Thursday, October 18, 2007

Laugh of the Day

The normally sane and balanced Daily Mortgage Reports has slipped off the tracks with this one: Why The Terrible Housing Starts Number Could Be A Signal Of The Housing Market's Recovery

Just because Housing Starts plunged last month and the chart looks like The Beast, it doesn't mean that the U.S. Housing Market is any worse off than it was.

On the contrary, things may finally be starting to improve.

Yesterday, the government released September 2007's Housing Starts data for the country. A "Housing Start" is a new home on which construction has commenced.

Versus August 2007, starts are down 10.2%
Versus September 2006, starts are down 30.8%
The headlines are saying that this is bad news for the U.S. economy, proof that the "nightmare" is ongoing.

I say, "Wasn't taking Econ 101 a basic job requirement to be a business writer?"

If Housing Starts are down, folks, it means that the housing supply will be down shortly, too.

---
The picture? Hey, I figure that if Mortgage Reports can whistle past the graveyard the least I can do is give form to their fears.

28 comments:

Bring the Blog said...

I must not be a good whistler, huh? :-)

I see your point and can understand why my POV looks flawed. I guess that's the sign of a good discussion point -- there's merits on both sides of the table.

As I see it, the fastest way for the housing market to recover is for builders to stop flooding the market with supply. Of course, they don't look at it that way - builders may just not have money left to keep adding product, right?

With constant demand and dwindling supply, economics tell us that prices SHOULD move higher. That was my point. And time will tell if my analysis is flawed.

Thanks for reading, by the way. I appreciate that.

Arthur Wankspittle said...

With constant demand and dwindling supply,
But you haven't got either at present. Demand is slowing because people are waiting for prices to fall, plus no one is lending 5x to 10x income any more. Supply is up as all the flopped flippers, ARM reset repos and unsold developments sit around unsold. Builders make money shifting new houses, anyone who thinks they can sit it out and wait for the market to correct is going to have to have one hell of a pile of cash.
PS Murst!

Rob Dawg said...

Dan,
You are correct this is a disagreement on the merits.

You are alos correct that part of the solution to the housing market troubles is a huge reduction in the new supply. Calculated Risk has beaten this point to death. My guesstimate was that replacemnet residential should be about 400,000/yr just to maintain current stock as disaster and decay take dwellings out of the habitable category. There's probably another 60-80,000 DUs that may or may not overlap that figure that are merely obsoleted and also in need of replacement.

Still, the HBs are putting 1.1m on the market currently and have half that much that must be completed going forward so there's just no hope of even remotely matching low current demand with inprocess oversupply.

THere's another aspect of "demand" that we've discussed here that you probaly missed. Average occupancy has been falling for decades but is likely to reverse in the current environment. If just 1 household out of ten picked up one additional occupant then the US instantly has 4 million more surplus houses.

And what Arthur said... demand is nowhere near constant for financial reasons as well.

Bring the Blog said...

Thanks, Rob Dawg. Good points -- all of them.

My original post on the topic was more to highlight that the papers' version of the truth is often different from the ACTUAL version of the truth. A lot of the key issues you raise supports this POV as well.

I am adding you to my reader. Good stuff you got here.

Rob Dawg said...

Careful. EN is best described as an aquired distaste. We screw around and meander in between the salient stuff. Thanks anyway.

Legion said...

ummm...by the way...that looks like a movie I'd like to watch:-)

Legion said...

Here's a link to some douchebag that lives in a 750K house, can afford the mortgage, and is crying because it's not appreciating like he thought it would..

http://www.newsweek.com/id/52608?GT1=10450

Ok, did anyone catch the fact that this turd is a contractor? anyone? Yeah buddy, let's see how much longer you can 'afford' to pay for your dream home. He better sell now before he is kicked out of his own home.

Rob Dawg said...

The douchebag was his own greedy general contractor. Too much house, too illiquid, concentrated exposure, and he was relying upon double digit returns! GMAFB. This is why these people need to crash and burn. They won't learn otherwise and will cause more harm next time if we don't stop them.

Sweet Cashback said...

Sweeeeeet....he must be throwing up over all the tax and insurance he pays for his "oversized" house.

Karma I tell ya !

Sac RE Agent said...

Legion, that's another investor gone amuck. Sad that the msm will print articles about such stuff without asking the person some good, old fashion questions, like, what made you believe that real estate should constantly appreciate in double digits? Unfuckingbelievable!

And it looks like he way overbuilt for the neighborhood.

Rob Dawg said...

Classic beginners mistakes. Funny thing being that if it was supposed to be an investment he should have leveraged as much as possible instead he killed his own chances of any return and exposed himself unnecessarily.

When we start bouncing along the bottom You can bet I'll only spend out-of-pocket the least the bank will accept and still find ways to cut that too.

Akubi said...

Interesting image juxtaposition.

That Newsweek article inspired me to check the latest Zestimate on my place. In 30 days it dropped 32K. Woohoo! Win-Win!
Since it is still significantly more than I paid for it in 2000 and cheaper than rent I'm not all that concerned.

Rob Dawg said...

Akubi,
I know where it went. Zilow says my primary residence went up $32,225 in the last 30 days. But get this; my immediate next door neighbor, his 30 day change is -$417,675. For you math nerds that's almost $10 per minute.

Sac RE Agent said...

$10 a minute. That's priceless. Pretty soon there will be a ticker running on Zillow, just like the stock exchange.

Akubi said...

@Dawg,
Oh, so you took my 32K!
Any idea what caused Zillow to calculate a 30 day loss of $417,675 on your neighbor's place?

Legion said...

@Akubi
"Any idea what caused Zillow to calculate a 30 day loss of $417,675 on your neighbor's place?"


Ummm...reality? Maybe the POS was overpriced to begin with?

Rob Dawg said...

This is about the time David from Zillow might chime in. He's been known to haunt these pages . Anyway I've been doing some casual reverse engineering of the zillow valuation model and it appears very close to minor thesis model from collge that developed a risk assesment matrix. Think 4 axes equally 3spaced like a face centered tetrahedron. What they do is establish numbers along each axis and also define a sphere with a diameter and centerpoint. What you have is a bubble out in space that overlaps a whole bunch of other bubbles. Some a little, some a lot some not at all. When they get in data on any one bubble; recent sale; new tax base, physical changes they use that to tweak similar spheres. Pretty clever stuff but then I thought so too when I did it in 1982. So what does all that mathnerd babble mean? The house next door is pooled or crosslinked with otherplaces that zillow "thinks" are comparable on some level. 5000sf stucco-mansions aren't getting $3m anymore based on a couple recent sales so they updated on of my neighbors' axis numbers. Most likely I'm guessing here the comparable $/sf fell to $500 from $600 previously. Even if was a smaller drop what then happens in the model is that the new sphere in zillowow's model sapce might look more like a different set of related houses and that remodels it's price just that much more. See? Sigh, probably not. It's hard to use words to explain 5 dimensional dynamic models with anisotropy.

Rob Dawg said...

S'course the guy next door probably just suffers from crappy neighbor syndrome. ;-)

Rob Dawg said...

Yes, Legion, the POS was overpriced and is still overpriced at $2.5m. I'd venture a purchase price of $1.4m and $200k in remediation and finish work.

JohnDiddler said...

nothing i've read suggests the storm has even hit yet. oh yeah whooptie some pricing problems in the market, a big bailout. Ben's saying "I want to know what these damn things are worth". When did Greenspan swear? Things must be serious. Countrywide cracked down on lending standards in JULY OF THIS YEAR. Most resets don't start until NEXT YEAR. Properties purchased THIS YEAR are foreclosing at a HIGHER rate than those purchased LAST YEAR.

Then again papers print contrarian bullshit because it's contrarian. Some asshole argued in WSJ last week that there is no nursing shortgage. Contrarianism is newsworthy. Whatever.

Edgar said...

Just because Housing Starts plunged last month and the chart looks like The Beast, it doesn't mean that the U.S. Housing Market is any worse off than it was.

Monty Python: "It's only a flesh wound..."

Legion said...

Wait a sec Rob, you mean to tell me this fungooo was trying to sell his house for more than 2.5 million? So a drop of less than 20% is about average for Cali isn't it? Now if it was priced at 800k, then yeah a 50% haircut would be something to be upset about...

Hey, be a good neighbor and tell him to call newsweek so he can whine about how he blew his inheritance on repairs and now won't be making his retirement fund in one year..

Rob Dawg said...

Legion.
This is one of his products: http://www.revolution808.net/Wheels/Blingz/images/Moneyfull.jpg
Anyway, he's already sold it once for $2m only to be forced to buy it back for $2.1m plus legal fees for all the ummm... noncompliances. It was briefly MLS for $2.9m not too far from the zestimate. Nevermind the price. The taxes are $2000/mo. Be patient, he'll be down another million before long.

And yes, before you blow a gasket; cribs in my 'hood go for $500/sf. That's why I needed two plasma TVs. Your typical 32" tube model goes for $400 but takes up 4-5 square feet. So the 42" and 50" plasmas taking up only 3 sq feet and costing only $3100 means I've gained 6 square feet of useable floor area thus saving money!

Akubi said...

Man, I need those money blingz with Plasma!

Rob Dawg said...

Akubi,
Yes, he is exactly what you'd expect as the stereotype of someone who tears down 3000sf houses to put up McMansions and sells Hummer wheels in limited editions with $ signs in the spokes. You'd like his ex-wife however. She took a hatchet to his Lamorgini, Ferrari and Lotus in a domestic "discussion."

You want the plasma? The Blingz? Then strap on some fishnet baby and work the room! Sorry, just messin' wit ya.

Legion said...

@Rob

This is one of his products: http://www.revolution808.net/Wheels/Blingz/images/Moneyfull.jpg
Anyway, he's already sold it once for $2m only to be forced to buy it back for $2.1m plus legal fees for all the ummm... noncompliances

Noncompliances? Man between the IRS and his ex wife..this guy has gotta be bleeding money big time. Oh and those wheels with dollar signs...can you get anymore tacky?
Personally I'm glad to hear that you are probably doing well with your home, 500 dollars a sf? Man just add a square foot tile leading to the back yard and instant 500 dollars in equity!!!!!!

Property Flopper said...

She took a hatchet to his Lamorgini, Ferrari and Lotus in a domestic "discussion."

NOOO.... the Ferrari and Lamborghini I could see, they're generally overcompensatiion for something, but a Lotus?

Those are art. They handle like a dream, they run nice, love everything about them... can't condone hitting that with a hatchet.

BTW: Loved the "acquired distaste" comment.

Rob Dawg said...

Legion,
You have no idea how tacky some of his lifestyle choices end up. While discussing his trophy wife with fellow neigbors I almost gave one a heart attack. He observed that she couldn't more than 28-29 years old to which I replied "well some parts maybe..."

Tacky is some of the other houses he has mauled in the area. Tacky is the C55 with black chrome and polished disc wheels. I'll have to do a special pictures post on his idea of home improvement.

Prop Flop,
Worse it was a classic Esprit in the original yellow with black interior. Sniff.