Builderonline senior editor Alison Rice reports on the data. Still the question is “what does it tell us?” Plus, how can home builders be reporting better sales and traffic in January when these numbers would seem to belie those assertions?
Calculated Risk notes, along these lines, that not-seasonally-adjusted 23,000 homes were sold in January 2009.
Were 15,000 home buyers–the difference between analysts’ expectations and actuals–waiting for Washington policymakers to get ‘em some bailout bounty?
Now, we know that public home builders were pulling out the stops on pricing and incentives in January in attempts to shed inventory, stick it to whichever private home building companies continue to teeter in markets where they compete for the one or two buyers a month who might still be trolling the communities. That “there-may-never-be-a-better-time-to-buy” mantra may continue to suffer fatigue as the months wear down, and new-home prices appear to want to party like it’s 2001 or 2000.
Here’s a topline take from JP Morgan executive director for home building analysis Michael Rehaut on what the numbers mean for at least the public bucket of home builders.
While absolute new home inventory continued to decline, months supply rose to a new record high. More importantly, however, we believe the core problem facing the housing market is still the highly elevated level of existing homes available for sale, which stood at 3.600 mil. in Jan., and is 10.5x the size of new home inventory. Accordingly, given our outlook for continued weak demand amid rising unemployment and low consumer confidence, tight credit conditions, and rising delinquency trends, we believe inventory should remain highly elevated over at least the next 6-12 months.
Citigroup home building analyst Josh Levin goes for the jugularin attempting to explain the difference between what home builders were reporting on traffic and sales, and what the Census Bureau was counting.
We note the disharmony between the government’s estimate of 1/09 NHS and what we heard from public home builders during the recent earnings season. Almost every public home builder stated that sales picked up in 1/09 when compared to late ‘08. Most, but certainly not all, private home builders with whom we have spoken also reported a bump in 1/09 sales compared to prior months’ sales. Few private home builders indicated that sales in 1/09 were worse than in late ‘08.
Looking for Explanations – We think there are at least two possible explanations for the aforementioned disharmony. First, a large proportion of “spec” sales in 1/09 could explain the difference. If a home builder sold a home in 1/09 that it had previously sold to another party sometime in ‘08 and that party backed out of the sale before closing, the sale in 1/09 would not show up in government NHS data. Second, what home builders were seeing in 1/09 could have been nothing more than the usual seasonal uptick. The government’s data attempts to adjust for seasonality.
We feel that if government stops setting up expectations that there’s a program in the pipeline to put a false floor in new home prices, and if home builders can ride out and keep working through their inventory with home buyers who absolutely need to spring for their offerings, then stability will begin to show up in the market.
But we shouldn’t hold our breaths.
Meanwhile, for gallows humor yucks which are never in sufficient supply, check out the comments in CR’s post on Record Low New Home Sales for January. His motley crew of commenters are literally in prime [time] form. This is for starters:
NYCityBoy writes:
After reading this blog last night I had an idea to start my own cable channel. I worked to develop my new fall programming. Here are the ideas for the launch of my new network.
The Dukes of Moral Hazard:
Follow our heroes, the cousins Barney and O, as they travel the backwoods of Kentucky in an orange Lexus taking out subprime and NINJA loans throughout the impoverished county. Watch as they bravely inflate their incomes and misrepresent their credit scores to score millions of dollars in 100% financing and government subsidized loans. Our heroes fight the tyranny of the market, and the long arm of the laws of economics, to snatch up houses and flip them from the front seat of their Lexus. Season 1 is sure to be a thrill ride, right to the steps of bankruptcy court.
Season 2 will find our heroes underwater and in danger of foreclosure. Bravely they will fight to be bailed out and receive cram-downs from judges sympathetic to these victims of predatory lenders. Is Kentucky ready for Barney and O? Ask yourself, “am I ready for Barney and O?” Sit back and enjoy the wild ride.
BJ and the Sheila Bair:
Hit the road with our little monkey BJ, and his sidekick Sheila, as they load up the 18-wheeler and travel the country to find buyers for wayward banks. The trip is sure to be great fun for the whole family. There will be danger and resistance met along the way. But our heroes will not be kept from their mission of finding every defunct bank a new owner. They will sweeten the pot, make backroom deals, give out winks and backslaps to make sure that no bank goes without a buyer. You will laugh. You will cry. You will think that this little chimp and his sidekick are modern day matchmakers worthy of Fiddler on the Roof.
