Will the Housing Bottom Analysts Please Stand Up?
Sales of existing US homes fell 1% in April, slightly better than expected, but inventories of unsold homes surged 10.5%, according to the National Association of Realtors.
You have to love the MSM and the analysts. Just make everything "Better Than Expected" and make it look like everything is fine. Remember from May 15 - Freddie had a loss
"smaller than expected" so the markets are up. There are so many examples over the last month, it would take few blogs to just list them all.
You can't put a lipstick on this pig. Remember this is the spring selling season. This means the spring selling season is a bust. Inventories are suppossed to be moving down. But they keep moving up!
For single family homes, at the current sales pace there were 10.7 months' worth, the biggest supply since June 1985 when it stood at 11.4 months.
We are talking record inventories! We are closing in on 1 year inventory mark.
"My projection is that the second half will be notably better in terms of home sales,'' said NAR chief economist Lawrence Yun, commenting that inventories are ``uncomfortably high.''
It's so bad, that even the morons at NAR can't put a lipstick on it (that doesn't mean they won't try). And you know it's pretty bad when NAR says inventories are ``uncomfortably high.''
There have been analysts calling for a housing bottom since last year. Will they please stand up and tell us whether they think this is the bottom?
We've have said in the past on this blog there are still more risks to housing. With more layoffs, the job market is getting worse. And with inflation rising, the interest rates might start going up. I don't even want to think what would happen if the interest rates started going up.
So this is where the fed rate cuts, who in the last rate cut said the 8-2 vote for rate cut was a "Close Call", has left us. The rate cuts have not helped housing, and they have hurt the consumer with rising inflation.
Mortgage Applications Near 2008 Lows
Is it time to call the spring season a bust? With each passing week it looks more and more like it is.
The Mortgage Bankers association said its seasonally adjusted index of mortgage application activity fell 7.8 percent to 621.6 in the week ended May 16.
....
The MBA's seasonally adjusted index of refinancing applications declined 8.7 percent to 2,210.5 last week, the MBA said.
The gauge of loan requests for home purchases dropped 6.9 percent to 352.5 in the period.
Applications for refinancings fell 8.7 percent to 2210.5 from 2422.1 the previous week.
Fixed 30-year mortgage rates averaged 5.9 percent in the week, 8 basis points higher from the prior week.
Even with the mortgage rates low, people are not buying. Remeber the economy, job market, and inflation are worse than the official number. It's going to get worse before it gets better.
Yet another day, Yet another "Is the market Rally Real" Article
By now, most investors are tired the question "Is this rally real?" We've already explored the topic on this blog. But here is one more article in WSJ about the market rally.
After a rough start to the year, the Dow Jones Industrial Average has surged close to 11% since March 10. It is down just 8.3% from October's record, a lot stronger than many expected.
It's alot stronger than I certainly expected.
Over the past 60 years, market leaders at the start of lasting recoveries often were stocks tied to consumer spending: hotels, resorts, cruise lines, general-merchandise stores, banks, home builders. Investors were betting on a rebound in consumer spending.
Yet another proof we live in a bizzaro-world. You know more writedowns is good because we are at (Yet another) bottom in writedowns; Oil prices up, good for energy stocks and thus good for market; Oil prices go down - good for the market because it helps consumers and so on.
"This kind of work suggests that it is not a bull market, but really a bear-market rally," Mr. Bjorgen says.
.....
Hopes are spreading among economists, too, encouraged by retail sales that weren't as bad as expected and by economic-growth and employment numbers suggesting that the economy might be avoiding recession. But there also are doubters here, and they focus on the same area as Mr. Bjorgen: the consumer.
This is my one question to goldilocks. Consumers are 70% of the economy and they are spent. How do you have a recovery without them?
So far, consumers have been more resilient than expected, and Mr. Pandl notes that, in recent years, it has always been an error to predict the American consumer's demise.
Still, he points to Fed data suggesting that consumers are sustaining their spending by shifting more debt to credit cards because new mortgages and home-equity loans have become hard to get. He believes there is a limit to how long consumers can put off the day of reckoning.
"Ultimately, there is only so much you can borrow" on credit cards, he says.
...
Mr. Pandl and his Lehman colleagues believe that slumping consumers will send the economy into a double dip, with a tax-rebate-fueled recovery this summer and a sag starting later this year and running well into 2009.
We'll soon find out whether this is a real rally or not.
http://online.wsj.com/article/SB121114495689301827.html?mod=todays_us_money_and_investing
Consumer Sentiment Falls to Lowest Level in 28 Years!
"Consumer confidence continued to slip in early May due to surging food and fuel prices," the Surveys of Consumers statement said. "Record numbers of consumers viewed the economy in recession and saw little hope of recovery anytime soon."
We can thank the fed. Of course, there is no inflation. Remember the CPI numbers was "good".
