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FRED
11-30-06, 12:38 AM
US Oct new home sales slip, but prices rise (http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2006-11-29T152626Z_01_N28289088_RTRIDST_0_USA-ECONOMY-HOUSING-URGENT-CORRECTED.XML)
November 29, 2006 (Reuters)

Sales of new U.S. homes dipped in October and inventories rose, but builders boosted prices by over $30,000 per unit after a sharp decline in home prices a month earlier, a government report showed Wednesday.

New single-family home sales declined 3.2 percent in October to an annualized rate of 1.004 million units from a downwardly revised rate of 1.037 million in September, the Commerce Department said. Analysts polled by Reuters were expecting October sales to ease to a 1.044 million rate from a rate of 1.075 million in September.

October sales were down 25.4 percent compared to a year ago.

AntiSpin: We started the week by predicting (http://www.itulip.com/forums/showthread.php?t=653) that this week's existing home sales were likely to show declines from the same period last year but that new home sales were going to be significantly down over the same period last year. The new home sales data were generally reported today as by Reuters above: an aggregate 3.2 percent decline. In an of itself this is alarming. Since housing markets are regional and prices are strongly correlated to employment, housing is usually booming somewhere while busting or staying flat elsewhere, and so in aggregate nationally is always up at least marginally in any period, even during serious recessions such as in the early 1980s. This is the first time that home prices have declined nationally since The Great Depression, but it's reported as no big deal. Pull back the covers a bit and an even more alarming picture emerges.

Here's the report from Denver, one of the "can't lose" real estate markets from the housing go-go days that ended in June 2005 (http://www.alwayson-network.com/comments.php?id=10485_0_24_0_C) (hit the "stop" button on your browser to keep AO from taking you to another page).

Metro home sales plunge (http://www.denverpost.com/sportscolumnists/ci_4736941)
November 28, 2006 (Denver Post)

The decline, the second largest recorded in the index's 10-year history, is especially worrisome because interest rates moved lower during the third quarter, which is normally a period where home values rise.

"The resale market is facing significant downward pressure on prices," the Genesis report said.

New-home sales in metro Denver are down nearly 20 percent through the first nine months of the year, a new report says.

Foreclosures are a key source of that pressure. The seven- county metro area recorded 14,164 foreclosures in the first three quarters of the year, up 34.2 percent from the same period a year ago.

Another worrisome anomaly: The weakness in the housing market comes despite the addition of an estimated 27,000 net new jobs in the metro area this year. Home-price declines and rising foreclosures are typically linked to job losses.

Nationally, the median price of an existing home declined 3.5 percent in October compared with the same month a year ago, even as the number of homes sold rose 0.5 percent, according to a report Tuesday from the National Association of Realtors.

The price decline was the largest measured since record keeping began in 1968, and it was the first time median prices have declined for three months in a row.
The key phrase here is: anomaly. As our resident real estate expert Sean O'Toole pointed out back in early September (http://www.itulip.com/forums/showthread.php?p=2710#poststop):

Yesterday, in one central valley county of California, $1.2M in 1st mortgages were sold back to the bank, and $200k in 2nd mortgages were completely wiped out. That is a typical day lately.

The most amazing part is that despite the staggering losses involved, and the downstream implications there is NO ONE accurately and timely tracking these losses. The fact that there was a foreclosure, and that the property went back to the bank will show up in time, but the junior lien losses are completely untracked until some far away day when the lender is finally required to report them.

This issue, together with things like the neg am as earnings that jeffolie mentioned, will be blamed in hindsight for no one having saw what was coming. The real problem is the lack of desire to even look.
Back in January 2005 (http://www.itulip.com/housingbubblecorrection.htm) we warned: "Housing bubbles don't collapse suddenly. They go through a long series of self-reinforcing deflationary stages that typically last five to seven years."

