New Home Sales Fall 21.3%
Get ready for another round of bad reporting:
The $8,000 Fed tax credit (1st time buyers) and a $10,000 California tax credit (new homes only) likely helped out in NHS this month. Falling prices are also contributing to sales activity of the sector, which represents about 15% of the overall housing market.
Here is the official New Home Sales:
Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent (±13.2%)* above the revised May rate of 346,000, but is 21.3 percent (±11.4%) below the June 2008 estimate of 488,000.
Thus, we in fact know that Sales fell from last year. They were down 21.3%, a number greater than the margin of error.
The monthly data, on the other hand, is not statistically significant. Therefore we DO NOT KNOW what the change was from last month, as the margin of error is greater than the reported data point.
The usual suspects got it wrong, as they do every month.
If New Home Sales are so strong, then can anyone explain why prices are still plummeting? Median home prices dropped 12% year-over-year, and 5.8% from the prior month.
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Chart via Calculated Risk
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Previously:
New Home Sales Data: Don’t rely On It Either (November 30th, 2005)
http://www.ritholtz.com/blog/2005/11/new-home-sales-data-dont-rely-on-it-either/
Source:
NEW RESIDENTIAL SALES IN JUNE 2009
Census, HUD, JULY 27, 2009 AT 10:00 A.M. EDT
http://www.census.gov/const/newressales.pdf
July 27th, 2009 at 10:19 am
By the same logic, we don’t know that year over year sales dropped 21.3%. Love ya, but you’re cherry picking which statistics you want to emphasize. All we know is that year over year sales dropped.
~~~
BR: The difference which you are overlooking is that we know the YoY numbers are statistically significant –ie.e, greater than the margin of error.
You cannot say that about the monthly data . . .
July 27th, 2009 at 10:20 am
In actual sales, the preliminary estimate is that 36,000 homes were sold, up 3,000 from May but down 9,000 from last June.
To put it another way, this was the second-worst June since they began counting new-home sales in 1963. It was not quite as bad as June 1982, when the country was mired in a deep recession and interest rates were sky high. Then 34,000 new homes were sold.
There are twice as many households in America as there were then, so relative to population this was the worst June ever, by far.
July 27th, 2009 at 10:21 am
You just gotta love the divergence…
On CNBC:
“New-Home Sales Jump by 11%, Largest Monthly Rise in 9 Years”
“New-home sales rose by the largest amount in nearly nine years last month, in another sign the housing market is finally bouncing back from the worst downturn in decades. ”
On The Big Picture:
“New Home Sales Fall 21.3%” (After actually constructively criticizing the data… something we cant seem to rely on the financial press to do anymore…)
“Thus, we in fact know that Sales fell from last year.
The monthly data is not statistically significant. Therefore we DO NOT KNOW what the change was from last month, as the margin of error is greater than the reported data point.
The usual suspects got it wrong, as they do every month.”
Thankfully, the Mr Market, our dear friend, seems to have called bullshit today… which makes me feel better about being, here, now. (this ones for you, MEH)
July 27th, 2009 at 10:22 am
in other words, year-over-year sales could have dropped anywhere from 9.9% to 32.7%.
~~~
BR: Precisely.
We know they were negative Y/Y, but not exactly how much.
M/M, they could have been positive or negative . . .
I will tell you that the range of M/M numbers have improved — i.e., 11% plus or minus ±13.2% is minus 2.2% and plus 24.2%.
But given how volatile and subject to revision these self-reported Builder numbers are, I try not to rely on them too much.
July 27th, 2009 at 10:27 am
that explains the spike then sell off. housing data stories, even as a ex-jounro, is very confusing. is is normal to use month to month, instead of year over year?
July 27th, 2009 at 10:30 am
Its normal to employ MOM data when you are trying to promote the illusion of a housing recovery.
If you are attempting to illustrate reality, then you use YOY data.
July 27th, 2009 at 10:30 am
Whaddya know? WSJ gets it WRONG too. One reason why I cancelled my subscription a while back.
WSJ NEWS ALERT: New-Home Sales Soared 11% in June From Prior Month as Prices Continued to Fall
July 27th, 2009 at 10:39 am
Well, let’s see what Barry didn’t tell us:
Cancellations are at their lowest point since 2Q 2008
New home inventory is at its lowest point since Feb 1998
The number of unsold properties fell 36% Y-O-Y
The unsold home inventory is at its lowest point since Oct 2007
http://www.bloomberg.com/apps/news?pid=20601068&sid=aOdEKR9_Lz7s
July 27th, 2009 at 10:40 am
heheh
Franklin, I advise you to load up on the homebuilders
Don’t be afraid to mortgage your home to get whatever cash you need to do so . . .
July 27th, 2009 at 10:42 am
@franklin411: Unsold home inventory? How the hell do they know that true number with so much shadow inventory out there? Please…….
July 27th, 2009 at 10:42 am
June was warmer than May this year
July 27th, 2009 at 10:45 am
Anecdotally, in my area, I can see this occurring. We have a local developer building homes targeted at the first- time home buyer’s. These homes range in value from 179K TO 249K, 1200 SF-2400SF. He has built/sold approximately 2o since the spring.
These same home models in 2005-2006 were selling for 249k to 300k. I would say we have alot of underwater homes in our area. Resales can’t compete!
In contrast, in 2005 I was looking into purchasing a Mc Mansion for 576k with 4000sf. My ego mind you, not that we needed it, we are empty nester’s. That same model/comp in the area is now selling or asking about 326k. Thanks to the high property taxes of 12k pa, we did not take the plunge.
I realize now less is best.
July 27th, 2009 at 10:45 am
CA is contributing 10K for new home purchases when state employees are on a 15% furlough and they are paying vendors with IOUs? I wonder if they pay cash towards the new home purchases, man those are some pretty powerful special interests to wring 10K home out of a state on the edge of BK.
July 27th, 2009 at 10:45 am
As I recall Franklin…
You were just talking yesterday about the $1,200 rent you pay…
Since you are so bullish here, why don’t you up and buy a house?
July 27th, 2009 at 10:46 am
When i read that report ‘I held my nose’.
