of thing to yourself. You have enough problems trying to get the bull case through our Bear Cave Intruder Alert (tm) screening technology. This interweb tubes things has places you can go to see what county Chicago is in.
Brian, we now must discover who was on the other side of those losin' trades. Anybody want to try to tell me that the Beardstown Ladies Investment Club is behind this? I don't think so . . .
NEW? Why NEW? I mean, there's NFI sitting there, not wanting to be a REIT any more, and there's Coast, with a bank charter it may not need much longer . . . well, why not let a REIT buy a bank? Have you, personally, not been asked to believe dumber things lately? I have.
"Roubini's posted an interesting discussion suggesting that the fraction of subprime and problem loans has been greatly understated."
He makes some good points, like countering the oft-quoted "fact" that only 6% of the world is subprime, which CNBC types throw out without explaining that this figure represents ALL households, as opposed to those households with mortgages, the latter of which bumps the percentage up to 13%.
Saw that spin at work on CNBC this morning. A Citibank head honcho analyst was on tap to calm the universe, and was later pitted against a stumblin' bumblin' chicken little who started talking subprime. The Citi analyst brushed him off with a roll of his eyes and the 6% comfort-zone number. Then, on to Mark "We're headed higher this morning!" Haines.
But, Roubini is right. Aren't downturns more a function of flow, as opposed to static comparisons? I really don't care how many mortgages are in trouble when expressed in terms of dollar amount over total mortgages outstanding. I want to know, instead, how many mortgages are in trouble as a percentage of mortgages taken in 2005, or 2004, or 2006. Isn't this a better indicator of what gears will grind going forward for an economy that ramped up on assumptions that no longer flow?
Like CR has mentioned in the past, throw out the all those households with no mortgages. There's a reason they're mortgage-free: They don't spend. And they're probably not much of a factor in our 70% consumer-based economy. They will NOT come to anybody's rescue.
But, Tanta, please enlighten the confused. Roubini is also trying to make the point that a lot of prime is garbage 'cause of those high-FICO types taking on neg-am loans and the like. But, doesn't this pretty much take that prime borrower directly out of the prime pools, and plop them down into Alt-A? If my FICO is 800, and I finance 100% of the purchase, am I not no longer "prime", but Alt-A instead?
Here's what I was asked to believe in only just 5 minutes ago. Unsolicited fax:
"Invest in Panama City Beach
Great ground floor real estate investment opportunity in one of the best areas in the country. $130K buys a 1/8th interest in a fully furnished 3 bedroom 3 bath luxury residence....Here are three reason you should consider buying one or more fractional interests.
First, the price couple with seller concessions in the first phase mean that you will have positive cash flow.
Second, these homes are offered at less than half the price of comparable units in the area.
Third, a new regional airport will significantly increase access to the area [yeah, when it's built in 5 or 10 years time!]
So if positive cash flow, built in equity [can someone define that for me?] and great appreciation potential make sense to you then get in touch with us"
If anyone would like to pursue this, I'd like to talk to you about one of our local bridges here in NYC.
winjr, that's exactly what "Alt-A" is supposed to be: "alternative" mortgage arrangements for the A credit (prime) crowd. The argument was, you could take your 800 FICO borrower, and instead of putting him in a nice conservative loan that would match his apparent lifelong credit habits (that's how he got an 800), you could keep adding high-risk attributes to his loan without limit--state the income, state the assets, let the DTI get to 50%, let the appraised value get to 100%, make it an ARM, make 20% of it a HELOC indexed to prime, make it an investment property, and a high-rise condo in south Florida . . . the sky's the limit! You see, an 800 FICO is like being Atlas! You can have every risk characteristic known to humanity, and the great strong heroic consumer will never falter!
Once everyone started to pour the water out of the bongs, it began to look like the reason we got 20% subprime originations in one year might have been that a whole boat-load of them were refis, and what they were refinancing was Mr. Atlas who used to have an 800 FICO until he took out that "Alt-A" loan.
Brian, the "built-in equity" is between the custom entertainment center and the faux-walnut burl veneer on the French doors to the pool. It is, I believe, accessed with a keypad. The combination is SUCKER.
"Roubini's posted an interesting discussion suggesting that the fraction of subprime and problem loans has been greatly understated."
I've ranted on this in previous comments.
