New Home Inventory

1
Key problem facing housing markets is
foreclosures heres why Typical chronology of
the financial crisis as outlined by J. Taylor,
Stanford Univ. the Brookings Inst., and others
see upcoming articles by Brian Perkins, VT
(perkinsb_at_vt.edu), and Dan Cumbo, Hardwood Market
Report (dan_at_hmr.com), for more details, and
coverage of the interaction with wood product
markets. (1) Low interest rates/loose monetary
policy/lax lending standards led to the housing
boom and inflated asset prices (2) complex
securitization/dicing of mortgages made risk
more difficult to assess this led to more risk
taking and even higher prices. (3) Then
interest rates increased as banks and others
realized the excessive risk in housing assets
the big risk being counterparty risk (the risk
the other party in an agreement will
default). (4) As mortgage defaults/foreclosures
increased, banks lost money, and they were forced
to fix their capital ratios. This led to the
credit freeze lenders dont lend and borrowers
dont borrow. (5) Summarizing housing bust
foreclosures - financial crisis -
recession Solution Until foreclosures slow to
more moderate rates (1 million or less per year),
the credit freeze (that has spread to other
markets e.g., credit cards, commercial real
estate), will continue as banks/financial sector
continue deleveraging fancy word for
reassessing risk and shoring up balance sheets.
There are a number of proposed foreclosure
fixes FDIC proposal Treasury proposals the
Obama team and others. My opinion when we see
measured progress in reducing foreclosures, that
would be a sign things are getting better.
2
Source MBA, Dennis Couchon, USA Today, Dec 12
2008
3
New Home Inventory
Oct 08 11.1 months
Single family, Months supply
Source U.S. Census Bureau, New Residential
Sales, CB06, Table 1.
4
Existing home inventory
Months Supply, Single Family
Oct 08 9.6 months
Source NAR
5
Housing InventoryStill too large
Thousand Units, Single Family
2008 monthly, SAAR
Annual 1990 - 2007
6
NAHBs Latest Forecast
67 drop from 2005 peak to 2009 bottom Modest
recovery starting 2nd half 09?
Thousand starts
Source NAHB, November 24, 2008
7
Lumber and Panel Prices Follow Housing and
stumpage prices track lumber prices
Starts ( Million units)
Price, /M
8
Net change in Non Farm payrolls
( thousand )
1. 9 million net job loss in 2008 ( thru NOV)
Source U.S. BLS ( www.bls.gov )
9
Case Schiller National Home Price IndexSome
analysts suggest prices need to fall another
15to bring prices and incomes back to
historical norms.
Qtr, change, Year over Year
Qtr 3 08
Existing homes
10
Housing Demand DriversLonger term outlook is
solid based on demographics(household formations
plus immigration)
Million per year
Harvard JCHR outlook ( Nov 2007)
11
Home prices and incomes must trend together-
when price exceeds ability to pay (incomes)house
prices must come down
Income and Price set to Index of 100 in 1990
correction
Sustainable relationship
Sources NAHB NAR Home prices U.S. Census
family income
12
House Prices
Per cent change, Year over year, Monthly
Source Bureau of Census and NAR