This week we’re introducing Glinkonomics, life this week with Ilyce Glink on WSB radio.
Welcome back to the Ilyce Glink Show, rebuilding America one house at a time, starting with yours here on news talk WSB. I’m Ilyce Glink, find me on my website at thinkglink.com. If you are interested in investing in real estate, do not miss my Intentional Investor webinar series. It’s 18 parts; 9 part Webinar, 9 Ebooks… all together in one package. Just go to thinkglink.com, click on the red house and it will take you to more details. Also, be sure to follow me on Twitter @Glink.
Okay, so much to talk about. This has been a really busy August for housing news. I’m kind of surprised because I left for Alaska and I thought… well this is usually a pretty quiet time, but why would I be surprised that it has not been quiet? It has been crazy busy. With mortgage interest rates, now were seeing a profound impact on home sales. The new numbers came out this week. We have seen the consumer confidence numbers start to plunge, and the August consumer confidence index is expected to show a month over month decline, which is not good news for retailers who have been battered.
I suppose there is some good news… “thank you Microsoft.” Ballmer announced his intended resignation, so that went up 10 percent. That carried the Dow up a bit, but we’re still down about 70 points for the week. We ended at 15,010… down about 71 points. And it was a lot worse than that, we were back into the 14-thousand mark, before that happened.
So this has been just kind of a crazy time. There’s a lot of uncertainty with interest rates and what the Fed is going to do. It’s creating uncertainty and nervousness for investors and homebuyers. And we’re definitely seeing that interest rates… despite the fact they’re still at near historic lows… the psychological factor that interest rates are going up, and have gone up one percentage point is taking a toll.
We saw that new home sales actually fell dramatically. 13.4 percent in July. The seasonally adjusted annual sales base of 394,000 missed analysts’ expectations of 487,000… it wasn’t even close folks. Wasn’t even close, so detached. I mean, to be off by 100,000 is really significant. And in June we were at 497,000 for an annualized basis.
So let me explain what that means, because I don’t want you to think that we’re actually going to sell that we’re on pace to sell almost 500,000 homes this year… we aren’t. What an annualized pace means is… that if it held up at the pace it was at that month, for the whole year… then yes, we would sell 500,000 homes. But we have had a bunch of months where it’s a lot lower than that. So I’m expecting right now that we will sell maybe 360,000 to 370,000 new homes in this country. We should be selling a million new homes in this country. We’re still down 60 to 75 percent from the high, which in anybody’s estimation is a big, fat bare market.
One of the reasons that’s happening is homes can’t get built as fast as people want to buy them. So whatever’s left the home prices are going up… and sure enough that is what we’re seeing. The Zillow numbers are showing that prices are going up, and that’s because there’s a limited supply.
Why is it that builders can’t build houses faster? Well… over the last six to seven years, you’ve had tens of thousands of people who built houses go out of business. They’ve lost those skills and started doing something else because they absolutely needed to make a living, and there was no way to make a living. They couldn’t build houses because no one was going to buy them. So they’re all out of the market place.
We had production ramp-down and now it has to ramp-up, but there are limited supplies out there. You need drywall, plywood, plumbing… you need all kinds of things that go into the foundation. And if you don’t have enough of that on hand it’s hard to get a hold of it to build what you want. So there are road blocks and obstacles in the way that need to be smoothed out. And nobody wants to add capacity if they’re not sure it’s actually going to last. So if mortgage interest rates go up another one percent and we see another new home sale plunge of 13 percent… what will that actually mean?
Now, sales were still higher… close to 6.8 percent than a year ago. So we are seeing it go up, but where were we a year ago?
In 2012 new home sales were at the second lowest level ever… in history… since they’ve been keeping the numbers, for 40 years. So anybody who tells you that the economy is going gangbusters and is back on track is passing you something we should all be sharing. [Laughing] It’s just not the case yet. And it makes me really nervous that we’re out there buying homes and doing what we need to do… and what’s really going on is a big, huge disconnect in DC. They’re trying to solve the world’s problems. There was a story I read this week that basically said the world is looking at what Ben Bernanke is doing and trying to figure out how to respond to it so that their economies don’t go into freefall. That is how much everybody is depending on the US… and so that’s why the stock market continues to sky rocket. 15,000 is a really high level, right? We’ve come all the way back from where we were at 6,600 to 6,800 in 2009. So we’ve more than doubled, but it doesn’t mean everything is fixed. And yet we’re a better deal than almost anywhere else in the world. So it’s really interesting what’s going on right now.
WSB Radio’s Ilyce Glink Show – August 25, 2013
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