How good the housing starts news was yesterday was in the eye of the beholder. According to Bloomberg:
Builders in the U.S. began work on the fewest homes in 12 years in August, raising the risk the real- estate recession will spread to other parts of the economy.
The housing slump may deepen after borrowing costs rose and lenders shut off access to credit, causing growth to slow even more, economists said. Federal Reserve policy makers yesterday lowered the benchmark rate by a half point to prevent a broader economic slowdown.
Traders however, took a different view:
Shares of most homebuilders surged Wednesday after reports showing companies in the sector are building fewer homes offered hope for a recovery.
I’m not completely convinced that the homebuilder rally was sparked by the housing starts figures. I think it more likely that traders were still punch drunk after Tuesday’s rate cut.
According to the Census Bureau:
Housing Starts:
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,331,000. This is 2.6 percent (±7.3%)* below
the revised July estimate of 1,367,000 and is 19.1 percent (±6.5%) below the revised August 2006 rate of 1,646,000.
Housing Permits:
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,307,000.
This is 5.9 percent (±1.4%) below the revised July rate of 1,389,000 and is 24.5 percent (±1.3%) below the revised August 2006
estimate of 1,731,000.
While lower starts are indeed what are needed to bring balance back to the housing industry, while starts and permits look like this:
New home inventory looks like this: [Last data released by Commerce Dept. in July]
Neither rate cut, nor pullback, nor government bailout is going to stop the unwinding from its appointed rounds. This thing is going to take awhile.
I tried to help move things in the right direction this week by submitting offers on 2 houses in the 85254 zip code.
Strangely, or coincidentally, both were taken off the market the day after my offer.
One was listed at $425,000. I offered $285,000 on that one. The other I can’t remember but it was a similar price/offer ratio.
I’m going to keep doing this and my offers are base on a 3% appreciation of what the sold price for these houses would have been in 2004.
Anybody think I’m “nuts”?
This is a funny story. (Kind of). I teach online college courses. The person that has been scheduling my courses for the last 3 years lives in Phoenix. He called me yesterday and said that he was leaving his job as a scheduler because he and his wife were going to become real estate agents in Phoenix.
After reading this blog…makes me wonder. Maybe he missed that boat.
IPG
http://confessionsofamadprofessor.blogspot.com
IPG2007a-
Maybe they were using hypnotism at the foreclosure seminar they went to….
Nordaq-
I think you are nuts. That is a cruel joke to play on those sellers. They both probably got so frustrated that they gave up because of your psychotic offer. If you really think prices are going to drop that much, then you are going to be waiting longer than I am for prices to a)stabilize, then b) begin appreciating at the normal 10% rate per year, which will happen, and you know it. T.
nordag
“Anybody think I’m “nuts”?”
I hope you’re not nuts. That is the exact same idea I had. I don’t plan to try it until next summer though. Start with the fair market value before the buying frenzy, add a bit for appreciation, and make an offer.
Tomaski-
I don’t think it’s cruel. Let’s consider something. If a “normal” market is a market with a 4-6 month supply, then pricing has to be where 17%-25% of the homes on the market are selling. Right now, for All MLS, I think we have around a 13 month supply- so in any given month only 8% are selling.
In order to achieve a “normal” market then, don’t prices need to drop to the point that home sales triple? Given the credit tightening and psychology- I don’t think a little 5%-10% drop will do it.
It’s a tough market- and a seller needs to have a tough skin to function in it. This is a business transaction. If the only offers a seller is getting are “lowball,” maybe the offers aren’t so “lowball” after all. At least they are getting some action- some sellers haven’t had a call in months.
Tomaski,
Figures I could get a “nutty” response from you.
I’m not playing any jokes on anyone, I’m being honest and real.
Turns out both of these houses were free to the sellers from their retired parents and they’re trying to cash in (or out) on mom and dad.
These people don’t even live in the valley much less in the house.
Talk about cruel….
And since when is 10% appreciation normal?????
IPG
http://confessionsofamadprofessor.blogspot.com/
Twist-
Your numbers sound logical, but there are many external factors at work. Job market, immigrants, echo boomers, credit availability, builders, consumer confidence, Fed policy just to name a few.
Nordaq-
Taking advantage of a motivated seller? Sounds like a late night infomercial real estate course. More power to you. T.
ipq2007a-
In the real world 10% does not happen unless you’re creating a bubble.
Oh wait, we just HAD a bubble and Tomaski is getting soiled as it bursts…