July 27th, 2009 at 10:48 am
If the Wizards in Washington and on Wall Street would quit trying to pull the wool over everyone’s eyes, this market would probably be down where it belongs and truly bouncing back. Feed the children, take care of the indigent, etc., but let the market clear itself. ARE YOU LISTENING Ben and Timmy?
July 27th, 2009 at 10:50 am
Reference my above post, what do you think this is doing to appraisels in our area? Buyer/seller chaos!
July 27th, 2009 at 10:51 am
@Justin: They know this, but it wouldn’t save their friends (and themselves) from a world of hurt in the process. This has always been about saving their own. And we all know that the minute they stopped doing this, Goldman and others on Wall Street would crash the market again in a hissy fit.
July 27th, 2009 at 10:57 am
Just something interesting I have noted…
One of Mrs I-Man’s favorite pasttimes is cruising through the MLS listings in our area… not that we are in the market for a house, but its still kind of fun to see whats out there.
We have noticed a huge discrepancy between the number of sales of homes in the 150-250K range and the number of sales of homes in the 400-750K range.
Just about every house thats priced over 350K in our area has been on the market for several months, and you can find older listings on the same properties, sometimes 3 older listings, that tell the tale of the price declines.
It definitely seems in our area that the home sales that are occuring are all in the 150-250 range, and the bidding is fierce… you have your first time home buyers and investors with cash slugging it out over these properties.
But I would expect to see the upscale market lead in a sustained recovery, because those buyers are more asset heavy… but if the banks arent lending to these folks, it says alot.
July 27th, 2009 at 11:00 am
@I-Man: I’m seeing the same thing here in the Twin Cities. Bargain hunters are out in full force but anything that requires a significant mortgage is mostly not moving, especially really higher end homes. Am seeing more homes go on the market in my neighborhood recently as well and they are not moving if north of $450-$500K.
July 27th, 2009 at 11:02 am
BR: How about running a post on what impact the housing market will have on the mobility of our workforce.
July 27th, 2009 at 11:05 am
@Franklin
…in fact Franklin, just to bring things up to speed consider the following…
Since last December, I bought a house/farm…paid cash for it…and paid property tax transaction, fees, etc….I’ve done a $30,000 investment in “off grid” energy conversion…& spent $10,000 in raw materials for interior work, $5,000 more for exterior…I also bought a new truck…
So one might say that I’m “helping” the economy that you’re so bullish about…
But ask yourself WHY, I did all these things…The house/farm was bought with the idea that in case things go bad, it COULD be safer to live there…The property taxes (saved – versus previous home), over a 20 year period, will PAY FOR the amount invested in upgrades (actually more as over 20 years, the amount will be over $80,000)…The energy will eventually pay for itself…The truck I intend on keeping forever (probably no need for another one for a LONG TIME)…
I would say I gave THE ECONOMY a positive bump in the past 6 months (to the tune of about $60,000)…and I suppose those numbers are reflected in the LEI numbers (which translate to a bump in the S&P – which happens to be a ‘virtuous’ cycle resonse in the LEI itself…
In the end though (call it over 20 years)…I’ll SAVE over $100,000…so without parsing the numbers, I suppose my contribution to future economic activity will be less than average (unless America becomes “incentivized” to do commerce again and not tax its future generations into oblivion so as to get a 1% differential in GDP today)…
I suppose the economic future of this country is therefore in YOUR hands as you make your annual upgrades to your “World of Warcraft”, and airplane trips across the country to take pictures of the Goldman Sachs building…
July 27th, 2009 at 11:06 am
@Barry
Hah! I’d love to buy a home, frankly. I’m extremely handy–I can fix cars, weld, hang drywall, do framing, wire electrical, etc…–as a result of my upbringing as a dedicated do-it-yourselfer. In fact, my parents are thinking of buying an house as an investment. The plan is that if I can’t find a job, they’ll buy a real crackerbox dirt cheap and I’ll live there/fix it up using my own capital. That gives me a place to live, a job to do, and by the time I’m done with the work, a fair return on my capital invested. However, as cvienne rightly points out, I don’t have anywhere near the kind of capital required to buy a home on my own.
As for homebuilder stock…no thanks. I only invest in companies I find sexy, which generally means industrials (because I’m a fanatic about machinery and flying) and sin stocks!
Anyway, I think we can all agree there’s a limit to how many times you can say “this time the data is lying” before people start thinking maybe the data is right and it’s the analysis that is off.
July 27th, 2009 at 11:08 am
teletubbies are funny, pisani says market selling off on good (housing) news.
July 27th, 2009 at 11:11 am
@I-Man
“It definitely seems in our area that the home sales that are occuring are all in the 150-250 range”
Read my (11:05) post to Franklin…
I’ll concede if what you say is correct, then many of the “cash rich” buyers are sort of thinking the same as what I expressed…
Therefore, it might not be unusual to think that there will be economic activity relating to “fixing up” properties (as that’s what a $120-$250 probably needs)…
What happens though when that drops off?
Personally, I’m going through my checklist right now and see almost NOTHING in terms of expenditures that I’ll need to make for a long time…I just got my boat this past weekend too (and took it out on the Potomac River over the weekend)…It was used, distressed sale…runs like a charm!
July 27th, 2009 at 11:21 am
As an appendix to my previous post…
To me…
The real value is in those homes that are priced over, we’ll call it for our area, over 400K… the further you go up in price… the greater the value.
When you go further and take a peek at the properties priced over 500-750K… its amazing what you can find out there. For example, a 4000 plus sq ft, 80s-90s construction, on 10 acres, with timber, surrounded by pristine wilderness and a beautiful river, 3 car detached garage, detached shop, and barn…
These places were selling at a 50% prem some of them, we’ll say 35% to be fair, two or three years ago… and still no bids…
July 27th, 2009 at 11:22 am
@Franklin
FYI…
In terms of “fixing up”…I applaud that…Many of the newer homes are poorly constructed anyway…The old ones need maintenance, but they are many times more solid…
EXPENSES (the nature of what “I” had to outlay in my case were roughly as follows)…
- I didn’t need a lot of hand tools or powertools (as I’d received a lot of these from my late father)…
- Mostly I needed raw building material (hardwood flooring, glue, nails, underflooring, new wallpaper, paint, light fixtures, bath fixtures, tubs & shower, toilets, tile & tile flooring, ceiling fans)
- Outside I needed (tractor, augers, fencing, pool supplies)
Most of the rest I had…At this point, unless I do some serious irrigation plan (outside), or completely renovate the interior…I’m set…
My point (with regards to ECONOMICS) is…These are all “front loaded” costs (which will stimulate economic activity NOW, probably already have)…But where is the economic activity going to be going forward? For all intents & purposes, I’ve set myself up to CONSUME LESS…
I think the latter point is the dynamic that one has to SERIOUSLY consider…
July 27th, 2009 at 11:23 am
That says more to me about the state of the housing market than an increase in sales of 150-250K homes because they are “cheap”.
