Another ugly New Home Sales report:  There was no statistically significant monthly improvement, as the reported change of 0.6% was within the margin of error of ±19.0%. The year-over-year data, however, was god-awful: A drop of 30.6% (±10.7%) below the March 2008 data.

There is a slight silver lining in the inventory: Months supply fell to 10.7 from 11.2 — the lowest level since October 2008. The cycle high was in January 2009 at 12.5. And the absolute # of homes for sale fell to 311k from 328k to the lowest since Jan ’02. While this is an improvement, 6 months is the 30 year average, so we still have a ways to go.

And as Rex Nutting points out, even with Builders cutting prices in March, “the time it takes to sell a home rose to record high of 10.2 months.” Blame competition from cheap foreclosures, with nearly half of all existing sales distressed property.

>

New Home Sales

c25_curr

Source:  Census Bureau

>

Previously:
Media Misreports New Home Sales –they didn’t rise, they fell 41% (March 26th, 2009)

http://www.ritholtz.com/blog/2009/03/new-home-sales-fell-41-in-february-2009/

Source:
NEW RESIDENTIAL SALES IN MARCH 2009
Census Bureau, APRIL 24, 2009 AT 10:00 A.M. EDT

http://www.census.gov/const/newressales.pdf

New Home Sales Chart

http://www.census.gov/briefrm/esbr/www/esbr051.html

Category: Markets, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

68 Responses to “New Home Sales Fall 30.6% in March”

  1. One other factor: The Census Bureau changed their sampling methodology regarding prixces and permits; See this for more info: Statement about the Possible Impact on New Home Prices and Characteristics due to the Survey of Construction Sample Change

  2. Mannwich says:

    Bloomberg crowing about “better than expected” numbers. It’s an improvement but not that much of an improvement. 10.7 months of supply is still pretty bad, is it not? I’m amazed at how this kind of data is continually spun. That chart still looks atrocious.

  3. econpolitik says:

    You should note that the 10.7 months supply is at the lowest rate since the early 80s and at a thirty year average rate of purchasing, you would halve that supply.

    ~~~

    BR: WTF?

    While I am holding your head underwater, I will remind you to breathe at your 30 year average rate of oxygen intake . . .

  4. Onlooker from Troy says:

    Don’t forget the “shadow inventory” of houses being held REO (approx. 600,000 last I heard) and also owners who would like to sell but won’t enter this market. As time goes on and they can’ t wait any longer, or if they see prices start to stabilize, they’ll put their houses on the market keep prices and inventory under pressure. That combined with the general glut in housing stock and the continuing deleveraging make it hard to see the inventory numbers coming down very quickly, if at all for a while.

  5. R. Timm says:

    It is really hard to sell new homes when prices on existing homes are below the replacement value. Good news is they aren’t building very many anymore so eventually inventory will burn off. Looking at the replacement value of a house is another way to get at fair value. With growing population it is unsustainable for houses to sell below replacement value in the long run.

  6. R. Timm says:

    @ onlooker: Don’t forget for all of that mythical shadow inventory there are is also just as much mythical pent up demand. There are lots of folks too scared to purchase a home because prices are falling. Why buy now when you can get more for your money in x months? Once prices stabilize those folks on the sidelines gain confidence to jump in and start to bid up prices causing more confidence and eventually we’ll get another bubble but hopefully the Fed won’t ignore asset prices next time around.

  7. HCF says:

    I always love how the MSM and politicians keep on saying that the way out of this mess is to keep up real estate prices… Hellllll no!

    If prices drop a lot more, then housing inventory will move and young people might actually buy homes without leveraging themselves up to their eyeballs.

    Sometimes I think the problem is that housing is this weird hybrid entity: part investment, part consumable good. If your stocks go down 50%, then you are pissed. If the sweater at Banana Republic you’ve been eyeing is on sale for 50% off, then you are happy as a clam. I’m still trying to convince people that housing prices being LOW (and stable) is probably the best thing, unless of course, you are borrowing against it’s value.

    HCF

  8. Mannwich says:

    @R. Timm: If we get to 10-12% unemployment, how do prices stabilize with such a tenuous outlook even for those who have jobs? I think this is a multi-year story. People are looking for a quick turnaround, as usual, when there cannot be one in this case.

