The Charlie Rose show on Wednesday had a fantastic round-table discussion on the impact of our budget deficits and the national debt. I encourage all of my readers to take a look. Charlie talks about the source of the problems, the impact for the future, and the likely solutions with David Leonhardt, Alan Blinder, Alan Auerbach and Richard Posner.
To view this clip and other highlights from the The Charlie Rose Show please go to http://www.charlierose.com/view/clip/10381 .
Showing posts with label bail out. Show all posts
Showing posts with label bail out. Show all posts
Friday, June 12, 2009
Thursday, June 4, 2009
Real Estate Investment Market Analysis
While some are calling a "bottom" to residential real estate, others are not so sure. Here is a sober analysis from Barry Sternlight, CEO Starwood Capital. He sees residential nearing a bottom while commercial real estate still has some trouble ahead.
Here was his interview on CNBC earlier today...
Here was his interview on CNBC earlier today...
Wednesday, June 3, 2009
Cramer Calls "Housing Bottom"
While I believe the assertion that we have "the best affordability on record" is over-hyped, I agree that halting the constant value depreciation is the ultimate rainbow after the storm...Mr. Cramer has been predicting a mid 2009 housing bottom for a while. This video from TheStreet.com gives you Jim's "state of the market" view on housing.
Tuesday, June 2, 2009
Pending Recovery?
Today we received the April "Pending Home Sales" index results from the National Association of Realtors (NAR). The index saw its third straight monthly increase in the data and the greatest monthly increase in over seven years. This index is often less reliable than new home sales or existing home sales numbers but it can show a trend pretty well. The greatest increase in pending sales was found in the northeast and midwest.
Here is CNBC's take on the data this morning...
Here is CNBC's take on the data this morning...
Monday, June 1, 2009
Construction Spending in April Surprises Economists
AP reporting on the April construction spending data. I guess we can't say that housing is flying high but as Buzz Lightyear might say...we are "falling with style".
US construction spending posts surprising gain
US construction spending posts surprising 0.8 pct gain in April; spending on home building up
• Jeannine Aversa, AP Economics Writer
• On Monday June 1, 2009, 10:28 am EDT
WASHINGTON (AP) -- Construction spending in the U.S. rose 0.8 percent in April, defying economists' forecasts for a decline.
The unexpected gain -- the most since August -- marked the second straight month that builders boosted spending on construction projects around the country, the Commerce Department reported Monday. Economists were bracing for a 1.2 percent drop in construction spending for April.
Before March's uptick, construction spending had fallen for five straight months.
In an encouraging note, private builders increased spending on housing projects by 0.7 percent, contributing to the overall improvement in April. It marked the first time since August that private home builders boosted such spending. At that time, they increased it 5.5 percent.
Private spending on all other construction projects other than residential ones went up a strong 1.8 percent in April, following a 2.6 percent gain in March. Builders increased spending in April on projects including hotels and motels, factories, power plants and health care facilities. That more than offset reductions in spending on office buildings, amusement and recreation projects and on other projects.
Spending by the government, however, dipped 0.6 percent in April. That refected spending cuts on schools, hospitals and other health-care buildings, and sewer and water-supply projects.
A collapse in the housing market, a credit crunch and a financial crisis helped push the U.S. into a recession.
Federal Reserve Chairman Ben Bernanke has said he hopes the recession, which started in December 2007 and is now the longest since World War II, will end later this year.
Builders have been hard hit. They slashed spending on residential projects in the first quarter at an annualized rate of 38.7 percent, the most since the spring of 1980. Spending on commercial projects was slashed, too.
Economists are hopeful that cutbacks by business in the current April-to-June quarter won't be as deep as they have been. If they are right, the economy shouldn't shrink nearly as much during this quarter as it had in the last six months, analysts say.
Wednesday, May 27, 2009
The Good, The Bad & The Ugly...again.
More housing numbers came out today. As with most of the information coming out recently, today’s market news was a mix of “good”, “bad” and “ugly”.
First time buyers are accounting for more than 50% of the recent sales activity and “move up” buyers have virtually disappeared. The “move up” buyer will only re-enter the market once prices have stabilized on their resale and job security increases.
Words like “shadow inventory”, “long term rate increases”, and “fed actions” all point to a real lack of confidence that the market will be able to bounce back to 2006 levels any time soon. However, the increase in sales and the increased affordability are pointing toward a “bottoming out”. In my opinion, this market will begin a “healthy” recovery when distressed/foreclosed/short-sale inventory returns to a 2006-2007 level.
Here is the grim analysis from CNBC this morning…
Here is a link to a Fox Business Channel video featuring Alexis Glick talking to Coldwell Banker CEO Jim Gillespie talking about the new housing figures.
“Has Housing Hit Bottom?”
The View from the Bridge...I still can't see the bottom but I'm still looking!
First time buyers are accounting for more than 50% of the recent sales activity and “move up” buyers have virtually disappeared. The “move up” buyer will only re-enter the market once prices have stabilized on their resale and job security increases.
Words like “shadow inventory”, “long term rate increases”, and “fed actions” all point to a real lack of confidence that the market will be able to bounce back to 2006 levels any time soon. However, the increase in sales and the increased affordability are pointing toward a “bottoming out”. In my opinion, this market will begin a “healthy” recovery when distressed/foreclosed/short-sale inventory returns to a 2006-2007 level.
Here is the grim analysis from CNBC this morning…
Here is a link to a Fox Business Channel video featuring Alexis Glick talking to Coldwell Banker CEO Jim Gillespie talking about the new housing figures.
“Has Housing Hit Bottom?”
The View from the Bridge...I still can't see the bottom but I'm still looking!
Saturday, May 23, 2009
NAHB Article on "Sentiment Surveys"
This posting from the NAHB online newsletter summarizes the latest reports on homebuilder sentiment and overall consumer sentiment. Jim Cramer, on CNBC's "Mad Money", has been predicting a July 2009 housing "bottom" for a long time...he may not be so "mad" after all.
Surveys of Consumers and Builders Signal Revival of Home Buyer Demand
The stunning improvements in major measures of housing affordability, along with temporary federal and state tax incentives for first-time buyers and new-home buyers, have served to stabilize housing demand and to encourage the beginnings of recovery. This revival has occurred despite the persistence of extremely weak economic conditions and serious tightening of lending standards in major components of the home mortgage market.
The University of Michigan’s survey of consumer sentiment showed that 79% of households had a favorable view of home buying conditions in the early part of May — up substantially from the cyclical low in early-2006 and the highest reading since early-2004. The revival primarily reflects the major price reductions that have accumulated since 2005, and historically low mortgage interest rates have also caught the fancy of consumers in recent months.
NAHB’s proprietary survey of large public and private single-family builders provides concrete evidence of recent stabilization and improvement in both gross home sales (new orders) and net sales (accounting for cancellations) — on a seasonally adjusted basis.
Gross sales hit bottom in February and registered significant improvement in both March and April. Net sales actually bottomed out late last year and have shown substantial improvement in recent months, particularly in April.
NAHB’s broad-based single-family Housing market Index (HMI) had been mired in a narrow record-low range from November of last year through March of this year. However, the HMI broke out of this range with a decisive move in April — from 9 to 14 — and registered further improvement when it rose to 16 in May.
While the HMI level still is quite low, the recent turnaround has been broad based, showing up in all major regions of the country and in all HMI components — present sales, expected sales and buyer traffic.
Monday, May 18, 2009
Builder Sentiment Improves
Latest news from Reuters via Yahoo.com. Perhaps we are ready to call a "bottom".
U.S. home builder sentiment rises in May
On Monday May 18, 2009, 1:01 pm EDT
U.S. home builder sentiment rises in May
On Monday May 18, 2009, 1:01 pm EDT
WASHINGTON (Reuters) - U.S. homebuilder sentiment jumped to its highest level in eight months in May, a private survey showed on Monday, supporting views that the three-year housing slump might be close to an end.
The National Association of Home Builders/Wells Fargo Housing Market Index rose to 16 from 14 in April, in line with market expectations.
The NAHB attributed the second consecutive monthly increase in the gauge -- which measures builder confidence in the market for newly built, single family homes -- to "the best home buying conditions of a lifetime."
"This continued increase indicates that home builders feel we're at or near the bottom of the market and that positive signs lie ahead for builders and potential home buyers, provided that builder access to production credit significantly improves," said NAHB chief economist David Crowe.
Other housing indicators have recently shown a sharp slowing in the pace of the market's decline, raising optimism a bottom was not too far away.
The collapse of domestic house prices and the subsequent global credit crisis were the main catalysts for the U.S. recession, now in its 17th month.
The report also showed two out of three subindexes of the Housing Market Index rising in May. The current sales conditions gauge climbed two points to 14, while the sales expectations measure for the next six months rose three points to 27. The traffic of prospective buyers index was unchanged at 13 in May.
Wednesday, December 3, 2008
Housing Can Lead the Way to Recovery...Again
I have worked in the housing industry for more than twenty years. My company is in Chicago where we are known as "The American Dream Builder". We have repeatedly won customer satisfaction awards from JD Power & Associates and others. We are highly respected both within and outside the homebuilding industry.
Over the past two years I have watched our company shrink from over 250 full-time employees to less than fifty. I have seen competitors who were once strong and vibrant...whither away...taking good people with them. Our neighborhoods stand half completed and our homeowners are suffering in a market where their new homes are worth as much as 20% less than what they paid for them a few years ago.
The collapse of the housing market has been at the center of our current economic crisis. While it is a matter of conjecture as to what caused the collapse, it cannot be argued that housing must be stabilized before (or while) we address the systematic issues that caused such a massive failure.
Our government does not serve us well by ignoring the economic impact that housing and homebuilding have on our economy. According to a report by the Sacramento Regional Research Institute (SRRI) in 2007, new housing construction contributed nearly $40 billion a year to the state of California’s economy and it supported in excess of a quarter million jobs. As impressive as those numbers are…they are nearly 40% less than those measured in 2005.
When related activities were included into the equation, new home construction generated over $350 billion in economic output, supported approximately 1.2 million jobs and was the single largest industry in California accounting for 11 percent of all economic activity.
While this study deals only with our largest state economy, one can imagine that the impact is proportional throughout the United States. This study only measures new construction and does not measure other housing related industries that are affected by the collapsed market.
It can be argued that no recovery will be possible without a housing solution. The home builders are proposing a package at www.fixhousingfirst.com . While I believe there are worthwhile ideas presented in that proposal I do not believe it is going to aid in repairing the systemic issues that led us into the over-supply that proved to be a housing bubble. We need to stimulate the market while not creating an incentive to fuel speculative building. We need to bolster a sagging market without creating a reward for risky business practices. Housing must be fixed if we are to create jobs, preserve household financial stability, and create a better economic future for our country. The old economic aphorism…Housing leads the economy to recovery…may be proven true again.
My suggestions are simple and are a hybrid of several policy ideas being floated around right now. My proposal will focus on:
• Saving homeowners from foreclosure.
• Stimulating the housing market so as to decrease existing inventory.
• Rewarding “Green Building” and sustainability from both the producer and the consumer side.
• Putting skilled workers to work on “Green” initiatives that will create employment now and energy efficiency for years to come.
Number One:
I suggest that the Housing Stimulus bill of 2008 needs to be revised in order to address the inadequacy of the $7500 first time buyer tax credit. This credit should be increased to $10,000 and not paid back annually. The $7500 credit was inadequate to stimulate first time buyer activity and the annual repayment actually became a disincentive for many potential buyers.
Instead the repayment should be required when the purchaser sells the home or transfers title. This mechanism already exists in the current bill. It should be the solitary means for recapture. This would prove to be a disincentive to “flipping” a property while mitigating the impact on buyers who are looking to settle into a neighborhood for the long term.
This action alone would greatly improve the efficacy of the Housing Stimulus bill already approved by Congress. I would go one step further by extending a $5000 tax credit to all purchasers using the same repayment proposal. This change would have the benefit of allowing a liquidity cushion for homebuyers who have become too accustomed to HELOC’s and Home Equity Loans as a means for furnishing their home or paying for unexpected emergencies. The government would simply issue the equivalency of a HELOC or Home Equity Loan and it would be repaid when the property is sold.
I would also monetize the tax credits. I would put that money directly into the purchasers account at closing. This would have the greatest single impact on driving demand. This immediate stimulus would certainly be felt on Main Street and would have a far greater impact than mailing stimulus checks to households who are inclined not to spend them.
Lastly, I would make these credits available for homes that are currently built. I would not allow these credits to directly fuel a new housing boom. I would use this stimulus to whittle away the existing inventory. Homes with a certificate of occupancy dated no later than April 1, 2009 could qualify for this program. Reducing the existing housing stock to a more manageable level would have the greatest single impact on future housing growth.
These revisions to the existing Housing Stimulus Bill would certainly improve its impact and get stimulus directly into the economy while strengthening the housing market almost immediately. It would also focus the stimulus on decreasing housing inventory which would prove to stabilize neighborhoods and likely reduce the pressure of households on the brink of foreclosure.
Number Two:
I would provide stronger incentives for “Green Building” practices for new home construction moving forward. LEED certification is one metric which could be adapted for evaluation the energy efficiency of a new building. Energy Star or NAHB Certified Green are two more means of measuring “Green Building”.
As we emerge from this housing collapse and start building homes again we should take this opportunity to transform the way we build our homes. The homes built today are 30% more efficient than homes built 30 years ago. We could increase the average efficiency of a new home by 50% more by simply requiring certification and rewarding compliance.
A federal tax credit of $2000 is already available to home builders who build homes (including both site-built and manufactured homes) projected to save at least 50% of the heating and cooling energy of a comparable home that meets the standards of the 2003 International Energy Conservation Code, including supplements. A $1000 credit is available to manufactured home producers for homes that save 30% or that qualify for the federal Energy Star Homes program. These credits are already available for buildings or systems placed into service from January 1, 2006, through December 31, 2009.
I propose that we need to increase this tax credit and extend it through 2011. We need to increase the amount of the credit to help offset some of the cost associated with greater energy efficiency. In a healthy market these costs could be passed on to the consumer more directly but today the costs would simply make high efficiency a costly choice for builders. Without greater support, more costly energy efficient home building would likely be abandoned as builders struggle to reduce costs in order to compete.
The federal tax credit should be increased to $5000 for two years and then phased out over three more years. This would allow enough time for stabilization in the housing market and allow for greater access to the technologies and products that will create sustainable energy efficient building practices. These green building materials, technologies and products will also add to the green industry demand of the future.
This stimulus would be aligned with President-Elect Obama’s stated policy to put people to work and to increase our nation’s energy independence. It would create green jobs and it would increase the demand for green technology. It would decrease our energy consumption today and for the future. It would revolutionize the way we build homes and it would be the new American Green Dream.
Number Three:
I would improve the implementation of the “New Hope for Homeowner’s” program already available through the FHA. I would untangle the process and make the application and acceptance process more streamlined. This program has real merit and thus far it has been underutilized. This program, in conjunction, with the initiatives outlined earlier should stem the tide of foreclosure.
One possible modification would include Governmental approval of revisions to appraisal rules for refinancing. It seems fairly simple to allow refinancing to homeowners who are in trouble. One obstacle is the declining market status for appraising home values. A homeowner who purchased with 5% down three years ago would certainly have a negative equity position in most markets today. I propose an allowance to give owner occupied properties the ability to refinance to 110% LTV. at 30 year fixed rates equal to the prime rate or 3.99% whichever is less. (Note: The Treasury Department is already considering an option to create a new source for funding Fannie & Freddie loans at 4.5% using a Treasury Bond offering to create the funding…great move!) I would treat this as a “Rate Buy Down” and I would have the IRS recapture up to $10,000 from the proceeds of any future sale as compensation for this rate reduction.
This would offer immediate relief for homeowners in trouble. It would also allow for a recapture of tax payer funds.
Number Four:
I would invite home builders and remodeling contractors to work as energy efficiency contractors on public housing, public buildings, foreclosed properties, schools, libraries and hospitals. Any stimulus package will need to have employment opportunities and sustainable energy policy at the forefront.
The housing industry has seen employment drop by more than 50 percent in certain regions. This underutilized capacity could be part of a private sector/public sector partnership to improve energy efficiency in public spaces. This partnership could stabilize a very vulnerable industry in our economy while helping to improve our energy independence as move to a stronger future.
These programs would work best through a grant program that focuses on using the private sector to keep people working and viable business afloat while the greater economy becomes stronger.
My proposals are not revolutionary. They are pragmatic. The government cannot solve the problems but they should stimulate the market and allow it to heal itself. The proposals do not create future problems while addressing the past problems. Housing is likely where this crisis began and housing will have to be healed in order to cure the systemic problems our economy now faces.
I would estimate that these changes alone would halt the quarterly reduction in construction payrolls. Over time these changes would likely result in at least a few hundred thousand new jobs at the very least. Most importantly we could stabilize this critical segment of our national economy and the single largest source of personal wealth in our economy. I have confidence that our government will act swiftly, decisively and effectively. We have new leadership and a mandate for decisive action. We are anxious to get back to work.
Over the past two years I have watched our company shrink from over 250 full-time employees to less than fifty. I have seen competitors who were once strong and vibrant...whither away...taking good people with them. Our neighborhoods stand half completed and our homeowners are suffering in a market where their new homes are worth as much as 20% less than what they paid for them a few years ago.
The collapse of the housing market has been at the center of our current economic crisis. While it is a matter of conjecture as to what caused the collapse, it cannot be argued that housing must be stabilized before (or while) we address the systematic issues that caused such a massive failure.
Our government does not serve us well by ignoring the economic impact that housing and homebuilding have on our economy. According to a report by the Sacramento Regional Research Institute (SRRI) in 2007, new housing construction contributed nearly $40 billion a year to the state of California’s economy and it supported in excess of a quarter million jobs. As impressive as those numbers are…they are nearly 40% less than those measured in 2005.
When related activities were included into the equation, new home construction generated over $350 billion in economic output, supported approximately 1.2 million jobs and was the single largest industry in California accounting for 11 percent of all economic activity.
While this study deals only with our largest state economy, one can imagine that the impact is proportional throughout the United States. This study only measures new construction and does not measure other housing related industries that are affected by the collapsed market.
It can be argued that no recovery will be possible without a housing solution. The home builders are proposing a package at www.fixhousingfirst.com . While I believe there are worthwhile ideas presented in that proposal I do not believe it is going to aid in repairing the systemic issues that led us into the over-supply that proved to be a housing bubble. We need to stimulate the market while not creating an incentive to fuel speculative building. We need to bolster a sagging market without creating a reward for risky business practices. Housing must be fixed if we are to create jobs, preserve household financial stability, and create a better economic future for our country. The old economic aphorism…Housing leads the economy to recovery…may be proven true again.
My suggestions are simple and are a hybrid of several policy ideas being floated around right now. My proposal will focus on:
• Saving homeowners from foreclosure.
• Stimulating the housing market so as to decrease existing inventory.
• Rewarding “Green Building” and sustainability from both the producer and the consumer side.
• Putting skilled workers to work on “Green” initiatives that will create employment now and energy efficiency for years to come.
Number One:
I suggest that the Housing Stimulus bill of 2008 needs to be revised in order to address the inadequacy of the $7500 first time buyer tax credit. This credit should be increased to $10,000 and not paid back annually. The $7500 credit was inadequate to stimulate first time buyer activity and the annual repayment actually became a disincentive for many potential buyers.
Instead the repayment should be required when the purchaser sells the home or transfers title. This mechanism already exists in the current bill. It should be the solitary means for recapture. This would prove to be a disincentive to “flipping” a property while mitigating the impact on buyers who are looking to settle into a neighborhood for the long term.
This action alone would greatly improve the efficacy of the Housing Stimulus bill already approved by Congress. I would go one step further by extending a $5000 tax credit to all purchasers using the same repayment proposal. This change would have the benefit of allowing a liquidity cushion for homebuyers who have become too accustomed to HELOC’s and Home Equity Loans as a means for furnishing their home or paying for unexpected emergencies. The government would simply issue the equivalency of a HELOC or Home Equity Loan and it would be repaid when the property is sold.
I would also monetize the tax credits. I would put that money directly into the purchasers account at closing. This would have the greatest single impact on driving demand. This immediate stimulus would certainly be felt on Main Street and would have a far greater impact than mailing stimulus checks to households who are inclined not to spend them.
Lastly, I would make these credits available for homes that are currently built. I would not allow these credits to directly fuel a new housing boom. I would use this stimulus to whittle away the existing inventory. Homes with a certificate of occupancy dated no later than April 1, 2009 could qualify for this program. Reducing the existing housing stock to a more manageable level would have the greatest single impact on future housing growth.
These revisions to the existing Housing Stimulus Bill would certainly improve its impact and get stimulus directly into the economy while strengthening the housing market almost immediately. It would also focus the stimulus on decreasing housing inventory which would prove to stabilize neighborhoods and likely reduce the pressure of households on the brink of foreclosure.
Number Two:
I would provide stronger incentives for “Green Building” practices for new home construction moving forward. LEED certification is one metric which could be adapted for evaluation the energy efficiency of a new building. Energy Star or NAHB Certified Green are two more means of measuring “Green Building”.
As we emerge from this housing collapse and start building homes again we should take this opportunity to transform the way we build our homes. The homes built today are 30% more efficient than homes built 30 years ago. We could increase the average efficiency of a new home by 50% more by simply requiring certification and rewarding compliance.
A federal tax credit of $2000 is already available to home builders who build homes (including both site-built and manufactured homes) projected to save at least 50% of the heating and cooling energy of a comparable home that meets the standards of the 2003 International Energy Conservation Code, including supplements. A $1000 credit is available to manufactured home producers for homes that save 30% or that qualify for the federal Energy Star Homes program. These credits are already available for buildings or systems placed into service from January 1, 2006, through December 31, 2009.
I propose that we need to increase this tax credit and extend it through 2011. We need to increase the amount of the credit to help offset some of the cost associated with greater energy efficiency. In a healthy market these costs could be passed on to the consumer more directly but today the costs would simply make high efficiency a costly choice for builders. Without greater support, more costly energy efficient home building would likely be abandoned as builders struggle to reduce costs in order to compete.
The federal tax credit should be increased to $5000 for two years and then phased out over three more years. This would allow enough time for stabilization in the housing market and allow for greater access to the technologies and products that will create sustainable energy efficient building practices. These green building materials, technologies and products will also add to the green industry demand of the future.
This stimulus would be aligned with President-Elect Obama’s stated policy to put people to work and to increase our nation’s energy independence. It would create green jobs and it would increase the demand for green technology. It would decrease our energy consumption today and for the future. It would revolutionize the way we build homes and it would be the new American Green Dream.
Number Three:
I would improve the implementation of the “New Hope for Homeowner’s” program already available through the FHA. I would untangle the process and make the application and acceptance process more streamlined. This program has real merit and thus far it has been underutilized. This program, in conjunction, with the initiatives outlined earlier should stem the tide of foreclosure.
One possible modification would include Governmental approval of revisions to appraisal rules for refinancing. It seems fairly simple to allow refinancing to homeowners who are in trouble. One obstacle is the declining market status for appraising home values. A homeowner who purchased with 5% down three years ago would certainly have a negative equity position in most markets today. I propose an allowance to give owner occupied properties the ability to refinance to 110% LTV. at 30 year fixed rates equal to the prime rate or 3.99% whichever is less. (Note: The Treasury Department is already considering an option to create a new source for funding Fannie & Freddie loans at 4.5% using a Treasury Bond offering to create the funding…great move!) I would treat this as a “Rate Buy Down” and I would have the IRS recapture up to $10,000 from the proceeds of any future sale as compensation for this rate reduction.
This would offer immediate relief for homeowners in trouble. It would also allow for a recapture of tax payer funds.
Number Four:
I would invite home builders and remodeling contractors to work as energy efficiency contractors on public housing, public buildings, foreclosed properties, schools, libraries and hospitals. Any stimulus package will need to have employment opportunities and sustainable energy policy at the forefront.
The housing industry has seen employment drop by more than 50 percent in certain regions. This underutilized capacity could be part of a private sector/public sector partnership to improve energy efficiency in public spaces. This partnership could stabilize a very vulnerable industry in our economy while helping to improve our energy independence as move to a stronger future.
These programs would work best through a grant program that focuses on using the private sector to keep people working and viable business afloat while the greater economy becomes stronger.
My proposals are not revolutionary. They are pragmatic. The government cannot solve the problems but they should stimulate the market and allow it to heal itself. The proposals do not create future problems while addressing the past problems. Housing is likely where this crisis began and housing will have to be healed in order to cure the systemic problems our economy now faces.
I would estimate that these changes alone would halt the quarterly reduction in construction payrolls. Over time these changes would likely result in at least a few hundred thousand new jobs at the very least. Most importantly we could stabilize this critical segment of our national economy and the single largest source of personal wealth in our economy. I have confidence that our government will act swiftly, decisively and effectively. We have new leadership and a mandate for decisive action. We are anxious to get back to work.
Wednesday, November 26, 2008
Housing Market...Signs of Improvement?
This is an article from "Real Money by TheStreet.com". I don't know about you but for me...any glimmer of improvement is worth taking a look at!
RealMoney by TheStreet.com
Housing Could Bottom Sooner Than You Think
Tuesday November 25, 10:00 am ET
ByDavid Sterman, RealMoney Contributor
If you took a snapshot of the current housing market, you would find little reason for cheer. A flood of "for sale" signs blight many a front yard in neighborhoods all across America, and buyers looking for foreclosed properties seem to be the only visible signs of support. Also, as Jim Cramer recently noted, it is not helpful that homebuilders keep adding to supply.
Nevertheless, the total supply of unsold homes is steadily dropping. As Tony Crescenzi points out, the rate of new household formation handily exceeds the amount of genuinely new homes on the market. (Some construction is the result of tear-downs or storm-damaged properties.)
Importantly, a number of indicators suggest that the worst of the housing slump may have passed. For starters, the steady drop in home prices is beginning to moderate. Home prices had been slumping 2% sequentially for a good portion of 2007, but those drops are now in the 0.50% to 1.00% range. While home prices may fall a bit more over the next few months, they may finally flatten later this winter.
In addition, mortgage rates are on the decline. After hitting 6.63% last July, the average 30-year mortgage has fallen to around 6%, and rates could head yet lower: 10-year T-bill yields have plunged to around 3.15% (at the time of this writing), which implies that 30-year mortgage rates could fall toward the 5% mark.
More telling is the historical relationship between owning and renting a home. From 1975 to 2000, that ratio was fairly constant, but in recent years, it has been far cheaper to rent than buy a home in many markets, as home prices shot up and rental costs rose only modestly. Now, the stunning drop in home prices has pricked a hole that bubble.
As recently as 18 months ago, the cost of owning was far above historical trends (more than 20%) in 16 out of the 20 cities surveyed by Case-Shiller. Now, only four out of the 20 markets surveyed show a 20%-plus gap. In the other 16 markets, the cost to own has reverted back toward the historical mean and, in some cases, is even below the cost of renting.
So many people insist that there are no buyers out there ready to pounce, but that's not the problem. There are plenty of potential homeowners waiting in the wings, most of whom simply want to see some stabilization in housing prices. When sentiment turns among these folks, the housing market will show real signs of life. We do not need to wait for the glut of unsold homes to fall to zero; we just need buyers' confidence to return.
To be sure, rising unemployment does not instill confidence, and this thesis may not play out until unemployment appears to have peaked, which may not happen until later in 2009. Before then, however, the combination of low mortgage rates and a continuing increase in the economic merit of owning vs. renting is bound to start bringing some buyers back into the housing market.
Of course, the latest read on existing home sales wasn't exactly encouraging, and that's likely to be the case for the next couple of months. That being said, investors should closely scrutinize subsequent readings for clues that this ultra-important segment of the economy begins to show signs of getting off the mat.
Following the old saying "it's always darkest before the dawn," sector share prices have been hitting new lows. The S&P Homebuilders Index hit new lows last week after having fallen more than 75% in the past three years. Many of the stocks in the index are selling not far above tangible book value at this point. For example, Pulte Homes sports a market value of about $2.2 billion yet has tangible book value in excess of $3 billion.
The question for many investors is whether that book value will erode further. That may happen if real estate carried on the books needs to get written down even further, which, again, relies on home prices finding a bottom. As a result, a floor in home prices may bring this sector back into the spotlight in the context of impressive price-to-book-value ratios.
Net-net: While many think that the housing bottom is several years away, it could come within the next two to three quarters.
RealMoney by TheStreet.com
Housing Could Bottom Sooner Than You Think
Tuesday November 25, 10:00 am ET
ByDavid Sterman, RealMoney Contributor
If you took a snapshot of the current housing market, you would find little reason for cheer. A flood of "for sale" signs blight many a front yard in neighborhoods all across America, and buyers looking for foreclosed properties seem to be the only visible signs of support. Also, as Jim Cramer recently noted, it is not helpful that homebuilders keep adding to supply.
Nevertheless, the total supply of unsold homes is steadily dropping. As Tony Crescenzi points out, the rate of new household formation handily exceeds the amount of genuinely new homes on the market. (Some construction is the result of tear-downs or storm-damaged properties.)
Importantly, a number of indicators suggest that the worst of the housing slump may have passed. For starters, the steady drop in home prices is beginning to moderate. Home prices had been slumping 2% sequentially for a good portion of 2007, but those drops are now in the 0.50% to 1.00% range. While home prices may fall a bit more over the next few months, they may finally flatten later this winter.
In addition, mortgage rates are on the decline. After hitting 6.63% last July, the average 30-year mortgage has fallen to around 6%, and rates could head yet lower: 10-year T-bill yields have plunged to around 3.15% (at the time of this writing), which implies that 30-year mortgage rates could fall toward the 5% mark.
More telling is the historical relationship between owning and renting a home. From 1975 to 2000, that ratio was fairly constant, but in recent years, it has been far cheaper to rent than buy a home in many markets, as home prices shot up and rental costs rose only modestly. Now, the stunning drop in home prices has pricked a hole that bubble.
As recently as 18 months ago, the cost of owning was far above historical trends (more than 20%) in 16 out of the 20 cities surveyed by Case-Shiller. Now, only four out of the 20 markets surveyed show a 20%-plus gap. In the other 16 markets, the cost to own has reverted back toward the historical mean and, in some cases, is even below the cost of renting.
So many people insist that there are no buyers out there ready to pounce, but that's not the problem. There are plenty of potential homeowners waiting in the wings, most of whom simply want to see some stabilization in housing prices. When sentiment turns among these folks, the housing market will show real signs of life. We do not need to wait for the glut of unsold homes to fall to zero; we just need buyers' confidence to return.
To be sure, rising unemployment does not instill confidence, and this thesis may not play out until unemployment appears to have peaked, which may not happen until later in 2009. Before then, however, the combination of low mortgage rates and a continuing increase in the economic merit of owning vs. renting is bound to start bringing some buyers back into the housing market.
Of course, the latest read on existing home sales wasn't exactly encouraging, and that's likely to be the case for the next couple of months. That being said, investors should closely scrutinize subsequent readings for clues that this ultra-important segment of the economy begins to show signs of getting off the mat.
Following the old saying "it's always darkest before the dawn," sector share prices have been hitting new lows. The S&P Homebuilders Index hit new lows last week after having fallen more than 75% in the past three years. Many of the stocks in the index are selling not far above tangible book value at this point. For example, Pulte Homes sports a market value of about $2.2 billion yet has tangible book value in excess of $3 billion.
The question for many investors is whether that book value will erode further. That may happen if real estate carried on the books needs to get written down even further, which, again, relies on home prices finding a bottom. As a result, a floor in home prices may bring this sector back into the spotlight in the context of impressive price-to-book-value ratios.
Net-net: While many think that the housing bottom is several years away, it could come within the next two to three quarters.
Monday, November 17, 2008
Fix Housing First?
The economy is on everyone's mind. It is the universal challenge we all are forced to confront right now. The banking industry...the insurance giant "AIG"...the investment banks...now the auto industry...everyone is being crushed by this recession and they are looking for government to lead.
While economists will be arguing for decades as to the root cause(s)of this economic crisis, right now we should be focused on stimulating growth. The housing industry is pushing for a "fix housing first" initiative that is focused on stabilizing the housing industry and the real estate markets.
I believe the general premise is valid and potentially viable...if we can bring stability to the housing market, we can provide a base from which growth could begin. I do not know if this proposal is the best way or the only way to achieve that goal. Take a look at the website "Fix Housing First". I would love to get some feedback or even some better ideas!
While economists will be arguing for decades as to the root cause(s)of this economic crisis, right now we should be focused on stimulating growth. The housing industry is pushing for a "fix housing first" initiative that is focused on stabilizing the housing industry and the real estate markets.
I believe the general premise is valid and potentially viable...if we can bring stability to the housing market, we can provide a base from which growth could begin. I do not know if this proposal is the best way or the only way to achieve that goal. Take a look at the website "Fix Housing First". I would love to get some feedback or even some better ideas!
Monday, September 29, 2008
We're gonna need a bigger boat...
The past week has been akin to being in a slow speed ship wreck. We have been sitting on the deck of the Titanic arguing over whether or not we should bail out the first class cabins. Meanwhile the band played on...
Do I endorse a $700,000,000,000.00 government welfare program for Investment Bankers and Corporate Fat-Cats? Of course not... Do I endorse free markets where the risk of loss is the ultimate means of keeping the system honest? Of course I do. However, we are not dealing with a "zero sum game" in this case. Nothing in life is ever as simple as "yes or no".
We can argue about blame and credit...regulation and deregulation...until we are blue in the face. The essential truth is more nuanced and ultimately less satisfying. We need to decide whether or not we will save ourselves to "fight" another day. The ship is sinking...let's save the ship before we fire the crew.
$700,000,000.00 is an incomprehensible amount. 25% unemployment is an unfathomable possibility. If we can save the ship before we all drown...I promise we can go back to fighting over taxes, guns, religion, culture, proximity to Russia, flag pins, and war. Until then...let's grab a bucket and start bailing.
Do I endorse a $700,000,000,000.00 government welfare program for Investment Bankers and Corporate Fat-Cats? Of course not... Do I endorse free markets where the risk of loss is the ultimate means of keeping the system honest? Of course I do. However, we are not dealing with a "zero sum game" in this case. Nothing in life is ever as simple as "yes or no".
We can argue about blame and credit...regulation and deregulation...until we are blue in the face. The essential truth is more nuanced and ultimately less satisfying. We need to decide whether or not we will save ourselves to "fight" another day. The ship is sinking...let's save the ship before we fire the crew.
$700,000,000.00 is an incomprehensible amount. 25% unemployment is an unfathomable possibility. If we can save the ship before we all drown...I promise we can go back to fighting over taxes, guns, religion, culture, proximity to Russia, flag pins, and war. Until then...let's grab a bucket and start bailing.
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