July 27th, 2009 at 11:23 am
Well, the market’s not exactly falling on good news. Await the usual afternoon pump, and then hear the BS about “adjustments” , “breather”, etc, etc. Or the pump could work out as usual.
Distressed houses are starting to leak onto the market here. Some have seen adjustments in excess of 40%. Cheaper have dropped below the “magic” 200$ number, and renters are moving on them.
If they have a job. There are no jobs here and U6 would be astronomical as California Boomer transplants have checked out and are enjoying the Summer living outdoors.
New construction? Where? Too many developments in BK. One prominent McMansion builder moved out of the area so his wife can find work as an accountant.
July 27th, 2009 at 11:27 am
you’re right, the market wants to rally for now. up on any whiff of good news lately.
July 27th, 2009 at 11:30 am
I-Man
IMO – The “main” reason people were buying McMansions a few years ago was the notion that house prices were going up…
It was like buying stocks “on margin”…No $$ down, no credit check…Hey, why not take a flier on a $500k house instead of a $150k house…If it appreciated 20% in 18-24 months, you just SELL and put $100k in your pocket (instead of $30k)…
Sure, the “lifestyle” of a large house in a pristine area with nice neighbors was also alluring (but all that did was to give to “illusion” of staying power)…As if this was the new version of “the American Dream”…
So now a $700k home has no value even at $400k to me (relatively speaking)…
- Property taxes are MUCH higher
- Lending terms more onerous
- and the ENERGY costs to maintain 4,000 sq. ft. are senseless.
I perceive a much narrower gap before all is said & done…In fact, one of my more recent thoughts is that many of these McMansions are eventually going to be re-fitted into du-plexes & tri-plexes…
July 27th, 2009 at 11:38 am
Id love to agree with you on this one, but at what point do we stop looking at YoY comparisons and look at the outright levels. On a seasonally adjusted basis, home starts hit a stable number around Jan 2009 and prices appear to have flatlined in February. Sure they are both still down since last year, but the outright numbers don’t look terrible.
July 27th, 2009 at 11:39 am
So Cramer wasn’t right? I’m shocked!
REPEAT: Does nobody understand the humble Moving Annual Total (MAT) anymore? It makes it very simple for the vast majority of dic*heads who will never understand seasonality (Because they have no understanding of numbers) to understand.
July 27th, 2009 at 11:48 am
Some great comments on here.
My instincts tell me that unless the roof really falls in on the whole country, $60-100k 3bed 2baths in Houston are the new normal for bargain seekers / fixers.
Extrapolating a bit, mid to high $100s are going to buy a lot of house going forward, but buyers are likely to killed on energy costs as inflation / oil hits energy bills even further into the stratosphere.
July 27th, 2009 at 11:53 am
[...] you want to look for is this month compared to the same month last year. And as blogger Barry Ritholtz points out, June 2009 new home sales are down 21.3 percent from June 2008–a far cry from the false [...]
July 27th, 2009 at 11:56 am
Contrary indicator?-
“Investors Get Second Chance at Bull Market”
excerpt-
“Even ground zero for the economic meltdown has shown signs of a pulse. Financial firms Goldman Sachs, Wells Fargo and JPMorgan Chase surpassed forecasts by 40% or more, while the walking dead, Citigroup and Bank of America, also surprised on the upside.”
hmm . . . why could that be?
http://finance.yahoo.com/news/Investors-Get-Second-Chance-tsmf-3969223851.html?x=0&sec=topStories&pos=4&asset=&ccode=
July 27th, 2009 at 12:00 pm
another excerpt-
“piling in now would probably be wise for investors seeking to gain back some of the losses sustained during the meltdown . . .With relatively cheap prices still to be had, equities look like an attractive bet for the second half of this year. Investors had the opportunity of a lifetime in early March. Here’s a rare second chance. ”
WOW- this guy has it all figured out
July 27th, 2009 at 12:04 pm
@ahab
…and in a similar story…
“Investors get Second Chance to get GORED by the running of the bulls at Pamplona”…
I’ll caveat that…Now that the market is officially in LA-LA land (over 956)…There’s no reason that it couldn’t go higher…The “happy talk” appears to be working and it is difficult to stand in front of that train…
I’m practically resigned to the notion that I’ll either BUY at 576 or SHORT at 1,200 (and do nothing in between)…I can’t stand foolishness…
July 27th, 2009 at 12:08 pm
@Franklin “The plan is that if I can’t find a job…”
What silly talk is this? Why even think such negative thoughts in such a booming economy? And with the economic geniuses now at the controls, umemployment rates will probably be in the negative integers in no time.
JJ
July 27th, 2009 at 12:14 pm
OT
Twice this morning, I’ve received this notice from Schwab when checking positions:
“Urgent Notification Due to a technical issue, volume information and last trade information on some securities may be incorrect. The Bid and Ask data are accurate. We apologize for this inconvenience and thank you for your patience as we work to resolve the issue.”
Is this limited to Schwab? Anyone seeing similar with any other brokerage?
July 27th, 2009 at 12:17 pm
I wish I could find statistics on how many of these low end homes are subsidized by the government? anyone? Are the flippers selling to folks who are getting assistance from the government?
My mother is severely handicapped and about every 6 months I review the HUD site, USDA site etc.. for the newest housing “give-away” program available to low income and disabled folks.. I have been doing this for about 3 years.. The last week I am absolutely shocked how many community action agencies, public housing authorities, township and counties programs are available compared to last year. They midy be competing with each other to find low income folks to buy homes.. Every county has a program that can be added to another government program for down payment grants and section 8 subsidies. There are so many more opportunities to mixed your section 8 housing voucher with down payment grants so that a family only needs to pay 30 percent of their income towards a house up to 417,000 in California. If you are bored go spend some time on the HUD and USDA rural websites..
