Step Two of a Housing Bottom? 22 comments
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Monday's report on residential construction provided more evidence that step one of a housing bottom is underway — and that step two may be beginning.
Total housing starts fell slightly in July because of weakness in multi-family. But starts of single-family homes increased to 490 thousand (at an annual rate), the fifth straight monthly increase and the highest level since last October.
As the chart shows, this rebound is off of extremely low levels, so we shouldn’t get too excited. But it does appear that single-family starts bottomed last January and February (at 357 thousand).
That’s the first step of a housing bottom.
As I’ve noted in previous posts, however, that isn’t enough to declare a bottom in housing activity. Housing activity depends on the number of houses under construction, which depends on both housing starts and housing completions. Completions have exceeded starts for more than three years. As a result, the number of houses under construction has fallen for 41 straight months.
For me, the big news in the July data is that this decline may be ending.
Single-family starts were essentially equal to completions in July (completions were 491 thousand, just a smidgen more than starts). In other words, the wide gap between completions and starts largely disappeared in July:
As a result, the number of houses under construction was essentially flat in July:
If construction activity does indeed level off, or even rebound slightly, in coming months, that will be the second step of the housing bottom. (The third step — a bottom in house prices — is a topic for another day.)
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- Homes for sale right now
- Foreclosed homes for sale by banks right now
- Foreclosed homes owned by banks and not for sale (held)
- Homes that were on sale last year (or the one before), that are no longer on the market because the owner gave up...probably rented now, or empty
- Homes that would have been for sale now, but the owner does not even bother to list because he/she knows it is hopeless (owner stays in home, or is rented).
So, like trying to empty a tank when is full of a viscous fluid and it has multiple compartments, that fluid will be oozing out of the hole for a long time, you cannot shake it hard enough. I think there is going to be a "shadow" inventory for a long time to come, the (sales)/(homes for sale) ratio is not going to come down easy.
p.s. don't confuse housing with debt.
sorry, I meant is not going to go up, that inventory number will persist for months or years to come, and it may even follow up the sales number
How is increased construction a good thing for all those underwater homeowners trying to sell? (30% of homeowners are now underwater and Deutschebank predicts >40%).
To whom are builders going to sell these new homes?
Great news! Buggy whip production is up 10%! The recession is over!
New home construction will recover in fits and starts, mostly on local and regional levels. Anyone noitice that single family starts were up 13% in the Midwest? We're lucky.....our smaller metros escaped the worst excesses of the bubble and are enjoying declining inventories and rising home prices.
On Aug 19 07:40 AM D. McHattie wrote:
> If you build it, they will come?
>
> How is increased construction a good thing for all those underwater
> homeowners trying to sell? (30% of homeowners are now underwater
> and Deutschebank predicts >40%).
>
> To whom are builders going to sell these new homes?
>
> Great news! Buggy whip production is up 10%! The recession is over!
And we somehow think the bottom is nigh?
While commercial buildings empty as well as the neighborhoods around them?
What I found most interesting about the Census departments' June sales report was the fact that the builders are still building more than buyers are buying. While the trend does appear upward, I question what is going to happen with the continued destruction of jobs, or the government programs and government backed programs come up short on funds for the 6 weeks or so (budget end).
Especially when you consider, foreclosures seem to be accelerating, not moderating.
And let us not ignore the gorrilla in the room, federal funding. What happens if the government is unable to come up with the funds to continue backing and financing mortgages at the breakneck speed of this year. After speaking with family in real estate, they convey that upwards of 60% of sales this year are FHA and Rural Development loans. That scares me as I do not know how long it can continue.
On Aug 19 06:34 AM chap08 wrote:
> Why does anyone care about housing? Housing never recovers until
> employment recovers. Employment never recovers until after the recession
> is ended. Housing is at the end of the chain. Worry about what's
> at the start of the chain instead.
>
> p.s. don't confuse housing with debt.
www.calculatedriskblog...
On Aug 19 10:33 AM Tim Plaehn wrote:
> Where do you get the idea that housing does not recover until employment
> recovers? Employment is the last to rebound once a recovery starts.
> Recovering employment figures will be the result of better housing
> numbers, not the other way around.
Most people continue to allow the U.S. propaganda-machine to continue to play this silly game - where they NEVER, EVER publish "new housing sales" and "new housing starts" in the same piece - since reported "starts" are exceeding reported "sales" by roughly 50% (or more) every month.
Then the propaganda-machine calls BOTH numbers "good news" any time there is even a tiny up-tick (LOL!).
Those who want to know what is REALLY happening in the U.S. housing market can refer to my link: www.bullionbullscanada...
On Aug 19 05:54 AM Jiang Nan wrote:
> Could we have the chart for New home sale / inventory alongside?
> It is no good if we are only adding to the inventory.
On Aug 19 12:10 PM Jeff Nielson wrote:
> Bravo, Jiang Nan!
>
> Most people continue to allow the U.S. propaganda-machine to continue
> to play this silly game - where they NEVER, EVER publish "new housing
> sales" and "new housing starts" in the same piece - since reported
> "starts" are exceeding reported "sales" by roughly 50% (or more)
> every month.
>
> Then the propaganda-machine calls BOTH numbers "good news" any time
> there is even a tiny up-tick (LOL!).
>
> Those who want to know what is REALLY happening in the U.S. housing
> market can refer to my link: www.bullionbullscanada...
>
"Rebound Obstacle #1: Inventory Glut. Nearly 10% of all homes built this decade are sitting vacant, compared to a historical average of 2.2%. In total, we’re sitting on almost 10 months worth of inventory versus a historical average of four months. If we factor in the “shadow inventory” – the roughly 600,000 homes that banks are withholding from the market – the problem worsens. Excess supply always erodes prices.
