Is the housing boom slowing?
When Paul Krugman isn't writing nonsensical columns praising welfare statist intervention in Canada or France, he can sometimes write interesting columns. His latest one on the housing bubble was quite good. Although he doesn't acknowledge that Fed policy is responsible for it this time (which would mean a implicit endorsement of the very "hangover theory" he years ago dismissed as the economics profession's version of the phlogiston theory of fire), he notes several interesting facts.
First he points to how the bubble is mainly concentrated to some areas with high population density and/or land use restrictions , like the California coast, Las Vegas, New York, the DC area and south Florida, and how this contrary to Alan Reynolds' assertions makes the problem with the housing bubble bigger than national averages would suggest.
Moreover he points to how the sharp house price increases have made it more expensive (Government inflation statistics will of course ignore that cost increase) to live in a house you "own" (i.e. purchased with borrowed money) rather than to live in a rented house, something which is particularly true in the particularly overheated areas mentioned above. In San Diego for example it is now 2.5 times more expensive to "own" a house than to rent it.
He then goes on to suggest that the housing market is now cooling citing anecdotes from San Diego about how it is now more difficult to sell houses.
The view that the housing market has peaked was also supported by Mark Thornton in LRC yeasterday.
One indicator that I like to look at, Commercial bank lending to real estate, has however not slowed down. During the latest year ( 52 weeks), it has increased 15.4% and during the latest 13 weeks the increase has been 15.1%. Thus we are not seeing any significant slowdown in that indicator.
I am therefore not convinced that the U.S. housing market has slowed in any significant way (like housing markets in Britain and Australia has)-yet. However, as prices have increased to more and more unreasonable levels and as the supply of houses increase with the construction boom (In the latest GDP report residential construction spending was a record 5.98% of GDP compared to the 25-year average of 4.5%)and as interest rates (even long-term bond yields recently) are rising, the end is not far away.
Comments (9)
Here's a 5-day chart of the Philly Housing Idx vs the Ten Year Yield. Note the gap up for yield on Thursday vs the drop in HGX on Friday.
http://finance.yahoo.com/q/bc?s=%5EHGX&t=5d&l=on&z=m&q=l&c=%5Etnx
Here's the 2-year chart.
http://finance.yahoo.com/q/bc?s=%5EHGX&t=2y&l=off&z=m&q=l&c=%5Etnx
See April and May of 2004, March of 2005. Increasing yield precedes dip in homebuilding stocks.
If you think the yield on the 10 year is gonna go up for a while, it could be a good ride down on the HGX. It might finally be time to short the homebuilders.
First the bull market in homes ends, and then the "recession" begins.
The increasing treasury yield tanks the homebuilding industry. Because so many of the "new jobs" created in this "recovery" have been in that sector, and homebuilding has been propping up that rigged number called "GDP," this will cause a "recession." The homebuilding stocks will lose market cap before the industry falls, as investors flee because they know what will happen. So will many mortgage banks. About one to three dozen markets will have thousands of marginal recent buyers upside down, maybe mailing in their keys. I see it as: the stocks fall, the industry falls, the "recession" begins, and then the next cycle of Fed loosening starts, which will probably create another stock market bubble (that I hope to profit from).
This "recession" will be a total non-event to probably 1/2 to 3/4 of the american populace, because that's the proportion that didn't take place in the "recovery."
Published: August 9, 2005 12:37 PM
The composite declining fractals related to bank stocks and housing construction indices are the canaries in the mine.
As of 9 August 2005, the growth fractals for the composite American equities, which represent the sizeable fraction of global equity worth, has - with reasonable probability - been completed with respect to a maximal valuation secondary to the highs of March 2000. Telltale at this near global US equity summit point is the very contrasting new 35 year low for venerable Delta Airlines which closed today below 2 for the first time in 3 and 1/2 decades, down over 94 percent from its high of over 70, 5 years ago.
Bank stocks are sinking, having received and continuing to receive broadsides from both the Fed's increasing interest rates and the narrowing short term-long term spreads. The interest rate dependent real estate stocks, e.g., HGX, are breaking lower trend lines. It is over.
An averaged Fibonacci growth sequence dating from August 2004 was completed yesterday for the US equities at a lower short term high. Market sentiment is, by contrarian standards, appropriately at its most optimistic apogee. Fractally, contained within the valuation summits, the great American equity market composites have already provided evidence of a primary decay pattern. Expect the unexpected. Expect nonlinearity. Gary lammert http://www.economicfractalist.com/
Published: August 9, 2005 10:02 PM
What would happen if a major lender began buying up loans at a loss in an effort to corner the market; for example if Ditech began a campaign to sell loans at low interest rates, dumping, while purchasing loads at high rates?
Who are the major lenders and have they begun a process of consolidation; merging through negotiations and/or hostile take-over?
Information concerning this possibility is, perhaps, inside.
Published: August 9, 2005 10:57 PM
First, I agree with the author of "Rich Dad, Poor Dad," that an "owned and lived in" house is a great security blanket (I have one) but a terrible investment, all things considered.
Second, the housing bubble is actually a credit bubble - zero down ARMs.
Published: August 10, 2005 12:50 PM
I found some information concerning the process of consolidation in the credit business:
http://www.impactlab.com/modules.php?name=News&file=article&sid=6007
Housing bubble/Credit bubble - causes/effects
Published: August 10, 2005 5:14 PM
The latest numbers saw 15.2% 52 week growth of real estate lending and a annualized 18% growth during the latest 13 weeks, further confirming that the credit driven housing bubble has not popped yet.
I saw BTW James Glassman called Paul Krugman a "stalker" for pointing out his flawed record on several occasions including the article I refered to in this blog post. Whether or not one agress with Krugman's criticism it is just ludicruos to call him a stalker because he has repeatedly criticized Glassman. If Glassman can't stand criticism and views it as "stalking" then he is not just cut out to be a commentator. A basic requirement for being a commentator is being able to take critique.
Published: August 12, 2005 3:39 PM
More news supporting my view that the U.S. housing market hasn't peaked yet came out today.
Published: August 15, 2005 4:09 PM
haha you have to give him -anyone- some slack for putting up with the Krug.
Published: September 9, 2005 1:15 AM
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Published: March 2, 2006 5:37 PM