Marcus Aurelius writes:
When will we see the "real" numbers? (wink, wink, nudge, nudge).
Marcus Aurelius | 03.26.08 - 12:43 pm | #

yourkillingmelarry writes:
Lowest sales since 91, highest inventory since 81. Wonder what the implications of the housing market if volumes hang around these levels for the next couple of years??
yourkillingmelarry | 03.26.08 - 12:44 pm | #

awgee writes:
"So what is the good news?"

The good news is that gold is up $10 today.

awgee | 03.26.08 - 12:47 pm | #

Angry Saver writes:
Somehow, I don't think Ohio can take anymore "prosperity."

http://dispatch.com/live/content...83.html? sid=101

Goes along way towards explaining Dennis Kucinich's popularity.
Angry Saver | 03.26.08 - 12:48 pm | #

Reggie writes:
Condos are a real problem, particularly high rise condos. Their exclusion can lead to a significant distortion in relation to reality.
Reggie | Homepage | 03.26.08 - 12:48 pm | #

number2son writes:
Another positive is that prices continue to adjust downward to affordable levels. In most markets prices are still too high, but the trend is clearly in the right direction.

From the very beginning of this thing, my view has been that the bottom will not be in until prices once again are in line with median income. The problem is that no one in the government or financial media (save for a brave few) bother to point this out. Rather their agenda is to keep prices artificially high.

Yet despite their rhetoric and feckless efforts to support a deflating bubble, prices are coming back to reality.
number2son | 03.26.08 - 12:49 pm | #

mbartv writes:
Did anyone pick up on Jas' description of Larry Kudlow as a "rouge" economist? Is that one that puts makeup on a pig?
mbartv | 03.26.08 - 12:50 pm | #

Bob_in_MA writes:
First, inventory levels (even accounting for cancellations) are clearly falling.

CR, true, but the inventory of completed homes for sale were UP yoy in the report. So they are still finishing houses faster than they are selling them.

One other point, banks are now getting serious about getting REOs off their books and have reduced prices much more aggressively. A lot of these houses are in areas, and actual developments, where homebuilders are trying to sell off inventory.

There are about a dozen interconnected dynamics at work here, I think it will be next to impossible to make clear interpretations of changes (like the revisions) in data.
Bob_in_MA | 03.26.08 - 12:56 pm | #

idoc writes:
i'm sorry CR. stocks just aren't responding to your good news tidbits like they do to Maria's or Erin's.
idoc | 03.26.08 - 12:58 pm | #

homedad43 writes:
Hey, according to the signs on the errand route, "A Mortgage is Great in 2008" and "Now's a GREAT Time to Buy a House! Ask me why!"

O/T and contrary to what they're saying:

1. Last weekend saw a mid-30s white guy delivering Pizza Hut (replete with sign on top) in a late model Volvo S40.

2. Getting more and more mailbox stuffers for housecleaners and babysitters.

3. According to the local rag, residential building is down 75% from this time last year and commercial is down 40% (in dollar value).
homedad43 | 03.26.08 - 1:01 pm | #

rich writes:
>Condos are a real problem, particularly high rise condos. Their exclusion can lead to a significant distortion in relation to reality.
Reggie


I began saying here some time ago that this recession would put huge stress on the social welfare safety net, most of which is paid for by state/local governments. It is one area of govt. spending that can't be cut back in hard times. It expands.

The vast majority of the welfare net's cost (except for elderly health care) now falls at the state/local level. I think it's about 80%.

If 10% of Ohio's population is already on food stamps, then up to 20% may be eventually. Public debts of many Ohio and Michigan jurisdictions will have to default, eventually.

The social services welfare net includes food stamps, medical services, drug/alcohol rehab and counseling, police, fire, and EMS, housing, job training, phychiatric care, medication, shelters, transportation, etc. Everything to help pick up a down-and-out person or family and put them back on their feet.

