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The Market’s Postrecession Zenith Has Come And Gone

A report from the Washington Post. “If you’ve been distracted by the federal shutdown, political dysfunction, stock-market volatility and reports of rising mortgage rates, it wouldn’t be surprising if you concluded: No way is this a good time to even think about buying a house or putting one on the market. Things are too crazy.”

“Consider: Inventories of unsold houses are growing significantly in many local markets. Home builders clearly have gotten the message and are lowering their prices in many areas. In the Washington-area market, nearly 23 percent of new homes got price cuts averaging 2.4 percent. In Miami, the average price cut was 5 percent on nearly 26 percent of the newly built stock; in Boston, cuts averaged 6.2 percent.”

“That may sound ominous if you’re planning to sell and want or need to get top dollar, but think of it this way: Better to price your home realistically up front — at the listing stage — rather than have it sit unsold for an extended period or be forced to endure painful cuts.”

From CNBC. “Real estate brokers are trying to figure out why sales of existing homes plunged in December. If anything, the drop may be due to the fact that home prices are actually falling in some areas, especially in the West, and in the rest of the nation the gains are shrinking. That makes it easier to afford a home, but less desirable if potential buyers are concerned that their new home’s value will immediately depreciate. No one wants to catch a falling knife.”

The Wall Street Journal. “Home sales tumbled in December to their weakest level since 2015, ending a difficult year at a new low and offering fresh evidence that the housing market could be in for a bumpy ride in 2019. December’s drop ‘is much more precipitous than we thought,’ said Cheryl Young, a senior economist at Trulia. She said the data help confirm the ‘housing market’s postrecession zenith has come and gone.'”

“The decline in December sales was broad, with Seattle, Portland, much of California, Denver, Maryland, Delaware and the Philadelphia area experiencing double-digit declines, according to an analysis by Lawler Economic and Housing Consulting.”

The Tampa Bay Times in Florida. “Sales of single family-homes in the Tampa Bay area plunged in December as prices again rose. In one good sign for buyers, though, the supply of available homes continued to inch up, with Pinellas County having its largest supply in at least three years.”

“For the second consecutive month, Pinellas had a three-month supply of homes. That was the most since December 2015, the furthest back that records go. ‘Florida’s housing sector is continuing to show signs that inventory levels are finally easing in many local markets after being constrained for a long time,’ said Eric Sain, president of Florida Realtors. ‘Improving inventory and interest rates that, though rising remain historically low, offer a good opportunity for homebuyers who have been waiting on the sidelines.'”

From Broker Pulse on New York. “Manhattan’s luxury market saw the slowest third week of January since 2012. According to a report from Olshan Realty, twelve contracts above $4 million were signed last week. The most expensive contract signed last week was PH54 at 56 Leonard Street for $22 million, $8 million less than the original asking price and over $1 million below what the owner paid.”

This Post Has 81 Comments
  1. ‘The decline in December sales was broad, with Seattle, Portland, much of California, Denver, Maryland, Delaware and the Philadelphia area experiencing double-digit declines’

    They don’t even bother to say where in California. “It’s all cratering out there!”

    1. “It’s all cratering out there!”

      That’s right. Cratering….. and there’s nothing left but the cryin’.

  2. “Real estate brokers are trying to figure out why sales of existing homes plunged in December. If anything, the drop may be due to the fact that home prices are actually falling in some areas, especially in the West, and in the rest of the nation the gains are shrinking. That makes it easier to afford a home, but less desirable if potential buyers are concerned that their new home’s value will immediately depreciate. No one wants to catch a falling knife.”

    Diana is at the top of her game.

      1. Her editor likely has her on a short leash, so she has to be careful. She’s also hit the wall, so job hopping is probably over.

    1. No one wants to acknowledge the elephant in the room.
      Sales are now falling and inventory is rising because housing bubble 2.0 has popped and psychology on housing has turned from + to -. Speculators are starting to realize this sea change and are moving to the exits to try to lock in gains. Buy psychology is now sell psychology. This is pushing up inventory. Next step is falling prices. This has already started in some (leading) areas. Look to Australia and Canada as well. They’re ahead of the U.S., so we can see what’s coming here next. Why is this happening in the.first place? Central bank (CB) policy as follow-up to CB-induced housing bubble 1.0 in order to save us (read banking cartel) from the aftermath of said bubble 1.0 and resulting GFC. If history repeats or at least rhymes, then we’re now seeing the beginning of another slow motion train wreck. Of course no one (wants to) see this coming, but already baked into the cake. Humpty Dumpty.

