Housing bubble still inflating(by mannfm11)

Housing bubble still inflating	mannfm11	NEW 8/27/2007 10:27:07 AM
Thereis bad information out there. It has people looking for a bottom whenthere is no bottom in sight. I don't think the prosperity of the USAsuddenly went to such new heights that old data about new homes saleshas become irrelevant. In fact, I believe that the prosperity of theaverage Joe has in fact declined over the past 20 years, 30 years and40 years. I wrote some on this Friday, as I was kind ofstunned when I saw some posted links for data. Here is one that isofficial, at least as official as they get. Official New home sales Thereisn't a new paradigm, a new source of population or a new source ofpermanent prosperity. Then why is there a new source of wealth topurchase a significantly increased number of homes? This isn't a marketwhere people are suddenly demanding and buying cracker boxes, wherethey are economizing and doing less actual building, but the opposite.Thus, we are looking at a demand curve that is to the extreme. Priorto 1997, new home sales had topped 800,000 units twice, both in the1970's, 1977 and 1978. I was in college, but I worked in theresidential business during the summer in the family office during thattime. You couldn't list a house and keep a sign in the yard if thehouse was decent and the price was close to right during that time.Thus we had a national mania going on, where the average pricenationwide was going up double digits. There was reason for the peak inthe late 1970's, as speculation for inflation hedges and the post warpopulation boom were all coming together to shift demand for everythingoutward. That is not the case today. Beginning in 1996, newhome sales have been at least 757,000 units, a number topped only the 2times I mentioned above. This will be 12 straight years we have had newhome sales that will be at a minimum among the top 14 years all time.Every year since 1998 beat the all time high established previous to1998. The depressed sales reported last month beat the all time prior1998 sales pace. Last year made 9 straight years where the pre bubbleall time high in sales had been exceeded. There is no reason for it inany shape, form or fashion? Why am I writing this? You might read this, then read on. Market goes up on higher than expected new home sales, denver post Hereyou see the annual sales pace reported in July is 820,000 on an annualbasis. If you refer back to the government data, you find 820,000 unitsannually still exceeds the pre 1998 all time high. We have a marketthat is broken, not just a subprime crisis or a housing glut. You mightsee how the sales figures always went down when the market had problemsin prior years. I mean it went down to the 450,000 to 600,000 range.There hasn't been this type adjustment at any time during the past 12or so years. Total sales in the 1970's was 6.552 millionunits. That is an annual average of 655,200 homes. The last time we sawa year that low as 1992. Remember, the 1970's was a houing boom erawith skyrocketing wages and artificially low interest rates for most ofthe decade. From 1963 to 1969, there were 3.586 million units built.That averages out over the 7 years to 512,300 annually. The 1960's werethe last really properous decade the US has seen in all facets ofeconomy. This is to demonstrate the sales in the 1970's were high andnot low. Now we might use the pent up demand argument for badtimes in the 1980's. Can we? We might make an arugment for that, butthe population trend in the 1980's was downward, not upward and theeconomy was bad the entire decade with high interest rates. Sales inthe 1980's were 6,090,000 units for an annual average of 609,000, notthat much less than the 1970's and far above the 1960's, a prosperous,low interest rate, under 4% unemployment decade. What have weseen over the past 10 years? Well the data I have here doesn't bring usup to current, so I will use the last 10 years on this sheet then makesome assumptions for the years from 2000-2006 for a 7 year average. Takingthe years 1995 to 2004, the ending 10 years of data on this report, Iadd it up to 9.041 million units sold. That is an annual sales rate of904,100 homes. If you compare that to prior data, you find the 10 yearaverage is in excess of any year prior to 1998, 1977's record sales of819,000 units. The sales in the above report are also in excess of the819,000 unit record prior to 1998. Total sales in this period exceededthe 1970's decade record by some 2,489,000 units. This is cutting thegame off at 2004 and starting the count in 1995. If I assumethat sales in 2005 and 2006 matched those of 2003, the sales for 7years in the 2000's is 7.219 million units for an annual average of1.031 million units annually. Now I think if I took the time, I wouldfind the sum of sales in 2005 and 2006 was greater than 2 times thesales in 2004, but this is for expedition of time. The pointhere is the market continues to feed an excess supply at currentprices. Maybe new home sales plummet or more likely the supply ofpre-owned homes keeps spiraling upward. Eventually both occur andforeclosure numbers go through the roof. I think there is alot going on that not anyone is going to mention. I think the Fed andWall Street are riding this game as far as it can go, hoping somethingstraightens it out while they aren't looking. I guess you could justifysales this high if it was merely population of the country projectedoutward, but the number of prosperous people in the US isn't increasingat anywhere this fast a pace. Maybe it is accounting for the abandonedhomes in the midwest and other declining areas, but I doubt the declinein the rust belt is on any faster pace than it was during the 1980's.There is nothing to justify a sales rate 70% higher than the 1980's.This is 2007, not 1907 in the US. The point here is thateither sales drop to a level that I doubt the economy can stand up toor the problem gets worse. The problem isn't that sales aren't highenough on new homes. The problem is they are too high and they havebeen too high for a decade or more. At least they have been too highsince 1996, which is now counting up to 12 straight years. Apparently,2 million or so units too high if the economic history and prior demandare any good? The bubble will have absolutely burst when youcan't give a house away. It will be like dotcom. Problem is dotcom hascome back, but we aren't seeing so much of the new supply in dotcom.Instead it is the few that made it plus Google for the most part andits inflation adjusted value I would venture is less than it was in2000. I think we will find the same thing in housing come 2015. Thereare too many units out there and too many units being put out there toallow the market to clear itself.
RE: Housing bubble still inflating	pharmaman	NEW 8/27/2007 11:29:24 AM
Ilove your analyses. I agree that it is amazing to see data like thisand it fits in with the rampant consumerism that has developed withinthe USA. These data are even more remarkable considering the growth insize and quality of the average house. I think the key turningpoint will occur when expectations of the average american finallystart declining. I have always been conservative myself and have neverbeen much influenced by the marketing/advertising machine that has cometo dominate the american pysche. I keep thinking that at some point therest of America is going to be slapped in the face and wake up fromthis financial stupor they are wallowing in. I almost lost hope in thisever happening but 3-4 weeks ago I told my wife that July 2007 may godown in the history books as representing one of the most significantturning points in American history. The psychological shift willprobably be gradual but it seems that without some form ofhyperinflation, the inflation of debt will have to stall and likelydrop, and with it the means for the consumer to continue engorging oncredit.