Tuesday, April 26, 2005

"Hot Is Not Correct Term": What Is?

It is interesting to watch the glee turn to confusion as the "experts" realize the sales numbers of the past two days prove them wrong. "'This housing market is so hot that hot is not a correct term for it,' said Joel Naroff at Naroff Economic Advisors."

"The problem is, we are talking about levels that simply are unimaginable, and therein lies the rub. As long as mortgage rates remain low, the housing market will keep on going. However, the pace set in March is likely not to be repeated soon as it was such a huge increase over the previous record. So look for a sharp decline in April," Naroff said.

"'It's certainly not out of the question that the year could turn out to be another record,' said David Seiders, of the National Association of Home Builders.'This is just astounding.'"

"David Lereah said, "My view is there'll be air coming out of a balloon rather than a balloon popping because markets are too healthy right now." Mr. Lereah has said that for sometime; meanwhile the bubble grows.

"'Once I start to see inventories increase in a meaningful way in some areas, then I'll start to see where these balloons might be,' Lereah said. 'Right now I can't find them.'"

16 Comments:

At 12:35 PM, Anonymous Anonymous said...

"Stupid" is the correct term.

I just shake my head at the housing market these days. Even worse, as far as I am concerned is the press that covers them. "Record Sales !" "Sure Thing !" "Can't Lose !" "Slowdown, Not Crash"

Lets see... take 80 million boomers, add unlimited liquidity via mortgages backed by Fannie Mae, lower the qualifying requirements. Add a massive dose of speculation and you have "INVESTMENT STUPIDITY" I'm sorry, but there isn't any other way to describe it.

It isn't hot. It isn't rational. It isn't prudent. It isn't long term. It isn't a good thing. It is STUPID.

 
At 12:48 PM, Anonymous Anonymous said...

I am in the market for a new home, but after reading that missive, I think I may buy 2 or 3.

TheGuru

 
At 1:00 PM, Anonymous Anonymous said...

From MSNBC:

"The national median sales price on a new home, however, dipped in March to $212,300 compared with $234,100 reported for February."

Probaby due to more condos ! Just what we all need: more condos !

 
At 1:00 PM, Anonymous Anonymous said...

I've come to understand that the leaders in the real estate and stock industries lie about the state of their markets to encourage the dumb public to keep shoveling money their way.

And since the mass media is paid and/or owned by these very industries, they just spread the lies.

But then again, maybe housing prices will double again while salaries stagnate...that's sustainable!

 
At 1:08 PM, Anonymous Anonymous said...

Foreign investors think the housing report was posititve. The dollar rose.

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7BB2887881%2DA005%2D494E%2DBCE8%2D5687C5C2E045%7D

I'll bet that they see the housing situation as driving inflation, thus forcing the Fed to raise interest rates.

 
At 1:22 PM, Blogger Melody said...

FYI:

When looking at "Existing Home Sales" keep in mind that the way this data is reported was recently changed by David Lereah, Chief Economist for the National Association of Realtors.

Previously, the NAR reported three categories of Existing Sales: Single Family; Condo; and Co-op.

Effective April 1, 2005 these sales were consolidated into one single Existing Home Sales and the historical data has also been changed. Last month we heard about the change in "Existing (single-family) Home Sales" and this month we are hearing about the change in "Existing (single-family, condo, co-op) Home Sales".

This is important. As you reach the end of a real estate bubble, "Existing Single Family Home" sales decline as few buyers can afford to buy, while the speculative activity moves to "Existing Condo/Co-op Home" sales which increase all the faster.

If BMW previously sold 5 million luxury cars and now sold 5.5 million Mini-Coopers but no luxury cars - how well are they doing really? We need to look at total dollar sales - something which is not reported for "home" sales.

 
At 1:33 PM, Anonymous Anonymous said...

New rules won't hurt Fannie:

http://www.msnbc.msn.com/id/7642452/

Original Sin: (FED Morgan Stanley)

http://www.morganstanley.com/GEFdata/digests/20050425-mon.html#anchor0


FED happy wages aren't rising:

http://www.rockymountainnews.com/drmn/business/article/0,1299,DRMN_4_3729221,00.html

This underlines our predicament. Prices are rising. Housing has risen. If wages now rise, the Fed is going to crank rates way up. Any way you look at it, housing is doomed.

 
At 1:35 PM, Anonymous Anonymous said...

I get an email showing new listings in my city (bay area) between 700k and 1.2M. They also send a notice about price changes. There was one price reduction in Feb, 3 in March, 8 so far in April.

 
At 1:38 PM, Anonymous Anonymous said...

Melody,

That's right... for the first time ever, starting just this past january, they are lumping together single family detached homes, condos, townhouses, etc. into one big fat number... and that one number is now the existing home sales number...

and the reason why they're doing it is because condo sales are hot and single family detached homes are flat... this is a really bad shell game... and sooner or later, people will catch on...

 
At 2:04 PM, Anonymous Anonymous said...

>Foreign investors think the housing report was posititve. The dollar rose. I'll bet that they see the housing situation as driving inflation, thus forcing the Fed to raise interest rates.

What's behind the recent gold strength (especially combined with dollar firmness)? Are there people who were using euros as a proxy for gold and are now switching?

 
At 2:12 PM, Anonymous Anonymous said...

"What's behind the recent gold strength (especially combined with dollar firmness)? Are there people who were using euros as a proxy for gold and are now switching?"

I think gold is being driven by smart people who can see the end of the game we call the liquidity bubble.

I think there is a growing group of investors that don't think the Fed can keep the overnight rate at 2.75% and handle the deficits, etc.

 
At 6:44 PM, Anonymous Anonymous said...

Didn't really know where to post this but here is an excellent housing bubble article by Richeb├Ącher entitled "The Great Wealth Deception". Here's a snippet:

"For generations of economists, it used to be a truism that "wealth creation" implies capital formation in terms of generating income-creating tangible assets. The emphasis was on capital formation and the associated income creation. To indiscriminately put this label of "wealth creation" on rising asset prices in the absence of any income creation is plainly a novel usurpation of this concept. It is in essence wealth creation through a stroke of the pen.

Measured by their net worth (market value of household assets minus debts), American households have amassed unprecedented riches in the past few years, despite spending in excess of their current income as never before.

The first question springing to mind in the face of this "wealth miracle" is its cause or causes, leading immediately to the next question: whether or not this drastic increase of house prices relative to the consumer price index has to be seen as a "bubble," which sooner or later have the habit of bursting.

In old textbooks, you would read that higher saving increases capital value. But in the U.S. case, capital values have soared while personal and national saving has collapsed. What else, then, has the power to lift asset prices?

Everybody knows the answer, but few want to admit it: Lured by artificially low interest rates and easily available credit, private households have stampeded as never before into the purchase of homes, boosting their prices. Artificially low interest rates and easily available credit are, actually, the key features that specifically qualify an asset bubble."

http://www.mensnewsdaily.com/archive/r/richebacher/2005/richebacher042705.htm

 
At 7:31 PM, Anonymous Anonymous said...

The main difference between this bubble and the dot come bubble was the hope that the earnings of the dot coms would eventually justify their share prices. Maybe so with google and yahoo, but 99% are gone. The U.S. is diverting a huge amount of "investment" money into assets that produce no other income than the implied rent. Meanwhile, China builds factories and industries that are sweeping our jobs away. The current real estate bubble is based on speculation that incomes will go ever higher when the fact is they are, on average, not growing faster than inflation and inflation is probably understated. Add to this the growing federal deficits, the pending Medicare and Social Security crises, and globalization, and its pretty clear that any income gains in the long run will probably be offset by inevitable tax increases.

But alas, the dynamics of the housing market have changed. 10 years ago, most real estate was financed with 20% down and 30 year fixed loans. Now it can all be done with little down and a 10 year interest only adjustable. Wallah! You can now buy a home and afford the monthly mortgage payments. Question is, have you really bought a home or are you just renting the mortgage money for 10 years and really purchasing a ten year option to buy?

 
At 9:29 PM, Anonymous Anonymous said...

"Meanwhile, China builds factories and industries that are sweeping our jobs away."

I own a company and we need some contract manufacturing done. There is nobody left in the US that builds anything !

I'm pretty sure that we'll be getting our stuff built in China.

It is sad and I'm not looking forward to the headaches of offshore manufacturing, but the quotes we got back just aren't competitive. There seems to be a ton of overhead built into every quote. A part that should cost $40 to $50 to build is getting quoted at $98.

 
At 9:55 PM, Anonymous Anonymous said...

"are you just renting the mortgage money for 10 years and really purchasing a ten year option to buy"

They will wish it was an "option", but no, they "own" it.

 
At 4:27 PM, Anonymous Anonymous said...

beautiful post. just look at the size of the inventory on the books at those homebuilders.

 

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