by Calculated Risk on 9/11/2006 12:39:00 PM

Enjoy (from June 2005):
hat tip: Patrick

by Calculated Risk on 9/08/2006 07:03:00 PM

From AP: Lennar Cuts 3Q Profit Outlook

Lennar Corp., one of the nation's biggest homebuilders, cut its third-quarter earnings projections Friday due to a decrease in new orders amid softening in the housing market.
...
"The U.S. housing market has continued to deteriorate," Miller said. "Given difficult market conditions, we have limited our land purchases while we have remained focused on even flow production and minimizing completed inventory."

From MarketWatch: Standard Pacific cuts third-quarter outlook

The Irvine, Calif.-based homebuilder [Standard Pacific Corp.] ... said net new home orders for the first two months of the third quarter were down 58% from the same period last year, driven mainly by an increase in the company's cancellation rate and further weakening of demand in many of its larger markets. The company's gross orders for July and August were off 30% from last year.

Note: The Census Bureau only reports new home initial sales and does not include cancellations. For Standard Pacific, new home sales are off 30% from last year for August and July, but if cancellations are included, new home sales are off 58%.

For July, the Census Bureau reported new home sales were off 22% compared to July 2005. However, if cancellations are included, the sales decline might be closer to 30% (just a guess based on the unusually large number of cancellations reported by the major builders).

by Calculated Risk on 9/08/2006 01:27:00 PM

This is an excellent overview at Wikipedia: United States housing bubble. From the section: "Controversy over the existence of a housing bubble"

David Lereah, the chief economist of the National Association of Realtors, distributed "Anti-Bubble Reports" in August 2005 to "respond to the irresponsible bubble accusations made by your local media and local academics;"[17] among other statements, the reports say that people "should [not] be concerned that home prices are rising faster than family income," that "there is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic factors," and that "a general slowing in the rate of price growth can be expected, but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms."

Enjoy!

by Calculated Risk on 9/08/2006 12:05:00 AM

On Bloomberg Video: Krugman of Princeton Says Home Prices Have a `Long Way to Fall'.


Click image for video.

September 7 (Bloomberg) -- Paul Krugman, an economics professor at Princeton University, talks with Bloomberg's Rhonda Schaffler in New York about the outlook for the U.S. housing market, prospects for a recession and concern about the country's trade deficit. (Source: Bloomberg)

"I think we are looking at a housing cycle that we've never seen.
...
If history is any guide, housing prices have got a long way to fall and the housing industry is going to go through a long drought."

by Calculated Risk on 9/07/2006 06:14:00 PM

MarketWatch reports: St. Joe to exit Florida homebuilding

[Jacksonville, Fla.-based] St. Joe Co. after Thursday's closing bell said it plans to exit homebuilding in Florida, resulting a reduction in its workforce.

It's getting ugly out there.

by Calculated Risk on 9/07/2006 05:03:00 PM

Homebuilder Pulte just sent out an email advertising a "$99,000 Giveaway and Getaway."

Click on Ad for larger image.

This is the Pulte Giveaway and Getaway site. (Warning: annoying music).

Here are some details:

Must buy through September 30th.

The $99,000 can be used to roll back the price or ...

Terrific incentives like rolled back pricing, 100% financing, free pool* and so much more.

Close before Christmas and receive a free vacation:

Those purchasing a home closing before 12/24/06 will receive a free vacation.

This appears to be limited to certain communities in Northern California. The asking prices range from $300K+ to $700K+.

by Calculated Risk on 9/07/2006 03:09:00 PM

Janet L. Yellen, President and CEO of the Federal Reserve Bank of San Francisco spoke today in Boise, Idaho: Prospects for the U.S. Economy. Here are her conclusions on future Fed policy:

The bottom line is this. With inflation too high, policy must have a bias toward further firming. However, our past actions have already put a lot of firming in the pipeline. With the lags in policy we haven't yet seen the full effect of our past actions. These will unfold gradually over time. By pausing, we allowed ourselves more time to observe the data and more time to gauge how much, if any, additional firming is needed to pursue our dual mandate.

