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Saturday, October 14, 2006

Goldilocks Has Analgesia

This article from the Seattle Times this morning, Housing Bust? No, a cyclical correction, reminded me of a recent episode of Grey's Anatomy. A young girl believes she has superpowers because she feels no pain. If Goldilocks had Analgesia she could have easily gorged herself on the hottest of porridge without a second thought.

"With all the dismal reports about the home real-estate market, don't lose track of something critically important: Mortgage interest rates have been falling quietly but steadily for weeks, and are now at their lowest level in half a year, barely a percentage point above 40-year lows."

New mortgage applications are up sharply, the number of pending home sales is up, the national economy continues to expand moderately, and the rate of unemployment just declined again — to 4.6 percent. All of which begs the question: Just what kind of housing bust is this anyway? With gloom-and-doom purveyors forecasting imminent crashes in dozens of metropolitan areas, how could such key fundamentals as jobs, interest rates and even pending home sales simultaneously be trending in the opposite direction?

Kohn sees no imminent bust or crash in housing at all. It is a "correction" that's under way — a cyclical rebalancing of a marketplace that got too hot for too long in some parts of the country, and is now heading back toward more "normal" conditions, where prices are more in line with what consumers can afford.

Not all home sellers have fully grasped the altered realities in their markets — that they've got to reduce their asking prices if they truly want to sell — so the process is still unfolding. Re-priced houses, in turn, should stimulate greater numbers of potential buyers to get off the sidelines and make offers.

The nationwide 4.3 percent increase in pending home-sales contracts, reported Oct. 2 by the National Association of Realtors, could be a sign that Kohn's prediction is already taking shape.

Second, said Kohn, the housing correction — expressed through new home
starts — "may be closer to (its) trough than to (its) peak."

A final key factor, Kohn said: "Continuing growth in real incomes should underpin the demand for housing, and as home prices stop rising, help erode affordability constraints."

Mike Moran, chief economist of Wall Street's Daiwa Securities America, minces no words: The financial press and TV news shows are overly dramatizing what is a normal and long-predicted cyclical rebalancing, and "portraying it as a catastrophe."

"[Housing] is going through a correction that's badly needed," Moran said. "The key issue is whether it is orderly or disorderly." And all signs point to a continued orderly process, not a breakout bust or panic.

Doug Duncan, chief economist of the Mortgage Bankers Association, points out that national housing-sales numbers are merely rolling back to 2003 levels — "and that was a record year."

Serious sellers and buyers shouldn't be misled by predictions of imminent crashes, Duncan says. Not only do the doom reports ignore the positives out there in the marketplace — mortgage rates in particular — but "the rhetoric is just way overwrought."


In this fable, will the Bears will eat Goldilocks in the end?

(Keith R. Harney, Seattle Times, 10-14-2006)

27 comments:

Eleua said...

I wonder what all these Carnacks were saying a year ago? Was it up-Up-UP! for all eternity?

Now, they are talking about a "correction." As if they KNOW what will happen anymore than anyone else.

My bet is they didn't see this "correction" coming, even if it is "cyclical." If not, why bother to put any stock in what they are saying about the next 12 months.

For prognostications, who are you going to believe? Them or us.

Nolaguy said...

"It is a "correction" that's under way — a cyclical rebalancing of a marketplace that got too hot for too long in some parts of the country..."

So if this is cyclical, they should be able to tell us when the last time(s) it happened, right?

No mention of past cyclical events like this is mentioned at all.

I sent an email to the author, asking when this last happened.

mydquin said...

The number of pending sales is up? According to who?

synthetik said...

>according to whom

According to the NAR

The Pending Home Sales Index,* based on contracts signed in August, rose 4.3 percent to a level of 110.1 from a reading of 105.6 in July, but is 14.1 percent lower than August 2005.

David Lereah, NAR’s chief economist, said the rise in the index is a hopeful sign. “Our sense is that home sales may have reached a low in August – the Pending Home Sales Index shows home sales should be fairly stable over the next two months, although a minor decline is possible,” he said. “With fewer new listings coming on the market, we should be able to draw down the inventory supply early next year to the point where home prices will rise, but at a slower pace than historic norms.”

The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing."

I wonder who came up with the index? It's posted on Realtor.org, so I can only assuming that it was created by someone who stands to profit from fiddling with the numbers. Of course, I'm probably wrong.

wreckingbull said...

Kenny boy: Is your bread buttered by those who don't want to see a crash?

These puff pieces are truly shameless.

Crashcadia said...

He is correct about the cyclic nature to these things.

You have the Egyptian empire, the Roman Empire, the British Empire and then the U.S. Empire.

So you see how these things work.

betamax said...

Re-priced houses, in turn, should stimulate greater numbers of potential buyers to get off the sidelines and make offers.

Sure, it's called a dead cat bounce.

The dumb money is already all in, and most waiting on the sidelines are waiting for massive reductions. If 10% price drops would do it, then we'd already have a resurgence in sales volume. It's over.

Kaleetan said...

I have been keeping an eye on my neighborhood listings looking for a "sea of for sale signs". There are a few crappy ramblers people are trying to sell but for the most part it doesn't look like that many listings so far. Spring might be different or next summer as some loans might adjust.

I have noticed that everytime a house is sold the condition of the house improves. People fix it up to sell it , then new owners remodel.

The nieghborhood is in east king county and people are putting a lots of money to fix, upgrade and add additions, decks..whatever..New job centers are close and I have seen a change in the type of people moving in. We have met many high tech workers along with health care proffesionals.

In my humble opinion i would say some price increases are SOMEWHAT due to the better quality of houses as people put money into them. Some people are spending the HELOC money on siding or cabinets instead and not just tvs, boob jobs and SUV's.

synthetik said...

>i would say some price increases are SOMEWHAT due to the better quality of houses

Somewhat would have to be a VERY tiny % for me to agree with that statement. Just take a drive through Ballard and you'll have lots of evidence the price doesn't have much to do with the actual house. Houses always get spruced up when they go on sale.

Don't you have your car detailed before you sell it?

It's all a gigantic land grab... an irrational idea that if you don't own a piece of it (at any price) you'll never get another chance (at any price) because it'll keep going up up up.

Hence, irrational exhuberance.

imho, now might not be the best time for home improvements (esp. using HELOC) unless you are planning on a quick sale.

Most people I have met, including myself, have done most of their home improvements in an attempt to increase the value of the home; prior to sale.

Time to sell that Home Depot/Lowes stock... as the house ATM dries up and funny loans reset, where will people get the $$ to fix up their homes -- and with declining equity, why would they even want to?

wreckingbull said...
This comment has been removed by a blog administrator.
wreckingbull said...

Kaleetan,

You are correct. Not all HELOC dollars go toward a new pair of Dow-Cornings for the wife.

In this runup, people were virtually guaranteed that spending 50K on granite and stainless would easily pay back 100K.

At least nationally, it is now obvious that this is no longer the case. This is exactly why things are getting very dangerous.

Some of the listings I see now remind me of shopping for a used car. You find some guy that has spent 15K on a stereo system for his Honda Civic and thinks that his car is worth (Kelly blue book + 15K). Not the case.

Speaking of Ballard, the thing that really gets me is not the high prices, but the remarkably poor construction which is fetching those high prices. The 500K 'Cape Cod' is a punch in the gut. The extra 100K to keep it livable is a second uppercut to the chin as you double over.

David Losh said...

Good Morning!
The bubble concept in Real estate has been around as long as I can remember. The fact is though I pay a whole bunch of money for a loaf of bread today. Cars for the price of what I could buy a house for twenty years ago boggles my mind. The fact gasoline even exsists today after what we saw happen in the Carter years is another story, but look at the price.
Housing, by comparison is a bargain. How about the price of Health Care? Is that going to collapse as the sick die off?
NO! Is the price of gas dropping like a rock with our record oil reserves? NO! I remeber complaining when gas was $2 a gallon; just because the price is $2.50 down from $3 dollars per gallon doesn't make a collapse.
Sorry, but the insurance industry isn't letting Health care prices come down. The oil and auto industry aren't letting the price of the gas combustion engine drop.
Housing prices are propped up by lumber, appliances (durable goods)labor, and the bank.
You can't seperate out a segment of the economy. If you want to buy a house now is the time. There is no doubt there is a serious drop in prices.

Eleua said...

If you want to buy a house now is the time. There is no doubt there is a serious drop in prices.


David,

You can't be serious, can you?

PeakOil said...

And a fantastic and well put together argument it was.

What will all the realtors do once they realize they can't pay their psychiatrist and marriage counselors anymore?

I'm guessing it will be selling health insurance.

amybowllan said...

I agree with Michele Blackmon who writes@
http://therealtorbymichele.blogspot.com

"My answer to all of this... "HUB BUB!" The market has (over the history of time) had a pretty predictable trend. Currently, the trend has lasted longer than most. However, it is not crashing by ANY means. I call this a time of balance."

PeakOil said...

im assuming these wonderful people are a direct result of the intelligent conversation going on over at the Rain City Guide.

Nice.

Eleua said...

"My answer to all of this... "HUB BUB!" The market has (over the history of time) had a pretty predictable trend.

It is only predictable from a very, very distant point-of-view, and over a very long period of time. Markets are absolutely wild, unpredictable, dangerous animals in the short-term, and up close. Sorry, but anyone who thinks otherwise, is either a fool, a liar, a moron, or a member of the Federal Reserve.

Currently, the trend has lasted longer than most.

However, it is not crashing by ANY means.


Those two statements are incongruent. The boom causes the bust. Any honest view of economic history bears this out.

I call this a time of balance."

I call this a time of market inflection.

Lake Hills Renter said...

I'm all for returning to the historical trend. That's what, a 50% reduction in local housing prices?

Watch said...

http://realestate.nwsource.com/sales/Listing.asp?lid=330-33102708&origin=sr

RE listing in Spanish.

Kaleetan said...

synthetic?

"Don't you have your car detailed before you sell it?"

Horrible analogy

Sure we would clean the house up before someone looked at it, like vacuum, pressure wash the siding, rake..etc..but that is the equivelent of detailing your car.

I am talking about adding a new soundsystem, maybe some 40 inch rims, a tint, a 350 motor, even an extra story - a two story car. Now that would add value to the car, wouldn't it?

Matthew said...

Yeah great, who doesn't want 40 inch rims????

synthetik said...

Wrecking bull already made my point for me

Comrade Chairman Greenspan said...

Word for word, the same crap we heard about the rest of the country last year. It's all over but the screeching denial.

SDtoSEA said...

I love this little hidden gem in the article:

"Doug Duncan, chief economist of the Mortgage Bankers Association, points out that national housing-sales numbers are merely rolling back to 2003 levels — "and that was a record year.""

Here is San Diego, a rollback to 2003 prices would be a 200k haircut. How is that not a crash?

Eleua said...

From Ray Hennessey's latest article poo-poo-ing the idea of a bubble...

"So, please, for the sake of all that's holy, stop talking about the housing bubble. For one thing, it just makes you look uninformed. And, worse, it may scare buyers away from the place I'm trying to sell."

While I'm certain that is tongue-in-cheek, it does encapsulate why many bulls look at bubble talk the same way a vampire looks at a cross.

Eleua said...

sdtosea,

Only 2003? Did the Mortgage Bankers Assc. pick this last year? If not, why not? Why 2003? Why not 2002? or even 2000?

What would it look like if prices rolled back to where the Bubble Economy first started? (1997+/-)

Matthew said...

I was reading Calculated Risk today and in the comments section of one of his posts CR states that he was talking to one of Fleck's friends (with intimate knowledge of subprime) who is predicting that the housing market will "Just freeze" in the next 3-6 months.

My interpretation of this is the following:

1. First time buyers are now priced out of the market by using traditional means
2. Non-traditional means are either gone or on the way out.
3. First time buyers can no longer purchase homes = frozen market