Housing market is historically only 5-6% of total housing stock. Past few years this has risen to 10% of stock. (see CR's beautiful graphs)
That may be a small change based on housing stock, but in terms of the market, it is doubling of demand.
It is this extra demand - tiny when compared to stock, but 100% increase when compared to flow, that has caused prices to double.
So if you talk in terms of housing stock, it's just about 4-5% extra demand that causes price to double.
All those % numbers you hear about - the % who hold free and clear, the % who have LTV < 80%, the % of mortgages that are subprime, all are spun with using the housing stock as basis.
All that really matters is how much of the extra 5%(stock basis) demand is subprime, underwater etc. If just 2.5%(stock basis) of it disappears, 25%(flow basis) of the market demand vanishes.
Really, the numbers are there for those who want to see it. This boom has just increased home ownership rate by about 3-4%. Which jives well with the extra demand figures. The "subprime is only *just 6% of mortgages" line falls into what Twain called the three kind of lies - lies, damned lies, and statistics
Anything that comes out of the Donald's mouth needs to be run throught the non-linear bullshit discounting algorithm. Here's a third party counter point to the Donald's happy talk (query: does he use the same IR counsel as New Century?):
"Chicago's cooler condo market spells bad news for many investor buyers, expert says
Posted 2/27/07 by Alison Soltau
The cooldown in the Chicago's condo market in late 2006 and early 2007 has left at least one expert predicting doom and gloom for many investor buyers.
With the inventory of unsold downtown new-construction condos growing to more than 6,400 units at the end of 2006, New Homes Magazine columnist Don DeBat recently asked Steven Good of auction company Sheldon Good & Company about the outlook for speculators in 2007.
It will take two or three years or longer to work out the condo glut and market thousands of downtown investor units," Good told DeBat. The worst-case scenario is many of them may eventually end up in foreclosure because lenders have no incentive to give the investor borrower a break."
"Once everyone started to pour the water out of the bongs"
ROFLMAO! I'm stealing this! Of course, alternatively, and solely on your behalf and with only your best interests at heart, I'd be more than happy to file for copywrite protection for this gem so, you know, nobody can steal it.
I can also confirm that Chicago is in Cook County me too... so I checked out the .pdf.
...I'm not big on conspiracy theories (the Trilateral commission has asked me to stop commenting on that sort of stuff) but isn't it funny how the "Illinois Association of Realtors" gets exactly a 250,000 price for Q4 05 and Q4 06 median prices?
Are interns adding up those columns of numbers after dumbed-down calls ala CO? or they just CTRL-C, CTRL-X uh... CTRL-X ing? or are they guestimating off the world wide interweb? What?
Tanta, can you explain anything about people who compile these surveys? Seems to me weve got a whole lot riding on their accurate compilation not me understand Ive sold out... but others.
...And what's with the Not Seasonally Adjusted monthly rate of 70,000 getting seasonally adjusted to.. uh... 937,000!?
I understand how you need to add a lot back for these cold months (Me Chicagoan) but really! Is that useful information to base your Hedge Fund's 30% allocation to toxic CDO tranches?
OK, I looked at that Illinois Association of REALTORS document.
I think Colorado must get all the really good interns.
Or maybe they have a version of Excel that calculates MEDIAN in base 8, and so somebody just had to round, you know, or the number would look too weird.
"Once everyone started to pour the water out of the bongs,..."
Damn, another keyboard gone. Tanta, you gotta post a warning label somewhere. "Caution Irresistable Laughter Ahead."
Okay, so there's 85 million owned dwelling units out there with a bit less than a third with no encumbrances. Call it 55 million asset units with some form of debt overhang. How many residentaial backed mortgage products are outstanding on those 55m? I'm carrying two, Wells 1st and Wamu Heloc soon to be WFCU fixed 15yr second. I look at that crazy kid at iamfacingforeclosure and see him carrying something like 16 against 6-7 properties. If 1/3rd have zero, maybe another 1/3rd has but the one mortgage product then the rest account for the entire remainer of the mortgage business? Sounds like the old 80/20 rule that 20% of the potential customers are generating 80% of the action. The problem is that 20% is looking to get cut in half taking 40% of the mortgage originatin business with it.
Here's my two cents on the latest figures, for what it's worth (I guess that'd be two cents, right?)
