This holiday break has interjected a little philosophy into my thinking, so don’t panic. I am sure this will pass and I will be back to my old _dull and boring_ mode in a few days. Here goes…
From mid-2005 through the fall of 2006, the key words used to described the national housing market were:
* Boom
* Bubble
* Bust
* Crash
* Soft Landing
This language was universally used by bloggers, big media, real estate brokers, buyers, sellers, butchers, bakers and of course, candlestickmakers.
Ok, I got a little carried away but you get the point: _everyone_.
At some point, the extreme message got a little stale. I don’t mean to sugar coat the problems with the national housing market in any way. The change in the default message bias is what has changed and I find that pretty interesting. Here’s a very small sampling of typical upbeat news coverage of the housing market.
[Another Sign Housing Slump May Be at End[Bloomberg News]](http://www.nysun.com/article/45809)[Dow Tops 12,500 after Upbeat Housing Data [BW]](http://www.businessweek.com/investor/content/dec2006/pi20061227_597596.htm?chan=top+news_top+news+index_businessweek+exclusives)[First-Time Home BuyersLook at Houses Again [REJ]](http://www.realestatejournal.com/buysell/markettrends/20061214-simon.html?refresh=on)
I think the recent coverage of slowing inventory growth and rising new home sales (despite the fact that this statistic is utterly useless given its deviations) combined with the optimism of the New Year and the fatigue of shouting the same old message, likely brought about the change in the conversational angle.
It was similar to the 60 day transition from the phrase _housing bubble_ to _soft landing_. Or when various congressional testimony or a Greenspan term interjected new popularity behind terms like froth and gravitas. Herd mentality 101.
So here is the new official phrase for the housing market (irregardless of the positive or negative nature of your local realty reality) for 2007:
Housing Has Turned The Corner
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Ah, but what lies around the corner is the real issue!
I don’t think you can go from 1997 to 2005 talking about the boom, then 2006 have the first signs of cooling and declare that it’s all turned the corner. I think we have years of excess to burn off. It’s going to be very slow so you can’t point to a couple of articles and decide that the bust is over.
By the way, “irregardless” is not a word…
Me – thats true, but value is all about “whats around the corner.” Future impression of the market is the basis for the current prices paid.
Renting for now – this post is not an argument for what the housing market is actually doing, rather the consumer and media position change that has been occuring. Each market behaves differently so your position is certainly valid.
BTW “irregardless” is a word: http://dictionary.reference.com/browse/irregardless. But thanks anyway. My spelling and punctation or pretty weak so I made sure by looking it up.
I agree JM – hence the extreme run up in prices, which happened, in my opinion, only because people thought they would get higher future value. If the market shifts mainly because of a turnaround in psychology, then the value was false to begin with, I think.
that back seat driver known as the media has been tough to tame. I wish we could collect data on buyers seriously looking as that is a good indicator of the psychology. Even when the NYT said bust, buyers were abundant at open houses and prequalification letters were flying all over. Me thinks- spring/summer= great activity.
The turn around will in large part hinge on one primary and often overlooked factor: will the first time homebuyer be willing and able to get back into the market in sufficient numbers thereby pushing more sellers to be say, trade-up or relocating buyers? The question gets even more interesting when we consider the pull back in “exotic mortgages” and the move away from lax underwriting. There is little disagreement that these elements put much enertia in the marketplace, particularly for the entry level buyer. Those of that at least recognize the “push effect” know this because we have seen it before as the resale market has lingered in the past. Consequently, for an early indication as to the market, I will be paying attention to this market sector.
Which brings me to another observation. How can the current absorption rates/months of available supply be reasonably projected absent the same artificial elements (i.e., exotic mortgages and lax underwriting)in the current market cycle?
You know, we’ve been chatting about exactly the same phenomenon. The headlines certainly run in packs, don’t they?
Also, I’ve seen the number of searchers googling for “housing rebound” (or thereabouts) approaching the number of those googling for bubble-related terms. Remarkable.
I believe we have turned the corner. The market has definitely stabilized. Resale inventory in the first and worst market that slowed (starting Q3-05), Sacramento, is down 30% since peaking in August 06. So far we are tracking what the UK went through in 2004-5. They have since had 10% appreciation in 2006, we are about 15 months behind or so.
I’m seeing a change on the street too as people start to recognize a good buying opportunity. The big media outlets have milked the bubble fear for all the readership it’s worth.
Jonathan, I was wondering if you could explain further why the data on “rising new home sales…is utterly useless given its deviations”? In my own NYC centric way, I posted recently that new home sales in the Northeast were up 22.5% according to the 12/27/2006 HUD report. That seems like a strong one-month shift in direction regionally. How much of a deviation is being applied that it would skew a 22.5% change into utter uselessness?
OK Peter, I will bite.
If new home sales are up 22.5%, but the uncertainty on the increase is 23%, then the 22.5% number is useless (in the short run).
There are ways of taking vast amounts of noisy data and pulling out some strong conclusions. You need more noisy data …. you can knock down the noise about 40% by doubling the size of your data set. But, that means that the monthly number becomes the bimonthly number.
Add in cancellations and substantial revisions, and the monthly new home sales data is a useless short term metric. I bet using the same data (after revisions and a rough adjustment for cancellations) to generate an yearly picture of homebuilding activity will yield some reasonably reliable numbers. Nice data for the long run, lousy for the short run.
Im seing an uptick in buyer demand as well. All of a sudden Im getting a lot more web calls and broker calls on my exclusives, as well as new clients seeking a home to buy. Not sure if its a seasonal thing or not yet though.
I still worry that we have more bumps in the road to get through and that any weakness in jobs data or tightening of lending standards could change everyone’s perception of how long the housing slowdown will last. After all, housing is an illiquid investment and takes time to iron out the bumps that were built from years and years of unsustainable growth.
Even the homebuilder CEO said the other day that NO END IS IN SIGHT. So, its hard to say concretely we turned the corner
Peter take a look at the first paragraph of every new home sale reports – its sort of slips buy the reader because it is so insane:
http://www.census.gov/const/newressales.pdf
Here’s the relevant text: “This is 3.4 percent (±12.9%) above the revised October rate of 1,013,000, but is 15.3
percent (±13.1%) below the November 2005 estimate of 1,236,000.
” In other words 3.4% could be as high as 16.3% or as low as 9.5%. 15.3% could be as high as 28.2% or as little as 2.2%.
So I ask you: what does this tell you?
Answer: Absolutely nothing.
Yet its quoted all day long.
I think we’ll have a clearer picture from the Februrary or March numbers. The late fall had a couple of firesales by builders here in the DC area (mostly Northern Virginia) which may change the new sales numbers. I’ve noticed fewer for sale signs, but condos are still in trouble, and the for sales that I’ve seen are staying up longer.
If the mild winter here in the mid-Atlantic and elsewhere holds, I think we’ll have a better understanding that may defy the usual seasonal adjustment.
I’m focused on job growth, and like Jose (upthread), I think the first time buyers will signal the stabilizing of prices.
housing still grew by 7% last year
“Even in the US, where there has been a sharp slowdown in sales and construction, house prices were still up by 7 per cent in the third quarter compared with last year, but have fallen back since. Prices have fallen in some cities, notably Detroit and Phoenix, and in Florida and some parts of California. US house prices have doubled in the past 10 years.”
i dont think Bubble, Bust, Crash or Soft Landing are accurate words to descibe what’s really happening
Thanks for the detailed explanations Jonathan and LIL.
Sorry, irregardless is not a proper word. that’s what the “nonstandard” means in the definition.
pb – so noted. While I appreciate the literary insight, for goodness sake, this is a blog, not a paper submitted to academia. 😉
I’ve noticed with the Media that the housing “bulls” that are interviewed/quoted are tyically economists from entities such as Fannie Mae, the National Association of Home Builders, or JP Morgan. These people are going to have extreme bias for obvious reasons.
The fundamental problem with the arguments these supposed “experts” present is that they give almost no support to their bullish position. Other than assuming the Fed will lower interest rates in 2007, I don’t hear anything else from the Media. Maybe some obscure reference to unemployment or job creation, but nothing statistical or even intelligent. Ususally people just trust their opionions because CNBC lists “senior economist” or “CEO” next to the guest’s name.
3 A final note on the Media’s economic propaganda machine is that you never hear anything about the commom denominator that is going to sink all markets, not just housing. The needle that will burst all asset bubbles is DEBT. Uncle Sam in practically bankrupt and the US consumer is drowning in debt. Why doesn’t the Media like to talk about that? They talk about how consumer spending is holding up despite the housing downturn. Big deal. Consumer spending will continue because we’re addicted to it like a herion addict is to heroin. People may be running out of home equity to cash out and spend, but did you see how much credit card and other non-secured debt went up in 2006? Debt is going to wipe out the global economy and nobody wants to talk about it! That is probably because we are all guilty of it ourselves.
Remember this: 90% of all new cash flows available to consumers in 2006 was financed by new debt. That, my friend, is what we in the real world call “UNSUSTAINABLE.”