Millions will go unemployed during this REIC downturn. Just like the telecom implosion in 2000, way too much capacity, way too little demand.
The unemployment will only make the housing ponzi scheme unraveling even worse.
Panic is knocking. Knock. Knock. Knock. Knock. Can you hear it? You should.
WASHINGTON (MarketWatch) - U.S. home builders started the fewest homes in nearly a decade in January, as housing starts plunged 14.3% to a seasonally adjusted annual rate of 1.408 million, the Commerce Department reported Friday.
It's the lowest rate for starts since August 1997. Housing starts were down 37.8% compared with January 2006.
The starts figure was much lower than expected on Wall Street, where economists were looking for a 2% drop to 1.60 million annualized units. The permits figure was close to the 1.58 million expected by median forecast in the MarketWatch survey of economists.
The stunning drop in home building indicates that builders are scaling back their plans on a massive scale to work down the excess inventory of unsold homes on the market. Hopes that a bottom in the housing market has been reached will have to be re-evaluated
Starts of single-family homes dropped 11.2% to a seasonally adjusted annual rate of 1.108 million, the lowest since August 1997. Permits for single-family homes fell 4% to 1.121 million, the lowest since December 1997.
Two weeks ago, the Commerce Department reported that the number of vacant homes increased by 34% in 2006 to 2.1 million at the end of the year, nearly double the long-term vacancy rate. Economists said there are 1 million excess homes.
52 comments:
First ;)
We see no bubble here just a correction.
Truely WTF,
Wall Street is all like shocked.
Housing panic readers reaction, What took so long?
Remember folks, this never was a pure housing bubble. It was a credit bubble that was chasing real estate because of the present day set of circumstances. All credit bubbles end eventually and that is where we are today. The credit supply is drying up and with it, the real estate market because in this country, none of the regular Joe Schmoes buy a house without leverage and debt. It is just a question of how much leverage and debt.
"It's hard to envisage going through a period as expansionary as we have without some decline in home prices before it's all over, but I don't look for anything really significant," Mr. Greenspan said yesterday.
http://www.canada.com/nationalpost/financialpost/story.html?id=506d89bb-0fb3-436a-901b-44fbda12c1b0&k=54198
I had mentioned that despite all the information and indicators to the contrary, the headlines keep reading about how the housing market is "stabilizing," "at the bottom," and the ever famous "the worst is behind us." Of course, in the body of the article is the truth in numbers and in history; that the end is not near, prices are too high and the fools who bought from about 2001-2005 are in some deep trouble financially.
How is it that the economists were very surprised at these numbers? How can simple folk like us see the truth and these "experts" fail to see and, I guess, purposely try to lie about the housing market?"
This is simple if you live around normal, middle-class people:
PRICES FOR HOMES ARE STILL WAY TOO HIGH! GET IT?
People like me, who do want to buy a home and can afford to buy a home, are not going to pay the price, literally and figuratively, like those who scrambled to buy in 2001-2005 and are getting roasted daily.
Sorry, but homey, "ain't gonna go out like dat!"
They're spinning this already...all the financial talking heads and "Goldilocks" economy pimps are saying this is...GOOD for the economy(!)...
will drive interest rates down, will bring out the buyers, will keep inflation in check....all the BS to get the orgy going again.
Proves that Americans stand for nothing and will stand anything.
The masses and stupids in this country deserve the inevitable misery because they allow it by going along in this scam called the American Dream.
"The stunning drop in home building..."
Nothing stunning about it. Thanks for the biased language, you stupid, worthless fool of a reporter.
We are just seeing the early stages of this major collapse.You better have some cash on the sidelines because there will be fists a flying here soon.Panic will set it soon and force all the speculators out.This could take years to work itself out.
Did anyone see that Bill Gates just dumped all his home builder stocks? Maybe people will finally believe there is no recovery coming soon.
Then again, if they keep believing the recovery is near they can sleep at night. They cannot imagine the alternative.
president of the bottom of the month club
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LOL, thank goodness, HP has not lost its humor.
Wall Street being "shocked" - I can believe this. . .my experience at Columbia Business School and UC Berkeley Business School - was that MBA's are NOT very good research people - they follow the crowd and use the first piece of information they can find to plug into their model. . .in all my years of training students to do research, I had about 5 students who were independent thinkers - as for the slow meltdown of RE - just remember, it took Cisco 3 years to go from $89 to $9 a share - THEN it was a great buy - I bought back in at $11 and still hold today at $27/28. . .
1) Housing experiences the worst bust in decades, with values dropping the largest amount on record.
