Well we had a triple witching hour of news that came out early this morning. Lets start with the Case-Shiller Index and new home sales. Surprise, Surprise, home sales continue to decline at a record pace. Here is the scoop on both numbers from Bloomberg:
"May 27 (Bloomberg) -- Home prices in 20 U.S. metropolitan areas fell in March by the most in at least seven years, pointing to weakness in the housing market that will constrain economic growth.
The S&P/Case-Shiller home-price index dropped 14.4 percent from a year earlier, more than forecast and the most since the figures were first published in 2001. The gauge has fallen every month since January 2007.
Prices continue to slide as record foreclosures put more homes on the market and stricter lending standards make it harder to get loans. Falling home values are slowing consumer spending, threatening to halt the six-year expansion.
``Many households are putting their home-buying plans on hold, given the expectations that the house price corrections will persist,'' Celia Chen, an economist at Moody's Economy.com in West Chester, Pennsylvania, said before the report. ``The housing downturn remains in full swing.''
New Home Sales:
Sales are up slightly in April from the horrendous 17 year low that we had in March. I wouldn't get to excited about this increase. This is the spring selling season and the fact we are selling new homes at a 500,000 rate is not promising. From the same article:
New-Home Sales Rise
A government report showed new-home sales unexpectedly rose in April after readings for the prior month were revised down. Sales increased 3.3 percent to an annual pace of 526,000 from a 509,000 rate the prior month that was the lowest in 17 years, the Commerce Department said today in Washington."
My take:
Well housing prices are still accelerating to the downside. There seems to be no end in sight for the housing crash. Bubbleland(CNBC) was having a difficult time trying to find any way to spin the Case-Shiller report positive. Housing continues to look dismal and is affecting consumer sentiment.
Consumer Confidence Report:
The news wasn't any better here folks. Dropping housing values and inflation combined with the virtual disappearance of home equity loans is making the consumer feel pretty bad. Consumer confidence fell to 57.2 which was a 15-1/2 year low and was lower than forecasts.
Take a look at the chart below to see how dependent consumers were on using their home equity to spend like drunken sailors.
Aren't these number shocking? 1 out of 3 cars bought in California were bought using a home equity loan. Amazing.
I wouldn't want to be a car dealer right now. Especially with higher gas prices. Unless you are selling hybrids, auto sales is a bad place to be.
This chart is a great snapshot of how the consumer must be feeling without their home equity loans. Banks are pulling these loans right and left in all of the bubble areas. Meredith Whitney predicts the dollar value of the home equity loans being yanked from homeowners will be in the trillions over the next year.
Think this will leave a mark on the consumer? Ummm let me guess...uhh yea.
Bottom Line:
The news isn't getting any better folks. The Case-Shiller was in line with expectations so stocks bounced a little on this news. Stocks were also a little stronger because the dollar strengthened and oil prices dropped a few bucks.
I expected a little bounce today because we seemed a little oversold from the slaughter last week. This is just a temporary bounce IMO.
The housing data is bleak, oil is at $130/barrel, and consumer confidence is at 15-1/2 year lows. As long as these things stay in place, stocks are going nowhere.
Hold off buying that house! Prices are still dropping. Remember NO KNIFE CATCHING including foreclosures!!! There were no signs in the Case-Shiller report that housing is stabilizing. Stay on the sidelines. Much better deals lie ahead!!
14 comments:
Jeff,
I think we're getting to the point where the numbers are so bad that nobody feels shocked anymore. The clamp-down on HELOCs has a deep-reaching impact that would be bad even *without* all the other news.
Btw, I just saw this interview with Meridith Whitney, in which she's talking about the drying up of consumer liquidity caused by the change in credit card rules (among other things):
http://www.bloomberg.com/avp/avp.htm?N=av&T=Whitney%2C%20Analyst%2C%20Says%20Credit%20Crunch%20%60Far%20From%20Over'&clipSRC=mms://media2.bloomberg.com/cache/vKMrzqdJgUD8.asf
Also, I just heard on NPR that a bunch of Quality Control advisers for mortgage companies are coming out of the woodwork and talking about how banks blatantly ignored their warnings. In Cali, some hotel workers were claiming income of $15K a month to get loans and the banks pushed out the cash even though the QC guys showed how these guys were lying...
One word comes to mind: LAWSUIT.
Mintin
Great stuff. Thanks for the heads up on the Meredith Whitney piece.
Big market reversal late morning. DOW now down.
UBS down 14% on NON US housing losses. This international housing plunge could be turning into a HUGE story.
It will be interesting to see how stocks finish today.
Hey Jeff. Re: latest Case Shiller data. Here's my comment to folks using C-S price data in Scatter Graphs on Months of Housing Inventory vs. House Prices, so as to predict future months of inventory (MOI), and therefore predicting the arrival of a market ‘bottom’
I'm an engineer and I love stats. But I know when human psychology is a trumping wildcard variable that also is very reactive to other variables. So in order to model 'predictors' of months of inventory, you have to model homeseller behavior ...even better, model what most influences a homesellers’ behavior. The behaviors in question are 1) taking unsold houses off the market listiings out of frustration and re-listing later out of desperation; and 2) Setting selling prices based on the outcome of ones emotional/mental battle over what price "I deserve" vs. what price will sell my dang house. So what influences such emotional behavior? Well the employment and financial circumstances of homesellers is key, circa 2008. Maybe our ‘PowerPoint’itis disease is suckering folks into graphing data that lacks a causal relationship to the point we seek: it’s like predicting sun rises by graphing rooster crowing (instead of vice versa) and not realizing what causes what.