  9. DeDude says:

    So this one fell from 1400 K to to 316K that means that even in the worst-case scenario (0 K sales) we are 1084/1400 or 77% of the way to the buttom. Now for the future we would have to look at permits and housing starts. Are the number of permits and starts bigger than the number of sales?

  10. dead hobo says:

    BR noted:

    … as the reported change of 0.6% was within the margin of error of ±19.0%.

    question:
    —————-
    What part of six sigma does a +/- 19% error fall into? That like using your ass to throw a dart, and anywhere near the wall is a bull’s eye. (not you personally)

  11. Mannwich says:

    Me-thinks euphoria and complacency creeping into the MSM again. Hooray, banks are making money! Hooray, earnings coming in “‘better than expected” all around! Hooray, crisis over! Hooray, Chrysler and GM filing for bankruptcy! Hooray, more layoffs to the rank and file! Hip, hip, hooray, hip, hip, hooorraaaaaaaaaayyy!!!

  12. “eventually we’ll get another bubble but hopefully the Fed won’t ignore asset prices next time around.”

    They didn’t ignore them (asset prices) last time. They were well pleased that by mid- 2007, Americans were richer (on paper) than had ever been the case. When that all proved a delusion, yet one that most Americans believed, they set about to turn back the clock. Everything was so much happier back then.

    But rest assured, they aren’t ignoring asset prices, particularly housing prices. They are buying $1.25 trillion MBS with the very explicit aim of inflating them. (Note: prices decreases that would otherwise happen but don’t because of the fed’s printing presses are every bit inflation, if only from a different perspective.)

  13. HCF says:

    @R. Timm:

    Good points, but I think you miss out on the dynamics of shadow inventory vs. pent-up demand.

    Holders of shadow inventory merely need to sell at a price that is adequate to pay off the loan balance (or get lenders to agree to a short-sale), even if they have lost money on the transaction. However, buyers hoping to buy are HIGHLY dependent on financing, unless they are the rare lucky ones who can close a deal with a suitcase of cash. So even if there is a “want,” there may not be the “ability.”

    Incidentally, I am in the “on the sideline” camp when it comes to housing. I am preparing myself for a long, slow slide, which policy makers are trying to engineer. This is the antithesis of the “right” way to deal with the problem. A relatively sharp drop to the bottom would force all to face the harsh realities of valuation and pent-up demand might actually act upon the desire to own a home. The slow drip, drip, drip to the bottom is the worst torture for all, as it doesn’t change the destination, merely the pace of getting there…

    HCF

  14. larster says:

    @R.Timm- Replacement value is not a good benchmark as most of the McMansion’s are too large for today’s economic reality. Square footage will go down, as people finally understand that houses are purely shelter and not an investment. Until the next bubble, I might add.

  15. DL says:

    Donald Trump says “buy, buy, buy”:

    http://www.cnbc.com/id/30367055

  16. DL says:

    Mannwich @ 11:32

    I’m sensing a bit of impatience with the rally.

  17. leftback says:

    I am in total agreement with every word that HCF has posted here. Especially this:

    “The slow drip, drip, drip to the bottom is the worst torture for all, as it doesn’t change the destination, merely the pace of getting there…”

  18. Mannwich says:

    @DL: Whatever in the world gave you that impression? LOL. Off to an appointment. Back in a few! I fully expect the DOW to be up over 200 by the time I get back.

  19. Bruce in Tn says:

    Hey Lefty:

    try as I might, I am still seeing stories about the Chinese turning their backs on the US dollar….

    http://www.nakedcapitalism.com/2009/04/guest-post-breaking-news-china-has-been.html

    ….this is about the Chinese buying gold…it is on many sites today, but this author thinks the Chinese are now thinking they could be driving this bus, which would be even grimmer news for Ben and Tim.

    “So, here we are, three weeks out from the G-20 and now we learn the Chinese have been buying gold. In my mind, there is no doubt that China is looking to topple he U.S. dollar as the world’s reserve currency. And this will happen over time. The Europeans want it – they are a rival in currency terms. The Asians want it – they want to stick it to an arrogant country which caused great hardship to Asia through the IMF in the Asian Crisis. And the oil exporters like Saudi Arabia, Iran and Venezuela all want it too. It will happen. The question is when and what will replace the dollar.”

    Any thoughts? If Ben bought 7 billion in treasuries this week, what does the future hold?

