New Home Sales Plummet
Hot off the newswire:
New Home Sales Plummet in February
WASHINGTON - Sales of new homes plunged by the largest amount in nearly nine years in February while the median price of a new home dropped for the fourth straight month, providing fresh evidence that the nation's once-booming housing market is cooling off.
The Commerce Department reported that sales of new single-family homes dropped by 10.5 percent last month to a seasonally adjusted annual sales pace of 1.08 million homes. It was the second straight monthly decline and was much bigger than the small 2 percent dip that Wall Street was expecting.
Data from the Census Bureau can be found here:
February New Home Sales
Caveat Emptor!
Grim
New Home Sales Plummet in February
WASHINGTON - Sales of new homes plunged by the largest amount in nearly nine years in February while the median price of a new home dropped for the fourth straight month, providing fresh evidence that the nation's once-booming housing market is cooling off.
The Commerce Department reported that sales of new single-family homes dropped by 10.5 percent last month to a seasonally adjusted annual sales pace of 1.08 million homes. It was the second straight monthly decline and was much bigger than the small 2 percent dip that Wall Street was expecting.
Data from the Census Bureau can be found here:
February New Home Sales
Caveat Emptor!
Grim
15 Comments:
decent buying opportunities?
So A S#!T BOX selling for $500K at the peak sells for $300-$350K in a year or 2 and this is a bargain!
Well, it seems we won't (not can't) buy for another two years at these prices, which really sucks.
I never dreamed that making over $100K, I'd never be unable to afford a decent home in a neighborhood I like (e.g., Summit).
Besides, even if we find a 'cheap' $700K POS fixer-upper now, we'll be upside down on the mortgage in a year.
Two more years in an apartment really sucks.
Can anyone cheer me up? :-)
The data across the entire report seems consistent.
Inventory way up, currently at 7 months. The largest we've seen in a long time.
Median prices down 4 months in a row.
My guess is that we're seeing the results of the builder discounts that became popular earlier this year.
So a $700K POS at peak sells for $450-$475 in 1 year or 2 and this is a bargain!!!!!!
Most of these SH!T boxes need another $50k-$100k in them!
The real issue here is that it seems the builders haven't learned from the last crash.
I initially thought they would temper their pace as the market slowed. That doesn't seem to be the case. The builders are going full force with no end in sight.
Race to capture the last bit of market share?
Race to push competitors out of market?
Race to complete existing backlog?
grim
Richard said...
chicago, i'm calling 5.5%. i see hikes of 25bps in march and may, a pause in june then another 25bps hike in aug. you and i will still be hanging around grim's place so let's see what happens. any predictions from you?
3:41 PM
Richard:
My call [plus $2 will buy you a Starbucks]:
Ultimately we are staring down 2 to 3 tightenings unless we see wholesale weakness. That puts us at 5%-5.25% by June 30th.
I think if there is any sign that economic strength is maintained, or that inflation will creep upward toward 3% annualized, then 6% is not out of the question by February 2007.
Just to point out - we have some potential shocks in the hopper between further terrorist attacks, energy prices, and maybe bird flu.
Always be prepared - never bet the house [even though you see it on Texas Hold 'Em]
chicago
We should all get together for coffee or drinks somewhere down on the gold coast..
jb
Anonymous said...
Hi Chicago or Grim,
I'm only vaguely familiar with the bond markets and how rates on Treasury notes affect lending rates. Could either of you point me to a "Bonds for Dummies" site or maybe take a crack at explaining the correlation across the two types of debt.
JM
2:19 PM
JM
This topic gets complicated very fast. I will focus on just one aspect of it, but I’m sure people will see this information and begin to post many different items. Allow me to just focus in one place.
In holding any fixed income security, there are many different types of risk that you face. The primary one that should be discussed relative to your question is the risk that if you lend another party money, you won’t receive your principle back [i.e. credit risk / risk of default of borrower].
In the sense that the U.S. Government is considered free of default risk, in the United States and US$ denominated markets, it is used as a benchmark of all other fixed income securities, either directly or indirectly.
Now we start to dig into the jargon of bond analysts and traders. Whenever you hear the term “spread” or “credit spread”, that is short-hand for saying – How much more interest does this particular borrower have to pay in order to compensate me for the fact that they have a greater risk of default than the U.S. government?
The most important issue is that mortgage securities are collateralized by the underlying real estate holdings, are considered strong credits, and as a result, the additional interest spreads are quite tight [i.e. smaller/lower] to Treasury’s.
To the extent that the Treasury’s are considered the benchmark, and the spreads are tight, the movement of prices in the Treasury market [you just see the “yield” quoted in the press and financial services] DOMINATES.
30-Year Fixed Mortgages are overwhelmingly the most common type of mortgage. Given that a mortgage can be prepaid [i.e. borrower has the imbedded option to “put” the mortgage back to the originator at par value], the spread is wider than merely just the credit spread.
Empirical evidence suggests that the average life of a 30-year fixed mortgage is somewhere around 10 years [I forget – it could be as low as 7-8 years]. As a result, the benchmark Treasury used to price new mortgage bond originations is the 10 year “on-the-run” U.S. Treasury [what you see all the time – “The Ten”].
If you see the Ten at 4.75% and 30Y Fixed mortgage at 5.90%, the spread is 115 basis points.
Of course we all know that if you go to a mortgage broker to get a 30-Y fixed in NJ, you will pay somewhere around 6.25-6.75%.
So you have a rule of thumb – when you see the yield on the Ten in late-March 2006, add roughly 125-175 basis points to estimate what someone in NJ can get a mortgage in late-March 2006.
The spreads change due to market conditions – spreads can “tighten” or “loosen / widen / blow-out”
OK – I have to get some work done.
chicago
grim said...
We should all get together for coffee or drinks somewhere down on the gold coast..
jb
10:48 AM
Great idea. We should probably wait for it to warm up a little. It shouldn't be too much longer though.
Just my opinion... but the sales number whether it's for new homes or existing homes is noise... don't bother with it... just keep an eye on inventory... that'll give you a good idea of the direction of the market.
Chicago, thanks for the synopsis on the 10yr bond and its relation to 30 yr mortgage.
I remember seeing a presentation in an econ class that followed the MBS process from the mortgage originator to the ultimate fixed income purchaser. I just didn't know the details on rates vs. T bills.
Thanks, and I'd love to buy you and Grim a drink. You guys deserve it for all the work you put into this blog.
JM
Slightly off this thread's topic...
Who's going to put their money where their mouth is? :-)
http://tinyurl.com/m73kg
Who's going to put their money where their mouth is? :-)
http://tinyurl.com/m73kg
Error: Unable to find site's URL to redirect to.
???
Hmm, that's strange. The url above works for me.
Here's the original link:
http://www.realestatejournal.com/buysell/markettrends/20060324-talley.html?mod=RSS_Real_Estate_Journal&rejrss=frontpage
It's an article in the WSJ. Here are the first few lines:
Standard and Poor's to Launch
New Real-Estate Product
By Karen Talley
From The Wall Street Journal Online
Investors who think the housing bubble is about to burst will soon be able to bet not only on when it will happen, but where.
Standard & Poor's, a unit of McGraw-Hill Cos., is rolling out 10 indexes that will track housing prices in various regions of the U.S., as well as a composite index. The indexes, which plan to launch in April, will serve as the basis for futures and options contracts that will trade on the Chicago Mercantile Exchange.
The contracts will allow investors to go long or short on a specific housing market -- that is, bet on it rising or falling in value.
.....
I have been following a site now for almost 2 years and I have found it to be both reliable and profitable. They post daily and their stock trades have been beating
the indexes easily.
Take a look at Wallstreetwinnersonline.com
RickJ
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