The Housing "Bottom" Myth

[unlawflcombatnt]

Friday's New Home Sales report provided another falsely optimistic view of the housing market. The December increase of 4.8%, coupled with the upward revision of November's numbers, provides the ammunition for those falsely claiming that the bottom has arrived. The currently published annualized 1.5% price decline contradicts any positive interpretation. Furthermore, the annualized sales rate for December 2006 of 1.120 million is 11.5% less than December 2005's previously posted 1.266 million. The year-over-year change in New Home Sales for 2006 was -17.3%. This can be seen in the chart below from the U.S. Census Bureau.



Also of interest is the downward revision of every single monthly New Home Sales report from March 2006 through October 2006. The previously posted numbers are in italics and parenthesis on the right side of the most current numbers for each month.



The sum total of the downward revisions totals -524,000 New Home Sales. Every month prior to November was overstated initially, and then downwardly revised at a later date. Since the number of New Home Sales were overstated every month, it provided a more optimistic number than the actual, final number.

----
Another factor, pointed out by economist Dean Baker, was the effect of the warmer-than-usual weather in the Midwest & Northeast in December. The expected effect of warmer weather would be an increase in the number of homes sold in the affected areas. Sure enough, the entire increase in New Home Sales was confined to the Midwest and Northeast. Sales in the South were essentially unchanged. Sales in the West declined 11,000. The increase in New Home Sales in both the Northeast and Midwest alone totaled an annualized increase of 68,000, more than the nationwide total increase of 51,000.

It appears likely that the "increase" in the annualized rate in December would not have even occurred without the unseasonally warmer weather in certain parts of the country.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary
___________
The economy needs balance between the "means of production" & "means of consumption."

[xchrom]

1. one thing the people need is honest economic reporting.

[unlawflcombatnt]

2. Yes

We certainly do need it.

And the effect of seasonal weather changes was completely ignored by the Right-Wing Corporate Media. If sales had declined and the weather had been bad, they would have blamed it entirely on the weather. But they didn't utter a peep about the positive effect that might have occurred from the unseasonally warm weather in the Northeast and Midwest.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[xchrom]

5. indeed.

the other thing that honest economic reporting does is provide real guidance for consumers.

conservatives are all about the boot strap mentality -- but don't want to disclose all the information that mr and mrs six pak can use to manipulate their destiny.

[unlawflcombatnt]

6. Exactly

The Corporate media wants consumer to remain misinformed and overly optimistic about the economy, so they'll continue to spend freely, without knowing what conditions lie just around the corner. And they don't want people worrying about the solvency of their IRAs, 401Ks, or pension plans, for fear that people will remove their money from such plans, and cause share prices (and quarterly bonuses) to decline.

Ignorance about the economy is essential for the pillaging by the Bush kleptocracy to continue.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[ellie]

39. Thanks for the link

to the Economic Populist Forum! Good stuff!

[unpossibles]

31. well, actually conservatives are all about seeing themselves as bootstrappers

regardless of fact; some are, most are not.

And I think conservative politicians are even less about the idea, other than as a marketing tool to convince conservative voters to support them. My problem with the whole bootstrap idea, despite the fact that I absolutely honor and respect hard work and determination to better oneself, is twofold:

1 - no one exists in a vacuum. If you can go to a desert island with absolutely nothing and make yourself a millionaire, I would say you are self-made. At best, self-made people have the help of living in a society which allows them and helps them to better themselves, through social programs, safety nets, and infrastructure. At worst, many these "self-made" people started out with wealth, connections, and/or help from their family/friends legacy, and some of them outright built their ideas on the ideas and hard work of those before them.

2 - seldom do I hear this same crowd that takes credit for the good things they have, accept blame for the bad. Sure, they are "self-made" but got pulled down not by their own mistakes, but by someone else, usually the government, or a minority figure/group/stereotype ("The Mexicans are stealing our jobs and social security money!!1!"), or what have you. Equal credit please. Again, I do understand that - as with #1 above, no one exists in a vacuum and that external forces DO impact us positively and negatively, but be realistic about external and internal influences, please.