July 27th, 2009 at 12:19 pm
“They midy be competing with each other to find low income folks to buy homes”
midy = must
July 27th, 2009 at 12:36 pm
For what it’s worth, caveat emptor, yada-yada…but KBH looks like a solid speculative short based on fractal analysis. Am now in via AUG puts.
BR: thanks again for the MCO story. It was a highly profitable experience, and may be even more-so for those with more patience than myself. Looks like it may just be closing its gap today, in fact…but baby needs new shoes, so a-profiting I did go.
July 27th, 2009 at 12:49 pm
One for the memory books (and Franklin): “Time to buy horrible home-builder stocks” (MSN’s Jon Markman, 12/7/06)
July 27th, 2009 at 12:52 pm
“If New Home Sales are so strong, then can anyone explain why prices are still plummeting?”
Turn around the causality & it gets pretty easy. As in, “speculative money going for low, low pricing” that they hope has hit bottom (as our realtor friends tell us it has).
Still, let’s not get hung up on the ±… By a quick stab, if your figure is plus 3/4 times the uncertainty, you have 2:1 odds that the (uncertain, still unknown) figure is actually positive. Why fight the tape?
July 27th, 2009 at 12:52 pm
Fractal analytics indicate (to me) a speculative selling opportunity with KBH. Signal is _not_ locked in yet, but I find that these extremes are sometimes profitable. Am in on low-end August puts.
Speaking of which, thanks again for the heads-up story on MCO, Barry. The puts signaled by fractal analysis were berry, berry good to me. There may be more left for those with patience, and today may just be closing of the gap, but baby needs new shoes, so I’m out of that one…with great thanks.
July 27th, 2009 at 12:58 pm
@cvienne
I’m not worried about people going “off the grid” so to speak. Frankly, people like you and I–people who know which end of the hammer is the handle–are an endangered species these days. It used to be that every guy at least knew how to change tires and spark plugs, but now my younger neighbors and students don’t know the first thing about manual labor.
July 27th, 2009 at 12:59 pm
[...] When in doubt , go to Barry: Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent (±13.2%)* above the revised May rate of 346,000, but is 21.3 percent (±11.4%) below the June 2008 estimate of 488,000. [...]
July 27th, 2009 at 1:19 pm
@triplec: Interesting point. Would be nice to know how much section 8 activity has changed and how much that’s biasing the data. What little I know about it here is that it’s a very common ploy.
July 27th, 2009 at 1:28 pm
I love this quote from Spitzer-
“The reality is the Fed has blown it. Time and time again, they blew it. Bubble after bubble, they failed to understand what they were doing to the economy.
“The most poignant example for me is the AIG bailout, where they gave tens of billions of dollars that went right through — conduit payments — to the investment banks that are now solvent. We [taxpayers] didn’t get stock in those banks, they didn’t ask what was going on — this begs and cries out for hard, tough examination.”
hat tip mathman-
http://rawstory.com/08/news/2009/07/25/spitzer-federal-reserve-is-a-ponzi-scheme-an-inside-job/
July 27th, 2009 at 1:30 pm
@batmando:
I saw something similar about CBOE quotes on thinkorswim.
July 27th, 2009 at 1:33 pm
here’s a green shoot-
“Verizon 2Q profit falls 21 pct, narrowly beats expectations, plans to cut 8,000 jobs”
http://finance.yahoo.com/news/Verizon-2Q-profit-falls-tops-apf-1336678017.html?x=0&sec=topStories&pos=main&asset=&ccode=
the economy’s looking better every day- best get in on the new bull market before it’s too late
July 27th, 2009 at 1:39 pm
This market is starting to give me palpitations. It is in lala land.
I’m in cash. I tell myself this is the rational place for $$ right now. But, I’m starting to see dumb-dumbs rake in gains. It’s very hard to watch.
July 27th, 2009 at 1:43 pm
@ LB…
Dont just sit there… say something.
At the least, give us your thoughts re: this weekends plethora of soccer material… Dont remember… are you Chelsea, Arse, or Man U? (are there any other EPL teams anyway?)
July 27th, 2009 at 1:45 pm
hopeImwrong-
you and me both – all cashas well- and watching the hype re the new bull market- it appears that employment and income don’t matter anymore-
its all about getting in on the action- the Fed and the Treasury betting that they can create the illusion of prosperity- actual prosperity obviously no longer neccessary
July 27th, 2009 at 2:15 pm
It’s pretty obvious that the June sales are getting a boast from the $8000 incentive for new home byers. Also a lot of pent up desire for bying (held back by fear of prices falling even more); that will soon be let lose. I think the year over year numbers will become positive no later than October this year, and we could even get panic bying and a new little bubble in housing, if prices manage to improve by double digits for more than a few months. Car sales are also going to get surprising increases, because the stimulus is working (yes of course people respond to incentives – always have and always will).
By October when we get past the anniversary of the “fall or the cliff” events, the bulls will shift to yell about the annual number (rather than month over month), and the the bears will shift to yell about the “% down from the top” numbers. Silly bears, silly bulls, are you really that stupid, or just convinced we are?
July 27th, 2009 at 2:20 pm
@I-Man
This ought to draw LB out…
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aWXtk1_I03S0
Hicks is a moron par excellence…
@ahab
All that “cash on the sidelines” is actually MARGIN ACCOUNT balances…The sharks are waiting for the “double downers” to hop in to relieve them of what remains…
July 27th, 2009 at 2:23 pm
I-Man:
LB is in Maine, and his intensity level reflects the location. Sit by the lake, or watch the market? Also got stopped out and therefore in a big Andy T-style we-hate-getting-stopped-out funk until further notice.
LB is waiting for the new EPL season in the hope that ANYONE but Man U or Chelski can lift the trophy but preferably his hometown Reds, LB is a big Stevie G fan. BTW, NEVER get into a fight anywhere near Liverpool… BTW, “Bubba” shuld take note.
July 27th, 2009 at 2:29 pm
Ah… get back to the lake old brit.
Just checking in on you… saw you chime in on MM earlier.
