Saturday, July 29, 2006

Housing Bubble Fears Becoming Reality

From the NY Times:

Many Homes Are on the Market and Sales Numbers Are Declining

WHEN the American economy fell into recession five years ago, it was the strength of the housing market that kept the downturn short and mild. Home sales kept rising throughout the downturn, and then took off when the recession began.

But now home sales are falling and the number of unsold homes is at the highest level ever. Housing starts are starting to fall, but remain at a high level by historical standards. If sales do not pick up this summer, when sales are usually seasonally strong, it could be a sign that prices are going to come under pressure and lead to a much larger decline in housing starts.
...
The accompanying charts show year-over-year changes in sales of existing single-family homes and apartments, using six-month moving averages to smooth out monthly fluctuations. The latest figures show sales of single-family homes down 4.4 percent, the largest dip since 1995, and apartment sales off 6.6 percent. Statistics on apartment sales are only available back to 1999, but that is the worst showing in that period.

Meanwhile, the number of existing single-family homes on the market is up 33 percent year-over-year, measured the same way. Figures from the National Association of Realtors, going back to 1983, show no comparable increase in homes for sale. The number of condominiums and cooperative apartments for sale is up 61 percent.
...
The picture is consistent with demand for homes suddenly drying up, while sellers are reluctant to cut prices. Such a standoff could end with buyers returning, but it could also end with prices starting to slip, or with a lot of homes being pulled off the market.
...
But with sales weakening and the number of available homes rising, those who warned of a housing bubble must be wondering if their fears are finally becoming reality.

23 Comments:

Anonymous Anonymous said...

great charts.

scary stuff.

7/29/2006 08:00:00 AM  
Anonymous Anonymous said...

The NY Times finally opens one sleepy eye! (The closed eye you'll see in action in tomorrow's RE section).

7/29/2006 08:36:00 AM  
Anonymous Anonymous said...

Grim,

I weird request, if its possible.

I was wondering of you could post a chart of traffic to this website. It would be interesting to see the traffic to this web site, so we could see how it compares to what events were going on that day of that month.

It would be neat to see.

SAS

7/29/2006 08:37:00 AM  
Anonymous Anonymous said...

Article from Bankrate.com

http://www.bankrate.com/brm/news/real-estate/20060729a1.asp

7/29/2006 09:15:00 AM  
Anonymous gary said...

Real Estate never goes down, you're wasting your time. You better buy before mortgage rates go up.

7/29/2006 09:51:00 AM  
Blogger Richard said...

after a 100% run up the last 5 years i'm not ready to get giddy on flat to single digit y-o-y declines. when we see 20-30% declines then wake me up.

7/29/2006 09:54:00 AM  
Anonymous Anonymous said...

To Gary,

7/29/2006 10:51:37 AM

"Real Estate never goes down"

Gary,

What planet are you talking about???

Recent Past;
1990-1995- Down approx 15%
1980-1985- Down approx 15%

Further back;
1915-1940- Down 25%

Go ahead and buy while rates are at 6.5%. I would rather wait until prices fall 30-50%, which they will,just look at any chart of historical real estate prices and trends and make your own conclusions. Just don't make an assinide statement that re prices never go down. Guess what, you can always refinance your cost to carry when rates come back down. Tell me how I refinance my purchase price when it falls 30-50%????????

PATIENCE,PATIENCE,PATIENCE

BC Bob

7/29/2006 10:29:00 AM  
Anonymous UnRealtor said...

I think Gary was being sarcastic.

7/29/2006 10:41:00 AM  
Anonymous Anonymous said...

Gary must have been being sarcastic. I can't believe anyone would be that dumb. Unless he's a realtor or flipper then that would explain it. Lies, lies, lies.....

7/29/2006 11:17:00 AM  
Anonymous Anonymous said...

Treasury 10-Year Note Yields Drop Below 5% on Slower Growth

Treasury 10-Year Note Yields Drop Below 5% on Slower Growth
July 28 (Bloomberg) -- Treasuries rose, pushing yields on 10-year notes below 5 percent, after U.S. economic growth slowed more than forecast by analysts, raising expectations the Federal Reserve will stop raising interest rates next month.

Yields on benchmark 10-year notes dropped 5 basis points, or 0.05 percentage point, to 4.99 percent for the first time since June 14. Traders are reducing bets the central bank will increase its target rate for overnight loans between banks for an 18th consecutive time when policy makers meet Aug. 8.