It was too expensive for most state/local govts. before the recession started.
rich | 03.26.08 - 1:03 pm | #

homedad43 writes:
And now off to the bank and the garden store to get seeds for the soon-to-be garden.
homedad43 | 03.26.08 - 1:03 pm | #

Sippn writes:
Vindicated! Thanks CR.

Noticed sales in the North East way down Feb vs Jan. . . what, too many federal holidays?

Bob one thing about REOs vs builders, the REOs are like another builder supplying slightly used, cheap, dirty incomplete product into the market. It applies pressure, but not direct competition. Somewhere theres a pile of tacky gold fans out there (missing from the REOs)
Sippn | 03.26.08 - 1:03 pm | #

Name writes:
CR,

Do you have time for another article about MEW? I haven't seen a post 2007 refresh (Maybe I missed it? Can't surf at work everyday. Trying to keep unemployment low.)
Name | 03.26.08 - 1:03 pm | #

franz writes:
I expect housing starts to fall below 400K as the inventory increases. If you look at the graph, it looks like housing decreases to 400K during recession except for the 2001 mini recession.
franz | 03.26.08 - 1:05 pm | #

Nick writes:
What is amazing to me, personally, is that some people are still buying. I can kinda understand how people could get swept up in the bubble and bought when the trend looked like it could go up forever (however naive that was), but the trend now is clearly down, and nowhere near the bottom. How could anyone seriously think it's a good time to buy, in any situation?
Nick | Homepage | 03.26.08 - 1:06 pm | #

Turbo writes:
It's probably fair to say that the housing adjustment in terms of new starts and sales is 90% done, but the price adjustment is only maybe half over. The housing gdp drag probably stops being negative in Q2, but the overhang will keep things pretty tepid for a year or two yet.
Turbo | 03.26.08 - 1:06 pm | #

sbarrkum writes:
The real mortgage Pig
From Naked Capitalism
sbarrkum | 03.26.08 - 1:09 pm | #

CalculatedRisk writes:
Bob_in_MA, good points and there are clearly many factors at work here. I think we should point out the small (very small) pieces of good news. We are clearly - based on simple math - closer to the bottom than the top! (since sales have fallen by more than half!).

idoc, gee, I'm crushed!

Name, the latest MEW report is here - a couple of weeks ago.

Best to all.
CalculatedRisk | Homepage | 03.26.08 - 1:10 pm | #

Angry Saver writes:
Reggie,

Good piece on ggp. Any thoughts on FCE?
Angry Saver | 03.26.08 - 1:13 pm | #

halbhh writes:
Someone pointed out somewhere (in hundreds of things I've read in last few days) that one of the most crucial numbers is always going to be the cost of renting vs the cost of buying.

Sebastian gave a useful link if you do some math work. It offers mortage to rent ratios for a lot of interesting cities, but does not take into account crucial pieces it needs to be accurate.

It needs to also inclue the downpayment time-value (interest value of that money) and the real estate taxes, which are always included in rents.

I think we can do the math though, since real estate taxes are usually about 2-2.5%, and the price/rent ratio is included, giving us price information needed.

If no one else does the bit of math work, I'll try to get to it later. This would be some nice info for us to have to guess at what cities are already reasonably priced.
halbhh | 03.26.08 - 1:14 pm | #

Ralph Cramdown writes:
What is amazing to me, personally, is that some people are still buying.

"Honey, let's buy a house." "Honey, I want a house." "Let's get a place near my mother's."

Sounds sexist, and for that I apologize, but I think it's definitely an influence on house buying which definitely doesn't exist with stocks or investment PM. Plus the RE agent cheerleader crowd, which for some reason never advises one to be neutral or short.
Ralph Cramdown | 03.26.08 - 1:15 pm | #

dryfly writes:
homedad43 writes:
And now off to the bank and the garden store to get seeds for the soon-to-be garden.

