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Tuesday, August 24, 2010
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35 comments:
Nationwide drop in sales of 27.2% MoM. Impressive. Congratulations tax credit.
from CR
I wonder what misguided program this will prompt from our "leadership"...
Clearly our previous attempts to re-inflate the housing bubble were flawed only in that they were not sufficiently far reaching and expensive.
A chicken in every pot and every house twice as expensive as last year! Vote ____ this November!
"Cara said...Congratulations tax credit."
Congratulations indeed! Whats most stunning about the drop is what it did to MOI -- hitting an alltime high on a national scale.
http://calculatedriskimages.blogspot.com/2010/08/existing-home-months-of-supply-july.html
By my estimation, the US has 2, maybe 3 months to knock that MOI number down into the 8+ MOI range or else "another leg down" will be a near certainty.
Anon-
I agree although I am pretty sure there is almost nothing that reasonably can be done to avoid the leg down. The only question is whether it is a 5% leg or a 25% leg. I am fairly confident this leg down in housing will not be nearly as bad as the last one, because in much of the country investors can get good cash flow, but I do expect another ~10% down.
I still stand by my forecast that DC will bottom in 12-24 months at 165 on the CS index which is also a 10% drop here.
I also read today that the FHA is going to lower its upfront fee from 2.25% to 1%, but they will raise their annual fee from .45%-.9%.
This should increase their revenue and hopefully help them survive.
cara said...
Congratulations tax credit.
This was sort of a moment of truth, to see what the credit would give us. Already at 12.5 months of inventory. Can't wait to see what it goes to next month.
Leroy said...
I wonder what misguided program this will prompt from our "leadership"...
Ugh... I don't even want to think about it. BUT.... if I were a NAR economist, I'd be pushing Congress to allow some kind of sweetener/incentive for non-first-timers. Through tax breaks or bribes, get those boomers to start scooping up inventory. It would work, in theory.
Kevin-
Although I think MOI may go up next month I don't think it will get much worst, and I expect it will come back down to 10-11 pretty soon as people decide to delist their houses. I also think seasonally adjusted sales will increase as we get a few months further past the end of the tax credit.
kevin
the boomers aren't going to go out and buy existing houses.
1) The boomers are starting to sell houses for condos, townhomes or retirement communities.
2) The boomers are broke, half of them have nothing saved.
3) Getting old and becoming a landlord is no fun.
The landlord business is what it is.
certainly the reality factor is starting to cut in, houses i've been watching have started strings of little price cuts, which isn't the best strategy IMHO. Dr Piggington reccomends 10% every month you don't get an offer, but,
I'm looking for a duplex or triplex
that has a decent cap rate and i've got an offer out on my brothers place.
He's in the middle of a divorce
I agree with hb (surprise). There will be a massive amount of delisting in July and August. Sales, nationally? not so much.
Which makes REOs, which don't get delisted, the big X factor in inventory and MOI.
I don't know about the numbers as being revelant considering the awful weather. It might not stop a market but I'm sure the heat/flooding/storms have had some impact and I think there might be potential buyers waiting to see if another cash incentive will be offered. I hope not. Geez, we gotta pay this money back. I think those with money enough to buy probably think along the lines of buisness and will sit on their cash until the elections. They know if republicans take control the free ride disappears. Yes, I got the incentive but I put it right back into the local labor market by fencing 57 acres. I gave a man a job he really, really needed and made a friend to boot. It carried him over till he got 4 more jobs from people who saw him working here.
Its also worth noting how pathetic the MOI spike was here in "different" land.
MOI
USA
July 2010 = 12.5
Prev High = 11.2 (Nov/08)
Arl
July 2010 = 4.4
Prev High = 9.1 (Jan/08)
Alex
July 2010 = 4.7
Prev High = 10.2 (Jan/08)
Ffx
July 2010 = 4.6
Prev High = 13.2 (Jan/08)
Lou
July 2010 = 6.3
Prev High = 15.0 (Jan/08)
PWC
July 2010 = 5.0
Prev High = 18.8 (Sept 07)
Nationally we are at a new all time high. Locally, we didnt even come close to sniffing the earlier overhangs (late 07/ early 08) which were 2X to 3X as bad as they are today.
pat,
1) The vast majority of boomers, like everyone else, prefer to stay in their own homes as long as possible. That's been true for a long time. A few will have to move due to medical or financial reasons at a fairly young age, a few will sell and move to condos in Florida, but they are a small minority. Even the majority of those who do move into condos in their own communities do so only when they are much older in years. There simply isn't going to be a huge sell-off of SFHs. Some will of course, but a huge sell-off? Where is the evidence of that? Aren't these people the same ones that some others here have railed about hogging up all those North Arlington houses that they want?
