Builder Sentiment Hits All Time Low
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I’ve been out of the office all day today, but I had to follow up our earlier Housing post (Home Prices Seen "Far from Bottom"):
The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) slid to all time lows today:
"Reflecting profound uncertainties tied to the financial market shocks of recent weeks, builder confidence in the market for new single-family homes receded to a new record low this month. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) declined three points to 14 in October after having edged up slightly in the previous month…"
Wow, messy.
As we said earlier, we are still a long ways away from the bottom in housing . . .
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Sources:
Builder Sentiment Retreats In October
NAHB, 10/16/2008
http://www.nahb.org/news_details.aspx?sectionID=134&newsID=7972
HMI Chart and Components
10/16/2008
http://www.nahb.org/fileUpload_details.aspx?contentID=57939
October 16th, 2008 at 5:26 pm
This is the other bookend
industrial production drop
The government keeps trying to blame it all on Gustav and Ike but the Philly index “plummeted to a negative 37.5 in September from a positive 3.8 in August, its largest one-month decline ever.”
October 16th, 2008 at 5:35 pm
Man it is negative out there !!! There is a little progress in the credit markets, finally some movement in the TED spread and the fear trade in the short end of the curve sold off, 3-month T-bill yield is 0.43%.
http://calculatedrisk.blogspot.com/2008/10/credit-crisis-indicators-some-progress.html
None of this is going to help Bob the Builder though…
October 16th, 2008 at 5:48 pm
lb,
you got a timeline on when you expect ‘credit’ to start flowing, again, like water?
I’m thinkin’ you’re thinkin’ it’ll be a whole sooner than I expect…maybe we can add another point to the Burger-traffic, and start ‘The Trade Triangle’v.2.1 (?)
October 16th, 2008 at 6:08 pm
I would sure hope that builder sentiment is low. They helped get us into this mess; they should be sharing the pain.
October 16th, 2008 at 6:08 pm
@ Mark E Hoffer: “you got a timeline on when you expect ‘credit’ to start flowing, again, like water?”
Nope. Not like water, not ever again, we should hope. Yes, I expect that credit is going to eventually start flowing again, but I’ll bet you a nice juicy burger that it will be at MUCH higher interest rates, and that’s the way I am set up. We are not going to sit here in a deep freeze for ever, we are eventually going to get through this EOQ roll-over and have lending again.
Is that going to be the end of it? NO. Are we going to see the same problems with the EOY debt roll-over? Absolutely, when the banking system remains on life support. So that governs my trading and timing strategy for the time being – stay long into the middle of December, then out before we get another round of credit crunch, redemptions and truly awful earnings. I do not rule out harold’s SPX 650 target at this point and I am a careful student of Nikkei 40,000 etc… I know my history.
One of the problems that Barry and others have pointed out is that you can prod the banks to lend but you can’t make people borrow. I could get a loan tomorrow, but I don’t need one. The people who are desperate on the other hand can’t get a loan for love nor money.
In this kind of environment it will be possible to make cash deals at bargain prices, we should see fire sales on all kinds of items this winter, especially if you can put down 50-100% cash.
October 16th, 2008 at 6:08 pm
The new sword in the chest for the home market is the materials are steadily coming down in price also. Copper, Sheetrock, lumber (18 yr. low): basically electricians, carpenters, plumber joes, painters can put lower bids on new construction since their material expenses are starting to fall. Cutthroat competition also reduces their labor expenses. Thus the cost to build new homes is starting to fall noticeably.
triple whammy…. land, labor, materials mean the housing inventory builders are sitting on will have to be sold for lower than they what they have them on their books for.
October 16th, 2008 at 6:14 pm
Mr. Ritholtz–Given the irrational exuberance with respect to house values on the way up, do you think they’ll get out of whack on the way down, or perhaps merely settle into historical norms?
October 16th, 2008 at 6:29 pm
Posted by: leftback | Oct 16, 2008 6:08:22 PM
Good, I hear ya..Though, with this: “I could get a loan tomorrow, but I don’t need one. The people who are desperate on the other hand can’t get a loan for love nor money.” Have you tried recently?, I ask b/c a different friend of mine, who is seriously +E, was just telling me that his ‘Banker’ called him, OOTB, and told him, preemptively ISMW: “If you’re thinking about expanding your (lending) facilities, we’ll talk about at the Christmas Party.”
all to say, it never to 2X check..things are changing rapidly/these are some different daze..
October 16th, 2008 at 6:46 pm
I’m sure there is a long way to go, but out here in Southern CA we are seeing 15 to 20 offers on bank owned REO’s. Sooner or later they are going to have to raise interest rates. It’s going to price a lot of buyers out of the market here. That will make the market slide even worse I’m afraid..
October 16th, 2008 at 6:50 pm
We rarely revert precisely back to the mean.
Always look for the overshoot
October 16th, 2008 at 6:57 pm
wisedup,
“The government keeps trying to blame it all on Gustav and Ike but the Philly index ‘plummeted to a negative 37.5 in September from a positive 3.8 in August, its largest one-month decline ever’.”
Musta been dat (economic) tornado that went through Philly.
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October 16th, 2008 at 7:03 pm
Guys,
Leaving town for the weekend. I feel a burger wager coming on Sunday night, though. Leftback, I may want to take the other side of the Whopper wager next week, but I’ll let you know Sunday.
Bought 18k callable 2 years of the Bank of Peurto Rico today for my regular account today at 4.35%..
I do think we are in for at least a deflationary episode..maybe not Japan-like but for awhile..
October 16th, 2008 at 7:08 pm
If Larry Kudlow mentions ‘mustard seeds’ one more time, I think I’m going to lose it…
The real question is, is the market releasing mustard seeds or mustard gas? Very different implications…
HCF
October 16th, 2008 at 7:11 pm
There is still the mid term solution of wage inflation (at least IMHO).