Ya well I'll be thinking about you as I shovel snow (supposed to get a half foot more tonight).

dryfly | 03.26.08 - 1:16 pm | #

HARM writes:
What is amazing to me, personally, is that some people are still buying

"Experience keeps a dear school, but fools will learn in no other."
--Ben Franklin
HARM | Homepage | 03.26.08 - 1:16 pm | #

Prophet of Profit writes:
I would say that only looking at new home sales only gives half the picture; the other half being existing home sales. Suppliers of new homes are the builders who generally adjust their supply relatively quickly, and in the current situation, by reducing new starts; but what about the supply coming from existing homes? The rise in foreclosures, people walking away, or unloading investment property represents a huge supply that won't be absorbed any time soon.
Prophet of Profit | 03.26.08 - 1:21 pm | #

eh writes:
This is actually a positive sign that New Home sales might be nearing a bottom.

Considering how much land industrial/tract homebuilding ravages, I do not look upon its revival as anything "positive".
eh | 03.26.08 - 1:22 pm | #

Ralph Cramdown writes:
Re: People still buying.

Another thing, sad but true. There are probably a number of people who have no idea what the RE market is doing, locally or nationally. They go to their jobs and only read the sports or entertainment sections, er, watch on TV.

Marriage/baby/whatever, and it's time to get a house. Nobody at the bank, brokerage or builder is going to suggest that maybe they wait a bit.
Ralph Cramdown | 03.26.08 - 1:22 pm | #

dryfly writes:
What is amazing to me, personally, is that some people are still buying

Depends on the price - you live only once & once the home you want gets affordable (really affordable) why put off living?

A buddy of mine just bought a home in Naples FL for $40K in a neighborhood where homes sold for $250-$300K a year ago. Needed some fix up but not a lot for a guy handy with tools. Bank wanted it off the books & he obliged.

It isn't there everywhere but a lot of places it is getting there.

dryfly | 03.26.08 - 1:22 pm | #

gaius marius writes:
cost of renting vs the cost of buying

this is key, imo -- the capacity for positive carry will be essential to get cash-heavy buyers into the market again. as paul mcculley pointed out recently, that's very far from here.

one might put together a time-price expectation this way -- if price-to-rent remains 25% dislocated from historical mean and maybe 40% from typical trough, and a bottom in prices typically follows inventory peaks by 8-12 quarters, one could suggest that (if now is close to the inventory peak, which is usually true when builders are selling about as much as they build) the expectation should be for average annualized national price declines of between 9%-22% for the duration, with the most probable annualized rate around 13-15%.

given that case-shiller 20-city composite is declining now at an annualized rate of 23% over the last three months and 17% over the last six, we might be in the most intense phase of the downdraft.
gaius marius | 03.26.08 - 1:29 pm | #

Jerome Kerviel writes:
sbarrkum,

your mortagage pig is swiming in GLD!!! ...oh in and some green stuff that looks like mortgage backed securities purchased by the Fed in various bailout exercises.
Jerome Kerviel | Homepage | 03.26.08 - 1:29 pm | #

Sippn writes:
Ralph, in the simplest terms, sometimes its either buy the house or rent a wife....


.....the rest of my money I just wasted.
Sippn | 03.26.08 - 1:30 pm | #

DownSouth writes:
Ralph Cramdown,


Good point.

An interesting article in today's NYT's about how emotion not only plays a big role in the decision to buy a house, but also the decision to sell one...

www.nytimes.com/2008/03/26/business/ 26leonhardt.html?ref=business

and how this causes real estate slumps to "grind on for years, until sellers submit to reality and reduce their prices."
DownSouth | 03.26.08 - 1:31 pm | #

halbhh writes:
Re people buying now: I have a friend in Austin that owns about 14 properties (all paid for), and saw prices drop some and jumped into a couple more recently (he does his own remodeling). It takes time for folks to get it that bigger forces are/were at work, and this isn't only a small correction. I sent him some emails about the market, and he decided to turn one of the houses around and get rid of it, and dropped his offer a lot on the other (which got accepted anyway).