That said, I do want to stress that I highly value entrepreneurial spirit, trying to become something better through hard work and education, and have respect for anyone who can overcome their hardships and/or background to make something of themselves. But realize that no one does this alone - whether it's the person whose ideas may springboard your own ideas, or the workers in your business who help make your success possible, or just the fact that to have a successful business you need a social and financial environment where people can and will buy your product/service/idea, we're all in this together.

[FormerDittoHead]

17. Agreed. Is it me or do economists always seem to have an agenda?

I remember last year hearing about the softening of the market coming on the radio, and his conclusion was the downturn was temporary and would only last 6 months (was it 6 months ago?)

Hearing this at the time, my experience has shown me that economic moves like this (like interest rate trends) are NEVER as short term as they are "predicted". In fact these trends tend to for the YEARS compared to the mere months (or seasons) that are often predicted.

I don't pay much attention to the financial news (my blood pressure) but honest reporting (versus cheerleading) is RARE.

Here's a good book:

http://www.amazon.com/Fortune-Tellers-Inside-Streets-Manipulation/dp/0684868806/sr=8-1/qid=1170011931/

[JNelson6563]

36. In one of Gore's speeches

He addressed this. He said that the R's were always talking about "morals" during the Clinton admin. He said "We knew what they meant" and it was clear what that was about. Then he went on to say that at least "we reported honest numbers!" or something along those lines. It's clear that Team Bush lies all the time. Unemployment, housing, everything to do with the economy is a lie with these guys.

Julie

[Warpy]

3. I can't imagine even Freepers are buying this one

and I think such deceptive reporting is probably aimed at housing speculators, who are already getting nervous enough to start dumping their empty McMansions on an already saturated market. If those folks think there's a bottom and that we've reached it, they may hold on a little longer, keeping it a slow slide rather than a nauseating plunge.

Meanwhile, if you're buying a house as shelter and you're smart enough to buy a small house near your work, you'll probably do OK. You will lose paper value, but the tax deduction over a period of the first 10 years will likely make up for it.

Forget those McMansions in the exurbs, though.

[unlawflcombatnt]

4. Housing Info

I think those "in the know" want to discourage unsuspecting sellers from selling right now, to help keep prices up. Meanwhile, these very same propagandists are trying to get rid of their own homes right now, before prices drop further.

It's certainly advantageous for any speculator or seller to convince other sellers that the bottom has already arrived. It keeps the other sellers from putting their homes on the market, due to their mistaken belief that prices will now start rising.

[girl gone mad]

10. jobs are moving into the exurbs.

To avoid high city taxes and to be close to affordable housing (so they can pay their workers less), many businesses are relocating to outlying areas. I've got a friend who is helping a fortune top 50 co. close all of its offices in NYC. They are moving into a far-flung suburb in the south.

Many government agencies, including the CIA and DHS, are doing the same thing in DC. City dwellers are not insulated from this bust.

Austin is experiencing a bubble right now because a lot of young families are relocating from extremely overpriced areas on the coasts. Many businesses are doing the same.

There's no telling for sure how this situation will play out, but I wouldn't count on your job being close to your home for long if you live in a city that experienced significant appreciation.

[unlawflcombatnt]

7. Asking Prices Declining in Most Areas

Below are links to housing prices in selected large market areas from Housing Tracker.com.

May 2006 was chosen as a track-back date, since prices in most areas seem to have experienced a recent peak around May 2006, and then began declining again.

