Isakson Back with Home Buyer Tax Credit Bump
Senator Johnny Isakson hasn’t given up on an expanded tax credit for home buyers as a way to juice up economic recovery.
The Georgia Republican shepherded a similar initiative through Senate approval in February, only to meet an untimely demise in the stimulus reconciliation bill eventually signed into law in mid-February as the $787 billion American Recovery and Reinvestment Act of 2009 .
Well, now a measure looking eerily akin to a demand-stimulus plan proferred last fall by the Fix Housing First Coalition of organizations including builders, real estate agents and brokers, building material suppliers, home inspectors, and home owners associations is making its way through committee as S 1230. The long and short of it is that it would up the current $8,000 credit to a maximum of $15K, open the deal to all home buyers (not just first-time buyers with a ceiling on incomes), extend the deadline for another year, and maintain historically low mortgage interest rates for that same time period.
Here’s Isakson’s take on the measure.
Johnny Isakson, D-Ga.
“The first-time homebuyer tax credit has made a difference. First-time home buyers used it and the market stabilized, but we don’t have a recession in first-time home buyers. We have a recession in the move-up market,”Isakson said. “One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can.”
Isakson has some pretty high voltage backing on this one. A group, formed in April, called the Business Roundtable Housing Working Group, consisting of the CEOs of $5 trillion worth of U.S. corporations with almost 10 million employees is wholly behind Isakson and a bi-partisan support group in Senate.
Here’s a link to the Business Roundtable.
Problem is the House of Representatives, where elected officials thought the Fix Housing First measure and its benefits smacked of a bailout for builders, the ones many voters thought caused the financial crisis in the first place.
One way or another, the Obama Administration and House chief Nancy Pelosi are going to have to get behind the plan for it to go anywhere.
Still, you got to hand it to Johnny Isakson to keep carrying the torch for a “housing-will-be-the-engine-of-recovery” plan. At a time broad economic signals seem to be short-circuiting and mixed, and the best hope now is for an anemic bounce back, a housing-led rebound sounds about as dreamy as anything.
Statistics, More Statistics, and Damned Lies
“They’re lying.” This is what Yale economics icon Robert Shiller told Builder 100 Conference executives about experts who claim they know how the housing economy will behave in the months ahead. “It’s impossible to know.”
This would suggest that a positive outlook and a negative one are equally viable. So why not believe the more optimistic take?
Shiller is one of the smartest people today commenting on what makes the housing economy tick, and he’s the first to say he doesn’t know when it comes to predicting where it’s going to go. Mind his phrasing in an op-ed piece from the New York Times this past Saturday. He carefully uses the word “may” to say, “hey, it could go the other way, too.”
Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.
We’re ever concerned about predictions. We heard a lot of anecdotal good numbers for April, and have gotten word from a number of builders that May was just as good or even better. We heard of one home builder in the D.C. metro market who closed on 55 homes in May, a good 20% ahead of plan. In Phoenix, monthly sales in some communities are better than they’ve been dating back almost two years.
At the same time, the gathering financial storms of nonperforming commercial mortgage back securities and unrepayable credit card debt coupled with an expanding black hole of unemployment remain abstractions whose risks to forward planning may be too hard to calculate.
Have investors who’ve restored more than 40% of value to stocks from their low-point and gotten the Dow Jones in positive territory for the year factored in these forces already? Have government and Fed policies actually begun to find traction in the financial system that have started to slow the bleeding?
Here’s what we think. For most privately held home builders, especially the ones on life support who are one letter from the bank short of doom, there’s no gain whatsoever from a negative scenario. These companies are beyond scenarios altogether, and just pumping to get another sale done to keep working their way through their bank obligations for another month.
Housing prices–especially national ones–bear little relationship to the realities of these companies. They’re focused on the small ball. Build quick. Beat existing, distressed, and foreclosed properties to the punch somehow, and make it so that the monthly payments make sense to a home buyer exactly the way these companies’ own monthly payments to their lenders stay on course.
More macro financial shocks are coming. More job loss will put a drag on local economies. More household deleveraging will take money out of circulation as consumers curb their spending.
Even so, Shiller says, what happens time and time again in the history of economics is that people’s behavior frequently defies logical supply and demand behavior.
All of these people could be made to change their plans if a sharp improvement in the economy got their attention. The young couple could change their minds and decide to buy next year, and the elderly couple could decide to further postpone their selling. That would leave us with a buyer and no seller, providing an upward kick to the market price.