People reasonably expect things to be pretty much as they were, and it really takes time for folks to comprehend a sea-change.
halbhh | 03.26.08 - 1:36 pm | #

giacutter writes:
Not suprised by the positive points.

On my way home every night I pass a new house development being built by Ryan homes. The new home develpment sign says "Your new home starting at $420,000". At asking price, before upgrades.

July 2006, a 'used' home in the development they completed four or five years ago (right across the street from the new development) had asking prices of $750,000.

Same builder, right across the street, same square feet, only brand-new for nearly half-off.

Ouch. Makes me glad I decided to rent the last few years.
giacutter | 03.26.08 - 1:41 pm | #

Elvis writes:
dryfly,
Yes, when banks dump homes for $40k, it inevitably brings prices down everywhere. Kind of like this:

"Hey Bill, I just put a house under contract. The builder gave me $40,000 off a new house that had already been reduced. Others in the area paid $400k two years ago and I've got this one under contract for $290,000. I think it is a great deal."

"Oh, you think that sounds good. I've got a friend who just bought a bank REO for $40k in a $300k neighborhood. Needs about $20,000 of work, but, that is a deal. If I were you, I'd reconsider."

"Well, f##k, I better go cancel my contract and start calling banks for REOs. My wife is going to be angry that I ever talked to you."

Soon buyers will buy from banks, not builders, and new home sales will fall under 500k for at least a couple of years.
Elvis | 03.26.08 - 1:42 pm | #

halbhh writes:
ummmm....guess I could just calculate the breakeven point on the price/rent ratio for a current 20% down mortgage at say 6.0% with 2.2% realestate taxes, and presume itemized deduction on taxes in the 25% bracket.

Anyone got better parameters?

Anyone else want to figure it independently? (that'd be great)

Then we could just take this number (like 118 or whatever), and compare it to the current price/rent ratios at the site.
halbhh | 03.26.08 - 2:11 pm | #

halbhh writes:
I'll wait for some feedback before I put my results here.
halbhh | 03.26.08 - 2:12 pm | #

halbhh writes:
that is itemized deduction to fed taxes on both the real estate taxes and the mortage interest deduction
halbhh | 03.26.08 - 2:14 pm | #

John writes:
CR
Eye balling the graph of new home sales, avg went from say 560k in 1963 to 660k in 1995, or nearly consistent with pop growth. Then, of course, it all went nuts... the point is that the extra 7 million new homes sold since 1996 means that future sales will be that much lower than trend over some future period. I agree that the sales rate can't go below zero, and therefore we are halfway there, but the potential for builders to build new homes any time soon is IMO pretty poor.
And, its worth adding that of course the new home inventory can be reduced quickly, just drop price 50% and they will move... but, builders are losing their shirts at the lower prices, many are probably just as insolvent as the investment banks (and the regional banks deep into construction loans), I doubt builders are thinking of new construction.
John | 03.26.08 - 2:25 pm | #

giacutter writes:
halbhh,

There is a new thread up. You may not get much of a response in an "old thread". You may wish to re-post in the current thread.
giacutter | 03.26.08 - 2:31 pm | #

Greg Weston writes:
Speaking of cliff diving, the CMBX indices have been soaring upward off of the lows, especially the larger AAA tranches. This could be a life saver if they stay this far above recent lows for all the public CMBS holders who have to mark to market their holdings as of 3/31/08.

http://www.markit.com/informatio...dices/ cmbx.html

All of the CMBX indices are still way below their 12/31/07 values, but they have regained 20-60% of their values from their lows earlier in March.
Greg Weston | Homepage | 03.26.08 - 2:36 pm | #

Paul writes:
Washington Post article on our "recession".

http://www.washingtonpost.com/ wp...id=opinionsbox1

I guess he's been reading this blog.