2) While some boomers have saved little and this is a real problem, many others have assets in employer sponsored plans (current or previous). The #s that the investment houses like to throw into the media to scare people into give them more of their money don't bother to state this or are misleading, e.g., the investment house says "only $50K in the average 401k account" without telling you that is for one employer or at one investment house. Many people over 50 have changed employers multiple times and have money in several places. Not saying all by any stretch, or that everyone has saved enough, etc. But the opposite extreme isn't true.
Cara, delistings probably but I think the September listings will be way down. Big lisitng times are May/September. The "have to's" will be on the market and that should impact prices down if there really is fewer buyers but will drive prices up if there are still plenty of buyers in the market or that is my take on it.
pat,
this may interest you:
boomer savings rate same as prior generations'
The Anonymous,
Yup. Our MOI are still pathetically small at this point. (as is our inventory overall really).
Arkey,
I haven't decided whether we spent ours on our windows, our car, our tree pruning... Funny thing about fungible funds. We'll say the trees since that was work for 3 guys for two days, or the windows 6 guys for 1 day...
Cara, either way you provided employment to American companies in need of work. I don't have cows or horses and fencing wasn't a required home improvement but it sure was necessary for him and I did get proerty value out of it. This house is only 6 years old and well built. I did buy one of those efficency fireplace wood burning inserts. I love it! Just wish I had done it in Manassas. Big window so you get the flames of a fireplace plus no oder..no smoke..clean, clean and heats like crazy.
ACE
Good link, but there is i believe a major methodological error in it.
"Nonhousing assets include savings in defined contribution plans such as 401(k)s but not the present value of defined benefit plans or Social Security benefits"
The Silent Generation and the Greatest Generation had pensions and those were never part of their balance sheets. The Boomers came up in the era of the IRA and those are on balance sheet but,replaced pensions.
I believe it is a gross error to compare them. Consider a government clerk who worked between
1935 and 1985, but retired with a pension to a fileclerk at SAIC who is working from 1980 to now.
The GS-7 clerk had some savings but a pension, the SAIC clerk has a 401K and some savings. Which one is wealthier?
The 401K is on balance sheet.
Anon-
I haven't actually paid attention to how MOI is calculated here. Does it use closings or pendings?
I am also curious where the tipping point is here on prices. Obviously when inventory was at 1 month in the first part of this decade prices sky rocketed. The fell sharply when inventory was 6+ months in 2007-2008. The question is where the exact equilibrium is.
cara
if people delist but REOs don't expect a swing in prices down
pat,
You're absolutely right that defined benefit plans have declined in prevalence, and the best type of study should account for this.
But DB plans really didn't START going away until the 1980s, well past the time that boomers started their careers. I have one from a prior employer (I'm a middle boomer), my colleagues in one of my prior workplaces are still getting them, and a huge % of people in this area still have one, even people younger than boomers. So it really isn't correct to say that they have vanished for boomers or that the generations before that mostly had them. I believe that DB plans were never more than half of all employer provided plans, and only about half of the workforce has any plan at all. So they have always been in the minority.
Am I having Déjà vu? Bottom...yeah right. Housing still remain expensive. Stay away and watch it crash.
And yes - CRT should get ready to eat his words. Or may be never report back here. Anon is welcome to join him.
Fall numbers for CS are going to be very exciting..to say the least.
We are likely crashing below the march bottom, as I write this. It seems my prediction of 12-18 months for that to occur may come true earlier. Let's see.
spider said:
"housing still remain(s) expensive"
I read that we are at a 20+yr high in terms of affordability. Was that article wrong?
Spider,
CRT already stays away because he's pretty conclusively described his thoughts on the market *and* provided very detailed analysis that backs up his claims.
In just the last few days people watching the Arlington market saw small brick colonials sell for the mid to upper 500's and asked "what is wrong with it?"
While we may see a pullback due to economic weakness I doubt we'll see a crash.
My $0.02
cheryl
I could believe we are at a 20 year
high in affordability.
I could also see us move to a 40 year high in affordability.
Housing prices are a function of
Delta (Interest), Delta (Supply),
Delta (Household formation), Delta(Population Growth).