  20. leftback says:

    @DL: Buy Ivanka. Sell The Donald.

    Any thoughts about Long JPM as a hedge? I am kind of expecting announcements about issuing common stock from several banks this weekend, but those that do not would perhaps rally even if the XLF crumbles…??

  21. R. Timm says:

    @ Manwich, If unemployment really gets to 12% no doubt it will impact housing and delay a bottoming in prices. I’m not claiming we are going to have a quick recovery in prices but keep in mind that in many places prices have been falling for almost 4 years now. The housing bubble started in my opinion around 2000-2002 depending on local. So 4-5 years going up has been largely corrected by almost 4 years of declines.

    @ HCF I think policy makers are trying to engineer prices leveling off and only falling in real values not nominal for the near future. To achive this they put tax credits to increase demand, provide credit with loose terms through FHA, and reduce rates through quantitative easing. The only policy that they haven’t been sucessful at was the loan modification program to reduce foreclosures.

  22. Friday Morning Federal Newsstand other news, for those around the Source: or, radically off-topic, or, extremely tangential background:
    04-24-09
    Written by Ruben Gomez
    Edited by Suzanne Kubota

    This morning’s federal news as heard on WFED:

    Health and Human Services may have to wait a little longer for its new boss. Republican leaders in the Senate are objecting to a confirmation vote on Kansas Governor Kathleen Sebelius to lead HHS. They’re moved, in part, by her support of abortion rights. Senate aides say final action may not happen until next week. Democrats say they still expect confirmation.

    It might not be Star Trek’s holodeck, but IT experts say virtual worlds can be a real boon to the business of government. The topic was the focus of yesterday’s Consortium for Virtual Worlds Conference at the National Defense University. The keynote speakers there pushed the concept as a way to save money, especially during a tough economy. Virtual Worlds can reduce or elminate the need for physical travel. They use just a high-speed Internet connection and sometimes webcams.

    The Pentagon finds itself at odds with the White House over nuclear weapons. The Defense Department is working on a plan to reduce, but not eliminate, the US stockpile of atomic weapons. That’s different from President Barack Obama’s “global-zero” pledge to eradicate all stockpiles worldwide. Pentagon officials say their plan is aimed at maintaining some nukes as a deterrent.

  23. MRegan says:

    From Curmudgeon:

    “But rest assured, they aren’t ignoring asset prices, particularly housing prices. They are buying $1.25 trillion MBS with the very explicit aim of inflating them. (Note: prices decreases that would otherwise happen but don’t because of the fed’s printing presses are every bit inflation, if only from a different perspective.)”

    Interesting perspective. I appreciate it. I have a few questions. Is the intent to inflate them or maintain an inflated price? Is what they are attempting possible? You see, it seems to me that for the MBS to hold or inflate an economic circuit must be completed. But the direction of resources to the support of a pricing dynamic that is not sustainable (as has been proved) makes the completion of the circuit impossible. Let’s call it growth/employment/GDP expansion. How does the US economy grow (allowing for employment, allowing for a stable housing market thus propping MBS’s) if resources are being (mis)directed to the MBS gambit? If debt is expanding? The extreme abstraction of the mbs magnifies the effect of ‘negative’ tangible, concrete economic reality on those very instruments. Its like a feedback loop we can’t stop.

  24. leftback says:

    @Bruce: China is trapped by their Treasury holdings and their largest import market. They will not sink the US now. Brad Setser has made a pretty strong argument that I find convincing – the Chinese think over the long term.
    The US is already doing a decent job of sinking itself. Eventually there will be a currency realignment.

  25. usphoenix says:

    We are seeing previously sold foreclosed houses returning to the market here. Each time the financing falls thru the REO drops the price again. Local unemployment is over 10%, and there are absolutely no new jobs. Industry is closing down or going BK more than new startup job replacement. Houses are taken off the market and converted to rentals because they were not selling. CRE is about to crater.

    REOs here are moving very slowly in bringing newly foreclosed properties into the market. Builders have gone out of business. Foreclosures do not seem to be happening to troubled loans as much, as if the banks are waiting for some new Fed subsidy to save them. 400-700K McMansions have gone unsold.

    Rent vs buy is a much closer call now. If you can find a decent rental.

    For the most part the only non-foreclosed houses on the market are owners that have to sell. Others sit on the sidelines waiting for the market to improve.