"Regarding the economy, it's hard not to notice this stark contrast: The "real economy" of spending, production and jobs -- though weakening -- is hardly in a state of collapse, but much of today's semi-hysterical commentary suggests that it is."

I've tried to make this point several times in the last couple of months to no avail. I'm sure the economy looks terrible from the perspective of someone in foreclosure, but this is a personal situation of their own making (though not necessarily their fault).

I find this hysteria to be quite a curiosity.
Paul | 03.26.08 - 2:36 pm | #

Pondering the Mess writes:
The only "good news" I am interested in would be massive price drops. Until housing is again affordable, the rest of the spin and nonsense doesn't really matter since nothing but affordable housing will make this Bubble die once and for all.
Pondering the Mess | 03.26.08 - 2:39 pm | #

Sebastian writes:
CR said: "...This graph shows New Home Sales vs. recessions for the last 45 years. New Home sales were falling prior to every recession, with the exception of the business investment led recession of 2001..."

Okay, let's examine CR's chart.

Yes, what he says is true, as far as it goes.

However, look at the timing for the two instances that sales hit a major peak and recession was still a long way off.

On the left-hand side of the chart housing sales peaked in 1963 and then fell off sharply into 1966...yet recession was another 4 years away.

(CR has explained this before as being caused by the fact that the U.S. was involved in a major war. I believe that, if asked, many might ask "Well?")

Look near the center of the chart. There was another sales peak in 1986...with recession 4 years away.

There was also a new home sales peak in late 1993 that fell sharply into early 1995. Why wasn't that a precursor of recession?

The only way a lot of CR's charts "work" is with the *assumption* that imminent recession is inevitable.

If recession was as imminent as CR implies with his chart (and with a recession bar already on there the implication is undeniable), why isn't everything else pointing that way?


Sebastian
Sebastian | 03.26.08 - 2:40 pm | #

Greg Weston writes:
Elvis, in many places right now the majority of closed sales are already banks dumping REOs. Prices have dropped so quickly because of REOs in many parts of San Diego that short sales become impossible because banks aren't willing to write off 20-40% declines in values for people current on their mortgages, and too few people are above water to compete with the banks. They still list their properties, it is just they can't compete with the vastly cheaper REOs.
Greg Weston | Homepage | 03.26.08 - 2:45 pm | #

Pondering the Mess writes:
Everything else is pointing that way, Sebestian, except cooked government numbers and your Wright Model B. I have no idea how day and day out you can believe that an economy based upon lousy, part-time, no benefits service sector jobs dolled out to people over their heads in debt is sustainable.

Face it: we're in a recession. People are growing poorer, jobs are being lost, etc. You can continue to believe whatever silly government numbers or models you want, but don't expect the rest of us to fall for it.
Pondering the Mess | 03.26.08 - 2:47 pm | #

Flic writes:
One of the local pigman builders in the Sarasota area was touting in the local rag last week that new home prices have absolutley hit bottom. Why? Well, his cost of building is going back up so he can't afford to lower the prices any more (he never lowered them much to begin with) Isn't this call bankruptcy in any other business when people stop paying what you're asking?? I don't give 3 craps about your cost.....

I guess he'll be out of business soon..
Flic | 03.26.08 - 2:52 pm | #

Sebastian writes:
Pondering the Mess said: "I have no idea how day and day out you can believe that an economy based upon lousy, part-time, no benefits service sector jobs dolled out to people over their heads in debt is sustainable."

You're absolutely, dead-on, no-doubt-about it right. It isn't, can't be, and can't *ever* be.

So what does that mean about your assumptions?


