Paper Money - A US Real Estate Bubble Blog

New Residential Construction Report: November 2008

Posted: 16 Dec 2008 08:58 AM CST

Today's New Residential Construction Report continues to firmly demonstrate the intensity and completeness of the washout conditions that now exist in the nation's housing markets particularly for new residential construction showing tremendous declines on both a peak and year-over-year basis to single family permits both nationally and across every region.

It's important to note that today's results appear to indicate that a new leg in the housing decline was reached between October and November with permit activity falling at the most significant rate seen in this decline.

Single family housing permits, the most leading of indicators, again suggests extensive weakness in future construction activity dropping 46.28% nationally as compared to November 2007 and an astonishing 73.79% since the peak in January 2005.

Moreover, every region showed significant double digit declines to permits with the Northeast declining 40.0%, the Midwest declining 42.7%, the South declining 48.5%, and the West declining a stunning 46.3% on a year-over-year basis.

Keep in mind that these declines are coming on the back of last year's record declines.

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.

Declines to single family permits have contracted measurably in terms of monthly YOY declines, and the fact that we are now seeing declines of roughly 30%-50% on the back of 2006 and 2007 declines should provide a an unequivocal indication that the housing markets are by no means stabilizing.

Here are the seasonally adjusted statistics outlined in today's report:

Housing Permits

Nationally

Single family housing permits down 46.3% as compared to November 2007.

Regionally

For the Northeast, single family housing down 40.0% as compared to November 2007.
For the Midwest, single family housing permits down 42.7% as compared to November 2007.
For the South, single family housing permits down 48.5% compared to November 2007.
For the West, single family housing permits down 46.3% as compared to November 2007.

Housing Starts

Nationally

Single family housing starts down 46.0% as compared to November 2007.

Regionally

For the Northeast, single family housing starts down 59.8% as compared to November 2007.
For the Midwest, single family housing starts down 41.7% as compared to November 2007.
For the South, single family housing starts down 45.7% as compared to November 2007.
For the West, single family housing starts down 43.4% as compared to November 2007.

Housing Completions

Nationally

Single family housing completions down 33.3% as compared to November 2007.

Regionally

For the Northeast, single family housing completions down 24.7% as compared to November 2007.
For the Midwest, single family housing completions down 32.6% as compared to November 2007.
For the South, single family housing completions down 30.5% as compared to November 2007.
For the West, single family housing completions down 41.4% as compared to November 2007.

Keep in mind that this particular report does NOT factor in the cancellations that have been widely reported to be occurring in new construction.

Video of The Day - 60 Minutes on The Next Wave!

Posted: 15 Dec 2008 01:58 PM CST

Here's the segment from last night's 60 minutes covering the next wave of foreclosures... nothing we didn't know already but a fun watch!

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings December 2008

Posted: 15 Dec 2008 12:24 PM CST

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing dramatic new lows and continued evidence that the new home market is experiencing a prolonged bout of depression.

Each component of the NAHB housing market index remain WELL BELOW the worst levels ever seen in the over 20 years the data has been being compiled strongly suggesting that the current severe contraction has surpassed all other events seen in the last 22 years and is now firmly in uncharted territory.

Bernanke’s Nightmare: Commercial Paper December 15 2008

Posted: 15 Dec 2008 11:34 AM CST

This post is a follow up and further elaboration showing the current and historical values for some key interest rates.

These interest rates are for short term (30 day) commercial paper that is typically issued by corporations to "raise needed cash for current transactions".

A key in reading these rates is to recognize that the AA non-financial is more highly rated than A2/P2 non-financial and that, in general, the AA non-financial tends to track the Federal Reserve's target rate while the others typically track slightly higher.

Normally, the spread between the weakest quality paper (A2/P2 non-financial) and the highest (AA non-financial) is 15-20 basis points but as of the latest Fed posting, the spread has remained dramatically elevated at 585 basis points… truly a worrying sign.

The first chart shows the spread between the A2/P2 and AA non-financial while the lower two charts show the how all the short term commercial paper rates have tracked since 1998 and mid-2007 respectively.

Notice that prior to mid-2007, the Federal Reserve had been able to keep these rates fairly tight and in-line with the target rate but now we are seeing significant trouble.

In as sense, the current crisis has effectively erased all the rate cuts Bernanke has made this cycle and even added another 90 basis points.

Production Pullback: Industrial Production November 2008

Posted: 15 Dec 2008 11:08 AM CST

Today, the Federal Reserve released their monthly read of industrial production showing continued significant declines to the aggregate production and widespread declines across many industries, particularly those related to consumer spending, construction and business vehicles, resulting in a significant year-over-year decline to the total index of 5.50% as compared to November 2007 and a 0.62% decline since October.

"Final product" consumer durable goods continue to show weakness falling 16.93% as an aggregate on a year-over-year basis, with particularly significant declines coming specifically from home appliances, furniture and carpeting which declined for the thirtieth consecutive month by 20.70% on a year-over-year basis.

Construction supply production has been showing the most severe contraction seen in at least the last 20 years with wood products falling 17.12%.

Although automotive production has been showing weakness since the middle of 2004, business vehicle production is now showing a stark contraction.

The following charts (click for larger) show the overall consumer durable component along with the Home Appliances, Furniture and Carpeting sub-component on both a time series and year-over-year basis, construction supply production with the wood products sub-component, and general and business related vehicle production all overlaid with the last two recessions for comparisons purposes.