And here are her comments on housing:

... we already have seen clear evidence of cooling in the housing sector. Nationally, housing permits are down noticeably—by more than 20 percent—from a year ago. In addition, inventories of unsold houses are up significantly, sales of new and existing homes are off their peaks, and surveys of homebuyers and builders are showing much more pessimistic attitudes. Even in a market that has been as hot as Boise's, some recent evidence points to cooling in the pace of home sales and residential construction activity.

The national data on residential investment reflect all of these developments and enter directly into the calculation of real GDP growth. After adjusting for inflation, (real) residential investment dropped at nearly a 10 percent annual rate in the second quarter following two small declines in the prior two quarters.

The effects of the housing slowdown go beyond their direct contribution to GDP. In particular, what happens to house prices could have important effects on consumer spending, which is a very big part of the economy—roughly 70 percent. As we all know, the pace of house-price appreciation has definitely moderated, after rising at heart-stopping rates in recent years. And there are signs that it may continue. For example, rents are finally moving up more vigorously after a long period of stagnation. This may reflect, in part, expectations that house-price appreciation will continue to slow, as landlords raise rents to try to maintain the total rate of return on rental properties and as those in the market for housing grow more inclined to rent than to buy.

Slower increases in house prices could weaken consumer spending in a couple of ways. Both of them have to do with what I'm going to call the "piggy bank" phenomenon. To be honest, I've stolen this term from some news stories I've seen, but I think the crime is worth it because the description is apt. Back when house prices were rising so fast, people saw that more and more equity was being built up in their house values; in other words, they saw their houses as piggy banks that got fuller and fuller, faster and faster, by just sitting there. Insofar as the piggybank of house value makes up a good chunk of many households' portfolios, they might well have felt that they could afford to spend pretty freely. In economic terms, this is called the "wealth effect." A second factor stimulating spending relates to the ease with which households can now pull money out of the piggy bank. With home equity loans, refinancings, and so on, the piggy bank is now pretty simple to access. So it's no surprise that homeowners seized the opportunity and drew some of the money out to support their spending. Now, with the pace of house-price appreciation slowing, of course, the piggy bank is not getting so full so fast anymore, which may weaken the growth in consumer spending.

While it's likely that the slowdown in the housing sector will have only moderating effects on economic activity and will continue to unfold in an orderly way, I should note that we can't ignore the risk that a more unpleasant scenario might develop. In particular, we have heard a lot in recent years about the possibility that there is a house-price "bubble," implying that prices got out of line with the fundamental value of houses and that the current softening could be just the beginning of a steep fall. While I doubt that we'll see anything like a "popping of the bubble"—in part because I'm not convinced there is a bubble, at least on a national level—it is a risk we have to watch out for.

by Calculated Risk on 9/07/2006 09:52:00 AM

From MarketWatch: Beazer trims 2006 outlook

Beazer Homes USA Inc. again cut its earnings forecast for 2006, blaming higher cancellation rates and weakening sales as the deluge of negative news from the home-building group continues.

The Atlanta-based company said net home sales for the two months ended Aug. 31 fell 49% from the year earlier as the cancellation rate rose to 50% from 26%.

"As compared to prior years, a higher percentage of home closings are being deferred or cancelled, immediately prior to closing in many cases, due to worsening buyer sentiment and the inability of buyers to sell their existing homes," the company said in a statement.
...
Beazer said its revised 2006 outlook "also contemplates potential charges to exit non-strategic land positions currently under review." ... The builder said it is reviewing its operating plan for 2007 "in light of the ongoing deterioration in business conditions."

Click on Ad for larger image.

Incentives gone "berserk"! These non-price concessions are masking the actually drop in New Home prices.

Ryland Homes offers 40% off mortgage payments, plus more.

From CNNMoney:

David Seiders, chief economist for the National Association of Home Builders says 75 percent of the nation's builders and developers are offering incentives.
...
"Incentives are all over the place," says Salli Kirkpatrick, founder of SK Associates, a Sacramento-area advertising agency that works with homebuilders. "No closing costs, no payments for six months, $10,000 toward a built-in swimming pool. Things have gone berserk."

The AP reports: Homebuilder Hovnanian's Profits Down As Housing Market Slows

Homebuilder Hovnanian Enterprises Inc. reported Wednesday that its profit sank 36 percent for the third quarter as the company struggled with higher costs, slower-paced orders and increased cancellations in a slowing real-estate market.
...
The company said it booked $11.4 million in write-offs for walkaway costs and another $800,000 in land write-downs in the latest quarter.