    Buyers are active where they have to have a house, or can set a new lower market price. Some are finding “deals” and snapping them up.

    IMHO, replacement cost comparisons for existing houses may be a red herring. New starts are likely to be considerably smaller, multifamily or rentals.

    And agree that the gently let down will mean it takes several years for the market to bottom.

  26. DL says:

    leftback @ 11:58

    Go long Ivanka, yes.
    ……
    No opinion on performance of JPM relative to XLF.

  27. leftback says:

    The 10-year is at 2.97%. One day it is going to break out of the box. But not yet. Usually when the 10-year yield gets this high it brings out buyers and equities and HY start to sell off.

    @usphoenix: All McMansions are going unsold in CT, especially the new spec homes. There just seems to be no market. Perhaps because the jig is up on Wall Street or maybe people still remember the heating bills from the last couple of winters and don’t believe we will stay at $50 oil for long?

  28. danm says:

    Interesting perspective. I appreciate it. I have a few questions. Is the intent to inflate them or maintain an inflated price?
    ———————
    I think their primary goal is to keep the total debt level in the system constant or increasing, so by default it props up the assets.

  29. usphoenix says:

    OT: Here’s a great shot of one of our “hero’s”. SUmmers.

    http://www.swamppolitics.com/news/politics/blog/2009/04/larry_summers_catnap_at_credit.html

    I tried to paste the best photo into here, but did not work.

  30. Onlooker from Troy says:

    @usphoenix: You market and the other overheated markets where prices have fallen fastest and furthest so far (CA, FL, NV) also suffer from the fact that so much of the economy and job growth was based on the housing market. With that job market cratering, even if houses are cheap, who’s going to buy? The economies are a wreck in those places so they aren’t going to support the glut of housing. The deflationary spiral continues.

    I even think that many of those speculating investors who are buying in those markets may find themselves burned (catching a falling knife). The deals seem so compelling when the benchmark is the high point of the bubble, but that’s not a good measure of the current value. The same applies to the stock market, IMO.

    To quote Dr. Hussman (Hussman Funds): “the Market Climate for stocks was characterized by mixed valuations – moderately favorable on measures that assume a sustained recovery to above-average profit margins, but overvalued on measures that assume normal historical profit margins in the future.”

    We all have to adjust our notions of what the current valuations should be based on the future, not on the highly leveraged bubble era we’re coming out of.

  31. R Timm,

    see: “We all have to adjust our notions of what the current valuations should be based on the future, not on the highly leveraged bubble era we’re coming out of.”

  32. Bob A says:

    Puget Sound (Seattle area) region sales chart.. even lower than 2008
    http://www.washingtonrealestatepage.com/bobsbugle

    Seattle Times article on walkaways from recently complted condo projects
    http://seattletimes.nwsource.com/html/localnews/2009113376_condoclosings24.html

  33. karen says:

    DL, a better pick than Ivanka. Blondes might have more fun, but billionaires have ALL the fun.

    http://egotastic.com/entertainment/celebrities/denni-parkinson/denni-parkinson-nude-model-girlfriend-of-sir-richard-branson-004578

  34. leftback says:

    Quite. Some of the Homes of Genius are not going to be a bargain at 50% off their bubble prices.

    This rally is something else. No wonder Manny is getting antsy.

    Once again the NAZZ is racing away into a land of unreality. The same happened in October 2007. The one thing that I cannot understand is the rally in the IYR in the face of a blindingly obvious collapse in CRE. It has to be people selling SRS or otherwise covering. STAY IN YOUR SHORTS, people. Please. Patience.

    Sooner or later someone is going to look under the bed and see that the Boogeyman is still there…..

  35. karen,

    not to judge books by their covers.., though, at least Ivanka can get 4 out of 2 2′s w/o thinking about skirts..
    http://www.tutuboutique.com/

  36. SWMOD52 says:

    leftback

    I agree time to short banks also.

  37. Mortimus says:

    The boogeyman right now are my rapidly deteriorating May FAZ/SRS puts. This market is entirely nonsensical – a crash is so imminent it’s palpable.

    I put a bet in with Sportsbook that this market finishes in the red after the guidelines. Buy the rumor, sell the news.

  38. DeDude says:

    HCF don’t confuse your own personal goals with those of society. Yes for the vultures a quick death is always preferable, but for the dying on the ground dragging it out until the ambulance can arrive is preferable. It is a myth that somehow getting to the buttom faster means getting back to where you where also will come faster. Yes you will turn the “% change” numbers from negative to positive faster if you take the total drop fast, but that does not mean that the absolute number will get back to the original number any faster. The risk to society is that if unemployment get to a certain level the risk of getting stuck in a negative cycle increases. If getting down really deep makes you pop up really fast then there would be no third world countries. No getting down really deep gets you stuck in the mud.

  39. DeD,

    this: ” If getting down really deep makes you pop up really fast then there would be no third world countries.” –you may care to re-think.

  40. DL says:

    karen @ 12:35

    You’re coming pretty close to crossing the line with that link. What if everyone did that?
    This would no longer be the respectable financial website that it is.
    (LOL).

  41. leftback says:

    On a more respectable note, one of my longs (UEC) is now up >300% (97c) since the bottom (23c).

    DL was right, there are even more tools going long this market today than there were yesterday.
    Greed will inevitably turn to fear….. the late buyers always turn out to be the weakest hands.

  42. karen says:

    Monday is earnings only, no economic calendar items… nothing to tank the market anyway. Today has hours yet to run but the spx daily candlestick is very bullish right now; i doubt it will form another high wave based on its current height. 3 in a row would have indicated a potential market turn. (Is that better, DL?)

  43. DL says:

    leftback @ 1:02

    “one of my longs (UEC) is now up >300% (97c) since the bottom (23c)”

    Another uranium play is U.TO (trades on the Toronto exchange). Don’t know if it’s any good or not, but saw some guy hyping it a couple of weeks ago.

  44. Bruce in Tn says:

    http://chinesepolitics.blogspot.com/

    This is about the Chinese stimulating their economy with 1/6 of their yearly GDP…just a thought or two about what our stimulus may bring us also…

    “So, really, when it comes down to it, the 5 trillion bought:

    1. some psychological relief
    2. some more sales of real estate, thus delaying the bankruptcies of many developers
    3. an upbeat stock market, for a while
    4. prevented the bankruptcy of numerous state firms, especially in the airline, coal, electricity, and steel sector”…

    I think, the keyword in 4. is “state”…..

    Lefty, I think the Chinese are inscrutable after all….Setser may be right, but these gold purchases and common trade agreements…inscrutable…

  45. karen says:

    $tran at new high for the month today. the number to beat is the feb and 2009 high of 3238.33, which should prove formidable.

  46. Andy Tabbo says:

    karen. you’re a naughty girl.

    But, God Bless Richard Branson. I love that guy…..Real Rich, Smart, Daredevil, Entrepreneur…dates hot models.

    Now, back to business…..

  47. “How does the US economy grow (allowing for employment, allowing for a stable housing market thus propping MBS’s) if resources are being (mis)directed to the MBS gambit? If debt is expanding? The extreme abstraction of the mbs magnifies the effect of ‘negative’ tangible, concrete economic reality on those very instruments. Its like a feedback loop we can’t stop.”

    That’s the point. It is just an illusion, or more precisely, the attempt at the continuation of an illusion that was sidetracked by reality along about mid-2007.

    The misallocation of resources is the real problem. There is great inefficiencies that inhere with bad pricing signals. Higher prices (or, in this context, prices that are not as low as they otherwise would have been) misallocates resources to sectors (housing) that should be allowed to decline until prices reflect the true demand vs. supply. Inflated prices yield the illusion of increased demand, resulting in more resources allocated to supply the demand, resulting in excess supply, resulting ultimately in a crash of prices again, in order to work off the excess supply. In other words, right back where we were in 2006/7.

    Only this time, it won’t be private banks that face the prospect of failure because of their misallocated credit. It will be the Federal Reserve bank, since it has assumed the risk of failure once borne by the private sector, by taking so many of these assets (like MBS) onto its own ledger. And printing its way out of it won’t likely still be an option. There is a limit to how far the reserve currency status of the dollar can be leveraged.

  48. Whammer says:

    @DL “What if everyone did that?” — to recall the great line from Catch 22: “Then I’d be a damn fool to do any different”

    :-)

  49. pmorrisonfl says:

    R. Timm writes:
    > The housing bubble started in my opinion around 2000-2002 depending on local.
    > So 4-5 years going up has been largely corrected by almost 4 years of declines.

