New-Home Sales Drop 4.3%

As if you need me to fill in the details fo this stankbox:

Single-family home sales decreased 4.3% to 1.072 million units (seasonally
adjusted annual rate) June sales were revised up to a -0.9% (1.12m) from a previous 3.0%
decline (1.131m).

Consensus was for a modest 2.7% drop in July sales — so the negative 4.3% was quite the surprise — at least to those paying attention.

The big whackage showed up in the year-over-year numbers, with sales plummetting 21.6% since July 2005.

Amazingly, this only brings sales back to where they were in the beginning of 2004 — which at the time, were a record high. Now, they are a dissappointment (at least to people who believe cyclical phenomena never have down cycles).

While mortgage costs are rising on a monthly basis, the recent rally in the bond market should help lower rates. A 30-year
mortgage was about 6.76% in July, slightly higher than June’s 6.68% — but as we come to the end of August, those rates will be appreciably lower.

More later . . .

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  1. snook commented on Aug 24

    Looking over at the root cause of the homies grief, I notice LEND has broken below it’s October 2005 low. guess it’s time to pull back to the 3- year chart. That’s fine if adj. rate mortgage holders *CAN* afford to switch to a 30 year fixed. What worries me is if Mr. B lowers again before next year.

  2. Bob A commented on Aug 24

    Jeffrey Saut talks about “the continuity of thought” in his latest post. Remember when ‘everybody’ had AOL? There was no Myspace or DSL. Well things have changed haven’t they? And the change in groupthink is now just beginning with regards to buying homes.

  3. doh! commented on Aug 24

    What will be really interesting is if lower mortgage rates will really help now that the speculative fever has broken. If buyers are willing now to wait (no demand) and sellers are scared instead of smug (growing supply) then I would guess that slightly lower interest rates will not help stop the crumbling of the housing market and all the pain that will go with it. I hope I am wrong. Truly.

  4. yc32 commented on Aug 24

    It puzzles me that bond market recognizes the slowdown in economy, housing market is confirming the slowdown, but stock market somehow holds up.

    Maybe traders think that business spending will support the economy? Or not convinced the housing will cause economy slow?

    I thought stock would react violently to the housing data.

  5. Bob A commented on Aug 24

    Interesting to note CTX and TOL are still up 500% from early 2000.

  6. snook commented on Aug 24

    Bob A- unfortunately, what you describe is human nature and a river in Egypt (D’ Nile). I noted the other day someone who can’t sell there house 9at the price they want), can’t refi and filling the 3 bedroom house with 10 colledge students to try and rent through this housing ordeal. Who was it, the TOL CEO?, yesterday said he had not seen a housing market headed where ours is now without being led by an economic hicup, colapse….Well he may get his wish, only in reverse order depending on the ripple effects of this un regulated, undisciplined home loan givaway into 2007. BTW, IMHO, regulation steps in (too late) next year.

  7. KirkH commented on Aug 24

    Snook, we wouldn’t need regulation had the Fed simply taken its lumps and avoided mania inspiring rate cuts. Oh and the majority of economists who were wrong and were interviewed by undereducated journlists didn’t help matters either.

    Why did economists collectively forget about fundamentals (rents and income levels)?

  8. christopherrobin commented on Aug 24

    when the market rallied on a .01% decrease in the CPI …not just a rally the futures were up 100 in 5 minutes. I had not seen that in YEARS. the writing was on the wall. Today the GDP tumbles … guess what … Futures jacked up !! There is big money holding this market up.

  9. Bob_in_MA commented on Aug 24

    I think the blame lies more with poor banking oversight, both by regulators and bond rating agencies, then rate cuts. If 90% of loans over the last few years were 20% down conforming loans backed by verifiable income and home value data, would things look nearly so bad? I don’t think so. For one thing, prices could never have gone up like this.

    The working class neighborhoods, both urban and rural, are going to be hit particularly hard. And the second home market. A lot of vacation area condos are going to be going for a song.