On a months supply at current sales pace basis, we had 6.8 months of homes on the market in January. Thats just shy of the cycle peaks 7.2 months in October and July. Keep in mind that the new home inventories figures fail to account for order cancellations. Specifically, if you contract to buy a house, its recorded as a new home sale but if you later back out of that contract, the home is not added back to the overall inventory count.
Lets cut to the chase these numbers were ugly. While the month to month changes in new homes sales figures can be volatile, the magnitude of the decline is impressive almost five times worse than the consensus forecast (-3.6%). This speaks volumes about the ongoing weakness in the housing sector. Inventories remain elevated. Housing affordability remains low, historically speaking. And now, mortgage lending standards are tightening. All of this bodes ill for the 2007 spring selling season. I dont expect a true, lasting rebound in housing until at least 2008.
I wonder if this drop is not finally a result of this shadow supply of canceled houses. Builders are definitely selling this shadow supply that is no longer recorded. I listened to the WCI conference call and they said they are heavily discounting these canceled units and offer them much below the prices of not started ones. I also remember that some of the homebuilders reported lower percentage of cancellation on lower sales.
When cancellations increase, the sales are overstated but when they decline (or even stabilize with increasing sales of canceled units), they are understated. So maybe the data reported for January are lower than in reality. But the former months were overstated.
I like this blog and read it every day, but most of the comments relate only to CA, south FL, and a few to AZ and NV. Does anyone know where I can get collected data for the Chicago area? I can collect it from the Cook County Assessor and Recorder web sites, but Im a lazy so and so and would rather someone else collect it and present it to me.
Here's one anecdote: The Chicago Tribune reports that the prices for condos in the new Trump Tower (still under construction) have gone up so much (I heard 50%) that The Donald has exercised his contract rights to cancel units sold under the Friends and Family Program and resell them at the current going rate. We have a few large bonus type professionals in Chicago, but nothing like in NY. Any guess at what is happening in Chicago?
"Its 72 degrees year 'round in Chicago - indoors" according to the convention bureau.
Mike in FL - know year end sales were bad - reflected in January NAR sales (which is closings). Waiting for January "pending index" which is a more current indicator, due 3/1.
Sorry Ethan, but I am in Arizona.
The West got killed in this report - off 50.4% from last January? Building and selling houses is basically our entire economy in Phoenix.
Sale of invisible inventory is almost certainly cutting into the sale of visible inventory, but either way it looks like they don't need to build any additional houses for a while.
Ethan said: "...Does anyone know where I can get collected data for the Chicago area?..."
Based on the volume, I'm assuming that Chicago is in Cook County?
http://www.illinoisrealtor.org/iar/marketstats/quarterly/2006/4Q%202006%20all%20sales.pdf
S.
Latest update on Coast Bank. On second thought, maybe not!
"Bank savior turns out to be a seller
For Coast Bank of Bradenton, the knight in shining armor turned out to be Mr. Love-'em-and-leave-'em. St. Louis banker James Dierberg bought nearly 10 percent of Coast in early February for $5.3-million, raising speculation he was a buyout prospect for the financially strapped bank. Dierberg revealed Monday he has since sold about two-thirds of that stock - at a loss, no less."
Business: Talk of the bay: Moody's doesn't delay in cutting Jabil's rating
Roubini's posted an interesting discussion suggesting that the fraction of subprime and problem loans has been greatly understated. It's worth a look: RGE - Nouriel Roubini's Global EconoMonitor
Based on the volume, I'm assuming that Chicago is in Cook County?
Sebastian, don't do that kind of thing to yourself. You have enough problems trying to get the bull case through our Bear Cave Intruder Alert (tm) screening technology. This interweb tubes things has places you can go to see what county Chicago is in.
Brian, we now must discover who was on the other side of those losin' trades. Anybody want to try to tell me that the Beardstown Ladies Investment Club is behind this? I don't think so . . .
Dierberg's 13D
Symbol Lookup - MarketWatch
Anything Trump is strictly fosh- so I would not believe anything the man said beyond the sun rose this morning, and I would check that.
Raising cash and waiting patiently- I have two years to build my bucks up for the real sales to start.
Tanta,
And see if they want to go double or nothing on NEW!
