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The Rapid Deceleration Of Demand

A report from MarketWatch. “Shares of home builders TRI Pointe Group and William Lyon Homes were took a dive Thursday, after Wedbush Securities analyst Jay McCanless cut his ratings, citing the ‘rapid’ deceleration of demand in the companies’ key markets. ‘The rapid deceleration in housing demand for California and Seattle…this summer requires a more conservative earnings outlook on our part,’ McCanless wrote in a note to clients. ‘Both markets have exhibited a rapid slowdown in unit sales and in home price appreciation. We do not see a near-term positive catalyst to reverse either trend.'”

From Bloomberg. “Valuations on once sizzling Chinese home-appliance stocks have come down to levels that may interest some investors, though that’s unlikely to drive a rebound due to the long shadow the slowing property market casts over the sector. The fortunes of companies that make air conditioners, freezers and other household appliances are closely tied to property sales.”

“The likes of Qingdao Haier Co and Gree Electric Appliances Inc saw their shares surge over the past couple of years, as China’s housing market boomed, only to fall off the rails in 2018, as the government tightened controls to ward off a crash. The outlook for developers remains gloomy, which is bad news for appliance makers.”

“‘The low valuations reflect investors’ pessimistic expectations over home sales as some consumer discretionary names are closely tied with the property market,’ said Wang Chen, Shanghai-based partner with XuFunds Investment Management Co. ‘That kind of pessimism may persist over the next two to three years, weighing on appliance stocks.'”

“Gree and Qingdao Haier had been out of favor despite trading near the cheapest in more than 19 months, while Midea Group Co has lost US$24 billion in value since hitting a record high in late January. Household goods account for about half the weighting of a gauge of consumer discretionary stocks on the CSI 300 Index that has dropped 16% in three months, more than three times the benchmark’s slide.”

“‘They’re mainly dragged by the bearish outlook for the property industry,’ said Shen Li, an analyst with Bloomberg Intelligence in Hong Kong. ‘The sector had abnormally fast growth in the past year or so along with China’s real estate sales, and that’s not sustainable.'”

From Scotsman Guide Media. “In its latest forecast, Fannie Mae predicted that the U.S. economy had peaked in the second quarter in terms of gross domestic product (GDP) growth and would slow gradually going foward, in part driven by flat home sales. Fannie Mae Chief Economist Doug Duncan discussed the outlook, and what has been ailing the housing market.”

“Q: You mention that housing has been a drag on GDP. What has been the problem there?”

“A: Two months ago, we said it looks to us like housing may have plateaued. This month we repeated that, and also said that it looked to us that the house-price appreciation rate peaked in 2017, and the pace of appreciation will slow in 2018. If you are going to sell a house, house-price appreciation has helped you accumulate equity. However, it is a bad time to buy a house. If you turn around and buy that house, you are going to give all that equity to the person you bought the house from. What did you really gain?”

“So, what we have seen is a slowdown in sales, we believe, in part, because of that dynamic. That aligns with the number of existing homes offered for sale being at 30-year lows relative to the number of households in the country. When you look at the millennial portion of our survey, it looks to us like they are saying, ‘You know what, house-price appreciation has been so strong. With this bit of an interest rate rise, even if we could stretch to afford, we saw what happened last time when people stretched to afford. Maybe it is time for us to take a breath, and wait for things to price a little more rationally.’ I believe that is the story underlying the slowdown.”

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This Post Has 9 Comments

  1. ‘The rapid deceleration in housing demand for California and Seattle’

    Probably the most remarkable thing about this slide is how fast it’s occurred.

    1. Is deceleration the new term for crash? Just like shift or slowdown?

      “‘You know what, house-price appreciation has been so strong. With this bit of an interest rate rise, even if we could stretch to afford, we saw what happened last time when people stretched to afford. Maybe it is time for us to take a breath, and wait for things to price a little more rationally.’ I believe that is the story underlying the slowdown.”

      Rationally? Back to normal? More realtors’ terms? Basically, did income double or triple the last 7 or 8 years? No. Income hasn’t even kept up with inflation. Dont look at the CPI or BS government data that don’t include food and energy. Basically, we young people don’t want to be the next bagholders or FBs. With rents dropping (deceleration), we’ll just wait until the bubble burst…

      1. I’ve been down this semantics road before. It helps that HBB readers are more intelligent than the REIC. These real estate types are using deceleration as a way of implying that the rate of increase is slowing (e.g. 10% appreciation now only 5% appreciation). Their intent is to build a sense that things are still going up but just less so. In reality, 5% appreciation is acceleration. Everything above stasis is acceleration. In literal terms, deceleration (negative acceleration to a physicist) means measurable depreciation (price decreases). Now this fella could argue that he’s using a second derivative term to describe the year on year reduction in delta acceleration rate, but I’m gonna go ahead and assume that he’s grasping at straws and breathing with his mouth open per usual.

        Prices are dropping. Just say it plain and clear. Easy peasy.

  2. The Atlanta’s Fed’s estimate for the third quarter released just a few days ago is 4.4 percent and that includes a lot of soft housing data. The frackers have to drill more a more feet just to offset the rapid declines in the existing wells. Combine that with declining quality of rock and you have a lot of drilling growth. Add in drilling supplies, new pipelines and new Petrochemical plants and LNG facilities using the NG and it is a lot of growth. Had it not been for $100 a barrel oil under Obama his economy would have been in recession.

    1. The economy doesn’t belong to a President. It was and is our economy. If you subtract what we did with borrowed money it was and is not so pretty.

  3. Not sure if i like the new format the type on Firefox is large so a lot of scrolling

    NYC housing Zombie Homes

    I-Team: ‘Zombie Homes’ Lawsuit Targets Citi and Wells Fargo as Neighbors Decry Sex, Drugs and Squatters
    New York State’s 2016 “Zombie Home” law requires banks and their subcontractors to periodically inspect houses going through foreclosure — and if residents have bailed out — take over the cost of property maintenance

    https://www.nbcnewyork.com/investigations/Zombie-House-Lawsuit-Banks-Wells-Fargo-Citi-493723801.html

  4. I ran through downtown SLC on my way out of the city. Man, there are so many nice multi-family units going up everywhere. As a new leasing agent for a higher-end property, this makes me a little nervous. The good news for us is that we are still in the affordable range. Very affordable when you factor in that we provide a free bus pass, light rain, and train included in rent. But a lot of the new stuff is really ritzy, high-end luxury. I have to think that some developers are targeting an ever-shrinking demographic of people who can afford these digs. I don’t think things are as bad as Denver, but then again, we’ll have to wait and see.

  5. We watched the RE market get flooded with foreign (I think mainly Chinese) investors for the past 5+ years. Prices gone sky high, overbid, and shortages of homes for sale. Now homes, at least here, are sitting Unsold for months. What happened? It seems clear to me that these “investors” have disappeared. Now with them out of the equation, we see reductions and tons of houses flooding the market. I know there will always be FBs out there that listen to the realtors who need them to BUY NOW but if China knows now is a bad time to buy, they probably also know now is a good time to sell. I’m sure a good majority of the homes we see are listed by the investors that caused this mania. As Ben said in a previous post, last one to turn off the light. Wont be me, let those FB investors drown with there sinking ship!

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