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Tuesday, September 26, 2006

Reality Comes Knocking

WND carried an article about Hezbollah transferring weaponry to Palestinian camps:
The officials told WND the office of Lebanese Prime Minister Faud Sinora sent a letter last week to Abbas Zakir, the Palestinian Authority's most senior representative in Lebanon, outlining the alleged Hezbollah weapons transfers into Palestinian camps. The letter noted "unusual activity" in and near the Palestinian camps, including the coming and going of trucks suspected of carrying weapons.

Palestinian groups, including Fatah and the Popular Front for the Liberation of Palestine-General Command, maintain armed bases in Lebanon, mostly in the al-Naemeh province just south of Beirut and in the Bekaa Valley, near Lebanon's border with Syria and Israel.
Apparently the Lebanese army will not go into the camps. I think Israel is in for another round of trouble.

In other news, the housing optimists launched into a round of spin regarding the August existing home sales report. NAR went so far as to claim that we could be near the bottom. As quoted by Reuters:
NAR chief economist David Lereah said the August slip in existing home data could be the bottom of a slump for the sector.

"This price drop, in my view, has stopped the bleeding in the sales marketplace," he said. "It seems that the 6.3 million level has now hit bottom. We are now flat with single-family home sales."

Prices will continue to come down in the short-term, Lereah said, and sales will remain flat. Still, he emphasized the pace of sales in August has not slipped as badly as in previous months.

"That is good news for housing," he said. "The health of the housing sector is in transactions, is home sales, not home prices."
Existing home supply is in the 7.5 month range, which means of course that prices will keep falling. NAR might be able to fly the "stabilizing" flag when the home supply range stops increasing, but that hasn't happened yet. Even for single-family, supply increased in August to 7.3 months. I'm sure a wide range of consumers will be surprised to discover that year over year drops in their home prices are considered healthy. They'll probably be shocked if they have purchased within the last couple of years using an option ARM or interest only. In the northeast, median single-family price fell 5.5% over the year. This is not encouraging. North Jersey is in trouble. See this article.

The real news in this release of the existing home data was condos (you can get that release here). At the current sales rate, there is an 8.6 month supply, which guarantees further price drops. In August, national condo sales were unchanged from July and the median price was down 2.7% from the year before. The figures for the south and the west are truly ugly. The median price in the south went down year-over-year by 4.5%, and the median price in the west went down year-over-year by 6.5%. In both of these regions, median prices in August were well below the average for all of 2005. This means that pricing is beginning to roll back to 2004 in quite a few areas.

Condos are always the worst victims of housing downturns, so the bad pricing news is not surprising. But it does indicate future pressure on single-family sales, because the first home purchase in many metro areas is a condo, and much of future single-family housing sales comes from people selling those condos and moving up. I continue to read claims that the lack of buyers is due to insecurity. Rather than psychoanalyzing people, economists would do better to discuss the fact that would-be buyers are unable to sell their current homes, and that the dearth of buyers in some areas is due to an inability to pay two mortgages. The high cancellation rate on both new and old sales contracts stems from an optimistic buyer's brutal encounter with market reality. When their current home doesn't sell, they must either walk away from their deposit or carry two mortgages for an unknown period. We are not seeing a six-month phenomenon here; it will take years to work out in many areas.

September will tell the tale for single-family, because families with school age children are under a lot of pressure to complete moves before the new school year ends. It's very possible that single-family received a one-time boost in August from that factor, and July's low sales were produced by people waiting as long as they could. (Mind you, July's sales figures result from decision in May and June.)

What the August report does indicate is that lenders can no longer lend on the expectation of substantial home appreciation over the future, and now lending standards will have to tighten. Naturally, that will constrain demand even more by next spring. Remember that the existing home sales reports show conditions for about six weeks earlier, so the existing home sales report for August is really reporting on conditions in July.

So now the next leg of this journey to the bottom of the bubble begins, with tightened lending constraining purchases somewhat and job losses in some areas just beginning to mount. In Florida and several portions of California, the losses related to lower housing starts are going to hit pretty hard, although Florida does have a blue-tarp backlog that will delay that reckoning.

For a more real-world look at sales conditions, try these posts at The Housing Bubble Blog:
Lennar and others express worry. Florida, the poster child for exuberance turned to shock and awe. Boston's home pricing sliding into the harbor.

New home sales will be out later this week, and the pending index is due out next week. In the meantime, the Housing Tracker site will be useful. It shows asking prices by city, by week, with quite a bit of history. It takes a few months (4-5 usually) for reality to hit, but once it does this is a useful measurement.

Hi Mama; I'm becoming more relaxed about the real estate market. I won't argue with your statistics regarding lending standards or available supply. However, a Monetary Conditions Index is as easy as it was 3 years ago, Interest rates have rallied 80 bpts or so, and the Equity market is very strong. Not the brew of a real asset market collapse.
Israel has their hands full as it is, just because it's not reported doesn't mean it isn't happening...

Churchill Fan, I'll be holding my breathe on RE until December. I think RE has nothing to do with external forces and a great deal to do with pure human stupidity - the greatest force of all.
Tommy, I know about the rockets. Good link, and I agree with the author. There is a huge anti-Israeli bias in the press.

Hezbollah has better rockets, though. If it hands a nice chunk of those over to the Palestinians, the odds are that Israeli casualties will rise.
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