  10. GRL commented on Aug 24

    Here is a link to an interesting chart from another blog which compares the NAHB Housing Index to the S&P (lagged 12 mos.):

    FWIIW, I predict that by spring 30 yr. mortgage rates will be in the 5’s, and no one will be able to get a loan.

  11. teddy commented on Aug 24

    KirkH, do you think that maybe those economists’s jobs depended on forgetting about the fundamentals? A little amnesia sometimes can be very helpful.

  12. Lord commented on Aug 24

    The surprise is that anyone is surprised. Next we should start seeing some falloff in corporate profits.

  13. RW commented on Aug 24

    “…poor banking oversight …”

    Agreed. That’s why it makes more sense to consider this a (part of the larger) credit bubble which, IMHO, extends all the way up through our increased national debt. WRT the mortgage origination segment at least it seems absurd to me that, with the S&L crisis such a relatively recent memory, banking oversight was not strengthened as soon as the Fed determined what its probable interest rate course would be. Did they really need to wait for data to tell them what happens when money becomes cheap?

  14. Robert Cote commented on Aug 24

    Whew, took the battery out of my iBook, yes flammable. Anyway Caclulated risk has an excellent series following the existing and new homes sales “data.” The new home sales reported here are not sales but contracted for sale. The cancellation rate has in extreme cases been in excess of 100%, more cancellations than new contracts. Robert Toll has taken to no longer reporting his cancellation rate just calling it high.

    The numbers are uniformly and increasingly overestimated. They’ve even been going back more than a year to “adjust” the numbers. As late as Sept ’05 the June ’05 numbers were 118,000 but now they show as 117,000. And I’m pretty sure but can’t find the reference that the seasonal adjustment formula was updated in March accounting for the break upward in the sales graph. Caveat emptor.

  15. ss commented on Aug 24

    Well I hate to pee in the Bear den…but…

    yc32 writes:

    “It puzzles me that bond market recognizes the slowdown in economy, housing market is confirming the slowdown, but stock market somehow holds up.

    Maybe traders think that business spending will support the economy? Or not convinced the housing will cause economy slow?

    I thought stock would react violently to the housing data. ”

    Perhaps the stock market is a bit smarter than all you housing experts. Perhaps the bond market is doing the work for the Fed. Perhaps the near record negative sentiment Barry finally admits to has baked this “crash” into stocks. Perhaps this continuous “death of the consumer” rap is another Bear trap siren call….clearly shown by the sentiment.
    Oh…and take a look at what INSIDERS are doing…do you see your panic signals here?

    Nah…carry on with the funeral dirge.

  16. ss commented on Aug 24

    Oh yes…and the 6.7million shares traded in FNM (+5.5% today) might throw a big fat question mark on a “lending Bubble” idea.

    Ironic isn’t it?

    The bubble is in bubble talk.




  17. Josh commented on Aug 24

    ss–Just give it some time. What is a catalyst to keep this market up? Nothing. Maybe Iran discarding their nuclear intentions, along with oil dropping below $45, inflation doing nothing but going up by 0.1% per month, & gas dropping to below $2.

    Without all this, the market is going lower. You appear to be in denial, a perma-bull, or Kudlow.

  18. ss commented on Aug 24

    “catalyst to keep this market up?”

    -73% of companies beat Reuters estimates while 16% missed estimates for the second quarter.

    -gasoline prices expected to drop ~ 25 cents over the next few weeks

    -stellar rise in the CP market shows strong buisness conficence

    -Fed is done and NO recession

    -and yet the biggest one…once the market breaks new highs, the apathetic individual investor returns to stocks from the CD money market prison.

  19. Cherry commented on Aug 24

    Still trolling ss?

    No recession? Almost there right now. Doesn’t matter what the FED does. The Market is being manipulated for some shortterm profit, nice selloff coming in September/October.

    Housing is done, enjoy the recession.

  20. Barry Ritholtz commented on Aug 24


  21. j d ess commented on Aug 24


    willfully ignorant more like it.

  22. muckdog commented on Aug 24

    You know, the following idea makes absolutely no sense to me whatsoever as I’m also convinced that housing is cyclical and we’re already in the down years. But, that being said, is everyone on the planet now aware of and convinced that housing is going to crash?

    Are these the same folks who wouldn’t touch GM at $20 because they thought GM was going out of business? Or MO back at $19 when the government was suing the cigarette maker back in 2000? All I hear is folks waiting for condos in Miami to fall 50% and THEN they’ll snap ’em up.

    Is there “blood in the streets” as far as housing sentiment goes? Are we all bearish on housing as an investment? Are there any housing bulls out there snappin’ up investment properties?

    Again, it sounds totally crazy to me and probably to most of you here to start buying investment properties. But I’m starting to wonder how crazy is it…


  23. Mark commented on Aug 24


    Anyone who 1) follows the markets and 2) can read knows what the truth was regarding FNM. That whopper was no different to me than most of his other “logic” and “reasoning”. It was just another “Baghdad Bob” moment among many. Besides, if you ban him, whose calls are we going to fade?

  24. RW commented on Aug 24

    ‘muckdog,’ personally I think it may be a bit crazy but if there is enough panic in your local market that’s not to say some shrewd dealing wouldn’t work for someone who knew what they were doing. The problem, as ‘wcw’ intimated in the Housing Inventory post comment section, is that real estate imbalances can take a long time to unwind — it’s quite possible for inventory and time-to-sell can grow and prices still rise for example — so it’s not clear how quickly any of this is going to have a fundamental impact on demand for equities. Could be a fairly sudden psychological reaction as the negative news sinks in I suppose but I suspect that the wirehouses, possibly as represented by the inimitable ‘ss’ et al, are doing their best to keep clients “calm” on that front.

    Sentiment is a tricky business and I have yet to see what I would consider real capitulation in any market – yet. JMO

  25. Anna S commented on Aug 24


    It appears that you only want posts that agree with your views, yet you tolerate name calling. This is troubling.

  26. whipsaw commented on Aug 24

    Anna S:

    I think that it was pretty clear that what got BR going was ss’ use of something to support his views that he should have known was completely unrelated. I don’t know whether that was deliberate or just ignorant, but it was misleading. I personally find most of ss’ posts amusingly annoying and a source of potential profit since it appears that he actually does control investor funds and you can’t have spoils without a victim.

    I’d say that BR should not ban ss, just call him down when he goes off of the reservation with the hyperbole. Besides, he’s a good proxy for the sell side cheerleaders- once he either publicly acknowledges that he was dead flat wrong and is giving up or disappears for a month, we’ll know that the bottom is in and it’s time to buy.

  27. whipsaw commented on Aug 24

    per ss:
    “The bubble is in bubble talk.”

    You kind of have a point because we should not be talking about bubbles, a generally happy image. We should be talking about blisters and abcesses.

    What’s going on in housing/housing lending is just the first stage reconciliation of 6 years of utterly irresponsible fiscal policy coupled with 8 years of utterly irresponsible monetary policy. I’ve always found it remarkable that “capitalists” are the first ones to seek a govt. handout when things start to turn the wrong way (Pause Rates! Cut Rates! Permanent Tax Cuts!). That only works if the goodies come with strings that force the creation of jobs (here, not in India) rather than placing trust in CEOs who are watching their option strike prices.

    As it stands, we have collectively been gulled into the cokehead lifestyle of paying one credit card by borrowing from another while national economic strength has decayed. Time’s up and I frankly expect that we will resort to the traditional fix of war (e.g., Argentina and the Falklands) with the usual results (e.g., Argentina and the Falklands).

    Of course that suggests that the next step in the cycle is attacking Iran. The good news is that the professional officer corps is abuzz over the Israeli debacle in Lebanon and will do whatever they can to discourage yet another disaster.

    Which brings us back to how to fix the imbalances that are at work now? I don’t know and don’t expect there to be a plausible fix for another 2 years or so.

