Housing Has Bottomed? Talk To Lennar
The housing sales data - new and used - for November suggested to some that the residential real estate sector, after having been in a freefall, was stabilizing. Well, the chief executive of Lennar Corp., a nationwide home builder, was on the tape today disputing that notion. According to Lennar CEO Stuart Miller, "Market conditions continued to weaken throughout the fourth quarter, and we have not yet seen tangible evidence of a market recovery." While other builders are experiencing double-digit declines in new orders, Lennar was able to manage its quarterending November 30 decline to only 6%. How? By aggressively cutting prices. There is widespread anecdotal evidence that builders are cutting prices and/or literally throwing in the upgraded kitchen sink to clear out inventories, yet the "official" median price of a new home sold in November was reported to have been up. The sales data pertaining to new home sales typically are revised significantly and are now even more suspect due to the high rate of contract cancellations, which are never accounted for in the data. If the "official" sales data are suspect, would not the price data be too?
Speaking of clearing inventories, builders continue to see their inventories of completed homes increase, both in absolute terms and relative to their total inventories (see Chart 1). Historically, until the relative inventories of completed homes begin to decline, the starts of new homes continue to decline (see Chart 2). The housing recession won't be over until the home builders start to sing rather than sob.
Chart 1
Chart 2
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Author: Paul Kasriel
Paul L. Kasriel
Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005. The accuracy of Paul's 2008 economic forecast was ranked in the top five of The Wall Street Journal survey panel of economists. In January 2009, The Wall Street Journal and Forbes cited Paul as one of the few who identified early on the formation of the housing bubble and foresaw the economic and financial market havoc that would ensue after the bubble inevitably burst. Through written commentaries containing his straightforward and often nonconsensus analysis of economic and financial market issues, Paul has developed a loyal following in the financial community. The Northern's economic website was listed as one of the top ten most interesting by The Wall Street Journal. Paul is the co-author of a book entitled Seven Indicators That Move Markets.
Paul began his career as a research economist at the Federal Reserve Bank of Chicago. He has taught courses in finance at the DePaul University Kellstadt Graduate School of Business and at the Northwestern University Kellogg Graduate School of Management. Paul serves on the Economic Advisory Committee of the American Bankers Association.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The information herein is based on sources which The Northern Trust Company believes to be reliable, but we cannot warrant its accuracy or completeness. Such information is subject to change and is not intended to influence your investment decisions.
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