New Home Sales Drop Hard in November
Although many economists are reticent to interpret the disappointing sales as pointing to a broader slowdown of the economy, the fact that sales dropped so sharply from the record level in October is at least of some concern because it points to the possibility that consumers in October were rushing in unusually large numbers to lock in house purchases—and, therefore, mortgage rates—in advance of difficulties they anticipate they would have if they were to wait.
The National Association of Home Builders, trying to provide an upbeat assessment of the large November drop, indicated that wet weather during the month was a contributing factor to the slowdown; however, even the home builders' group forecasts a pullback in new home sales of as much as 5% in 2005.
Adding to the mounting evidence of a slow burst in the "housing bubble" was news released earlier that the median price of a new house in November was just over $206,000, its lowest level since December of last year. Additionally, the time on market for an existing home on the market grew from 3.9 months to 4.5 months, indicating increasing difficulties for sellers trying to meet buyers willing and able to pay listed asking prices.
Traditionally seen as a bellwether of future economic activity, home sales are particularly sensitive to prevailing interest rates, as well as to expectations about the direction and magnitude of possible changes. With the Federal Reserve Board acting in five consecutive actions to raise benchmark short-term rates, and with record federal budget deficits putting unprecedented demand for lendable funds on the capital markets, sustained, strong growth for the U.S. economy in 2005 may prove difficult to achieve.
Published 12/23/2004 10:43:22 PM
<< 34 Comments Total
In the tradition of complicating a topical thread, BBC News Online has a front page article link entitled, "Battered dollar hits a new low." The article surprises me a little bit by re-iterating points I've brought up here on The Dark Wraith Forums and on AMERICAblog, particularly concerning why the U.S. government is allow the dollar to free-fall, and what this is doing to other countries.
The article is relatively short; and it's worth of glance. Provided, that is, anyone's actually out there in BlogWorld tonight.
The Dark Wraith becomes a little creeped out by all of this silence.
The active thread is still the one on the previous post.
- oddjob
Before I go check out the thread below, I want to say Merry Christmas and Happy New Year AND Happy Holidays to you, Dark Wraith, oddjob and cam and everyone else here at Dark Wraith Forums. I'm off to my Italian mother-in-law's for the traditional Christmas Eve seafood dinner...yummy yummy yum. If I lived anywhere near an ocean I would weigh three hundred pounds. I may pop back in later, but my daughter and her wife (I NEVER get tired of saying that!) are coming in from Toronto and I am totally geeked about it. Huge messy hugs for all!
Lorri--Your daughter is lucky to have such an accepting mother, we should all be so fortunate.
I'll be checking in here, DW, I have nothing (much) doing. So I'll be looking forward to what you and Oddjob
blog about tonight.
Let's see...housing bubble is about to burst? The question I have is this: Are the sales of new homes generally the last thing plummet in sour economic times? It seems that even when the economic climate is shaky, as it is now, people are still buying property. I see that you mentioned that the upward pressure on interest rates is having an immediate effect on home sales, so I guess what I want to know is, is it just higher interest rates that tend to ice home sales, or is it an anemic economy?
--cam
Pardon me for being a novice at this, but when they say "New Home Sales", are they specifically referring to houses that where just built recently, let's say when farmland is bought out by "land pirates" as my folks call them back in Northeastern Ohio, turning wonderful rural areas into overpriced bedroom communities for professional who work in Cleveland but commute from Medina or Wayne counties far to the south? I never knew why people bought homes requiring a 60+ minute commute each way from work, but with oil prices toppling $50 a barrel again, maybe people are thinking better of it. In any case, as the only "affordable" housing that I've ever seen is older homes that have filtered down in value so the average working stiff can dream of owning them, how would counting all housing sales effect these figures? Thanks, and a Merry Christmas to all!
Guys (and "gals"... ;)), especially Dark Wraith and OddJob,
I haven't been really in the "holidays mood" and I've been around but very quiet (part of the mood I'm in), but nontheless it is "the season" and I want to wish you a Merry Christmas hoping that it can be lived by you to the fullest with lots of joy, happiness and above all health... and wealth, why not? I hope these wishes can be extended to the new year of 2005. I really hope, from the bottom of my heart, that in 2005 you will be able to continue doing more and better and make a difference turning the US for the best and also the all world. Why? Because we are in a deep need of that... Keep on fighting and please don't give up. If you are feeling down don't ever forget that even a thousand kms (or miles) voyage, always start only with one step...
