Market Sentiment - Recession Length

[MichaelB]

What I am "railing" about on these threads is the pitch that everything is fine because employment is fine and because the housing market is hot. THEY DO NOT LEAD, they follow deteriorating economic conditions.

I think this is a straw man argument, None of my posts ever said the “economy is fine because employment is strong”. I did say the economy is not in recession, because the data show it’s not, but it is slowing. And, once again, current economic activity does not meet with the NBER definition of a recession (see here)

A very good long leading indicator of economic growth is new housing starts. Previous recessions show steep declines in new starts well before the onset of recession. New starts have flattened but are definitely not in steep decline, and new units under construction are close to all time highs, which reaffirms current positive economic activity.

Calculated Risk is a website that does economic analysis and has excellent info on housing. Here’s a recent look at housing https://calculatedrisk.substack.com/p/may-housing-starts-all-time-record

 

[copyright1997reloaded]

I think this is a straw man argument, None of my posts ever said the “economy is fine because employment is strong”. I did say the economy is not in recession, because the data show it’s not, but it is slowing. And, once again, current economic activity does not meet with the NBER definition of a recession (see here)

A very good long leading indicator of economic growth is new housing starts. Previous recessions show steep declines in new starts well before the onset of recession. New starts have flattened but are definitely not in steep decline, and new units under construction are close to all time highs, which reaffirms current positive economic activity.

Calculated Risk is a website that does economic analysis and has excellent info on housing. Here’s a recent look at housing https://calculatedrisk.substack.com/p/may-housing-starts-all-time-record

We can review in six to twelve months as to where we are. Until then, party on. and peace.

I am well aware of Calculated Risk, and followed it way way back in 2006/07 and onward days (when Tanta was alive).

 

[ncbill]

OK. So we'd have to see what as far as unemployment? We're at 3.5 now. How much unemployment needs to happen for a housing crash? And where are all of these people going to live that walk away from their homes? Going in to a recession doesnt mean a housing crash. I dont remember a housing drop in the 2001 to 03 recession. Sure, sales will slow down, but people have to live somewhere. That guy that sells his home to get equity because he lost his job needs to live somewhere. This is nothing like what happened in 2008. Then, there was an oversupply of homes. Nothing like that exists now as far as I know.

Another "Great Recession" where both earners (even white-collar) in a household lose their jobs & their house value goes underwater (i.e. no equity to extract) they'll just leave the keys on the kitchen counter and move in with friends/relatives.

 

[SecondCor521]

A very good long leading indicator of economic growth is new housing starts. Previous recessions show steep declines in new starts well before the onset of recession. New starts have flattened but are definitely not in steep decline, and new units under construction are close to all time highs, which reaffirms current positive economic activity.

It obviously depends on what point of comparison one chooses, but new housing starts and permits declined in May. I saw the news on CNBC, but here's a Bloomberg article from a few days ago:

https://www.bloomberg.com/news/arti...s-building-permits-drop-by-more-than-forecast

I didn't find a cite for new units in construction. Anecdotally around here all they're building is condominium and apartment complexes; very few SFH. I don't know how those count in the data. A lot of young people I know are either living with their parents or house sharing.

 

[MichaelB]

It obviously depends on what point of comparison one chooses, but new housing starts and permits declined in May. I saw the news on CNBC, but here's a Bloomberg article from a few days ago:

https://www.bloomberg.com/news/arti...s-building-permits-drop-by-more-than-forecast

I didn't find a cite for new units in construction. Anecdotally around here all they're building is condominium and apartment complexes; very few SFH. I don't know how those count in the data. A lot of young people I know are either living with their parents or house sharing.

Look at the link in my previous post. Among other things, it breaks down single and multi-unit.

The month to month decline in May is not a good sign, but housing data is very noisy, so it’s best to look at year over year or rolling 12 months.

