Builders apparently put a lot of shovels in the ground last month. It’s a muddy picture, tangential, but since everyone is interested in housing, I decided to take a look, pursuant to this dicsuction that arose yesterday.
23 hours ago, SiP said:US May Housing Starts +21.7% To 1.631M; Consensus -0.8%
22 hours ago, potatohead said:Lee, Would like your opinion on this blowout. You have been in real estate a long time, have you ever seen this type of surge in housing after all these rate hikes and QT?
17 hours ago, DrStool said:First question. Multi family or single family? Second question. What’s the data on new home sales say? Is this surge spec building or presales?
I think this is just a reaction to the downtick in mortgage rates a few months back. If this is actual buying, then the buyers will live to regret it. If it’s spec, the builders will get crushed again.
Or maybe its a new secular trend with more people working from home waiting for the AI holocaust.
In short, I’m out of the US housing market for good, and glad to be. I like my buy and hold pied-a-terre in a fantastic European location, that Putin may or may not nuke, and that pays me to live there and also have a great time traveling.
So, we have established the fact that I no longer have a position in American real estate. I sold my Florida home in March 2022, thank you very much. I have lived in Europe for 3 years and 7 months. I bought an apartment in Nice, France, where I now reside. I paid cash, so the monthly nut is close to zero. Taxes, insurance, and maintenance fees in France are a fraction of what the are in the US, roughly 70-80% LESS.
I renovated the, and in May, I put it on Airbnb and Booking.com and I took off for 4 months of travel. The rental income pays for my lodging, meals, and transportation, maybe with some cash left over when I get back, depending on whether I can exceed 80% occupancy.
And given the trends of working from home and digital nomadism, I suspect that my apartment will continue to gain intrinsic value until AI kills us all.
So, real estate? This is the kind of investment I like. Cash flow! It can work wonders.
That said, we probably have another year or two left before AI gets it, so let’s take a look at this.
Keep in mind, I am no longer a qualified expert in real estate. I gave up my certified general real estate appraiser license 20 years ago. I appraised my last commercial development, and did my last market studies 22 years ago.
In my opinion, in terms of cause and effect, housing is no driver of the stock market, and is too small a contributor to the US economy to matter much in that regard either. In fact, sometimes it appears that the stock market drives housing trends to some extent, not the other way around. But actually stock prices and housing are corollaries of liquidity.
Based on that chart, it looks as though the stock market rally had something to do with a rebound in new home sales. And that apparently drove starts.
Total starts includes single family and multifamily buildings. It gets muddied because townhomes are included in single family new home sales but are multifamily starts. Multifamily also includes rental developments and condos built on spec. One thing is clear. There’s a yawning and growing gap between demand, shown by new home sales, and supply, which is total starts. That gap corrected in January, but by May it was again yawning
A few more tidbits. MBA Purchase Mortgage index shows sales dead in the effin water.
And average new mortgage size turns lower from a lower high. Housing prices are still deflating since peaking in March of 2022, when I sold my house in Florida. That’s the second time I got out at a market top. Got the highs in June 2005 also when prices topped out in FL.
Last but not least, the National Association of Homebuilders publishes a misnamed Builder Confidence Index with 3 components. Actual sales. A measure of model home center visitors. And what builders expect for the next 6 months. The third measure is a joke. Absolutely meaningless. Homebuilders are the last to know what will happen in 6 months. But the first two measures are extremely useful.
Here’s what the two useful measures show comparing year to year in June. This is as current as it gets. Indeed, there’s been a sharp rebound since the December bottom. Both current conditions and buyer traffic ratings have nearly doubled since bottoming in December.
These ratings are subjective and subject to recency bias. Sure, relative to a disastrous year in 2022, current levels are nearly twice as good. But both Present Conditions and Buyer Traffic are still at the worst levels for June in 8 years.
Bottom line. I’m not too bullish about this housing rebound. I think it has set the conditions for another plunge as the market gets overbuilt on the threshold of a likely renewed rise in mortgage rates ahead.
We Now Know What is Driving the Rally
For moron the markets, see:
- We Now Know What is Driving the RallyJune 20, 2023
- We Have Met the Resistance June 20, 2023
- Gold Gets Nearer Important Cycle Lows June 18, 2023
- The Fed’s Slush Fund is Working June 16, 2023
- Swing Trade Chart Picks – Adding Late Cycle Buys June 16, 2023
- Rally Broadens as It Gains Momo June 12, 2023
- Gold Set Up for This Cycle Low June 7, 2023
- Investors Breathe Sigh of Relief But D-Day Is Now June 6, 2023
- Incomprehensible, That’s What You Are June 2, 2023
- Modestly Hedged Dealers, Record Short Hedge Funds Suggest Disaster Ahead May 25, 2023
- The Most Widely Forecast Economic Disaster In History May 16, 2023
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