Los Angeles Home Prices Decline 10.5% since August of 2005, down 6% since June of 2006
http://www.housingtracker.net/old_housingtracker/location/California/LosAngeles/

Orange County Prices Decline 6.2% since May 2006
http://www.housingtracker.net/old_housingtracker/location/California/Orange/

Riverside County Price Decline 6.5% since May 2006
http://www.housingtracker.net/old_housingtracker/location/California/Riverside/

San Diego Decline 5% since May 2006, -8.5% since August 2006
http://www.housingtracker.net/old_housingtracker/location/California/SanDiego/

Sacramento Decline 9% since May 2006
http://www.housingtracker.net/old_housingtracker/location/California/Sacramento

San Jose Decline 7% since May 2006
http://www.housingtracker.net/old_housingtracker/location/California/SanJose

San Francisco Decline 2% since May 2006
http://www.housingtracker.net/old_housingtracker/location/California/SanFrancisco

Phoenix Decline 6% since May 2006, 13% since August 2005
http://www.housingtracker.net/old_housingtracker/location/Arizona/Phoenix/

Las Vegas Decline 4.6% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Nevada/LasVegas/

Miami Decline 6.3% since May 2006, -13% since August 2005
http://www.housingtracker.net/old_housingtracker/location/Florida/Miami/

Reno Decline 10.5% since August 2005
http://www.housingtracker.net/old_housingtracker/location/Nevada/Reno/

Albuquerque, NM Decline 5.4% since May 2005
http://www.housingtracker.net/old_housingtracker/location/NewMexico/Albuquerque/

Orlando Decline 8% since May 2006, -9% since January 2006
http://www.housingtracker.net/old_housingtracker/location/Florida/Orlando/

Tampa Decline 9% since May 2006, -13% since September 2005
http://www.housingtracker.net/old_housingtracker/location/Florida/Orlando/

Washington DC 10% since May 2006
http://www.housingtracker.net/old_housingtracker/location/DC/Washington/

Chicago Decline 3% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Illinois/Chicago/

Cape Coral, FL Decline 9% since May 2006, -15% since January 2006
http://www.housingtracker.net/old_housingtracker/location/Florida/CapeCoral/

Boston Decline 2.3% since May 2006, -7% since August 2005
http://www.housingtracker.net/old_housingtracker/location/Massachusetts/Boston/

Jacksonville Decline 6.5% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Florida/Jacksonville/

Newark, NJ Decline 5.3% since May 2006
http://www.housingtracker.net/old_housingtracker/location/NewJersey/Newark/

Minneapolis Decline 3.2% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Minnesota/Minneapolis-SaintPaul/

Kansas City, MO Decline 3.3% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Missouri/KansasCity/

St. Louis Decline 8.5% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Missouri/SaintLouis/

Indianapolis Decline 3.5% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Indiana/Indianapolis/

Detroit Decline 11.5% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Michigan/Detroit/

Cleveland Decline 10% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Ohio/Cleveland/

Columbus Decline 6.5% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Ohio/Columbus/

Cincinnati Decline 3% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Ohio/Cincinnati/

Baltimore Decline 7% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Maryland/Baltimore/

Houston Decline 5.3% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Texas/Houston/

Memphis Decline 1% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Tennessee/Memphis/

Philadelphia Decline 10% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Pennsylvania/Philadelphia/

Portland, OR Decline 3.3% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Oregon/Portland/

Oklahome City Decline 1.2% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Oklahoma/OklahomaCity/

New Orleans Decline 10% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Louisiana/NewOrleans/

Norfolk, VA Decline 2% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Virginia/Norfolk/

