What a year 2006 has been for the Housing Bubble !!!
The housing slump took hold, and has pretty much taken the course and extent I thought it would for 2006. Except for Las Vegas, which I thought would be one of the first to decline. It has held pretty steady through the year.
So what do I expect to happen in 2007?
The phrases “housing slump” and “housing slowdown” in the MSM will gradually give way to “housing bust”. The general public perception will continue to change and more people will come to think that housing was indeed in a bubble for the last few years.
Things will only worsen for Home Builders and Realtors. I do not see any bottom in 2007.
Washington DC, California , Florida, Boston, Arizona, New York will post double digit declines somewhere in the middle of 2007.
Seattle, Boise and Utah markets will turn negative later in the year. And so should Nevada.
For the rest of the economy. Recession is inevitable. Q1 growth will hover around zero, and will most likely tip into the red in Q2.
And that will cause a significant slump in the dollar. The USD Index is now holding just above it’s long term support at 80. It can very well breach that support in 2007.
As the Home ATM is maxed out, and can’t spit more cash. 2007 could very well see a drop in consumer spending, which will create a downward spiral for the economy. The flat holiday sales of 2006 is the first link in this chain.
WISHING EVERY ONE A HAPPY AND PROSPEROUS NEW YEAR !!!
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Housing Panic & Paper Money Blogs
Posted: December 29, 2006 at 9:30 am by Somesh
The Housing Panic Blog and The Paper Money Blog are providing excellent commentaries on the monthly housing data from the NAR and Census Bureau, which I regularly update here.
Along with a meaningful rebuttal to the spin masters.
Instead of me duplicating the effort, I recommend following up the posts on these blogs, whenever these numbers are updated.
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Florida sees Red Again
Posted: December 28, 2006 at 5:21 pm by Somesh
The November Florida Numbers are out.
The Statewide median posted another year-over-year decline. It was $242,500 as compared to $250,500 in Nov 2005. Down by 3.2%.
Interestingly the South East and South West Coasts, and Jacksonville are declining. But the inland markets of Orlando, Gainesville and Tallahassee have held their ground so far. And so has Tampa.
California’s growth rate slowed down to 0.85% from 0.87% a year earlier.
Florida’s growth rate slowed down to 1.85% from 2.31% a year earlier.
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LA’s Mega Projects
Posted: December 22, 2006 at 10:03 am by Somesh
Last week LA Times had this report on the three major projects underway in Los Angeles.
“Two massive projects — the L.A. Live entertainment complex next to Staples Center and the Grand Avenue development on Bunker Hill — are underway. A third giant project, a major expansion of Universal City, was unveiled last week. All adhere to a much-ballyhooed planning strategy embraced by Los Angeles power brokers.”
To get more information on the mega plans and renderings visit the official websites of these projects.
Construction of Structures , residential , non-residential or infra structural, is such a big part of the US Economy.
We borrow from the future, create economic activity in the present. And always think that we will pay it back, some time in the future. But what about the borrowings that were made 15 or 20 years ago, the time to pay them back is now.
The point is financial viability of these projects.
Can these projects create ROI? Especially in the coming years, when the Home ATM will stop spitting cash. Will the US consumer have the cash to go and spend at these Entertainment venues?
“California’s population growth rate slipped for a sixth year in a row as tens of thousands of residents left for other states, according to new estimates the state released Wednesday”.
“Demographers said many of those who left probably were seeking a lower cost of living.”
“But even foreign immigration to California — especially its largest counties, including San Francisco, San Mateo and Santa Clara — is slipping as immigrants find that other states offer plentiful jobs and cheaper housing, demographic analysts said.”
“In the past when (the economy was strong), California has attracted a lot more people from other states. Now we’re losing people to other states, and the Bay Area is part of that flow out,” Johnson said. “Why? The answer is housing prices have a lot to do with this. A lot of people simply can’t afford to live in California, or they’re cashing out on a large amount of equity.”
Compare that to this projection last week.
“The Bay Area’s population will rise by about 2 million people over the next 30 years, with the largest increases in San Jose, San Francisco and Oakland, the Association of Bay Area Governments projected in a report.”
“San Jose is expected to be the first Bay Area city to surpass the 1-million-population mark, in 2010, and San Francisco should see about 161,000 new residents by 2035, according to the projections, which the organization makes every two years.”
“Regional planners who wrote the report predicted 1.5 million new jobs will be created in the Bay Area between 2000 and 2035, with large increases in health and education services; professional and managerial services; and arts and recreation and restaurant services.”
I don’t know whats the rationale behind these projections. But let’s see how we did in past.
Per Census Bureau, the nine county Bay Area added a meagre 57K new residents in the last five years.
At that rate by 2035, the population growth would be 342K, not 2 million. That too assuming the inevitable housing bust does not send people fleeing the state or even running across the border to the south.
San Francisco has itself lost 37K residents in the last five years, but the report calls for an increase of 161K residents.
I guess the people making these projections are the same people who are investing in real estate.
Good luck to anyone making decisions based on these projections.
And all the jobs they say will be created, will be paid for by cashing out the Home ATM.
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December HMI
Posted: December 18, 2006 at 11:10 am by Somesh
The HMI took a step down to 32 in Dec, from 33 in Nov.
A look at the components reveals something interesting.
The Current SFH sales is flat at 33.
Traffic of perspective buyers is down to 23 from 26.
But the SFH Sales Next 6 months, is up 48 from 45 in Nov.
It has been actually been going up steadily since it hit a low of 37 in Sep.
But for the four months following Sep, the current sales has stayed at 32-33.
Optimism (delusion?) is growing, but reality is staying the same.
Is this the things will be good again in the new year syndrome?
These days the line between delusion and optimism is looking very blurred when it comes to the housing sector. It is human nature to downplay the downside and focus on the upside. 2006 was a bad year for builders.
Like we all do in real life, we welcome new year with a new start. And put the past year behind us. Thats pretty much what we are seeing among home builders and their investors right now. Optimism that things will get better in the new year and everything will again be just fine. Everybody appears to be positioning themselves for just that and catch the next big leg up.
Robert Toll some time back said that they had not seen a slowdown like this in 40 years. Without other economic reasons of job losses or recession that caused the past downturns. His observations are right. And are consistent with what we see on the The Housing Bubble Graph.
This is a 40 year bubble created out of fiat dollars. It has peaked and is now bursting. And this graph does not predict any bottom in 2007. It is predicting a major slide in 2007.