Greenspan Acres:
Finding the city to be an inhospitable and unwelcoming place, now that he has helped to crash its economy, this big banker and his former news anchor wife flee the city to bask in the quiet and comfort of rural life. What they find is an adventure of foreclosed houses, foreclosed farms and meth labs as far as the eye can see. Our banker finds that the only friends he can make are with the 4-legged creatures that surround him. His wife, unable to find a plastic surgeon, tries to devise ever new and inventive ways to keep herself looking young. Join in each week as our city slickers find whacky adventures around every corner in Pottersville. NYCityBoy | 02.26.09 – 10:23 am
Seriously, this fellow’s programmed an entire week’s schedule of these shows. This is only a start. Which is more than one can say for the home building sector right now.
Whatever he’s smoking, we feel that after a healthy decade or two of abstinence, we’d stray to taste a hit of it. This piece appeared in the Las Vegas Sunon Monday.
The steep drop in home prices and newly approved $8,000 tax credit for first-time homebuyers will help pave the way for a recovery of the Las Vegas housing market in 2010, according to the chief economist with the National Association of Realtors.
Lawrence Yun said Monday he expects that foreclosures will continue at their elevated levels in 2009, but is optimistic that inventory will be whittled down given the increase in existing home sales in Las Vegas over the past several months. Only Nevada, California and Arizona have seen big jumps in sales. There were 38 percent more sales in Las Vegas in 2008 compared with 2007.
“You have gone through some very tough times, but any further decline, if any, would be minimal,” Yun said of median prices that have fallen $138,000 over the past two years to a price of $150,000 in January. “Given $150,000 is very affordable for such a dynamic metropolitan region, once the economy recovers, you are in good shape. But it is just getting over the short term.”
During an interview, Yun said he sees Las Vegas prices stabilizing in the second half of the year and by the fourth quarter they could be higher than the end of 2008. The median price at the end of 2008 was $157,250, according to SalesTraq.
Yun said he wouldn’t be surprised if prices appreciate more than 5 percent in 2010 but adds one caveat to his prediction – that while the long-term outlook for the Las Vegas housing market looks good, it is hard to make short-term forecasts.
If prices continue to decline in Las Vegas and the rest of the country by another 10 percent, that will further weaken the balance sheets of banks and further delay the recovery of the economy. The housing market troubles have been a driving force behind the economic woes and financial meltdown.
“Home prices are key to the economy turning around,” said Yun, who fears any further drops and their impact. If that happens, he said he doesn’t believe Americans have the will to spend another $700 billion on a bank bailout and that could lead to a deepening of the recession or a double-dip recession.
Yun spoke Monday to the NAR’s Rocky Mountain Regional Conference at Green Valley Ranch Resort.
Call us crazy, but we’re not sure why Vegas hasn’t cropped up on the builderonline.com list of the 15 weakest housing markets in the nation for 2009. Here’s the good news for Vegas.
According to RealtyTrac, foreclosure filings in Nevada decreased 4 percent in January compared with December, but the total is still 134 percent higher than January 2008. In January 3,848 homes were foreclosed – 136 more than in December. The reason filings dipped is the 6,064 notices of default filed against homeowners was 402 fewer than in December. One in 76 Nevada homes faced a foreclosure filing in January. California was a distant second with one in every 173 homes; Arizona was third with one in every 182 homes.
Before we elected a new president 113 days ago and expected him to reverse a 15-year tsunami of misjudgment, miscreance, and missteps, we stored up confidence and trust in economists.
Bullish or bearish, notwithstanding, they managed our disappointment in their pronouncements and forecasts with a dismissive flourish and a slight adjustment to their predictive models.
In a story that just appeared in The Atlantic, Gregory Clark, a professor of economics at the University of California at Davis, described some of his concerns with the profession of Academic Economists.
In this story he also used a paper on online dating (one of mine) to show how economists are working on irrelevant topics. And while I think that the dating market is an important topic to study, and even more to try and improve, I think that his overall criticism is worth paying attention to.
