How The Bear Popped The Bubble!

Gather 'round all ye bubble-sitting families and partake in a reading of this warm old holiday classic by Dr. SoldAtTheTop! (Originally posted Christmas 2006!)

***

Every Bull
Down in Bull-ville
Liked the Housing Bubble a lot...

But the Bear,
Who lived just South of Bull-ville
Did NOT!

The Bear hated the Bubble!
He blamed the Fed, rates and lending!
But the Bulls didn't care, they just kept right on spending.
It could be that Bulls were just very trendy.
It could be, perhaps, they were whipped into a speculative frenzy.
But I think the most likely reason of all
May have been that their noggins were two sizes too small.

But,
Whatever the reason,
Their heads or the craze,
They continued to spend, for days upon days.
And the Bear, staring up from his cave down below
Sensed the limit had been reached, things were going to BLOW!
For he knew every Bull up in Bull-ville that night
Had stretched every dollar, squeezed their finances tight.

"And they're going back for more!" he could see to his dismay
"This just cannot last, not for one more day!"
Then he ran to his closet to fetch a loud-speaker
"I MUST warn them all, before they get in any deeper!"
For, the Bear knew...

...All the Bull girls and boys
Who had been flipping, and borrowing and buying up toys
Were all skirting the edge, sitting perfectly poised
For collapse that once realized... oh, the noise! Noise! Noise! Noise!

Then the Bulls, young and old, will be in a terrible fix.
And they'd have to hunker down and stop all their mad tricks!
And the economy... oh what a mighty deep-six!
It will sink faster than boat load of bricks!

And THEN
Something would happen that he liked least of all!
Every Bull up in Bull-ville, the tall and the small,
Would all start to panic, when home prices stop swelling.
They'd reverse the craze… they'll all begin selling!

They'd sell! And they'd sell!
AND they'd SELL! SELL! SELL! SELL!
And the more the Bear thought of the Bull-Panicky-Sell
The more the Bear thought "This is NOT going to end well!"
"Why for almost a decade I've watched the bubble inflate!
I MUST warn them now!
Before it's TOO LATE!"

THEN
He mounted the loud-speaker
To the top of his car
And a siren with flood lights
That were blazing like stars

Then the Bear said, "I’m off!"
And he drove forty blocks
Toward the homes that the Bulls
Had been trading like stocks.

All their windows were bright. Flat panel glow filled the air.
All the Bulls were all carrying-on without even a care
When he came to a stop in the Bull-ville town square.
"This is the best place," the Bear thought as he reached
For the microphone that he would use when he preached.

THEN
Click! On went the siren, the lights and the speaker!
Then the Bear started yelling! "Things are looking bleaker and bleaker!
You all must come out, listen to what I have to say
Give me a chance to appeal to your senses today!"

Then one Bull emerged through his front door.
Then another came out, and some more... then still more.
Soon the square was abuzz with a large crowd of Bulls
All grumbling and muttering about association rules.

But the Bear went on "You are all in grave trouble!
I have come here to warn you of the Great Housing Bubble!
You see it's been inflating, stretching thinner and thinner..
If you don't stop now, there will be almost no winners!"

"This is the greatest Ponzi-scheme ever devised
Where all of you have been convinced to not question your eyes.
Just go right on speculating... pushing prices up higher
And assume there will always be a greater fool buyer!"

"But Things are now not looking so hot...
Home sales are plunging, The builders are shot!
Inventory is rising, there is no place to hide.
Soon you will be in for a vicious price slide!"

Then he clicked off the speaker and he heard not a sound.
The Bulls all looked puzzled, just standing around.
Then one Bull, an Economist named David Lereah (Pronounced Le-ray)
Stood up and he shouted, "I have something to say!"

"You are a very foolish Bear!" He said with a sigh
"This is a GREAT time to SELL or to BUY!
Yes prices are moderating, that much is sure true.
But that is a HEALTHY sign that the market will pull right on through.
I've seen all the numbers, I release them you know...
And what I've seen is STABILIZATION as we level off at the low"

"So pack up your things and head off down the hill!
We don't need your type of hype in Bull-ville!"