      1. Humpty Dumpty

        Of course it’s all the same bubble. Whether it will fall and break like an egg or bounce again is another question. The sooner things normalize the better, but the criminals running this casino won’t want that.

      2. “No one wants to acknowledge the elephant in the room.”

        All this data at our finger tips, but we can’t talk about it.

        1. It does not benefit them, or rather it could be detrimental to them to (be among the first) speak about it.

          The people paying any attention are trying to head to the exits, without alarming the throng still out on the floor dancing away. If they did shout ‘fire’ they might get hurt by the resulting stampede.

  3. ‘$8 million less than the original asking price and over $1 million below what the owner paid’

    Every day now there’s mucho Yellen bucks going to money heaven.

  4. ‘For the second consecutive month, Pinellas had a three-month supply of homes. That was the most since December 2015, the furthest back that records go’

    Was 2015 when the Florida UHS finally got pencils?

  5. Japanese leader Shinzo Abe’s message of hope in veiled attack on populist surge

    ‘Calling for reforms of World Trade Organization (WTO) rules on data, which he said would drive economic growth in future, he added: “we must enable free flow of medical, industrial and other useful, non-personal, anonymous data to see no borders. Repeat—no borders.”

    https://finance.yahoo.com/news/shinzo-abes-message-hope-veiled-attack-populist-surge-113612829.html

    The back drop to this is the huge number of Guatemalans crawling all over Tokyo.

    1. Xenophobia notwithstanding to the contrary, numerous demographically homogeneous developed nations with plummeting birth rates might benefit economically from an influx of young Guatemalans to do the work of the welfare state which a greying native population is no longer capable of conducting.

      Babies wanted: Nordic countries crying out for kids as demographics put region in same sinking boat as Japan
      AFP-JIJI, Staff Report
      Jan 21, 2019

      OSLO – “Norway needs more children! I don’t think I need to tell anyone how this is done,” Norway’s prime minister said cheekily, but she was raising a real concern.

      Too few babies are being born in the Nordic region. The countries were long a bastion of strong fertility rates on an Old Continent that is rapidly getting older. But they are now experiencing a decline that threatens their cherished welfare model, which is funded by taxpayers.

      “In the coming decades, we will encounter problems with this model,” Prime Minister Erna Solberg warned Norwegians in her New Year’s speech.

      “There will be fewer young people to bear the increasingly heavy burden of the welfare state.”

      In Norway, Finland and Iceland, birth rates dropped to historic lows in 2017, with 1.49 to 1.71 children born per woman. Just a few years earlier, their birth rates hovered close to the 2.1 level required for their populations to remain stable.

      1. OSLO – “Norway needs more children! I don’t think I need to tell anyone how this is done,” Norway’s prime minister said cheekily, but she was raising a real concern.

        Meanwhile, Norway’s ladies begin their sex lives earlier than every other modern country.

          1. Leaders of all sorts of autocratic states from China to Stalin have tried to control reproduction of their citizens and it has been futile. One thing that leaders can do is to create the conditions that make it ideal for people to want to start a family. That includes affordable housing, affordable childcare, and employment laws that allow flexibility in work-life balance. It’s not a coincidence that US fertility rate has basically plummeted as the housing bubble has reinflated.

      2. This is all part of the hollowing out of the world’s economies, specifically family wage jobs, in favor of cheap labor to line the pockets of the globalist “elite” who really should be slaughtered at this point.

        1. PS – Nobody is as stupid as the online trolls attacking Trump and carrying the water for these globalists.

    2. Easy for him to say.

      What sort of mass insanity is infecting these so-called “world leaders” these days? Are they all suffering from end-stage syphilis?

      1. They know that they, and their friends and cronies among the elite, won’t have to see or be impacted by the open borders they promote. Downsides are for “little people”

  6. “No way is this a good time to even think about buying a house or putting one on the market. Things are too crazy.”

    That may be the soundest real estate investing advice I’ve ever seen the Washington Post offer!

    1. Unbelievably, there’s even more great advice from WaPo:

      “That may sound ominous if you’re planning to sell and want or need to get top dollar, but think of it this way: Better to price your home realistically up front — at the listing stage — rather than have it sit unsold for an extended period or be forced to endure painful cuts.”

      Translation: You can choose between selling now for a small loss or waiting to sell for a much larger loss after the crash.

  7. Experts generally agree: Stock market returns over the next decade are going to suck compared to what investors are accustomed to getting. Is it too late to join the throngs who are hiding their cash HODLings in money market mutual funds?

    1. Que será, será.

      How low will the S&P 500 go? Buffett and Shiller know
      By Brian Livingston
      Published: Jan 23, 2019 9:44 a.m. ET
      Whatever will be, will be, but the long-term is ours to see

      • Shiller’s P/E10 predicts a 2.6% annualized real total return. Take today’s S&P 500 price and divide it by its companies’ average inflation-adjusted earnings over the past 10 years. This gives you a ratio that suggests whether the market is overpriced or underpriced. If you could buy one “share” of the S&P 500 index, your account would be worth around $2,700. After 10 years of 2.6% gains, you’d have $3,490. (Controversy alert: Various economists have proposed a number of improvements in the way Shiller’s ratio should be calculated.)

      • Buffett’s MV/GDP says minus 2.0%. Divide the S&P 500’s market value by the U.S. gross domestic product. Buffett wasn’t the first person to suggest this metric, but he’s said on the record that it’s “probably the best single measure of where valuations stand.” If the index fell 2.0% annualized, your $2,700 would turn into $2,206. Not so great.

      • Tobin’s “q” ratio indicates minus 0.5%. This metric divides the market value of all U.S. equities (not just the ones in the S&P 500) by the cost to replace all of the companies’ assets. It’s based on academic papers by economists James Tobin, a 1981 Nobel laureate, and William Brainard. This formula predicts that your S&P 500 account will drift slightly lower in real terms, not quite keeping up with inflation.

      • Jones’s Composite says minus 4.1%. Jones uses Buffett’s formula but adjusts for demographic changes. For example, as America’s population ages, this reduces economic demand. The resulting Demographically and Market-Adjusted (DAMA) Composite has predicted the S&P 500’s 10-year returns more closely than any of the other formulas since 1964. Let’s hope he’s wrong. A 4.1% annualized loss would drive your $2,700 account down to $1,776 after 10 years. That would be a 34% decline, almost as bad as the “lost decade” of 2000 through 2009.

      The predictions might seem far apart, but they aren’t. The forecasts are all much lower than the S&P 500’s annualized real total return of about 6% from 1964 through 2018.

      1. Those numbers are a lot lower than the returns that the pension funds are counting on. (I’m looking at you, CALPERS.)

        1. Going to be interesting to see how the pension funds attempt to cope with and spin things before making a full court push (by those who can) on the state legislators to raise taxes, etc.

          For someone like myself, who would like to retire in 10-12 years, I wonder what the best strategies might be to prepare for that… i.e. there’s a wave of boomers ahead of me, and they’re going to be leaning on all the systems in place (stock market, social security, pensions, real estate/downsizing/reverse mortgages/ etc etc) at the same time as (likely) sub-average returns. I smell a perfect storm coming.

          1. the best strategies

            Having already arrived I could point out a few points of strategy.

            First, do not buy an expensive house at peak bubble prices!

            Do not buy anything with borrowed money.

            Live modestly and stash enough cash to make it without the so-called support systems for a decade or two. Then you can have some speculative investments if you like.

            An often overlooked point; decide what you will do with your life and start doing it now in your free time.

          2. “An often overlooked point; decide what you will do with your life and start doing it now in your free time.”

            This has long been a guiding principle for me.

          3. BlueSkye

            1) can’t resist eh? 😉 I’m not worried, I’m here for the long haul.

            Now, let me give more context and make it a an interesting thought exercise….

            There is a very good likelihood that I will be seeing a passive income spike in the Q4 ’19 thru 2021 time-frame. About +$650k or so. This is directly related to something I did previously which has generated $30-50K/yr for the past ~6 years, so it’s not in the wishing/maybe realm, but rather something solid that I have been working years on finally paying off.

            If things line up exactly, with Mrs. Spiffy and I both working, we could see 2020 income hit right around $1.0M, before falling back to current levels. Regular income, so taxes will have to be dealt with – not much I can do to avoid that.

            So if that comes to pass, we will be sitting with a lump of cash during a time when everything investment-wise is very likely in a (long term) bear or falling market. – Essentially because we’re paying the price for the previous decade’s QE madness and everything bubble.

            I’m not expecting to find any overlooked great returns, but I do want to avoid winding up a fooked investor.

            Do not buy anything with borrowed money.

            Live modestly and stash enough cash to make it without the so-called support systems for a decade or two. Then you can have some speculative investments if you like.

            Already doing that. Outside of the house, we’ve not had debt in years now. We were talking last night about our cars – 11 and 13 years old, and decided to hang on to them for at least 5 more years. Emergency funds and other accounts are almost done refilling. We don’t concerns ourselves with the Jones.

            +Professor Bear

            “An often overlooked point; decide what you will do with your life and start doing it now in your free time.”

            Already doing that, and very much agree. Quality of life has been steadily rising the last several years – ticked off a bunch of ‘bucket list’ items, and our oldest kids are leaving the nest. A few more years and they all will be out of the house. Also been steadily simplifying our lives and improving health.

          4. can’t resist eh? 😉

            Could, but doesn’t seem necessary.

            May your plans work out with the best possible results.

          5. Could, but doesn’t seem necessary.

            If I wasn’t willing to take the ribbing and questions I wouldn’t have told anyone here about it in the first place. You might recall my first post about it was “I think I just scored a killer deal .. but OMG WTF have I done?? Am I insane?” ;P

            May your plans work out with the best possible results.

            Thanks, sincerely.

            Things rarely come easy. I found you have to be relentless to protect your interests and outcomes.

            One thing about life is that many things can’t be arbitrarily paused to wait for a better moment. And that your knees don’t get better as you age. 🙂

    2. This is what happens when central bank intervention swamps fundamentals.

      The Wall Street Journal
      Markets
      Risky Assets Move in Tandem, Stoking Fears More Volatility Lies Ahead
      Such patterns have come near major market turning points in the past
      Correlations across assets like stocks and commodities have hit their highest level in almost a year.
      Photo: Michael Nagle/Bloomberg News
      By Ira Iosebashvili and
      Amrith Ramkumar
      Jan. 23, 2019 8:00 a.m. ET

      Stocks, bond yields, commodities and other risky assets have continued moving in lockstep lately, raising hopes that this year’s nascent rebound will continue but also fueling worries momentum could once again reverse.

      Correlations across assets have hit their highest level in almost a year, with the S&P 500, the 10-year U.S. Treasury yield and U.S. crude oil moving in tandem in nine of the last 12 sessions. A six-day run of declines for the asset classes earlier this month was the longest streak since June, according to Dow Jones Market Data.

      Worries over global growth resurfaced this week, pushing stocks, oil and Treasury yields lower once again Tuesday. The International Monetary Fund a day earlier cut its outlook for world economic growth, while official data showed that China’s economy expanded at its slowest pace in nearly three decades last year.

      The moves have caught investors’ attention for several reasons. Such patterns have come near major market turning points in the past, making them an important signal to investors trying to gauge whether this year’s early rally in stocks could turn into a more sustained rebound after 2018’s steep decline.

      Others are worried the moves indicate that investors have loaded up on similar bets across a broad range of asset classes, setting the stage for a sudden unwind of positions once correlations break down and computer-driven trading models try to buy or sell all at once.

      Assets moving in lockstep are also at risk of rising or falling to levels that aren’t compatible with underlying fundamentals, as investors focus on global growth and other broad themes and ignore market-specific ones, some analysts said. That could result in a violent repricing when the correlation falls apart.

    3. Opinion: This rally is a symptom of a bear market, not a bull market
      By Robert Ross
      Published: Jan 23, 2019 11:34 a.m. ET
      Big single-day gains tend to happen in the worst bear markets
      Getty Images

      “Did you see that the stock market had its best day ever today?”

      That’s a quote from my mother.

      It was the night of Dec. 26. Earlier that day, the Dow Jones Industrial Average (DJIA, +0.27%) had surged over 1,000 points. Some people saw this as a sign that investor confidence had returned.