Rebound Obstacle #2: Loan Resets. Forget subprime. We’ve already worked through 80% of those resets and written down $1.47 trillion in the process. Now we’re facing a $2.5 trillion mountain of Alt-A loan resets. The first big wave hits mid-2011, with the peak expected to come in early 2013. So we’ve still got time, but the early stats hardly instill confidence. More than 20% of Alt-A loans are already 60-plus days late, up from an average of about 3% for the last decade. If interest rates creep up even modestly in the next two years – a near cinch given the likelihood of inflation – payments will increase notably. In turn, so too will default rates.
Bottom line, another wave of massive writedowns looms on the horizon.
Rebound Obstacle #3: Foreclosures. One in four homeowners are now underwater. If we break it out by loan type the picture gets worse – 25% of prime loans, 45% of Alt-A loans, 50% of subprime loans are severely underwater. Add in the 6.5 million Americans out of work since the recession began and it doesn’t take an Einstein to predict where foreclosures are heading. Credit Suisse estimates that we’re in store for a total of 6.5 million by 2012.Even the Mortgage Bankers Association (MBA) concedes the obvious in its first quarter update, saying, “Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve.” Since the rosiest prediction doesn’t expect unemployment to peak until early 2010, as the MBA acknowledges, “…It is unlikely we will see much of an improvement [in foreclosure rates] until after that.”
The fact that the social stigma attached with “walking away” has been severely (and sadly) diminished over the past decade only adds to the foreclosure heap. And more foreclosures will inevitably push prices lower."
Read More: www.housingnewslive.com
I'm not saying you are definitely wrong with your assertion. I've already come up with a way to explain this seemingly enormous contradiction: private prisons.
It has been widely publicized that there is an explosion in private prison construction across the U.S. Since I believe these "private prisons" are intended to "warehouse" the poor as this Greater Depression worsens, then there would be no discrepancy in the numbers if new PRISON CELLS were being called "housing units".
On Aug 19 01:45 PM concrete guy wrote:
> There are no banks lending money for speculative single-family home
> construction. Back during the boom years 70% of all new home starts
> were specs. Today that number is near zero. The new home starts today
> are all pre-solds (designed and built for a ready buyer), so in that
> sense they are not adding new home inventory to the market. They
> are sold the instant they are completed. The inventory overhang of
> new homes are trailing specs from the boom years.
One is construction, which is what the starts number refers to. The other is sales & values.
To reach a bottom in values, you'd want to see demand in excess over supply. So a good housing starts number is not particularly good news for the financial edifice that's been built on the existing housing stock.
The fact that new homes can be delivered cheaply enough (due to lower costs of labor, raw land, and building materials) to make it worth it to a builder to start a few more homes is not necessarily a good thing. Such a builder must be calculating that he can profitably deliver new units at prices substantially under where the market is today
Now, you cant install simple things like a new window or recessed lighting without the building inspectors knocking down your door, and the workers comp people coming over to shake you down.
The bloated local governments have destroyed the home-owners ability to add value to a property via red tape.
This has been a shadow weight on the market from before the peak.
On Aug 19 07:04 AM AuGod! wrote:
> New houses built probably have a life expectancy of 25 years, then
> they will fall apart - planned obsolescence like GM automobiles (reduce
> a car's life by 90%). It is not just debt driven but a disposable
> economy where little is built and even less is written in stone.
> The ideal business model like much governmental policy is to do something
> safe in the moral hazard that neither the originators nor the first
> time buyers will be around when the roofs, wheels and doors fall
> off any given product, service or policy. The infrastructure is crumbling,
> permanent jobs are becoming more like 5 year contracts max and consumers
> are wisely sticking to basics knowing they may as well "waste not"
> so to "want not". A lesson perhaps too late for the learning. Those
> consumers, once the heart of American wealth representing the goose
> which laid the golden egg - are now butchered by predatorial products
> and policies propagated by responsible and well paid people - false
> patriots who really did and do know better. Meanwhile the wheels
> keep on turning and so do questionable stats and associated numbers.
> Forgive the rant. The whole notion of green shoots looks bogus to
> me. I will gladly acknowledge green shoots when real employment growth
> is robust and housing prices stabilize. The structural impediments
> to that are obvious and metastasized.
On Aug 19 01:45 PM concrete guy wrote:
> There are no banks lending money for speculative single-family home
> construction. Back during the boom years 70% of all new home starts
> were specs. Today that number is near zero. The new home starts today
> are all pre-solds (designed and built for a ready buyer), so in that
> sense they are not adding new home inventory to the market. They
> are sold the instant they are completed. The inventory overhang of
> new homes are trailing specs from the boom years.
You'll notice how anyone who either post a note or writes an article about a housing data point in order to present a case for a bottom NEVER post replys to dissenting comments questioning the article/note's merit.
YOU SEE-THESE ARE NOT ARTICLES/NOTES
THEY ARE PRAYERS
TO CALL A HOUSING BOTTOM NOW IS LIKE CALLING A BOTTOM IN CNBC's RATINGS -IT'S IMPOSSIBLE
On Aug 19 12:10 PM Jeff Nielson wrote:
> Bravo, Jiang Nan!
>
> Most people continue to allow the U.S. propaganda-machine to continue
> to play this silly game - where they NEVER, EVER publish "new housing
> sales" and "new housing starts" in the same piece - since reported
> "starts" are exceeding reported "sales" by roughly 50% (or more)
> every month.
>
> Then the propaganda-machine calls BOTH numbers "good news" any time
> there is even a tiny up-tick (LOL!).
>
> Those who want to know what is REALLY happening in the U.S. housing
> market can refer to my link: www.bullionbullscanada...
>
We definitely haven't found a true market bottom, but perhaps the manipulated one.