2) American carmakers are taking record losses and laying off tens of thousands.
3) American manufacturing is slipping into recession.
4) The stock market is making new highs daily.
...One of these things is not like the others. Can you pick which one?
Eventually they catch on
http://www.safehaven.com/article-6925.htm
I live in Massachusetts. Let's get real people. I like it here because my family is close, summer and fall are nice and I have a decent job. Other than that, there are a lot of lousy things about this state. Overall winter is long and awful (got lucky this year).
Boston is a nice city, when you can get in there because there is no parking (unless you don't mind paying $25 if over 2 hours), the "T" sucks (especially the red line), driving on it's roads is actually dangerous (and I swear I'm not talking about the BigDig mess that actually did kill someone and continues to crumble), and it's people aren't that nice and I'm a native.
Cape Cod is becoming one long, crowded, private beached tourist trap.
Mix in the absolute corruption in all areas of local government and why would people want to live here?
My point is: That the cost of housing here is obscene. This is an absolute crime taking place here. Why is this place 2 to 3 times more expensive than most of the country?
People are leaving this state in droves that should remind us of the parting of the Red Sea. Houses sit for months and years (now) without anyone buying them and yet, sellers aren't getting the memo. After 6 months on the market, these houses are going down, like $2500.
These and other things, I just don't understand.
Again, the Commonwealth of Massachusetts population is pounded by the powers that be:
http://www.boston.com/business/articles/2007/02/16/tax_relief_requests_flood_hub/
Did anyone see that Bill Gates just dumped all his home builder stocks? Maybe people will finally believe there is no recovery coming soon.
Then again, if they keep believing the recovery is near they can sleep at night. They cannot imagine the alternative.
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Yes. Also, some major hedge funds are placing their bets on a downfall too. Combined, thats a ton of influence.
This will actually be good for the builder stocks such as KB Homes (KBH) Centex (CTX) Pulte (PHM) and their peers.
By reducing construction the inventory will get absorbed much more quickly and these builders will return to profitability. That is why the stocks are not going down but have been going up.
It's not about PEs its about the future!
All bears will be shot!
When builders build, Keith complains that it adds fuel to he fire with excess inventory. Well OK Keith the buuilders got the message and have stopped building. So wouldn't it stand to reason that supply of homes will slowly start decreasing over the year.
People are still buying homes. When you see sales falling 20, 30% that is from millions of homes. People are still buying, even in Phoenix, even in Miami even in San Diego.
There's a big glut of homes now so those buyers have the upper hand and can basically make their own terms. Prices are falling. If builders are not supplying any more inventory, at some point that glut will be gone. It's all cyclical and it works the same for any market, be it housing, stocks, gold, or whatever. Only question is how long will this process take.
I remember the same mentality was around Boston in 1990. Market bubbled then crashed. And in SoCal in the mid 90s. And in both cases after a few painful years, it boomed again.
Cycles people, cycles.
I am not questioning whether housing is overvalued, foreclosures are up, etc. However, every news article that is posted is spun by this blog as a forecast of things getting worse. If housing starts go down, then supply 9-12 months out, at least among new brand homes, will be less. Now there may be other factors like less demand for housing, or more supply of re-sale homes, more supply of builder owned 1-2 yr homes still unsold, etc., that leads to lower prices for homes, however, less new home construction is not economically going to lead to lower prices.
This is a must read for sure (sorry my tinyurl link here at work is blocked...strange
http://piggington.com/
guest_commentary_ramsey_
on_foreclosure_impact
The housing starts plunged because we are out of land. You renters had bettter start buying the small handful of remaining properties while you still can!
"The credit supply is drying up"
Baloney. Money supply growth is still over 10% (annual rate), and interest rates of all types are near historic lows. The problem I see is that price inflation has sucked the air out of consumer spending and nobody in government or Wall Street dares to admit it. The U.S. economy is near a tipping point and only a huge shot of liquidity (ala post 9/11) will keep it from sliding into recession.
old news to me :)
This is actually the one number I'd like to keep going up, since most of it goes straight into the supply overhang at this point.
"MBA's are NOT very good research people"
MBATards get another hilarious skewering in Nassim Taleb's upcoming book "The Black Swan".
"4) The stock market is making new highs daily."
A cratering economy is great for Wall Street because it means the Fed creates more money for them to "offset" the deflation.