So the Bear did as he was told, all downhearted and grim.
He silently opened his car door and stepped in.
And he backed down the hill and then crawled into his cave.
And he thought about the Bull-ville that he failed to save.

But just then the Bear heard a horrible sound!
A massive explosion that sent shock waves through the ground!
As he looked from his window, he could not believe either eye...
The whole of Bull-ville had been blown to the sky!

And what happened then...?
Well, in Bear-ville they say
That although he was sad...
His pride grew three sizes that day!
And the minute his heart stopped feeling so blue
He published a book titled "What To Do and Not To Do If a Bubble Finds You!"

Hong Kong Bubble?: Hong Kong Residential Property Prices August 2011

Today, the University of Hong Kong released their Hong Kong Residential Real Estate Series (HKU-REIS) indicating that, in August, the price of residential properties declined 0.30% since July but climbed 20.4% above the level seen in August 2010.

It appears that after a stunning run of monthly increases that saw prices increase dramatically, prices are beginning to show a pullback of sorts with the most measures declining on the month.

The HKU-REIS is a set of property price indices constructed monthly using a “modified” repeat-sale methodology similar to that of the S&P/Case-Shiller indices yet suited to the Hong Kong property market.

How The Bear Popped The Bubble!

Gather 'round all ye bubble-sitting families and partake in a reading of this warm old holiday classic by Dr. SoldAtTheTop! (Originally posted Christmas 2006!)

***

Every Bull
Down in Bull-ville
Liked the Housing Bubble a lot...

But the Bear,
Who lived just South of Bull-ville
Did NOT!

The Bear hated the Bubble!
He blamed the Fed, rates and lending!
But the Bulls didn't care, they just kept right on spending.
It could be that Bulls were just very trendy.
It could be, perhaps, they were whipped into a speculative frenzy.
But I think the most likely reason of all
May have been that their noggins were two sizes too small.

But,
Whatever the reason,
Their heads or the craze,
They continued to spend, for days upon days.
And the Bear, staring up from his cave down below
Sensed the limit had been reached, things were going to BLOW!
For he knew every Bull up in Bull-ville that night
Had stretched every dollar, squeezed their finances tight.

"And they're going back for more!" he could see to his dismay
"This just cannot last, not for one more day!"
Then he ran to his closet to fetch a loud-speaker
"I MUST warn them all, before they get in any deeper!"
For, the Bear knew...

...All the Bull girls and boys
Who had been flipping, and borrowing and buying up toys
Were all skirting the edge, sitting perfectly poised
For collapse that once realized... oh, the noise! Noise! Noise! Noise!

Then the Bulls, young and old, will be in a terrible fix.
And they'd have to hunker down and stop all their mad tricks!
And the economy... oh what a mighty deep-six!
It will sink faster than boat load of bricks!

And THEN
Something would happen that he liked least of all!
Every Bull up in Bull-ville, the tall and the small,
Would all start to panic, when home prices stop swelling.
They'd reverse the craze… they'll all begin selling!

They'd sell! And they'd sell!
AND they'd SELL! SELL! SELL! SELL!
And the more the Bear thought of the Bull-Panicky-Sell
The more the Bear thought "This is NOT going to end well!"
"Why for almost a decade I've watched the bubble inflate!
I MUST warn them now!
Before it's TOO LATE!"

THEN
He mounted the loud-speaker
To the top of his car
And a siren with flood lights
That were blazing like stars

Then the Bear said, "I’m off!"
And he drove forty blocks
Toward the homes that the Bulls
Had been trading like stocks.

All their windows were bright. Flat panel glow filled the air.
All the Bulls were all carrying-on without even a care
When he came to a stop in the Bull-ville town square.
"This is the best place," the Bear thought as he reached
For the microphone that he would use when he preached.

THEN
Click! On went the siren, the lights and the speaker!
Then the Bear started yelling! "Things are looking bleaker and bleaker!
You all must come out, listen to what I have to say
Give me a chance to appeal to your senses today!"

Then one Bull emerged through his front door.
Then another came out, and some more... then still more.
Soon the square was abuzz with a large crowd of Bulls
All grumbling and muttering about association rules.

But the Bear went on "You are all in grave trouble!
I have come here to warn you of the Great Housing Bubble!
You see it's been inflating, stretching thinner and thinner..
If you don't stop now, there will be almost no winners!"

"This is the greatest Ponzi-scheme ever devised
Where all of you have been convinced to not question your eyes.
Just go right on speculating... pushing prices up higher
And assume there will always be a greater fool buyer!"

"But Things are now not looking so hot...
Home sales are plunging, The builders are shot!
Inventory is rising, there is no place to hide.
Soon you will be in for a vicious price slide!"

Then he clicked off the speaker and he heard not a sound.
The Bulls all looked puzzled, just standing around.
Then one Bull, an Economist named David Lereah (Pronounced Le-ray)
Stood up and he shouted, "I have something to say!"

"You are a very foolish Bear!" He said with a sigh
"This is a GREAT time to SELL or to BUY!
Yes prices are moderating, that much is sure true.
But that is a HEALTHY sign that the market will pull right on through.
I've seen all the numbers, I release them you know...
And what I've seen is STABILIZATION as we level off at the low"

"So pack up your things and head off down the hill!
We don't need your type of hype in Bull-ville!"

So the Bear did as he was told, all downhearted and grim.
He silently opened his car door and stepped in.
And he backed down the hill and then crawled into his cave.
And he thought about the Bull-ville that he failed to save.

But just then the Bear heard a horrible sound!
A massive explosion that sent shock waves through the ground!
As he looked from his window, he could not believe either eye...
The whole of Bull-ville had been blown to the sky!

And what happened then...?
Well, in Bear-ville they say
That although he was sad...
His pride grew three sizes that day!
And the minute his heart stopped feeling so blue
He published a book titled "What To Do and Not To Do If a Bubble Finds You!"

Crashachusetts: Home Sales and Prices April 2010

It’s been a while… For sake of brevity I have been trying to consolidate all my Mass-related housing posts into one comprehensive post but there is just too much data (condos, singles, RPX, CSI, MAR, etc.) so I’ll just do my best with whatever is the latest data point.

Also, it’s important to note that both the Warren Group and Radar Logic have gone offline as free data services so gone are my Arlington critiques and Boston RPX CSI mashup… such is life.

Today’s Boston Globe headline must read something like “Boston is Back!, Home Sales Leap with Nothing But Clean Sky’s Ahead” as the Mass Association of Realtors (MAR) pump their April sales, price and pending sales data but the fact is, the ridiculous housing trends seen in the Boston metro area for the last year have more to do with the tax gimmick and a false sense of stability than with any fundamental healing of our market.

Home prices are still too high in the Boston metro market and now that the charade of government meddling is largely complete (…though we still need to see higher interest rates and less foreclosure mitigation), we will likely soon find out how fundamental the supposed stabilization truly is.

In any event, the MAR released their April sales and price report showing that sales of single family homes surged 43.8% on a year-over-year basis while condo sales exploded up 63.9% over the same period.

The single family median home price increased 7.3% while the condo median price 6.8% on a year-over-year basis.

As for the Boston area S&P/Case-Shiller data, prices (on a non-seasonally adjusted basis) increased 3.83% on a year-over-year basis in March bringing the peak decline to 17.01% since the fall of 2005.

As it is altogether likely that one of the major unforeseen consequences of the government tax scam will be less future sales, now is the time to really focus on our market to get a sense of which way housing is truly trending.

Miami Re-Busting!

Today’s inductee into the “Re-Busting” lineup is Miami, one of the few epic super-bubble metros.