Never mind this "worst is over" nonsense. Your clothes will go out of style several times before this housing bubble decline ends. One and a half years into it, we are on track for our 10 to 15 year correction. The most troubling part is the observation from then that "in past boom-bust cycles, the bust rate of decline has been significantly more rapid than the boom rate of growth." This appears to be coming true for this cycle but in unexpected ways. As the Denver Post story points out, it is very unusual to see a housing market decline this quickly while unemployment and interest rates are falling. It is just as unusual to see foreclosures rising at this rate so early in the cycle; foreclosures normally peak several years into a housing bust recovery.

We charted lots of new territory on the way up. No doubt we will chart a lot more on the way down.

DemonD
11-30-06, 02:42 AM
As someone who has confidence in his own abilities to do fundamental analysis, none of this comes as a surprise. It is obvious that the housing bubble is as bad, at least on a price basis, as the tech bubble was. It has a long, long, long way go to the bottom. Home prices are STILL way way WAY overvalued in this part of the country (southern california). Almost all of the people that I work with that live in their homes could not afford to buy them at today's prices.

And, from what I see, there are still people drinking the kool-aid. Were people in this much denial when the tech bubble burst? I hear on our local news radio, when they talk about housing, how it's a "buyers' market." I shake my head and go BULLSHIT. Median home prices for LA are still over 500k. Condos are over 400k.

My rent is 1045/month. I consider this a fairly decent deal, especially when I'd be having to pay 4-5k/month if i were to own a house or condo in this same neighborhood. I heard a prior report on the radio that said virtually every single loan given in LA county in the first quarter of 2006 was interest only, neg am, or ARM, and many with little to no down payment. It is very, very scary to think what will happen with the banks as was mentioned above. The one thing that scares me is that I've never lived through bank failures, and what is the fallout of bank failures? The construction industry based jobs look like they will be solid for years to come, but jobs in the financial services/banking seem like they are in deep, deep trouble in the coming years.

Christoph von Gamm
11-30-06, 05:40 AM
As simple as that: Either home prices will go down to a reasonable level or prices might grow but then you need this one to buy yourself a Big mac:

<img src="http://upload.wikimedia.org/wikipedia/commons/8/8b/10000-1f.jpg" /img>
and the backside

<img src="http://upload.wikimedia.org/wikipedia/commons/b/b7/10000-1b.jpg" /img>

An original picture of the 1918 series...

BK
11-30-06, 09:37 AM
The Boston Globe Magazine published a brief excerpt of a letter I sent in response to an Article about the Down turn in Housing.

"Sadly, I think many of my friends and relatives are going to get an education in the dynamics of the real estate market. A home should provide shelter and nothing more"
Appeared in Boston Golbe Magazine Nov 5, 2006- Letters

My letter was a topic of conversation at my families Thanksgiving Dinner.

Most Family members still think I'm a bit of a nut case in regards to housing - (I'm a pretty traditional common sense regular guy).
When my family finally says I'm are Right - the real downturn will be under way.
Right now - most believe the Money Magazine view - Its a Healthy Correction....its good to lose value in your investment in Real Estate to keep it healthy.......

Jim Nickerson
11-30-06, 11:37 AM
And, from what I see, there are still people drinking the kool-aid. Were people in this much denial when the tech bubble burst? I hear on our local news radio, when they talk about housing, how it's a "buyers' market." I shake my head and go BULLSHIT. Median home prices for LA are still over 500k. Condos are over 400k.

What is the implied negativism with regard to those said to be drinking kool-aid? And how did such become a part of our culture? Serious questions.

Personally I watched $1.35M dwindle to $420K from 1/3/00 to 10/9/02 in my IRA's. I guess everyday, I thought things would reverse and at some point those accounts would again be worth more than they were on 1/3/00. At some point since then, and I did not mark that point, I have arrived at believing the account will NEVER be worth that again. That is one example of denial, and I do not know how to extrapolate that to those involved in the the housing market.

When you, DemonD, speak of denial, on whose part is that denial, those who are now stuck in homes for which they may not be able to keep up with the payments and cannot face getting out with present losses if sold, or denial on the part of prospective buyers who think the housing market cannot go lower?

Jim Nickerson
11-30-06, 12:27 PM
Bottom seen for builder stocks
Analyst upgrades beaten-down sector, but warns recovery may be 'choppy'

http://www.marketwatch.com/news/story/banc-america-says-home-builders/story.aspx?guid=%7BBDCCC226%2D6FA8%2D4DC4%2DA014%2 D7060EF61E2CD%7D

By John Spence (http://www.marketwatch.com/news/mailto.asp?x=106+115+112+101+110+99+101&y=John+Spence&z=marketwatch.com&guid=%7Bbdccc226-6fa8-4dc4-a014-7060ef61e2cd%7D&siteid=myyahoo), MarketWatch
Last Update: 11:47 AM ET Nov 30, 2006

BOSTON (MarketWatch) -- Banc of America Securities upgraded the home-construction sector to neutral from cautious Thursday in a sign the embattled builder stocks may be finally be finding a floor.

"We are seeing improvement in traffic, affordability and construction -- it was deterioration in these factors that led us to become more cautious in 2005," wrote B. of A. analyst Daniel Oppenheim in a research note Thursday.

"Oppenheim sees evidence of more home-buyer traffic for real-estate agents, which he views as a leading indicator of sales and pricing."

"Additionally, Oppenheim said home builders have shown more discipline, "which should help inventories and ease construction costs." Yet he noted inventories of homes for sale and interest rates are the "wild cards" that could further pressure the sector."

"Many economists are keeping a close eye out for any signals of a leveling in inventories as a sign the slumping housing market has hit a bottom. Home-builder executives say they've been surprised by the magnitude of the current downturn because it wasn't triggered by an economic shock or a spike in rates, but rather by an inventory glut and weakening buyer confidence."

spunky
11-30-06, 12:39 PM
So when is the " board " calling the bottom in the next round of fed cuts ???

Watch what a man does, not what he says.:D

jk
11-30-06, 12:57 PM
from a correspondent at bill fleckenstein's site:

The National Association of Realtors reports that Home sales rose from 6.18 million to 6.24 million homes. These figures are for annual rates. That is an increase of 60,000 homes annually, or an increase of 5000 units per Month.

Meanwhile they also report that inventory rose 1.9% in October to 3.85 million units - that is an increase of 70,000 homes during the month of October. In other words, sales rose by 5,000 units, but inventory rose by 70,000 units.

jk
11-30-06, 05:02 PM
saw someone today in one of the building trades. he was just stiffed by 2 builders who went belly-up and had to lay off half his employees.

EJ
11-30-06, 05:58 PM
What is the implied negativism with regard to those said to be drinking kool-aid? And how did such become a part of our culture? Serious questions.

Personally I watched $1.35M dwindle to $420K from 1/3/00 to 10/9/02 in my IRA's. I guess everyday, I thought things would reverse and at some point those accounts would again be worth more than they were on 1/3/00. At some point since then, and I did not mark that point, I have arrived at believing the account will NEVER be worth that again. That is one example of denial, and I do not know how to extrapolate that to those involved in the the housing market.

When you, DemonD, speak of denial, on whose part is that denial, those who are now stuck in homes for which they may not be able to keep up with the payments and cannot face getting out with present losses if sold, or denial on the part of prospective buyers who think the housing market cannot go lower?

After living through the experience of pleading with friends and family to sell in March and April 2000 as I was doing–pounding on the table and telling them they'd never make the money back that they were going to lose, that the NASDAQ was not going to see 5000 again for at least 10 years–I came to the concusion that it's human nature to take the position that one can most afford to take. The level of stubborness of an individual in their position toward any particulat asset is in direct proportion to their inability to take a loss in that asset; a person who owns a lot of stock "can't" believe the market will go down and stay there for ten years, never mind consider the impact of survivor bias (all the individual stocks that went to zero because the companies went out of busiess.) Most people had huge financial and emotional bets on the stock market then, and so were in no position to take my advice. It was heart breaking to watch family and friends lose so much money so predictably.

Housing is no different. If a person has 50% of their net worth tied up in property they "can't" believe that it may lose half its value (at least in real terms) because they can't process the data. Too emotionally difficult. When confronted with evidence such as I provided in 1999 re the stock market and in 2004 and 2005 about the housing market, most readers went about looking for data to contradict it, to satisfy their need to not change their position. There are never any shortages of such views. Abby Cohen and JJ Cramer helped their clients and readers ride the stock market down to the bitter end by telling them what they wanted to hear.

http://www.itulip.com/awards.htm

Some day in the future, when the prospects for the USA look the most bleak, the bonar is given up for dead, the euro is looking like a real reserve currency, and gold is looking its most brilliant, it will be time to do the most unintuitive thing imaginable: to sell gold and euros and buy USA stocks and dollars. Many, with heavy emotional and financial investment in euros and gold will look for reasons not to, and they will find them, and they will lose their money. That's human nature.

WDCRob
11-30-06, 06:14 PM
EJ, what would you say folks who can get past that heavy emotional investment have in common? Are they hyper-rational people by nature? Is it education and experience? Psychotic levels of fearlessness?

What allows people to make good decisions when they're counter-intutitive?

spunky
11-30-06, 06:46 PM
You can call it what you like. I call it greed, captialist pigs call it profit. No matter what you choose to invest in you keep in mind the word " reasonable ". People get to greedy and get burned. Period

jk
11-30-06, 10:02 PM
most people never heard, or never understood, the adage: "don't confuse brains with a bull market." if their investments were going well, it was a reflection of their insight and wisdom. they were smart. so you come along and tell them what they're doing is now a big risky mistake? no way!


people tend to attribute their successes to skill and their failures to luck. so if they're on a roll they must be doing something right. who are you to tell them otherwise?

DemonD
12-01-06, 12:03 AM
After living through the experience of pleading with friends and family to sell in March and April 2000 as I was doing–pounding on the table and telling them they'd never make the money back that they were going to lose, that the NASDAQ was not going to see 5000 again for at least 10 years–I came to the concusion that it's human nature to take the position that one can most afford to take. The level of stubborness of an individual in their position toward any particulat asset is in direct proportion to their inability to take a loss in that asset; a person who owns a lot of stock "can't" believe the market will go down and stay there for ten years, never mind consider the impact of survivor bias (all the individual stocks that went to zero because the companies went out of busiess.)


Looks like my question was answered. People really are that much in denial, assuming history is any indication. :/

EJ
12-01-06, 02:08 PM
EJ, what would you say folks who can get past that heavy emotional investment have in common? Are they hyper-rational people by nature? Is it education and experience? Psychotic levels of fearlessness?

What allows people to make good decisions when they're counter-intutitive?

They tend to think for themselves in other matters as well, such as politics, are analyticial, are skeptical of the wisdom of the herd, have an innate distrust of authority, and are always asking the question: "Who has the most to win and lose from this trade?"

jk
12-01-06, 10:53 PM
They tend to think for themselves in other matters as well, such as politics, are analyticial, are skeptical of the wisdom of the herd, have an innate distrust of authority, and are always asking the question: "Who has the most to win and lose from this trade?"

i would add that they question their own wisdom. they never assume they know enough. they are looking for errors in their own analyses, and make their decisions knowing they may be wrong. thus, they are ready to change their minds if the weight of evidence changes.

art
12-02-06, 10:04 AM
EJ, what would you say folks who can get past that heavy emotional investment have in common? Are they hyper-rational people by nature? Is it education and experience? Psychotic levels of fearlessness?

What allows people to make good decisions when they're counter-intutitive?

I agree that greed is a component, but I think fear of missing out on a good thing plays a role too. After I sold one of my companies, we got options in the acquiring organization. When the stock price rose to 3 times the strike price, I cashed out. A 3X return was good enough for me. I watched the stock go up and up after that, split, and continue to go up. My friends who didn't bail out made 3X more than me. That was painful, but not as painful as if I'd tracked the stock all the way to the bottom as it eventually did.

I think if you ride something up quite a ways, you don't want to be the first one out for fear of "missing out" on even more. There's a greed factor, but also a "feeling stupid" factor that can be pretty strong. Luckily I don't mind feeling stupid :-)

DanielLCharts
12-02-06, 09:50 PM
My lord, I saw the latest (or quasi-latest) Money magazine issue in my local library. Hilarious! It's so nice to know that they've pinpointed the exact time when the busting bubble markets will turn around(Q2 2008 fellas, get your checkbooks ready!), that midwestern real estate is bound to shoot up this year, and the stock market is "the place to be" in 2007! Thanks Money magazine!

JD_
12-02-06, 11:55 PM
What is the implied negativism with regard to those said to be drinking kool-aid? And how did such become a part of our culture? Serious questions.

Jim,

Drinking kool-aid is a reference to the Jonestown Massacre (http://en.wikipedia.org/wiki/Jonestown_Massacre) of 1978.

"Jim Jones called a meeting under the pavilion as night fell. It was another “white night,” which had been rehearsed before, but this time, Doctor Laurence Schacht, Nurse Annie Moore, and others mixed cyanide and Valium into a metal vat full of grape Flavor Aid. It was extremely effective, causing death within about five minutes. No one who drank the poison that evening survived."

It basically means you do something without much questioning that ends up having a nasty consequence. Probably too old a historical reference for some of the younger posters who wonder what kool-aid :) has to do with some jungle camp in Guyana but it's been a part of the culture since that time.

JD

Jim Nickerson
12-03-06, 11:34 AM
Jim,

Drinking kool-aid is a reference to the Jonestown Massacre (http://en.wikipedia.org/wiki/Jonestown_Massacre) of 1978.

"Jim Jones called a meeting under the pavilion as night fell. It was another “white night,” which had been rehearsed before, but this time, Doctor Laurence Schacht, Nurse Annie Moore, and others mixed cyanide and Valium into a metal vat full of grape Flavor Aid. It was extremely effective, causing death within about five minutes. No one who drank the poison that evening survived."

It basically means you do something without much questioning that ends up having a nasty consequence. Probably too old a historical reference for some of the younger posters who wonder what kool-aid :) has to do with some jungle camp in Guyana but it's been a part of the culture since that time.

JD

Thank you, JD.

Of course this is all off the tread topic, but someone also sent me a private email to clue me in re: kool-aid. I was 37 when that happened, and in the circles in which I moved I never heard anyone use the characterization of others as being kool-aid drinkers. If one watches Fox News' O'Reilly, which I used to occasionally do, he used the term frequently. I use "gullible" instead.

A few nights back I watched a brief account of a 91 year old man and one of the things it mentioned was how he is adept with a computer and the internet. I know people my age and certainly older that have no idea of how to use a computer. This made me wonder what technologies exist today that would set one in their 70's, 80's or 90's apart from the crowd. I almost never use a cell phone and do not have a iPod or Zune, Sirius or XM radios, GPS, Palm, PlayStation, or Xbox. The question: Am I missing out on anything that truly opens the world to one as has the computer and the internet, and which without will really set me apart as an old fogey as I hope I continue to grow older?

jk
12-03-06, 11:47 AM
I almost never use a cell phone and do not have a iPod or Zune, Sirius or XM radios, GPS, Palm, PlayStation, or Xbox. The question: Am I missing out on anything that truly opens the world to one as has the computer and the internet, and which without will really set me apart as an old fogey as I hope I continue to grow older?

my $.02-
1. a cellphone is really handy in coordinating actions/meetings between people who are not in fixed locations.
2. a hand-held gps is useful if you like going to out of the way but remarkable wilderness locations.

WDCRob
12-03-06, 01:04 PM
I think my iPod is the coolest thing I've ever owned, and I say that having had it for three years now. It hasn't grown old. If you love music and are willing to invest the time to convert your CDs into a digital format, you'll never regret it. FWIW

spunky
12-04-06, 05:36 AM
Jim:


I didnt have a cell till I was 36. I left my wife 4 yrs ago and had to get a phone number for work. I quit playing video games in 1985, and dont own any fancy electronic euipment. I have a plain ole 27 " tv.

Not all of us all lemmings being led over the cliff :cool: