Beware the Housing-Bottom Callers

The Commerce Department reported(.pdf) on new home construction during February - don't let that little red squiggle in the lower right fool you.

The apparent "stability" over the last few months in housing starts is not only dwarfed by the standard error of plus or minus 11+ percent, but its support is now dominated by multi-family home starts - construction of single-family homes is still in a serious funk.

Rex Nutting at MarketWatch reports on the details:

Single-family housing starts sink to 17-year low
Building permits drop 7.8%, biggest decline in 13 years

With no end in sight to the housing bust, new construction on single-family homes dropped by 6.7% in February to a seasonally adjusted annual rate of 707,000, the lowest in 17 years....
Building permits, a leading indicator of construction, fell 7.8% in February to a seasonally adjusted annual rate of 978,000, the lowest since the autumn of 1991. It was the biggest monthly decline in 13 years.

Permits for single-family homes dropped 6.2% in February to a 639,000 annual pace, a 17-year low.

The report confirms that home building remains extremely weak, with home prices falling and sales tumbling.

In the past year, housing starts are down 28.4%. Single-family starts are down 40.5%. Building permits are down 36.5% in the past year, while single-family permits are down 41.9%, the biggest drop in 26 years.
...
Starts of multifamily units rose 14.5% in February, continuing a boom in apartment building. Multifamily starts are up 23% in the past year.

Beware of anyone who tells you that we've hit bottom for either housing or stocks.

Comments

[Jack K]

Thanks. This type of reasoning makes more sense than some of the stuff we are hearing

[Tony Soprano]

Tim Iacono said:

“Beware of anyone who tells you that we've hit bottom for either housing or stocks.”

The inverse of this statement may be true as well.

We have the best Federal Reserve system in the world.

Bob Doll of Blackrock (more than 1 trillion in equity) feels we have hit bottom in stocks.

Ken Heebner (rated one of the best fund managers) of CGN Focus Funds applauds the FED. If you remember, Ken got out of the home builders before the crash.

You could make the argument from the negative data above that a bottom in housing may be forming.

In the data above there was no mention of our population growth.

In the data above there was no mention of historical new home starting levels.

There was no mention of what our policy will do. This will be the next big event.

Finally, do not under estimate the resiliency of America.

[NI123]

@ Tony Soprano: Germster, is that you?

[Tony Soprano]

I am killing germs on this site.

That is what a Germster does.

There are a lot of germs on this site to keep me busy for a good while. lol

[gwinner]

I bought my first home in San Diego in spring of 1990 at market peak. The housing market went south that summer and the bottom was realized about 1994. It took until 1997 to get back to the price I originally paid. In San Diego the run-up in the late 80's is dwarfed by what we experienced between 1997 and 2005. 2006 was a plateau year and we started our current decent in 2007. I chuckle at anyone who wants to believe we're near bottom (at least in San Diego) given the magnitude of current calamity, which was at least partially created by our brilliant Federal Reserve. Markets like the Inland Empire may be approaching bottom as they have already corrected by 30 to 50 percent, but you'll still see a home on the market there listed near 2005 prices while a REO down the street sells at a 30 to 50 percent discount.

[john the bear]

Something important to consider, when trying to figure out where the housing bottom arrives. During the last year, more than 100,000 jobs have been lost in mortgage companies and banks that formerly helped originate a home loan. With fewer people, it will take longer to process a loan.

Also, with the lower price trends, how will real estate appraisers determine what is "market value." Market Value must be based on comparable sales, and for a time there will not be any comparable sales to consider. Appraisers are suddenly held to a higher standard and state license over sight will be increased, again making the turnaround time to get an appraisal longer. This time delay will be of great importance.

Remember on the way down, you could get a loan approved in hours, because the loan originator could immediately sell it to Bear or some other idiot on Wall Street and not have to worry about it. Now, with the meltdown of the securitization process, banks and savings and loans will have to hold home loans for the 30 year term, just like in the old days. So, where will banks that are working with a smaller capital base get the money to make up for all the loan origination's that they did before the crisis.

Bottom line ... the housing price decline has only just begun and there will be plenty of pain throughout the entire economy. It is time for some very serious prayer. A country based on Faith in God and his Son Jesus Christ will survive,but not without pain. He never promised life without pain, especially when a liberal country turns it's back on him.

[nickgogerty]

my bias is for affordability metrics to probably be overshot on the downside.

nickgogerty.typepad.com/designing_better...

[RW]

Does anyone think the housing market and assoc. stocks are going to do a U turn as soon as they hit bottom? Or is there anyone else that also thinks they will move strait sideways for a long time before any real gains?

[F Alfredo]

Stocks may have priced in what we think will happen. But the actual RE market will take a while to reach equiclibrium prices where actual demand for houses are met with supplies that are priced right.

ANd there's the risks - that we all know by now - inflation because of agressive rate cutting by the Fed, incoming bulk of foreclosures that may significantly affect consumer confidence/behavior, new policies/politics that would minimize the impact on certain demographics/business sectors but exacerbate others' conditions.

By no means is this over.

[shannon]

John the Bear - this is not a country based on Jesus Christ, why don't you keep your religious rants out of a topic/post they clearly do not belong????

