How is the real estate crash affecting trucking?

[Mandilon]

How will trucking fare in relation to a crashing housing industry?

Which industry does trucking 'follow?'

THX & God Bless

[Professor427]

Trucking directly reflects all parts of the economy, hence the old saying 'if you got it, a truck brought it'. If there's any short of economic slowdown, there will be a slow down in freight being shipped. Certain specialities may not be affected (I'll let the drivers who haul those comment instead of me) but if the sub-prime mess dumps the DOW, you can bet there'll be less freight to haul.

[no_worries]

While trucking in general does not follow any particular industry, many industries have an effect. Housing and auto are probably the two industries that are felt the most in terms of freight. Freight has been in a downward trend in trucking since last Fall. Rail freight has also been falling all year. The economy as a whole has slowed but not as fast as freight has. This means that some segment of the economy is causing a significant drag on freight and that segment is housing. Softwood markets have softened considerably. Sales numbers have been off for Home Depot and Lowes going back to the 4th quarter. Even retailers like JC Penney and Wal-mart have noted that Home department sales have been off, even when other areas are doing well. We haul refrigerated freight so you wouldn't think it would affect us much. But I do know that nurseries are dealing with significantly slower sales. Especially those that cater mostly to new home developers.

And the home market isn't all we've got to worry about. It looks like the auto industry is headed for a major slowdown. While the Big Three's troubles are well-known, the most recent numbers show that several of the Japanese auto makers just had lackluster sales results. This will be the first year since the Great Depression that housing values nationwide will actually decline. The economy has been supported primarily by consumer spending during the last several years, which in turn has been spurred by skyrocketing equity and the loose credit it inspired. As home values, and consequently equity, decline the credit markets will tighten considerably and reign in consumer spending. The economy will slow considerably. I predict we slip into recession in the first half of next year.

So yes, housing has affected freight and due to it's continued effects, both direct and indirect, on the economy, we will continue to deal with the fallout for awhile. I'm looking for a soft freight environment through next year at least.

[SoCal79]

I have a dumptruck,all of my jobs are new home construction related. Now is one of those times where there are too many trucks not enough work,the weak/non hackers drop off and only the strong survive! Work kind of tapered off a few months ago then at the beginning of August it came to a screeching halt.

[floored]

I have a dumptruck,all of my jobs are new home construction related. Now is one of those times where there are too many trucks not enough work,the weak/non hackers drop off and only the strong survive! Work kind of tapered off a few months ago then at the beginning of August it came to a screeching halt.

Agreed! Its tough for even the strong to survive right now. I sold my truck 2 months ago because I could see the "season" was never going to par up, its now almost the end of Aug. and guess what, its getting even slower when things should be rocking and rolling. I have many friends barely getting by, and I worry greatly for them.

:sad:

I wouldn't say I'm weak for making my decision to bail, I made a 30k profit on my rig when I sold it. My truck was working almost daily, but I wasn't happy with the profit #'s at the end of the month (10k gross checks), so it wasn't worth it for me to continue.

[Mandilon]

floored,

I've heard many 'dirt haulers' from the LA area claiming that Texas could accommodate them.

Trucking I-130 is underway in Austin Texas (looping Austin) to San Antonio estimated to be a 4 to 5 year project.

Have you heard of anyone heading for Texas?

I love challenges. Maybe this is the perfect time to jump into the trucking industry.

Take care all.

[Dispatch_This]

The AP is reporting today that new home sales were up by 2.8% for July, in spite of tighter credit. Also, factory orders for durable goods were up 5.9%. I was thinking that the upcoming 4th. quarter would be pretty dismal - not so sure now!

[BanditsCousin]

Household goods is down 20% over last summer. When new houses (and even used ones aren't selling), people arent moving, and the bedbuggers whine and whine more and start stooopid shutdowns

[no_worries]

New home sales numbers are notoriously misleading in the current environment. The reason is that a sale is recorded when a contract is signed. Therefore, those numbers don't take cancellations into consideration. The major homebuilders have been running 25%-40% cancellation rates. The same thing happens with the pricing. I believe new home prices rose 0.6% last month. That's great except anyone that's looked at the new home market knows that builders are offering unbelievable incentives, sometimes as much as $100,000. The recorded sales price does not reflect these discounts and therefore is inflated.

Durable goods orders are up because inventories have declined. This is normal ebb and flow and corresponds to consumer spending. The consumer is still spending and as long as that continues the economy will be ok. One thing to keep in mind is that, even though it's been talked about for awhile, there was really no concrete evidence of the impending credit crunch. The first major signs occurred just in the last 10 days or so and the central banks stepped in right away and put a band-aid on it. There are two camps, those that think this was only a hiccup and everything will be fine and those that think we're entering a true credit crunch that will have to play out. If it's the latter, it bodes poorly for the consumer. As goes the consumer so goes the economy.

[solo379]

First of all, i wouldn't call it a "Crash", just readjustment.

[Dispatch_This]

New home sales numbers are notoriously misleading in the current environment. The reason is that a sale is recorded when a contract is signed. Therefore, those numbers don't take cancellations into consideration. The major homebuilders have been running 25%-40% cancellation rates. The same thing happens with the pricing. I believe new home prices rose 0.6% last month. That's great except anyone that's looked at the new home market knows that builders are offering unbelievable incentives, sometimes as much as $100,000. The recorded sales price does not reflect these discounts and therefore is inflated.

As for Homebuilder Incentives, I agree. You can currently get upgrades and a cash discount at the drop of a hat. However, the full asking price is reflected in the sales contract.

As for new home sales, It's six of one, half a dozen of the other, in my opinion. If the sale is reported at the time the contract is signed, as you state, then it just means that the indicator is going to lag somewhat longer. 25-40% of new home sales in May that were cancelled would be reflected in June. Cancelled June sales would show up in July, etc.

And it looks like the run on Countrywide (because of an infusion of cash from B of A) is not spreading to other large companies.

Also, transportation tends to be a leading indicator, and will start to recover before the rest of the economy.

As far as this pertains to trucking, I am cautiously optimistic.

Feel free to disagree ...

[floored]

floored,

I've heard many 'dirt haulers' from the LA area claiming that Texas could accommodate them.

Trucking I-130 is underway in Austin Texas (looping Austin) to San Antonio estimated to be a 4 to 5 year project.

Have you heard of anyone heading for Texas?

I love challenges. Maybe this is the perfect time to jump into the trucking industry.

Take care all.

I have not heard anything about that around here. Would make for a good topic on my dirt site I run though if someone could dig up more info

[no_worries]

As for new home sales, It's six of one, half a dozen of the other, in my opinion. If the sale is reported at the time the contract is signed, as you state, then it just means that the indicator is going to lag somewhat longer. 25-40% of new home sales in May that were cancelled would be reflected in June. Cancelled June sales would show up in July, etc.

You'd be right dispatch, except that new home sales aren't revised to include cancellations. The revisions that are reported simply reflect more data that has come through since the initial report but none of the economic reports reflect canceled contracts.

You're right about the Countrywide story not spreading, however, that was simply a misdirection. The real shakeout in the credit markets is going to start in commercial paper. There was a report earlier this week that said that there were only 4 companies left in the world that still received the top credit rating from Moody's. Now that says something. Investors are starting to realize that risk is still a real consideration, which they seem to have forgotten over the last few years. That's what happens when there's too much liquidity in the markets. So much money is chasing not enough investment opportunities that everything HAS to go up in price. And everything did; stocks, commodities, houses. Now investors, central banks, and creditors are starting to slow the flow of liquidity into the markets. The danger is that we get an overreaction. It's going to be very interesting to see what the Fed does over the next few months.

