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We Have An Oversupply And Demand Has Fallen Off A Cliff

A report from Bloomberg. “Ram Konara, a real estate broker in suburban Dallas, is raking in freebies this year: trips to Lake Tahoe and Santa Barbara in California, Cabo San Lucas in Mexico, and a dude ranch in Wyoming. The homebuyers he represents are cashing in, too. They’re winning price cuts of more than $100,000, on top of free upgrades such as media rooms, cabinets, and blinds.”

“This generosity flows from increasingly desperate homebuilders. Hot markets are cooling fast as interest rates rise. In the great housing slowdown of 2018, shoppers are reclaiming the upper hand, after years of soaring prices that placed most inventory out of reach for many families. ‘Everybody is hungry for the buyers,’ Konara says.”

“From builders’ perspective the news is discouraging. New home purchases tumbled in September to the weakest pace since December 2016. Sales of previously owned homes dropped for a sixth straight month, the worst streak since 2014. Homebuilding stocks have lost more than a third of their value this year.”

“Raj Patel, a 35-year-old pharmacist, who has two young children, is weeks from finalizing his $699,000 new home purchase with Darling Homes. It has four bedrooms, a grand staircase, two patios, a balcony, a game room, a media room, and a three-car garage. He’s paying $90,000 less than the advertised price.”

“Still, he’s worried. A builder working in the same community is selling a similar house with the ‘same bells and whistles’ for $75,000 less. Konara informs Patel that the market is getting soft. ‘Hopefully the market doesn’t dip much more than this,’ Patel replies.”

“‘We have an oversupply. Too many lots came on the market in the last 12 to 16 months, and demand has fallen off a cliff,’ says Jennifer Johnson Clarke, director of sales for Shaddock Homes. ‘I’ve not offered incentives on any scale like I’ve offered this year.'”

“After work, Ansar Ahmed, a 39-year-old information technology worker, walks into a Darling Homes showroom. It’s probably his 25th visit to a Dallas area sales office since his house hunt began in February. He’s no closer to making a decision. Ahmed has lots of worries. He’s watching mortgage rates jump and stocks plunge. Salespeople keep handing him home discount sheets, with red slashes through the original sales prices.”

“‘Everywhere I go I see that red line,’ Ahmed says. ‘“I don’t want to buy at the top of the market.'”

From Dow Jones Newswire on Washington. “Amazon’s announcement last week that it will add new headquarters in New York and Virginia injects new uncertainty into the already slowing Seattle market. Seattle home sales are already down this year compared with last and home price growth has eased. Price cuts are becoming more common and bidding wars more scarce. Rental landlords are struggling to lure tenants, promising perks like free rent and $2,500 Amazon gift cards.”

“Economists and real-estate agents said the Amazon news is benign compared with the negative effect that rising interest rates and high prices are having in deterring buyers. Rents in downtown Seattle and the South Lake Union area, near Amazon’s headquarters, have actually fallen about 2% this year, according to RealPage. About 3,000 more units are also expected to begin construction early next year.”

“‘If there’s any more immediate effect it could be on the apartment market because they’re building an awful lot of apartments downtown,’ said Matthew Gardner, chief economist at Seattle-based real-estate brokerage Windermere. ‘”That could cause rental rates to see some kind of compression.'”

The Silicon Valley Business Journal in California. “For the first time in more than a year, there was an increase in the inventory of homes for sale in Santa Clara County in October, particularly at the $1 million-and-below price point.”

“But despite that availability, overall sales continued to decline, a trend that surprised Selma Hepp, chief economist for Pacific Union International and author of the report containing the data.”

“‘I thought the whole time that (the sales decline) was a lack of inventory,’ Hepp said. ‘I think it would have been up until this point, but I think what’s happening now is even at that lower price range, probably the increase in home prices together with the increase in interest rates has really affected people.'”

“Overall home sales dropped 12 percent in October from October 2017, Pacific Union’s figures show. Santa Clara County was at the most extreme end of the trend. Sub-$1 million sales fell 26 percent in San Mateo County, 23 percent in San Francisco and 18 percent in Contra Costa and Alameda counties. Overall, the Bay Area YOY sales decline was 18 percent.”