Here is the text:
Dismal scientists: how the crash is reshaping economics With the chattering classes consumed by concern for the devastated value of their 401K funds, and their suddenly precarious lifestyles, there has been much anger and scorn directed at those former masters of the universe, financiers.
But the shock to the world of finance has been echoed by a shock to the world of academic economics that is just as profound.
In the long post WWII boom, as free market ideology triumphed, economists have won for themselves a privileged place inside academia.
First there is the cash. It astonished some when Washington University, a school with an economics department of modest prestige, hired economists David Levine and Michele Boldrin by offering salaries well in excess of $500,000. But most high ranked economics departments have professors earning in excess of $300,000. Not much by the pornographic standards of finance, but a fat paycheck compared to your average English or Physics professor.
It is not just the stars. Journeyman assistant professors in economics routinely come in at $100,000 or more. And, unlike the hard sciences, they do this fresh from their PhDs, without a publication to their name and without years of low pay as post-docs.
The high salaries have been accompanied by dramatic declines in the teaching burden. The research demands of our advanced science leave little time for the classroom. In good universities faculty typically teach only two courses a year – one of which has to be a graduate seminar. The masses in the Econ 1 classes are often abandoned to the tender mercies of graduate students.
Then there is the economics “Nobel” Prize. Not a real Nobel, but a prize funded by the Bank of Sweden in honor of Alfred Nobel, with all the royal trappings of the Nobel. That makes economics star players really attractive to universities. When Edward Prescott of Arizona State won the Nobel he was paraded at half time at a football game. There is nothing like a Nobel for luster and fund-raising.
Why did academic economics generate so much prestige? Sure, modern economics is technically demanding. But so, for example, are theoretical physics and archeology, and physics and archeology professors are (relatively) dirt poor.
The technical demands helped limit the supply of economists. But what drove demand was the unquenchable thirst for economists by banks, government agencies, and business schools – the Feds, the Treasury, the IMF, the World Bank, the ECB. Economics had powerful insights to offer the world, insights worth a lot of treasure. Economics was powerful voodoo. Any major university or research institute wanted to arm itself with this potency.
The current recession has revealed the weaknesses in the structures of modern capitalism. But it also revealed as useless the mathematical contortions of academic economics. There is no totemic power. This for two reasons:
(1) Almost no-one predicted the world wide downtown. Academic economists were confident that episodes like the Great Depression had been confined to the dust bins of history. There was indeed much recent debate about the sources of “The Great Moderation” in modern economies, the declining significance of business cycles.
Indeed as we have seen this year on the academic job market, macroeconomists had turned their considerable talents to a bizarre variety of rococo academic elaborations. With nothing of importance to explain, why not turn to the mysteries of online dating, for example.
I myself was so confident of the consensus of the end of the business cycle that I persuaded by wife after the collapse of Lehman Brothers to invest all her retirement savings in the stock market, confident that the Fed would soon make things right and we could profit from the panic of a gullible public. The line “Where is my money, idiot?” is her’s.
(2) The debate about the bank bailout, and the stimulus package, has all revolved around issues that are entirely at the level of Econ 1. What is the multiplier from government spending? Does government spending crowd out private spending? How quickly can you increase government spending? If you got a A in college in Econ 1 you are an expert in this debate: fully an equal of Summers and Geithner.
The bailout debate has also been conducted in terms that would be quite familiar to economists in the 1920s and 1930s. There has essentially been no advance in our knowledge in 80 years.
It has seen people like Brad De Long accuse distinguished macro-economists like Eugene Fama and John Cochrane of the University of Chicago of at least one “elementary, freshman mistake.”
It has seen Treasury Secretary Timothy Geithner, guided by Larry Summers, one of the most respected economists of our time, produce a bailout plan for the US financial system stunning in its faltering vagueness.
Bizarrely, suddenly everyone is interested in economics, but most academic economists are ill-equipped to address these issues.
Recently a group of economists affiliated with the Cato Institute ran an ad in the New York Times opposing the Obama’s stimulus plan. As chair of my department I tried to arrange a public debate between one of the signatories and a proponent of fiscal stimulus — thinking that would be a timely and lively session. But the signatory, a fully accredited university macroeconomist, declined the opportunity for public defense of his position on the grounds that “all I know on this issue I got from Greg Mankiw’s blog — I really am not equipped to debate this with anyone.”
Academic economics will no doubt survive this shock to its prestige.
Will we be as well paid? A recent article in the Wall Street Journal suggests the days of the $500,000 economics professor may have passed.
But more importantly, will the focus of academic economics change? That is hard to tell. But I would rate the chances of Chrysler producing once again a competitive US automobile at least as high as the chances of academic economics learning any lesson from this downturn. (What was the price of that Chrysler stock we bought, dear?)
Looks as if the asset value of economic analysis may be in flux, perhaps worth pennies on a 2006 dollar. We say, let’s learn more about dating.
In an appearance on CBS’s “Face the Nation” program, Donovan said President Barack Obama’s plan contains controls that would prevent speculators and others from taking unfair advantage of the situation.
“We have designed this plan to make sure that the folks who did take advantage of people — whether it was lenders or speculators or flippers — that they’re not eligible for this plan,” Donovan said. “We’re going to have a very strict program to make sure that people who participate are what they say they are. We’re not going to benefit those who took advantage before.”
Here’s the cliffnotes version of what to know and expect from President Barack Obama’s unveiling of a $50-to-$100 billion foreclosure mitigation program.
First have a look at a 10 minute MSNBC “Hardball” analysis on the massive issues the new Administration is juggling.
The Lennon-McCartney of economics bloggers,Calculated Riskand The Big Picture, each bring pithy, cut-to-the-chase commentary to bear on the details of the housing plan that have come to light.
Here’s Calculated Risk riffing off the New York Times’ David Leonhardt previewof suspected elements of Obama’s strategy to stem the tide of failing homeownerships.
The details of the housing bailout should be available tomorrow (who qualifies, etc.). I’m not sure why the government is bailing speculators (aka homeowners) who bought homes they really couldn’t afford during the housing bubble.
That rhetorical indirect question got more than 250 responses from CR’s audience … after 1:49 a.m. ET.
Now, The Big Picture doesn’t want to leave much to his readers’ own aptitude when it comes to understanding what’s at stake in today’s announcement. So Barry Ritholtz, The Big Picture incarnate, explains it all to us.
Today at 12:15 am, we shall learn of the Obama administration’s new housing plan. I suspect it will have many of the same doomed features as all the other misguided housing plans floating around.
Before getting to those specifics, let’s revisit and recognize several truths:
• Home prices remain elevated;
• Artificially propping up prices is counter-productive;
• Home owers (No equity, 100%+ debt) who are in houses they cannot afford are going to have to move to homes or apartments they can afford;
• Foreclosures/REOs are often costly to banks; The lenders that made these bad loans to unqualified borrowers will suffer write-downs;
• It is not the responsibility of Taxpayers to bailout borrowers who are in over their heads, or lenders that made bad loans.
What are we likely to see from the White House today? I expect to see an over emphasis at stopping foreclosures; a reliance on foreclosure moratoriums; Involuntary loan modifications a/k/a cramdowns; and last, Interest rate deductions;
We would be much better off if we did 3 things:
Recognize that falling prices will help return the Housing market and the economy back to normalcy. On the basis of either median income to median home price, or Housing value as a percentage of GDP, homes remains significantly overpriced, and need to continue come down in cost;
Identify those people who cannot afford to be in their houses (Underwater, overpriced, too little income) and help them move into more affordable housing (rental or purchased); Keeping people in homes they cannot afford is counter-productive
Identify those people who can afford to stay in their homes with a modicum of loan mods/work out. These are the best targets for legitimate foreclosure avoidance.
Still, like it or not, as National Community Reinvestment Center president and ceo John Taylor said on CNBC this a.m., “all of us have a dog in this hunt” to stop foreclosures.
There’s a fork in the road, and there’s no choice but to take it.
See you on CNBC at 12:15 pm, as the President delivers the framework to mitigate what some estimate to be a 10 million home foreclosure problem if nothing effective is done. Yes, and we’ll all be watching the stock market fever chart in the background as he speaks.
Bailout Rap is a ”rapumentary addressing the Wall Street bailout, the sequel to the subprime mortgage blues also found on youtube.” Words written and performed by 47 year old stockbroker Gregg Somerville, music composed, performed, and produced by Christopher Conti. Video taken by Mowgli Frere. Video produced by Gregg Somerville and Christopher Conti .