    For some anecdotal data, here in sunny South Florida, prices in nicer neighborhoods are beginning to approach roughly 2004 levels… while the ~20% annual price increases did start in ~1999-2000 here.

    With incomes still at ~2000 levels, and financing hard to come by these days (though it can be cheaper when you get it), I’m still expecting a drop from here. If by ‘largely corrected’ you mean 65% with 35% to go, I could agree.

  50. leftback says:

    Yes, I think that’s about right Bruce. $5T buys a whoopee cushion to place under the falling projectile.

  51. Whammer says:

    Re equity valuations in the future. I’m such an old fart that I was taught the dividend growth model in B school as the primary method for valuing equities.

    Dividends, imagine that……..

  52. HCF says:

    @ DeDude:
    >HCF don’t confuse your own personal goals with those of society.

    I’m not confusing the two, though I freely admit to talking my book… It IS in the best interest of society for housing to go wherever it will end up as quickly as possible. Admitting we have problems and then honestly trying to fix them is better than denial denial denial (see Japan over the past two decades for an example of what NOT to do).

    In the present situation:
    1) Sellers refuse to sell because their property is “worth more than what the market is pricing at”
    2) Buyers do not buy because they are not insane/stupid enough to buy into still elevated valuations
    3) People do not move and are STUCK where they are

    #3 is the most critical problem if the fall in housing is arrested to an unbearably slow pace. If people don’t come to reality on housing valuation, they just stay in one place, even if better opportunities come up elsewhere geographically. Basically, people are willing to screw themselves out of what may be the best for them for the next 10, 20, 30 years just so they can break even (in nominal terms) on their house.

    I am not hoping that housing falls quickly, per se, but rather to get wherever it is fated to go SOON… I don’t think any entity can change the destination unless we debase currency (which seems to be at least one solution the policy makers are pursuing).

    HCF

  53. leftback says:

    I agree with HCF. The true Housing Crisis was not this – it was the bubble! Everyday people were priced out of the market in many cities or were forced into horrendous mortgages in an effort to stay in the game.

    What is happening now in CA and AZ is healthy and appropriate. Supporting asset prices is stupid and wasteful and furthermore it never works. We are adding even more taxes on renters and savers who wisely opted out.

    Unfortunately we are learning that the US is far more like Japan than we expected. Denial rules among the insolvent. Otherwise they would have to discard their hubris and accept their poor judgment.

  54. DL says:

    Whammer @ 1:21

    That quaint theory went out with the internet bubble.

  55. karen says:

    I would also add that a lot of “everyday” people became speculators buying homes (and particularly florida condominums) to flip in states they never even visited..

  56. pmorrisonfl says:

    Leftback:
    > Denial rules among the insolvent.

    Is it really denial? Seems to me that the ideal situation for an insolvent would be to avoid recognition of that fact, which seems to me to be what is going on with the pumps in the stock market, Treasury, Fed, etc.

    I shouldn’t be critical; I am delighted that the rays of your insight cast far enough that I can learn by basking in their light. I’m much appreciative of your commentary here.

  57. MRegan says:

    Curmudgeon-

    Yes but…inflation or deflation, right? You anticipate a second collapse [resulting ultimately in a crash of prices again], but that is predicated on successful reflation through an exchange of valueless paper for future value-diminished paper (we can’t know if it will zero out). Can we get there is my question? Can the demand complex which resonated with the genesis of all that MBS be reanimated? I wish I knew. I would note that Hugh Hendry seems to have taken a strong deflationist position and recommends govt bonds- perhaps his view is specific to Europe/UK.
    You see I don’t know how we prop up demand in the face of contraction and unemployment and unpayable debt service (let alone debt).

    I appreciate your taking the time to respond.

  58. dead hobo says:

    Whammer Says:
    April 24th, 2009 at 1:21 pm

    … I was taught the dividend growth model in B school as the primary method for valuing equities.

    comment:
    ————————
    That was then, this is now. The textbooks still need to be updated, but equity valuation models should be very different when the new books come out.

    Today you have the internet, throw away cell phones, anonymous email addresses, assert bases worth tens of billions of dollars, ignorant reporters, half-witted investment analysts, agreeable regulators, gullible investors, unbelievably wealthy Uncle Stupid, and exchange traded funds that are said to make it much easier to move markets than ever before.