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This Post Has 54 Comments

  1. ‘We have an oversupply. Too many lots came on the market in the last 12 to 16 months, and demand has fallen off a cliff…I’ve not offered incentives on any scale like I’ve offered this year’

    I’ve said before, this area north of Dallas is headed for a serious crater. $700k shacks where they can build all the way to Oklahoma=disaster.

    BTW, the Bloomberg article is worth reading in full. Has some info on Seattle and New York City as well.

  4. “Still, he’s worried. A builder working in the same community is selling a similar house with the ‘same bells and whistles’ for $75,000 less. Konara informs Patel that the market is getting soft. ‘Hopefully the market doesn’t dip much more than this,’ Patel replies.”

    If you already KNOW another builder is selling a similar house for 75,000 less, why doesn’t he at least ask for 75,000 less?

    Between his $90k discount and the other builders selling for 75k less.. he’s already underwater $165k. He knows and it still going to “finalize” his purchase?

    Hope this 35-year old pharmacist isn’t prepping any of my prescriptions.. yikes!

    1. Between his $90k discount and the other builders selling for 75k less.. he’s already underwater $165k.

      I get your point, but you might want to think about that math.

      1. Imagine what the people who bought one of these things 6 month ago are thinking as they read this article. When new shacks are getting whacked like this the bubble has popped.

        1. Imagine

          A few points off, so dreams of riches dimmed. They still don’t have any idea what lies ahead, as you have often reminded us.

  5. ‘I thought the whole time that (the sales decline) was a lack of inventory’

    No Selma, sales out there have been down for a long time. And you guys pulled this “theory” out of your behinds. That’s just one reason it’s bunk. Now you got too many shacks and buyers aren’t interested.

  6. “He’s paying $90,000 less than the advertised price.”

    And still overpaying hundreds of thousands of dollars.

    Sucka :mrgreen:

    1. “After work, Ansar Ahmed, a 39-year-old information technology worker, walks into a Darling Homes showroom. It’s probably his 25th visit to a Dallas area sales office since his house hunt began in February. He’s no closer to making a decision. Ahmed has lots of worries. He’s watching mortgage rates jump and stocks plunge. Salespeople keep handing him home discount sheets, with red slashes through the original sales prices.”

      “‘Everywhere I go I see that red line,’ Ahmed says. ‘“I don’t want to buy at the top of the market.”

      MEASURE 25 TIMES: CUT ONCE

      2. at the top of the market

        Don’t be silly Ahmed. The red line means you missed the top. Now it’s a falling knife.

      3. “‘Everywhere I go I see that red line,’ Ahmed says. ‘“I don’t want to buy at the top of the market.”

        If I were an IT guy, I’d be paying more attention to the meltdown of Tech Bubble 2.0 and pondering the implications instead of overpaying for a shack I may not be able to hang onto if I lose my job.

  9. I have never invested in precious metals but was reading about the process. It seems that you’re going to pay a minimum of 5% to the dealer right up front, sometimes more. And I’d guess they’ll take at least that when you want to sell it back. That’s a big cut.

    1. Not sure where you heard that. My local coin shop charges a premium of 1% over spot to buy, and pays 1% under spot if you want to sell it back to them.

      Physical precious metals, held in your own possession, are the ultimate hedge against the Keynesian fraudsters at the Fed and their debasement of the currency.

      1. It’s not “what I heard,” you can go to SDBullion, Kitco, etc. and see that American Eagle gold coins are 3.9% over spot at the very cheapest, but going over 5%. The local coin shops around me are even higher.

        I’d sure love to know where you’re getting 1%.

        1. I stand corrected. If you sell bullion coins my local coin deal pays 1% under spot, but if you buy them the premium you pay is more like 3-4% over spot. I’ve ordered from SD Bullion and have been pleased with their prices & service. Sometimes on Craigslist you can find sellers offering bullion for spot, though I always verify the coins at my local coin dealer before purchase.

          It’s still worth it to have physical gold in your hand, rather than printing-press FedBux. Every portfolio should include at least 5-10% in physical precious metals.

    1. From the looks of those charts, Bitcoin has lost 1/3 of its value in under one month. Will the lemming herd of HODLers continue its headlong race over the edge of the cliff all the way down to $0?

      1. Bitcoin has lost

        Just maybe, the value of this scam internet currency is as a vehicle to get skimmed credit expansion money out of China. The speculators are only a manic side show. We may be watching the vise tighten on capital flight, which means we’re watching the Chinese credit bubble implode maybe.

    1. $222.73 Bitcoin Cash price
      −$50.53 Past hour (USD)
      −18.49% Past hour (%)

      Has anybody ever seen stocks or any other “investment” do an 18% swan dive in an HOUR?

        1. Why Central Bank Digital Currencies Will Destroy Cryptocurrencies
          Nov 19, 2018
          Nouriel Roubini

          Leading economic policymakers are now considering whether central banks should issue their own digital currencies, to be made available to everyone, rather than just to licensed commercial banks. The idea deserves serious consideration, as it would replace an inherently crisis-prone banking system and close the door on crypto-scammers.

          NEW YORK – The world’s central bankers have begun to discuss the idea of central bank digital currencies (CBDCs), and now even the International Monetary Fund and its managing director, Christine Lagarde, are talking openly about the pros and cons of the idea.

          … starry-eyed crypto-fanatics have seized on policymakers’ consideration of CBDCs as proof that even central banks need blockchain or crypto to enter the digital-currency game. This is nonsense. If anything, CBDCs would likely replace all private digital payment systems, regardless of whether they are connected to traditional bank accounts or cryptocurrencies.

          https://www.project-syndicate.org/commentary/central-banks-take-over-digital-payments-no-cryptocurrencies-by-nouriel-roubini-2018-11

          1. the digital-currency game

            All this attention is ridiculous. What will be amusing is the sob stories of the ruined idiots.

          2. “What will be amusing is the sob stories of the ruined idiots.”

            You don’t even need to wait for that, just Google “Coinbase reviews” for some amusement.

          3. Don’t miss the relevance of the crypto cliff dive, which is that it is happening in synchronicity with similar developments in other risky asset classes, including stocks, oil, and housing. Eee-bola contagion is simultaneously wiping out the credit bubbles that inflated over recent years across a plethora of risky assets. Crypto is merely the riskiest and hence the most dramatic example.

    1. +21% YOY increase per square foot, doesn’t seem like a very big crater to me. When square footage prices come down, then we’ll see some pain.

      1. Many of the market cratering posts are based upon large reductions in the median square foot of homes sold, not the price per square foot.

  14. ‘Hopefully the market doesn’t dip much more than this,’ Patel replies.”

    Hope is not a strategy, Patel.

  15. Opinion: Victims of bitcoin insanity are quickly piling up
    By Ivan Martchev
    Published: Nov 20, 2018 10:35 a.m. ET
    The cryptocurrency will bankrupt many individuals and hurt some companies (hello, Nvidia)
    AFP/Getty Images
    Buy bitcoins — or maybe not.

    Chipmaker Nvidia last week issued revenue guidance for the current quarter of $2.7 billion, falling well short of analysts’ consensus estimates of $3.4 billion. The culprit? The deflating bitcoin bubble!

    Some explanations for earnings and revenue warnings you just can’t make up.

    The global cryptocurrency mania — not only for bitcoin (BTCUSD, -1.53%) but similar absurdities — led to strong demand for graphics processing units (GPUs), which Nvidia is a leader in, as they are used to run the computations necessary to “mine” cryptocurrencies. As the air has rapidly left the global crypto bubble, mining those worthless lines of code has gotten less lucrative and, hence, the demand for GPUs has rapidly declined.
    …

  17. Don’t be the jerk who brings up bitcoin this Thanksgiving
    Cryptocurrency has no place at the table.
    By Rani Molla@ranimolla
    Nov 20, 2018, 3:24pm EST
    John Moore / Getty

    Last Thanksgiving, Americans sat with their families, gave thanks for the bounty and talked about bitcoin. At least it seemed as though people everywhere, young and old, were suddenly interested in cryptocurrencies and wondering if they should board the decentralized currency train. There were even guides about how to discuss cryptocurrencies with your relatives at dinner.

    It made sense.

    Bitcoin, the marquee cryptocurrency, was trading at an intraday high of $8,267 last Thanksgiving, up a mind-boggling 724 percent since the beginning of 2017, according to CoinMarketCap data. After a post-Thanksgiving rally it hit $10,000. By mid-December that amount doubled to nearly $20,000.

