Good News du Jour Department
Real estate is local.
Real estate trends occur one local market at a time.
Here’s two upbeat notes from opposite coasts. A third would make a trend.
Mark J. Perry’s Carpe Diem blog reports the following: NoVa Home Sales Increase for 12th Straight Month.
Here’s the graphic he’s supplied, an oh-so-rare look at measurably higher sales volume year-on-year.
Click on image for Northern Virginia Association of Realtors site.
Here’s what Perry’s comment is:
The data suggest that the Northern Virginia real estate market is way past its bottom, and has been making a solid recovery and strong comeback for many months. And yet doesn’t much of the national news suggest that real estate markets in most parts of the country are still years away from a recovery?
It’s a different story on the Left Coast. A story of foreclosure sales. The question is, can foreclosure sales (and 60% sales of other existing for-sale homes) keep up with the pace of foreclosures?
Calculated Risk quotes this report from DataQuick.
The number of homes sold in the Bay Area rose for the seventh month in a row in March, the result of continued bargain hunting in the East Bay and other foreclosure-discounted communities. The past year’s steep drop in the median price slowed significantly, indicating that the market might be near its price bottom, a real estate information service reported.
Speaking of recovery, Builder magazine asked five real estate analysts to offer their take on which five markets might make it across the gulch soonest. Here’s their response.
One way or another, it’ll be a market at a time. With fewer local newspapers around, we can only hope that there’ll be headlines enough to take note when it begins to happen.
Make Over Mondays
Know the feeling? A month ends, and you check it off. It’s another month you don’t have to stare down from the front end. We don’t imagine there’s a home builder out there who doesn’t relish the thought of seeing the tail lights of 2009.
So, what happens these Mondays, the day that not so long ago in people’s memory was the day you practically needed an armored car to pull up and take all the deposit money from the weekend past to the bank?
These months, Mondays should be about all the little things because the big things are beyond our control. This limbo we’ve all gotten to know so well, like a form of progressing malnutrition, is about the stubborn distance that lies between a bid and an “ask.” There are four money buckets: The money you’ve got; the money you’ve got coming in; the money you owe; and the money you need. The amount that one or more of those is out of balance is probably the extent to which you’re watching Bloomberg news in the mornings, as opposed to ESPN.
You can control the weeds in the flower beds of the sales models. You can control the number and the quality of the smile-and-dial phone calls you and your sales associates make to make your quotas. You can control the energy-level of affirmation for every sales success one of your team nets. You can control the follow through and care every one of your customers gets so that they’re your No. 1 branding strategy. You can keep dialing your bank or bankers, and let them know where you are with your business. You can keep showing up at the country club, because those local club deals are still one of the No. 1 ways capital will find its way back into real estate. You can go out into your market and find a land seller or developer who just might be willing to make you an offer you can’t refuse on a piece of dirt that would move even in today’s horrid environment.
You can buy up some REOs, taking them off the market, and using your subs and your staff, you can make them available for rent or rent-to-own. You can dial back your costs far enough to zero out all but the essentials and offer your services as fee builders.
These are some of what people mean when they talk about “all the tricks” in the book. It’s the book for down cycles. One of its rules is you mark off weeks and months as you survive them, and put those days behind you. You then start a new week or a new month like a baseball player who starts each game “0-for-the-game.”
Everyone’s at that same starting point, and while an 80-year stalemate between big and ask has got things gummed up from a macroeconomic standpoint, this is the first April of the rest of your life, and it’s time to get things rolling.
After all the trillions and all the programs and all the efforts to lure in the private sector, the only sure way to counter toxic assets is with assets that aren’t toxic. And one of the only ways to get to assets that aren’t toxic is to help house buyers get past their fear of risk. They need assurance that what they’re puchasing will be the property they’re committed to making their home.
Home Building’s Plot Thickens
Theory, circa 2006: Efficiently scaled home builders had enough elasticity in their systems to push their home prices down — and out ahead of — below the competing market. That would keep them in the business of sustainingtheir management, marketing, and home building infrastructures in well-oiled condition, turning inventory in a methodical manner, and generating cashflow on a virtuous time-released schedule.
Nice theory.
Circa Spring 2009, a third successive “Spring Selling Season” has turned into a third successive Hand Wringing Season. Even the best-scaled, balance sheet scrubbed public home builders are looking at every dollar in their cash till and gut-checking themselves as to whether that dollar has 2009′s name on it, or maybe 2010′s. Is that dollar “dry powder,” for opportunistic muscling for market dominance once the constipated land-transaction market finally gets moving again?