Omaha Decline 1% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Nebraska/Omaha/

~~~~~~~~~~~~~~~~~~~
San Antonio No Change since May 2006
http://www.housingtracker.net/old_housingtracker/location/Texas/SanAntonio/
Salt Lake City No Change since June 2006
http://www.housingtracker.net/old_housingtracker/location/Utah/SaltLakeCity/

Denver No Change since May 2006
http://www.housingtracker.net/old_housingtracker/location/Colorado/Denver/

Dallas No Change since May 2006
http://www.housingtracker.net/old_housingtracker/location/Texas/Dallas/

Atlanta No Change since May 2006
http://www.housingtracker.net/old_housingtracker/location/Georgia/Atlanta/

Louisville No Change since May 2006
http://www.housingtracker.net/old_housingtracker/location/Kentucky/Louisville/

Austin Increase 13% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Texas/Austin/

Raleigh, NC Increase 13% since May 2006
http://www.housingtracker.net/old_housingtracker/location/NorthCarolina/Raleigh-Durham/

Seattle Increase 1% since May 2006
http://www.housingtracker.net/old_housingtracker/location/Washington/Seattle/

[silverlib]

8. "housing" - I almost hit the ignore button...

so glad I didn't. Thank you for putting this together to make sense of how we get the "garbage" housing numbers.

[unlawflcombatnt]

11. Prices

I'm glad that was useful. Housing Tracker is the only place I've found that gives good price information. Unfortunately, they've come up with a "new" version that shows more "optimistic" numbers, and that doesn't go as far back in time to show how much higher the prices were in the past. Fortunately the "old" version is still available.

[kineneb]

9. NorCal

dateline: Lake Co.
Not too much moving, same "for sale" signs up since the fall, have noticed even more "reduced" signs and ads.

A friend may have to declare bankruptcy- her husband has not been able to sell the house he built...

Drove down to San Rafael and back today, looks like even prices in Napa Valley may be headed down! (They are still outrageous.)

...generally, no where near bottom yet, still headed down. Will continue to monitor local market.

[the other one]

12. Its worse, because the number does not include cancellations

which I believe are running around 30%. The housing market is a disaster, and the economy built on housing is a catastrophe. As the rising price of fuels make it ever more expensive to own and operate a house in the suburbs, these empty mcmansions will be a silent testimony to the final exesses of fossil fuel-driven capitalism.

[unlawflcombatnt]

16. Good Point

I've heard numbers as high as 50% in some areas. And you're right, they're not fully subtracting all of the cancellations from the final number.

I suspect they're accounting for some of the cancellations in their downwardly revised numbers, but not all of them. And not even close to all of them.

[pat_k]

13. Break out luxury market and look at trends from 2001. . .

It is the mammoth and growing gap between the top relative to the middle and bottom that constitutes the biggest threat to the entire economy -- i.e., http://www.moneyweek.com/file/24214/exposing-the-cracks-in-the-financial-system.html">Asset Inflation. When things fall apart, real estate will probably remain the "safest" bet (particularly for the wealthy).

Looking at changes in home sales year to year for 2005-2006-2007 is very misleading. In a rational market, home price changes are in line with increases in median household incomes. That all changed with the bushcheney theft of the 2000 election. When viewed relative to the insane inflation of 2001-2004, the overall flat/decreasing home prices don't warrant all the doom and gloom about the overall real estate market -- and in fact would be reassuring if the changes were across the board.

The problem is that the flattening/dropping home prices ARE NOT across the board. It is the prices at the top that have been skyrocketing, driven by tax kick-backs and skyrocketing incomes for the new American aristocracy. The annual appreciation from in the luxury market from 2001-2004 was 20%, 30%, and even 40% in the some areas. The prognosticators of housing market doom and gloom will continue to drive down prices for the average homeowner (who have the most to lose), but the prices at the top will keep climbing -- sucking ever more money to the top. Low interest rates will prop things up for awhile, but once again, the more the middle class goes into debt, the lower their credit ratings, and the higher their interest.

The Joint Center for Housing Studies (Kennedy School of Government/Harvard) puts out an annual report that provides a decent and fairly detailed analysis -- http://www.jchs.harvard.edu/publications/markets/son2006/son2006_bw.pdf">PDF (5 MG) or http://www.jchs.harvard.edu/publications/markets/son2006/index.htm">HTML.

A couple excerpts:

With each generation exceeding the income and wealth of its predecessor, growth in expenditures on home building and remodeling should match if not surpass the current pace. For example, the median inflation-adjusted income of households in their 40s was $1,800 higher in 2005 than in 1995, while that of households in their 50s was $1,900 higher. Similarly, between 1995 and 2004, the median wealth of those in their 40s was up by $33,600 and of those in their 50s by $46,600. But incomes at the top are increasing much faster than those at the bottom and in the middle. These differences will likely drive rapid growth in the burgeoning luxury sector of the housing market, but present stubborn affordability challenges for households with low and moderate incomes. . . .

HOUSE PRICE TRENDS Until 2000, nationally weighted average home prices rose closely in line with median household incomes and general price inflation. Since then, however, house price appreciation has shot ahead of these benchmarks, outstripping income growth more than six-fold from 2000 to 2005. As a result, the median house price exceeded the median household income by at least four times in a record 49 of 145 metro areas, and by more than six times in 14 metros (Figure 10). By 2005, nominal house prices were rising at their fastest pace since 1978 (Table W-1). Inflation-adjusted prices were up 9.4 percent, the largest increase in more than 40 years of recordkeeping. It is no surprise, then, that media reports of a housing bubble reached a fever pitch last year. According to Factiva, the number of articles mentioning that term increased to 3,492 in 2005, up from 789 in 2004, 614 in 2003, and 907 in 2002.

Homeowners Cashed Out Record Levels Of Home Equity in 2005
Billions of 2005 Dollars

See http://www.jchs.harvard.edu/publications/markets/son2006/index.htm">Figure 8 and 9 on page 7.

[blondeatlast]

14. The new home builders are pricing WAY down--they know the market sucks now.

I know personally, I'm closing next week on a house with almost a 33% off incentive and an improvement allowance.

Resellers are still hoping to get last summer's prices, but the new home contractors are being VERY realistic about what they can get.

[bedazzled]

15. great article in palm beach post "home builders take breather"

http://www.palmbeachpost.com/business/content/business/epaper/2007/01/24/a1d_building_0124.html

like they're just so EXHAUSTED in building new houses they have to stop!

next day, another similar article

http://www.palmbeachpost.com/business/content/business/epaper/2007/01/26/s1a_PB_HOME_SALES_0126.html

every day there's another article, trying to put lipstick on the pig

the main bit of info i've gotten from these articles is, it hasn't sucked this bad since the
LAST BUSH was in office

[blondeatlast]

18. As I say above, we've gotten an incredible deal on a spec.

Prices are dropping but they hide them behind incentives. We got an enormous incentive and an improvement allowance--in a very desirable area.

One year ago, the entire area would have been out of our range.

[bedazzled]

22. i'm sure it's possible to get a deal if you've got the money

sellers must treat you like a king! it's probably
the same if you're buying a car at this point. catbird
seat for sure!

[unlawflcombatnt]

20. Thanks

Thanks for the links. I think Florida is sinking faster than California.

[bedazzled]

23. i live in a well to do area outside west palm beach

and on ONE BLOCK there are 13 houses for sale. i've never
seen anything like it.

there's a funny article in today's post. donald trump has
become involved with a new luxury condo here -- which is
supposed to make it irresistable!

http://www.palmbeachpost.com/search/content/business/epaper/2007/01/28/a1f_cloughcol_0128.html

boy, if donald trump is your idea of class and dignity, you
deserve what you get...

i find the palm beach post amusing, but not (i think) in the way
they intend it to be!

[unlawflcombatnt]

25. 13 homes for sale on 1 block is amazing

That's worse than Southern California. But we do have a couple of homes on our block, and others in the surrounding area, that are completely vacant. These seem to be increasing in number. Apparently the speculators who bought them can't even find renters.

[Digit]

33. I wonder if the cost of insurance in Florida has anything to do with it?

It's a damn shame.

[unlawflcombatnt]

34. Hurricanes & Tornadoes

According to at least some of the (former) Florida homeowners interviewed who recently lost homes, insurance is a problem in Florida. It would be interesting to seem some actual statistics on that.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[unlawflcombatnt]

19. Existing Home Sales Also Down Sharply

Existing Home Sales have also declined sharply since last year. Below is a copy of Briefing.com's January 2007 report (on the top), compared with their report published in January 2006.



There was a roughly 1-million annualized sales decline between both August 2006 & August 2007, and between September 2006 & September 2007. There was an 850,000 decline from October 2006 & October 2007, and a 730,000 decline between November 2006 & November 2007. The December 2007 vs. 2006 decline was 380,000 sales.

