Investment

» permabear - U.S. April new-home sales unexpectedly jump 16%

In response to U.S. April new-home sales unexpectedly jump 16% posted by Kirk:

Inventory down and sales up. It looks like ECRI might have been right about their bottom call for housing, if this trend continues.

Kirk,

Very selective cherry picking of this morning's new home sales report. Yes sales were up 16 percent in April, but look at the price data:

01. Median new-home price down 10.9% y-o-y, most in 37 years

Looks like home builders are getting desperate to unload inventory. Price declines will only feed into the housing decline more as homeowners get deeper underwater trying to meet escalating mortgage payments. Housing price declines are a very serious problem for both the housing market and overall economy.

-- posted by permabear

» ECRI - U.S. April new-home sales unexpectedly jump 16%

In response to U.S. April new-home sales unexpectedly jump 16% posted by permabear:

Thought I'd share an e-mail exchange from this morning with you all that addresses the issue...

From: Lakshman
To:
Date: Thu, 24 May 2007 11:30:19 -0400
Subject: re: housing

Hi ,

Not necessarily - while there is a slight tendency for new home prices to lead existing home prices, on the whole they are roughly coincident with each other (see April U.S. Cyclical Outlook, page 2).

In the current cycle, however, the build in unsold new homes was so noticeable that it influenced our expectations, indicating a serious risk of a near-term drop in new home prices before they could bottom. This is why we called for a bottom in existing home prices before a bottom in new home prices.

In fact, our expectations were borne out in today's data, with builders slashing new home prices to move inventory, which is why new home sales jumped.

Kind regards,
Lakshman

----------------------- Original Message -----------------------

From:
To: "Lakshman"
Date: Thu, 24 May 2007 10:22:57 -0400
Subject: housing

I know that you are calling for a bottom in existing homes before a bottom in new homes. Is this, historically how housing cycles bottom?

-- posted by ECRI

» ECRI - WLI Level Ticks Down, Growth at 3-Year High

http://today.reuters.com/news/articleinv...

Fri May 25, 2007 10:30 AM ET

NEW YORK, May 25 (Reuters) - A gauge of future U.S. economic growth slipped in the latest week on higher interest rates and jobless claims, with its growth rate at a fresh three-year high, a research group said on Friday.

The Economic Cycle Research Institute, an independent forecasting group, said its Weekly Leading Index (WLI) fell to 142.4 in the week ended May 18 from a downwardly revised 142.6 in the prior week.

Its annualized growth rate reached a three-year high for a third consecutive week at 6.4 percent, from 6.1 percent the previous week.

"The WLI is showing broad-based strength in its forward-looking components, including those for the services and industrial sectors. Therefore, the prospect of a recession is minuscule at this point," said Lakshman Achuthan, managing director at ECRI.

Achuthan said the slip in the index was mostly offset by higher stock prices and stronger housing activity.

The Weekly Leading Index and the growth rate can occasionally move in different directions, because the rate is derived from a four-week moving average.

-- posted by ECRI

» permabear - Stronger housing activity???

U.S. Existing Home Sales Drop to Lowest in Four Years (Update3)

By Shobhana Chandra

May 25 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly fell in April to the lowest level in almost four years, dimming prospects for a quick recovery in the housing industry.

Purchases fell 2.6 percent to an annual rate of 5.99 million last month from 6.15 million in March, the National Association of Realtors said today in Washington. A measure of the supply of homes for sale rose to the highest since August 1992.

The decline comes a day after a government report showed sales of new homes surged as buyers took advantage of a slide in prices. Today's figures suggest that owners of existing homes may have to cut prices further during the prime spring selling season. The drop also reflects the impact of banks making it tougher to get subprime loans, a response to rising defaults.

``The housing market correction won't be resolved quickly,' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``Downward pressure on prices will persist and sales will be sluggish for some time.'

Resales were expected to be at a 6.12 million annual rate, unchanged from the originally reported March figure, according to the median of 70 forecasts in a Bloomberg News survey. Estimates ranged from 5.9 million to 6.4 million. Logan forecast a 6 million pace.