Or, just as likely, will that dollar need to try to attract other capital, get in the lengthening line of debt term renegotiation with nameless, faceless, and sometimes clueless lenders and bondholders who are beyond sweating over whether their risks have come to roost.
With KB Home’s bellwether earnings call a couple of weeks ago, the Los Angeles-based home builder’s CEO Jeff Mezger offered a ray of hope amid the brutal realism that prevails as to the difficult leg ahead. Eventually, one will finally stop saying, “It’s going to get worse before it gets better,” because despite the complex of negative feedback loops whirring us into more pain, it will finally be the worst it can get.
Second up in the bellwether home builder earnings call parade was Lennar CEO Stuart Miller. Recalling Stuart’s prognosis at this time of year since 2006, each time it was for continued deterioration in the market, with no signs of an end to the worsening. Now, at least, Mr. Miller, while not sanguine, is indicating that the bump-along-the-bottom period may be approaching.
The twist to the Circa 2006 theory above is that while the big home building companies are secularly a shadow of their former selves, they’re practically the only engine left in the barely pulsing new-home economy. They’ve morphed into quarter-sized versions of their 2006 heft, they’ve said to hell with methodical liquidation of inventory, and chewed off connections to immense land holdings like they’re coyote ugly one-night stands; they’ve scrapped and scrambled for sales; they’ve stormed Capitol Hill with bids to knock reason into the unreasoning, irrational political complex; they’ve excavated their balance sheets of huge wells of expense; and they’ve piled up cash reserves in hopes of being around for an Resolution Trust-like land reset goldrush.
Still, each percentage point of unemployment–coming as they do torturously on ladder-steps of months and quarters, and half-years–represents a new spread of distance between now and a recovery horizon.
We’re out on a limb, of course, but we believe we’re in the middle of the last non-starter spring selling season of the current cycle. Another tough eight month stretch and the rare rays of light that have sparked up the gloom will start adding up.
Meanwhile, we continue to be amazed at the fortitude, or maybe its just stubborn resolve of those who’ve stayed in the game with every trick in the Book of Housing Cycles. You must be in it more than for the money; it must be part of the DNA. Former U.S. Secretary of Housing and Urban Development Henry Cisneros, calls you “housers,” which is not a pretty word.
But what it means–he describes a young mother coming home to one of your homes with a newborn who’ll one day be going off to college–is why you continue to fight to be here.
That’s Fact, Circa 2009.
One Blip at at Time
Debate among economists about whether the February new-home sales release from the U.S. Census Bureau, the Commerce Department and the Department of Housing and Urban Development was postive or negative is a glass-is-half-broken (yes, not half-empty nor half-full) argument.
Anyone who claims that the gist 120-word summary for Febuary 2009 one-family new residential sales fits his or her predictive model for how housing is behaving is not mortal, or lying.
Sure, if you’re applying disciplined economic analysis, there’s no other way to look at data for Febuary 2009 vs. data for February 2009, (notwithstanding the one-day difference due to 2008 being a leap year).
But those who are raising a ruckus about the media numbskulls who are getting it wrong by noting that the month-to-month upward swing is a positive miss at least part of the point: The barrage of adverse headlines contribute to negative sentiment which feed negative trends. Barry Ritholtz’s The Big Picture blog is on a withering tear against print and TV media for inaccurately reporting on the new-home sales data.
A parade of the mathematically innumerate business writers (and even worse headline writers!) continue to misread data. The latest evidence? New Home Sales.
After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes.
No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%. Sales from this same period a year ago have nearly been halved.
Why did the media report this as positive? If you only read the headline number, you saw a positive datapoint: February was plus 4.7% over January.
To get the the facts, you need to read below the headline. In the present case, it wasn’t the seasonality factor that was confusing, it was the “90-percent confidence intervals” — or as it is more commonly known, the margin of error. (more from The Big Picture post)
There are several issues at work here, but for home builders and real estate professionals, the best advice might be this. Put your fingers in your ears and don’t listen to anyone who nay-says the little gains you’re making in your communities.
Economists–whether they’re positive or negative about the data–want an audience for their business and career interests. It seems as if some of them make a good living by telling people that the media has no credibility, and asking why anyone reads a newspaper or watches a news telecast.