During the boom the stories coming out of the Miami housing market immediately became legend.

Tales of pre-construction condo flipping, yearly new construction inventory being added at three or four times the historic rate and over 30% annual appreciation worked to drive the mania to epic heights.

But, as we now know very well, the party ended in 2006 and the price line (as seen by the Radar Logic data) has been in a serious tailspin ever since.

In fact, the decline has been so significant that even the massive government stimulus couldn’t stop the dire reversion.

In spring 2009 buyers in the Miami market appear to have taken the first time home “buyer” tax gimmick as a signal that prices had bottomed out… animal spirits were back on!

Prices showed the most notable increase in three years climbing sequentially for the better part of three months.

But alas… the “organic” recovery was not quite underway.

Prices peaked out in mid-summer and declined throughout September falling below the prior low.

Worse yet, short of a feeble blip in prices going into the first expiration of the housing tax gimmick, prices have continued to decline reaching the current level some 51.14% below the peak seen in 2006 and dropping at an annual rate of 13.03%.

Hong Kong Bubble?: Hong Kong Residential Property Prices February 2010

There has been much speculation recently about an ongoing price bubble occurring in the Hong Kong residential property market.

The University of Hong Kong’s Residential Real Estate Series (HKU-REIS) indicated that, in February, the price of residential properties continued to rise increasing 2.13% since January and 29.98% since February 2009.

The “Hong Kong Island” index, “Kowloon” and “New Territories” sub-components also showed notable year-over-year increases.

The HKU-REIS is a set of property price indices constructed monthly using a “modified” repeat-sale methodology similar to that of the S&P/Case-Shiller indices yet suited to the Hong Kong property market.

Fire Burn and Cauldron Bubble!

"Alas poor mini-housing bubble, we hardly knew ye!"

At this point all eyes should be firmly glued to the excellent daily home price indices produced by Radar Logic.

We have come to the point at which a majority of the nation’s housing markets are sitting at, just above or well below the pricing levels seen during March of 2009.

In fact, several markets have even recently broken down below the pricing level seen in the year 2000 (more on this in a later post).

Combined, all of this weakness has worked to put downward pressure on the 25 market composite index, thwarting any chances for annual appreciation and bringing ever nearer the
specter of a new post-panic low for prices.

Although the government-sponsored bounce worked breathe life into residential real estate, a feat that will be likely repeated as we draw closer to the second tax credit
expiration, the effects were essentially temporary.

What we are seeing today is an overarching declining trend even despite the massive government sponsored stimulus (tax credit, quantitatively eased interest rates, foreclosure
mitigation, etc.).

Many markets, particularly those on the east-coast, are still very vulnerable to price deflation as their current levels are not borne out by long term historic trends.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings March 2010

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing declining results for all measures.

It's important to recognize that although each sentiment index has now shown notable year-over-year increases, their levels still remain near the worst levels seen in over 20 years.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Conspicuous Correlation: Retail Sales February 2010

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing an increase of 0.3% from January and an 3.9% increase from February 2009 on an aggregate of all items including food, fuel and healthcare services.

Discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales declined 1.58% compared to February 2009.

Further, adjusted for inflation (now deflation), “real” discretionary retail sales declined 3.71% since February 2009.

On a “nominal” basis, there had appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following chart show my initial analysis plotting the year-over-year change to an aggregate series consisting of the primary discretionary retail sales categories that I termed the “discretionary” retail sales series and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see there was, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

Looking at the chart below (click for full-screen dynamic version), adjusted for inflation (CPI for retail sales, CPI “less shelter” for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Reading Rates: MBA Application Survey – March 03 2010

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage decreased 8 basis points since the last week to 4.95% while the purchase application volume increased 9% and the refinance application volume jumped 17.2% over the same period.

It’s important to recognize that despite the Federal Reserve’s “quantitative easing” measures, record low interest rates and the massive government housing tax gimmick, the purchase application volume now sits near the lowest reading seen in over ten years.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).