      But big surges like that are common during bear markets. In fact, they happen more in bear markets than in bull markets.

    4. This proposal for a return to high marginal tax rates as a redistribution mechanism seems badly misguided. Do Congress critters have to pass a basic economics proficiency requirement upon taking office?

      Ray Dalio warns Ocasio-Cortez’s 70% tax proposal could have ‘huge’ impact on economy and the market
      By Shawn Langlois
      Published: Jan 23, 2019 11:08 a.m. ET
      ‘This polarity issue — the income and opportunity gap — will determine who is elected’

      1. Maybe not 70%, but I don’t think she is wrong that the wealthy need to pay more in taxes. The structure is key here. I would rather implement a wealth tax or more of a property tax. Even Ray Dalio admitted that capitalism basically isn’t working for the vast majority of the people. 0.1% of the global population controls 90% of the wealth. That is not a meritocracy, because if it were the distribution would look a lot different.

        1. We’re on the same page. My point is that taxing wealth creation on the margin tends to result in less wealth creation. If you strangle the goose which lays golden eggs, you’ll get less future gold. The goal should be how to balance wealth production with wealth distribution to help make America great again. Nobody wants to become East Germany or Venezuela, not even Ms. Ocasio-Cortez.

          1. If you strangle the goose which lays golden eggs

            I think we are on much of the same page. The presumption inherent in this statement though is that it is the wealthy that have created the golden egg. The truth is that the capital/labor split has been falling for decades. Much of the producers and the workers who are part of the capitalism are getting a raw deal while the outsized gains are flowing disproportionately to the very top. Obviously jumping to a 70% top marginal tax rate isn’t going to be the right way to go about this, but there needs to be a way to increase taxes to redress some of the massive inequality and make it so the form of a capitalism operating in the US works for the median worker.

        2. Yes, I’ve heard people talk about increasing the cap gains tax instead. Some pol even said it on Meet the Press last week.

          I could see something like a progressive cap gains tax, like 25% for more than 1 million in passive income, 30% for more than 10 million, etc.

          I don’t think that would be too terrible to the economy, because it’s not like they can do anything with that much money other than invest it anyway. It’s like literally impossible to consume that much.

        3. Marie Antoinette economy , real work not valued only who has the biggest diamond at the Winter Party in Davos Switzerland.
          probably won’t end well and I think they know it the billionaires.
          Weird they don’t do much to change it, the ending , maybe they don’t think history repeats- its different this time.
          Going to have more Alexandria Ocasio-Cortez ideas because of it.

      2. Someone needs to pay a lot more. Or the Congress critters need to spend a lot less. Trillion-dollar deficits during a supposed economic boom?!

    1. “Ms. Hering said money she collects from roommates and from renting to Airbnb guests covers more than two-thirds of her roughly $4,300 in monthly payments, and her earnings cover the rest.”

      Chris Thornberg would say, “solid fundamentals.”

    2. “Additionally, she expects to soon receive an inheritance from her grandfather that will increase her assets.”

      Haha… probably has a countdown calendar on the fridge.

          1. He’s a riot. I’m sure the PC culture that’s developed over the last decade has hurt his career.
            I remember listening to him on Stern way back when and he talked about playing to an audience that had little kids right up front. Stern asked “so what did you do?” He said he went for it, didn’t change a thing, and if you’ve heard his songs, well…

  8. “December’s drop ‘is much more precipitous than we thought,’ said Cheryl Young, a senior economist at Trulia. She said the data help confirm the ‘housing market’s postrecession zenith has come and gone.’”

    Does this describe normal market conditions?

    Definition of zenith. 1 : the point of the celestial sphere that is directly opposite the nadir and vertically above the observer — see azimuth illustration. 2 : the highest point reached in the heavens by a celestial body.
    (Merriam-Webster)

    1. Speaking of zeniths, Mr Market’s early morning spike has given way to a renewed search for lower valuations.

          1. So many dire warnings, such a limited market response…

            A deep earnings ‘valley’ means trouble ahead for stocks, strategist warns
            By Sue Chang
            Published: Jan 23, 2019 4:42 p.m. ET
            Stifel’s Bannister cut 2019 S&P 500 target to 2,750 earlier this month
            IStockphoto
            It may not be so easy for the stock market to climb out of the earnings “valley.”