Over here at Dread Capital, we remain steadfast… dreadfast.
July 27th, 2009 at 2:32 pm
dedude-
the only incentive I see for cars is the “cash for clunkers” program- if you have a typical 4 or 5 year old car you want to trade in- the program has zero benefit- only applicable to thos folks who are driving a car that is considerably older and worth less than $4500 as a trade in-
correct me it I’m wrong
July 27th, 2009 at 2:32 pm
@I-Man
Translation:
LB is is Shawshank…He’s gotta tunnel himself through 500 years of crap to reach freedom
July 27th, 2009 at 2:32 pm
500 yards
July 27th, 2009 at 2:38 pm
@ahab
I’d agree with DeDude that this “cash for clunkers” will actually reflect some positive numbers for a few months…The program worked very well in Europe and from what I see, it’s doing fairly well here too…
My BIG DOUBT, instead, is with regards to longevity…People will buy into the notion that we’ve turned the corner…The markets are already pricing in a premium for that…
But these people who use “cash for clunkers” are not going to buy another car for a VERY LONG TIME…
As with EVERYTHING else, we’re biting into many years of future prosperity for a quick 1-2 quarter bump…
July 27th, 2009 at 2:38 pm
@ahab
I’d agree with DeDude that this “cash for clunkers” will actually reflect some positive numbers for a few months…The program worked very well in Europe and from what I see, it’s doing fairly well here too…
My BIG DOUBT, instead, is with regards to longevity…People will buy into the notion that we’ve turned the corner…The markets are already pricing in a premium for that…
But these people who use “cash for clunkers” are not going to buy another car for a VERY LONG TIME…
As with EVERYTHING else, we’re biting into many years of future prosperity for a quick 1-2 quarter bump…
July 27th, 2009 at 2:55 pm
ahab
Yes, when you get right down to it and see what the cash for clunkers details are, there’s really a pretty narrow range of people/cars that will qualify and go for it. They’re just hoping to get the suckers out and into the show rooms where the vampires can latch on to them and hopefully draw some blood. It’s ridiculous. And all it will do is draw some more future demand at the very margin, of course. We’ve done so much of that over the last 8 years that there’s no real benefit.
But at least we can say we did something. (rolls eyes)
July 27th, 2009 at 3:05 pm
Ahab, there is also the “deduct the sales tax of a new car on your federal income tax” program. That actually has me planning to get a new car at the end of this year rather than next summer. I just have to find out if that deduction is exempt from alternative minimum tax. I would hate to get the deduction and then lose it anyway.
July 27th, 2009 at 3:10 pm
cvienne-
a post so nice you posted twice!
onlooker-
I’m with you- very narrow range of folks- I guess if I had a car that was bascially zero value- then maybe it make sense- assuming you were going to buy a car anyway- for someone who cannot afford a new car- guess they’re going to keep the clunker- the payments on the twenty or thirty thousand dollar note would be rather prohibitive even with the $4500 incentive
July 27th, 2009 at 3:13 pm
@ahab
the page froze and I ended up clicking submit twice…Usually WP takes care of that, but obviously didn’t catch it this time…Whatever
July 27th, 2009 at 3:17 pm
@ahab
Not a lot of people are buying $30k cars with the “cash for clunkers” arrangement…
In practice, it’s more the $15 – $18 range cars…
Here’s what I’m seeing…
People are getting creative…I’ve seen a lot of cases where family relatives are doing “car swaps” in an effort to qualify (and many times it works)…
Say grandma has a “clunker” that qualifies as it is x years old and is a bomb…Now she would probably NEVER think about buying a new car (but the good thing is that the clunker is PAID FOR)…
But the adult kids are saying…”Hey mom, I’ll swap you my NEWER car for your old clunker (which may be marginally worth more than the clunker)…
In any case, the swap ends up getting you a better trade in VALUE (because of the guarantee)…You end up getting rid of the clunker, and have a brand new car…
= grandma has NEWER car
= adult kid has brand new car (and probably “finances” for 60 months $18k minus $4.5k = $13K with good credit at below 3% – so their “monthly” is in the $200 range)…
…stuff like that
July 27th, 2009 at 3:20 pm
dedude-
I definitely understand the power of incentives- but you are saying yourself you were planning on buying a car anyway- I do not see someone making a purchase unless their intention was to already buy a new vehicle- the incentive spurring their decision by a few months at best
if it was a substantially more powerful incentive- such as $4500 for anyone that can be used on top of your tade and deduction of sales tax- then yes- that would have a bigger impact
July 27th, 2009 at 3:21 pm
It’s STILL a rob from the future to live TODAY issue though…
Effectively it just helps reduce inventory…
Inventory REPLENISHMENT will be another issue altogether…Let’s see how Obama Motors decides to deal with that one…
July 27th, 2009 at 3:21 pm
This is good for some laughs:
http://www.wealthdaily.com/aqx_p/13048?gclid=CLesgOHM9psCFQIyxwodzg48-A
some quotes:
“The result has been a market in which 45% of its value has been suddenly lost – as if somehow American businesses are now worth $8.1 trillion less than they were 12 months ago.”
Well, yes, I believe they are. Since their valuations were based on a juiced up leveraged economy in a bubble. But maybe that’s just me.
“That’s why right now is the precise time to bargain hunt, as we reach the point of stock market capitulation.”
Uh, I think they might be a tad late on this. Does this feel like capitulation?
July 27th, 2009 at 3:21 pm
cvienne-
hmm . . . pretty crafty
July 27th, 2009 at 3:24 pm
cvienne
It (cash for clunkers) also just gives false signals about future demand and therefore props up excess capacity that really needs to be taken down. We’ve done much too much of that already. That’s the ugly and unfortunate truth. The day of reckoning is just delayed.
July 27th, 2009 at 3:29 pm
@ahab and OT
The bottom line IMO is that I have no problems with the program (it’s a pretty good deal for those in a position to take advantage of it)…
- It probably IS going to goose economic numbers for a few months.
However…
- If the overall economy economy remains sluggish, it will probably create MORE HURT down the road.
So you have to consider it for what it’s worth…
July 27th, 2009 at 3:31 pm
Call me unamerican… but isnt it about time to engineer a couple day market sell off in order to drum up some demand for the govie auctions this week?