``The market is heavily leaning toward the likelihood of continued modest growth in the economy and the stoppage in rate hikes,'' said Tony Crescenzi, chief bond-market strategist for Miller Tabak & Co. in New York.

The price of the 5 1/8 note due May 2016 rose 12/32, or $3.75 per $1,000 bond, to 101 1/32 at 2:52 p.m. in New York, according bond broker Cantor Fitzgerald LP.

The yield on two-year notes, which are more sensitive to changes in expectations for Fed policy, dropped 5 basis points to 5 percent. The 30-year bond yield dropped 4 basis points to 5.06 percent.

Interest-rate futures suggest there is a 31 percent chance the Fed will increase rates again on Aug. 8, down from 44 percent before the report. Expectations for another rate increase next month was near unanimous until Fed Chairman Ben S. Bernanke said in his semi-annual testimony to Congress on July 19 that the economy is moderating, which will contain inflation.

The Commerce Department said today the U.S. economy grew at a 2.5 percent annual pace from April through June. The government's first estimate of the quarter's gross domestic product, the value of all goods and services produced in the U.S., compares with a 5.6 percent gain in the first three months of the year.

The median forecast of 74 economists in a Bloomberg News survey was for an increase of 3 percent.

Personal Consumption

``It's clear the economy is slowing,'' said Ray Remy, head of fixed income in New York at Daiwa Securities America Inc., before the report. The firm is one of 22 primary dealers that trade directly with the Fed. ``We're at the end'' of the central bank's rate-raising cycle, he said.

Consumer expenditures rose at an annual rate of 2.5 percent last quarter compared with a 4.8 percent pace in the previous three months, according to the Commerce Department report. Economists expected a 2.1 percent gain, based on the survey median. Consumer spending growth has averaged about 3.4 percent a quarter the past 30 years.

Price Index

The government's personal consumption expenditures index, a measure of prices tied to consumer spending, rose 4.1 percent after a 2.0 percent rise in the first quarter. The index excluding food and energy, a measure favored by Fed policy makers, rose at a 2.9 percent annual rate after a 2.1 percent rise the previous quarter.

The GDP price index, a measure of prices tied to the report, held at a 3.3 percent annual rate in the second quarter.

``We worried that the Fed would chase inflation that wasn't there'' by raising the target rate too far, said David Goldman, global head of fixed-income research at Cantor Fitzgerald. ``It's clear the Fed has put the economy first.''

The drop in yields may make it more difficult for the Treasury to sell three- and 10-year notes and 30-year bonds during its so-called quarterly refunding Aug. 7-10. The Treasury will sell $21 billion of three-year notes, $13 billion in 10- years and about $12 billion in 30-year bonds, according to six analysts surveyed by Bloomberg. Details of the auctions will be announced Aug. 2.

Auctions

``In order to have successful auction given where yields are today, the market is going to demand higher yields'' with the Fed meeting Aug. 8, said Kenneth Taubes, who oversees $17 billion in Boston as director of fixed income at Pioneer Investment Management Inc. ``The market is going to be hesitant on Treasuries.''

The Treasury yesterday sold $14 billion of five-year notes at a yield of 4.995 percent. Demand for the note was less the previous 12 auctions, as every $1 sold covered $2.28 worth of bids, compared with an average bid-to-cover ratio of $2.34 for the previous 12 sales.

The Treasury also sold $22 billion of two-year notes and $7 billion of 19 1/2 year inflation-indexed notes this week.



To contact the reporter on this story:
Michael McDonald in New York at
mmcdonald10@bloomberg.net;

7/29/2006 11:54:00 AM  
Anonymous Anonymous said...

This is just hype about the economey slowing. I really don't think its slowing, wall street is just fudging the numbers to put pressure on the Fed to lower rates. The Fed would be a bunch of fools to lower rates. In my opinion, if they wanna save the dollar and keep the red China money coming in so all your nick nack patty whacks are cheap at WalMart, they have to raise rates. The Fed needs to send the markets a big message come Aug. That message being if they raise, they have the intestinal fortitude to give this country the economic medicine it needs like Paul Volker did, if they pause that means they dont know what the hell they are doing, if they lower rates, they are a bunch of panty wastes who don't have a leg to stand on.

But with that said, I still predict another .25% raise come Aug.

SAS

7/29/2006 12:03:00 PM  
Anonymous Anonymous said...