 

[Chuckanut]

It obviously depends on what point of comparison one chooses, but new housing starts and permits declined in May. I saw the news on CNBC, but here's a Bloomberg article from a few days ago:

https://www.bloomberg.com/news/arti...s-building-permits-drop-by-more-than-forecast

I didn't find a cite for new units in construction. Anecdotally around here all they're building is condominium and apartment complexes; very few SFH. I don't know how those count in the data. A lot of young people I know are either living with their parents or house sharing.

In my area it's mostly apartments that are being built and the odd one or two BIG EXPENSIVE sfh being built on the oddball empty lot that is not developed. Starter single family homes and condos are just not being built. Land is just to expensive to put a 1600 sq ft. 3 bed 2 bath single family home on, even on a small lot.

 

[aja8888]

Housing Bubble Woes: Supply Jumps, Sales Drop, Median Price Skewed Higher by Shift in Mix as Bottom Falls Out below $500k, amid Holy-Moly Mortgage Rates

Wolf Street just put put the May housing numbers and trends (short read):

https://wolfstreet.com/2022/06/21/h...s-median-price-skewed-higher-by-shift-in-mix/

Sales that closed in May of previously-owned single-family houses, condos, co-ops, and townhouses fell by 3.4% from April, based on the seasonally adjusted annual rate of sales, and by 8.6% from a year ago, the National Association of Realtors reported today.

Sales of single-family houses alone dropped by 7.7% year-over-year. Sales of condos and co-ops dropped by 15.3% year-over-year.

May was the tenth consecutive month of year-over-year declines. The old saw that there’s no inventory for sale is no longer an excuse because supply jumped 12.6% in May – so sharply falling sales on sharply rising supply (data via YCharts):

 

[almost there]

No idea on the length. But the fed better hurry up and raise rates to semi normal / low levels.
So they can cut rates at the 1st hint of a recession next year.

 

[Montclairbobbyb]

Why the debate??

Who cares what you call this? Recession or not, it's a freaking calamity. My wife and I are trying to build a house, watching costs continuing to soar for no good reason, while watching my wealth shrink, also for no good reason.

Whatever this is, IT SUCKS!

 

[cyber888]

The World will end when Putin fires a couple of Nukes, and US will fire a couple of counter-Nukes. Or when some alien ship spreads a global virus. But no worries, we live in a simulation world

Breaking news...

A- The world is not ending
B- For the first time in a long time, savers will be able to earn income without investing
in risky assets
C- Long term bonds are not discounting a total collapse of the economy

What is happening is that a massive bubble created globally by trillions of dollars of stimulus is collapsing. So what can we expect going forward:

A- Rates will rise and the Fed will once again slam the brakes at the first sign of a slowdown.
B- The rotating bubbles in the equity markets will collapse (concept stocks, crypto, SPACs, commodities, meme stocks)
C- Real companies with real earnings will live on
D- The conflict in Ukraine will continue until the Dictator in Russia gets whacked or is dead from natural causes. His death will trigger a strong counter-trend rally.
E- Markets bottom when news looks the bleakest in the present but Markets discount the future. Think back to 2009 and 2020.
F- The narrative on inflation will soon change to a narrative on deflation by the end of 2022.

 

[almost there]

The World will end when Putin fires a couple of Nukes, and US will fire a couple of counter-Nukes. Or when some alien ship spreads a global virus. But no worries, we live in a simulation world

Change channels. Has very little to do with Russia.
Geez... Let alone Putin...

 

[copyright1997reloaded]

h/t Liz Ann Sonders:

Real estate investors bought nearly 78k homes in metros tracked by ⁦
@Redfin
⁩ in 1Q22 … translates to 20% of homes sold, which is a record (up from 15.2% a year earlier)

 

[harllee]

Who cares what you call this? Recession or not, it's a freaking calamity. My wife and I are trying to build a house, watching costs continuing to soar for no good reason, while watching my wealth shrink, also for no good reason.

Whatever this is, IT SUCKS!

