Replies to post #477782 on Zeev's Turnips Patch-No Politics (ZEEV)

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maven, homies have come in a lot and could come in more, but cramer makes some decent points,,, the sector is known to have some wild bounces on positive int rate news.

Meanwhile near me in Northern VA,,,some of the builders are laying out whopping incentives/freebies or price drops in areas where inventory for sale overall is up over 5x or more, since last year, according to a realtor in the area. Even my town, which is very strong overall, I just read that inventory is up 3x

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At the same time some leading sectors of the economy are softening, and it may already be too late to stave off a recession. By far the most important of these sectors is housing, both because of its historical record of leading the economy and the hundreds of billions of dollars in mortgage equity withdrawals that have powered consumer spending. Existing home sales fell 2% in April and are down 5.7% from a year ago. Monthly supply of homes for sale is the highest since January 1998. Although new home sales were up in April, they are down 11% since October, and the 5.8 months of supply is near a ten-year high. The NAHB index, a measure of builder optimism, is at its lowest level since June 1995. Leading home builder Ryland said its second quarter sales were running 35% below last year and sharply cut its earnings estimate for the quarter and full year. Another big builder, Toll Bros., also slashed its sales and earnings estimates. Other leading home builders have issued similar announcements over the past two months. Housing is likely to weaken even further due to eroding affordability, rising ARM rates, the crackdown on creative financing and the increasing caution of investment buyers.

A slowdown or actual decline in housing prices is likely to have a severe impact on the economy. In the absence of vigorous increases in wage and salary income during the current economic expansion, consumers have used the soaring values of houses to maintain their rate of spending and drastically lower their savings rate. The values have been turned into cash through home turnover, mortgage refinancing cash-outs, and home equity loans. A recent Federal Reserve staff study--significantly co-authored by Greenspan himself—estimated that “discretionary extraction of home equity accounts for about four-fifths of the rise in home equity mortgage debt.”. They further estimated that about 1/4 to 1/3 of the so-called mortgage equity withdrawals (MEW) directly financed personal consumption expenditures. Other estimates run as high as 50 or 60%.

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