As I’m away today, I decided my time this morning would be well spent laying out some disaster hedges and now that I’ve done that we can get on with a very brief look at what’s happening.
Of course the big news yesterday was the horrific drop in new home sales, as noted by the WSJ: "Sales of previously owned homes fell 27.2% from June to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors said Tuesday, the lowest level since the industry group started its tally in 1999."
The expiration of a home-buyer tax credit in the spring was expected to damp buying, though less severely. Economists said the sales drop—together with a corresponding rise in the inventory of unsold homes—meant another decline in housing prices was on the horizon.
High unemployment and meager wage growth already are driving many Americans’ reluctance to make major purchases, so a return of falling home equity could further depress confidence and consumer spending. "At this point in the recovery, every little bit counts," said economist Paul Dales of Capital Economics. "A double dip in the housing market and house prices would not be enough to generate another recession. It would certainly help to hold back the recovery." He expects home prices to fall another 5% after a 30% decline during the recession.
None of this is a particular surprise. Like cash for clunkers, we stimulated and pushe home sales and then we removed the stimulus and are now getting a blowback as all we really accomplished was pushing some of the very limited demand forward. I have been saying for some time, without QE2 and more stimulus, there was no way we were going to break over our 10,700 and 1,120 marks (5% above our mid-range) so let’s not get all shocked that the data is bad now – that’s what happens when you don’t stimulate a lethargic economy.
I really don’t understand investors who have no stomach for government stimulus and want to enforce austerity during a crisis but then act like they are surprised when the economic data comes in low. What did you think was going to happen – cut Unemployment and Food Stamps and Social Security and let the states go bankrupt and lay off as many government workers as possible while cutting back discretionary spending and what? Are magic fairies going to show up and start buying because you were so good at cutting back?
I’m sorry to say but the bottom 90% of the US population are your customers and, if you are so far up the ladder that you aren’t forced to deal with THOSE people directly, then they are, in the least, the customers of your customers and 25% of them are either unemployed or underemployed vs. perhaps 8-10% of them normally. While not tragic -why be surprised if your business is off 10-15% and of course big-ticket purchases, like housing and durable goods will be hit hardest.
Durable goods are indeed today’s disaster as they are up just 0.3% but ex-aircraft, ex-miliatry they are down 8%. Of course, the NY Fed and the Phill Fed and the Richmond Fed all told us this already so thisis nothing at all to be surprised about unless you are a 24-hour news network that needs something to talk about. I’m a lot more interested in things the MSM doesn’t cover like the fact that commercial property holders – even the big boys like as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have been engaging in strategic defaultson their loans.
Where is the ourage? Isn’t it time to roll out all those epitaths they hurl at residential mortgage holders who don’t pay their obligations? Of the $1.4 trillion of commercial-real-estate debt coming due by the end of 2014, roughly 52% is attached to properties that are underwater, according to debt-analysis company Trepp LLC. And as the economic recovery sputters, owners of struggling properties are realizing a big property-value rebound isn’t imminent. Owners of commercial property have an easier time walking away than homeowners because commercial mortgages are typically nonrecourse. That means the biggest penalty for walking away is the forfeiture of assets and cash flow they may generate.
We have been expecting the CRE bubble to pop for so long we gave up on it (SRS killed us earlier this year) so I don’t even have the stomach to say NOW is the time but it’s an issue that certainly bears watching.
