. The deceleration in real GDP growth in the second quarter was primarily driven by 2 things: Decreased prices in software, and decreased purchases in residential housing. Residential housing posted a 6.6% decline this quarter, reflected as less on this graph due to 1 year weighted smoothing:
GDP was expected to rise at 3.1%, but rose at 2.5%. Inflation continues to hedge up, though not at a panic causing rate. I mostly agree with consensus that interest rates will no longer continue to raise up. I say this because I have read several of the papers Bernake published in regards to the great depression. In short he just doesn't support bubble popping by the fed.
I think this is likely the correct play. Stocks are rallying on this "great news" of lower GDP (and by the way I'm going to put some sell orders in after making this post), but I think in the bigger picture this is confirming a lot of the trouble that has been building for several years.
Sales of new one-family houses in June 2006 were at a seasonally adjusted annual rate of 1,131,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.0 percent (±12.0%) below the revised May rate of 1,166,000 and is 11.1 percent (±9.8%) below the June 2005 estimate of 1,272,000.
The median sales price of new houses sold in June 2006 was $231,300; the average sales price was $290,600. The seasonally adjusted estimate of new houses for sale at the end of June was 566,000. This represents a supply of 6.1 months at the current sales rate.
Here are a couple graphs issued by NAR. I hesitate to comment on them too much since I think national figures like this are often really missing the story. Seeing inventory/price graphs for individual markets is much more valuable.
and also from the WSJ:
Home Sales Fell By 1.3% in June; Inventories Rose
Home sales declined last month while inventories swelled to the highest levels since 1997, the latest sign that the housing market continues to cool. Consumer confidence, meanwhile, stabilized. The National Association of Realtors said sales of existing, or previously owned, homes fell 1.3% to a seasonally adjusted annual rate of 6.62 million units in June from a revised 6.71 million in May. When compared with June 2005, sales were down 8.9%. Meanwhile, inventories rose 3.8% to 3.73 million existing homes for sale in June, which is a 6.8-month supply of homes at the current sales pace. That was the highest inventory level since July 1997 and compares with a 4.4-month supply in June 2005.
While the index has dropped again, this is not much of a leading indicator. The last housing crash started around 1987 and lasted about 5 years. Currently the NAHB index is still high compared to it's average level.
NAHB chief economist David Seiders adds: "The HMI is down from its most recent cyclical high of 72 in June of last year, and reflects growing builder uncertainly on the heels of reduced sales and increased cancellations related to eroding affordability as well as an ongoing withdrawal of investors/speculators from the marketplace"
But just as concerning to many builders is the potential for more monetary tightening by the Federal Reserve that could drive interest rates, and thereby homeownership costs, even higher. Ironically, the Feds inflation-fighting moves have helped firm up the rental market and raise the owners equivalent rent components of the core inflation measures that the Fed is seeking to contain Seiders added.
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I'm not sure I agree with Seiders comments on the rental market - I think rates were going to move up there regardless of interest rates simply to reflect the higher housing prices. On a real basis, the rate of return for multi-family is still lower then it was during most of the 1990's (REIS, TWR). This is because in recent years the cost of multi-family buildings has moved up while the rental rate has stayed the same.
The affordability index is low, but the first derivative is increasing. Things are going to change around faster then most expect. If you are a buyer, you should start coming out of hiding and getting a feel of your local market. I predict Spring 2007 as a good time to be ready to make an offer.
The results of this study were not too surprising given the run up in housing prices over the past 5 to 10 years. Strain on the consumer will likely continue rise even if prices are flat since the tax assessors office is often several years behind in assessing properties.
I'm still working on the best way to present and explain this data, but I think it is clear that there are some strong correlations between retail spending and median housing price. Notice that these graphs can easily be misleading since there are scale games going on (each graph has the data series maximized which makes retail look like it has grown faster then it really has). I am either going to remake these with equal multipliers on both scales (like each one goes up 3x or 4x), or am going to do Y/Y percent changes (though this will give the data a slight lag).
-- edit - let me help you visualize what I mean. Here is Miami before 2000:
A pretty clear relationship can be seen before 2000. Now if we include 2000 until 2006 housing breaks through the roof and there is a scale problem. Here I have each scale at a multiple of 4 (125 to 500 and 12,000 to 48,000) which is the only fair way to show the data... but retail gets lost due to it's relatively small increase in size: Stay tuned and suggestions for how to do this or new cities to see are always welcome!
A gauge of future home sales turned upward, indicating that the housing market is stabilizing, and the country's job market showed healthy signs. The National Association of Realtors' index for pending sales of existing homes increased at a seasonally adjusted annual rate of 1.3% from April to May. The latest index was 10.1% below the year-earlier level. While lower than a year ago, the reading's monthly gain suggests that the housing sector is cooling gently. Separately, initial jobless claims decreased by 2,000 to a seasonally adjusted 313,000 in the week ended July 1. New claims for the week ended June 24 were 315,000, revised from 313,000.
from the WSJ - "Retail trade employment was essentially unchanged in June following large declines in April and May. Retail employment is down by 86,000 since March. General merchandise stores lost 14,000 jobs over the month; this industry has accounted for most of the recent decline in retail trade employment."
