|Negative NAHB Builder Sentiment|
Naturally, the immediate reaction was to blame the weather. And why not? Everybody is blaming the weather.
|US builders aren't sissies|
Does this mean that something else may be at fault? Well, how about Greed's balancing partner: Fear?
Back on May of last year, I covered the real estate market in an article called Robust Real Estate Hides Truth. There, I described the fundamental issues challenging the industry. But lets bring everybody up to date on those issues.
Last year, homes were being sold too cheaply for builders to want to compete. This is because, after inflation, it was more expensive to build a house than to buy one built ten years ago. This is especially true when investors where the main market buyers. Remember that investors buy wholesale. The retail consumer had no chance to compete because homes were being appraised about 15% below the asking price while bids were being made 10% above ask. This meant that only buyers with a 20% to 30% of extra cash at hand could play the bidding game.
|FHA buyers were out of luck last year|
Most homes were being sold to investment managers like BlackRock, rather than families. The interesting part is that this was no secret. Recently, BlackRock unveiled bonds made up from billions of dollars of securitized trounces of homes bought specifically to be rented. It should be clear that any home price increases were due to the vicious fight for inventory being waged between various investment managers.
Now put yourself in the shoes of builders. Imagine a market where capital is either too expensive or impossible to get. Add the fact that market prices for the goods you make are much lower than your cost to manufacture them. Then, consider that your main customer has yet to find reliable loan sources. Finally, think of the fact that the next generation of potential home buyers prefers to live at home with their parents.
All things being considered, there is simply no reason why builders should be upbeat.
Thankfully, they have enough sense as to not blame the weather. But the same can't be said about economists who insist that the weather is behind the malaise we are now seeing across the economy. From government to academia, naive optimism about a recovering real estate market abounded despite the evidence.
|Don't blame the weather|
This is why I have a hard time thinking of economics as a science. Pseudo-scientists like economists are great at curve-fitting until they see what they want from charts. Real scientists would be glad to be surprised by the evidence rather than by the failure of their fully developed models.
|Fear is stronger in this market|
For now, keep walking people. There are no new news here!
2014/02/19 9:06 AM Update
Housing Starts and New Housing Permits data collapse in January.
From an expected 975,000 in New Housing Permits, the final number came in at a meager 937,000 for a 5.4% in month-to-month decline.
New Home Starts did worse. From the anticipated 950,000, the real number dropped by 16% when compared to last month to 880,000.
Despite the now normal tendency to blame the weather, the West may tell a different story. The West fell by 26% in a Permits month-over-month comparison and by 17.4% in month-to-month New Home Starts. The West is the second largest component in the survey and was not affected by the weather.
Whether this is a fluke or a fundamental indicator of a weak economy, time will tell. To me, this has an eerie resemblance to April, 2006. Despite clear fundamental flaws, the data had just begun to show housing weakness. Back then, it took two years for everyone to finally admit we had a problem.
In 2006, the problem was irrational exuberance; too much of a good time. Today, the issue is incompetent malaise driven by a White House leadership that insists in maltreating capital and business; thus creating a level of uncertainty that can't be lifted by all the money pumping at the Fed and through the Japanese carry-trade industry.