Interview: National Association of Home Builders---Seiders, David---Economist
>> welcome back. durable goods orders rose last month, rising twice as much as economists expected. demand for commercial aircraft prompted the fourth gain in five months. orders fell in january, but not as much as originally reported. excluding transportation equipment orders, unexpectedly fell last month for the first time since october. january’s gain was revised higher. checking bonds, once again, the 10-year up 16/32, down, yielding 4.67%. on the shorter end of the curve, the two-year up 3/32 with the yield to 4.71%. new home sales came in weaker than expected. the dollar today was weaker versus the yen, euro and british pound. gold up $9.70 today, closing at $560.50 an ounce. back to those home sales, which did have their biggest drop in almost nine years. this follows yesterday’s surprising jump in existing home sales. here to tell us what all of this says about the economy and the housing market , of course, is david seiders, chief economist with the national association of homebuilders. david joins us from washington. welcome, david.
>> thank you, lori.
>> so february new home sales fell more than expected to a nine-year low. is this data an anomaly or more evidence of a slowdown that everyone is talking about?
>> based on my own surveys of builders, i’d expected a decline of 6% or 7% so the direction is clearly right. i think the slowdown is underway. i think the commerce department report probably overstated the real degree of slowdown. i think the number coming out of the west region is kind of wild, you know. it’s down about 30% in one month. so we have some problems with the series over time in terms of monthly volatility and sort of reliability. but, you know, again, i think my own contacts with the industry really do convince me that really the market started to lose momentum certainly in the fourth quarter of last year if not the third and i think we are off on what i hope will be a more moderate slowdown process.
>> why, david, do you feel that the people you’re―what’s the difference between your contacts and the government data? why are you more confident that the slowdown isn’t as significant as we saw today in the reading?
>> i think―i hate to put it this way, i think my sample is deeper in terms of the share of the market covered. and this particular report out of the commerce department, the sampling is pretty darn thin, particularly on a regional basis. you can see it in the standard errors or the statistical measures they publish with the numbers. it’s almost like they could be almost anything under the sampling system so sometimes it takes a couple of months to sort out the true trend in those numbers and i feel pretty confident about my own sample and the kinds of responses we’re getting to it.
>> but the direction is toward a downturn here. so after a five-year boom, the homebuilders that you represent have got to be getting concerned right now. what are you hearing from them?
>> well, i think there is some concern. although there is some realization that the pace of sales activity last year and the degree of house price appreciation was kind of beyond the bounds, you know. i think recognized as unsustainable. a lot of the strength last year coming out of that investor group. we really don’t need short-term speculators pushing this market around so much. so i think there has been an expected slowdown process, particularly as the fed has gone along raising the short rate and the long rate has gravitated upward to some degree, as well. so builders are realistic about this. i keep telling them it won’t be a real thud, but we’re looking at downward adjustments to get back toward a more sustainable path of activity. i’m still convinced that’s the path we’re on.
>> tell me more about the advice you’re giving to the homebuilders and how to navigate through the scenario.
>> the story really is, look, guys, demand is bound to be falling off. we have a big downward adjustments and the standard measures of housing affordability and that’s been provoked mainly by this long string of rapid house price increases. also, the upward movement in the interest rate structure to this point in time has also weighed on affordability. i’m telling the builders, the interest rates are going somewhat higher. so that affects home buying by fully legitimate owner-occupants. on the other side, i’m telling the builders that it’s unlikely that these investors are going to hang in there, the kind of volume they’ve been doing in terms of purchasing and holding units if the evidence starts to accumulate that the market is going to be slowing down, which it now is. so i’m telling the builders, look, watch the inventories in particular. we’re picking up on our surveys some increase in cancellation rates as some of these investors are walking away from the sales contracts before closing. and there’s some chance that the investors will start moving units that they have closed on back on to the market . that’s the big downside risk for 2006. i don’t think it will happen a big deal but it depends how things go with the interest rates and house price performance and so forth so i tell the builders, we’re in a different game than we have been for a long time. the last time we fretted about a slowdown was the early 1990’s recession.
>> we have these computer-driven commercial breaks and can’t argue with them. thank you very much for joining us. david seiders is chief economist with the national association of homebuilders. back in a moment.
>> the focus of the market today was a potential merger between lucent and alcatel. could this be a merger of equals or will they end up getting together at all? connell mcshane is here with the latest for us.
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Listen Market briefing --- Lori (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
Interest rate --- kathleen (slow)
this is “after the bell.” crude oil rose, pulled higher by gasoline as traders struggle with the introduction of new blends of fuel in advance of the peak demand summer driving season. we will get a complete wrap-up of the oil and energy situation from bloomberg’s su keenan. first, tonight’s closing numbers. nymex crude futures ended the last session with a .5% gain for the day, more than 2% gain for the week.
>> lori, investors are ending the week questioning whether the sharp gyrations in energy prices this week are a sign of uncertainty or the start of a new trend. many traders and analysts, 41% of those polled by bloomberg, expect prices to remain close to the $64 mark as we head into next week.
>> the market ‘s had a little trouble above $64 in the last, say, month or so, following through. so i think it may find a spot here. to ignite it, i think we need to settle above $64.50 before we take another run at the highs.
>> a.g. edwards bill o’grady says the drama in gasoline is the big issue that’s “jerking the market around.” new pollution control regulations have created uncertainty for traders. the current nymex contract represents the additive mtbe which is being phased out. in favor of ethanol. o’grady says “nobody wants to be stuck in a position, we can count on more volatility ahead.”
