Lowe's Companies Inc. (LOW)

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  • commenter
    Richard Shaw
    May 08 10:10 AM
    My Website
    The WSJ Is Wrong on the Housing Crisis [view article]
    Mijka,

    You have generated a solid threat of discussion. That's a good thing.

    Even though comment threads have a general tendency to lean toward criticism more than toward praise, stimulating a critical discussion is better than writing articles that receive no comments at all.

    Demographic trends are one of the most powerful drivers of long-term investment trends. You are on track by focusing on demographics as a force in the market.

    I don’t have a view on whether the particular data you chose is the "right" data or if your conclusion would be modified by incorporating some of the additional factors mentioned by some of the commenters, but I do believe your intent to uncover the demographic underpinnings of the long-term housing market is a good idea.

    In addition to housing, demographics will drive other key elements of our economy and the economies of other countries. One that may be of interest to someone out there is the likely portfolio allocation decisions of that growing 70+ cohort in terms of stocks versus bonds.

    If they use traditional rules of thumb and heavily allocate to bonds, there may be noticeable interest rate consequences, or equity demand consequences. On the other hand other strong forces such as international investor behaviors, government deficit or surplus budget conditions, and the proportion of the population in an asset accumulation stage versus those in an asset consumption stage will be apply other forces. That area might be fertile ground for research.

    Some high profile demographics are likely to drive economics in other parts of the work too. The excess of young males in China is an issue. The graying of Japan and Europe versus the slower graying of the US due to immigration rates is an issue.

    The apparent fact that literacy is a driver in economic development, and the fact that literacy is very low in some countries may help predict where economic growth in the emerging world is more likely to be high and low.

    The current and future shape of the population pyramids (which you are in effect describing in a different graphical format); can be useful in predicting consumption patterns for a number of goods and services.

    As a baby-boomer myself, I have watched my cohort distort every thing it encountered. We were like the picture in Antoine de Saint Exupery's children's book "The Little Prince" of the snake that swallowed the elephant. We expanded demand beyond supply for each new private or public good or service appropriate for our then attained age. As we aged further, we left supply greater than demand for goods and services no longer of demand to us – the follow-on group was smaller in size than our own. That created real economic consequences and flux.

    Anyway, I am happy to see dialog around demographics as an investment driver and hope that you and others will keep it going here and with other articles.

    Richard Shaw
    QVM Group LLC
    Reply
  • commenter
    MikeHr
    May 08 09:53 AM
    The WSJ Is Wrong on the Housing Crisis [view article]
    One thing that no one mentioned is the still high cost of home ownership. The housing mania was fueled by zero down, stated income loans that pushed prices up to unrealistic levels. It was the greater fool theory at work. I'll buy this home for this absurd price because in a year I'll sell it to some other fool and make a pile of money. Some people did make a lot of money. Now some people are losing a lot of money. A debt pyramid can only go so high before it collapses. This is what we are experiencing now. With the mortgage market going back to traditional requirements (20% down and documented income and assets), the dynamics have changed. The debt engine that drove prices to unrealistic levels is gone. Do the math. A $1 million home, common in the SF Bay Area, now requires a $200,000 down payment and monthly payments of $4,860, plus property taxes of approximately $1,100 per month, plus insurance, plus utilities and other expenses. Reply
  • commenter
    altoidsman
    May 08 12:01 AM
    The WSJ Is Wrong on the Housing Crisis [view article]
    I've had the same thought for a while. As soon as the short term starts looking up for the housing market, this long term trend will start to kick in. Reply
  • commenter
    Vikram
    May 07 11:00 PM
    My Website
    The WSJ Is Wrong on the Housing Crisis [view article]
    The arguments presented in this article cherry-pick certain statistics to put a negative spin. The number of homes needed is primarily determined by what is called 'household formation'. A new household is formed when a person or a couple move out from shared housing (parents, siblings) and get a home of their own. Along with demographics, a key factor in the formation of new households are economic. When the economy is good and jobs are plenty, young people move out and get their own homes (rental or owned); when the economy is bad, they move in back with their parents/siblings.

    For the article to be credible, the author should have compared the new household formation rate instead of selected demographics. A decline in home ownership rates does not mean a decline in housing demand. A lot of people rent their homes. The distribution between renters versus buyers which may change, not the overall demand for homes.

    There is a misconception that as soon as boomers hit retirement age, they will sell their homes and go and live in a nursing home. Thanks the advances in health and technology many boomers are in no rush to quit their lifestyle. In fact there are many studies which suggest that the anticipated rush to the sun-belt by retiring boomers is over-hyped. People do not dump the community they have spent a life-time in just to enjoy warmer weather. Even if they decide to down-size and move to a smaller home, they are likely to buy another home in the same community.

    When it comes to state of the housing market, new homes are a critical metric since they correspond to the additions to the housing stock; existing homes do not change the total number of homes. Further, unlike home owners, who in many cases are not in a rush to sell, home builders are much more likely to reduce prices to drive sales since an unsold home costs them a lot of money. Home owners continue to live in their home, while they wait for their home to sell; something which contributes to the stickiness of home prices in down-cycles. The downward pressure on home prices is primarily driven by sales by builders; home owners typically are the last to reduce their price. As a result if new home prices stabilize, existing home prices will follow quickly; existing home market lags the new home market by a few months, but it still follows it.

    And finally the comment about Traxis' equity exposure to home builders and financials are irrelevant. Any smart money manager will be building a position in these cyclical sectors after they have been beaten down so much; they will recover as the economy moves out of the downturn.     Reply
  • commenter
    MajorTom
    May 07 04:10 PM
    My Website
    The WSJ Is Wrong on the Housing Crisis [view article]
    Excellent Work.
    Mike, where do you get the charts?

    Also, it appears that the age of materialism is largely over, thankfully, and that "Less" in the "new more."

    Welcome to Century#21.

    Time to some REAL crises ... like health care and energy.     Reply
  • commenter
    jcrash
    May 07 03:23 PM
    The WSJ Is Wrong on the Housing Crisis [view article]
    You need some more old people in your family.

    At 87, my grandfather is still living in his house with his wife. Yes, she has had 3 heart attacks and he has had colon cancer, but they are on their own, at home.

    If you think 70 is "time to retire to a nursing home" you are seriously out of touch.     Reply
  • commenter
    adam axler
    May 07 02:59 PM
    My Website
    The WSJ Is Wrong on the Housing Crisis [view article]
    Stu, this is the type of comment people should strive for on this site with facts to support opinions/arguments.

    Bearfund, agree with the folly of the "pent-up" demand theory for first-time buyers who will suddenly rush in and save falling prices. When are these first-time buyers converting from savings-less, maxed-out credit card users to a group who can afford a down payment on even a $100K home or condo? No time soon...     Reply
  • commenter
    darcydancer
    May 07 01:59 PM
    The WSJ Is Wrong on the Housing Crisis [view article]
    Stu hit upon soething interesting-that looks like a hedge against wealth fund. Reply
  • commenter
    billddrummer
    May 07 01:24 PM
    The WSJ Is Wrong on the Housing Crisis [view article]
    Originally posted May 6 12:44 pm

    Another indictment of the 'new' WSJ, that seems to like to sensationalize headlines to sell newspapers.

    What's also at work is the inventory glut that's appeared in the high-cost areas. 11.5 months of existing inventory in northern NV based on current sales rates means that housing prices will continue to drop until the inventory is worked off. Add to that the tightened lending criteria that require down payments (unlike in 2005) and you have a long, slow, recovery, but only to the sales levels of pre-2003. Since exotic mortgage products are history, the standard underwriting criteria will now apply in the vast majority of cases.

    And through it all, builders continue to build, albeit more slowly than before.

    Recovery? Perhaps return to a 2003 baseline by the next election is the best the industry can hope for.     Reply
  • commenter
    hardmanb
    May 07 12:44 PM
    The WSJ Is Wrong on the Housing Crisis [view article]
    Interesting analysis by Samora, because it factors in "other" economic and demographic trends in addition to the simplistic "pricing" analyses that are prevalent. Also, it contrasts to the fraudulent and misleading figures of the NRA (National Realtors Association) that reports "sales" on the signing of "contracts", and contract failures have escalated to 40% and sometimes more.

    Various factors, such as declining consumer purchasing power; auto financing crisis/defaults; credit card defaults; rising gas prices; declining traditional retirement programs; lack of boomer financial preparation for retirement; and purchasers "waiting" for bigger bargains and waiting for the price decreases to bottom...all also factor in as delaying the recovery of the existing houses on the market.     Reply
  • commenter
    John
    Angstrom
    May 07 12:12 PM
    The WSJ Is Wrong on the Housing Crisis [view article]
    stu, that is hilarious! He better hope the crisis is over with these positions Reply
  • commenter
    stu
    May 07 12:02 PM
    The WSJ Is Wrong on the Housing Crisis [view article]
    When you download the q407 SEC filing of the WSJ author's hedge fund, you find:

    * 80,000 shares of Lennar
    * 72,000 shares of Centex
    * 165,000 shares of DR Horton
    * 20,000 shares of Hovnanian
    * 14,000 shares of Meritage
    * 110,000 shares of Pulte
    * 70,000 shares of Toll Brothers

    And, just for kicks:

    * 27,000 shares of Bear Stearns
    * 170,000 shares of Citigroup
    * 130,000 shares of Goldman Sachs
    * 65,000 shares of Citizens Bank
    * 440,000 shares of Morgan Stanley
    * 102,000 shares of Morgan Stanley China

    From a Calculating Risk comment     Reply
  • commenter
    bearfund
    May 07 10:53 AM
    The WSJ Is Wrong on the Housing Crisis [view article]
    There's a problem with the idea that all the 20 and 30somethings "living with Mom and Dad" as you put it will suddenly jump in and start buying houses. It's a problem of taste. Most of the most distressed property is in locations that are far from urban centers, entail extremely long commutes (by car, because there's no transit) to work, are as a result entirely car-centric, and offer little or no social or cultural opportunities. Yes, I'm talking about the 'burbs. Strip mall central. Two of the hardest-hit areas are the California central valley and Las Vegas. Both typify the exurban explosion we saw in the 1990s. Neither is attractive to Generations X and Y, the people you're relying on to buy up this massive, massive stock of housing. Meanwhile places like Portland OR, New York, San Francisco, and Seattle have experienced at most mild declines in house prices and sales, and even those figures tend to be skewed by statisticians' assumptions about substitution: that a house in Oakland is a direct substitute for one in San Francisco and that they should be considered a single market (they even include the entire east bay all the way to Fremont, which if you're familiar with the area is hysterical). That assumption itself denies the taste- and demography-driven changes that are taking place in the market right now. I can assure you that prices of quality houses in San Francisco (neighborhood that's not in the worst of the ghetto, buildings not needing major repairs) have not fallen a dollar in the past year. I rather doubt they will, either. There's plenty of demand. In Manteca? Ehh, not so much. The short-term "housing crisis" and "credit crunch" have people looking the wrong way. The BIG pendulum is swinging again. It takes maybe 60 years to go from one side to the other, and right now it's swinging back toward urbanism. Don't get knocked over by it while you're looking the other way. Reply
  • commenter
    AlexS
    May 07 10:41 AM
    My Website
    The WSJ Is Wrong on the Housing Crisis [view article]
    A decade and a half is a long time. Houses get built and houses get old. They fall apart and people move up to new houses. Forecasters say "this time it's different" and it usually doesn't turn out to be. As for the Wall St. Journal editorial page, a lot of liberals complain that it's an editorial page that isn't politically liberal (the NERVE!!). Come on people. Can't you at least stand one regular paper that doesn't have the editorial views of the New York Times, L.A.Times, Washington Post, Boston Globe, etc. etc.? Are you so afraid of different ideas that you can't stand to see them in print? Reply
  • commenter
    User 169377
    May 07 10:18 AM
    The WSJ Is Wrong on the Housing Crisis [view article]
    BTW, I love the baby boomer getting older theory you attempt to sell. They tried selling that in AZ, NV and FL in 2004, saying the baby boomers are retiring and buying cheaper sunbelt houses and condos in advance of retirement. They argued that the sunbelt housing market will continue to soar. Then 2007 and 2008 rolls around and oops....that theory is now dust. Same as Mr Samora's theory will be next year. Reply

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