            Barely two weeks after slashing his S&P 500 target for 2019, one Wall Street strategist is warning that even that figure may be in jeopardy if corporate earnings disappoint.

            “Our 2,750 S&P 500 target is at risk due to the deep EPS ‘valley’ ahead,” said Barry Bannister, head of institutional equity strategy at Stifel, in a note, stressing that the slowdown in earnings growth will be much more acute than investors anticipate.

          2. All the financial metrics are twentieth-century when there was a “business cycle” whereas today we have a “credit cycle.” It’s entirely the fed’s shell game now, and they’re moving the cups around as needed.

  9. Listing increases and price cuts similar here in Sarasota to those described in article. One premium island area at 30 months inventory of sfr based on last few months average closing volume. Numerous properties there over 200 days on market with multiple price cuts.

    The new dawn is upon us.

  10. It‘s noteworthy that the December home sales largely reflect results before the government shutdown struck like a lightening bolt out of a clear blue sky. January numbers for the Washington, DC area should be quite interesting.

    The Wall Street Journal
    Economic Data
    Home Sales Dropped in December; Price Increases Slowed
    Decline of 6.4% suggests sluggishness in the housing market may persist into 2019
    December capped the weakest year for home sales since 2015.
    Photo: Keith Srakocic/Associated Press
    By Laura Kusisto and
    Sarah Chaney
    Updated Jan. 22, 2019 4:24 p.m. ET

    Home sales tumbled in December to their weakest level since 2015, ending a difficult year at a new low and offering fresh evidence that the housing market could be in for a bumpy ride in 2019.

    Some of the same forces that pounded global financial markets in the fourth quarter caused home buyers to pull back at the end of the year. Home sales were weighed down by a surge in stock-market volatility, uncertainty as the government shutdown began and rising interest rates, which pushed up mortgage rates in November to their highest level in seven years.

    Housing also suffered from high home prices and a dearth of starter homes in major markets, a nagging problem for much of last year that shows little sign of abating. A growing U.S. economy and low unemployment haven’t kept home sales from sputtering.

    “We’re in a mental recession,” said Sam Khater, chief economist at Freddie Mac. “It’s a constant stream of negative headlines for a couple of months…it wears on you.”

    December capped the weakest year for home sales in three years. Existing-home sales fell 6.4% in December from the previous month to a seasonally adjusted annual rate of 4.99 million, the National Association of Realtors said Tuesday. Compared with a year earlier, sales in December declined 10.3%.

    Weak U.S. home sales—along with overseas concerns after the International Monetary Fund cut its forecast for global growth and new data showed China’s economy growing at its slowest annual pace since 1990—unnerved stock-market investors. The Dow Jones Industrial Average fell 1.2% to 24404.48 on Tuesday, while the tech-heavy Nasdaq closed down 1.9% to 7020.36, ending stocks’ four-day winning streak.

    1. Given that the housing market is gasping for air against a backdrop of near-historically low unemployment, one can’t help but wonder how the market will adjust should unemployment ever rise.

    2. “Compared with a year earlier, sales in December declined 10.3%.”

      That’s the important number, not the 6.4% one-month change highlighted in the headline.

  11. Saw a house here on the central coast of California that sold recently. Sold for less than an almost identical comp a few doors down sold for in 2016. Price range is $800k. All it takes is a few more of those sales to set the comps and 3 years of gains go poof.

      1. SLO is full of retirees and students. Retirees cached out in LA or SF and headed for the good life in paradise. They also rent rooms to students for $1000 a mo. Supply and demand at the top.

  12. “We’re in a mental recession,” said Sam Khater, chief economist at Freddie Mac. “It’s a constant stream of negative headlines for a couple of months…it wears on you.”

    You darn bloggers you!!!!!

  13. a report states that the trumpdown is costing us taxpayers $1.2 billion a week. sweet! no wonder we cant have nice things.

    1. Thanks for the link. Even at 725K, what industry there is supporting this high price? Rich retirees, Chinese money launders, etc?

    2. Too much clutter in the photos on the second listing.

      First listing – Down 10% from asking in 3 months. So much for put a sign out and let the offers pour in.

      Comps are headed down.

    3. Crazy price. This type of a house goes for about $270k where I live, and I still consider that too pricey.

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