Wikinvest Wire

Definitely Not the Bottom

Friday, February 16, 2007

Earlier today, the Commerce Department reported a 14.3 percent plunge in housing starts, a new 10 year low, demonstrating once again how difficult it is to "call the bottom".

Well, actually it's easy to call the bottom - it's just hard to get it right.

Just ask former Federal Reserve Chairman Alan Greenspan or nearly anyone at the National Association of Realtors, all of whom had their hopes pinned on the recent rebound in housing starts signaling that the tide had turned.

Not so fast.

Home construction fell from a seasonally adjusted annualized rate of 1.643 million homes in December to a total of 1.408 million in January, far below expectations near 1.6 million.

The last time construction was below this level was August 1997.

By region, weakness was most pronounced in the West where housing starts fell by 28.5 percent. In the Northeast, gains of 8.9 percent were seen, discounting any thought that this was a weather-induced slowdown.

The two consecutive monthly increases during November and December had led some analysts to believe that the worst of the housing slump was over. Inventory had declined marginally and with long-term interest rates still near multi-generational lows, hope was in the air.

While one month does not make a trend, the most recent data roundly counters the notion that the bottom in new home construction is now in the rear view mirror.

The impact of the $40 million national ad campaign by the realtor's trade group last November was apparently short-lived.
If housing starts tick up next month, don't be surprised to hear the January data called the new bottom - eventually this will be the correct call.


jmf said...

it will be interesting to see how wall street and the reic will spin this.

one thing for sure will be that this is good news for the builders (will be lower inventory down the road...),

blame the weather.....,


leveling off....,

the bottom .....,

the fed will lower rates.....,

blah blah .........

have a nice weekend

Anonymous said...

I live in SoCal. The house down the street from me sold for $960K last July. I think they were in foreclosure, so they listed at $899 in December and made a quick exit. The place sold for $869. For Sale signs are sprouting up like weeds - we're not even close to the bottom.

Anonymous said...

True, the housing market has been cooling off. But, I'm not going to jump on the bandwagon that there's nothing but doom and gloom just yet. In fact, we did see a leveling out in the housing market. Then we saw some serious weather. Perhaps it's a bit early to call this until we see the rest of the winter's releases and into the summer.

Ritholtz said...

no, its all good! Didn't you see the Homebuilder's stocks have bounced? That means the bottom is in . . .

Anonymous said...

david andrew taylor:

Bad news for you. The cold outside ain't the real "weather" for the real estate market, buddy. The real weather is in subprime lending, and the storm is spreading up the tranches to prime.

It's exactly what us bubble bloggers have been saying for the past year or two: at some point the US financial economy would have to pay the piper for letting the median household condition deteriorate and pasting it over with more and more credit. That point is now.

I estimate we can kiss 10-30% of the buy-side activity in the housing market goodbye for the next few quarters. This is going to be like nothing that has ever been seen.

Anonymous said...

What amazes me is the fact that there are STILL, STILL people out there paying $869K on homes...

My friend just put an offer on a house in the Valley area (Los Angeles for $880K....the house price listed was $925K.

To buy this house, they are a family of 6...him, his parents, his wife, kid, and grandmother.

They are renting out his grandmother's paid off apartment, they are selling their current condo for a hopeful $300K profit.

This is what people are doing now to buy homes in So Cal...regular working couples who live by themselves have no chance...will they ever? And why would they even want to stay here anymore anyway?

Anonymous said...

Meanwhile back in the real world the Dow closes at an all time high.

Anonymous said...

I'm old enough to have been to the bottom and seen what it looks like. Believe me. We're pretty close to the top.

Anonymous said...

Anonymous said:

"Back in the real world the Dow closes at an all time high."

Who says the Dow has anything to do with the real world? The real world is folks up to their eyeballs in debt, two jobs, stagnant income growth, and climbing ARM payments that likely will spell foreclosure for many. Rah Rah go Dow Jones.

Anonymous said...

I agree with the last poster. The Dow hit an all time high once before -- 1929. You can't tell if someone has cancer by taking their temperature.

Anonymous said...

housing prices? what a plebian concern. go big or go home. you shouldn't be buying if you won't be there for 5 years and over that time it is highly unlikely you'd be upside down on a house.

Anonymous said...

"I agree with the last poster. The Dow hit an all time high once before -- 1929. You can't tell if someone has cancer by taking their temperature."

I hope you aren't a teacher. Now that would be scary.

Anonymous said...

Have you looked at a plot of the Dow over the last six months? Overlay that curve over the Nasdaq in 1999. The Dow is blowing a big bubble, that's all.

rvb1977 said...

Mathematically speaking, New Home Sales could reach a seasonally adjusted rate of 550k before a true bottom is etched. I derive this by noting that in the worst of times, about 1% of total households in the U.S. are still turning over in the New Home market.

Using the same methodology, housing starts would likely bottom out at a seasonally adjusted ~1.0 to ~1.2M.

Of course, this completely ignores interest rate movements and affordability which are important too. A fall in rates means affordability rises, all else being equal.


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