Sebastian
Sebastian | 03.26.08 - 3:09 pm | #

John writes:
Oops, messed up. Shape is triangle, forgot to divide by two... but, even 3.5 million fewer homes to be built/sold is a large number, e.g. no new homes at all for five years.
John | 03.26.08 - 3:15 pm | #

ipodius writes:
I find this hysteria to be quite a curiosity

No curiosity at all, actually. But people won't like it if you point out that the people who are doing this on the downside are exactly the same as the people who did it on the upside. Except they have negative personalities. So if you avoided the hysteria on the way up, ignore these people on the way down too as you'll do just as well.

And they'll all get very quiet when financial disaster doesn't happen. Just like the gold bugs will crawl back under their rocks once the inevitable sharp decline in price happens.
ipodius | 03.26.08 - 3:45 pm | #

ipodius writes:
Yes, what he says is true, as far as it goes.

I inevitably find that anything following a sentence worded like this will spill a lot of ink to describe why what you are reading is not what you are reading...sort of like pointing out obvious biblical inconsistencies and incorrect statements to a fundamentalist.
ipodius | 03.26.08 - 3:49 pm | #

O-Joe writes:
I got to give CR credit here for pointing out some good news. As new home sales always bottom out at the end of a recession, what does that mean for us here?

Right, it will be too short to qualify as a real one (two quarters of neg. growths).

O-Joe
O-Joe | 03.26.08 - 4:03 pm | #

Ceilingfan writes:
Finally good news, even if just a crumb.
Ceilingfan | 03.26.08 - 4:08 pm | #

Anonymous writes:
Anyone want to speculate on whether months of inventory will actually surpass the 1981 record? If we have just started a recession or just about to start one, the answer is probably yes. If we will avoid a recession or are just about to come out of a shallow one, the answer is probably no.
Anonymous | 03.26.08 - 4:24 pm | #

DownSouth writes:
Paul, good article.

Economic enthusiasts are probably not much different from football enthusiasts or any other sports fans. All the prognostications of winners and losers add a lot of excitement and, truth be known, make for a lot of fun, especially if you have some money riding on the outcome. And of course talking about next week's game is infinitely more interesting than talking about some game that happened seven years ago. So although there is some truth in Samuelson's article, my question is: So what? Does he really believe the fact that last year's football game may seem pase and boring to us now makes this week's game any less exciting?

Todd Benjamin, on his blog over at CNN International, says he's getting beaten up pretty badly for being such a pessimist. Here's his response:

"It's not my job to be a cheerleader for the economy, but to tell it like I see it. And I still think there's more bad news to come.

"Case in point, a house price index for 20 major U.S. cities fell nearly 11 percent in its latest reading, the biggest decline on record. And the latest reading on consumer confidence hit a five-year low.

"More disturbing was the expectations component of that report. It hit its lowest level since December of 1973.

"Here's what the highly respected U.S. economist Ian Shepherdson said about that: 'This is very grim news indeed; if sustained at this level, consumer spending should be expected to drop to a year on year rate of about minus two percent in the future, a pace last seen in late 1974, and then only very briefly.

"'If spending does weaken to that degree, an outright recession will be unavoidable and a sever recession will be very likely. In short, this is one of the most alarming economic reports we have seen in this cycle so far,' Shepherdson concludes.

"And here's what James Knightley of ING had to say: 'This is truly worrying as it is consistent with consumer spending contracting by around 1 percent year over year--true recession territory. If the relationship holds it has over the past decades then further policy action seems inevitable, be it rate cuts or tax cuts or quantitative easing. Moreover, with house prices plumnging, stock prices falling and now employment declining, a rebound of any significance looks a long way off.' Words of well respected economists, not my words, but I couldn't have said it better myself, and couldn't agree more.
DownSouth | 03.26.08 - 6:01 pm | #

Noz writes:
I hope the trend of people losing homes and prices going down continues. I don't see how people actually can sit here and think we are on a way to recovery when in places like LA, prices are still stupidly high.

I, for one, do not take any comfort in hearing inventory levels are lowering...that to me is BAD NEWS.
Noz | 03.26.08 - 6:25 pm | #