More Dialog: Facing Harsher Realities in Housing
In the spirit we're pursuing here of asking what are the facts, no matter what headlines or denials seem to obscure them, we'd like to focus on this week's Housing data. Which is about as bad as it gets but NOT as bad as it's going to get. Over the last few months we've shifted from denial to contained to serious (though one still is croggled by the uptick in Homebuilder stocks !) to more and more accurate grasps of the breadth and depth of the problem. However now that Paulson, the Fed, and market commentators are starting to mumble things like 2010 those harsh realities still don't seem to be reflected in anyone's thinking about the economy, business cycle or market outlooks.
So in the spirit of letting the data speak we're going to borrow some charts from CalculatedRisk and put them in our framework. On the grounds of why do something badly that an expert has done extremely well. The key questions are where are we at and where are we likely to end up. First off we've obviously been in the most unusal Housing bubble in the post-war period. Home construction is a major driver of Investment spending directly and Consumption indirectly. As you can see on the bottom sub-chart a boom above trends started in the late '90s but turned into a real bubble after '03 and is now in a steep and precipitous decline. CR's other key point is that such drops always lead to a recession. If the general economic downturn mirrors the Housing decline we've got serious problems ahead. The top sub-chart is even more interesting because it starts to tell us, being inflation-adjusted, how far we went in prices, how far we need to come down and how long the adjustment process might last. The Composite-10 national averages peaked in 1990 and took 7 years to adjust, find bottom and then begin climbing out. And on that measure we're only about a year into this downturn. All that unsinn you heard about a bottom this year or even in '09 looks wildly misplaced. Even finding a bottom in '10 looks very optimistic, at least for prices, though sales may bottom earlier.
Existing Home Sales
The headlines were about as disinegenous, wrong and bad as it could possibly get (in fact BigPicture had a great rant taking the WSJ to task). They said that Feb. existing sales picked up over Jan. Good golly - they always do. That's the seasonal pattern. If you look at CR's chart you'll see that sales overall are still headed down, that YOY there was a big...big fall off in existing home sales and it's likely to get worse. Not least, as the 2nd sub-chart shows, because the inventory of homes for sales shot up dramatically in Jan. and Feb. Now tell me, how does one reach any kind of benign, sanguine or other polite word interpretation of that data ? For those you can are you willing to share your drugs with the rest of us ?
New Home Sales
The picture for New Home Sales is no better. Sales continue to decline, with all that implies for real estate investment and associted consumption. Based on the sales rate, while absolute inventory showed a slight decrease - which got too much ink IOHO, the months of supply continued to shoot up. Again there wouldn't appear to be any positive way to spin those facts. Despite the NAR continuing efforts to bath the rest of the world in it's reality distortion field - an effort BTW which harms their own cause because it leads to homeowners being grossly unwilling to lower their selling prices to rational levels.
Again and again - what are the facts ? Here the facts would argue that at the very best we're barely 1/4 of the way into a prolonged and painful, very painful, adjustment process. And that might be optimistic from the long-term price chart we began with. Just to put a point on it consider CR's recent post on Lennar's terrible news:Lennar: Housing Market Conditions "continued to deteriorate" in Q1