    It seemed like it was going forever up and to the right. Until it wasn’t. Bitcoin — along with other cryptocurrencies like Ethereum and litecoin — spent most of 2018 in a slump.

    https://www.recode.net/2018/11/20/18103622/bitcoin-cryptocurrency-thanksgiving-price-ethereum-litecoin

  19. Better keep slashing the year-end price forecast. Or get ready to consume the largest New Year’s crow dinner on record.

    Wall Street’s crypto bull Tom Lee slashes year-end bitcoin price forecast nearly in half
    – Fundstrat’s Tom Lee is lowering his bitcoin price target to $15,000 from $25,000.
    – A key driver for the year-end revision was bitcoin’s “break-even” point, the level at which mining costs match the trading price.
    – “While bitcoin broke below that psychologically important $6,000, this has lead to a renewed wave of pessimism,” says Lee. “But we believe the negative swing in sentiment is much worse than the fundamental implications.”
    Kate Rooney
    Published 3:07 PM ET Fri, 16 Nov 2018 Updated 7:14 PM ET Fri, 16 Nov 2018 CNBC.com
    Thomas Lee, Fundstrat Global Advisors
    Scott Mlyn | CNBC

    Wall Street’s best-known cryptocurrency bull just cut his bitcoin price target nearly in half.

    Tom Lee, co-founder of Fundstrat Global Advisors, lowered his year-end target to $15,000 from $25,000 — still well above where the cryptocurrency was trading on Friday.

    A key driver was bitcoin’s “break-even” point, the level at which mining costs match the trading price. That level is down to $7,000 from an earlier estimate of $8,000 for the S9 mining machine by Bitmain, according to Fundstrat’s data science team. Based on that, Lee estimates that fair value for bitcoin would be roughly 2.2 times the new $7,000 break-even price.

    https://www.cnbc.com/2018/11/16/wall-streets-crypto-bull-tom-lee-slashes-year-end-forecast-by-10000.html

  20. Wouldn’t it be amazing if the whole Bitcoin bubble and crash was driven skyward by illegal price manipulation?

    As bitcoin nosedives, regulators said to be investigating whether it was propped up illegally
    – The U.S. Justice Department is reportedly looking into whether traders used another cryptocurrency called tether to bid up bitcoin prices during its 1,300 percent rally last year.
    – Federal prosecutors launched a broader criminal probe into cryptocurrencies earlier this year but now suspect that traders on crypto exchange Bitfinex may have been moving prices illegally, Bloomberg reported, citing three people familiar with the matter.
    – The news comes amidst bitcoin’s 16 percent price drop on Tuesday.
    Kate Rooney
    Published 12 Hours Ago Updated 6 Hours Ago CNBC.com
    A customer enters the offices of La Maison du Bitcoin bank in Paris, France.
    Christophe Morin

    As bitcoin continued its downward slide Tuesday, U.S. regulators are reportedly looking into whether its record-breaking rally last year was the result of market manipulation.

    The U.S. Justice Department is investigating whether traders used tether, a controversial cryptocurrency that founders say is backed 1:1 by a U.S. dollar, to prop up bitcoin, according to a report from Bloomberg News, which cited three people familiar with the matter.

    Tether and Bitfinex did not immediately respond to CNBC’s request for comment.

    https://www.cnbc.com/2018/11/20/regulators-investigate-whether-bitcoin-price-was-propped-up-illegally.html?&qsearchterm=bitcoin

  21. Nov 20, 2018,4:06 pm
    Bitcoin May Suffer Additional Pain After Sharp Losses
    Charles Bovaird, Contributor
    Crypto & Blockchain
    I am a financial writer and consultant who focuses on investments.
    Bitcoin prices may be headed for additional losses. Credit: Getty Royalty FreeGetty

    While bitcoin has had a rough couple of days, experts say it may be poised for additional losses.

    Earlier today, the cryptocurrency dropped to $4,200.22 and then bounced back, rising to $4,764.88, according to CoinDesk price data.

    While this upward movement represented a 13% gain, it took place after the digital asset fell through both the $6,000 and $5,000 price levels.

    The cryptocurrency’s rally then proceeded to stall, sending bitcoin prices to as little as $4,076.59, additional CoinDesk price data shows.

    Bitcoin’s failure to mount a strong recovery after suffering significant losses could point to further bearishness, said technical analysts.

