New Deal democrat's blog

More evidence housing sales may be near a bottom

The NAR released its Housing Affordability Index for February this morning:

NAR’s Housing Affordability Index rose 0.9 percentage points to a record high of 173.5 in February from an upwardly revised index of 172.6 in January, and is 36.3 percentage points higher than a year ago. The HAI, a broad measure of housing affordability using consistent values and assumptions over time, shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970.

Existing home sales nearing bottom?

Last week we received the last data for housing through February. New home sales as reported by both the Census Bureau and the NAR ticked up on a seasonally adjusted basis, but have not yet broken trend - a trend that would take them to zero by this time next year!
I've laid out my scenario for the housing market in transition in several posts beginning last December, on Feb. 27 for new home sales, and on March 16 for existing home sales. As of March 17, Calculated Risk adopted the virtually identical analysis.

While there are certainly other bloggers who get many more page views than I do, and there has been much commentary on the February sales data, there is a nugget of interesting information that nobody else has teased out of existing home sales.

Back from the Grave 2.0

Shoppertrak has posted an update of interest. No data was posted for the week of March 14. The week of March 21 this year is best compared with the week of March 15 last year due to Easter being one week later this year. Making that adjustment, look what happened:

Week YoY % Change
3/21/09* +0.1%
3/7/09 (-1.0%)
2/28/09 (-6.2%)
2/21/09 (-0.5%)
2/14/09 (-1.2%)
2/7/09 (-2.9%)
1/24/09 (-4.1%)
1/17/09 (-3.8%)
Xmas (-4.4%)
11/15/08 (-3.1%)
11/8/08 (-2.6%)
11/1/08 (-1.1%)
10/25/08 +1.0%
10/18/08 +1.1%
10/11/08 (- 1.0 %)

Is Prof. Paul Krugman wrong about Securitization?

Prof. Paul Krugman has generated some surprsing criticism from the likes of Barry Ritholtz and Bonddad for an article he posted the other day in the New York Times, entitled The Market Mystique:

Here are the crucial paragraphs:

Above all, the key promise of securitization — that it would make the financial system more robust by spreading risk more widely — turned out to be a lie. Banks used securitization to increase their risk, not reduce it, and in the process they made the economy more, not less, vulnerable to financial disruption.
I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good. I don’t think the Obama administration can bring securitization back to life, and I don’t believe it should try.

A Populist Plan for Reforming the Banking System

On another blog I responded to a challenge to describe an alternative to the approach Obama has chosen with Larry Summers and William Geithner. What I said there (with a little modification and expansion) is worth repeating here:

1. (After firing Summers and Geithner,) I would appoint Kansas City Fed Chief Tom Hoenig, who said that the "too big to fail" doctrine was a failure, as Chief Economic Advisor; and UMB President William Koenig, whose bank was well managed, avoided toxic debt instruments, and turned down Tarp money, as Secretary of the Treasury.

2. I would charge them to implement an FDIC/RTC style receivership plan immediately, to rid the banking system of toxic assets.

More evidence the Housing market is transitioning (Updated)

Today the Census Bureau reported on Housing permits and Housing starts.

New housing starts for February came in at a seasonally adjusted 583,000, up from a revised 477,000 in January.

This ~20% increase is by far the biggest increase in any month's data since the top of the housing market at the beginning of 2006.

Permits had a similar increase.

This data is more evidence that the Housing market is transitioning from Cliff-diving to rubble-bouncing. This is good news!

How long until the bottom in Housing? An overview

I have been saying for a long time now that housing was a leading component of the economy. Housing peaked in late 2005 - early 2006, long before the recession started in December 2007. Just as clearly, it is likely that housing will bottom first, and will be a primary component leading us out of this "Great Recession." By now housing is so far into the downturn that we ought to be able to make educated projections about housing prices and sales over the next several years.

Recently I noted that new home sales are falling so fast that they almost have to bottom this year - or come very close - unless you think that new homes sales will be 0 by early 2010!

But new home sales are a smaller part of the housing market. Existing home sales are much larger. In this post I will examine what I think are reasonable projections about the volume and prices of new home sales in 2009-2010 and beyond.

My "Black September" thesis goes mainstream, causes controversy

When I wrote my diary called Black September a few months ago, I termed it a "first draft of history": an attempt to explain how the shallow, Wall Street and housing-focused recession of early 2008 had suddenly morphed into a systemic economic collapse. I described it as an "autonomous consumer slowdown" that didn't have to happen, but did in large part due to the panicky response by government officials to admittedly serious body-blows to the financial system that occurred seemingly almost daily during last September (and secondly due to the meltdown of 401k assets during the market crash that did not occur until the first 10 days of October).

Now several mainstream economists have independently picked up on the idea, challenging the conventional wisdom that the subsequent economic free-fall is All Because Lehman Brothers was Allowed to Fail. And the conventional wisdom is fighting back.

A Big Picture comparison of long-term Bear Markets

Like bonds, which move in ~60 year interest rate cycles (called the Kondratieff cycle), stocks also have very long, secular cycles that become apparent when we step back for the 30,000 foot view. For example, there was a long-term bull market from 1946-1966, followed by a long-term bear market from 1966-1982, followed by a long-term bull market from 1982-2000. Now we are in the midst of another long-term down cycle.

In this diary I will compare past long-term declines to estimate how steep a similar decline in the stock market and the economy is likely in this long-term bear market.

Paris on the Potomac (or) A Tale of Two Cities

Francis Cianfrocca, a/k/a Blackhedd from Redstate, has started his own blog called Markets and Policy. Although our political opinions are frequently poles apart, his purely economic analysis is excellent, and always intelligent. If you are interested in reading well-done analysis from the "other" side, I highly recommend him.

Needless to say, he is opposed to Obama's stimulus plan, calling it Paris-on-Potomac: