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Monday, March 3, 2008

More Ghost Towns

Vacant Homes in U.S. Climb to Most Since 1970s With Ghost Towns: “Almost 200,000 newly constructed single-family homes are sitting empty in the U.S., the most since Commerce Department statistics began in 1973. Partially completed developments reduce revenue for cities and towns and hurt businesses, said Nicolas Retsinas, the director of Harvard University's Joint Center for Housing Studies. Rising foreclosures and falling property values may cut tax revenue by more than $6.6 billion for 10 states, including New York, California and Florida, the U.S. Conference of Mayors said in a November report.”

About 370,000 new homes are for sale because people who initially contracted to buy them backed out, according to estimates in a Feb. 15 report from analysts at New York-based CreditSights Inc. An additional 216,000 homes are under construction, according to Commerce Department data.”

Houses are just piling up and the builders are still rushing to finish all the projects they’ve already started. So supply is still increasing as demand is cratering. Finding the new market clearing price will take a while because real estate prices are sticky downwards.

“In January 1973, the number of finished new homes for sale was 97,000, when the U.S. population was about 212 million, according to the U.S. Census Bureau. In December 2007, 197,000 completed homes were on the market and in January 2008 there were 195,000. The current population is 303.5 million.

Home prices may fall at least 8 percent nationwide and by as much as 26 percent from the third quarter of 2007 before hitting bottom, according to a Feb. 13 report from New York- based Deutsche Bank AG analyst Karen Weaver, the firm's global head of securitization research.”

But we can guess what market clearing prices are RIGHT NOW as evidence mounts through auction results.

“The company auctioned 450 properties last year for $170 million at prices 85 percent to 90 percent less than the homes' listings.”

Scared? You should be. Surprised? You shouldn’t be.

On July 5th, 2007 I wrote about the huge over supply of real estate in Spain in my post Ghost Towns? In Spain? I ended that post with, “The UK is next…”

I thought it was obvious, so I didn’t say anything about the US. In case anybody was still expecting a bottom soon followed by a quick rebound, this should dispel that fantasy.

Ghost Towns Appear in Spain as Decade-Long Boom Ends (Update2): “Javier Usua and Ruth Graneda never got out of the car when they visited Sanchinarro and Las Tablas, two of Madrid's biggest new suburban developments. The concrete-block buildings and empty streets were all they needed to see.

The abandoned developments are evidence of a housing glut that will lead to Spain's first decline in home prices since at least 1992, when the Housing Ministry started keeping records. Spanish builders constructed 750,000 houses and apartments last year, more than France and Germany combined, while annual demand runs about 60 percent of that, according to the Finance Ministry.

New and existing house prices will drop by 20 percent from now through 2009, Bernardos estimates. The country built an average of 432,411 houses per year from 1996 to 2005, more than France and the U.K. combined.”

Auto, Home Buys `Won't Happen' as Rates Don't Budge (Update1): “Consumers like Valerie Jacobsen aren't getting much of a break on borrowing costs even after five months of interest rate cuts by the Federal Reserve.

Jacobsen, 30, wants to refinance her 7.25 percent first and 8.5 percent second mortgages into one loan at a lower cost. To cut the payments enough to recoup her $3,000 in closing costs, she needs a rate well below 6 percent. She wasn't ready when costs dipped in January and now they're back at levels that make her plan too expensive, the Austin, Minnesota, resident says.

“Rates I'm seeing aren't really mimicking what the Federal Reserve is doing,” said Jacobsen. “I'm wondering why that is.””

Stop wondering. I can tell you why that is.

First, lenders have started to realize that you’re a far greater credit risk than they first anticipated. Turns out you’re willing, eager even, to pile on ridiculous levels of debt to the point where just servicing that debt is impossible. Therefore, lenders are now correctly pricing in YOUR financial irresponsibility. (Did you really think it was free?)

Second, lenders have finally realized that they’ve been just as irresponsible. With their swollen balance sheets they are now desperately trying to reduce their exposure. The easiest way to do that is for them to price themselves OUT of the market on the margin.

Third, inflation expectations have increased drastically. Therefore, longer yields have snuck higher in spite of the Fed cuts. I would even argue that long yields have increased specifically because of the Fed cuts. The annihilation of the dollar is going to spike the price of those Made in China Jeans and those Made in Taiwan Plasma screens.

“Trying to spur lending and avert a recession, the Fed has chopped 2.25 percentage points off its benchmark rate since September. Wariness among lenders and fears of inflation are keeping mortgage and auto loan rates close to or above levels before the central bank began easing, while credit-card issuers are tightening their standards.

The slippage between the Fed's rate cuts and consumers' ability to borrow or reduce loan costs is weakening the central bank's ability to stimulate the biggest part of the economy, consumer spending. It accounts for more than two-thirds of goods and services output and stalled for the second consecutive month in January after adjusting for inflation, the Commerce Department said today.”

Related Headlines:
Auction Supply `Tsunami' Foreshadows Deeper Municipal Losses
Bush Deficit at Record as Treasuries Deter Pensions (Update1)
Dollar Falls to 3-Year Low on Speculation Debt Losses to Spread

Related Posts:
Fed Losing: rates Rise Again
Fed Cuts Rates, Market Raises Rates
Crude Hits $100, Equities Freak


Anonymous said...

keep up the good work!

I take it you're an inflationist and don't agree with Mish that the dollar will eventually gain strength. I'm with you. I don't believe the dollar is going to recover from this. Higher interest rates will drive the need to print and expand the money supply, just at the same time the world is abandoning the dollar. This has been going on for some time. How much time do we have left?

Ben Bittrolff said...


Hate to disappoint, but I'm 100% in the deflation camp... and for the same reasons as Mish.

There is no 'printing' of money. Money supply is actually getting whacked. I'll post the numbers straight from the Fed itself.

eda said...


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