Monday, December 29, 2008
As suggested in the chart above, housing starts have declined to unprecented levels relative to the last three major housing recessions. As of November 2008, seasonally adjusted annual housing starts declined to 625K, representing a 72.4% decline from peak housing starts of 2.265mm achieved at the bubble's peak in January 2006. The 72% decline far exceeds the peak to trough declines experienced in the '72-'75, 1981, and '86-'91 housing recessions.
While the supply destruction in the new home market is a necessary and healthy condition for a stabilization in the overall housing market, supply conditions remain grossly out of whack in the existing home market. As suggested in the chart below, existing home inventories remain more than double levels conducive to a "healthy" housing market. As reported by the National Association of Realtors last week, homes on the market remain at 4.2mm (down only 8.1% from the peak)vs. 2-2.5mm pre-bubble. This inventory represents 11.2 months of supply vs. a more normalized 4-6 months. As such it is reasonable to infer that additional price pressure will be forthcoming in the housing market until these 2mm excess homes on the market are burned off.
On a national basis, homes prices have declined by 21.8% according to the Case Shiller Index (latest reported data as of September 2008 so probably a few percent since then). House prices have now receeded to May 2004 levels, with many of the most severe bubble markets (Phoenix, Miami, Vegas, San Diego) approaching 35-40% peak to trough declines. While likely in the later innings of the home price correction, massive foreclosure inventories (around 50% in the most severely impacted regions) suggest another 10-15% decline is certainly reasonable.
Saturday, December 27, 2008
This is one of the more humorous posts I have recently seen. Just goes to show that investors need to listen to the supposed experts with a healthy dose of skepticism. I imagine that Art Laffer and Ben Stein would love to have their bullish views expunged from the annals of history.