Housing Bubble Bursting?

[Michael Tipton]

By News-press.com
Originally posted on July 25, 2006

DELIVERING YOUR WORLD
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The median sales price of an existing home in Lee County fell in June, the first year-over-year decline in seven years, according data released today by the Florida Association of Realtors.

The median sales price of an existing single-family home in Lee County was $268,000, down five percent from $281,000 in June 2005.

Just 891 single-family homes in Lee County were sold by Realtors in June, down 31 percent from the same period last year.

Collier County saw even steeper declines, with the median selling price falling 8 percent to $451,500 and sales fell 48 percent to 274.

Condominium sales were also down 66 percent to 150 sales in Lee, with an average sales price of $250,000, down 7 percent. Collier condominium sales fell 48 percent to just 57 sales, with the average selling price rising 1 percent to $508,100.

 

[Big ole Boy]

The .... DEAD MIDDLE

From 2004 to 2005 independent bicycle shops across the country shrinked by 25%. High end bicycle companies opened their own stores and Walmart took the bottom end of the market. (Bicycle info obtained from a bike repair shop - person) (Gainesville, FL - Striets Bicycles moved their location after 33 years to a lower rent area - and was replaced by "Sealy Posturpedic beds" ) .....





THe top 20% of the market now has there own floor space and the rest is imported cheap bikes from China.

Thats pretty much how many industries are creating new demand for office and commercial space ..... through dismantling the "DEAD MIDDLE".

By canabalizing the "DEAD MIDDLE" ..... new construction and development can occur to the top 20% and leave the bottom 80% to dogs ......

 

[airphoto]

Eh?.....................

 

[Randolph Kinney]

Fed Beige Book finds slower growth, inflation pressures

Fed Beige Book finds slower growth, inflation pressures

By Greg Robb
Last Update: 2:00 PM ET Jul 26, 2006



WASHINGTON (MarketWatch) - Upward pressure from energy and other inputs is persisting, despite reports that the pace of growth in the U.S. economy has slowed, according to a survey of current economic conditions released by the Fed in Wednesday. All 12 Fed districts said their economies were still growing in the last two weeks of June and the first two weeks of July, but there were "numerous individual reports pointing to evidence that the pace of growth has slowed." Six Fed districts reported a decline in the overall rate of growth in their regions. At the same time, pressure on prices from high price of gasoline persisted and in some cases increased.

 

[Austin]

http://www.breitbart.com/news/2006/07/27/060727164635.phgh289u.html

 

[Randolph Kinney]

GDP slows to 2.5% in second quarter

http://www.breitbart.com/news/2006/07/27/060727164635.phgh289u.html

GDP slows to 2.5% in second quarter
Core consumer inflation rises at fastest pace in more than a decade

By Rex Nutting, MarketWatch
Last Update: 9:03 AM ET Jul 28, 2006

WASHINGTON (MarketWatch) -- The U.S. economy slowed in the second quarter, growing at a real 2.5% annual rate after a torrid 5.6% pace in the first quarter, the Commerce Department reported Friday.


Consumer spending weakened in the April through June period, residential investment fell further and business investment eased to the slowest growth in more than two years. Investments in business equipment and software declined for the first time in three years, the biggest surprise in the report.



Inventory accumulation and trade added to gross domestic product in the quarter. Read the full government report.


Real final sales increased 2.1% annualized, down from 5.6% in the first quarter. Final sales to domestic purchasers increased 1.6%, down from 5.4%.


Meanwhile, core consumer prices rose 2.9% annualized, the fastest pace in 12 years, keeping the pressure on the Federal Reserve to stay on top of inflation. Core consumer prices have risen 2.3% in the past year, the fastest growth since 1995.

The GDP price index, which covers all prices in the economy, increased 3.3% for the third straight quarter. Consumer prices including food and energy increased at a 4.1% pace.


The 2.5% real growth was weaker than the 3.1% gain expected by economists surveyed by MarketWatch. See Economic Calendar. The economy has grown 3.5% in the past four quarters.


In nominal terms, the economy grew 5.8% to an annual rate of $13.19 trillion.

Growth was also revised slightly lower in 2003, 2004 and 2005, as part of the government's annual benchmark revisions that incorporate better data that are available only with a lag.


Real GDP averaged 3.2% in the three years, down from 3.5% previously. In 2005, the economy grew 3.2%, rather than the 3.5% previously reported.

The Fed

The slowdown in GDP is welcome news at the Federal Reserve, which is trying to slow the economy to its long-term speed limit. Growth beyond the underlying productivity of the economy can fuel inflationary pressures, the Fed fears.


One lingering fear for the Fed is that wages will begin to rise faster than productivity, thus adding to inflationary pressures. The Fed got contradictory data on that score Friday.


On the one hand, the Labor Department said employment costs rose 0.9% quarterly in the second quarter, the fastest growth in a year. See full story. But in its revisions to 2003-05, the Commerce Department said real wages grew significantly slower than originally thought. See full story.

The details


Consumer spending increased 2.5% after 4.8% gain in the first quarter. Spending on durable goods fell 0.5%, spending on nondurable goods rose 1.7% and spending on services increased 3.5%, the biggest gain in two years. Consumer spending contributed 2.7 percentage points to growth.


Residential investment fell 6.3%, after falling 0.3% in the first quarter. Residential investment subtracted 0.4 percentage points from growth.

Business investment increased 2.7%, the lowest since the first quarter of 2004, contributing 0.3 percentage points to growth. Investment in structures rose 12.7%, the most in three years.


Investments in equipment and software fell 1% after a 15.6% increase in the first quarter. It's the first decline in three years.


Changes in inventories added 0.4 percentage points to growth.

Exports increased 3.3%, while imports grew 0.2%. Net exports added 0.3 percentage points to growth.


Government spending increased 0.6%. Federal spending fell 3.4%, including a 1% drop in defense spending. State and local government spending rose 3%. Government spending contributed 0.1 percentage point to growth.

 

[Couch Potato]

Fed raising rates is too little and too late. Inflation has been in double digits for a couple years now, just not across the board. Its been mostly just in the housing and energy sectors, but cannot help but spread to everything else. Our government is badly out of touch with economic reality.

 

[Big ole Boy]

The Dead FED

Fed raising rates is too little and too late. Inflation has been in double digits for a couple years now, just not across the board. Its been mostly just in the housing and energy sectors, but cannot help but spread to everything else. Our government is badly out of touch with economic reality.

All mechanisms for coping are being exhausted.

The foundation of our economy operates on energy; the cost of energy has now crossed a tipping point where the FED is forced to slow down the economy to induce lower consumption of energy to control inflation.

 

[Terrel L. Shields]

The foundation of our economy operates on energy

Heartily agree. RE will be under a lot of pressure. Was told this morning by a builder that a RE maggot who builds tons of subdivisions called and told him he was cutting lot prices by $10,000 and if would buy several, he would "make a deal"....?

Builders 35 mi. from Wally World HDQ suddenly have no lookers, no buyers, and these "Greenfield" subdivisions are 1-overpriced; 2-too far away; 3-require too large a home (some have 2200 SF minimums); and, 4-taxes, insurance, payments, and future energy costs to commute as well as heat the home are "through the roof"...

The newest Skyline report came out and reports 25% drop in sales in Washington Co., 11% drop in Benton County, 40% vacancy rate in commercial vendor space (new, Benton Co.); and 1,800 vacant new homes compared to 800 in 2005.

 

[Randolph Kinney]

Recession, Inflation, Over-Valuation, Lower Profits

Recession, Inflation, Over-Valuation, Lower Profits


John P. Hussman, Ph.D.

Excerpt from fund manager John P. Hussmanon on the US market:

... investors are moving along a “story line” that goes something like this: the Fed has gone through a long tightening cycle that is starting to have its effects. With its job now done, the Fed is likely to stop. From here, we'll probably see somewhat slower economic growth, but also slower inflation and maybe even lower interest rates. So the “end of the tightening cycle”, combined with sustainable but slower economic growth, slower inflation, and moderating interest rates should lead to an “expansion in P/E multiples” from their currently “attractive” level. End result: new life to the bull market.

Investors should be so lucky. Unfortunately, it's likely that every one of these assumptions will be violated.

On the subject of valuations, I've noted that the apparently benign valuations quoted by many analysts are based on forward operating earnings that contain a very strong assumption of continued high profit margins. Moreover, these forward operating P/Es are being compared either with values from the past decade alone, or with historical average P/Es based on trailing net earnings. Suffice it to repeat that when S&P 500 earnings have been close to their long-term 6% peak-to-peak growth trendline (as they are currently), the average price/peak earnings multiple has been about 9. The current price/peak earnings multiple is about double that. While this hardly implies that valuations must or will decline to their historical averages, it does imply that stocks continue to be priced to deliver unsatisfactory long-term returns.

On the economy, as I wrote in my May 15 market comment, “Stagflation is based on two factors. First, historically, and internationally, it's not the rate of money growth per se, but the growth of government spending as a share of GDP (particularly spending that doesn't add to the productive capacity of a nation), that drives inflation pressures. Second, the enormous current account deficit means, by definition, that a substantial portion of U.S. gross domestic investment is currently being financed by foreign capital inflows. There are only two ways out of this deficit – invest less domestically, or save more domestically. Given a profligate fiscal policy and a low propensity to save among U.S. households (saving more requires income growth to outpace consumption growth), “saving more” is probably not a likely source of adjustment. More likely, we'll adjust a good part of the current account deficit through weakness in U.S. gross domestic investment (mostly via a housing slowdown, in my estimation).”

“In any event, the U.S. has virtually zero likelihood of enjoying a sustained ‘investment boom' anytime soon – whatever growth we observe in capital spending is likely to come from a contraction in housing investment, leaving gross domestic investment relatively flat. So ‘stagflation' isn't an outside chance, but a reasonable likelihood here. My impression is that the Fed will have a fair amount of difficulty with this outcome, as central bankers have always had.”

Last week's GDP report was clearly consistent with stagflation pressures, with GDP growth coming below expectations and inflation figures coming in above expectations. In fact, that's been the general trend of the bulk of economic reports in recent months.

Investors are tenuously sticking to the first story line – moderating growth with no risk of recession, moderating inflation, beliefs that stocks are reasonably valued, and hopes for an end to the tightening cycle. Yet the data are actually consistent with a second story line – emerging (though not imminent) recession risks, persistent “structural” inflation, rich valuations, probable contraction of profit margins, and an incoherent Fed policy that is likely to become even more incoherent in attempting to battle weaker economic growth and persistent inflation simultaneously (not that I believe Fed actions will be effective in any event).

While it's reasonable to expect that the Fed will indeed pause at its next meeting, the more important issue is that investors are probably adopting the wrong story line here.

If and when they shift to the second story line, it probably won't be funny.