No Bottom Yet: Housing Permits Drop To 14-Year Lows

The Commerce Department reported(.pdf) that housing starts were down 3.7 percent in November and permits for new construction fell 1.5 percent to new 14-year lows, once again dashing any hope that the most recent up-tick in housing starts was the beginning of a bottom for homebuilders.

You'd think that things can't get any worse from here, but there is still a huge overhang of unsold homes, lenders are justifiably more cautious these days, and who wants to buy one of those unsold homes when all you hear about is foreclosures and falling prices?

Monday's Housing Market Index from the National Association of Homebuilders remained at all-time lows for the third consecutive month. David Seiders, chief economist for the trade group noted, "The momentum in the housing market still is downward. Housing starts, given the inventory overhang, probably won't turn up until maybe the third quarter of next year.''

Adding to the growing evidence that you can work at Harvard and still be a moron, Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies commented "The fundamental problem with housing is oversupply.''

No, the fundamental problem is that a speculative bubble just burst and now everyone is thinking rationally again - home prices are still too high, potential buyers realized home prices are still too high, lenders are now interested in the borrower actually paying back the home loan, and investors don't want to go near securitized debt.

Could someone aside from Robert Shiller and about a thousand people with blogs say this just once?

Comments

[Clay Kime:]

Hi Tim:

How about providing some metrics. When will "too high" no longer be "too high?" Are we content to say "I'll know it when I see it?

I'm not sure I would rely on Dr. Shiller (Actually I'm sure I would not.) While he has a useful means of indexing the "past," he has been woefully short on accuracy about the future. He's been saying the same thing for 10+ years, also without any metrics, just his opinion. (Eventually the "wolf" had to show up!)

I also wouldn't rest on the speculators on the CME Housing Futures as a predictor of the housing market. The only CME futures that are more thinly traded are Hurricane Futures on the CME.

Regards,

Clay

2007 Dec 19 10:01 AM

[User 108682:]

Clay Kime,

I address your
When will "too high" no longer be "too high?

The past, corrected for inflation, provides a clear basis for inferring a (real) future -- to say the least! Please see first and last charts here:
“Real Dow & Real Homes & Personal Saving” at
homepage.mac.com/ttsmy...
And please note, of course, that the exampled real 41% lower is achieved (1) by a 41% lower US$ nominal house price, or (2) by a 70% higher CPI-U consumer prices, or (3) by a combination of (1) and (2).

Is this clear (I hope so)?

2007 Dec 19 12:01 PM

[emily x:]

"[A] speculative bubble just burst and now everyone is thinking rationally again" -- Amen, brother! As one who has been thinking rationally on the sidelines in a rented condo for the last 2 years, I couldn't agree more. Home prices ARE still "too high" -- and yes, we will know it (the pullback) when we see it. Sellers who can afford to have pulled their houses off the market for now, but that's only a small percentage. Those who have to sell are mostly still in dreamland, aided and abetted by deluded real estate agents who swear by the hype put out by their national organizations. I actually had a broker tell me at an open house 2 weeks ago that her company thinks we've hit bottom here in SE Michigan. "Oh yeah?" I said. "Based on what? Do you know of some new influx of buyers to this area?" Answer: No... Because no such thing is happening. Around here, like in other places where a LOT of new construction went on the last few years, much of it bought up speculatively by "Rich Dad Poor Dad" readers, supply has just flooded demand. Barring some fundamental change, like a whole lot of new jobs into this area (even less likely than a bottom in housing), this is going to continue for a while (i.e., the "forseeable future").

2007 Dec 20 09:51 AM

[Stanley:]

"How about providing some metrics. When will "too high" no longer be "too high?" Are we content to say "I'll know it when I see it?"

Tim is right on,
how about looking at home price to rent ratios, cap rates for rentals, home price to income ratios, the cost of materials+labor required for new construction vs asking prices, all of which are still way out of whack. Although to look at these, one might have to call himself an investor
-S

2007 Dec 20 01:23 PM