>> energy stocks sure helped keep the market afloat today. for more on today’s trading action, a report from deborah kostroun at the big board.
>> energy stocks were the leaders all day friday after crude oil rising to $64.20. and cathy boyle, president of chapin hill advisers, saying she thinks crude oil prices are likely going to remain high. one reason for that, she says china and india, they’re using more and more energy. but one of the most interesting calls on wall street today, energy stocks, they were the best performers in 2004 and 2005, up 29% but this year up only 7.8% and henry mcvey, morgan stanley’s chief u.s. investment strategist, cut his recommendation on energy stocks for the first time since 2004. he said the basic thinking is there is no longer a rising tide to lift all boats in the energy group. he also raised his recommendation on consumer staple stocks and cut his rating on utilities to underweight from equal weight. of course, utility stocks very interest-rate-sensitive stocks and of course we’ll get more on interest rates next week. a lot of economists and traders saying it’s baked in the cake that the fed will raising rates by a quarter of a point. telecom equipment makers doing well on that speculation that alcatel may buy lucent for at least $12 billion. lucent, that was the biggest gainer in the s&p 500. and new home sales dropped by the most in almost nine years and even though they dropped, look at the homebuilders, having a pretty good day. even though home sales dropped. one of the things we can look at, the homebuilders, you can see how they performed but one of the reasons homebuilders might have done so well, mainly because expectations have been lowered. one example this week was k.b. home, they reported earnings. the stock was up because they beat expectations but the bottom line was, k.b. home saying their orders fell 12%. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> and at the nasdaq, computer-related shares led the nasdaq to its second straight gain. here’s robert gray with this report.
>> the nasdaq composite rising on friday and for the week, posting its second consecutive weekly gain as interest rate fears eased a bit on friday after reports showing that new home sales and durable goods orders did, as well. computer-related shares were the strongest group within the session on friday and also leading the gains for the week, as well. google shares rising on friday, one of the best performers after news it will join the s&p 500 after the close of trading next friday on march 31. it will replace burlington resources, being bought out by conocophillips. google will be the largest-ever market cap company to join the index. it’s bigger than all but 18 members of the s&p 500 itself. we also did see shares of the telecom equipment companies rising as word out that alcatel and lucent were discussing a merger. we did see other telecom equipment companies rising on speculation there may be consolidation within the industry. more consolidation beyond alcatel and lucent. silver companies on the rise. silver, the commodity itself, at a 22 ½ year high. silver standard and pan american silver both touching record highs on friday. i.p.o.’s, as well, clayton holdings provides information and consulting services to lenders and fixed income investors, selling 7.5 million shares at $17 each in an initial public offering. their gain on friday, 23.5%. also, global traffic network offers traffic and news reports to radio and tv stations in australia, based in las vegas. selling 3.8 million shares at $5 each. their gain on friday, 4% for global traffic network. at the nasdaq, i’m robert gray.
>> and a volatile week for the interest-rate-sensitive u.s. bond market , as well, as traders kept shifting bets on how much higher the fed will boost short-term rates. here’s bloomberg’s kathleen hays to give us perspective.
>> of course that interest rate increase next week baked in the cake. it’s what happens next that matters. bond traders lurched back and forth this past week from the bearish view to the bullish view the fed could stop, not this month, but certainly after the may meeting. today, bonds rallied on news of a steep drop in new home sales in may. the knee-jerk conclusion, if the housing market continues to cool, the fed will have to stop raising rates sooner, not later. the day before bonds sold off when existing home sales jumped, bond yields rising to 4.73 on the 10-year note. on monday, bonds sold off after ben bernanke’s speech monday night where he said the flat yield curve and low long-term rates do not signal an economic slowdown as they did in the past and bernanke indicated he’s not worried about rising rates toppling the housing market and crushing consumers. today’s new home sales report definitely enforces other signs the housing market is cooling off now. new home sales dropped the biggest one-month drop since 1997. dragging down the annual sales rate by more than 14% according to brian fabbri of b.n.p. paribas. the inventory of unsold homes hit a new record, 548,000. that’s the equivalent of 6.3 monthsepsa of supply on the market . with supplies increasing, pricing are softening as the median home price fell to just over $209,000. david seiders, chief economist with the national association of homebuilders says the decline may be overstated. sales fell 29% out west and he expects the march number to improve. he does see sales falling more than 8% this year. bear in mind, this would still be the third best year on record. economists say the fed may welcome the cooling off in housing as the sign the bubble is deflating instead of bursting, not as a sign that the fed has raised rates too much. most predict rate increases will end when the broader economy shows a slowing down or when core inflation finally moves a bit lower.
>> thanks for that. speaking of bonds, how about news on corporate debt sales. companies in the u.s. are selling debt at a faster pace than last month. home depot, m.g.m. mirage, c.m.t. group also contributed to bond sales this month. companies want to issue more debt as bond yields rise in anticipation of the fed’s interest rate increases. the average investment-grade bond yields 5.7%, about the highest since november 2003. that’s still down from the 10-year average of 6.2%. we will continue our coverage of today’s new home sales report. is this a cooling cycle economists have been waiting for? where is the housing market headed next and how will it impact the economy? you heard kathleen mention david ciders, our next guest, chief economist at the national association of homebuilders. stay with us.