2) American carmakers are taking record losses and laying off tens of thousands.
exactly. i turn on cnbc and almost everyday, some American company laying off 10k+, then 2 minutes later, dow sets a record high, unemployment hits new low, etc! blah blah blah.
makes sense to me.
exactly. i turn on cnbc and almost everyday, some American company laying off 10k+, then 2 minutes later, dow sets a record high, unemployment hits new low, etc! blah blah blah.
makes sense to me.
GM, Ford and Chrysler are laying people off because nobody wants to buy their products not because the economy isn't good. You could give me a Chevy for 1/2 price compared to a German or Japanese car and I'd say thanks but no thanks. I can't believe people still think layoffs at American car companies are a bad thing. The sooner GM, Ford and Chrysler are laid to rest the better.
And aside from autos, who else is laying off 10K people since you see it happening every day?
And since you obviously haven't a clue about much, the vast majority of Americans are employed by companies with less than 100 employees. So even if dinosaurs like Chrysler lay off 13,000 employees, that makes news and front page stories. What doesn't make news is the fact that on the same day 15,000 small businesses hired a new employee.
Think for a second and it will make sense.
This is the best time to buy properties in Phoenix, AZ to beat the summer crowds!
I felt the wheels touch back in November. We're in the rollout from the soft landing. Please remain seated until David Lereah turns off the seatbelt sign, though you may use your cell phone to call your real estate clerk.
More of the soft landing metaphor. Maybe Keith can use this one.
http://www.youtube.com/watch?v=V06LBgfuxgA
hey where did all the HP talk of hyperinflation go? A few months ago the dollar was going to worthless as China was getting ready to dump a trillion dollars , gold was going to $1000, banks were about to close.
How come nobody's talking about that anymore?
"And since you obviously haven't a clue about much, the vast majority of Americans are employed by companies with less than 100 employees."
I wonder how many of those small businesses are ancillary and/or related to auto manufacturing for one of the big three?
"What doesn't make news is the fact that on the same day 15,000 small businesses hired a new employee."
...wherein each new employee was then taught to upsell each and every customer by asking them, "Would you like to Supersize that."
Declining housing starts is good for stabilizing the market unfortuantely, it leads to more layoffs which leads to more potential defaults on mortgages, unemployment claims, etc. It fuels the fire.
Yup here we go again. Only jobs created are McDonald's jobs according to the renters.
Yeah well I guess in your neighborhood that's a true statement. I would assume most people living in your apartment complex work as burger flippers. I can see how you'd think the rest of the country works the same way. But you're wrong Skippy, outside your little circle of negro/mexican neighbors there is a whole vast world where people make...get this...$20, $30, $50 even $100 an hour. I know it sounds impossible but trust me on this one.
hey where did all the HP talk of hyperinflation go? A few months ago the dollar was going to worthless as China was getting ready to dump a trillion dollars , gold was going to $1000, banks were about to close.
How come nobody's talking about that anymore?
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From : MoneyNews.com newsmax@reply.newsmax.com
Reply-To : newsmax@reply.newsmax.com
Sent : Friday, February 16, 2007 3:59 PM
China Will Make Dramatic Dollar Move Soon
We have been warning readers for some time of the coming monumental shift that will occur when China begins selling dollars in favor of other currencies and gold.
A Page One "Money and Investing" story in Thursday’s Wall Street Journal confirmed our worst fears.
Story continues below...
The Journal reported that with China’s central bank sitting on a stash of $1.07 trillion in foreign currencies, officials are considering a change in its investment strategy that could lead China to decrease its holding in dollar-denominated investments.
And that means one thing: a dramatic downward pressure on the U.S. dollar.
Far-Reaching Fallout
"Following the lead of countries like Singapore, South Korea and Norway, China is starting to look at new ways of managing its investments," the Journal reported.
"Together, these moves by central banks have ramifications for financial markets worldwide: fewer steady purchases of investments like U.S. Treasury bonds and more buying of investments that are riskier but have better long-term returns."
Some financial experts suggest China could earmark up to $300 billion of its reserves for these more aggressive investments.
In late January, Chinese Premier Wen Jiabao said China will "strengthen the management of foreign-exchange reserves and actively explore and expand the channels and methods of using the reserves."
Central banks have traditionally invested mostly in cash and government bonds, and a large portion of their holdings is in U.S. dollars, according to the Journal.
[Editor’s Note: Forget China. This Is Asia's Next Tiger.]
The official reserves of developing countries are composed of about 60 percent dollars and 30 percent euros, with most of the rest in British pounds and Japanese yen, the International Monetary Fund reports.
So any move by China to broaden its investments would mean "buying less U.S. debt" and putting "downward pressure" on the dollar, the Journal warns.