But I digress...you're absolutely correct about freight being a leading indicator. If history is any guide, freight volumes tend to lead the economy by about 6-9 months. At this point, the slowdown in the economy has been slight, yet we've seen a major freight slowdown. What's that say as far what we can expect from the economy going forward? In addition, we have yet to see any indication that the slowdown in freight is nearing an end. Again, if history is any indicator, the worst is yet to come. But I too remain optimistic and I rather enjoy the discussion.

[GMAN]

How will trucking fair in relation to a crashing housing industry?

Which industry does trucking 'follow?'

THX & God Bless

I would not say that real estate or housing crashed. Only a small segment has had problems. Interest rates did rise somewhat, which will affect business and construction. An adjustment has been taking place for more than a year. Any time construction slows, it affects trucking, especially flat beds. Reefers are probably least affected by slow downs in the economy because people still need to eat, and most folks don't raise much of their own food. Vans usually do well until the middle or just before Christmas. Flats can stay busy up until that time, but since last year, things have begun slowing shortly after July 4th. Some segments of trucking will be more affected by the general slow down than others, but most will be affected in some manner or another. It will likely become a bit more difficult for those with marginal credit to buy a truck. For those who are heavily mortgaged, it may become more difficult for them to survive with the slow down. When people come into this business, they assume things will do well day in and day out all the time. They make their planning on best case scenario. I plan on worst case scenario. When you plan for the worst, you can usually survive.

[Mandilon]

First of all, i wouldn't call it a "Crash", just readjustment.

Many agree that a 30% to 40% decline in real estate prices crosses the 'readjustment' perimeter and is closer to a crash (or is a crash).

Some estimate that the real estate market will hit bottom around 2013 (decline in real estate prices started in 2005).

Since California is the leader in real estate price increases it will also be the hardest hit.

Warren Buffett started warning about a 'crash' in May 2005.

There's a book titled: The 2nd Great Depression: Starting 2007, Ending 2020

http://www.realestatedecline.com/hou...using%20Charts

Be safe & be on the lookout for Islamic terrorists.

[no_worries]

One of the maxims of real estate is that it's local. We're not going to see a 30-40% decrease nationwide. In fact, as I mentioned earlier, there hasn't been a nationwide decline in home values since the Great Depression. Even when the CA market dropped 10-20% in the early 90's, nationwide values still increased. We've already seen some locales drop 15-20%, but these are usually limited to individual towns or cities. And there are still many areas increasing in value. Nevertheless, given that the average rate of appreciation is 5-6% and we haven't had a decline in 70+ years, the fact that we're looking at an estimated decline at all is significant. When all is said and done, I think we'll have a nationwide decline of maybe 5%. Local markets will vary widely with those that had big runs also having big falls. In my area here in Orange County where the average home price is $600,000+, I'm guessing we'll see a 10-15% decline. Areas that had big condo booms will be hit hardest, i.e., San Diego, Las Vegas, Florida coastal areas, etc.

[mike3fan]

Areas that had big condo booms will be hit hardest, i.e., San Diego, Las Vegas, Florida coastal areas, etc.

So.....it might be a good time to consider buying a Florida coast condo?

[Mandilon]

The 2nd Great Depression: Starting 2007, Ending 2020

-God Bless America

[pepe4158]

A direct impact no, but as many might have quessed, as consumer spending power goes down, less need for freight to be moved.
Though that can be said of the economy as a whole....when things are up....more spending....more need to move freight (yawn economics 101)

[no_worries]

To deny that the housing slowdown is not having a direct impact on freight volumes is akin to (yawn) sleeping through Econ 101. In other words, to arrive at such a conclusion you'd have to not be paying attention. Consumer spending is still chugging right along, yet freight has steadily declined. Everybody from trucking companies to railroads have specifically cited the housing market as the primary reason for their slowdown in volume.

It's really a fairly simple analysis. Freight volumes have steadily declined over the past year and the only thing that has really changed in the economy is the housing market. No other sector of the economy has experienced any significant downturn...thus far.

So.....it might be a good time to consider buying a Florida coast condo?

LOL, I'll let you go first :wink: