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The Housing Bust: Sorry, It Ain't Over Yet

? Who Really Gets Hammered When Housing Slows... |


| A Tale of Two Banks ?

October 18, 2006

The Housing Bust: Sorry, It Ain't Over Yet

Peter Coy

People are getting very excited about the report today that starts on construction of private housing rose 5.9% in September.

Sorry: Despite the September uptick, the housing bust ain't over yet. The strongest evidence that the slump will continue is that while starts were up, permits fell 6.3% to the lowest level since October 2001. Here's a sampling of economists' analysis on the topic.

Global Insight: "On balance, this was not as good a report as the headline number implies."

Roger Kubarych, UniCredit: "All of the increase [in starts] was in the South, where Katrina-related reconstruction backlogs are still being worked off."

Ian Shepherdson, High Frequency Economics: "Analysts less bearish on housing than us will doubtless proclaim the starts numbers as evidence that the worst is over, but even a cursory glance at the awful permits numbers should disabuse all but the most incurable optimists of that notion."

Action Economics: "The sharp contrast between the strength in starts and weakness in permits usually flags some kind of temporary distortion. ... August activity may have been held back by inclement weather, possibly leaving catch-up in September."

10:44 AM

Housing Prices

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Even if the September statistics on housing starts were not distorted one set up numbers would not make a "Summer".

It is very unlikely that the housing market would make as sharp a reversal from a down to an up-again market as it did following the peak of the market last year. There are a lot of insecure highly leveraged owners that still hold on to their speculative real estate and are waiting for better times. Like in trading financial markets it is easier to sell a winner than to cut losses. The loss cutting has not started for good and there will be a lot more pain in many areas of the country for excessive speculation that happened in the past.

I can only refer to the analogy the financial trading world as real estate seemed to have become the new "New Economy" and fundamentals seemed to not matter. It once was eyeballs in the DotCom times then it was the next guy in line for a flip. In many parts of the country the "Greater Fool" principle ruled.

When cost of ownership and rental income find equilibrium the market is balanced again and we can start looking at these stats, before that we are in correction mode.

Posted by: Toby Munk at October 18, 2006 11:36 AM

It's good to see the mainstream media reporting some good news in the housing sector. While these numbers are only slightly encouraging and it will take months of data to really come to the conclusion of the article title, a positive spin in the mostly negative face of recent articles is nice to see.

I think the negative spin of the press has helped contribute to the current downturn in suggesting buyers in non-bubble areas put off purchases.

It can be argued the press contributed to the run-up, but I think they need to lay off on negative housing stories until all the facts come in.

Posted by: Nigel Swaby at October 18, 2006 03:05 PM

So the media can only report the good news? This thing has only begun and it will get alot worse. That little uptick is not even a deadcat bounce, it is an anomalous blip. I bought near the peak on the last bubble in the late 80's. It took over 10 years to get back up to the highs. This will play out worse imo. Bankruptcy laws have been changed in favor of the institutions and not the borrower. So people will get really desperate.

Posted by: metroplexual at October 19, 2006 01:35 PM

Oh Nigel dear,

The press has been far too kind with the negativity! They downplay it at every turn. The facts are in. Homes were bought on speculation, mortgage fraud was at an all time high and now we end up with ghost towns of empty homes built on speculation. Foreclosures in all over the country! People used creative financing to pay for their mcmansions that they really couldn't afford, in hopes of the double digit increases! People are HELOC'd up to their eyeballs! Mortgage appraisers are going to jail for inflating the value of the home to turn around and sell for profit!

Nigel, did you understand what Peter was saying? While the numbers are positive, they really aren't! Builders are building homes that they've had contracts on. Homes in the south devastated by Katrina are being rebuilt. Fact, housing permits are at their lowest level since 2001! Boom over! Peter thanks for showing the facts!

Posted by: Lizziebeth at October 19, 2006 05:38 PM

In September, homebuilders were like recovering alcoholics going on one more binge. The relapse will only only extend the recovery period. I doubt it was worth the additional pain.

Posted by: AssetBubbles at October 19, 2006 05:55 PM

You would say that Mr. Swaby, seeing that you are a real estate investor in the mortgage business. Talk about vested interest.

Posted by: Anon at October 20, 2006 08:45 AM

In reference to Housing Starts:

Developers are become more selective on which projects make economic cents.

I am a Realtor in The Palm Beach's and I see a shift from the Traditional Condo toward the Hotel Condo in Beach Front Developement.

Cost sharing of Waterfront Condo Developement is a way for bank's to invest in Commerical Developement and support community redevelopment in housing.

Posted by: Robert Muchel at October 20, 2006 09:19 AM

There is no way it is over yet. I'm an investor myself and I predict the costal areas will take a big hit but should bounce back.

The press has put a lot of negative news on housing but what good news are out there? Besides junk coming from the NAR?

Posted by: nascar checks at October 30, 2006 09:43 AM

Thank you, "nascar checks". In fact, the NAR junk makes it possible for all the most negative news stories to offer some hope to the Greatest Fools. Which only prolongs the agony. It would be best for everyone if prices came down fast. Then there would be orderly transactions. "Increased starts" is worse news than "decreased permits", since the inventory already exceeds the demand. Even "tight" rental markets can't support current house-price levels, as only the most recent immigrant groups will condescend to house many families in one SFH. Qualified buyers for the McMansions have been exhausted or spooked, but the builders will go on producing this stuff till they drive one another out of business and drive the last idiot borrower into a negative-amortization ARM.

Posted by: az_lender at October 31, 2006 06:33 AM

Here's my two cents on this "housing bubble"......I recently bought a new home a 1 1/2 I'm a happy camper. Now I don't claim to be some real estate guru but sure tell you one thing................I could give 2 shits about this housing bubble! It doesn't worry me abit. Sure my house has gone up 100, 000 since I bought it and that's all fine and dandy but that doesn't mean i'm going to refi and buy a boat, motorcycle, buy my wife a boob job, and blah, blah, blah like every other ass in California and eat up all the equity in the house. Also those that feel they "need" to get into a house right away and will stretch themselves with these lame ass interest only loans and shit.............just settin' themselves up for failure.

Here's my take:

You shouldn't be worried about the bubble if:

1) You plan on living in your house with the mindset that it is a place to live, a good tax write off and you are in it for the long haul.

2) You have NOT exhausted all the equity in your home to buy shit you don't need!!!

3) You have obtained a fixed rate mortgage and not some interest only or adjustable rate that your going to get hosed on down the road.

You should be worried about a potential bubble if:

1) You really can't afford your house in the first place.

2) You have taken some kind of bullshit (IO, 40 year, etc..) creative loan to get the house because that was the only way you could afford it.........refer to ..1 ----------- So you really couldn't afford in the first place!!!

3) You have burned up all of your equity trying to keep up with the Jones's

4) You are some lame ass investor who is buying up properties and flipping them for a profit..........hopefully.........sooner or later your asses will get burned!!

Posted by: JiM at November 5, 2006 01:24 AM

September has always been the season of growing prices, our analytics predict the bubble will collapse this spring.

Posted by: Rent Investor at November 26, 2006 08:13 AM

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