Jim Turse

Rachael Granby Is on Maternity Leave

Wow! Sitting out here on my little island in the Pacific, I missed the news. Congratulations, Rachel! Thank you so much for Wall Street Breakfast. It is the first thing I read each day, and appreciate what it took for you to put it together....

Increase in New Home Sales Could Mean the Sector Has Bottomed

U.S. apartment vacancy rates are at a high, in April 2009, of 7.2%, suggesting that some part of the population is taking advantage of low mortgage rates to purchase from existing home inventories. Although down slightly, the home ownership rate remains at about 67.5%, a slight decline from the high of 69.2% reached in 2004. While this is the same as 2000 levels, it is above previous decade levels. This suggests to me that the overhang of single family homes is as much about speculation as it is about underlying market conditions. This is a remarkably stable ownership rate in an extraordinary downturn of the economy. Demographics alone do not suggest an increased demand for new homes at anywhere near the rate they were built in 2005-2008. New construction outpaced household formation rates, and inventory simply has to be absorbed. Both household formation rates and household types are changing, and those factors will adjust the absorption rate as well.

June New Home Sales (.pdf): 384K, up 11% from May, vs. consensus of 350K. Sales are -21.3% vs. last year. Median home price of $206,200 was down from May's $221,600. Inventory of 281K homes is an 8.8 month supply, down from 10.2 months in May.

U.S. apartment vacancy rates are at a high, in April 2009, of 7.2%, suggesting that some part of the population is taking advantage of low mortgage rates to purchase from existing home inventories. Although down slightly, the home ownership rate remains at about 67.5%, a slight decline from the high of 69.2% reached in 2004. While this is the same as 2000 levels, it is above previous decade levels. This suggests to me that the overhang of single family homes is as much about speculation as it is about underlying market conditions. This is a remarkably stable ownership rate in an extraordinary downturn of the economy. Demographics alone do not suggest an increased demand for new homes at anywhere near the rate they were built in 2005-2008. New construction outpaced household formation rates, and inventory simply has to be absorbed. Both household formation rates and household types are changing, and those factors will adjust the absorption rate as well.

The Looming McMansion Attack

As a member of the Boston Council of ULI as far back as 2003 we were looking at the unprecedented concentration and volume of McMansion construction in major metro suburbs and asking the question "Who is going to buy these homes in the future?". The demographics simply do not support the resale of these homes to younger buyers at prevailing pricing. The cohort of 35-55 year-olds that are capable of buying property at this value is significantly smaller than the same age size "baby boom" cohort that snatched up these properties at the outset. Cost growth for energy to heat and power these homes is also steep, making them even less attractive to more conservative younger buyers facing no real wage growth. Boomers banking on their houses for retirement income are in for a rude awakening.

John Hussman: Avoid Being the Greatest Fool

In fairness to both John and CNBC, CNBC has consistently presented commentary indicating that retail investor inflows to mutual funds are at significant lows. Frankly, I have not heard the comment he referred to that "mutual fund managers are sitting on cash", but CNBC presents a pretty good cross section of talking heads, often in conflict with one another. I run CNBC in background for about 2-3 hours while working on our own portfolio, so maybe I'm getting a little broader view.