Also note the huge inventory increase of +1.7 months' supply from December 2006 to December 2007. Consistent with this "supply" increase, the median year-over-year price increase rate has declined from +10.5% in December 2006 down to 0.0% in December 2007. (In fact, prices have declined since December of 2006. The above numbers above denote the monthly rate of price change for December alone, at an annualized rate.)

Once again, the apparent rebound in sales & prices in December 2007 (vs. November) is probably attributable to the unseasonably warm December weather in the Midwest and Northeast. These areas showed December sales increases, in contrast to no change in the South and declines in the West.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[pat_k]

21. Comparison to abnormal 10.5% is misleading -- the overall market is not the problem. . .

. . .as described in previous http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=3081916&mesg_id=3082701">post.

[unlawflcombatnt]

24. Median Home Prices are declining

I see your point about prices having risen faster in the more expensive categories. But the price of the median price home is now also falling in most major areas, as I described in a previous post in this thread.

One of your links was quite interesting. It gave a rough estimate of how much of the bubble is being fueled by 2nd home buyers and "investors" (speculators).

http://www.jchs.harvard.edu/media/son2006_fact_sheet.pdf

"By one estimate, the number of second homes increased by 1.2 million units, or 22 percent, between 1995 and 2005. Second-home ownership rates have increased across all age groups.

• Investor demand heated up in 2005 but is now cooling. Investor loan volume increased as a share of prime mortgage originations from under 6 percent in 2000 to nearly 10 percent in 2005, with shares in the 15-20 percent range in many fast growing markets like Phoenix, Las Vegas, and many California and Florida metros."

Very interesting.

[pat_k]

26. In Bush World, driving asset hyperinflaction by any means necessary. . .

. . . is driving the nation full speed over a cliff. Tomorrow doesn't exist for the Bush syndicate. Everything is about serving the interests of their gang NOW, however high the ultimate price. Even if they weren't subverting the Constitution and turning Americans into torturers, their blindness, which spans everything over which they exert control, poses an intolerable threat that demands impeachment.

WRT the real estate market, my intention is to convey the importance of looking beyond median trends, particularly in Bush World. When we look at overall numbers in single sectors, we may lament the trends, but don't tend to be motivated to look more deeply for the driving forces, or the corresponding solutions. This post, and the previous one, provide some points about conditions that I think are important to consider.

Monetary policy and the new exotic loans (e.g., low payment, 5 year interest only jumbos -- a boon to the wealthy investor; the ruin of many of an average Joe) have been the most powerful forces driving the trends we're seeing in real estate.

Exotic loans were just 2% of the market in 2001 and jumped to 50% by 2004. Second home buyers are almost guaranteed to dump those homes before payments balloon. The average Joe suckered into buying their family home with such loans are forced out when payments become unmanageable (which incidently are likely to drive up rents and profits for real estate investors). In other words, the explosion of buying and skyrocketing prices is driven by mechanisms guaranteed to lead to a sell off -- sell off guaranteed to drive falling prices that keep people from buying back in and keep developers from building.

And thus we see the dropping prices now. But the aristocracy's greed is demanding even more extreme manipulations that aim to prop things up again. The Fed, ever losening regulation, and lack of scrutiny of banking is likely successfully drive things back up this first time around. We're likely to see unprecedented mountains and valleys. But the hills and valleys in real estate will be gentle compared to the devastating effects of the unitary authoritarian executive's actions on stocks, bonds, and other more liquid vehicles. The nature of real estate itself -- can't get out or back in instantly; can't build a house overnight -- blunts the effects. (i.e., the instability in the real estable market isn't likely to come close to the instability we're gonna see elsewhere in the economy.)

Greed driven policy will ensure that the effects of economic volitility is minimized, or benefits, the wealthy. As a consequence, we'll probably be seeing an overall trend of inflation in the luxury market and deflation in the middle and the bottom. The statistics reported by the gamers in the administration will continue to hide the divergence and irrationality. Even if we restore legitimacy to the executive branch, inertia will ensure that the misleading data will keep pouring out of the various agencies.