July 27th, 2009 at 3:35 pm
@I-Man
“Call me unamerican… but isnt it about time to engineer a couple day market sell off in order to drum up some demand for the govie auctions this week?”
—
You’d think…”timing wise”
The only thing that worries me about that scenario is that the “charts” themselves don’t seem to suggest it…
There4…I’m kind of waiting for the DOLLAR here to complete it’s move…
July 27th, 2009 at 3:41 pm
Yeah… “the charts” dont seem to suggest it…
One chart does: the VIX.
July 27th, 2009 at 3:43 pm
[...] ran a story that’s must reading for every politician and transportation official. Titled: How a New Runway At O’Hare Makes Travel Easier for All, the story details how a new runway at the country’s second busiest airport has improved on [...]
July 27th, 2009 at 3:44 pm
From Faber’s 10/2008 letter, a good thing for all of us to keep in mind today:
I should also like to point out that in the world of investments logic should be used only very carefully. For instance, there is no logic in my mind why the Nikkei rose in 1989 to 39,000, why Hong Kong property prices continued to rise into 1997, why the NASDAQ rose above 5,000 in March 2000 and why the recent Damien Hirst sale was such a success.
July 27th, 2009 at 3:44 pm
@I-Man
If the dollar were to complete a move in the process of the auction, I’d be bullish on that action…
July 27th, 2009 at 3:45 pm
@ben22
“charts don’t lie…people do”
July 27th, 2009 at 3:47 pm
@ben22: That’s clearly been my biggest problem lately – - overthinking the market and using actual logic. LOL. The sad thing is – - I’m being serious. This all reminds me of sp0rts or horse racing g@mbling where the less you know or think about it, the better off you often do. Pretty sad for anyone who is actually looking for “long term” viable investments.
July 27th, 2009 at 3:47 pm
@ben22
…and of course I’m not referring to the Nikkei at 39k or the NASDAQ at 5K…I’m referring what happened in the aftermath…
July 27th, 2009 at 3:50 pm
@Manny
I hear ya…
Approaching this market with the idea to “short” (based on fundamentals), seems a bit like the person who has just witnessed 9 straight “coin flips” come up HEADS, and is now CERTAIN that odds are on their side that the next flip will be TAILS…
July 27th, 2009 at 3:50 pm
Manny:
Call it the falacy of the intelligent.
Nothing to be ashamed of… just human… all too human.
July 27th, 2009 at 3:51 pm
@cvienne: But unbeknownst to me (and other dupes) is that both sides of the coin has a head on it and that head is Lispy Lloyd’s.
July 27th, 2009 at 3:51 pm
I just made myself laugh at that one… FALLACY.
July 27th, 2009 at 3:54 pm
@I-Man: No kidding. What’s even more depressing (but funny in a way) is that one of my few big “winners” lately was picked by my wife, who does no research and knows nothing about the market! We even argued about it for a bit and I eventually acquiesced and threw her a bone. Now I have to eat humble pie and admit that she appears to have been right. The thing is – - the stock is up over 1,000% off its lows based on literally nothing, no improved earnings or even any actual profit. This is absurd.
July 27th, 2009 at 3:55 pm
2 points until a positive DOW…
IT WON’T GO DOWN (horror movie voice)
July 27th, 2009 at 3:55 pm
Ahab, the clunker program will get us about 250,000 new cares sold in less than 5 months. That will clear out the 2009 inventory and jump-start the sale of 2010 models. The tax incentive will add to that although it is hard to tell how much. Yes for most of that we are talking about the purchase of a car that people would have purchased within a few years anyway. However, the fact that these purchases are done now will prevent layoffs or create new jobs that would not have been prevented/created. Each of those saved/created jobs means a family that will be able to pay bills/spend in a way they otherwise would not have been able to do. Even if the 250,000 all were used to reduce inventory (I do not know how big inventory is) it would still help save the companies a lot of money and therefore, help them survive (and keep them from going bankrupt and fire all their workers). Yes we do need to growth, but you can’t start growing until you have stopped contracting.
July 27th, 2009 at 3:56 pm
@Manny
Yeah, Lispy Lloyd playing Anton Chigurh (No Country For Old Men), with one of those pneumatic nail guns…
July 27th, 2009 at 3:58 pm
b22-
good post- let’s not forget Dow 14,000- on the cusp of subprime news that was indicating bad news all around-
talk about la la land-
take away point- people are lazy and will follow the trend to the point of financial ruin in spite of ominous news showing all may be lost
July 27th, 2009 at 4:00 pm
Oh yeah…
I forgot what truly unamerican is:
Letting the market have a down day. Thats unamerican.
July 27th, 2009 at 4:02 pm
@DeDude
“the clunker program will get us about 250,000 new cares sold in less than 5 months. That will clear out the 2009 inventory and jump-start the sale of 2010 models”.
—
I tend to agree that it will reduce 2009 inventory (bottom line is that I’m FOR the program)…
I just think that the “jump starting” will not manifest…In fact, it may be forestalled…
Perhaps 2010 version will be $8,000 cash for clunkers incentive…
July 27th, 2009 at 4:04 pm
Well, looks like one by one the shorts are getting shaken out. I waived the white flag (again) today, but since I’m on vacation next week, I won’t be getting short any time soon. Hope it doesn’t crash while I’m away. That would be just my luck these days!
July 27th, 2009 at 4:14 pm
“If New Home Sales are so strong, then can anyone explain why prices are still plummeting? Median home prices dropped 12% year-over-year, and 5.8% from the prior month.”
Yes, this can be easily explained, Barry. Prices are just not a function of the trading volume. Prices can drop or increase with increasing trading volume or decreasing trading volume. This isn’t different with house prices compared to any other traded good.
rc
July 27th, 2009 at 4:16 pm
“Perhaps 2010 version will be $8,000 cash for clunkers incentive”
No they are quickly running out of the 1 billion in the current program, so if they find they need another incentive program, they would probably cut it down to $2,500 and make it a little less about improving energy efficiency and more about getting old cars scrapped (perhaps by letting the old cars have up to 25 mpg and/or just requirering the new to do at least 5mpg better than the old).