So, until DW opens a new thread dedicated only to the "holidays" this greeting will remain here, until further notice... ;)
Best wishes and all the best,
José, aka Joseph
Good evening, all of you.
Cam, Mr. Goat, Joseph, LindiBee, OddJob, Lorri T., and the host who read but do not comment, I wish you this prayer:
In my waking dream of this night, I found myself in the great shopping mall of the modern world, where before me were countless gifts of all kinds that I could buy as presents for the people I know. It was a paradise that men and women throughout the Ages would not have believed, this world of material good and comfort, where we need do no more than reach, and our hands become full of things that make us smile, that make us happy, that even fill those hidden, gaping voids in our lonely hearts.
And so I left that place of bright lights, that unquiet city at the edge of tangible joy and eternal despair. I left that place to come here, bearing as I do a gift I could not find there. Now, I stand before you with empty hands to say simply, 'Thank you.'
It's not much of a gift, I know; but it's all I could find that was worthy of you.
It's all I could find.The Dark Wraith has said his peace.
Good evening, Cam, and good evening, LindiBee. The questions the two of you posed are interrelated, so let me take a broad and long pen to them at the same time. Now that the Christmas holiday is finished for 2004, I feel a need to do some posting regarding questions raised here on The Dark Wraith Forums over the past couple of days.
Regarding home sales and interest rates, other factors enter into the relative strength of demand for and supply of new homes. As I hinted above in a subsequent post, when consumers do not see their short- to intermediate-term prospects as being particularly bright, they tend to take a rather noticeable and identifiable configuration in their consumption patterns. In the lead post to another thread, here, I characterized it as "defensive" in that people begin to postpone long-term, fixed obligations; and they tend to tilt their purchases toward more liquid assets—food and other consumables, trinkets, clothing, and other things that serve utilitarian purposes. Only when they anticipate really bad times ahead do we see them beginning to move toward "hard assets" (houses, metals, perhaps even bullets if times get truly ugly), and then only to the extent that they don't have to leverage the purchases.
Interesting is that the savings rate has nudged upward a little bit. This indicates to me that consumers have yet to build in hardly any "inflation expectation," which drives the average American toward the preference for high liquidity balances. It also motivates people to grab onto long-term debt obligations, since inflation will erode the real balance of such debt as the years go by.
Hence, what I am seeing here is American consumers signaling a belief that the economy will be teetering on the brink of recession in 2005, but that inflation will not be a problem.
One factor that has several parts—one obvious, the other quite subtle—I should note in new and existing home sales demand is income. Obviously, as people's incomes rise, home buying goes up, too. We call goods and services for which demand rises with rising income "normal goods," as opposed to goods and services for which demand falls with rising income "inferior goods." (I suppose I should note at this point that, whereas owner-occupied housing is a normal good, Spam is an inferior good.)
Okay, rising incomes cause home sales to go up. Ah, but there's another part to this income effect, and it has to do with marginal tax rates. Probably all of you know that the interest on mortgage payments is tax deductible. Let's say that, on the last dollar of income you make, you pay a tax rate of 30%. (In the U.S., we have a progressive tax structure, which means that you pay more on the last dollar of income you make as your income rises. Thus, we need to talk about that "marginal" tax rate because consumers will make decisions upon that rate, not on their average tax rate.)
Anyway, you pay 30% on the last dollar of income you make. Now, let's say that you have a mortgage loan on your home, and this year, you'll pay $10,000 in interest on the loan. Deducting that $10,000 from your taxable income means that you will not pay $3,000 in taxes that you would otherwise have paid. Another way of looking at it is that, on an after-tax basis, the interest you paid on that mortgage loan wasn't $10,000, at all: it was $7,000!
Are you with me so far? The more you make in income, the higher your marginal tax rate is, and therefore the more valuable that mortgage interest deductibility is to you. Think about it: if your marginal tax rate had been 40% instead of 30%, the deduction would have saved you $4,000 instead of $3,000. For one thing, that means homes are financially far more attractive to the better-off people in our country than they are to the less-well-off, thanks in part to our progressive tax structure.
Now, what would happen if the government reduced the marginal tax rate on people? It would cause the value of the tax mortgage interest tax deduction to decrease, thus reducing the attractiveness of homes as a financial investment. In other words, they would no longer be as much of a tax shield for income as they once were.
Even worse, what if the tax structure were re-aligned so that the tax rates on capital gains from many other sources were reduced or eliminated. Well, that would make those sources of investment become relatively more attractive compared to mortgaged purchases of homes than they had been in the past, now wouldn't it?
So, there you have it: a number of factors—some apparent, some not so much so—are pointing to a housing market—one of the concrete pillars of economic growth in post-World War II America—that is undergoing a major diminishment. The short-term drop we're seeing in new home sales, right now, is but a prelude to a structural shift that will ultimately pull the rug out from under the owner-occupied housing market later in this decade.
And let me assure you that giant economies like the one we have here in the United States don't particularly care for "structural shifts": they usually mean that lots of lives are about to be diminished, and only a few, savvy insiders will benefit. In other words, business as usual.
The Dark Wraith has blogged.
I happened back onto this thread completely by accident, and I'm glad I did. I didn't know you had backblogged, Wraith. Living here in Boston, where property is super-expensive (even the bad stuff), I constantly wonder what this all means for me and mine (there are two of us). We own our place now, but I am itching to move at some point in the very near future and get something else. So I wonder how to put this information to practical use...I suppose if the housing bubble does burst, one should be poised to buy?
As an aside (not so much!) DW, when you do write your blockbuster book (which Oddjob has already named for you "Economics for Dummies") I imagine that the average Joe would want to know how your enlightened knowledge can help get him on the inside track...?
--cam
When I was in grad. school in the early 90's an acquaintance of mine had purchased a townhouse with his (then) significant other right aroung the peak of the 80's economy. By the time I met him his significant other was his ex- who was still his housemate (and co-owner), driving him wacky in the townhouse that was still both their residences and from which they couldn't sell without taking a ferocious financial bath because the housing market had slumped badly during the Bush41 years.
DW will refine this as he chooses, of course, but the usual rule in investing (of any kind) is buy low, sell high.
Where do you want to go, another place in the Boston area, or somewhere else in the country, or somewhere else altogether? That will have a big impact on what you do (or to put it better, if I was in your shoes it would have a big impact on what I did).
- oddjob
We live right outside Boston now and we'd like to move somewhere else right "outside" Boston. We both work in and near the city.
We have friends that live in some nice areas 45 mins. or so outside the city--but that is not for us. I hate how much space we don't have, but I also like how quickly we can get to downtown. I really like to feel connected. I'm sure you know what I mean. When you're out in Beverly somewhere, it's like you're in a whole other world. On the other hand, out there you can have a BBQ without your neighbors being able to reach out their windows to turn your 'burgs and dogs.
Frankly, I think I'm just spoiled. There are tons of people who have less space than we do. We could do a whole lot worse; we could be living in NYC. As it is, we have 3 bedrooms and a two-car garage. It's still not enough (space, that is)!
It seems like your choice comes down to this: live near the city, pay loads of dough for not-so-great property, but your drive to Abe and Louie's will be short. OR live far away from the city, pay much less for much better property, but you won't get a good steak to save your life under an hour's drive.
This place is already worth more than 2.5 x what we paid for it--and we haven't even been here that long. BUT, it was worth that much the last time we checked, sometime last year. Even if we sold it tommorow, we still couldn't buy the Victorian I want where I want it!
--cam
WOW, even in the Boston market it sounds like you've done pretty well! I certainly couldn't put that kind of $$ together. I fantasize about living in Rockport and commuting in via train, but I couldn't afford the mortgage without buying a fixer-upper, and I'm not handy! (Oh, I suppose I could also purchase a multi-family, but I hate the idea of being a landlord.)
Have you thought about JP or Hyde Park?
(Final observation - that tradeoff about where you live is no different in the Philadelphia area. I doubt it's much different in any American urban area.)
- oddjob
I'm so house-covetous! I love a nice piece of property! (who doesn't?) I want country living in the city (who doesn't?) I have on occasion thought of JP, but I really lust after Lexington for some reason. My other half lusts after Cambridge. I figure we'd have to both triple our salaries, or we'd both have be sole inheritors of our parents' assets NOW (you know, before they can use any more of it--I know, crass) in order for us to even get a seat at the bargaining table for a house in either local.