First seen on Tim Iacono’s Themessthatgreenspanmade blog. Click the mini image and laugh til you cry, or cry til you laugh.
There’s $350 billion left of TARP money to stretch across a financial system that weakens with each passing day.
But a handful of those who have government watchdog on their resumes are barking, growling, and champing at the bit about the way the U.S. Treasury has dispensed with the first $350 billion. Between the end of October and now, Treasury has got 150 banks to feed at the TARP trough to the tune of about $244 billion, but the watchdogs are crying foul over the fact that the money’s going out with no assurances that it’s going to be put to its proper or intended use.
Kind of reminds one of the $700 billion “blank check” lament that arose as Treasury Secretary Henry Paulson first surfaced the dramatic rescue notion in late September.
He said Treasury has made “significant progress” toward stabilizing financial markets and is committed to a transparent process.
“But we don’t have the luxury of first building the operation, then designing our programs and then executing them,” Mr. Kashkari said. “Given the severity of the financial crisis, we must build the Office of Financial Stability, design our programs, and execute them — all at the same time.”
Now that the money’s well into the pipeline and scarcely recoverable, hindsight–which reveals that the multi-billion-dollar injections are not putting a dent in the foreclosure tsunami that is swamping the housing economy–is most assuredly 20-20.
In light of the saga of TARP woes, we might nominate “hoarding,” as the word of the year. Hoarding reflects the paroxysm of fear that causes people, banks, companies, and governments to stash their cash in their proverbial mattresses rather than to send it back into the arterial network of the economy.
This business of deleveraging an economy is scary stuff. It appears that since 95% of the recommended actions to take should have been taken three to five years ago, our choices now relate to whether it’s our children or our grandchildren that will bear the brunt of our collective recklessness.
As long as there are government watchdogs on the case, however, we may all rest assured that our interests as taxpayers are getting their mightiest defense.
Another bank CEO agrees that maybe now is not the time to invoke his rights to a big bonus. The auto companies pray the Senate will do what the House and Administration have already prepared to do, which is to extend $15 billion in bridge loans along with marching orders to come back in March with a new plan as to how to run their businesses.
Photo from flickr user scurzuzu used under a Creative Commons license.
We talk about one of every 10 jobs linking directly or indirectly to the fortunes of domestic auto makers, and it’s morally hazardous not to move to protect as many of those jobs as possible. We seem to require an entire TARP program to cover the as-yet black boxed ins-and-outs of financial companies like AIG, let alone the rest of the still-deteriorating financial complex.
The mess that is Fannie and Freddie today gets obstructed as revelations come to light about the out and out chicanery of their former executive management.
At Fannie, chief credit officer Adolfo Marzol wrote to chief executive Mudd in March 2005 to warn that entering new areas of the mortgage market represented significant risks. The industry was pushing new types of loans, he wrote, including those that required little documentation and those that carried rates that would adjust in a few years.
“The combination of these risks may be difficult for subprime borrowers to understand,” Marzol wrote.
Marzol also warned that securities backed by these loans might not be as safe as they seemed. Fannie reported them as carrying the top grade given by credit-rating agencies, AAA, but Marzol cast doubt on that. “Although we invest almost exclusively in AAA rated securities, there is concern that rating agencies may not be properly assessing the risk in these securities,” he wrote.
Despite these concerns, Fannie continued to push into this new market. A business presentation in 2005 expressed concern that unless it didn’t, Fannie could be relegated to a “niche” player in the industry. Mudd later reported in a presentation that Fannie moved into this market “to maintain relevance” with big customers who wanted to do more business with Fannie, including Countrywide, Lehman Brothers, IndyMac and Washington Mutual.
The documents suggest than Fannie and Freddie knew they were playing a role in shaping the market for some types of risky mortgages. An e-mail to Mudd in September 2007 from a top deputy reported that banks were modeling their subprime mortgages to what Fannie was buying.
How many more inevitables can the Treasury print money enough to delay? How far into the future are we willing to push off accountability and resolve, as if by buying time, we may stumble on a miracle cure. Give Billy Mays of Mighty Mend-It a few more months, and he may just come up with a way for us to get out of this one with a few bruises and enough said.
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