NEW? Why NEW? I mean, there's NFI sitting there, not wanting to be a REIT any more, and there's Coast, with a bank charter it may not need much longer . . . well, why not let a REIT buy a bank? Have you, personally, not been asked to believe dumber things lately? I have.
"Roubini's posted an interesting discussion suggesting that the fraction of subprime and problem loans has been greatly understated."
He makes some good points, like countering the oft-quoted "fact" that only 6% of the world is subprime, which CNBC types throw out without explaining that this figure represents ALL households, as opposed to those households with mortgages, the latter of which bumps the percentage up to 13%.
Saw that spin at work on CNBC this morning. A Citibank head honcho analyst was on tap to calm the universe, and was later pitted against a stumblin' bumblin' chicken little who started talking subprime. The Citi analyst brushed him off with a roll of his eyes and the 6% comfort-zone number. Then, on to Mark "We're headed higher this morning!" Haines.
But, Roubini is right. Aren't downturns more a function of flow, as opposed to static comparisons? I really don't care how many mortgages are in trouble when expressed in terms of dollar amount over total mortgages outstanding. I want to know, instead, how many mortgages are in trouble as a percentage of mortgages taken in 2005, or 2004, or 2006. Isn't this a better indicator of what gears will grind going forward for an economy that ramped up on assumptions that no longer flow?
Like CR has mentioned in the past, throw out the all those households with no mortgages. There's a reason they're mortgage-free: They don't spend. And they're probably not much of a factor in our 70% consumer-based economy. They will NOT come to anybody's rescue.
But, Tanta, please enlighten the confused. Roubini is also trying to make the point that a lot of prime is garbage 'cause of those high-FICO types taking on neg-am loans and the like. But, doesn't this pretty much take that prime borrower directly out of the prime pools, and plop them down into Alt-A? If my FICO is 800, and I finance 100% of the purchase, am I not no longer "prime", but Alt-A instead?
Tanta,
Here's what I was asked to believe in only just 5 minutes ago. Unsolicited fax:
"Invest in Panama City Beach
Great ground floor real estate investment opportunity in one of the best areas in the country. $130K buys a 1/8th interest in a fully furnished 3 bedroom 3 bath luxury residence....Here are three reason you should consider buying one or more fractional interests.
First, the price couple with seller concessions in the first phase mean that you will have positive cash flow.
Second, these homes are offered at less than half the price of comparable units in the area.
Third, a new regional airport will significantly increase access to the area [yeah, when it's built in 5 or 10 years time!]
So if positive cash flow, built in equity [can someone define that for me?] and great appreciation potential make sense to you then get in touch with us"
If anyone would like to pursue this, I'd like to talk to you about one of our local bridges here in NYC.
winjr, that's exactly what "Alt-A" is supposed to be: "alternative" mortgage arrangements for the A credit (prime) crowd. The argument was, you could take your 800 FICO borrower, and instead of putting him in a nice conservative loan that would match his apparent lifelong credit habits (that's how he got an 800), you could keep adding high-risk attributes to his loan without limit--state the income, state the assets, let the DTI get to 50%, let the appraised value get to 100%, make it an ARM, make 20% of it a HELOC indexed to prime, make it an investment property, and a high-rise condo in south Florida . . . the sky's the limit! You see, an 800 FICO is like being Atlas! You can have every risk characteristic known to humanity, and the great strong heroic consumer will never falter!
Once everyone started to pour the water out of the bongs, it began to look like the reason we got 20% subprime originations in one year might have been that a whole boat-load of them were refis, and what they were refinancing was Mr. Atlas who used to have an 800 FICO until he took out that "Alt-A" loan.
Brian, the "built-in equity" is between the custom entertainment center and the faux-walnut burl veneer on the French doors to the pool. It is, I believe, accessed with a keypad. The combination is SUCKER.
"Roubini's posted an interesting discussion suggesting that the fraction of subprime and problem loans has been greatly understated."
I've ranted on this in previous comments.
Housing market is historically only 5-6% of total housing stock. Past few years this has risen to 10% of stock. (see CR's beautiful graphs)
That may be a small change based on housing stock, but in terms of the market, it is doubling of demand.
It is this extra demand - tiny when compared to stock, but 100% increase when compared to flow, that has caused prices to double.
So if you talk in terms of housing stock, it's just about 4-5% extra demand that causes price to double.
