Saturday, February 17, 2007

Real Estate of Denial

At a little soirée, an ATS reader and good friend of mine asked if I had seen much lately about the national housing situation. He happens to be in the real estate business and certainly has a vested interest in the topic. Of all the recent grim news, though, I had to confess that I hadn't seen much within the last few days. And then today rolled around.
Housing starts plunge, near a 10-year low

U.S. home builders started the fewest homes in nearly a decade last month, as housing starts plunged 14.3% to a seasonally adjusted annual rate of 1.408 million, the Commerce Department reported Friday. January's rate was the lowest for housing starts since August 1997. Starts were down 37.8% compared with January 2006, the largest year-over-year decline since early 1991. Also, building permits dropped 2.8% to 1.568 million in January, 28.6% below the same month a year ago.
Ouch. Grim news, indeed.

Naturally enough, Wall Street wonks had to stand forth and declare that, surely, this was the end of the rout:
We think a 1.4 million-unit level for starts should prove to be close to the cycle trough, being a level at which significant progress should be able to be made in getting inventories of unsold homes under control over the first half of the year.
The certitude of such statements is amusing considering how long the industry has been denying that things could get worse, only to watch ... things get worse. Tony Crescenzi, a "chief bond market strategist," claimed that it was the weather. Considering that even warm regions like the South saw record drops in housing starts, this appears to be more an effort in denial than anything. Which is part of their job, really. Though they'll never admit it, Wall Street "gurus" always attempt to smear bad news and bleak outlooks with some smarmy financial-ese like "cycle trough" to make it look like they know what they're talking about. But the fact is that such strategists have been constantly pronouncing the housing bubble deflation nearly over, bottoming out, or "close to the cycle trough." They have been continuously wrong.

But Wall Streetian prognosticators are going to have to somehow assuage concerns over other grim real estate market news:
The nationwide slump in housing deepened in the final three months of last year with sales falling in 40 states and median-home prices declining in nearly half of the metropolitan areas surveyed.

The biggest declines were in former boom areas. In Nevada, sales were down 36.1 percent in the final three months of 2006, compared with the same period in 2005. In Florida, sales dropped by 30.8 percent. Sales were down 26.9 percent in Arizona.
Denying the obvious can indeed be a full time job.

We've been seeing record levels of mortgage default, which has led naturally enough to a glut of both used and new houses on the market, something mentioned here in January. But back in December, CNNMoney tried to brighten dispirited housing market souls with an upbeat assessment, one that has proved to be entirely transitory:
Homebuilding, one of the most battered sectors of the U.S. economy in recent months, showed surprising strength in November.
This despite that fact that "The supply of completed new homes available for sale continued to creep up, setting yet another record at 169,000. "

The only certainty I can see in the deflationary housing market right is that as long as it continues, Wall Street and the NAR will be at the fore, downplaying it and telling all that, this time, the market has hit rock bottom.


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