[Yoski]

"We have the best Federal Reserve system in the world."
Wow! That means you've studied all other Federal Reserve systems in the entire world an we have the best? I am in awe dude, you're my hero! Thanks so much, I can sleep better now!

[Tony Soprano]

Since there is so much angst directed toward the Fed and the US Government, I decided to listed some events, not all of them, that had dramatic ramifications on lives, cost and the psychology of our country. I started in 1906 because it’s just a little over a hundred years. As I compiled the list, I could not help but feel the great sacrifices that many American’s have made and what a resilient country, economy and government we have in American.

The 1906 San Francisco Earthquake and fire, registered 8.25 on the Richter scale; estimates range from 700 to 3,000 dead or missing, approximately 225,000 injuries and $400,000,000 in 1906 dollars.

Recession, May 1907-June 1908, 13 mo

Recession Jan. 1910-Jan. 1912, 24 months

Completion of the Panama Canal, 1914 – 27,500 workers are estimated to have died

Recession Jan. 1913-Dec. 1914 23 months

World War I -- 116,708 killed – 33 billion

Spanish influenza, 1918, killed over 500,000 people in the worst single U.S. epidemic.

Recession Aug. 1918-March 1919 7 months

Recession Jan. 1920-July 1921, 18 months

Recession May 1923-July 1924 14 months

Recession Oct. 1926-Nov. 1927 13 months

The Great Mississippi Flood of 1927, flooded 27,000 square miles, 246 killed

The Great Depression, Black Tuesday, crop prices fell by 40 to 60 percent, after the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By 1933, depositors had lost $140 billion in deposits.

The Dirty Thirties, longest drought of 20th century. Peak periods were 1930, 1934, 1936, 1939, and 1940. The "dust bowl" covered 50 million acres in the south-central plains during the winter of 1935-1936.

Labor Day Hurricane of 1935, 400 killed

Recession May 1937-June 1938 13 months

World War II – 408,306 killed – 360 billion

Wartime Controls: 1941-1945 rationed consumer items ranging from sugar to gasoline

Recession Feb. 1945-Oct. 1945 8 months

The Marshall Plan, July 1947 – 13 billion in economic and technical assistance were given to help the recovery of the European countries

Recession Nov. 1948-Oct. 1949 11 months

Korean War, July 1951 - July 1953 – 33,000 killed in action

Recession July 1953-May 1954 10 months

Recession Aug. 1957-April 1958 8 months

Recession April 1960-Feb. 1961 10 months

The Cold War, some estimates shows $8 trillion was spent, worldwide, on nuclear and other weapons between 1945 and 1996

The Cuban Missile Crisis, Oct. 1962

Good Friday Earthquake (1964) In Alaska, it was the fourth biggest earthquake recorded

Vietnam War, 1963 – 47,378 killed in action

The murder of JFK, 1963 Nov

The Gulf of Tonkin Incident, Aug 1964

The murder of Dr King, April 1968 and Bobby Kennedy, June 1968

The city riots of April, 1968 – 30 cities affected

Hurricane Camille, Aug 1969, 259 killed

Recession Dec. 1969-Nov. 1970 11 months

Stagflation of the 1970s began

Nixon first imposed wage and price controls on August 15, 1971

Oil Embargo, Oct 1973 long gas lines

Recession Nov. 1973-March 1975 16 months

Articles of Impeachment of Nixon started
(Approved by a vote of 27-11 by the House Judiciary Committee on Saturday, July 27, 1974.)

Deregulation: 1974-1992 this era began when Nixon left office

Three Mile Island nuclear power plant crisis, March 1979

Mount St. Helens eruption 1980

Recession Jan. 1980-July 1980 6 months

Prime reached unbelievable 20% in January 1981,

AIDS was first reported June 5, 1981 by the government – It is thought that more than one million people are living with HIV in the USA and that more than half a million have died after developing AIDS.

Recession July 1981-Nov. 1982 16 months

California earthquake 1983

The 87 market crash - Black Monday

California earthquake, 1989

Recession July 1990-March 1991 8 months

Iraq invaded Kuwait on August 2, 1990

The Persian Gulf War, 1991 or Desert Storm Jan 1991

Hurricane Andrew 1992 very destructive United States hurricane

The Great USA Flood of 1993

Intervention in the Former Yugoslavia,

Dot Com Bubble, climaxed on March 10th, 2000 with the NASDAQ peaking at 5132.52

9/11 Attack, 2,974 people died

Recession March 2001-Nov. 2001 8 months, Airline Industry Collapsed

Enron bankruptcy in late 2001, employed 22,000

WorldCom, July 21, 2002, filed for Chapter 11

Iraq War, March 19, 2003 – 4,000 dead

Hurricane Katrina, late August 2005, 1,836 people lost their lives

Start of the Great Housing Recession or Sub-prime Recession 2006 or 07, 08? Date to be determined.

[User 166711]

As I understand it, from a foreclosure attorney, the adjustable rate mortgages started "adjusting" big time in November 2007, and will continue for two more years because of the 3 to 5 year terms, so that it will be fall to winter 2009 before things even out and the market balances itself. Makes sense to me.