Housing news: Bottom is falling out of the Bottom
The latest housing sales data was released and it's really bad - worst news in 40 years.
NEW HOME SALES DOWN
To begin with, August and September #s were both revised down. If you recall, the August preliminary data gave the market a bump up because it showed a sequential increase.
Well, guess what: it was actually a slowdown
Aug original 795K
Aug revised 711K
Sept Original 770K
Sept Revised 716K
October estimates are 728K, but we can expect that to be revised down next month
So in 2 months, 138K homes did not in fact sell. And another 191K homes were built during this time. Not counting the inventory from previous months, that's a combined 2 month total of 329K homes that were added to the market.
At $250K per home, that's $82B in unsold inventory in just 2 months.
But prices will stay flat, right? WRONG. October prices fell 5.5%.
But it won't happen in California at least. WRONG
According to CAR, Existing Home sales decreased 40% in October in California compared with the same period a year ago, while the median price of an existing home fell 9.9% to just under $500K
Even better: "Financing issues have dogged entry-level buyers since early 2007, but they spilled over into the middle and upper-tier markets in the last few months,’ said C.A.R. President William E. Brown. ‘The decline in sales at the upper end of the market contributed to a significant decline in the statewide median price as even well-qualified borrowers had difficulty securing financing.’”
Inventory of existing homes is now 16 months.
So we have surging inventory added to an already impressive inventory base. San Diego November escrow closings were just 5% of all listings!
Add to this the fact that foreclosures have doubled since last year nationwide and are rising.
Foreclosures will surge by April as the peak of ARM resets begins.
Oh, and lenders now expect 20% downpayment.
The pressure on prices is immense and growing. Considering that economic data is still strong, we are in for a very rough ride ahead as we move into a recession and people's finances weaken.
The secrect to remember is that nobody believes trends until they show up as publicly reported facts. Until th eimpact shows up in a company's quarterly report, it isn't a fact. I made this mistake exactly a year ago when I shorted a lot of housing and financial companies: I was too early. That is to say, th ereality was underway but it wasn't quite hitting the books.
With housing, it takes months before an actual foreclosure happens and then months before it shows up on the books as a distressed sale. So while we can see the mess today, it will be Jan-April when companies start losingthe ability to hide it.
Next summer is when the fear and panic hit. When California prices drop another 15%. Don't even think about buying before 2009.
Meanwhile, Lowes and Home Depot and Sears can't be shorted enough
NEW HOME SALES DOWN
To begin with, August and September #s were both revised down. If you recall, the August preliminary data gave the market a bump up because it showed a sequential increase.
Well, guess what: it was actually a slowdown
Aug original 795K
Aug revised 711K
Sept Original 770K
Sept Revised 716K
October estimates are 728K, but we can expect that to be revised down next month
So in 2 months, 138K homes did not in fact sell. And another 191K homes were built during this time. Not counting the inventory from previous months, that's a combined 2 month total of 329K homes that were added to the market.
At $250K per home, that's $82B in unsold inventory in just 2 months.
But prices will stay flat, right? WRONG. October prices fell 5.5%.
But it won't happen in California at least. WRONG
According to CAR, Existing Home sales decreased 40% in October in California compared with the same period a year ago, while the median price of an existing home fell 9.9% to just under $500K
Even better: "Financing issues have dogged entry-level buyers since early 2007, but they spilled over into the middle and upper-tier markets in the last few months,’ said C.A.R. President William E. Brown. ‘The decline in sales at the upper end of the market contributed to a significant decline in the statewide median price as even well-qualified borrowers had difficulty securing financing.’”
Inventory of existing homes is now 16 months.
So we have surging inventory added to an already impressive inventory base. San Diego November escrow closings were just 5% of all listings!
Add to this the fact that foreclosures have doubled since last year nationwide and are rising.
Foreclosures will surge by April as the peak of ARM resets begins.
Oh, and lenders now expect 20% downpayment.
The pressure on prices is immense and growing. Considering that economic data is still strong, we are in for a very rough ride ahead as we move into a recession and people's finances weaken.
The secrect to remember is that nobody believes trends until they show up as publicly reported facts. Until th eimpact shows up in a company's quarterly report, it isn't a fact. I made this mistake exactly a year ago when I shorted a lot of housing and financial companies: I was too early. That is to say, th ereality was underway but it wasn't quite hitting the books.
With housing, it takes months before an actual foreclosure happens and then months before it shows up on the books as a distressed sale. So while we can see the mess today, it will be Jan-April when companies start losingthe ability to hide it.
Next summer is when the fear and panic hit. When California prices drop another 15%. Don't even think about buying before 2009.
Meanwhile, Lowes and Home Depot and Sears can't be shorted enough
posted by Andrew at
9:58 AM
2 Comments:
Andrew..I think the hype on US recession and market corrections is bit overdone. Emerging markets appreciated more than 50% this year and sitting on high cash. Any correction in US market will be an opportunity and US assets will become more attractive to global players. My guess is that there will be lot of capital inflows to US markets. Also what about the folks in US who are not affected by Sub prime mess where they will move the cash? To low interest CD’s? Or to already highly appreciated emerging markets? NO ..
I am not sure that I agree with all your points. I do think that we are heading to a major recession. The market impact will be dampened somewhat by foreign investment.
But there really is no such thing as nobody affected by the subprime mess. As housing prices continue to drop, there is a wealth effect. Folks stop spending. Consumer spending is the driver in our economy.
Moreover, stock markets don't rise in recessionary periods. So there is no corresponding counter. As markets continue to be choppy and then head down, people will again tighten belts.
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