Housing Bubble Bursting?

[Randolph Kinney]

Nouriel Roubini - hard landing already?

http://www.rgemonitor.com/blog/roubini/

US Q1 growth likely to be revised to 0.7%: we are already in a “growth recession” range. And Q2 started even worse than Q1.

Based on a variety of data that have come out after the first estimate of Q1 US growth at 1.3% it is now likely that US growth in Q1 was actually below 1% (probably close to 0.7%); we are thus already into a “growth recession” territory. As discussed extensively in this blog a US hard landing can take two forms: a “growth recession” i.e. a period of time when growth is well below potential and in the 0% to 1% range; or an outright recession, i.e. two consecutive quarters of zero growth.

If Q1 growth turns out to be below 1% (as now likely) we would already be in growth recession range in Q1. The revisions of Q1 GDP growth that will push that growth below 1% are:
-Lower change in inventories than initially estimated reducing Q1 growth
-Better construction spending than initially estimated increasing Q1 growth
-Much worse trade balance in March than initially estimated reducing Q1 growth

The net effect of these three factors is an estimated 0.7% growth for Q1 (JP Morgan today revised its estimate downward to 0.8%).
Much more seriously, Q2 started on a very weak note for private consumption based on initial estimates of retail sales. I now expect Q2 growth to be closer to 0% or even negative (i.e an outright recession).

 

[Terrel L. Shields]

LEREAHISMS
emphasis in red
my comments are in blue

"We're in a real estate recession," said David Lereah, "I'm projecting the first [nationwide] price drop since the Great Depression," he said. "We're going to have negative home prices in 2007."

and unsustainable, even by his own account -- ..housing boom [we have a boom, but cannot have a bust, right?] began in 2001.

Most critics are less incendiary, though frankly uncomplimentary.

his 2005 book, "Are You Missing the Real Estate Boom?" subtitled "Why home values and other real estate investments will climb through the end of the decade."

I predicted a downturn [would occur] shortly after I wrote it, in 2005," he said.


He said the market's current inertia surprised him.[hasn't surprised us bubbleheads]

"It was a monkey wrench that was thrown in; no one would have predicted it two years ago, no one." [he should have been reading the Appraisers forum then….]

Lereah is leaving the Realtors to head a new subsidiary of Move Inc., which operates online real estate services, including the industry's most popular site, Realtor.com, for the NAR.. He warns that his speech will not be cheery… we all have to face the music," Lereah said. "We strayed from [economic] fundamentals, and we're paying for it. It's not an all-out bust,[just a so-so bust?] not a crash [a really hard landing though??] in real estate, but it is a recession [which technically speaking is NOT a "correction" but much worse]

I am curious how the first price drop since the Great Depression can be viewed as a "not an all-out bust"...Do prices have to do to zero to qualify as a bust?

 

[hastalavista]

David Lereah, "I'm projecting the first [nationwide] price drop since the Great Depression," he said. "We're going to have negative home prices in 2007."

(my blue)

I think for clarity, Mr. Lereah should say this is the first time he's projecting the first nationwide drop.

The way it reads, you'd think (and, perhaps he does) that his projections are the only ones that mean anything.

 

[Austin]

From Wikipedia, the free encyclopedia

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A recession is traditionally defined in macroeconomics as a decline in a country's real Gross Domestic Product (GDP) for two or more successive quarters of a year (equivalently, two consecutive quarters of negative real economic growth). However this definition is not universally accepted. The National Bureau of Economic Research defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions may be associated with falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation. A severe or long recession is referred to as an economic depression. A devastating breakdown of an economy is called economic collapse.

 

[Steve Owen]

Still nothing I would call a "bubble bust" around here. Building permits are still strong, although not at levels seen in the last couple of years for SFR's. No large amount of inventory in my neighborhood... maybe some slowing and slight downward price pressure. In this market, I continue to refer to it as "cooling."

Maybe it's partly in how you define "bust." Nationwide, the stats are something to be concerned about. The Fed mentioned it again yesterday. But, for me, a "bust" is when lots of people are losing their homes, those that want or need to sell cannot, and there are no buyers even at bargain prices. Haven't seen that happen in Missouri... yet.

 

[Terrel L. Shields]

We are hearing about quite a few rural homes being repo'd in S. Missouri from the local bankers but I don't work that far north much. I do know my top customer was mentioned being involved with a big bankruptcy. But for the most part, they were only a minor player and they do have the real estate to cover most if not all of the note. His great little subdivision...all unsold houses...brought him down. The papers reported 11 builders/construction people in bankruptcy in NW Arkansas. As one builder said, 'Commercial activity is keeping us afloat'

 

[Dee Dee]

Wow.

I wonder if this is the beginning of a trend.

http://www.denverpost.com/business/ci_5858052

Colorado would have probably recorded more foreclosures in the first quarter if mortgage companies weren't so backed up and overwhelmed, Urban said.
"They aren't foreclosing on people, because they don't have the resources," he said.

 

[Randolph Kinney]

Dee Dee, that is what is looks like here in San Diego county. Short sales are staying longer on market and then finally, it goes to foreclosure. Some properties are now being sold as-is needing extensive repairs at about 1/3 to 1/2 the value of a normal listing just to turn the inventory.

 

[Randolph Kinney]

Stocks' Gains May Be Linked to Housing Losses

http://www.npr.org/templates/story/story.php?storyId=10118251

Though it fell nearly 150 points Thursday, the Dow Jones Industrial Average has been setting record highs in recent weeks, while home sales are at their lowest level in nearly four years. Some experts say real estate's swoon is freeing up money to bolster stocks.

That could explain why one of the strongest stock market rallies on record has come at a time when gasoline prices are soaring, the overall economy is slowing and home sales are down.


Financial planner Kim Dignum started telling clients about 18 months ago that if they were heavily invested in real estate, it might be time to sell. The housing market in Fort Worth, Texas, where she lives was still going strong. But Dignum didn't want to push her luck.

Since last summer, the Standard & Poor's 500 index is up about 20 percent. Meanwhile, real estate, especially housing, has been flat or falling in much of the country.

Now many investors like them, and Dignum, are fortunate to be riding a wave of cash out of real estate and into the stock market, as investors cash in profits or dodge losses.


Money is flowing into U.S. stock funds at the fastest rate in three years. Senior Economist Michael Swanson of Wells Fargo says that for better or worse, money tends to roll uphill to whichever investments have done well lately.


"The stock market's been doing well, so people want to get in while the action's good," Swanson says. "The housing market has been doing poorly. So there's kind of a two-edged boomerang working there."


At the same time, an exodus of investors' money is taking air out of the real estate bubble. U.S. economist Nigel Gault of Global Insight says it's just the opposite of what we saw a few years ago.


"If you go back to the early part of this decade, the stock market at one point was almost in free fall and real estate was the investment of choice," Gault says. "It took us many years to move from that to the present situation, where real estate is out and equities are in."

 

[moh malekpour]

Rating agencies could be liable for losses

http://www.ft.com/cms/s/6aa44b84-ff35-11db-aff2-000b5df10621.html

The study’s authors say rating agencies have deviated from their traditional roles as providers of opinion and instead co-operate closely with investment bankers to help them secure the desired ratings to sell deals to investors.

“Unlike the traditional ratings process, in which a company can do little to change its risk characteristics in anticipation of issuance, in structured finance, the rating agency is often an active part of structuring the deal,” wrote co-authors Josh Rosner, consultant at Graham Fisher, the investment research firm, and Joseph Mason, associate finance professor at Drexel University in Philadelphia.