More thoughts on housing:
1) The 300K number I suggested in the previous post was based on a normal fall back in housing.
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2) I think (I have suggested several times on this thread) that the next Fed move will be down. But instead of cutting the Fed Fund rate, my guess is they will intervene in 5 or 10 year instruments to drive the rates on the 10 year down to 3% or so. This is obvious speculation on my part. Of course, the BOJ may do the work for them!
3) This lower rate will maintain New Home Sales for the remainder of the year, and spark another round of re-financing.
4) Therefore, I would be very careful shorting the homebuilders at this time.
5) When the slowdown does come (early 2005?), the 300K additional unemployment number I cited above will just be the beginning. The number of hours for the remaining workers would be cut. And this is just the “specialty trade” construction jobs; the first people impacted. There is a long list of secondary job loss: RE agents, home inspectors, mortgage brokers, building supply companies, furniture, etc.
6) My analysis shows that a typical RE slowdown is accompanied by approximately a 3% increase in unemployment. Since RE slowdowns happen concurrently with general economic slowdowns, it is difficult to determine how much of that 3% is related to housing. But it does have a significant impact. From these levels, a drop to 850K to 900K in annualized New Homes Sales, would be a typical slowdown.
7) A drop in New Home Sales to the early 90s level of 650K (last housing slowdown) would have serious consequences. The direct loss (specialty trade construction) would be over 1 million jobs or over 25% of the specialty trade workforce.
8) The economic numbers to watch are: 10 year and New Home Sales.
Contrary thought: If the BOJ stops investing in US Treasuries and the Fed is unwilling to intervene in longer term instruments, we will probably see the slow down earlier, and maybe with a steeper dropoff.
Best to all. IMHO, there is more economic knowledge on this thread than in the entire Bush administration (although I’m sure there are some very frustrated economists at lower levels). |