The housing market in Boston must still be fairly strong, though. We have two friends that recently (in the last four months) sold their houses. Both made off well and in good time. One was sold to a family and one was sold to an investor.
I couldn't buy a fixer upper myself. I'm not handy at all except with the yellow pages. If your relationship status is single-but-looking, Oddy, collar someone (if you like them, it helps) with wads of cash or a nice house (or, alternately, someone who is fairly handy).
It takes the edge off!
(wink!)
I was born in Concord, and we lived in West Acton until I was two. From time to time I wonder about how much that house is worth now, compared to when they bought it new (& even then the price was high for its time; my mom wondered how they would ever afford it). Having grown up in a very beautiful part of PA (with its distinctly warmer climate), and having never gotten over summer vacations by the ocean, I now have no desire to live that far west of Boston. Too inland; too cold.
It sounds like you want Brookline, but can't afford it. How about Reading, Stoneham, or Wakefield? Closer in (but not as pricey as Cambridge can be) you might consider Waltham or Arlington, or even Somerville (out near Tufts U., if there are any houses - vs. condos - left).
- oddjob
Good evening, Cam.
Tonight's headline story might help to motivate you in whatever direction you finally decide to proceed.
That teaser having been noted, allow me a minor point or two. My mode for this message is something of a rehash of how I approach teaching, so you must forgive me if I quickly assume the professorial air of giving preachy, stern-but-fatherly advice to consider.
Cam, you are an urban man of the late-20th/early-21st Century. Look deep within yourself, and ask why it is you want to get far from the city that has all of the amenities of which you spoke. Are your reasons for wanting to move away perhaps—at least to some extent—motivated by what you have been shown your whole life by the entertainment and news media, which have, since the inception of broadcasting, offered a folkloric, almost idyllic version of life away from the big city? Even if you could have more house, more lawn, more space, at what price would these things come?—and here, I don't mean the dollar price; I mean, instead, the price in human connections.
Forgive me for trying to profile you, Cam, but you strike me as a person who connects strongly to the world, its people, and its activities. You, like most of the people who come to this blog, are an intellectual. (Notice the company you're in here: OddJob, Joseph, Wise Guy, Lorri, LindiBee, Mr. Goat, Peter of Lone Tree, and a whole host of people who never comment but who come back over and over again, despite the fact that the discussions get really heady and delve pretty deeply into seriously academic subject matter.) This place, The Dark Wraith Forums, is a surrogate community that is but one of millions of places on the Internet where people can fight back against a world of progressive alienation and isolation. Here, they can fight back with their minds, with their thirst for something more than mere knowledge. But we all must fight back on many fronts.
And we must also not be afraid to recognize that this nation is now unsafe. It is unsafe for everyone in it; but particularly, it is dangerous the more your life and the times of your life differ from what is considered "correct" by bad people who cannot, themselves, live in personal and progressive rectitude. In some ways, the cities offer far more refuge than do the smaller towns and rural areas. The greatest difficulties the computers directing the machinery of repression will have is in the age-old problem of what used to be called "target acquisition": for precisely the same underlying reasons that smart bombs still kill the wrong people, any engine that must confront complicated terrain and—most importantly—multiple targets of opportunity and coincidence will have a dramatically higher failure rate than if the target environment is "flat." (The term "flat" refers in only one of many dimensions to physical geography, by the way.)
If I sound paranoid in offering you some thoughts, it is entirely because I have learned—not the hard way, but rather, the almost awful way—the price of not being paranoid. Someday, perhaps I shall tell you all about it; but not today.
For now, consider what you've just read nothing but more of the prattle of an old professor who stalks the Internet as the Dark Wraith.
And so, the Dark Wraith has prattled, and having prattled, prattles on into the evening.
Recognizing that you hint at the benefits of not being as easily targeted because of one's location in a population cluster, would you have altered anything you just blogged had you known that she spoke of an upper-middle/upper class enclave not all that far from Boston (16 mi.), one that is tolerant (in that upper-class sort of way), and is just a long walk from Concord, the historic home of Thoreau & Emerson?
- oddjob
Good evening, OddJob.