Take a deep breath, you will be OK. It is cyclical. About every 7-8 years the US has a recession so we were due. And every time the economy recovers in a few years. The 2008 recession was truly awful, the worst in my life time, but even then the stock market fully recovered in less than 4 years. Most likely this recession is not going to be nearly as bad as the 2008 recession and the market will recover in a year or two.

Regarding your house, can you delay things until the supply chain issues get straightened out or maybe reduce the size or delay the garage or the finished basement for a while?

There are reasons for what it going on in the economy. Covid has had a tremendous effect on the economy, especially the supply chain issues and labor shortages. Russia's actions ind Ukraine have also had a major impact, especially on fuel prices. But I still think a lot of what goes on in the economy is just cynical. Things go up and down.

Just hold on, things will get better and you will recover from all this.

 

[SecondCor521]

Take a deep breath, you will be OK. It is cyclical. About every 7-8 years the US has a recession so we were due. And every time the economy recovers in a few years. The 2008 recession was truly awful, the worst in my life time, but even then the stock market fully recovered in less than 4 years. Most likely this recession is not going to be nearly as bad as the 2008 recession and the market will recover in a year or two.

Regarding your house, can you delay things until the supply chain issues get straightened out or maybe reduce the size or delay the garage or the finished basement for a while?

There are reasons for what it going on in the economy. Covid has had a tremendous effect on the economy, especially the supply chain issues and labor shortages. Russia's actions ind Ukraine have also had a major impact, especially on fuel prices. But I still think a lot of what goes on in the economy is just cynical. Things go up and down.

Just hold on, things will get better and you will recover from all this.

Wait...it's not different this time?

 

[almost there]

Only thing different was all the printing of $$$$ at near zero% interest. The rest is the same old stuff.

 

[harllee]

Only thing different was all the printing of $$$$ at near zero% interest. The rest is the same old stuff.

On 2008 the root problem was free money too-- all the mortgages made to borrowers who did not qualify for the loans.

 

[Gumby]

Wait...it's not different this time?

It's the end of the world as we know it, and I feel fine.

 

[almost there]

On 2008 the root problem was free money too-- all the mortgages made to borrowers who did not qualify for the loans.

Not sure if foolishly lending existing money, and creating it are the same thing...
Will have to ask someone in Zimbabwe.

 

[copyright1997reloaded]

Wait...it's not different this time?

It wasn't different in 1929 either. The market eventually recovered, and while there were job losses, things turned around.

Yes, it took a world war with many millions dying, 40-50 of all mortgages in foreclosure, people losing their life savings (and dying before things recovered), but in the long run wasn't different.

The reality is that none of us know what is to come. From one end of the opinion spectrum, we aren't even in recession, the economy is strong, employment is great and the market will resume its great upward trajectory soon. At the other end of the spectrum, a 1929 or worse result.

That's a pretty wide set of possibilities, and each of us has to assess where in the spectrum we will end up. In the meantime, people caught in the cross roads like Montclairbobbyb are expressing their frustration w/the "everything is fine" crowd. The one thing I know for sure, is that there are a lot of Montclairbobbyb's out there that know everything is NOT fine.

 

[MC Rider]

I'm gonna go with this. It sounds logical, they make a good case.
Never mind they are saying what I want to hear.


Yes, a recession looks inevitable. But it may not be that bad. Here’s why




https://www.latimes.com/politics/st...ion-looks-unavoidable-but-will-it-be-that-bad

 

[harllee]

The stock market is down around 20% this year. Personally my investments are back to where they were about 18 months ago. To me it is no big deal, just a part of the normal economic cycle. For all the folks that are panicking now, I ask what did you do in 2008 when the stock market was down over 50%? If the market being down 20% is causing you to lose sleep then you have too much in the stock market. I lost sleep in 2008 but held on and after the market recovered I had learned my lesson and redid my stock allocation. Now I have a lot less in the market and much more in cash (CDs). This is a good time for folks to assess their risk tolerance.

