In my area the fewer # of starts is compounded (strictly from an jobs lost perspective mind you) by the change in the size of the homes that are starting. Custom homes are downsizing. Not dramatically, but the tick is there.
Posted by mainsailset at February 17, 2007 04:34 PMHere in the Boston area, the market is tanking fast with record foreclosures in the last reporting quarter and a likely wipeout for the key spring sales quarter.
People are bailing. The speculators are destined to get hard and the bubble was inflated by an overload of sub par loan paper.
Shared housing rents have dropped from 700 to 500 per bedroom since I arrived in October and there is an overhang of 50 thousand rentals per week in craigslist.
Posted by Chris Rich at February 17, 2007 06:15 PMMan, this is great news...if you make over $400,000.00 a year. Real property is going to get really cheap really fast. The dollar is about to lose another 30% of it's value. The Euro is the leading currency. What it says is that for those with money the opportunities are there. For the other 90%, well, fuck you. You just didn't get a good enough job. Work harder, you louts. It's the American way.
Posted by phidipides at February 17, 2007 06:39 PMYeah, Muckdog must be going crazy picking up cheap property.
Posted by Judith at February 17, 2007 06:46 PMSomeone I know who works at Pfizer in Ann Arbor emailed me this link from the Onion satire site.
Thousands Lose Jobs As Michigan Unemployment Offices Close
Not yet, Judith. Not yet. Housing cycles are 5-7 years, approximately. But you really have to keep an eye on what the Fed is doing with interest rates. The reason for the slowdown in housing (and GDP) is because Greenspan and Bernanke raised short term interest rates. They did so partly to end the housing bubble.
Of course, some government revenue projections were made by folks thinking that property tax revenues were going to continue to advance at exponential rates forever, and now they may decline. (Just as capital gains tax revenues from stock traders went away after the 2000-2002 bear market).
Regarding a 2007 recession, it's just not on the radar. The stock market would be the first clue. It'd tank about 6-12 months prior to a recession. Just like in 2000, it predicted the 2001 recession. Since the stock market is near the highs of this bull market, so can this talk about a recession.
Posted by muckdog at February 17, 2007 09:57 PMOh, regarding housing starts being down? This is a good thing as it reduces inventory coming on to market. Remember supply-demand, right? This is what you want to see in a slow market.
Posted by muckdog at February 17, 2007 10:08 PMGood post. The collapse of foreign capital keeping the fake Bushco borrowing economy going is especially portentous.
The housing market was absurdly manipulated by Greenspan with historically low interest rates, driving up home prices, attracting enormous amounts of investment capital for the ugly, crappy new homes that now glut and litter the market.
A bubble was thus intentionally created in a "price-sticky" asset that has a hard time deflating without creating enormous problems. Those problems are about to arrive.
And fools praise holy "supply--demand" as though some sort of classical free market economics is on display.
We'll see how long America's plutocrats can keep home prices up all by themselves. Huge numbers of ordinary boobs have been priced out of owning a house (even with negative savings and buying their groceries on Visa). A fall in value of 30% still wouldn't be enough.
Posted by euzoius at February 18, 2007 06:52 AMAnd fools praise holy "supply--demand" as though some sort of classical free market economics is on display.
Why, it is a free market. And it only cost $1 trillion in corporate welfare last year to keep it free. My, isn't market economics fun.
Posted by phidipides at February 18, 2007 07:11 AMThe stock market would be the first clue [of a recession]
But what if it isn't? This isn't your father's world economy. There are new variables that may not be factored by Wall Street because they don't know how to do it. China, the Euro, Russia, Iran--those are some known unknowns. And then the unknown unknowns.
Posted by Don Bacon at February 18, 2007 08:15 AMI remember when I worked in real estate thirty years ago that PITI (principal, interest, taxes and insurance) couldn't exceed about 25 percent of net income for mortgage qualification. Now I guess it's more like 50 percent. Everyone with a job "qualifies" with variable interest rates that keep the PITI unreasonably low to begin with but then escalate in future years and bite you right on the butt. There's no free lunch.
Posted by Don Bacon at February 18, 2007 08:30 AM"The stock market would be the first clue."
What about the inverted yield curve? [That is, short-term interest rates higher than long-term rates?]
As the old investor's joke goes, it's predicted 15 of the last 9 recessions [recessions are always preceded by inverted yield curves, but not every inverted yield curve has been followed by a recession], so I'd ask: what's different about this time?
Don Bacon makes some good points (in my recent Schwab mailing about mortgage interest, it used the figure of 36 percent as a max. allowable percentage of income). But I always get nervous whenever I hear "this time is different"!
Posted by bartcopfan at February 19, 2007 08:14 AMhttp://www.daimlerchrysler.com/Projects/c2c/channel/documents/991081_dcx_2007_ir_factsheet_q4_fy2006_e.pdf
Seeing the news at lunchtime Friday that GM was in talks about acquiring Chrysler stopped me in my tracks.
The link above (apologies if/when it doesn't work) shows that, at least for FY2006, Mercedes--not Chrysler--was where the profit was. Seeing a GM-Chryler combination made me think of Kaiser-Frasier, Nash and whoever (no, not Young! ;-) forming the doomed American Motors, which just couldn't make a go of it.
This would be a desperation move for both companies, it seems to me, and I wish I had more hope for a positive outcome for these American icons of industry.
Posted by bartcopfan at February 19, 2007 08:25 AMExcellent post and comments.
To speak of normal cycles overlooks the fact that what we consider "normal" is only historically fairly recent. With the legs chopped of the conditions that facilitated this "normality," we are in uncharted waters. The "end game" could be very ugly.
Posted by Marie at February 19, 2007 11:24 AM