Is there any talk about it, especially for GOV employees?
October 16th, 2008 at 7:31 pm
Here is how ya get out of this mess.
Give home buyer loan at 100% LTV…Take that loan package it into a CMO…ok now borrow against that CMO 30:1 to create more CMO…All is good cuz if anything goes wrong I’m protected with a CDS from a hedgefund that this guy runs outa his basement. This hedgefund guy is really smart because he took my CDS and others and created a CDS backed CDO. GENIOUS..Now I buy this guys CDS backed CDO and pay my CDS premiums from the income from this guys CDS backed CDO. Fucking genius!!! Legal counterfeiting I tell ya!
Wait a sec…I’m hearing thats already been tried. Shit!
October 16th, 2008 at 9:38 pm
“I would sure hope that builder sentiment is low. They helped get us into this mess; they should be sharing the pain.
Posted by: Albnyc | Oct 16, 2008 6:08:11 PM”
I find it kind of hard to blame builders too much. If people were willing to offer stupid money for them to build houses, I say take it.
October 16th, 2008 at 9:59 pm
“There aren’t any beginnings… Nor any ends. It seems to me that man has engaged in a blind and fearful struggle out of a past he can’t remember , into a future he can’t foresee nor understand. And man has met and defeated every obstacle, every enemy except one. He cannot win over himself. How mankind hates himself.”
Steinbeck
October 16th, 2008 at 10:04 pm
Apparently Sheila Blair is the only official in Washington that understands what needs to be done to get us out of this mess. Provide help on the front end by keeping people in their homes rather than buying a lot of crappy paper from investment banks backed by non-paying loans in foreclosure. If we had helped out homeowners months ago, the housing bust would be less severe and the credit markets might not have collapsed.
October 16th, 2008 at 10:11 pm
We have an economy where the richest speculators indebted all of us. The banks and credit markets go tilt. We can’t borrow because our wages don’t support more debt. It has nothing to do with whether the bank will loan us money. The middle class has been in a crisis for 10 years! The “visible” economy (the one reporters see) is now affected. The wacos that put us here are hiding in Grenwich with their 2 and 20. It’s over for another ten years. Get used to it.
October 16th, 2008 at 11:34 pm
“If we had helped out homeowners months ago, the housing bust would be less severe and the credit markets might not have collapsed.”
Why in the heck should we help out irreponsible homeowners who probably lied on their loan application. What about all of the responsible renters who kept saving for a down payment and didn’t jump for a house they couldn’t afford. Housing prices have been artificially inflated by sleepy regulators and foolish and fraudulent lending. Let these people lose their homes that they didn’t earn or deserve in the first place. Let the market bring prices down to affordable levels. There are plenty of renters with good credit who are more than ready to buy a house on honest terms. Let’s stop rewarding the crooks and liars.
October 17th, 2008 at 12:10 am
Why do people think foreclosed homeowners are going to lose their homes? If they like the home so much, they can just rent it from the bank. The bank is not going to be able to sell it.
And, again, who cares? Anyone in trouble purchased their home within the past 5 years. This isn’t grannie’s homestead. These are low-quality, mass-produced stucco crapboxes that were never “owned” unless you consider 100% non-recourse financing at either a teaser or interest-only rate to be “ownership.” This was rent with the option to purchase disguised as ownership.
Homes are not the problem. The real estate issue is a symptom of the problem (loose credit driving down risk premiums) and not the cause.
Chapter 11 is the solution and banks should have ended up there instead of shotgun marriages or the recipient of the residual profits of the next 150 years of unborn Americans.
October 17th, 2008 at 3:44 am
During the thirties the farmers, plagued by too much food, started destroying the food supply. Dumping milk, crushing corn, and stampeding cattle over cliffs. I don’t know how it worked but the idea of lowering supply is valid. Moving right along: we could start burning houses in order to stimulate demand. Don’t laugh, think it through. Burning them down is the most economically efficient way to reduce the housing supply. Burning them down with two politicians inside each of them would catch on like….dare I say “wild fire?”
October 17th, 2008 at 3:44 am
During the thirties the farmers, plagued by too much food, started destroying the food supply. Dumping milk, crushing corn, and stampeding cattle over cliffs. I don’t know how it worked but the idea of lowering supply is valid. Moving right along: we could start burning houses in order to stimulate demand. Don’t laugh, think it through. Burning them down is the most economically efficient way to reduce the housing supply. Burning them down with two politicians inside each of them would catch on like….dare I say “wild fire?”
October 17th, 2008 at 4:44 am
I’m waiting for the light bulbs to go on around here. Must admit it is looking dim.
October 17th, 2008 at 6:42 am
“leftback”
Agree 100% about people not wanting loans. I am getting more offers (Wells Fargo, my mortgage holder is sending me letters BEGGING me to take out a HELOC). I don’t like debt, and my house is going down in value (I have been in it for years, and the price it had risen to was unsustainable – I am better off living in a world where prices reflect true worth). It would make no sense to borrow for home improvement – prediction – people will look back and say, “what were we thinking, 10’s of thousands of dollars for rock countertops?)
October 17th, 2008 at 7:44 am
This article in today’s NYT also strongly supports the argument that house prices still need to go down substantially.
http://www.nytimes.com/2008/10/16/business/economy/16housing.html?_r=1&em&oref=slogin
October 17th, 2008 at 7:47 am
Did anyone see the 30 year mortgage rate hit 6.7% yesterday from the mid 5’s not long ago?
That’s a direct effect of the bailout = the resulting increase in the M3 from the printing presses in overdrive etc.
Ironically the medicine has side effects… Short the long bond.