Can the 87% or more of people who may stay employed offset the negative feedback of those who’ll continue to swell the ranks of those involuntarily out of work during the next 12 months as the economy grapples for recovery?
Will those who are able to hang onto their jobs be confident enough in their income stability to strike while the pricing, interest rate, and Federal tax credit incentive irons are hot?
The expression one real estate/housing player uses to offer an answer to these questions is this: “You’ve got to fake it to make it.” There’s no upside to believing the downside outlook.
For the moment, getting to ”the other side” of this mess means staying in business through tomorrow.
Bottom Fishy
Are you the glass-is-half-full type, or a life-stinks-then-you-die kind?
A whiff of less-bad news here and there has bred with it a subtle change of expectations on the part of some economists, if not the eventualities themselves.
Clearly, though, economists are best at using two words to begin talking about even their strongest convicitons. Those two words? “It depends.”
Here’s a roll-up of economists’ opinions from the Orange Country Register’s “Lansner on Real Estate” that limbs out the Silver Liners from the Doom and Gloomers as to when that most-coveted of pieces of bottom might be in view.
Optimists
Fed Chair Bernanke:
- The worst of the recession has passed: “We continue to expect economic activity to bottom out, then to turn up later this year.”
Mark Zandi, chief economist, Moody’s Ecomomy.com:
- U.S. home prices will reach bottom by the end of 2009.
- “Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight.”
- U.S. home prices will fall another 11 percent on average before stabilizing.
- The Case- Shiller home price index will fall 36 percent from its 2006 peak to the bottom this year.
UCLA Anderson Forecast:
- Housing market to stabilize in late 2009, and “when it does, the contraction in residential construction will, finally, after more than three years, cease to be a drag on the California economy.”
- “As the housing market has completed most of its required adjustment prior to the downturn in general economic activity, it will not be as much of a drag on the recovery as experienced in previous recessions.”
- Orange County: Home prices stabilizing in 2009 and starting to rise in 2010. But appreciation rates remain in the single digits and prices will still be at 2004 levels in 2013.
- “This could well be the worst post-WWII downturn yet.”
- “If there is any good news in the picture it is that the correction in the housing market is almost complete.”
- “We are due for significant increases in unemployment through the 2nd quarter of 2010.”
- “Continued job loss in California is going to lead to more foreclosures and more uncertainty about the ultimate bottom in housing prices.”
California Association of Realtors:
- Recessionary conditions through the first half of 2009, “before we begin to see a turnaround in the second half of next year.”
- Prices down 28.4%. That’s revised from an earlier projection that prices would drop just 6% this year.
- Sales up 25%. CAR forecasts that 550,000 homes will sell in 2009, pretty good considering that the state was down to 347,000 sales a year in 2007. That’s revised from an earlier projection of 445,000 home sales.
Pessimists
Michael Carney, director, Real Estate Research Council of Southern California, Cal Poly Pomona:
- “I don’t see home prices leveling off in 2010. … The real reason we’re not going to see a recovery: The financing is not coming back for at least 5 years.”
Richard Green, director, USC Lusk Center for Real Estate:
- “I’d say we’re at bottom if it weren’t for the fact that the jobs picture is so dim.” … (Thinks market will turn around in 2010.)
Stan Humphries, VP of data and analytics, Zillow:
- “I’m doubtful that we’ll see the bottom until 2010, and thereafter it’s increasingly clear that we’re likely to have a long bottom before we see meaningful recovery in home values.”
Construction Industry Research Board:
- 2009 is expected to be the worst year on record for new residential building permits.
- Just 63,400 units will be produced in 2009, down 3% from the 2008 record-low of 65,380 units.
- 2008 construction was 20% lower than the lowest point during either the 1980s or 1990s housing downturns.
- The low in the early ’90s recession was 84,656 units in ’93. The worst year during the early ’80s recession was 85,656 in 1982.
Rental Decay Eases a Bit
There’s about two ways to look at data points that reverse a downward or upward trend. One way is to say, “nyah, nyah, nyah, seasonality’s skewing the number,” and count it as a blip in an otherwise uninterrupted further plummet. That way is for those who are unable to get out of the fetal position.
The other way is to note the ever-so-slight upward hook at the tale end of the vertical deterioration picture, and imagine, if nothing else, you could catch a fish with it… or it could be the beginning of a reversal trend. It might not proceed on an upward trajectory uninterrupted by occasional ups and downs.