    There are still people around who believe that a possible 10% reduction in oil usage will result in a 60% reduction in price. They call it demand destruction and still think peak oil is going to jump out from behind a tree and eat your dog while you’re walking it. As the WSJ noted today, they still confuse hoarding with consumption.

    Then you have a large loser class who only sees the one flower growing within a stinking mass of feces and assumes the feces is in a period of spontaneous transformation into something beautiful.

  59. HCF says:

    @ karen:
    > I would also add that a lot of “everyday” people became speculators buying homes

    I would bet that most of the speculators don’t even think they are speculators! What people need to know is that we are ALL speculators. We make a guess (hopefully educated) on the future and make a few bets…

    I love the old adage: “An investment is a trade gone wrong.” For most people (minus the value investors who do their homework), this is sadly true. We just have to fess up on our intent and nothing does that better than the cold shower of reality!

    HCF

  60. DL says:

    pmorrisonfl @ 1:36

    Executives of big banks don’t have to face reality.

    Margin calls don’t apply to them.

  61. HCF says:

    @leftback:
    >Unfortunately we are learning that the US is far more like Japan than we expected.

    Dōmo arigatō, Mr. Roboto!

    HCF

  62. Mannwich says:

    The three ring circus continues unabated.

  63. leftback says:

    A slight balding figure at the back of the theatre gave a hand signal, and the smart money began to leave the building. “Evening, Mr Blankfein” said one taller man, as he passed. “Don’t forget to yell FIRE when you get outside, Mr Mack” said Blankfein, and smiled.

  64. dead hobo says:

    Wow. Look at the S&P from about 1:15 to about 2:15 and then to 2:45. That sure looks like extreme effort to pump prices to me. I’m not even a techy but I see that the top hasn’t been broke from past levels (more or less), the buying pressure subsided for an instant and the bottom fell out, and now effort is being made to return to a very special technical level (I assume).

    It just broke past. How many suckers will that draw in?

  65. dead hobo says:

    When a market is being pumped as obviously as this one, who will be dumb enough to hold over the weekend? Will the last 1/2 hour show another fall like at 2:15 or will the pumpers sell into a rally they ignited?

  66. DeDude says:

    HCF;

    I respectfully disagree with the idea that it IS in the interest of society that housing hit the buttom as quickly as possible (and we do agree that it will go down before it goes up).

    Lets say that todays 200K house has to go down to 150K before we have hit the buttom, and in 10 years it will get back to 200K again. Obviously for you it is best if it falls (quickly) to 150K (say tomorrow) and then starts a slow recovery. However, for individual homeowners, banks and government the quick fall means that they have to deal with the total loss right away in a single year. Compare that to a loss of 10K per year for 5 years to end at the same price of 150K. It is a heck of a lot easier for a person to create savings and increased income by 10K/year for 5 years than it is to fill a hole of 50K in one year. That goes for banks and government to. As a matter of fact the difference between surviving it or getting killed by it, may actually be whether you have to deal with 50K in one year or can deal with it over 5 years. So even though our human brain has been encoded to think that it is better to just “take the pain and get it over with” reality is that sometimes it is better to drag it out.

    I will also take issue with the assumption that the sellers who refuse to deal with the reality that their house is worth < 200K will somehow be more prone to deal with the reality that it is worth 150K. Everybody who can refuse to sell will refuse to sell until the price has come back up to almost the highest price they ever believed it could have been sold for back in 06-08. It is the same mental state that gets most small retail investors to hold onto a “good” stock all the way down and back up again. What you eventually will see is that people who are not forced to sell their house below that price, will instead rent it out rather than sell it “low”, even it it means that they will have to rent in another town that they are moving to. As a matter of fact I outright own my house and if I had to move to another city I would rent out my house, and then purchase a new house in the new city at the time I belived that city had hit the buttom (exactly like you). I would not sell the old house until I belived that we had gotten the bounce back and reached stable prices again (and that we were not heading into hyperinflation, in which case in might just hold onto the old house for another decade).

  67. usphoenix says:

    @BR: Someone’s poisoning the blog with strange “Autofeeds” directing readers elsewhere.

    Anyway you can “spam block” that before it happens. It’s tolerable now, but likely to get increasingly worse.