A friend, call him “Kit”, works in Northern Louisiana building cabinets. He bids as a subcontractor on new housing, as well as remodeling projects. He told us today:
“I just don’t understand it. I haven’t seen it this bad since 1987. I just don’t understand it! I talked to my friends at the banks. They say they are willing to lend money. Interest rates are low. Building supply prices are low. But nobody is doing anything. It’s weird. I’m startin’ to worry.”
This time the low oil prices have crimped a big source of tax revenue for the state, but states like Louisiana usually don’t grow as fast in good times, or fall as hard as other areas in the nation in bad times. But now, the housing collapse is beginning to be felt there too. Zero Hedge shows a report from Deutsche Bank that projects various MSA’s home price declines. According to this report, the New Orleans area is due for about 27% additional fall in home prices before reaching bottom. We wanted to tell Kit the worst is over, but it’s not. The truth is even if the interest rate for buying homes is zero, the expectation is that prices will fall. Until that expectation changes, home sales and home building will be slow in the Bayou state.
Northern Trust in its Daily Global commentary finds glimmers of hope in the new home sales report and durable goods orders released yesterday. Although this is now old news, it’s hard for us to see the “glimmer of hope” they see. Sales of new single-family homes are down 43.8% in February from a year ago, after a 47.7% plunge in January. Sales of new homes have dropped 75.7% from the peak in July 2005. The charts in the bigger picture hardly budged…
Northern Trust:
“The trough for new home sales appears to be January 2009…”
Regarding durable goods:
“Orders of durable goods increased 3.4% in February after a downwardly revised drop in January of 7.3% (originally estimated as a 4.5% decline). The 35.3% increase in orders of defense items and the 6.6% jump in bookings of non-defense capital goods excluding aircraft stand out in the report. Orders of aircraft (-28.9%) and autos (-0.6%) dropped but that of machinery (+13.5%), computers (+5.6%), and appliances rose (+1.6%) during February. The main message is that the pickup in orders of durables is significant but consistent monthly gains will be necessary to declare that the factory sector has pulled out of the current doldrums.”
We agree, one blip on the screen … it’s probably more seasonal than anything else.