All those % numbers you hear about - the % who hold free and clear, the % who have LTV < 80%, the % of mortgages that are subprime, all are spun with using the housing stock as basis.
All that really matters is how much of the extra 5%(stock basis) demand is subprime, underwater etc. If just 2.5%(stock basis) of it disappears, 25%(flow basis) of the market demand vanishes.
Really, the numbers are there for those who want to see it. This boom has just increased home ownership rate by about 3-4%. Which jives well with the extra demand figures. The "subprime is only *just 6% of mortgages" line falls into what Twain called the three kind of lies - lies, damned lies, and statistics
Ethan,
Anything that comes out of the Donald's mouth needs to be run throught the non-linear bullshit discounting algorithm. Here's a third party counter point to the Donald's happy talk (query: does he use the same IR counsel as New Century?):
"Chicago's cooler condo market spells bad news for many investor buyers, expert says
Posted 2/27/07 by Alison Soltau
The cooldown in the Chicago's condo market in late 2006 and early 2007 has left at least one expert predicting doom and gloom for many investor buyers.
With the inventory of unsold downtown new-construction condos growing to more than 6,400 units at the end of 2006, New Homes Magazine columnist Don DeBat recently asked Steven Good of auction company Sheldon Good & Company about the outlook for speculators in 2007.
It will take two or three years or longer to work out the condo glut and market thousands of downtown investor units," Good told DeBat. The worst-case scenario is many of them may eventually end up in foreclosure because lenders have no incentive to give the investor borrower a break."
Reports on the state of the housing market
"You see, an 800 FICO is like being Atlas!"
LOL!
"Once everyone started to pour the water out of the bongs"
ROFLMAO! I'm stealing this! Of course, alternatively, and solely on your behalf and with only your best interests at heart, I'd be more than happy to file for copywrite protection for this gem so, you know, nobody can steal it.
I can also confirm that Chicago is in Cook County me too... so I checked out the .pdf.
...I'm not big on conspiracy theories (the Trilateral commission has asked me to stop commenting on that sort of stuff) but isn't it funny how the "Illinois Association of Realtors" gets exactly a 250,000 price for Q4 05 and Q4 06 median prices?
Are interns adding up those columns of numbers after dumbed-down calls ala CO? or they just CTRL-C, CTRL-X uh... CTRL-X ing? or are they guestimating off the world wide interweb? What?
Tanta, can you explain anything about people who compile these surveys? Seems to me weve got a whole lot riding on their accurate compilation not me understand Ive sold out... but others.
...And what's with the Not Seasonally Adjusted monthly rate of 70,000 getting seasonally adjusted to.. uh... 937,000!?
I understand how you need to add a lot back for these cold months (Me Chicagoan) but really! Is that useful information to base your Hedge Fund's 30% allocation to toxic CDO tranches?
OK, I looked at that Illinois Association of REALTORS document.
I think Colorado must get all the really good interns.
Or maybe they have a version of Excel that calculates MEDIAN in base 8, and so somebody just had to round, you know, or the number would look too weird.
Time to pour the water back into the bong.
"Once everyone started to pour the water out of the bongs,..."
Damn, another keyboard gone. Tanta, you gotta post a warning label somewhere. "Caution Irresistable Laughter Ahead."
Okay, so there's 85 million owned dwelling units out there with a bit less than a third with no encumbrances. Call it 55 million asset units with some form of debt overhang. How many residentaial backed mortgage products are outstanding on those 55m? I'm carrying two, Wells 1st and Wamu Heloc soon to be WFCU fixed 15yr second. I look at that crazy kid at iamfacingforeclosure and see him carrying something like 16 against 6-7 properties. If 1/3rd have zero, maybe another 1/3rd has but the one mortgage product then the rest account for the entire remainer of the mortgage business? Sounds like the old 80/20 rule that 20% of the potential customers are generating 80% of the action. The problem is that 20% is looking to get cut in half taking 40% of the mortgage originatin business with it.
Jim Rogers on Bloomberg.It is a 5 minute interview with Jim today.
1) He has been long China for awhile. He said it is overvalued now and in a bubble.
2) he believes the US economy is probably already in a recession and that its housing market is in worse than a recession now.
3) He thinks China should stop buying our Treasurys now.
Bloomberg News Video
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