Economists who profess that they’ve been right all along about what is going on in the economy are doing so because the marketability of their theories redound to their financial well-being.
Journalists, on the other hand, work for at least two bosses these days. One is their management, and the other is their audience. Always and forever, the audience is the toughest boss when it comes to the so-what? factor of relevance and accuracy of facts and perspective. Also, journalists, in more ways than ever, work collaboratively with their audiences on getting the whole story that matters, especially as citizen journalism surfaces as part of every media title and channel.
It’s illuminating to get corrected perspective and insight on the new-home data. Here’s how avuncular Calculated Risk steers people to understand how not to get too overjoyed at a blip up in new-home sales from January to February.
Click on image for access to Calculated Risk post.
This graph shows the February “rebound”.
You have to look closely – this is an eyesight test – and you will see the increase in sales (if you expand the graph).
Not only was this the worst February in the Census Bureau records, but this was the 2nd worst month ever on a seasonally adjusted annual rate basis (only January was worse).
Calculated Risk’s assertion–oft-repeated these days whether the media headline is positive or negative–is that a sales volume bottom for housing is likely in 2009.
It’s important to understand, however, the level that neither The Big Picture nor Calculated Risk matter when it comes to the viability and vitality or morbidity of home builders and real estate.
Their measures of correctness or error are on a national, macro level. They can be right, and still get it totally wrong when it comes to understanding what’s going on in home building and sales organizations in the first half and second half of 2009.
Even with the full measure of their economic skills, they’re not set up to catch the first flickers of recovery, just as they do not get the challenge of marketing and selling about 340,000 homes a year into the teeth of this environment.
Clearly, home builders are telling us that where they can get some traction with their prospective home buyers, they’re making some progress. In California, where a $10,000 tax credit jolt compliments the national $8,000 first time buyer tax credit, you’re starting to see home price correction and stimulus combine to pull people off their duffs on the sideline.
While home builders, manufacturers, and trade groups are willing to support the $8,000 tax credit initiative in the fledgling $787 billion economic stimulus program, their point organization, the Fix Housing First Coalition, is carefully watching the California front in hopes of renewing its case for a bigger one-time credit for all home buyers.
Yesterday, two House Republicans, Eric Cantor (R-Va.) and Mike Pence (R-Ind.) introduced a “Responsible Homeowners Act” measure that would bring back a $15,000 tax credit for buyers of primary residences who put a minimum of 5% down on their purchase.
Economics, being the dismal science that it is, has not solved the math problem of where home prices need to correct to and what policy pushes are necessary to wrench open the spiggot of real estate transaction.
Which means home building operators and their leadership need to keep turning a deaf ear to the blather about national data points–especially ones that dowse morale, confidence, and focus–and just keep selling so that one blip can turn into two, and 30 days later, maybe a third blip in a row.
Then, even the nay-saying-est economists around will have to admit that you’re creating a blip tide, otherwise known as an economic trend.
Bar Banter
The 800 pound gorilla is the complex fact that there’s still more than a year’s supply of places people have been trying to sell. And the question remaining is to which mean — comparisons to rents or relationships to household income or return to 50-year pricing norms — will home prices descend to get the free-flow of sales transactions and absorptions going again?
Whatever you believe, be careful of putting eight economists in a room with the same data and the same set of questions, because you’ll be thoroughly confused by the time they finish their answers to the questions.
Click image for access to Wall Street Journal analysis of new-home sales data.
Imagine, this little picture causing such an array of conflicting, puzzling, almost bizarre observations from a veritable think-tank of specialists in the dismal science.
Here’s a snippet from the Wall Street Journal’s Real Time Economics brief today, citing Omair (not Omar) Sharif, RBS Greenwich Capital.
Overall, this report is better than we had anticipated, continuing a pattern of the February housing data exceeding expectations (recall that existing home sales bounced by 5% and housing starts climbed by 22%). To be sure, the improved data last month followed months of horrendous housing data, as activity fell off of a cliff following last fall’s financial upheaval. The pickup in February also came on the heels of an especially weak January performance, suggesting that the January-February swing may have reflected in part a weather effect. Still, the fact that starts, permits, and home sales rebounded in February despite still-challenging economic conditions suggests that, at the very least, the pace of decline in housing demand may be abating. It is clearly far too early to call a bottom in the housing market, especially given the deterioration in the labor market, but the February data have allayed some fears that the housing market would continue to freefall.
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.
Not Pretty Pictures of the Housing Crisis
This article in the New York Times draws several conclusions. Unfortunately for readers of the story, the conclusions conflict, and negate insight.
- The headline revelation is that spring selling season has officially been cancelled
So this March-to-June season, when most homes are bought and sold, will be bad, perhaps the worst since the market began to spiral down in 2006.
Across the nation, 19 million houses and apartments — nearly one out of every seven — are vacant, the highest percentage since the 1960s. But only about six million of those homes are for sale or for rent. That means millions more could still flood onto the market, depressing prices further.
- The story swings over to touch on President Obama’s housing policy initiatives, and the fact that they’ll play out in an environment so inimical that the housing plans will get eaten for lunch.
On Wednesday, the Obama administration announced details of a plan that will pay banks to lower monthly payments for troubled borrowers, hoping to avert millions of foreclosures and keep more homes occupied. Despite that effort, most analysts expect the outlook to worsen.
- Next, the story asserts that even though it has cancelled the spring selling season due to consumer and commercial credit disruptions, homes are selling up a storm in markets where prices have corrected.
In inland areas of California, for instance, sales are surging now that prices have fallen sharply. But most of the sellers are not individuals but rather banks that foreclosed on homeowners who could not or would not pay their mortgages.
- We’re supposed to glean intelligence from reporting that some markets’ delcine lagged that of the bellwether bubble markets’ fall. The interpretation and analysis is not of the local job dynamics and broader business dislocations that account for the way San Francisco and New York markets have taken a recent beating, but simply that they took longer to succumb.
New York is not alone. Real estate sales have also slumped in cities like San Francisco and Seattle, which previously seemed impervious. California’s recent experience might offer one roadmap of how the housing slump will play out in other places. But the process will be painful and slow.
- One wonders which question Zelman & Associates CEO Ivy Zelman actually answered when she responded with her quote, “You are really looking at a very, very ugly outlook.”
If home sales are surging where house prices have corrected, and home sales have stalled where prices have not corrected, what is that saying?
Does it suggest that sellers of new and existing might take control of their own destiny in this dynamic? If foreclosure prices can move buyers off the sidelines, and if the second-tier foreclosure flip from investor to home purchaser can get buyers to move, why is the conclusion that there will be no spring selling season?
The conclusion could be that home builders and developers are going to have to short-sell a lot of their inventory and deal with a lot of red ink for the market to clear.
The limbo housing is in is largely self-induced, and will have to self-resolve.
The populace will be part of that resolution because the populace became part of the bubble. There’s a tax penalty for becoming part of the bubble and we’re going to learn how big the penalty is for what we began to take for granted when times boomed.
Meanwhile, April 2009 may be a low point for those who are trying to work through what they hold in assets to gain cash enough to work through more tomorrow. But it’s not because the NY Times has drawn attention to this issue. It’s because structural issues–prices, credit, job trends, household spending, household formations, etc.–have locked into a negative feedback loop or a “downward spiral” and this is part of a storyline that housing veterans have seen before.
They don’t call it “very, very ugly.” They call it a tough but inevitable part of doing business in new residential real estate.
Have a look at the Times’ ”very, very, ugly” infographic.
Click on image for larger NY Times version of the information.
This is a technical analysis. We don’t believe real estate markets obey technical analyses. We believe uncertainty clouds the bottom, but that price-correction will be the only solid floor for housing.
Reset Reminder–Ryness Rolls a One-One
Outsourcing. Remember in-house resources were not enough to keep up with demand?
As the volume home building model re-sizes to battle 2001 or 2002 prices, questionable demand, and no access to operating funds from bank lenders, third party sales support is the last thing most operators need these days.
So, companies such as Ryness–which helped on the overheads, and flanked the internal sales resources with sales reps who looked and acted like one of the gang–are on the bubble of the real estate correction of the latter part of this decade.
Big Builder executive editor Sarah Yaussi has reported on the bankruptcy filing, with some intriguing extra detail into how tenuous Ryness’s capital structure had become during its go-go swansong years.
Click image for more info on Gary Ryness
We’re not surprised they’re going through this because it has been a difficult year,” said Steve Kaller, CEO of Ultimate New Home Sales and Marketing, a Ryness competitor in California. “You have to get people through the fear of buying, and then there are financing issues. Getting financing for anything that’s a jumbo is tough.”
However, other sources familiar with the company point to some untimely acquisitions and business partnerships. In 2004, the company expanded into Arizona, Nevada, and the Pacific Northwest. A year later, the company launched Sullivan Group Real Estate Advisors, a national market research and advisory firm. And then in 2006 came the acquisition of The Marketing Directors.
But of late, many of the partnerships have crumbled. Sources at the Sullivan Group have stated that the two firms parted ways two years ago. And other local sources stated that the parent corporation has turned some regional operations, particularly in California, back over to the original owners. Not to mention growing strains with key financial sources, leading to legal issues in 2008.
However, some of Ryness’ builder clients appear to be unfrazzled by the news of the company’s bankruptcy. One company’s Northern California group that uses Ryness for its sales staffing, indicated that it has been business as usual since the filing. In fact, management indicated that because many of the issues stem from the company’s East Coast acquisition of The Marketing Directors, it expected little fallout in California. Management also added that that it is pleased with its relationship with the Ryness team and looks forward to continuing to do business with them.
Gary Ryness, company founder and president, could not be reached for comment at press time. The industry has widely regarded Ryness as a sales and marketing expert. His leadership in the industry includes, but is not limited to, serving as an advisory board member for the University of Southern California’s Lusk Center for Real Estate, founding trustee of the national Builder Marketing Society, recipient of the Northern California home builder association’s sales and marketing council’s Lifetime Legend Award, and a 2002 inductee into the California Building Industry Hall of Fame.
CNBC’s Diana Olick on Pending Home Sales
Here’s the briefing on the National Association of Realtors data on pending home sales from CNBC’s Diana Olick.
Then, there’s what to make of the data. Calculated Risk always helps with the so-what perspective.
This suggests a further decline in existing home sales for the March report (January was the most recent report). Note: there still might be a slight increase in existing home sales in February based on the December Pending Home Sales report.
Note: Existing home sales are reported at the close of escrow, pending home sales are reported when contracts are signed. The Pending Home Sales index leads existing home sales by about 45 days, so the January report suggests existing home sales will decrease from February to March.Finally, ignore the “affordability index”. That really just tells us that interest rates are low – something we already know.
Still, “something we already know” may be overly dismissive.
What we’ll begin to see is a relationship between revert-to-mean home pricing and the psychological conviction among home buyers that they won’t lose money by buying. That’s the inflection point where private sector bid and ask behavior will trump government policy.
Whistle Stop
Nick Thomas, an investment and financial analyst who contributes to an Oxbury Publishing missive called “Bourbon & Bayonets,” scooped us on this notion as we consider the Stress Tests that will determine which banks should qualify to get Son of TARP money.
This is the notion:
The site Wiktionary defines to “whistle past the graveyard” in two ways:
1. (idiomatic, US) To attempt to stay cheerful in a dire situation; To proceed with a task, ignoring an upcoming hazard, hoping for a good outcome.
2. (idiomatic, US) To enter a situation with little or no understanding of the possible consequences.
Both meanings seem to apply these days as mentions of the bigger, badder and far more frightening relative of “recession” begins making the rounds in the media.
So, the question is, is the worst-case scenario for stress as bad as it might ought to be, specifically as regards home sales prices. Cost-to-rent and household income trendline comparisons have been proferred as the free-market cathartic to excess capacity, lack of affordability, and a restoration of order to real estate transactions sometime in the year ahead. Yale economist Robert Shiller has steered us toward expectations of a 36% price correction, largely based on those venerable trend anchors setting the norm for home prices across more extensive longitudinal time-period.
Calculated Risk’s blog raises concerns about the FDIC’s Capital Assistance Program scenarios, perhaps because of a healthy measure of skepticsm about whence the assumptions on how to stress-test banks for potentially worsening conditions.
Here’s how he queues up focus on the respective “baseline vs. alternative more adverse” scenarios. Worst case is supposed to be covered by the more adverse range.
Click on graphic to access Calculated Risk's analysis.
Then, CR maps what the two scenarios look like.
Graphic: Courtesy of Calculated Risk
The issue is this. Is the only thing we have to fear fear itself? Or maybe we should be afraid that we’re not fearful–or realistic enough–for what’s still ahead? Housing and the mortgage-backed meltdown are the first wave. Credit cards and commercial real estate tidal waves are still ahead.
We have to begin to reckon with whether the leadership instinct to be contagiously optimistic is realistic enough to pursue a strategy that can match the magnitude of the challenge. We can’t just be whistling past the graveyard.