In January the chairman of Russia’s central bank, with more than $300 billion in holdings, said it is seeking to spread its investments more widely, and the head of South Korea’s central bank, with $240 billion in reserves, said recently that the bank may also put more of its holdings in different kinds of investments, including stocks.
John Nugee, a former Bank of England official who works with central banks for State Street Global Advisors, told the Journal that officials in China "will quietly and slowly gather the expertise" to diversify their holdings.
In December, Chinese Vice-Premier Zeng Peiyan said the country should "take advantage of the rather large foreign-exchange reserves to add to the nation’s reserves" of natural resources, which are in great demand in China as the economy expands.
[Editor’s Note: A Currency Crisis is Brewing Over the Dollar. Profit Now.]
China’s reserves have been increasing at the rate of nearly $20 billion a month for the past few years as the export boom floods with country with dollars. If current trends continue, China’s reserves could surpass $2 trillion by the end of the decade.
What It Means to You
The dollar will continue to weaken. That’s bad for America because it means investors don’t value the U.S. market.
Long-term interest rates will rise. The Chinese have helped keep long-term interest rates very low. That has helped stave off a complete collapse of the housing market and a full blown recession. The stock market will suffer as well. The Fed will also have to make the dollar more competitive. Expect rates to rise.
Gold will continue to behave like a currency and gain in value.
If the Chinese start selling their T-bonds and buying riskier assets:
Long term US rates will increase, yield curve will normalize to 'normal proportions'.
Global stocks will increase.
Money will go into mortgage financing (riskier bonds) once again.
Commodities will increase.
The amount of the dollar change depends on how much the Chinese take out of US treasuries and put outside the dollar---if they swap US treasuries for US equities then that's little change.
I suspect they will diversify away somewhat but not as much as people think.
Probably this means that London will get even more preposterously expensive.
Flying Monkey Warrior I think you answered your own question. If China does bail out of U.S. Treasuries then we will see inflation in U.S. dollars. Selling U.S. Treasuries will cause 10 year treasury rates to climb which is a sign of a weakening (inflated) dollar. Unless other countries step in to buy these U.S. Treasuries then it is like the dollar is becoming hyperinflated because noone wants to hold them.
This of course is good for gold prices.
Keith that home looks like a David Leareh reproduction.
Although I may be mistaken...Sorry Martha Stuart.
hey where did all the HP talk of hyperinflation go? A few months ago the dollar was going to worthless as China was getting ready to dump a trillion dollars , gold was going to $1000, banks were about to close.
How come nobody's talking about that anymore?
+++++++++++++++
And Here is more:
From : Sovereign Society's Offshore A-Letter info@sovereignsociety.com
Sent : Friday, February 16, 2007 5:38 PM
Gold-bugs Rejoice: Why I'm Looking for Gold to Blast Off Again Soon
Today's comment is by Eric Roseman, our Investment Director, and editor of Commodity Trend Alert.
Dear A-Letter Reader,
Gold bullion recently hit fresh six-month highs and will likely crack US$700 an ounce before July.
Last summer, gold prices were racing to a 26-year high at US$750 an ounce. Then gold prices suffered a major correction after global central banks stepped in and attempted to "talk down" the metal. Central banks have no interest in watching gold prices zoom to multi-decade highs, threatening their fiat currencies. It's no wonder several banks last summer threatened investors with rising interest rates just as gold was blasting through US$700 an ounce.
As gold prices continue to rally this winter and spring, eventually breaking resistance at US$700 an ounce, you can expect the chorus from central bank officials to raise their voices once again. In the United States, the Federal Reserve continues to talk tough on inflation officially at 2.4% year-over-year.
Threats Around the World All Serve the Gold-bugs
Stocks have been in a benign inflation environment since 2003. But that could all change quickly. Wage pressures are growing and labor costs are increasing, threatening this environment. And in Europe, the Bank of England has been busy raising interest rates while the European Central Bank mulls another rate hike later this year. Other banks, including the Norwegians and Finns have raised borrowing costs lately.
Talking tough on inflation and especially, interest rates, is now yesterday's game. It's this scenario that spells big profits for gold-bugs.
Rising mortgage delinquencies in the United States slammed the stock market just last week as everything housing-related suffered a major hit. Indeed, sub-prime lenders are witnessing a deluge of rising delinquencies in the United States as fears continue to grow that housing isn't about to bottom - at least not yet. Previous housing busts in America have lasted at least 36 months. So this cycle, which began in the summer of 2006, has probably has a ways to get yet before hitting bottom.