Probably, but only to a certain extent. The "radius of confidence" rises non-linearly as population per square mile falls. This applies to repression as much as it applies to destruction.
That entire calculus is moot, however, if the aggressor chooses not to consider the opportunity-to-coincidence ratio in target neutralization planning.
The Dark Wraith enjoys applications of probability theory.
DW: If you indeed prattle, you prattle well.
The question you raise is a worthy one. What is behind country livin' lust? I've never even questioned that desire, so normative it seems. Like Oddjob, I grew up with the luxury of wide-open spaces. We had a big house, fresh air, grass, trees, an immense garden (that was mostly snarled over with vine). Maybe as a consequence, I am one of those much-maligned "enviros." I fantasize about having something other than house sparrows and pigeons at my bird feeder. I want space to plant more than a couple kinds of tomatoes and some herbs. As well, in today's climate, with who knows who looking over your shoulder, I like my privacy. I also don't want to hear what my neighbors are talking about over coffee. This only part of the story, I acknowledge.
There are far too many advantages to living in the city. Connection to like-minded people is crucial. The country is no place for babbling feminist academics. Plus, where am I going to get the Tuscan olive oil to go with the heirloom tomatoes I just plucked out of my garden? Indeed, where am I going to get the Black Prince seedlings? I'd get Spam out in the country, but I may have a hard time finding my favorite kind of beer to wash it down.
Also, I can't stand the provincialism that tends to be the order of the day away from the city.
Oddjob: I love Arlington! And Belmont. Waltham--horrors! (The snob in me, what can I say?) Ooooh, I never really thought about Arlington before....
cam, I get my fancy olive oils (when I'm so moved) in Swampscott (usually Trader Joe's, but not always) or even Revere (Super Stop & Shop).
As to the tomato seedlings - feh, you can order them online or via mail order.
That's easy!
- oddjob
Where I can get seedlings on the web, (and you are right, decent olive oil from Trader Joe's) we are (mostly) back at DW's original "problem": the personal disconnect we face when we retreat to the 'burbs. Living in the city, I may have to get those Black Princes on the web anyway, but I stand a better chance living in an urban center, and I may feel compelled to at least do the foot work first. I may hop from one farmers market to another. It wouldn't be out of my way to go to Mahoney's in Arlington, Wilson's in Lexington or Russo's in Watertown all on the hunt for these seedlings--and maybe meet some neat people on the way, or at least lock eyes with a few.
I'm not sure about how you feel about it, but to my mind, for people like me, the city provides a kind of safety net as well. I need to have that sense of normalcy around me, to reassure me I'm not living in a dream. Or in a parallel universe, an 'alternate' reality.
--cam
If I had the bucks (as if!), I would live in one of those homse in Brookline, a community which for all practical purposes is in the city itself, yet has more than its share of large homes on large lots. I don't need the big house (hardly!), but I would like the lot for gardening purposes.
Dream.
As long as the train runs, I have a much better shot at being able to do something like that if I live out in Gloucester, or even Salem (or Rockport if I could find an affordable place).
- oddjob
I went to Zaftigs a couple weeks ago and I was reminded how much I really love Brookline. There is something about it--it is so city-like, but small and contained. I hate to use the word "funky," but there you have it. I like the people on the street; lots of Jewish grandmothers, which I love. Brookline has great houses, and in the summer, nice plantings. I think I have an affinity for red brick. I have mixed feelings about Gloucester. I am aware of this feeling of ambivalence about the place--I love the sea, but the "fishing village" thing doesn't appeal. Whoopie Goldberg also spends too much time there. But, think of it in the summer! A shingled house with a sea of flowers--mostly shasta daisies, but also coreopsis--any variety will do.
Speaking of...I hope you do check back at this thread because you need to know that come spring, I will pepper you relentlessly with gardening questions! I love gardening, but have been forced to ascribe to a "don't analyze--plantalize" kind of approach. (She won't let me think about proper placement, soil conditions, color scheme, etc. "Just throw that thing in the ground," she says) My tomatoes were a disappointment last year, everyone was complaining. Too wet. Also, I had problem with some kind of blight or the other. (Next year, I'll throw them in buckets and use commercial soil to see if that prevents some of the soil-borne disease.) You'll have your work cut out for you in a couple months, if you're willing! What's coming out of your soil (indoors/outdoors/patio) now?
--cam
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