At this time, I feel that RE is most risky, speculative investment that you can make. For ex; you can buy a 500k property with 100% financing, in many cases 103-110% financing to enable you to pay closing costs and fill up your dream house with furniture. Tell me what other investment can you make today with 500,000-1 leverage,or zero margin???????? If you want to buy 500k of stock you need 200k, 4-1 leverage. You even need more margin to buy gold than R.E.!!!!!!!!! To buy the cash equivalent of 500k of gold you need you need approx 40k of initial margin and approx 28k of maintenance margin.

Something else for all those bulls to think about, do you know if you foreclose at a lower cost than you paid you WILL have an IRS problem!!
For example;

Let's say you buy a house for $600,000, with a $500,000 mortgage. (I know I'm crazy thinking someone is actually putting down almost 20%, but I'll use it anyway)
The house drops in value to $400,000, you lose your job, or otherwise must move.
If you can't make your payments, the bank forecloses on you and nets $350,000 on the sale of your house.
The bank's $150,000 loss on the mortgage is "forgiveness of debt" in the eyes of the IRS, and effectively becomes $150,000 of reportable income you must pay tax on. You just foreclosed and the IRS is after you to pay the corresponding tax on $150,00. There has never been a potential double whammy like this in the history of any market!!!! Stay comfortable in this heat wave!!!!!!!

PATIENCE,PATIENCE,PATIENCE

BC Bob

7/29/2006 12:19:00 PM  
Blogger lisoosh said...

Those charts are great, look at the trouble condos and coops are in. Just as predicted.

7/29/2006 12:21:00 PM  
Anonymous Anonymous said...

The following post was meant to say if you refinanced or took out a HE loan. My fault. The ramifications are still ominous!!!!

If you have a single loan with just the house as collateral, it may be a "non-recourse" loan, meaning you could indeed walk and not lose anything other than your house and any equity in it (along with your credit record). But if you refinance or take a "home equity loan", the new loan is probably a recourse loan, and the bank can get very aggressive, not to mention what the IRS can do.

Let's say you buy a house for $600,000, with a $500,000 mortgage. (I know I'm crazy thinking someone is actually putting down almost 20%, but I'll use it anyway)
The house drops in value to $400,000, you lose your job, or otherwise must move.
If you can't make your payments, the bank forecloses on you and nets $350,000 on the sale of your house.
The bank's $150,000 loss on the mortgage is "forgiveness of debt" in the eyes of the IRS, and effectively becomes $150,000 of reportable income you must pay tax on. You just foreclosed and the IRS is after you to pay the corresponding tax on $150,00. There has never been a potential double whammy like this in the history of any market!!!! Stay comfortable in this heat wave!!!!!!!

PATIENCE,PATIENCE,PATIENCE

BC Bob

7/29/2006 12:58:00 PM  
Anonymous Anonymous said...

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Why pay your landlord's mortgage when you can be building your own equity.

Industry insiders have prepared a new special report entitled, "How to Buy a Home With Zero Down", and reveals how this new and innovative program can get you into the housing market immediately and with absolutely no downpayment. Order this report NOW and you can get into the housing market NOW and with ABSOLUTELY NO DOWNPAYMENT.

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7/29/2006 02:28:00 PM  
Anonymous Anonymous said...

good work.

7/29/2006 03:02:00 PM  
Anonymous Anonymous said...

Off the wire:

ECONOMIC REPORT
Wage growth weaker than thought in 2003-05
GDP revisions show labor getting less, capital getting more
By Rex Nutting, MarketWatch
Last Update: 8:47 AM ET Jul 28, 2006


WASHINGTON (MarketWatch) -- The growth of employee compensation, already thought to be the slowest in any post-World War II recovery, has been even weaker than previously assumed, the Commerce Department said Friday.
In its annual benchmark revisions to gross domestic product and gross domestic income, the government said employee compensation actually totaled $7.03 trillion in 2005, about $83 billion or 1.2% lower than previous estimates of $7.11 trillion.
Rather than growing at a 2.9% annual pace in inflation-adjusted dollars, compensation instead grew 2.3% between 2003 and the end of 2005.
Wages grew at a 1.8% real annual pace, revised from 2.2% earlier. With the workforce growing about 1.3% per year, real wages per worker were up about 0.5% per year, about half the previous estimate.
Benefits also grew slower than previously assumed, rising at an inflation-adjusted 4.9% annual rate rather than 6.0% pace originally reported.
A different picture on wages, from different data source, was revealed Friday by the Labor Department, which said the employment cost index rose 0.9% in the second quarter, the fastest growth in costs since early 2005. See full story.
The Labor Department's ECI attempts to capture the average costs of keeping an employee on the books. It is adjusted for changes in the composition of the workforce. The GDP wage figures are simply a summation of all wages in the economy, without regard to the distribution.
The Commerce Department's GDP revisions showed only minor downward changes in growth and income. The broad picture of the economy was left largely unchanged by the revisions.
GDP was revised marginally lower in all three years. GDP averaged 3.2% in the three years, down from 3.5% previously. Since the recession ended in November 2001, the economy grew at a 2.9% pace, down from 3.1% estimated earlier.
For the second quarter, the government said growth slowed to a 2.5% annual pace, down from 5.6% in the first quarter. See full story.
Inflation was also revised marginally higher, with economy-wide inflation averaging 2.8% (instead of 2.7%) and core consumer prices rising an average of 1.9% (instead of 1.8%) per year through the end of 2005.
In the second quarter, core consumer price inflation accelerated to a 2.3% year-over-year pace.
.The growth of employee compensation has become a hot political and economic issue.
For monetary policy, policymakers at the Federal Reserve are watching for signs that employee compensation could be accelerating faster than productivity. Persistent inflation is nearly impossible without a feedback effect through higher wages, economic theorists say.
High productivity and small wage gains have allowed firms to reap record profits, even as their input costs rise. Intense competition has, so far, reduced the ability of companies to pass along their higher costs to their customers.
The revisions to wages could mean inflationary pressures from labor costs are lower than previously assumed. That should give the Fed more room to pause its rate hikes.
However, the GDP revisions also showed that the core inflation was a tenth of a percentage point higher in the three years. A higher baseline for inflation could mean the Fed has more to do to bring inflation back down.
In the political sphere, Democrats have argued that the booming economy of the past four years has not benefited everyone equally. The incomes of the vast majority who labor to earn their livelihoods have been stagnant while those who let their money work for them have prospered.
Republicans have countered that the strong economy has been creating enough jobs to drive the unemployment rate down to 4.6%. Lower taxes have increased take-home pay, they say, and barriers to entrepreneurship and risk-taking have been reduced.
The new figures bolster the Democrats' side. Wages were stagnant, but income from assets rose even faster than previously believed.
While income from labor was revised lower by a total of $115.8 billion over the three years, income from owning capital was revised higher by a total of $139.9 billion.
Real dividend income rose at an annual rate of 12.1%, up from 6.9% previously reported. Dividend income was revised higher by $110.7 billion for the three years.
Real nonfarm proprietors' income rose at a 5.2% annual pace, revised from 4.3%. Proprietors' income was revised up by a total of $54.6 billion for the three years.
The faster payout of dividends reduced corporations' retained cash. Corporate profits were revised lower by a total of $38.8 billion for the three years. Before-tax profits were revised higher by a total of $136.3 billion, but capital consumption was revised higher by $173.5 billion, offsetting the gain in pre-tax profits.
Rex Nutting is Washington bureau chief of MarketWatch

7/29/2006 03:14:00 PM  
Anonymous Anonymous said...

I hope this RE market crashes and burns for the next 20 years. Let it wipe out greed from sellers. I am really sick of this market

7/29/2006 04:20:00 PM  
Blogger Larry said...

I hope things actually keep hopping here in Portland, Oregon....at least long enough for my house to sell. It's unfortunate that my time to retire and head off to my sunset years coincides with a declining market (nationally.) It's slowly becoming a buyers market again. BUT, my house has been on the mls only a week & a half now. Location, they say, is everything.

7/29/2006 04:44:00 PM  
Anonymous Anonymous said...

Larry,

Market timing is everything.
Better get back to work.

SAS

7/29/2006 04:49:00 PM  
Anonymous Anonymous said...

If you need a house and you can afford the payments, now is a fine time to buy.

The guy I bought my house from bought the house at the peak of the 80s real estate boom. He made a good profit when he sold to us in '01.

7/30/2006 07:30:00 AM  
Blogger grim said...

Sorry, but I (and many others here) don't share that opinion.

Personally, I feel that the downside risks are too great right now. Even if you needed to purchase soon, I'd recommend waiting until the traditional slow months (mid-October through December. Buyers typically have a bit more leverage during those months.

Most that purchased at the peak of the last bubble needed the current bubble to break even. How did you adjust the original purchase price for inflation?

grim

7/30/2006 07:46:00 AM  
Blogger grim said...

As an aside.

Minimum wage in NJ moved from $5.15 to $6.15 on October 1st of 2005. It is going to move to $7.15 on October 1st of this year.

grim

7/30/2006 08:31:00 AM  

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