Wednesday, March 25, 2009

New home sales jumped 5%!!! All is well, Thunderdome and Citibank/Bank of America games.....

The problem with understanding economic data is that you go through a lot of TV's when you throw random objects at the screen when you here another talking head misrepresent the data on TV.

Yes, new home sales did grow slightly in February, but new home sales are an insignificant piece of the market. New homes represent just 10% of total sales in the US. This is like saying the average temperature in the US was up 5% in February to 82 degrees, because the average temp in Miami rose.

It's also important to note that while the number of new homes sales did rise in Feb to roughly 30,000 units / month, the sales number rose from a historical low in January and February's data still represented the second worst new home sales number ever posted. Since the volume of new home sales is so low and so small (an extra 50 new homes sold in every state equals a 5% jump!!) this number is likely to be volatile.

Finally, the data reported mentions a 5% increase in units sold. What all of the blaring headlines failed to mention is that 48% of all new homes sold last month, sold for less than $200k, up from 33% last year. The $8,000 first time home buyer credit (coupled with a $10,000 credit in California) means that half of these homes sold could have been eligible to get at least 4-9% back in tax credits. This clearly has driven some low-end demand for new homes.

Simple, affordable homes are the new normal. Oversized, overpriced McMansions are soooo 2007.

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Flint, MI --- Youngstown, OH --- Thunderdome...

I don't think this a real solution, but be aware that it's at least on someone's radar.

"Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable -- shutting down portions of the city, officially abandoning them and cutting off police and fire service.

The city is getting smaller and should downsize its services accordingly by asking people to leave sparsely populated areas, he said.

Last year, the city of Youngstown, Ohio, proposed incentives to encourage people to move out of nearly empty blocks and relocate to more populated areas closer to the heart of the city. Some people were offered upward of $50,000, according to news reports."

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Yesterday, I wondered out loud if Citibank and Bank of America would consider bidding on their own toxic assets in an effort to game the system and drive up prices of the assets hedge funds and taxpayers are going to take off their books.

Right now this is just hearsay via a trader quoted in the NY Post of all places, but.......

"One Wall Street trader told The Post that what's been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.

This raises serious questions about how the banks are using TARP funds. Instead of stimulating the economy by making new loans, B of A and Citi seem to be spending money to buy up old loans. That's probably a bet that the Geithner plan will create renewed demand for toxic assets."

If this is true and someone can develop an accurate paper trail, this is could be a bombshell story.

Cheers!

3 comments:

Anonymous said...

I get your point about the unjustified exuberance over the 5% jump in new home sales. On your point about actual home values continuing to creep downward, I believe it's long overdue.

Anyone who took the time to really look at the long time annual rise in home values knew it was unjustified and unsustainable. The one good thing with this "bubble burst" is that eventually, when the economy turns around, people will get the benefit of actual affordable real estate priced closer to reality. That can only be a good thing for the long term.

Rodger said...

I think now is a better time than every to go out and purchase home, that some sound Advice Buying New Home.

Many people are purchasing homes now for the obvious reasons. When the recession ends of course.

The Artful Blogger said...

The one point that I try to reiterate to people is that homes are just a place to live. If you'd like to own that place and you can afford it, great. If not, feel free to rent.

Home ownership shouldn't be viewed as a significant piece of anyone's investment portfolio in my opinion. I try to keep real estate (including my primary residence) under 15% of total assets, but that's just my opinion.

Thanks for all of the comments!