Also worrying for policymakers at the Federal Reserve, five-year inflation expectations hit their highest since August 1996, edging up to 3.3 percent from April's 3.2 percent.
Why are these people worried about inflation? Inflation is "contained".
Let's see if we get another clown claiming this is good for stocks as it's a contrarian indicator.
Housing Start Jump in April
Housing starts over all were up by 8.2% in April. But the housing starts for single-family houses fell to the lowest level in 17 years. The jump was due to building of townhouses and conominiums.
``You cannot take the headline starts number seriously because of the increase in the multifamily number,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, who had the closest estimate in a Bloomberg News survey. ``The trends are horrific'' because ``why would you spend money to buy a depreciating asset?'' he said.
Building permits also rose by 4.9 percent.
http://www.bloomberg.com/apps/news?pid=20601087&sid=abWYAJPuHSAY&refer=home
Have We Averted a Recession?
Economists in WSJ are less sure about a recession then they were just a month ago. Many see Fed's response of cutting rates and fiscal-stimulus checks helping to avert a recession.
Still, Mr. Bryson and other economists note that though two main pillars of the economy, the labor market and consumer spending, have faltered, they have not collapsed as they did in past recessions. On Tuesday, the Commerce Department said retail sales fell a slim 0.2% in April from the previous month -- a decline due mostly to a steep drop in auto sales. Excluding autos, retail sales climbed 0.5%.
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Claims for unemployment benefits -- which typically rise well above 400,000 a week during recessions -- have stayed well below that level, and fell last week. In addition, the economy isn't shedding hundreds of thousands of jobs a month, as it usually does in an economic contraction. In April, employers cut just 20,000 jobs, and the unemployment rate fell.
While the labor markets look strong, remember the BLS data had 267,000 jobs created from the Birth/Death model. In a recession (or near-recession), that sounds too high. Also, instead of cutting jobs, many employers are cutting back on the hours.
As for consumer spending, while you never can count the American consumer out, it finally seems like consumer spending is slowing. More and more consumers seem to be using Credit Cards as a last resort.
To be sure, even economists who are becoming more upbeat say the U.S. may be in for a period of protracted sluggish growth.
If we do avert recession (which I do not believe we will do), then we probably have substituted sluggish growth for a recession.
"I think the problems are just starting," said Lehman Brothers economist Drew Matus, citing high gasoline prices and tightening lending standards, saying that prolonged stagnation can be worse than a recession.
Asked in an interview with The Wall Street Journal whether the U.S. could avoid a recession, Gary Stern, president of the Federal Reserve Bank of Minneapolis, said, "No," adding, "But there are recessions and then there are recessions....The average resident doesn't distinguish between whether the economy is growing half a percent or one and a half percent....It's more, how does this feel?"
And then from a different article, our old friend David Rosenberg...
The U.S. economy is in a recession and stimulus from a government tax rebate later this quarter will only temporarily stem a fall in consumer spending, a Merrill Lynch economist said on Wednesday.
"I still maintain the business cycle is bigger than the government," Merrill's North American economist David Rosenberg said at a client conference in Singapore.
"No asset class security is priced today for a recession scenario," Rosenberg said, which is why he was bullish on U.S. Treasuries but bearish on stocks.
http://online.wsj.com/article/SB121068163716188223.html
http://www.cnbc.com/id/24606689/for/cnbc/
State of Housing
Foreclosure Filings Continue to Rise, Up 65%!
In previous posts, we've told you that the housing has not bottomed. In order for the housing to bottom, the inventory has to start decreasing. But With the foreclosure filings up, it seems like we will be adding to the glut of unsold homes.
Home foreclosure filings in April totaled 243,353, up 4 percent from March, RealtyTrac, an online market of foreclosure properties, said in its U.S. Foreclosure Market Report.
The figure is a total of default notices, auction sale notices and bank repossessions. "The total number of U.S. properties with foreclosure activity in April was the highest monthly total we've seen since we began issuing the report in January 2005," James J. Saccacio, chief executive officer of RealtyTrac, said in a statement.
Not only is the pace of foreclosures not going down, it is the highest monthly total.
"These properties contribute to already bloated inventories of homes for sale, and put downward pressure on home values," Saccacio said, adding that the nationwide foreclosure rate could reach 2 percent by the end of the year.
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The vote positions Vallejo, a town of more than 100,000 residents along a main highway between San Francisco and the state capital of Sacramento, to become the first sizeable city in California to file for bankruptcy.
As home prices keep going lower local tax revenues will be effected.
In other housing news, weekly mortgage demand rose but the demand was fueuled by home refinancing.
The MBA's seasonally adjusted purchase index dropped 0.7 percent to 378.5.
The index was also below its year-ago level of 432.3, a drop of 12.4 percent.
The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was down 2.7 percent to 633.6.
The mortgage applications are dropping from a year-ago and that even as demand for refinancing is jumping. That means home purchases are still going down.
Bottom line, there is a long way to go before you can call a bottom in housing.
http://www.cnbc.com/id/24609981
A long way to go
Over the last week, we have seen people cheerleading the stock market and the housing market. But I still feel like there is a long way before both bottom out.
Recently, we had Sam Stovall calling for a market bottom. Here is the quote from CNBC.com
“We're of the opinion that the market has likely seen the worst,” says Standard & Poor’s Chief Investment Strategist Sam Stovall, who studied market behavior in and around the 11 recessions since 1945. On average, the S&P 500 declined a combined 25.9 percent ahead of and during the recession.
As I have said before, there is a long way to go before we can call the credit crisis over. The market has been concentrating on the worst case scenario. Now, the worst case scenario seems unlikely. But that doesn't mean everything is great. The market will look at the economy and soon see inflation and stagnant economy. The consumers have been tapped out. With gas prices so high, the checks will go directly to arab countries. So there will be hardly any stimulus from the tax rebate.
As for the housing, people keep calling the bottom. But most people have been calling a bottom for a long time. People are claiming low interest rates and better affordability. While it's true that mortgage rates are low, the true affordability is total mortgage (House price plus interest rate) compared to income. While homes are more affordable, there is still a long way to go before you can buy a house with a median income.
Another problem with the housing is the inventory. Foreclosures are still adding to already high inventory. I expect foreclosures to be increasing, not decreasing. With economy slowing, there will be more layoffs. As such, it's going to add to the foreclosures. And also, there are more resets still coming.
With all these issues, housing is not going to recover until 2010. So it's a long way to go before we can call a bottom.
Sucker's Rally
The S&P 500 and all of the other benchmarks did great in April. But I do not see any fundamentals having changed since the Bear Stears collapse - except fed bailing out everyone left and right.
The stock market seems to be ignoring all the bad news in the economy. This is a different recession because unlike anyother, consumers have maxed out their credit. The availability of credit last few years was unprecedented. Now with credit shrinking, it's going to effect the consumers in a big way. Add to that higher oil prices and consumer is going to have a hard time keeping up with the spending of last few years. And consumer spending is 70% of the economy.
As we get deeper into the possible recession, the jobs market will worsen. Last weeks job report was better than expected but remember the report added 267,000 jobs based on BLS estimate. 267K jobs added sounds too high. I would expect that there would be a big revision downward next year when the BLS revises the data.
``It may be a suckers' rally,'' said Eveillard, who is based in New York. ``Investors want to believe. But if I'm right, then there's truth to the argument that this is the worst financial crisis since the end of World War II. The same kind of reflex is the wrong reflex.''
This is what I keep thinking about the most. Almost everyone has called this the worse financial crisis since the end of World War II. If that is true, than a mere 10% decline from the top does not seem like it's ennough.
``There are pockets in the marketplace that believe this is a sucker rally, and they're willing to pay a substantial premium for downside protection,'' said Robert Arnott, whose Pasadena, California-based Research Affiliates LLC oversees $26 billion. He said in December 2006 that a bear market was probable.
.......
``You're going to have further losses for the financial system and weakening of demand of employment, of earnings, of profitability that's going to push further down the stock market,'' said Roubini, who more than a year ago predicted a housing slump would drag the U.S. into a recession. ``This is a temporary, bear-market rally.''
I couldn't agree more. If we were closer to the end, then why did the fed have to add to TAF on Friday? The housing, which was the root cause, still has a long way to go before it bottoms out. And now we are going to be seeing more problems with other credits - including credit card and auto loans.
Gerard Minack, chief market strategist at Morgan Stanley's unit in Australia, says that's a mistake. The global economy will probably worsen, Fed rate cuts will be less effective than in previous periods and profit growth will disappoint, he wrote in a note today.
``We are in the midst of a bear market rally,'' Sydney-based Minack said.
When I look at the mortgage rates, they have not come down in tandem with the fed rate cuts. If inflation picks up, you are going to see an increase in mortgage rates. That would make the situation even worse. Which is why I thought Bernanke should have left the rates at 2.25%.
http://www.bloomberg.com/apps/news?pid=20601213&sid=aC8ge4XA60tY&refer=home
Jobs - Economy lost only 20,000 jobs in April. Better than the expected 75,000. Earlier numbers were revised lower.
Fed - Fed increases Term Auctions to $75 Billion.
http://www.cnbc.com/id/24425216The U.S. Federal Reserve on Friday announced steps to help ease persistent strains in credit markets, stepping up the size of some cash auctions for financial institutions and raising the amount of U.S. dollars it provides to the European Central Bank and Swiss National Bank.