For the past year, the single-family homebuilder has "experienced a deteriorating environment for new home sales in many of our more regulated markets," President and Chief Executive Ara K. Hovnanian said in a written statement.
...
Ara K. Hovnanian said the housing slowdown is unusual because the economy as a whole is strong -- and that makes it difficult to forecast.

"Thus, we are making decisions today with the assumption that current conditions will persist for the foreseeable future," he said.

From Reuters: KB Home cuts profit forecast again as orders drop

KB Home, one of the largest U.S. homebuilders, on Wednesday cut its full-year profit forecast for the second time in three months, saying a more difficult housing market is causing orders to decline.
...
Chief Executive Bruce Karatz said KB Home is being hurt by "weaker-than-expected demand for new homes" and growing inventories in markets that have experienced rapid price appreciation and substantial investor activity.

by Calculated Risk on 9/06/2006 06:07:00 PM

I've heard several commentators mention that this will be the third best year ever for New Home sales.

Click on graph for larger image.

Right now 2006 sales are in third place, through July, behind 2004 and 2005. But if the recent sales rate continues, annual sales for 2006 will probably fall into fourth place behind 2003.

With regards to employment, residential construction employment is significantly higher than in 2003. In 2003, builders were ramping up employment to meet growing demand. So all else being equal, I'd expect residential construction employment to drop below 2003 levels, even if sales plateau at this level (something I think is unlikely).

Residential Construction Employment, Monthly Average, Thousands
Year	Residential building	Residential specialty trade contractors	Total
2001	781	1849	2630
2002	803	1887	2690
2003	837	1965	2802
2004	896	2123	3019
2005	949	2278	3227
2006	979	2346	3325

This table shows the average residential construction employment for each of the last six years. If employment falls to 2003 levels that will result in the loss of over 500 thousand residential construction jobs.

There is little evidence that these construction layoffs have started: via MarketWatch, Layoff announcements bounce back in August

"There are some signs that the housing slowdown is taking a toll on jobs," said the firm's CEO, John Challenger [Challenger Gray & Christmas]. "Job cutting in real estate this year is nearly double last year's pace." But job cutting in other housing-related sectors, such as finance or consumer durable goods, has not risen, he said.

"The housing slowdown has not had a major impact on the job market, yet," said Challenger.

Last week I noted that I heard through a company insider, about significant layoffs at one of the major (top ten) homebuilders. I still haven't seen any public announcement, but I expect layoffs soon at all the homebuilders.

So even though 2006 might be the "third best year ever", the impact on the economy will still be significant - and the impact from the loss of jobs hasn't really started yet.

by Calculated Risk on 9/06/2006 03:45:00 PM

The Federal Reserve has released the Beige Book. Here are a few excerpts on housing:

Housing markets and home construction activity weakened throughout the nation, but commercial real estate and construction strengthened in most Districts. Virtually all Districts reported declines in home sales, as well as in residential construction activity. Moreover, most Districts indicated substantial increases in the inventory of unsold homes; Kansas City attributed some of this increase to "sizable numbers of foreclosures" in some areas. In general, residential real estate contacts expected that housing markets would remain weak, if not weaken further, in the months ahead; such concerns were specified in the reports from Philadelphia, Cleveland, Atlanta, and Kansas City.

Relatively flat or declining home prices were noted in the New York, Richmond, and Kansas City Districts, and decelerating prices were reported in the Philadelphia and San Francisco Districts. The high end of the market was described as particularly weak in the Richmond, Chicago, and Kansas City Districts, as well as parts of the Minneapolis District. In contrast, the high ends of both the Dallas District's housing market and the New York District's co-op and condo market were reported to have experienced less softening than the more moderately priced segments. One area of relative strength in residential real estate has been the apartment market--of the three Districts reporting on this, New York and Chicago both indicate fairly strong demand for apartment rentals since the last report, while Dallas noted continued strong demand for condominiums.

Declines in home sales, increases in inventory, rising foreclosures, flat or declining prices ... a bleak picture for housing at the end of August.