The NMHC has released its Tightness data for February, which cobbles vacancy and rent price info into a healthiness index. Calculated Risk has tracked the data and created this analysis.
Click on image for Calculated Risk analysis of NMHC release.
It is common in a recession for apartment vacancies to rise, as households double up by moving in with a friend or family member. However an added factor in this recession is all the single family homes being offered as rentals. This is possible additional competition for apartments:
In a special fifth question to NMHC’s Quarterly Survey, one-third (33 percent) said such competition [from condos and single-family rentals] was unchanged. Another four percent thought there was less competition, and 11 percent don’t consider condos and single-family rentals to be significant competition for apartments in their markets. A slightly majority, 52 percent, did report more competition from condos and single-family rentals than in previous years.
Competition from condos and single-family rentals probably depends on location.
About all that Hollerin’
If you’re wondering why so many people have got their two hands cupped to their mouths, letting out rebel yells at the top of their lungs, you might blame former Salamon Brothers chairman Lewis Ranieri .
The investment guru, who is now chairman of Hyperion Partners LP, addressed the Milken Institute Global Conference in Beverly Hills, CA, this week, and was quoted by Bloomberg.
“I’m actually very enthusiastic about housing, and I haven’t said that in five years,” said Ranieri, who spoke on a panel at the Milken Institute Global Conference in Beverly Hills, California. “As housing prices continue to inch down within shouting distance of a bottom, affordability will simply get greater.”
Sweet! Only, not so fast, cautions Calculated Risk, who is rightfully a stickler for semantics when it comes to calling a bottom, or even saying we’re in shouting distance of it. CR’s reminder: there are bottoms and there are bottoms.
The article says Ranieri was talking about prices, but that isn’t clear from the quote. He might be talking about residential investment. Prices will fall further …
To review: There’s a bottom in stock prices, a bottom in home sales, and a bottom in home prices, each of which represents an important trough in “actual economic activity,” which has largely been on pause since about October of 2008. Willing buyers and sellers a market make. There are few of either these days, so there’s a lot that is or might be for sale, and not a lot of trading going on.
We too have assumed the position of shouting into the distance, and we’re getting a sense that some of the gears of value destruction are beginning to grind to a halt before grinding back into value creation mode.
My New Kentucky Home
Bill Jagoe’s grandfather built and sold two homes during the painful latter years of the Great Depression in the late 1930s. Bill Jagoe and his brother Scott have been building and selling new homes in Kentucky and southern Indiana through the Great Recession. Bill Jagoe’s son, William Rush Jagoe V, is 21, and may–as it turns out–pick another profession altogether.
“I worked on job sites from the time I was 12,” Bill Jagoe tells us. “I didn’t raise home builders. I want my kids to think about other things to do. But we’ll see.”
click image to access Jagoe Homes site.
Bill and brother Scott qualify as a “how-the-hell-are-they-doing-it?” story right now, starting more specs and scoping out new lots from other builders and developers to keep up with demand that will probably take them to 440 homes and beyond this year. That would equal their best year ever.
“We’ve been going after a buyer we’ve seen in the market who wants a spec,” Jagoe says. “We’re seeing people who, once they’ve made their decision, they don’t want to wait.”
While other private home builders struggle to keep the lights on and the doors open, Jagoe’s outperforming its own expectations. “In traffice we’re 149% of budget, and we’re 148% of budget in sales. We’re finding that, even with foreclosures around, we can still talk to our customers about value. They’re still payment-driven and they still act on emotion when it comes to saying yes. You just have to get to that emotion, and they’ll suddenly want it now.”
The Jagoe family name backs up the relationship the company has with home buyers, trades, lenders, and suppliers, but the personal touch and the entrepreneurial fire-in-the-belly hasn’t stopped the firm from constant process improvement efforts. Over the past few years, the Jagoes have pulled in sales and marketing guru Bob Shultz, operations and lean construction specialist Scott Sedam, and management/technology advisor Noelle Tarabulski to remake every way the company operates and does business with its various stakeholders.
Other builders are reefing their sales and exiting markets, but not Jagoe. They’re new to the Bowling Green, KY, market thanks to a deal they picked up from a builder who wanted out. “They wouldn’t let me into Bowling Green when I tried to get in three years ago.” They, being municipal officials, planning board members, trades, and other builders. “Now,” says Jagoe, “they’re asking me if I want to buy their land.” Jagoe has his sights set on 20% of Bowling Green marketshare by next year. “That could be 100 homes or 200 homes for us alone, depending,” he says.
