I’ve come across quite a few fascinating Housing charts over the past week.
Taken together, they tell a tale of sector that has yet to see a bottom. And I suspect the economic impact has yet to be fully felt:
Housing is not getting better anytime soon: This is
an survey discussion asking about various apsects Builder’s Businesses.
Its bad enough that the Index (HMI) in May dropped 3 points to 30. It
was bad across the board — but the real ugliness was in traffic of
potential buyers — that’s a leading indicator to Builders as to how
much product they will be moving — It dropped to 23. In the heart of the selling season (survey data was done in May).
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NAHB Housing Index
Chart courtesy of NAHB
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Starts and New Permits are still dropping rapidly. Given all the excess inventory, this is actually the silver lining in the slowdown.
Housing Starts and Permits
Chart courtesy of Northern Trust
Marketbeat
points out that new Housing construction has now slipped to around 1.5 million units —
that of a normal, growing economy. Expect housing starts generally
falls
to about 800k to 1 million units before a rebound is seen.
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IYR Top?
The DJ Real Estate Index is a potential 20% loser from here, based on the Head & Shoulder topping pattern:
Chart courtesy of Mike Panzner
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What does this mean to the economy? The clear implication is that consumer spending willr meain pressured, and retail stocks — excepting the Luxe goods — will continue to have a difficult environment.
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NAHB Housing Index and Consumer Spending
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Sources:
Builder Confidence Slips Again In May
NAHB, May 15, 2007
http://www.nahb.org/news_details.aspx?newsID=4675
NAHB/Wells Fargo Housing Market Index (HMI)
http://www.nahb.org/page.aspx/category/sectionID=134
Two Markets Diverging
David Gaffen
WSJ, May 16, 2007, 4:10 pm
http://blogs.wsj.com/marketbeat/2007/05/16/four-at-four-two-markets-diverging/
Today, Bernanke was bearish on the housing market too.
Bernanke Says Subprime Lending Curbs May Put `Restraint’ on Housing Market
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAN53OM9glxQ&refer=home
VL – not to worry, it appears we’ll see government debt creation take over where subprime debt creation left off: Foreclosures Spur States to Rescue Homes From Default
Clearly housing has a long way to drop yet as supply overwhelms demand…clearly construction activity will slow down as this becomes apparent…clearly consumer spending will drop when they realise that their house is worth less than what it used to be…clearly access to credit will continue to be tighter than it has been over the last few years…
BUT THE MILLION DOLLAR QUESTION IS: what stocks to short? You say the retailers will have a hard time and I agree, but I covered my JC Penney short on Friday, and thank god I did cos it’s up 6% today after Q1 numbers out. Even the “sensible” shorts like pure mortgage lenders CFC and WaMu don’t look so great, as they are pretty much at multi-year highs despite the biggest housing downturn in years. Home Depot misses estimates and lowers guidance, but stock is basically unhanged. Crox manages to sell some p.o.s. plastic shoes and stock is up 65% in 2 months.
What’s a bear to do? Market a little irrational right now, P/E expansion clearly taking place in stocks globally.
Any decent short ideas out there?
It looks like the current liquidity driven mania is getting another boost (intravenous injection of additional speculative liquidity — STAT).
Yen Falls to 12-Week Low Against Dollar; Slowing Economy Spurs Carry Trade
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ_En_P9FM_4&refer=home
Here is a housing chart that I like:
http://attheselevels.com/uploads/PJL051107.PNG
It looks like more sub-prime pain is coming in the next year and a half.
In the early ’90’s, In the day, the Palm Beach Post classified always had HUD and FannieMae ads listing foreclosed homes for sale. I don’t see those ads now. Check you local rag’s classified. I don’t think tey have enough foreclosed units in anybodys neighborhood. Tell me that it’s going to be the likes of WaMu or CFC this time around? Don’t see their ads either, yet! When we finally see those classified ads, in my opinion, that will be the bottom in the housing market.
BR – I’m not so sure the “luxe goods” retail will hold up. IF consumption turns down for real, it won’t only be the plankton that die off. The whole food chain gets it, and the bonus/option/stock gains can dry up fast. Take away the found money, and even some of the carriage trade lives paycheck to paycheck.
TraderB – Too early, but how about cable? It’s a business with high fixed costs and limited ability to cut if people decide they really need to make the mortgage payment and can live without the full cable package.
This housing talk reminds me of 2001 and the Nasdaq. People were falling all over themselves to predict the bottom. Truth was we were not even halfway there.
I hope no one will mind if I don’t buy any housing stocks this week :)
It is part of Bernanke’s job to create calm in the marketplaces. So, his only option is to say what he said today.
BR sagely intones: “Expect housing starts generally falls to about 800k to 1 million units before a rebound is seen.”
That’s only if this time is like the last few times. It isn’t for several irresistable demographic reasons. We have too many houses for the expected population for maybe a decade. I’m not calling a bottom 2018, just pointing out that were current occupancy rates to revert to 1990 we’d have between 2 & 4 million “extra” houses to be absorbed. Demographic shifts actually indicate even higher occupant densities possible, particularly in the most most bubble prone regions.
Replacement housing looks to be in the 400k range. Expect the low in housing starts somewhere twixt Mr. R’s 800-1,200k and that 400k.
How about SRPIX, I can’t imagine it having terrible downside risk…?
Never did market obey any patterns. Reading pattern alone is a sure loser strategy.
The charts are scary. They almost look like somebody was climbing up the stairs for years and at the end jumped down from the roof.
DJ US Real Estate Index Paradox
bigpicture had fun with housing charts, and I had to join in specifically for the DJ US Real Estate Index (IYR) chart outlining a head and shoulders pattern from Mike Panzner. A motivator was determining whether signals from TA would align with data…
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Barry, you ask yourself “What does it mean to the economy?”. What if the answer was: not much. Some of the best analysts out there –including yourself– have been too obsessed by domestic trends. But welcome to globalization! Let me give you an example: the inverted yield curve tends to contract domestic money supply (monetary base growing at only +2.5% annually). But global DOLLAR liquidity is strong (+13.9% accoridng to my measure), as foreign central banks continue to invest in US credit markets. Perhaps it is time to go global — just like Bill Gross.
Best regards, Agustin Mackinlay.
Strasser writes – “Well I feel better: I believe Big Ben just said the subprime mess is in a ‘self-correcting’ pullback and will be absorbed by the financial system. Upward and onward.”
I add – my tv blogsite isn’t forwarding the tailend Q&A question “what doya think of all the M&A by PE?” He hedged but had eyebrow concerns.
“Any decent short ideas out there?”
TraderB: It will take time for the aggressive accounting in some of the financial sector to be revealed – a quarter or two more at the least. The ones who booked ARM resets as current revenue are most at risk for misses and lowered guidance.
ChangeWave just released a consumer survey:
For the second consecutive survey we’ve picked up a surprising rise in consumer spending, led by upticks in household repairs/improvements and travel/vacation.
An impressive 41% of respondents say they’ll spend more over the next 90 days compared to a year ago – up a net 6-pts since March 2007. Only 21% say they’ll spend less. While all income levels are registering some improvement, the most positive changes have occurred in households earning More Than $100,000 per year.
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BR: Learn to distinguish between what people say they are going to do and what they actually do.
Let me remind you that for the past 2 years running, NRF did a pre-holiday siuurvey that showed people expected to spend 22% and 19% more than they did the prior year.
Each year, the actual amount of increase was significantly less.
Whenever people use a survey such as this, it reveals they are either very ignorant of human behavior, or a liar.
fred just loves his paid research does’nt he?
ECRI, Change wave….what’s next Cato institute?
Baaa
Ciao
MS
Professionals pay for research, asshat.
How’s your P/L looking this year?
Judging, from your paranoid (delusional) comments here, your either are in drawdown mode or a college graduate who trades from his studio bedroom in jammies.
I’m certain you are Not managing OPM…so it must be the latter.
You are on ignore.
Professionals (not like yourself) pay for research so that they get reports to support whatever the agenda is that’s paying for the report. I guess I need to tell you that.
names and characterizations are surely the sign of someone losing touch with reality.
as is quoting from Southpark…maybe you can come up with something above a fifth grade level but since you have not I’m not surprised
You really have no idea who I am so I would be truly honored to be on the ignore list of soneone who has no clue what the hell they are talking about that gets re-enforced each time you attempt to pontificate.
You may need to look that up in the dictionary since I doubt you have a clue to it’s meaning.
Have a nice day…..
Ciao
MS
Interesting, Barry…you wrote, “Whenever people use a survey such as this, it reveals they are either very ignorant of human behavior, or a liar.”
So we can assume that you have never, or never will use a survey to make any of your points?
I found this survey interesting…something apart from the concensus view. You’re not suggesting that we shouldn’t think away from the crowd I hope! Your comment seems harsh.