 

[Katoslake]

The stock market is down around 20% this year. Personally my investments are back to where they were about 18 months ago. To me it is no big deal, just a part of the normal economic cycle. For all the folks that are panicking now, I ask what did you do in 2008 when the stock market was down over 50%? If the market being down 20% is causing you to lose sleep then you have too much in the stock market. I lost sleep in 2008 but held on and after the market recovered I had learned my lesson and redid my stock allocation. Now I have a lot less in the market and much more in cash (CDs). This is a good time for folks to assess their risk tolerance.

I’m not overly concerned about the stock market or bonds for that matter.
I am far more concerned about inflation or at worst stagflation.
Not sure we’ve got enough experience in my lifetime to evaluate the dunce-tax risk

 

[Koolau]

I'm gonna go with this. It sounds logical, they make a good case.
Never mind they are saying what I want to hear.


Yes, a recession looks inevitable. But it may not be that bad. Here’s why




https://www.latimes.com/politics/st...ion-looks-unavoidable-but-will-it-be-that-bad

I think the issue with the economy is that, even though we understand the fundamentals, we don't know how people (or gummints) will react. What should be a simple, cyclical event may turn out to be a nothing burger or a 2008 style crisis. A lot depends on what people think about it and what gummints do to "fix" it. YMMV

 

[DawgMan]

First, happy Father’s Day to all you dads!

So here’s a real time housing market experience. My son and DIL are opportunist house hunting in a few golf course neighborhoods (boy loves his golf!). 2 weeks ago they found one that caught their eye. It went on the market in mid May, price dropped a couple of times (about 5%) by June. Stop there - first observation, 3 months ago offers would be pouring in 10% over sticker! He makes an offer another 3% below and they counter…. Now $15k apart on a $650k house. Son holds, part ways. Today, 9 days later, Seller comes back with $5k over son’s last offer, looks good… until son prices new debt. It will cost another $10k in points to match previous loan quote… hence, the deal did not change. Father’s Day advice…. Only if he loves the house: Option 1: buy house hoping interest rates drop over the next 5 yrs and refinance, option 2: Hold tight, ride thru downturn and wait for more motivated sellers, hopefully rates moving down.

IMHO, this is what we should expect from housing market effectively creating allot of no sales unless one party is very motivated.

Realtime update - Son and Seller just agreed to do the deal at Son's last offer less his increase in loan costs (less another $10K) to buy his loan down to his rate from 2 weeks ago. In the meantime, another house in this desired neighborhood flashed a price reduction!

Observation - Seller was motivated as they have another house they are trying to close on and arguably, perhaps, panicked a little to make sure they could get their house sold. In my son's case, he was an opportunistic buyer (best kind to be) and was willing to wait for the right deal. None the less, IMHO we are just at the beginning of this cooling off of the housing market and I suspect more price reductions to come IF a seller has some level of motivation. More motivated sellers may pop up 12 - 24 months from now if jobs are lost/finances are squeezed, otherwise, my guess is while housing prices/values may drop some from the recent highs, there will just be fewer transactions due to fewer buyer/sellers. Time will tell.

 

[milford]

I'm gonna go with this. It sounds logical, they make a good case.
Never mind they are saying what I want to hear.


Yes, a recession looks inevitable. But it may not be that bad. Here’s why




https://www.latimes.com/politics/st...ion-looks-unavoidable-but-will-it-be-that-bad

His argument is logical in that if you have money, saving, and little debt the recession won't be as bad for you. His interviewee choice is almost comical... Barone has seven seasonal workers and lives modestly in an apartment on Capitol Hill. “I don’t have a car, don’t have to buy gas,” he said. “I go to the day-old bread shelf and buy my bread for half price.” Barone is more sanguine than most.

He basically has no idea like everyone else. The only thing I would add is that this time we won't have the Fed coming in to "save" the day for a while so to say that the recession won't be that bad is premature.