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Is new home construction doomed to never recover? Some think so

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Is new home data even reliable?

This month marked a historic low for the new home construction sector with the lowest sales and permits in recorded history, and lowest prices and starts in almost a decade. Economist Barry Ritholtz says that new home sales are notoriously unreliable because the data relies on builders to self report to the Census Bureau which Ritholtz claims is fallible because of the “get to next month” mentality of builders and notes an average of three months together gives you a better data point.

Ritholtz points to builders suffering because it is cheaper to buy a 24 month old house in a subdivision than the brand new one next door and notes that despite the 90s bringing population growth and a “booming stock market [that] led to some profit rotation from Equities into Real Estate,” the sector has been an ugly one over the years.

But when will new home construction recover?

So data is shaky, times are unequivocally rough for builders, foreclosures have flooded the market putting builders at a disadvantage and renting is the new black, so what now?

Some are pointing to an uptick in builder stocks despite the downturn and claim that there is a rally, but according to CNN, “homebuilders may never recover.” Wow, what a headline. But is this salacious headline to get people to read or can they back it up?

Regarding homebuilder stocks, the foundation of many of their decisions, the chart below illustrates “builder stocks got hit harder than the broader market – and it’s taking them a longer time to bounce back.”

Builder stocks and NAHB talking points

CNN points to speculation that some builder stocks are a cheap deal now, but they were an even cheaper deal back in the day, and hedging bets on a flopping market isn’t exactly smart.

Builder stocks may never be what they were at their peak, but their slow recovery doesn’t spell an impossible recovery and the foreclosure flood is as permanent as the HUD flood of yesteryear.

Where builders could really be in trouble is not just competition with foreclosures forcing the price point down in resale, but in financing. We’ve pointed out the National Association of Home Builders’ (NAHB) one talking point which is financing is tight to impossible which could be part of the broader problem. If NAHB screams that wildly enough, do they really think lending will loosen up, given their shockingly horrific state of affairs in production, sales, pricing and now stocks?

Is NAHB creating self fulfilling prophecy?

If you watch modern tv, you’ve heard the saying, “if you keep accusing me of cheating, I might as well.” This is what the NAHB is doing to lenders- reminding them via hundreds of press releases that their lending is impossible and tight, so maybe lenders are thinking (or will eventually think) that NAHB is right- they invested in a sector that turns out to have broken all records of failure and that they should probably remain as conservative as they are now, especially if they’re endlessly accused of it.

Perhaps if NAHB changed their talking points from “lending is too tight” to “we look forward to a loosening of lenders in time,” the self fulfilling prophecy will not come true and lenders won’t feel like they have a jealous spouse they want to spite.

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13 Comments

13 Comments

  1. Susan Tongate via Facebook

    March 24, 2011 at 1:07 pm

    IMO
    Some of the USA homebuilders might as well move their shops to countries where they are building homes.
    —–At the rate the USA Economy is recovering
    —–the GOP are striping everything possible from the middle class and the most needy USA citizens
    —–the GOP wants to eliminate the GSEs that back up most USA mortgages
    —–the financial institutions are wanting to only offer 15 year mortgages.

    Therefore, I don’t really see the housing market recovering any day soon as long as the GOP keeps moving this USA 50 years backwards.

  2. Susan Tongate via Facebook

    March 24, 2011 at 1:21 pm

    High end homes might be OK — because the divide between the Haves and Have Nots just gets wider and wider !!

  3. Anna Altic

    March 24, 2011 at 3:53 pm

    My over simplistic thoughts.
    -Everyone needs a place to live
    -If credit is tight then they rent, causing a premium in rental rates (huge jump last fall)
    -Even if you are forced to live with mom and dad(you want to get the hell out of dodge most likely) so you start stock piling cash.
    -Eventually you can afford a down payment on a home now and it’s likely cheaper monthly to own than rent
    – financially distressed properties get absorbed and it’s till cheaper to own than rent because sellers are tired and their is still some shortage in rentals
    -eventually there may be more qualified buyers (we hope) than inventory and lenders needing to be in the lending business will start lending to builders so they can continue to lend to buyers. Heck – we can hope they will accurately forecast this shift and start lending to builders sooner than later.
    -however it call comes down to everyone needs a place to live at least that’s what I tell myself.

  4. MH for Movoto

    March 24, 2011 at 4:38 pm

    I mean, yes, CNN and every other news source in the world likes to overshoot with the headlines (and it works on me, for sure). But is it really crazy to think that the insane building-boom of the late 90s is totally over and will never come back? I’m not saying I believe that’s definitely the case, I just don’t think it would be shocking. After all, it’s not just about banks and interest rates – it’s about consumer priorities which, I think we can all agree, have changed a lot throughout the recession.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.

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Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.

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Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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