Market participants are extremely complacent right now. They keep hopefully pointing to the quick recovery in housing values in the United Kingdom and Australia earlier this decade and remarking how similar events will eventually support U.S. housing. I'm not so sure. Sub-prime lending went ballistic from 2002 to 2005. Today the sub-prime industry is still hemorrhaging from reckless loans. And employment growth has stalled since January, another indicator pointing to more mortgage-backed stress.
So how does housing in the world's biggest economy affect gold prices?
The odds are quite compelling that some sort of systemic event will occur because of the housing market. Hedge funds have me especially worried, because they have become major surrogate lenders to many sectors, including the mortgage-backed security market. Many of these loans are tied to risky derivatives. And any signs of more stress will force these traders to close out positions and bid adieu to the mortgage business. This is especially true if the Fed resumes raising interest rates.
Another leg down in the U.S. housing sector, a major mortgage-backed default, hedge funds failing because of mortgage-related derivatives losses - any one of these events could trigger a systemic shock to the financial system. And that would almost certainly lead to a corresponding flight to high-quality, tangible assets like gold!
I love housing panic blogsite.This site is cutting edge and god bless the diverse comments.I am sitting on 3 million in cash waiting to scoop up forclosures and reos.I love this country.Greenspan is the man of the century as should be worshiped by all.
I've had some very profitable puts (New Century Woo Hoo!) but many have also expired, waiting for the dimwits on Wall Street to "get it".
I now think that it's probably better to wait for the first "crash" to buy more puts. The optimism on Wall Street is so strong I think you don't have to predict a crash too far ahead. A lot of people will stay in far too long waiting for a bounce after a first crash occurs.
I "forgot" to buy gold today.
Sometimes the dollar crashes when we have a holiday that the rest of the world doesn't have.
Why buy at or near the top - especially when prices are going down? It's like buying AMZN stock at $450. It could take decades to recover. Shitbox bunker houses in East LA, which isn't much better than Mexico, are priced at $500K. That's right, half a million dollars of debt to live in a gang-infested third world ghetto. You also have the option of a cardboard box in the middle of the Arizona desert for a mere $399K.
The FB's and REIC will still insist that you shouldn't "throw your money away" by renting. Is it better to throw money away by overpaying by hundreds of thousands of dollars?
welcome back borka, where have you been?
On the point of don't we wish builder starts were still skyrocketing - of COURSE we do. More fuel to the fire, more supply when demand is tanking = more massive price cuts.
But come on, nobody can be as dumb as that. At some point, even the builders have to say, whooooaaaaa, no more, nobody wants these damn things.
Reminds me of communist russia pumping out tons of widgets nobody wanted just so they could keep the factories up and running.
Builders are barges though - it's tough to turn 'em around on a dime. I think they've finally turned. Watch this number shrink every month for quite some time.
Years.
Keith...you are right...builders ARE like barges.
Allow me to offer up my opinion as to why I think that some of those barges are going to keep moving forward. Keep in mind...I am referring to BIG barges.
Builders build...simple as that.
At the peak of constuction material costs rose considerably...as did labor as there was such a demand for skilled construction workers.
I don't know what construction workers are paid...but for materials...lets take copper for instance...the price surged to $4/lb at the peak of the boom. It is now back down to $2.50
Still...even with the high overhead...I would assume that the builder was getting a minimum 50% return on his investment.
So...even though there will be a slowdown...construction labor and materials prices are all probably lower now...they will now be able to build at a lower cost, with BETTER labor (as the crap carpenters will now be unemployed) and then sold for a much lower cost per sf.
The builder is not stupid...he will now just take a smaller profit...maybe 30%...undercut the market and continue to sell new condos and houses while pulling the prices even further down.
The builder also doesn't care that the people that bought from him earlier at a higher price are now pissed that he is selling even nicer units for less.
So...just throwing out some simple numbers.
During the bubble run-up...
100k total cost in...sell for 150K = 50% profit
in a year...
80k total cost in...sell for 120k = 50% profit
in two years (build costs the same...but even fewer buyers)...
80k cost in...sell for 100k...25% profit.
This is overly simplified...and the timetable may be way off.....but I doubt the Hamsters would be able to comprehend it if shown in more complex ways...however...I do think that we can safely assume the chance of BIG builders stopping building would be like BIG Pharma stopping pushing meds.
This will take a couple years to play out I assume...I won't think of buying again until 2009 at the earliest.
Theres zero growth in Housing, it will crash worse and worse over time, Babyboomers dieing/retiring and cashing out will compound it in the following years.
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