Bounce, Crackle and Pop!: 9 Down... And Counting

The extra-seasonal, government sponsored housing price bounce having reached its peak, in terms of pricing, in most markets in mid-summer of 2009 now appears to have nearly reverted for some.

The Radar Logic home price data now indicates that nine of the most corrected of markets are continuing to correct even after all the government propping.

This presents an unequivocal bump in the road of the supposed “V” shaped economic recovery as a significant “housing recovery” disappointment shapes up over the next few months.

The following rollup (click for larger) shows the regions that have nearly completely reverted from the summer 2009 price peak to break the prior lows seen in March or 2009… some even dropping to series lows, resting at levels not seen since the late 1990s.

Note that I added “value” loss for homes purchased at the summer peak and costing either $200K, $300K, $400K and $500K… all losses are well in excess of the senseless $8000 government carrot tax “credit”.

The following are Blytic charts for each of the nine popped markets.

Constuction Spending: Januray 2010

Today, the U.S. Census Bureau released their January read of construction spending showing a continued slowing of the government’s tax-carrot fueled bounce in residential construction spending while indicating continued weakness to non-residential construction spending.

Even with the governments tax-credit gimmick, residential construction spending is still 6.43% below the level seen last year and a whopping 61.44% below the peak set in March 2006.

Worse off though was private single family residential construction spending which declined 8.61% as compared to December 2008 and a truly grotesque 75.74% from the peak set in February 2006.

Non-residential construction spending, currently accounting for over half of all private construction spending, posted another significant year-over-year decline of 19.91%.

The following charts (click for larger versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year and peak percent change to each since 1994 and 2000 – 2005.

The Globe of Bubbles!

One of the more interesting and most dramatic features of the housing bubble days was how pervasive and broad the mania was, encompassing a multitude of regional housing markets across the United States and around the world.

In fact, that was one of the primary arguments that prescient author John Talbott outlined out in his early 2000s books on the housing bubble, as he asserted that the sheer fact that bubbles were occurring in so many world property markets simultaneously likely implied that local supply constraints were NOT the cause of the significant house price appreciation, as many had argued.

Talbott accurately concluded that relaxed lending standards and a global credit boom were the real causes of the majority of outstanding property price appreciation.

Today, post-housing crash, we are still seeing property markets moving together somewhat as governments around the globe scramble to prop up quickly deflating housing assets.

One notable example can be seen by comparing the S&P/Case-Shiller index to that of the two popular U.K. home prices indices.

Today, Nationwide released the latest data confirming that U.K. property prices have fallen back a bit as was suggested by the January Halifax release.

Now, all three series, are showing a similar trend of a great decline, a government sponsored bounce and now indications of continued price deflation.

The following chart (click for dynamic full-screen version) shows S&P/Case-Shiller Composite-10 series along with the Nationwide and Halifax U.K. series.

New Residential Construction Report: January 2010

Today’s New Residential Construction Report continued to indicate a weak recovery for the new home market showing the continued year-over-year increases to both permits and starts.

It’s clear now that the government’s housing stimulus tax credit and loose FHA lending policies have worked to prop both new and existing home sales.

The government’s efforts, which now include an extension of an even more broad housing tax credit, have sponsored demand and provided the new home market with a more fertile environment to clear.

Nonetheless, at 484K single family units (SAAR), the level of national housing starts still remains below levels seen in the fall of 2008.

With the substantial headwinds of rising unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.

Any substantial departure from the current perception of a strong “V”-shaped recovery (i.e. stock selloff, protracted high unemployment, etc.) would likely send both new and existing home sales down for another go at the lows seen last March.

Single family housing permits, the most leading of indicators, increased a whopping 48.25% nationally as compared to January 2009 but still remains an astonishing 69.98% below the peak in January 2005.

To illustrate the extent to which permits and starts have declined, I have created the following charts (click for larger versions) that show the percentage changes of the current values on a year-over-year basis as well as compared to the peak year of 2004.