It all depends on whether we are in a severe ressesion or in a depression. If we are in a severe ressesion the “organic growth” just need a little fertilizer to turn things around. If we are in a depression we will need a massive public works program (like WWII) to truly get out of the slump.
PS: Although I don’t share ypour pessimism for the future, I love the idea of “off grid” energy conversion. Do you have some good websites for that?
July 27th, 2009 at 4:17 pm
guys,
I’m struggling badly with the logical aspect of this as well, we are clearly in bizarro world but we all have to be smart enough to see the trend and not try to fight too hard, too early, against it. I really enjoy going back and reading Faber’s stuff months later, it’s very helpful, much like reading JG is a few months after the fact. His reinvesting when terrified piece was better than good timing.
@DeDude,
I could be wrong about this but isn’t there only $1b, set aside for the clunkers program. Assuming a max benefit of $4,500 that’s only a maximum of 222,222 people that can even buy within the program. Maybe I’m missing something. Where did you come up with the 250k figure for sales, or is that a guess? The list of cars that qualify is restrictive as well, it’s not as if just anyone can do it. That tax incentives also only apply to certain cards, hybrids are expensive. I think your number will end up being inflated. I’ve heard too many times in the last 18 months about a govt program that would entice homeowners, or buyers of this and that and it didn’t work. Further, if what you say actually plays out, why are you so convinced that we are right back to new sales then in 2010? Where does the demand, and also the credit come from? Most people aren’t paying cash for a new whip.
July 27th, 2009 at 4:17 pm
Dedude-
I am not necessarily in disagreement with you- but I think it is a disingenuous to say it will help sell 250,000 new cars- becuase for the most part those cars would have been bought anyway- think about it-
you have a 1992 ford truck w/ a bazillion miles on it- but you’re broke and out of work- guess what -you aren’t going to be using the $4500 incentive- becasue you can’t afford a car-
or-
you have a 1992 ford truck/ w a bazillion miles on it- you’re employed and not broke- you have been meaning to replace it- but now- there is an incentive making your trade-in worth $4500- you take the plunge a few months earlier than anticipated-
so you were going to buy anyway- the government wasted $4500- and you have eliminated a purchase that may have happend 2 months, 6 months or 12 months from now-
I am not impressed
July 27th, 2009 at 4:18 pm
Two bottoms for housing:
http://www.calculatedriskblog.com/2009/07/housing-remember-two-bottoms.html
rc
July 27th, 2009 at 4:20 pm
sorry for all the typos in my post above
July 27th, 2009 at 4:20 pm
@ahab: Agreed. It’s pulling future production forward, while jacking up our debt to do it. This will be the solution every time until we’re forced by some extraneous factor (the Chinese?) to stop.
@ben22: Good one. I think it’s also good to take a step away from this stuff from time to time and simply enjoy life. Does wonders for my mental health.
July 27th, 2009 at 4:26 pm
@DeDude,
I’m not so sure about this:
No they are quickly running out of the 1 billion in the current program, so if they find they need another incentive program, they would probably cut it down to $2,500 and make it a little less about improving energy efficiency and more about getting old cars scrapped (perhaps by letting the old cars have up to 25 mpg and/or just requirering the new to do at least 5mpg better than the old).
You do remember it’s the govie doing this right, like they ever move that quick.
Here’s the thing, again, unless I misunderstand the program.
When this money runs out, if you are stuck at the back of the line you could still be on the hook for the $4,500 in the contract you sign with the dealer if there is no money left in the program. If that happens and even a few people get burned, your second installment idea for $2,500 will be dead before it even starts. Nobody will want to get into it then for fear of being last in line.
July 27th, 2009 at 4:31 pm
“in other words, year-over-year sales could have dropped anywhere from 9.9% to 32.7%.
~~~
BR: Precisely. ”
Well, to be actually precise, anywhere within this interval with 90% probability, assuming this is the probability of significance, on which the margin of error is based. Then there is a also 10% probability that the increase was smaller or larger.
rc
July 27th, 2009 at 4:50 pm
Not sure if anyone else has posted this – if not, here it is again. The most striking numbers for the new home sales are as follows.
“Four years ago, during the height of the housing boom, the sales rate for June was 1,374,000″
So we’re roughly 1 million new homes off the peak.
July 27th, 2009 at 4:56 pm
ahab and Mannwich
I agree also with your take on cash for clunkers. It’s just so much B.S. How many people will it really incentivize to buy that weren’t going to anyway in the near future? No way to really tell but there will be many who would have bought anyway and will take Uncle Sam’s sucker money. These programs are ridiculous. And they’re also just another poke in the eye to those who have been prudent and conservative. Sure we could take advantage, but I don’t want or need a new car!
Sorry, I’m not buying it, figuratively or literally.
July 27th, 2009 at 5:07 pm
The program gives $3500 or $4500 depending on a few things so the 250 was just landing in the middle (but there is not a lot of difference between if its 222K or 250K or 286K). I agree it is hard to say how many of those people were anyway going to by a new car within a month, a few months, a year, or several years. So the actual additional sales within any given timeframe are hard to predict. The longer (5 years) time frame will not see much of any effect, but the idea is that we need the stimulus NOW so it actually doesn’t matter that we are borrowing demand from the future if the stimulus makes a difference as to whether there is a future (with a demand), or just a bunch of Hoverville tent-camps in the woods.
What appears to be without question is that the program is not going to have difficulty finding takers and dispensing the rebates before the end of the year. Although I can afford it, there are certainly also a number of people who could not afford a new car without the additional $4500 rebate. New car sales are currently way below “replacement” rates and they were way above in the boom times, in the long run they will have to get into balance. If we sink into 25% unemployment and 50’ies living standards that number is a lot lower than if we stay below 12% and get credit restored to a more normal level. So I can’t say if we will get back to the 2007 sales numbers in 2010.
The dealers will probably be having a harder time with a second car sales program than the first if they have fooled a lot of people the first time around. But my guess is that any second program would apply to those rejected in the first (and put them first in line). However, as previously said I am afraid that the economic numbers will start looking so good for the rest of this year that additional stimulus becomes politically impossible, cannot be passed when needed, and we get a nasty second dip in 2010. I hope I am wrong.
Now the final proof of how well this program worked or not will come in about 6 month when we look at how much about trend line the new car sales numbers are for June until the program runs out of money. We should revisit at that time.
