Paper Economy: Constructing Capitulation: March 2007

Thursday, May 03, 2007

Constructing Capitulation: March 2007

Well it’s safe to say that in March I almost capitulated as my server took a “hard landing” of its own putting a jeopardy all the Inventory, OFHEO, Case-Shiller and BNN data collected for an entire year.

Well luckily, I was able to recover everything and the server is now healthy and back up and running.

The same can’t be said for the nations housing markets though as they continued to flounder in March resulting in fairly uniform acceptance that the bottom was not seen last fall, as had been widely speculated, and that we are now on the verge of a new leg down.

The recent National Association of Realtors pending home sales data, a forward-looking indicator, seems to confirm continued weakness as shown by the following chart.

Note that, except for the West region, every 2007 year-over-year decline was larger than the declines seen in 2006.

Keep in mind that the 2007 declines are coming on “the back” of the declines seen in 2006 indicating accelerating weakness when compared to the peak year of 2005 as the following chart indicates.

The Census Department’s New Residential Home Sales Report showing more significant revisions to prior months results as well as continued weakness across virtually every region.

NAR’s Existing Home Sales Report showing the larges monthly drop in home sales since January 1989 as well as significant median price declines, particularly for single family homes.

The Census Department’s New Residential Construction Report showing accelerating weakness to both permits and starts pushing year-over-year declines to those measures above 20% for virtually every region.

The Q1 2007 GDP advance showed continued declines to fixed residential investment depressing the overall GDP by .97%, the slowest quarterly growth since Q1 2003.

The February 2007 results of the S&P/Case-Shiller Indices are continuing to show substantial declines to home prices in virtually every tracked market while housing futures continue to predict still further declines.

In a recent conference call, Angelo Mozilo, CEO of Counrtywide Financial (NYSE:CFC), suggested that his outlook on home prices are a bit of a mixed bag.

“I think, bottom line, it’s very difficult to determine where [home] prices are going. It would certainly, based upon our view of where the world is today, increased foreclosures, as that comes on to the market we’ve got to work through that. During that period of time, in certain areas of the country values will go down. Certain unique areas of the country, values will stabilize and others, although few, where values will continue to climb but not at the rate they did before so it’s sort of a mixed bag.”

Furthermore, Countrywide has now hiked rates significantly for their sub-prime products as well as indicating that their Q1 impairments related to their prime products totaled $135 million or over 30% of all impairments for the quarter.

The Census Department’s Construction Spending report for March again demonstrated the significant extent to which private residential construction spending is contracting.

With the weakening trend continuing, total residential construction spending fell 14.37% as compared to March 2006 while private single family construction spending declined by a grotesque 27.2%.

Key Report Details:

The seasonally adjusted annul rate of private residential construction spending has now dropped 14.55% from the peak set back in December of 2005.
Overall private residential construction spending dropped 14.37% as compared to March 2006.
Single Family residential construction spending dropped 27.16% as compared to March 2006.

The following charts show changes to construction spending (click for larger version):