As money leaves real estate estate in a downturn, it goes somewhere, often overseas where sanity blunts volatility in short-term investments. As the effects of U.S. insanity go global, new safe havens will be created for the wealthy.

For more on causes and consequences of hyperinflation, see http://eldoradogold.net/pdf/July%202005/ASSET_HYPERINFLATION.pdf">Asset Hyperinflation by James Cook.

[unlawflcombatnt]

27. Great Post

Excellent post. My favorite part was "Greed driven policy will ensure that the effects of economic volitility is minimized, or benefits, the wealthy." I think that's a great summary of what's happening to our economy.

[unlawflcombatnt]

28. Unsold Home Inventory Increased 20% in 2006

Though some optimists are claiming that housing has "bottomed out," most experts do not share this view. Though home sales and prices declined in 2006, there are still more reasons that the bottom has not been reached. One is the huge increase in unsold home inventories. At the end of 2005, the combined total of New Homes for sale (515,000) and Existing Homes for sale (2,846,000) was only 3,361,000. At the end of 2006, that combined number had risen to 4,039,000 (539,000 New Homes for sale + 3,508,000 Existing Homes for sale). This is a 20% increase in the number of homes on the market from December 2005 to December 2006. Increased supply decreases prices. Below is a combined copy of the total New Home Sales and Inventory from the Census Bureau, along with the total Existing Home Sales and Inventory from the National Association of Realtors. The inventory ("supply") numbers are underlined in red.



The normal effect of this increase would be 2-fold. A decrease in home prices and a decrease in New Home Construction. The latter would also entail a decline in jobs in home construction and real estate related fields. Only time will tell if market forces are allowed to have their effects, or if the Federal government will once again interfere in the free market effects on the housing market. (i.e., dropping interest rates, bailing out irresponsible mortgage brokers and banks, etc.)

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[kineneb]

29. sure seem to piles of unsold houses around here

the RE people were late on the bandwagon, and built lots of homes last year, as well as installing lots of manufactured houses. I was out driving and noticed a bunch, in an area in which I would not buy- few paved roads! I can't imagine who would pay what they are asking, for a place where the roads turn to mire in the winter. And Clearlake City Hall does not have the funding to get the roads paved, either, so they will stay dirt.

Where we live may be funky, but we have paved roads, as well as sewer and water hook ups (no wells and septic tanks for me).

I don't think we are anywhere near the bottom.

[xkenx]

30. Unlawfl, you are wrong when you say increasing supply decreases prices.

Supply changes change the RATE of price changes. In 2003-2005, supply across the country was exceptionally low. Supply/demand matchup therefore favored sellers, hence the big price runups. The first supply increases in 2006 changed the supply from ridiculously low to very low; matchup still favored sellers, so price increases merely slowed from huge to moderate. As supply increased more, price increases slowed more. When supply got to normal (or slightly higher), prices went flat or slightly declined. The analogy is driving your car at 80 mph when the driving conditions cause you to hit the brakes to slow down; you are still going along at a good clip for a while before you can stop and put the car into reverse. It can't happen instantly. Large systems like the housing market tend to follow the laws of physics (inertia). In the real estate depression of the early 90s, the reverse was true. Around 1995, more buyers came out, the oversupply went down, but prices did not rise; the decreases slowed, then stopped, then prices started rising again a couple years later. All real estate is local. Anyone wanting to project for their locality needs to look at the supply/demand matchup locally, the jobs situation locally, new construction levels which might impact supply. There is just no universal rule. For example, where I live in the San Fernando Valley in Los Angeles, there is NO new construction worth noting (all built up), jobs/economy are varied and solid, there are more people coming in than out, so the slowdown/supply increases have served to stabilize the market rather than result in any noticeable price decreases. It is a place where most folks are buying homes to live in, not speculate. Other places, where there has been gross speculative overbuilding are suffering because demand fell off and supply is too high; matchup now strongly favors buyers--so prices fall.

[unlawflcombatnt]