There’s another human element impacting data on MOI: the semi-anecdotal evidence that banks are not filing foreclosing docs in many many cases where warranted, thus depressing REO data & listings. Such bank behavior is a result of internal battles over shortages in bank foreclosure staff and uncertainty over a veto-proof foreclosure bailout from congress, amongst other things.
Ignoring these variables is a slippery slope that possibly leads to bizarre data like a CPI that excludes items (food & energy) that inflate; and unemployment data that excludes people who don’t have jobs. It makes my ‘inner engineer’ cringe.
Avl
Your points are what makes this housing bust so fascinating to me. We all know what the end result is. A bursting housing bubble.
How we get there is what fascinates me.
There will be a psychological panic and capitulation. It will be interesting to see how long the sellers can stay in denial.
I am also curious to see what finally makes them run to the exits and capitulate.
Its the same story for the banks. Its becoming increasingly more difficult to sweep all of their housing foreclosures under the carpet.
At what point do they throw in the towel and start dumping foreclosure inventory at 50% in order to keep their capital ratios in check and avoid insolvency.
Can't you just feel the pressure building with each piece of bad news? Capitulation is not far off IMO.
Avl, that's an excellent point which tends to be forgotten in the number-driven mentality of all this.
I heard this weekend how many sellers pull listings on MLS and relist after a week or so in order to reduce the 'time on MLS' number. The net effect is that the average listing time becomes meaningless as the market gets tougher.
I also heard from a friend in Texas who was declined on a $150K mortgage. He has a credit score of 620, 20% cash and $75K income - if guys like this can't get mortgages, God help everyone else.
Jeff's question about when the banks throw in the towel and flood supply with foreclosures is an interesting one. We obviously haven't hit that point yet and housing prices have already collapsed. When they do, there will be riots in the streets.
I'm starting to change my view on the outcome of the upcoming election. I'm guessing that the Republicans will lose by default if they don't window-dress this recession more. The Party of the Economy will be seen as the Party For The Rich (which they are)...
Minton
I think they are out of window dressing..lol The Fed is out of bullets.
This debt bubble is about to bust wide open, and the government is powerless to stop it.
The 10 year rate in the bond market is pushing 4% which is a very bad sign.
This pushes rates higher and I think the bond market is starting to worry about the financials again.
an analyst on CNBC reported that the "Lehman failure" rumor is floating around Wall St. again
We all know what happened to Bear Stearns. Lehman was leveraged as much as Bear was.
If Lehman blows the Fed will probably let them go under to send a message.
Republicans are in trouble. I don't think we get through the summer without a severe correction in stocks.
Minton, good point. U know, I'm not sure it will matter much who's in the White House and who has a veto-proof majority in the Congress, because no one yet is pushing for a new economic policy not dependent on consumer spending. The real pain involves consumer spending: the pain in the auto industry points to HELOCs drying up, which points to the housing & credit crisis. The most feared aspect of the housing crisis (by policymakers) are those that dampen consumer spending...even the tears shed for loss of home equity. Money spent on gas is money not spent elsewhere. The irony is that the credit crisis was caused by measures 'over-enabling' the consumer to keep the economy going. Is economic growth driven by overwhelmingly by ‘shopping’ a model with limited viability? Does globalization put a cap on alternate growth models built on selling to others (if so, China better watch out)?
Whatever happens, as of now, I don’t see it leading to significant public rioting; my greatest fear is a disproportionate amount of the pain & suffering falling on the shoulders of those least guilty and most vulnerable...the low-income folks.
avl
My biggest fear is also the low income people.
With a negative savings rate in this country, it won't take long for them to be in a catastrophic situation.
At least during the previous slowdowns people hadn't spent themselves to death and had some savings.
I fear breadlines could pop up in a hurry if there was huge jump in unemployment.
I bet the average family couldn't make it more than
a month before they were broke...oops
Jeff, good point...I realize I should clarify my comment to Minton. The 2008 election won’t matter much as long as both parties adhere to the economic paradigm of an economy driven by consumer spending in an era where the consumer is tapped out, debt-wise. However, the 08 elections will matter when it comes to the quality of social safety-nets offered & sustained for the 'old' poor plus the 'newly' poor created from the recession, family crises spurred by high energy crisis, etc.
Avl, that's very true. I don't know if it will happen in the next term, but at some point the US has to figure that education and healthcare are going to need to be handled differently.
As with everything in Washington, this change will likely be driven by big business, since they're starting to see unreasonable costs in these areas. Two cases in point:
- Toyota's opening plants in Canada since the workers can actually read instructions and don't need color-coded cards, and healthcare is nationalized. Apparently, even with $100mm subsidies, the overall cost of operation is still cheaper up there.
- My wife develops health plans for investment advisers, and over the last 3 years they've been getting 20% more expensive annually, with 20-40% less coverage each year. As she notes, the US is now the only first-world nation where you can go bankrupt by needing hospital treatment. She has some alarming numbers of this: we all spend $1/day each on healthcare administration alone, and healthcare is 6x more expensive than anywhere in Europe if you use full-cost accounting.
Damn, I'm starting to sound like a socialist. Stop it, Minton! :-)
Minton
Between the cost of healthcare and social security for the bbaby boomers, we are screwed.
I don't see how we can afford to pay for both without severly reducing benefits.
Amen, Jeff!
The way the govt has pissed away the social security is much like the way corporations have (possibly illegally) underfunded their own pension plans so now they complain that retirees are costing too much!
Post a Comment