Interest is at record lows but could go lower,Supply creation is at lows but household formation is negative, and population growth is low.
what happens and where things go, is a mystery, on the one hand prices in every zip code i look at are 6X median income, which is just unsustainable, and whenever i look on hotpads, i see plenty of listed foreclosures, and i've seen lots of short sales stuck in the pipeline.
will strategic default become normalized? Will those failed HAMP modifications come into default and REO? what is the shadow inventory?
The california numbers are scary, it's hard to get good local numbers but DC MSA was not far behind the worst bubble markets and with
the average mortgage down will that exert pressure?
someone had a link to lending tree that said 25% of mortgages in the area were negative equity.
will the Fed/Fannie/Freddie start
issuing principal reductions?
who knows, nobodies safe with helicopter ben around
ACE
The boomers come in two flavors
the early boomers 45-55
and late boomers 1955-1965.
(Technically I am a late boomer
but i identify with Gen X).
The Early Boomers came of age in the 60's got jobs when pensions were the norm, and didn't see IRAs until the 80's and they weren't able to participate in them because of the early rules (You can't contribute if your firm has a pension plan).
The late boomers came of age in the 80's got jobs when IRA's were growing in popularity and also started careers when career life shortened.
If you grew up in the 30's you had one career lifelong, if you grew up in the 50's you had 2 careers lifelong and if you grow up now expect to change careers every 5 years.
and while i don't expect the boomers to have a tsunami of house sales, they are no longer buying SFH's, they are slowly selling SFHs.
They may be moving to retirement homes, but they are not housing consumers, they are housing providers.
Well pat,
You are asking the million dollar question: what will happen in the future?
I certainly don't know. Clearly, there is very little new construction. The question of shadow inventory constrasted with population growth/new demand is also something I don't have a guess on.
I simply wanted to address a clear misstatement about affordability. It's quite apparent at this point in time that the boomers' didn't have it any easier.
"va investor said - I read that we are at a 20+yr high in terms of affordability."
That's what they say....go figure. I was reminded since 2004 that it is the best time to buy and I will miss out, if I don't. Then, I was told interest rates are really low and this is really the best time to buy. Then again, I was told something else....judge for yourself.
Spider,
The difference in 2004 was that within 6-12 months of purchasing a house, many people were already priced out of their homes. This is not a natural, sustainable, or healthy growth rate.
This is no longer the case, rental and purchase parities have returned in large percentages of the market.
And for the record, I no longer accept generalizations of what the market will do because of "the boomer generation." When you're talking about people over a 10-20 year age range in all parts of the economy I'm skeptical that any trends will develop that are so quick or large that they will tip markets. My position is it will be orderly enough that markets will absorb the change without devasting loss.
My $0.02
spider,
Put me in the camp of "rates are going to go up". I was wrong about that and wrong about the depth of this recession.
I would like to see an example of anytime in history where a house that cost double median value rented for b/e with 20% down. I believe that your price range is about double?
"Anon-
I haven't actually paid attention to how MOI is calculated here. Does it use closings or pendings?
I am also curious where the tipping point is here on prices. Obviously when inventory was at 1 month in the first part of this decade prices sky rocketed. The fell sharply when inventory was 6+ months in 2007-2008. The question is where the exact equilibrium is."
HB -- on this blog we usually calculate MOI on sales. Pendings can sometimes give a falsely accelerated number (a good percent fall through). I generally pull MOI from Harriets posts on the "Decade of Sales" series when she posts it each month.
I agree with you on the MOI tipping point for this area. I say 6 being the tipping point is too high. However, I think anything below 4 as the tipping point is too low. So its hard to say what that means for us locally now. However, given we are bordering right on that 4-5 MOI line, I dont see significant gains or losses being reported more than a few months from now.
"contrarian said...
Anon, looks like Bernanke has finally seen the light.
Maybe one of these days you will quit drinking the kool-aid.
8/24/10 4:46 PM"
Ahh yes, Bernanke says Prechter may be right...just like Prechter was right in 1989 calling for the deflationary depression to begin in 1990...
http://www.nytimes.com/1989/02/06/business/market-place-2-theorists-split-on-elliott-wave.html
Speaking of drinking the cool aid, how long before you gave up on Prechter and realzed the "1990 deflationary depression" would not happen? How many years went by before you concluded he may be wrong 1992, 1993, 1994??? Was it painful following his advice and sitting on the sidelines (or even worse shorting stocks) as prices rose higher and higher for years on end?
Hopefully Prechter sent you a fruitcake as a consolation prize for following his tragically wrong advice. Actually, it was a kool aid pitcher wasnt it?
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