32. OK: Increasing Supply puts Downward Pressure on Prices

I see your point. You're saying that if there was a tremendous under-supply of homes, and the supply increased, if there was still an under-supply, even though a smaller one, that prices would not decline, the rate of increase would simply slow.

Technically, I agree with that. However, it appears that measured over the last couple of years only, the supply of homes has increased much more than the demand. In fact, for the year 2006, the number of homes on the market increased 2.14 million, while the number occupied increased 1.04 million.

To look at this from another angle, the increase in the number of homes at the end of 2006 was 1.7% (to 126.7 million). Meanwhile, the increase in U.S. population was on the order of 0.9% to 1.0%. Thus the supply growth was almost double the population growth.

In fact, the inventory of homes on the market increased 34% in 2006. This unquestionably puts downward pressure on prices. Whether that downward pressure is enough to cause actual price declines is still to be determined. However, given that Housing Starts were 1.642 million in December (at an annualized rate), and that New Home Sales were only 1.12 million, it appears that the supply will continue to increase faster than the demand over the next 6 months. Ultimately, prices will come down as this trend continues.

Add to this the rapidly increasing foreclosure rate, which puts still more homes on the market, and the supply will increase even further.

As far as the "local-ness" of the housing market, most major "local" markets are experiencing price declines at the present time. Price declines are now the rule, not the exception. This can be seen from my earlier post on this thread Housing Price Changes from Housing Tracker.com

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[sendero]

35. I've been observing...

... the housing issue reporting with increasing amusement.

Basically, the folks doing this reporting will issue a certain number of facts, and then a conclusion that is simply not supportable, not by the selective facts they've cited, or by the universe of applicable facts available.

In any event, I would think hard before buying a house any time soon. Time is most certainly still on the side of the buyer.

[unlawflcombatnt]

40. Highly "selected" facts

That's exactly how it appears to me as well. The housing propagandists cling to even the slightest bit of positive news, while ignoring the abundance of negative news.

The big picture is very simple. There are more homes being built than sold. The number of vacant homes has almost doubled in the last year. Foreclosures are rapidly increasing. Millions of recent buyers are going to have their monthly mortgage payments increase when ARMs reset to a higher rate. More of the most recent mortgages are sub-prime mortgages than was previously the case, meaning they were given to less financially solvent buyers. Both of these latter occurrences will escalate the already rising number of foreclosures. And the foreclosure escalation will put still more homes on the market than can be sold.

The downward pressure on prices has already pushed annual price increases down tremendously. In fact, many areas are now showing annualized price declines.

[Eurobabe]

37. But, but the NAR sez everything is ROSY

Bullshit. This dog won't hunt.

It's going to get a WHOLE lot worse. My agent who sold our house in Cincy said we were so lucky we got out when we did -- the market in the midwest, usually a stable market is in the toilet. Houses over 300K are just languishing for months.

[unlawflcombatnt]

38. Yes indeed

"It's going to get a WHOLE lot worse."

Absolutely.

The news is flooded with stories of mortgage lenders in trouble due to delinquencies, defaults, and foreclosures. As foreclosures increase, and even the threat of further foreclosures increases, prices are going to decline still further.

[Muddy Waters Guitar]

41. Damn insightful analysis as always, unlawflcombatnt

The housing bubble hasn't even come close to popping and hitting bottom-- probably will take 3-4 years for that. And when it does, it's gonna get very, very ugly for a lot of people.

[unlawflcombatnt]

42. Yes

I agree completely. There are still major pending events in the housing market, all of which will accelerate the decline. 25% of all mortgages last year were sub-prime, meaning that up to 25% of the loans made for home purchases last year are on very shaky ground right now. A large number of adjustable rate mortgages will reset next year, making monthly payments much higher for many borrowers, further increasing the number of likely foreclosures. Speculators are still leaving the market in mass, which will further reduce the demand for homes, further increase the number of homes on the market, and put further downward pressure on prices.

According to several sources, 19 mortgage lenders have already gone under.

The housing bottom is not even in sight yet.