    [Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

    https://www.forbes.com/sites/cbovaird/2018/11/20/bitcoin-may-suffer-additional-pain-after-sharp-losses/#915a80ecb7cf

  22. Nov 20, 2018,11:59 pm
    The Great Cryptocurrency Scam
    Jay AdkissonContributor
    Personal Finance
    I cover Wealth Preservation in its legal permutations

    When I first wrote about The Great Bitcoin Scam in December of 2017, Bitcoin was trading at $15,433 after falling from its all-time high of $19,783 a few days earlier. As I write this article, Bitcoin is now trading at $4,359. Very simply, Bitcoin is in deep trouble. There are investigations about price manipulation, and the use of Bitcoin for payments is down 80% according to Reuters.

    As poorly as Bitcoin has done in 2018, Bitcoin is the best of a sordid lot. The website deadcoins.com humorously lists hundreds of defunct cryptocurrencies and related investments that were either outright scams or just really bad ideas, many of which attracted untold billions from investors worldwide who are now that much less wealthy.

    Whatever else one can say that cryptocurrency has accomplished, it has been one of the greatest destroyers of wealth in the financial history of mankind. Take, for example, Bitconnect which was pitched by this guy to enthusiastic investors and at the end of 2018 was worth $450 — it is now worth $0.06 assuming you can find a buyer.

    Nonetheless, hardly a day goes by that somebody doesn’t ask me about investing in cryptocurrency because their financial advisor told them that they need “some exposure to cryptocurrencies”. My response is always the same: They need to find another financial advisor, unless the plan was to go short on Bitcoin.
    …

  23. As the stock market and economy are set to skid, Goldman says cash will be king
    By Mark DeCambre
    Published: Nov 20, 2018 4:39 p.m. ET
    Getty Images
    Cash rules everything for Goldman in this market.

    Cash is king. That is according to Goldman Sachs strategists who predict that 2019 will deliver lackluster, single-digit stock-market returns, making greenbacks the best game in town.

    “We forecast S&P 500 will generate a modest single-digit absolute return in 2019. The risk-adjusted return will be less than half the long-term average. Cash will represent a competitive asset class to stocks for the first time in many years,” analysts at Goldman, led by David Kostin, wrote in a research reported dated Nov. 19.
    …

  24. Trump wants Fed to cut interest rates after stock-market wipeout, but history not on his side
    By Jeffry Bartash
    Published: Nov 20, 2018 5:06 p.m. ET
    Fed rarely cuts rates when GDP is strong, unemployment low
    Getty Images
    President Donald Trump is not happy with his choice to run the Federal Reserve, Chairman Jerome Powell.

    After the latest stock-market drubbing, President Donald Trump said Tuesday he’d like the Federal Reserve to cut interest rates. But that may be wishful thinking.

    The U.S. is on track to grow 3% annually in 2018 for the first time in 13 years and the unemployment rate has fallen to a 48-year low of 3.7%. The Fed has cut rates a few times when gross domestic product appeared strong, albeit briefly, but almost never when both growth was stable and unemployment low.

    There’s no example of the Fed doing this since the end of World War II.
    …

  25. Business
    Bitcoin Price Crash News: ‘Extreme Fear and Sell-off’ Grips Cryptocurrency Market
    By Shane Croucher On 11/20/18 at 10:56 AM

    Having once knocked at the door of $20,000 during its peak toward the end of 2017, the price of cryptocurrency bitcoin sunk to new lows during trading on Tuesday.

    As of Tuesday morning, bitcoin had fallen about 15 percent in 24 hours to below $4,500—its lowest point in 2018—and many expect it to dive further over the coming days and weeks.

    “The only question now is how low the new correction will turn out,” said an analyst’s note from FXPro, a currency broker based in London.
    …

  26. Try to avoid bear FAANGs.

    Apple’s stock tumble makes it unanimous — the FAANG bull market has ended
    By Tomi Kilgore
    Published: Nov 20, 2018 4:06 p.m. ET

    The FAANG stocks have never all been in a bear market together, as Google’s last one occurred before Facebook went public

    For the first time, all five FAANG stocks are in bear markets.

    Apple Inc.’s stock made it unanimous Tuesday, as it tumbled 4.8% to the lowest close since May 3, helped there by a price target cut at Goldman Sachs. The stock closed 23.7% below its Oct. 3 record close of $232.07.
    …

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