  28. brion commented on Aug 24

    “cokehead lifestyle” Heh.

    well, we could try rehab. Dry out (the excess liquidity), Get rid of the old druggy friends (republicans), make amends to those we’ve offended (the world) and try living one day at a time while putting others first….

    or we could just eat ahmadinejad’s lunch.
    He’s like a Hitler ya know!!

    Speaking of Hitler, why does SS post here?

  29. Anna S commented on Aug 24

    Well it’s getting a bit muddy here.

    Good luck to all.

  30. phil commented on Aug 24

    damn those evil republicans. just wait till nov when the democrats sweep, the market will surely take off then when we can finally confront the true evildoers ie WalMart, Pepsi & Merck

  31. CDizzle commented on Aug 24

    I’d wait to snap up properties until there is blood in the streets. Blood like 500-1000% spikes in foreclosures. It’s the 2nd inning, to borrow the baseball analogy.

    And, to reiterate a view I’ve shared here before: until we break up or down out of this trading range, it’s really all about style points. That said, it is, as it always is, a stockpicker’s marketplace.

    For those who say all the bad news is priced in the ‘homies,’ I’ll offer this: can you see the future? Is this the nadir? Your answer to both should be ‘Yes’ if you are long the homies.

    I’m a big fan of Bernanke’s portfolio (based on what I’ve read): 100% long MO. Crappy diversification. Great results (closed at an all-time high today…again).


  32. Alaskan Pete commented on Aug 24

    Anna, the point is that the Fannie Mae headline was all over every single wire service, financial site, etc. It was one of the major economic stories of the last couple of days. Anyone in the business or interested in the markets knew that the probe had just ended.

    So there are only two possibilities: the kid is willfully misleading (might as well call it what it is, lying) or is dumber than a box of rocks. Given that he/she has at least a marginal understanding of econ and markets judging by the esoteric arguments put forth, I have to settle on the former…lying.

    He/she claims to manage money, and I believe it since it jives with my anecdotal experience with the sell side contingent.

  33. trader75 commented on Aug 25

    This whole thing could yet be far, far uglier than most imagine.

    Analogy: There was a good article in RealMoney the other day on Dell. The gist was that Dell was a great investment for many years because it was able to grow like gangbusters, which more than made up for the lousy economics of its industry. But with Dell at the outer limits of feasible size, the gangbusters growth is alas no more, exposing the warts of a cyclical behemoth in an ugly industry for all to see.

    The analogy is to financial innovation and consumer debt. Robert Samuelson wrote about this the other day. Over the past few decades, we have witnessed the “democratization” of consumer debt, figuring out every conceivable way to get borrowed money into Joe Sixpack’s hands.

    Like Dell’s growth over the years, the gangbuster growth of consumer debt avenues and financial innovations, combined with the long secular bull market, covered a multitude of sins. But now here we are, all maxed out and innovated to the hilt.

    For the longest time, the debt expansion train was rolling forward. Now it has come to a stop. People may not sell, but the ones who don’t will be like those well-and-truly screwed condo owners who are burning hundreds of dollars in service payments every month, waiting for an improvement that never comes. Discretionary income is going to get pummeled. People are going to develop a visceral understanding of the word ‘mortgage’ — derived from ‘le mort gage,’ or engagement until death.

    This thing has played out almost like clockwork. The only real surprise, if there has been one so far, is how far the consumer has been able to stretch their plastic. Now you have San Diego mortgage companies blaring radio ads telling people to get cash out of their house as fast as they can before the value of the house falls too quickly. In a last ditch effort to save their revenue streams, the mortgage companies themselves are lighting the flames of panic.

    One of my favorite poster boys for this whole mess is Bob Toll. So earnest, so wholesome, a genuine purveyor of the American Dream. I forget the exact numbers, but he’s cashed out some ungodly sum over the past year or two, just dumping stock like crazy. Singing Zip-i-dee-doo-dah the whole time, my oh my what a wonderful day, and then all of a sudden it’s gosh and golly we’re surprised. Spare me. I love this “who knew” posture from deer in the headlights investors, acting like the severity of the situation was a bolt from the blue. As if their slack-jawed surprise is justifiable in any shape or form. It’s priceless… in the same way a no-bid market is priceless.

    At the end of the day this story will wind up like all the others. When the dotcom bubble burst, average investors collectively lost trillions of dollars while a small cadre of well-positioned players made fortunes. When discretionary income falls through the floor and the world is caught in a deflationary grip and the federal reserve goes into emergency stimulus mode, will all that helicopter money help out Joe Sixpack? Heck no. It will just inflate more paper assets somewhere else, or inflate the value of real assets (precious metals, commodities etc) into the stratosphere. But even if that happens, the average investor won’t have nearly the real asset holdings necessary to make him whole again.

    We’re witnessing another gigantic snafu wealth transfer in the works, and the fallout is set up to be devastating. We’re gonna see politicians foaming at the mouth in the next few years, with no one to point a finger at. There may well be more political risk within the United States in the next few years than there is in your average third world country right now. We’re already living in a world where the dollar is set to get challenged by, drum roll please, the newly convertible energy-backed Ruble. Three cheers for authoritarian petro-states, down with profligate democracies and simmering populist hysteria. Buckle your seatbelts folks…

  34. whipsaw commented on Aug 25

    per trader75:
    “We’re witnessing another gigantic snafu wealth transfer in the works, and the fallout is set up to be devastating. We’re gonna see politicians foaming at the mouth in the next few years, with no one to point a finger at. There may well be more political risk within the United States in the next few years than there is in your average third world country right now. We’re already living in a world where the dollar is set to get challenged by, drum roll please, the newly convertible energy-backed Ruble. Three cheers for authoritarian petro-states, down with profligate democracies and simmering populist hysteria. Buckle your seatbelts folks…”

    yikes, you even scared me with all of this stuff, trader, and I’m short, but I am afraid that you pretty much summed things up.

    I think that the Fed and the MSM will put on a heroic effort to make red into green over the next year, but it ain’t gonna work. I’m not too much on gold or currency because of the extreme sovereign manipulation in those markets (altho I have been making a little money in both lately), but I sort of bought long bonds the other day via a position in TLT and suspect that may be the way to go as the politicians start giving money away again.

    Otherwise, my only other long position is in XLE via calls (which probably cost too much) and I am loaded up on SPY, XHB, and CFC puts, all deep money and expiries in several months. The Plan is to let the bulls blunder into the crossfire, drop most of the herd while the rest scatter, then haul the carcasses back home on the mountain and gnaw on them for a year or so while watching the watering hole for survivors.

    Should be fun and fulfill Investing Principle No. 2- Take Money From The Stupid.

  35. DavidB commented on Aug 25

    I’m a big fan of Bernanke’s portfolio (based on what I’ve read): 100% long MO.

    Why does it not surprise me that the most powerful central banker in the world makes his own money from other people’s addictions?

    This impending crisis was inevitable but looking forward I have to ask the question WWBD? What will Ben do? We all know what Greenspan would have done at this point. He would already be dropping rates and implementing one of his speculator puts. That is what got us into the mess in the first place.

    The question that has to be asked is will Bernanke blink? Is he going to start to panic as well(and yes I believe by his actions Greenspan was a panicker even though he didn’t show it on the surface of his comments) and bail out the speculators or is he going to do the right thing and let the market take care of itself crying and screaming aside? If he buys ear plugs and sticks to his tough love the market will learn it’s lesson. If not then prepare for the next speculative bubble.

    As for what will go big next, no matter what Bernanke does I think the next bubble will be gold 1.5K to 2K. If Bernanke interferes we could see gold even higher

  36. Mark commented on Aug 25


    Real estate is my specialty, having been VP of a multifamily investment group then interrnational consultant on commercial and economic development. Way, WAY too early. But you’ll get your chance, I think.

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