In a Nov. 27 comment, Rosenberg notes that in addition to the record 4.3 million residential units for sale as of October, there were 1.95 million home completions, the 12th-highest month since 1979. Units under construction were through the roof as well. Rather than seeing supply dwindle and prices start to firm up in early 2007, Rosenberg says ``it could be a year before the reduction in starts begins to put a meaningful dent into the inventory backlog.''
John Mauldin, an investment adviser and frequent contributor to Investors Insight, a financial-data publisher, throws an extra log on the fire. According to Mauldin, even the current projection of housing sales may be overstated and thus the existing supply of homes greater than what is reported in the official data. The reason is that the Census Bureau, one of the Commerce Department's statistical agencies, fails to account for cancellations in home sales contracts. Cancellations ran as high as 40 percent for some major homebuilding firms last quarter.
The high amount of inventory -- especially of existing homes which has been running over 7 months since July 2006 -- is very disconcerting. The existing homes market is much larger than the new homes market. A declining sales environment is going to make it harder to work off that inventory, which means price declines may not be over.
4 comments:
Bond-dad, I watch your posts on Kos with great interest. Your views on future of housing seemed always to be ahead of the "Aw shucks, not looking so good now" articles that would show in the papers a few months later.
However, now it looks as if the housing market picks up . . . . Am I missing something? You're saying it's still heading down, but the public numbers seem to say the opposite. Help me out here - I'm quite sharp, but economics is not my thing
One thing to note is that the public numbers tend to focus on the month to month change, because the changes over the preceding 11 months are considered to have been factored into the financial markets already.
However, if you are tracking the economy, rather than tracking the reaction of financial markets to news, the year on year numbers are really important. The new housing numbers ... contracts entered into ... are up compared to last month, but substantially lower than the same time last year.
When you add the information that the number does not correct for contracts that are abandoned before the deal is completed ... highlighted above ... that month to month increase may be overstated, and the year to year decrease understated.
In any event, don't expect the next stage of the bursting of the housing bubble to happen during the winter holidays in any event. If there is going to be a next stage, the Christmas shopping season will have put it on hold, and it will be February/March before it can really kick in.
The Census Bureau's omission of cancellation figures in Commerce Dept. economic data is perfectly consistent with the Bush administration's general policy regarding information potentially harmful to it: whenever and wherever possible, fudge, fiddle, and finagle the facts.
It would not surprise me in the least if the Commerce Dept. has been routinely lying to the public all along about virtually everything within its purview.
Anon -- I still think the housing market has a way to go before it hits bottom. Median prices are still declining and inventory is still really high.
Bruce - Your observation about Christmas delaying the downturn is dead-on I think. I had forgotten how much the shopping season changes consumer psychology.
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