Inventory Grows

The number of previously owned unsold homes on the market at the end of April represented 8.4 months' worth at the current sales pace. The supply of homes for sale increased 10.4 percent to 4.2 million last month.

Purchases fell in all four regions. They declined 8.8 percent in the Northeast and 0.7 percent in the Midwest. They slid 1.2 percent in the South and 1.7 percent in the West.

The median price of an existing home fell 0.8 percent last month from a year earlier to $220,900.

Resales of single-family homes declined 2.4 percent in April to an annual rate of 5.22 million, the report said. Sales of condos and co-ops dropped 3.8 percent to a 770,000 annual rate.

``There is just no way that the housing slump is over,' said Roger Kubarych, chief U.S. economist at UniCredit HVB in New York.

Sales of new homes jumped 16 percent in April, the Commerce Department reported yesterday, as buyers took advantage of the biggest decline in median prices since 1970. New homes make up about 15 percent of the market.

Timely Barometer

Economists consider sales of new homes a more timely barometer because they are recorded when a contract is signed. Figures on home resales are compiled from contract closings and may reflect agreements reached a month or two earlier.

The housing slump helped reduce the pace of economic growth last quarter to an annual 1.3 percent, the slowest in more than four years. Federal Reserve policy makers say housing remains a risk to their forecast that growth will pick up later this year.

The Realtors group forecasts resales will fall 2.9 percent this year, after an 8.5 percent drop in 2006, and the median price of an existing home will drop 1 percent.

A recovery in housing is being held back by a wave of subprime mortgage defaults, which is throwing homes back onto the market and prompting banks to tighten lending standards for borrowers with poor or limited credit histories.

`Spillovers'

Curbs on subprime lending ``are expected to be a source of some restraint on home purchases and residential investment in coming quarters,' Fed Chairman Ben S. Bernanke said May 17. Even so, Bernanke said he doesn't foresee ``significant spillovers' from the subprime market to the rest of the economy.

At least 50 subprime lenders have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data, leading to a smaller supply of money for lending.

Builders are still struggling. Toll Brothers Inc., the largest U.S. luxury home builder, yesterday reported a 79 percent plunge in profit in the quarter ended April 30.

The Horsham, Pennsylvania-based company didn't provide an earnings forecast for the rest of the year because of ``uncertainty' about the pace of sales and the direction of the market.

``We continue to operate conservatively in the current difficult market,' Chief Executive Officer Robert Toll said in a statement. Still, he said he was ``a little more confident' than he was on a May 9 call.

Affordability

Lower prices and higher incomes may make homes more affordable, drawing buyers back into the market. Affordability has improved since the second quarter of last year, when it slipped to the lowest since at least 1992.

Robert Niblock, chief executive of home-improvement retailer Lowe's Cos., said on a May 21 conference call that the housing market is ``at or near the bottom.' Lowe's, based in Mooresville, North Carolina, lowered its annual earnings forecast after fewer home sales hurt demand for cabinets and appliances last quarter.

Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

-- posted by permabear

» ECRI - Stronger housing activity???

In response to Stronger housing activity??? posted by permabear:

The article you cite correctly sates that "The median price of an existing home fell 0.8 percent last month from a year earlier to $220,900." However, there is no mention of the fact that seasonally adjusted median existing home prices have risen 3.4% since January 2007.

-- posted by ECRI

» Jas_Jain - Re" Stronger housing activity???

In response to Stronger housing activity??? posted by ECRI:

--
Perma,

You must be living in a cave if the "stronger housing activity" has escaped you. Here in the civilization things are happening:

1. The homebuilders' stocks were up across the board in a week when stock indexes were down.

2. Did you miss Hank Paulsen's comments that the housing has already bottomed?

3. I am sure that Lakh is looking at ECRI's housing index that turned up a while back. The index had predicted "stronger housing activity" around now. That is the beauty of the leading indexes.

4. If you really want a firsthand proof then go and see the bidding wars in Kirk's neighborhood.

Jas

-- posted by Jas_Jain

» permabear - Re" Stronger housing activity???