“I get to work each week, and I think, ‘what can I change about the way we do things today?,’” Jagoe muses. He’s taken 90% of marketing and sales dollars out of newspaper advertising and plowed in into relationships with Realtors and an improved Web effectiveness. “We used to sell one in four traffic customers, and now we’re at one in three. If you give me a go today, I can get you into a new home in 77 days, give or take on entitlements and permits.”
Building cycle time is huge these days. “Your not making profit on the land appreciation, so it’s going to be process management and speed that gets you your margin,” he says.
Bill’s son Rush may not go into home building, but he knows cycle time by heart. As of Sunday, he’ll set out pedalling with two of his friends from San Francisco to Charleston, S.C. Just another way to ride out the downturn.
Who’s Not Moving Why?
Source: William Frey, Brookings Institute, via NY Times. Click to access article
Some trends become evident before they become clear. When it comes to American households’ patterned behavior and what it means, few get it as quickly and clearly as former American Demographics editor Cheryl Russell, who runs New Strategist Publications out of Ithaca, NY.
When an astonishing data point comes out from the U.S. Census Bureau — which is almost never — you can count on Cheryl, who eats, sleeps, and breathes Census data, to help decipher how it compares and what it really says.
Her latest American Consumers newsletter takes on the latest Census shocker on household mobility trends. Here’s a direct excerpt, complete with a dollop of business wisdom at the bottom of the passage.
If you really want to know how the priorities of Americans are changing, then take a look at their reasons for moving and how those have changed over the past few years.
- Not buying: The number of people who moved because they wanted to buy a home fell by 48 percent, from 3.9 million in 2000-01 to just 2.0 million in 2007-08–the largest decline among all reasons for moving. While there probably is some pent up demand for buying a home, it is possible that many Americans are reconsidering the importance of ownership now that they know the risks.
- Moving closer to work: The number of people who moved to shorten their commute increased by 80 percent between 2000-01 and 2007-08, rising from 1.2 to 2.2 million–an 80 percent rise and the largest increase among all reasons for moving. This is bad news for the far-flung suburbs, which will be last in line for any economic recovery.
- Delaying retirement: The sharp drop in the mobility of 60-to-61-year-olds is reflected in the 38 percent decline in the percentage of people who moved because of retirement between 2000-01 and 2007-08. Retirement savings have been decimated and the age of retirement is rising, which is why state-to-state migration has plunged. This trend could gut destination retirement areas.
- Staying closer to home: The data show an ominous decline in the number of young adults who moved to attend or leave college, with the figure falling by 26 percent between 2000-01 and 2007-08. This decline is occurring as a growing proportion of students opt for less-expensive in-state public schools and is yet another warning sign for the nation’s overpriced private colleges.
- Downscaling expectations: The percentage of people who moved because they wanted cheaper housing climbed by 35 percent between 2000-01 and 2007-08. At the same time, the percentage who moved because they wanted a better home or apartment fell by 29 percent.
Americans are dropping out of the housing market, delaying retirement, and downscaling their expectations for college and home. These trends may be temporary, but the best way to survive them is to assume they are permanent.
A Call We’ve been Waiting for: Recession’s Nearing an End
You just have to hand it to the resilience of the U.S. consumer. We’re 6% of the world’s population, but acccount for 40% of the world’s consumption. And, right now, that’s a good thing.
Personal consumer expenditures in the first quarter swung 6.5% from fourth quarter 2008 to first quarter 2009, to a 2.2% increase.
With all that is fouled up in business investment right now, the consumer is the X Factor of recovery. Will the 80% of the nation’s workforce that will manage to steer well clear of the sinkhole of income loss manage to bouy the economy?
To listen to one housing player working the trenches in heartland, rustbelt markets, the answer may be a louder and louder affirmative. “You couldn’t even get through Lowe’s the other Saturday,” said this residential construction executive. “People want to put up their fences around their yards, and they want to get going with projects. And if the wife says she wants to move now on that new house, then now’s the time it’s going to happen. These are Americans. Lots of them don’t want to wait to get through the anxiety and delays of a foreclosure purchase. They want it now.”
Questions about the strength of the recovery and the persistence of after-effects of the downturn will continue to arise, but per the Economic Cycle Research Institute’s Lakshman Achuthan, the steeper the economic decline, the faster and stronger the snap-back. Achuthan’s correctly called the last several recessions and recoveries based on his basket of long and short-term indexes, and he’s saying now that early Summer 2009 will wind up marking the end of this recession.
Here’s his call this a.m. on CNBC.
Bottom Dollars
The Second Derivative has spoken. Or has it?
Everywhere, smart and experienced people have begun to find their own words to say that the bad news may still be bad, but is growing worse at a slower rate. Toll Brothers CEO and Chairman Bob Toll says as much in his comments about 80% of the nation’s housing markets in a “first signs of light” interview with CNBC “Mad Money” host Jim Cramer.
The steepness of the deterioration is changing to a more gradual decline. Not everything is as bad as it was. Things have to shift from nightmarish, to horrible, to frightening, to bad, to concerning, before they can flip across the gulf to okay, no?
Bob Toll contends that if you’re out in the field, you’ve already started to get a sense that things are improving, and we hear that from a number of people in a number of markets. The traffic that fell off a cliff in September and October of last year when the financial crisis crescendo-ed began to respond to reset price levels, better interest rates, and government stimuli.
But there’s so far to go.
If you are a believer in the “green shoots” theory, then you’ve got to be thinking there’s something that’s going to cause consumer spending to regain a comfortable stride despite a widening sphere of dread about job and income loss. You’ve also got to believe that residential investment will reemerge as a positive in spite of home price deflationary forces that may be expected to continue.
Calculated Risk puts it this way in comments about the President’s top economic advisor Lawrence Summers’ assessment of where things are:
The “unremitting freefall” might be ending, but what will be the source of growth? Usually residential investment (RI) and personal consumption lead the economy out of a recession – and both remain severely impaired this time. There is too much excess inventory for any meaningful recovery in RI, and the process of repairing household balance sheets has just begun (I expect the savings rate to continue to rise for some time).
Meanwhile, too many banks can’t rise above their profound technical solvency issues to do much more than sit and wait for more deposits and more cash from U.S. taxpayers, via the Treasury. They’ve crimped investment in households, in communities, in companies, and in the future–existing only in cryogenic suspension as once-prized borrowers pick a number and get on line to wait for markets to reopen.
“Green shoots” theorists have not only to believe in the resumption of consumer spending and residential investment, but the reignition of willing buyers and sellers of assets among people who’ve been paralyzed by fear to put a price tag on just about anything.
Like other things, housing downturns have phases and stages, whatever their duration or depth.
At this stage, when construction lending is for all intents and purposes shut down, and when banks are awaiting word of their fate from regulators and White Knights before they engage in the world of markets, and when buyers of homes are doing all they can to postpone the need to move before it’s absolutely necessary, one real estate player in the mid-Atlantic market describes survival this way.
“We’ve done all we can with our lenders, and all we can with our costs. Now it comes down to one thing, or we’re done. We’ve got to sell something. We know there’s not a lot selling in our market, but there is something. So our life depends on stealing a sale from somebody else–existing homes, or foreclosures, or another new-home builder. Either we’re going to steal the sale, or we’re not going to be here.”
This is what it’s like even as “green shoots” theorists talk about a “bottom” as if it were encouragement that next bank payment or two might be last ones to stress about.
Sample Error Could Conceal Real Good News
Sustained record lows for the National Association of Home Builders/Wells-Fargo Housing Market Index hardly bring the tidings one hopes for in the middle of Spring Selling Season 2009.
Analysts’ chime-ins about the data today reflect an important point of confusion in the HMI data that may hide a glimmer of good news for housing and the economy as a whole, although not for all home builders.
For instance, here’s how Wachovia’s Carl Reichardt, equity research analyst for home building and building materials and supplies, read the “take-away” from today’s report.
Our field data survey suggested an improvement in selling conditions in January and February while several public builder calendar Q4 conference calls suggested orders improved sequentially in December and January. However, these HMI data indicate to us that the improvement may be merely seasonal and that conditions remain depressed. We were surprised to see the traffic component of the HMI index decline sequentially given finalization of the federal housing tax credit in February; previously we felt that uncertainty over the stimulus was keeping buyers on the sidelines.