July 27th, 2009 at 5:13 pm
Re: Cash for clunkers
This is just another moral hazard – They are giving people money for buying gas guzzlers and excluding the more prudent people who bought fuel efficient cars. Both types of people might need new cars this, year; only one type gets a subsidy.
It seems that if you travel in the heard, the government saves you, no matter how dumb.
July 27th, 2009 at 5:14 pm
DeDude,
You had a pretty good argument going until it was based on:
and get credit restored to a more normal level.
If this is one of your conditions for how things turnaround then we haven’t even started. Like you say, will be interesting to come back and revisit all of this in six months time, I’m certain none of us will forget to do so.
July 27th, 2009 at 5:37 pm
[...] Ritholtz, at The Big Picture, meanwhile, argues that the monthly data is not statistically significant. “… WE DO [...]
July 27th, 2009 at 5:40 pm
ben; I happens to believe we had outrageously easy credit for a long time, then shifted to way to stringent credit conditions in October 2008 and will hopefully get to a reasonably credit stringency within not to long.
July 27th, 2009 at 5:56 pm
I said:
“Then there is a also 10% probability that the increase was smaller or larger.”
Not “increase”. Decrease, of course.
rc
July 27th, 2009 at 6:08 pm
DeDude,
Sorry but if you think what happened in October was a result of us going to stringent lending standards then you may not have a clue about what is really going on. I suggest taking a look at this chart again for an understanding of where we’ve been and where we are when it comes to credit expansion.
http://www.ritholtz.com/blog/2009/07/the-jalopy-economy/
July 27th, 2009 at 6:14 pm
DeDude – Personally, I would hope that these ‘more stringent” lending standards are the new norm. We’ve seen what the average person does with too much easy credit and where it’s gotten us. Forcing most of us to live within our means for at least the next several years is one of the ways I think we’ll pull ourselves out of this.
July 27th, 2009 at 6:29 pm
I did not state that october was not the “result” of lending standards, just that we switched to to stringent a lending standard at that time. And I am not judging lending stringency by moral standards or even what is best for the individual. I am simply looking at what it does to the economy to switch from pre-October to post-October stringency – and that is very bad. After the economy has recovered, it may be preferable for us to get to even more stringent standards than we have had in the last decade. It’s the velocity of the change that hurts the economy.
July 27th, 2009 at 6:57 pm
Lets say a company has been working fine and made a profit with a (yes agree irresponsible) model where every payday it loans 90 million of its 100 million cost for salaries – and slowly pays it all back just before the next pay day. It also pays out what corresponds to 5 million in dividends per pay period to its shareholders. This has worked great for years and every body were happy (including the bank that made a fair amount of money on the line of credit). Suddenly a credit crunch comes along and credit is getting very stringent so the bank cancels the line. Result is bancrupcy; huge amounts of money is lost, hundreds of people lose their job (and 100 million of taxable salaries disappear), and the factory is left empty to rot after all that was in it has been sold at huge discount for scrap. All of that could have been avoided if the velocity of change in credit stringency had been slowed down and the reduction in the credit line had been less than 5 million per pay period until the line was zero (instead of the sudden cancellation). End result is the same credit stringency (no more payday loans for the company), but the velocity makes a huge difference in end result for company, workers and taxbase. The same goes for changes in stringency of consumer credit, if you change it to fast the result is a lot of unnessesary pain for everybody including society. So get there, yes, but get there at a pace that can be absorbed.
July 27th, 2009 at 7:54 pm
I’ve been away for a bit but I see this “cash for clunkers” argument has been forwarded just a bit…
I’m at a slight loss here because I’m just browsing the various posts, but if I may, I’d like to consolidate my opinion…
I basically am on board with most of what DeDude has been saying (but I’ll stick to what I CONSIDER the highlights)…
- First of all, I ACTUALLY DO think the program will be a success (I will either be right or wrong in 6 months)…we’ll revisit this…It was a tremendous success in Europe, and I know quite a few here who have creatively taken advantage of the program.
- I DON’T put the program in the same category of tax credits for 1st time homebuyers (for reasons that will likely be evident in my following bullet points).
- I think DeDudes estimate of 250,000 vehicles might be a pretty good educated guess.
- I think if the program ends up to be a success, then they can easily allocate more funding for it going forward (after all – what’s a billion these days?)
- I DON’T think of this as the same type of moral hazard (because there IS sort of an efficiency gained by “incentivizing” new purchases of more energy efficient vehicles).
- I DEFINITELY DON’T THINK that “credit” is an issue here…In many cases (depending on where a person is in their balance history), a person could actually IMPROVE their cash flow by trading in an old car, and extending the financing on a new one…I KNOW, it’s hard to argue that one because there are so many individual variables, but my gut tells me the aggregate could be to ease the present burden.
Lastly (and this is probably THE most important – and I think this is where DeDude was leading)
- Success in this program is an efficient way to reduce INVENTORY at a time where that is badly needed…
So what if nobody thinks anyone will ever buy a car again…Let’s just say that IN CASE THEY DO someone will have to build a new car…Low inventories will mean that they’ll have to fire up the production lines at some point (be it 2010 or 2015)…
It’s a step in the right direction…
July 27th, 2009 at 8:26 pm
Next Month should be fun. Seasonality starts to work against monthly data as from August. So we can now anticipate the headlines one month from now, along the lines of “Unexpected drop in housing sales”?!!
July 29th, 2009 at 10:22 am
[...] Still, the improvement in prices follows three other pieces of housing news reported recently: June Housing Starts were up 3.6%, June Existing Home Sales rose 3.6% and June New Home Sales increased by 11%. Same deal with all of these reports–the general year over year looks ugly, but the month over month shows signs of life. One more thing: the margin for error on housing stats is huge. [...]
July 29th, 2009 at 10:44 am
[...] Still, the improvement in prices follows three other pieces of housing news reported recently: June Housing Starts were up 3.6%, June Existing Home Sales rose 3.6% and June New Home Sales increased by 11%. Same deal with all of these reports–the general year over year looks ugly, but the month over month shows signs of life. One more thing: the margin for error on housing stats is huge. [...]
July 29th, 2009 at 1:51 pm
[...] New Home Sales Fall 21.3% [...]