Sales down, prices down, shadow inventory abundant, and Shiller says prices may never recover

The frenzy over the possibility of a bottom in the housing market needs to be tempered by the reality of the current market situation. Despite relative affordability, sales volumes are low and declining, resale prices are still falling, we have a huge overhang of supply in shadow inventory, and as economist Robert Shiller points out, we may be on the Japanese path of decade-long deflation in housing. Any one of these conditions would warrant market pessimism. All at the same time calls into question the viability of any market bottom.

From the bullshit artists at the NAr:

February Existing-Home Sales Slip But Up Strongly From a Year Ago

Washington, March 21, 2012

February existing-home sales declined from an upwardly revised January pace but are well above a year ago, while the median price posted a slight gain, according to the National Association of Realtors®. Sales were up in the Midwest and South, offset by declines in the Northeast and West.

Total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, slipped 0.9 percent to a seasonally adjusted annual rate of 4.59 million in February from an upwardly revised 4.63 million in January, but are 8.8 percent higher than the 4.22 million-unit level in February 2011.

I know it’s difficult to sift through the bullshit in a NAr press release, but the key point is that sales were down in February. Usually January is the lowest month for sales volume, but February was below the very weak numbers from January.

Lawrence Yun, NAR chief economist, said underlying factors are much better compared to one year ago. “The market is trending up unevenly, with record high consumer buying power and sustained job gains giving buyers the confidence they need to get into the market,” he said.

What is Yun talking about? The market is trending downward uniformly. There is no market trending upward, and what does it mean to trend upward unevenly? If he had a conscience, he would be embarrassed by his own bullshit.

“Although relatively unusual, there will be rising demand for both rental space and homeownership this year. The great suppression in household formation during the past four years was unsustainable, and a pent-up demand could burst forth from the improving economy.”

Here comes the “pent-up demand” nonsense invented by realtors. When they have nothing else, realtors resort to saying how everyone wants to own; therefore, we have pent up demand.

Yun should really consider writing porn. Consider his description “pent-up demand could burst forth.” What a wanker.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was a record low 3.89 percent in February, down from 3.92 percent in January; the rate was 4.95 percent in February 2011; recordkeeping began in 1971.

One of the main reasons my reports show strong payment affordability is the dramatic decline in interest rates over the last year. Prices that were stupidly high a year ago are now affordable.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said market conditions are improving. “Supply and demand have become more balanced in more markets, but with tight supply in the lower price ranges – particularly in the West,” he said. “When markets are balanced, we normally see prices rise one to two percentage points above the rate of inflation, but foreclosures and short sales are holding back median prices.”

More NAr bullshit. We don’t see prices rise at 1% or 2% over inflation in a balanced market. We see prices rise just above inflation, and that is mostly due to new product coming on at higher price points. Existing home prices over the long term rise with the level of wage inflation. How could they do otherwise? People pay for houses with their incomes, and trees cannot grow to the sky.

“The bottom line is investors and first-time buyers are competing for bargain-priced properties in much of the country, with home prices showing signs of stabilizing in many areas,” Veissi said. “People realize that homeownership is an investment in their future. Given an apparent over-correction in most areas, over the long term home prices have nowhere to go but up.”

I see how this guy got the job as head of the NAr this year. He can bullshit almost as well as Lawrence Yun.

Total housing inventory at the end of February rose 4.3 percent to 2.43 million existing homes available for sale, which represents a 6.4-month supply at the current sales pace, up from a 6.0-month supply in January. Even so, unsold listed inventory has trended down from a record 4.04 million in July 2007, and is 19.3 percent below a year ago.

Falling visible and shadow inventory, combined with a dearth of new-home and apartment construction during the past three years, assure that rents will continue to rise, with likely home price increases in 2012,” Yun said.

Will the bullshit ever end? First, shadow inventory is not falling. Second, visible inventory in the form of increased foreclosure activity is rising. Third, with the new foreclosure rental programs being launched, rising rents is by no means certain. And fourth, it is not likely home prices will increase in 2012. Flip a coin at best.

The NAr is a pathetic embarrassment to all real estate agents.

Home prices drop in 16 metro areas: Case-Shiller

By Kerri Panchuk — March 27, 2012 • 8:20am

Standard & Poor’s/Case-Shiller home price indices for the month of January show prices falling in most major metro areas.

The latest report shows annual price declines of 3.9% and 3.8%, respectively, for the 10- and 20-city composite indexes in the month of January.

Both composites combined fell 0.8% in January, with 16 of the 19 metropolitan statistical areas surveyed experiencing price drops over the prior month. Analysts with Econoday said “the unadjusted monthly decline of 0.8 percent is the best reading since September with the year-on-year rate, where adjustments play a much less significant role than on month-to-month rates, at minus 3.8 percent rate for the same rate as the unadjusted data.”

… S&P said. “With the new lows, both composites are now 34.4% off their relative 2006 peaks.”

Rick Sharga, executive vice president of Carrington Mortgage Holdings, summed up the report saying it “suggests that buying activity is focused on the low end of the market, especially distressed assets, which continue to drag down home prices. With several million more properties in various stages of delinquency and foreclosure, pricing will continue to suffer while this inventory is gradually absorbed.”

Shadow inventory must be absorbed before prices can appreciate meaningfully, and we aren’t making any headway on reducing shadow inventory.

Housing Is Still ‘Shadowed’ by Excess Supply

March 21, 2012, 4:01 PM — By Kathleen Madigan

Home demand took a step forward in February. But oversupply remains a problem.

…Mortgage information tracker CoreLogic calculates homes that are seriously delinquent, in foreclosure or already owned by lenders constituted a pending inventory of 1.6 million units in January.What’s disturbing is that little headway in the number of homes just waiting on the sidelines. Although about 3 million distressed sales have taken place over the past three years, “the shadow inventory in January 2012 is at the same level as in January 2009,” the CoreLogic report says.

Some of those homes will enter the market during the upcoming important spring selling season. The potential overhang means more selection for buyers–but at the cost of further downward pressure on prices.

So if sales are weak, prices are falling, and we aren’t making any headway on reducing the abundant overhead suppply, what does this mean for future house prices?

ROBERT SHILLER: Suburban Home Prices Will Not Rebound In Our Lifetime

Global Macro Monitor — Mar. 27, 2012, 3:02 PM

Many young people are choosing to live at home for a longer period of time instead of buying. Moreover, would-be homebuyers are settling into modern apartments and condominiums, further hindering a housing rally. Shiller says the shift toward renting and city living could mean “that we will never in our lifetime see a rebound in these prices in the suburbs.”A perpetually sluggish housing market, which Shiller believes has become “more and more political,” might push the country in a “Japan-like slump that will go on for years and years.

Perhaps Robert Shiller is a bit too bearish, but his point is valid. If this prolonged slump causes a long-lasting change in market psychology, prices could fall for a very long time. That kind of change seems unlikely with the barrage of bullshit coming from the NAr, but a decade long decline in prices coupled with yearly incorrect bottom-calling by the NAr will reduce their already low credibility down to zero. If nobody believes the NAr, the effectiveness of their manipulative bullshit will no longer influence the market… it’s nice to dream, isn’t it?