In response to Re" Stronger housing activity??? posted by Jas_Jain:

I think that ECRI is going to have to do some serious adjustments to their models because they are totally missing the boat when it comes to the severity of this housing downturn and the effect it is going to have on the overall economy. We have just experienced the biggest housing boom in history when historical price data is considered. Booms (or should I say bubbles) which create distorted prices always end badly.

http://www.thehousingbubbleguide.com/rob...

-- posted by permabear

» Jas_Jain - Re" Stronger housing activity???

In response to Re" Stronger housing activity??? posted by permabear:

--

Hello again Perma,

I hear you but are you suggesting that ECRI's leading index would be proven wrong? Its leading housing index had turned up several months ago, if I remember it correctly, and that means that housing has bottomed and "stronger housing activity" is proof that it had started to turn up.

Either ECRI is wrong or you are going to be proven wrong about housing. In six months we should know the answer.

Jas

-- posted by Jas_Jain

» success409 - Stronger housing activity???

In response to Stronger housing activity??? posted by permabear:

I think the most likely course for housing is that the impacts will be spread over time and will be gradual. We will stop seeing the crazy escalations in housing prices and crazy speculation. The average escalation historically has been about 6%. We will probably see an average less than this for the next 10 years. Housing is not liquid so you won't see a panic like can happen in the stock market. The lenders will tighten their underwriting criteria and the crooks and speculators will be run out of the market. I just read where 50% of the subprime did not have verification of income. This is crazy and a practice the Government should not tolerate. As long as employment is strong and long term rates do not go up significantly there is not much chance of a burst of the bubble but a gradual correction that will be healthy for the housing market and economy. The economy will probably take off once the correction starts to reach bottom. Don't pay any attention to the housing market, but pay attention to the employment numbers and income numbers and long term interest rates if you are worried about the economy going into a recession or the stock market going into a bear. The housing market isn't likely to do it unless interest rates go up significantly. While some housing markets got very frothy, others did not. I live in the Northwest and the markets here such as Seattle, Portland and Spokane did not get frothy and they are continuing to churn along fine with 5% to 7% escalation much like in recent years. They have hardly missed a beat and are not expected to.

-- posted by success409

» permabear - Stronger housing activity???

In response to Stronger housing activity??? posted by success409:

Success,

I believe that it is very optimistic thinking to say that the biggest boom that we've seen in housing in history will end with just a mild correction and flattening of housing prices. History has shown the bubbles, such as we've seen in housing in the past five years, usually end in some degree of bust. The bigger the boom, the bigger the bust. Since we've seen an incredible boom (see the chart I linked in my previous post) I can only surmise that the housing bust will be just as dramatic.

Just look at the factors that contributed to the huge run-up in prices. Easy credit, started by Greenspan, following the tech bust, set off the boom. The banks and other lenders went crazy with unconventional loans, the likes of which we haven't seen since the 1920s, led people to purchase houses that they couldn't afford. Lenders were encouraged to lend without regard to affordability by the reselling of loans, that led to a total undermining of lending standards. Basically a large percentage of people who bought homes or even refinanced their previous loans in the past couple years, are saddled with debt they can't afford. With a flattening of housing prices, or what is now a decline, these folks can't get out from under their mortgage debt by selling, so we are seeing an increase in defaults and foreclosure activity. New buyers can't help underwater sellers any longer because lending standards have suddenly gotten tighter and people can no longer afford homes that they previously were encouraged to buy when no one was checking their credit records or ability to afford payments beyond the initial teaser rates. Just as all the stars were lined up for a housing bubble, all the stars are now lined up for a housing bust. The Fed may be forced to try to recreate the easy credit it produced in the last bubble bust, but with a dollar already on the ropes, trading near its historic index low of 80, and with the U.S. running these massive current account deficits, the Fed may not have the bullets in its chamber that it had in the early 2000s. What I will concede is that all the liquidity sloshing around these days and more insane lending in private equity, artificially propping up the stock market and economy now, it is possible that the economy can muddle along, or even accelerate as analysts like Lakshman are predicting. But eventually the chickens will have to come home to roost. History has shown that periods of easy credit often lead to busts and that is exactly what the U.S. and world economy has been fed by in the past couple of years. I have no idea when the party ends. I just have a lot of confidence that the hangover won't feel very good.

-- posted by permabear