Reichardt’s counterpart at JP Morgan, Michael Rehaut notes:
On a YOY basis, Traffic worsened, down 53% YOY vs. Feb.’s -42%. Overall, we believe this to be modestly disappointing as the market is still in the midst of the Spring selling season. Accordingly, we continue to believe these overall weak levels, combined with continued job losses, still tight credit conditions, depressed consumer confidence, and still highly elevated home inventory levels, should continue to result in depressed demand well into 2009.
Here’s a thought. From a broader economics standpoint, the numbers don’t tell the story. As a matter of fact, we know that “Builder Confidence” as represented in the HMI data is not “Builder Confidence” at all. It’s the confidence level of a sampling of the NAHB membership, which doesn’t reflect what’s going on among the extremely finite group of large home building organizations. We’ll come back to this point, but first, a relevant diversion.
Have a look now at “What Will Recovery Look Like?” from Caculated Risk. In it, he visually quotes from another analyst, Professor Hamilton, who offers a blackboard-type picture of key economic trends. Here’s the main picture.
Click on image for access to Caculated Risk analysis.
Now, here’s some commentary from Calculated Risk that speaks to what’s going on in this picture.
For recovery, we know what to watch: Residential Investment (RI) and PCE. The increasingly severe slump in CRE / non-residential investment in structures will be interesting, but that is a lagging indicator for the economy.
Unfortunately there are reasons that RI (excess supply) and PCE (too much debt) won’t rebound quickly, but they are still the areas to watch.
And here is an excerpt from a research note by Jan Hatzius, Chief Economist at Goldman Sachs, sent out this afternoon:
“Although we still think real GDP will fall by about 7% annualized in Q1 and the labor market numbers remain awful, the good news is that the weakness is shifting from more leading to more lagging sectors.”
So, technically speaking, the leading indicators have to get as bad as they’re going to get, and then the lagging indicators have to do their inevitable me-too act, and then the leading indicators can start to track back toward improvement.
Now, let’s get back to home building. Thanks to Jonathan Smoke, who joined Hanley Wood Market Intelligence as senior VP for products and innovation, we can look at the HMI data with more insight.
Here’s today’s Big Builder take with a twist:
”Since the traffic subcomponent failed to show sustained improvement over February and instead revealed a decline, I am starting to believe that the HMI survey is weighted too heavily towards reflecting the sentiment of smaller builders,” said Jonathan Smoke, senior vp/products and innovation for Hanley Wood Market Intelligence, who is currently preparing an analysis of the methodology of the HMI in light of the increased market share of production home builders in recent years. “Anecdotally, we are hearing about improved traffic at big builders from promotions and marketing of the Home Buyer Tax Credit.”
Interestingly, John Burns Real Estate Consulting may have touched on a similar observation in its analysis of its own home builder survey paired up with the NAHB HMI data.
John Burns noted, however, that “the NAHB’s Housing Market Index has not been showing the same improvement as we have, which is likely due to the fact that our survey participants are more inclined to still be building, while the typical NAHB member has shut down operations.”
So, what will recovery look like? It won’t show up first in the HMI Index. Why?
Consolidation. Jonathan Smoke observed that a big shift in the “pessimism” level of the HMI first occurred in about 2000, just as the largest home builders began a major market share move nationally. Now, the HMI may measure the same sample as it ever has, but the sample distorts reality, since 100 home building organizations account for more than 40% of home sales and closings.
Anecdotally, we’re hearing from a growing number of in-the-trenches representatives, that in January and February, sales and traffic have picked up. Now that the dust has settled for the moment on the first time home buyer tax credit of $8,000, home builders are making hay with that any way they can, adding in mortgage rate incentives and free upgrades, anything that can get that inventory turned and cash harvested.
They’re not out of the woods. Jobs and confidence will be the true tide turners, and it’s just a question of which will come first.
Still, you want some real good news here, and we’re saying all you have to do is look at the terrible HMI data and know it’s way off the mark to find the good news.
As a matter of fact, we’ll bet that this very housing recession will consolidate new residential construction to such a degree as to make the following analysis from Calculated Risk suspect.
Here is a comparison of the National Association of Home Builders (NAHB) Housing Market Index and new home sales from the Census Bureau. Since new home sales are released with a lag, the NAHB index provides a possible leading indicator for sales.
Click on image for access to Calculated Risk post.
We believe that as sales and closings consolidate further among larger players, we’ll see an initial de-coupling of NAHB home builder sentiment from sales trends. Sample error will be the cause.