Mar282012
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
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?
Rober Shiller is being too bearish, I think. We still have a long term debt problem and that will interest interest mortgage rates. This increase will finally knock housing to a bottom in a couple of years and hopefully the federal mortgage housing programs will return to a normal and mostly private credit market. I hope we can return to a pre-1996 mortgage market where we had a normal housing price appreciation changes and not due to affordability products, but that might asking too much.
Speculators selling to other speculators is still mostly what I’m seeing in OC.
Nonetheless, even despite access to nearly 0% cost of debt capital (selective institutional groups), near record low rates for what remains of the retail herd… current monthly OC SFR sales vs ’88-2011 avg down -28% = the aggregate demand growth needed to support current prices isn’t there.
The lack of sales volume is indicative of the lack of a move-up market. The upper tiers of the OC housing market depend on move-up equity to generate sales. Since that equity is gone through a combination of falling prices and HELOC abuse, there is no support for the high end. Volume will not pick up until the high end comes down and the resulting substitution effect ripples through the rest of the market.
We would be shopping to move-up now (having been in our place for five years), but for the negative equity. If we found a house we wanted to purchase (2.5x income), we would have three options:
1) Buy & Bail – Purchase/finance the new home putting 20% down and then let the current home go into foreclosure;
2) Buy & Rent – Purchase/finance the new home putting 20% down and rent the current home burning $300-$700 monthly; or
3) Buy & Sell – Purchase/finance the new home putting ~5% down, pay MI, and use the rest of our savings to buyout the current home.
Since none of those is particularly attractive for a number of reasons, we stay in our house…
Another point (or time reference) – If housing prices and our income remain relatively constant for the next few years, it would still take us a few years to be able to both, 1) buyout the current home and 2) put 20% down on the next one.
And I know other families in exactly the same position. We’re the “dead move-up market” IR repeatedly talks about.
Indeed. Ironically, a huge unintended consequence of Prop13 is that it’s suppressing the move-up market.
Prop 13 looks like a subsidy for the grandmas. I know…they can hike them up to 2%, but its ridiculous compared to their neighboors. I think my parents have a tax base of $230K for a house in Mission Viejo.
Evidence of the consequences of Prop 13 is found when looking at the total net worth of 25-34 year olds vs the over 65 crowd. In the 80s the ratio between the two groups was approximately 11X. Today that number went to 45X. The kids today have higher tax bases, more credit card debt and more student loan debt and ever and the worst job market in decades. I guess the honeymoon is over.
Housing Hype: Recovery Turns to Relapse?
Diana Olick — Published: Monday, 26 Mar 2012 | 10:47 AM ET
Housing was charging back. Spring sprung early. Sentiment among home builders doubled in six months. Any talk that the fundamentals might not be supporting the sentiment was met with harsh criticism. And then suddenly it wasn’t.
A slew of new housing data last week disappointed the analysts and the stock market, and all of a sudden you started to hear concern that maybe housing wasn’t exactly in a robust recovery.
From home builder sentiment to housing starts, to home builder earnings right through to sales of newly built homes, there was not one hopeful headline in any of it (except perhaps if you invest in rentals, as multi-family housing starts made more gains, but that is a contrary indicator to housing recovery).
And then an email from a Realtor in New Jersey: “Just reviewed March buyer clicks, Google’s analytics on all the sites we monitor – March is turning out to be the weakest month since last October re: Buyer interest..”
Now we start another week with another disappointment. Pending home sales, a measure of signed contracts for existing homes, not closings, fell half a percentage point month-to-month.
That may not seem like a big deal, but the analysts were looking for a small gain. No doubt the Realtors will point to the solid 9% gain from a year ago, but so much of that gain is based on a change in the foreclosure pipeline.
Last year the foreclosure process stalled. The “robo-signing” mess brought everything to a standstill, and that left investors with little to buy on the distressed side. Foreclosures began ramping up again in the late fall, and that led to a surge in investor buying. Was that the “recovery” we were seeing?
Investors are still rushing into the market, with distressed sales making up a near-record 48.7 percent of sales in February on a three month moving average, according to a new report today from Campbell/Inside Mortgage Finance.
Investors are now a full quarter of the market, and they are increasing their activity in short sales (when a lender allows the home to be sold for less than the value of the mortgage).
Don’t get me wrong, investors buying up the distress is necessary to cleanse the market, but it is not real recovery. Mortgage originations are at a 12-year low, despite record low rates. Normal, “organic” home buyers, move-up owner occupants, are not flooding back into this market. Rents are still rising.
Mortgage analyst Mark Hanson runs some disturbing numbers to back up his contention that Q2 will disappoint: “Investor sales volume up 37 percent year over year for a whopper 69 percent of all year over year existing home sales gains. First-timers are starting to look weak in Feb. The gains in first-timer and repeat sales can easily be explained by historic rates and weather and can easily reverse in a single month.”
That may be why the home builders, who had been on a streak of gains in confidence, suddenly stopped moving this month. KB Home [KBH 9.48 -0.11 (-1.15%) ], which builds lower-priced homes, also came in with wildly disappointing earnings and an 8 percent drop in new orders. Sales of new homes also disappointed, which one analyst called, “puzzling.”
“If new homes are not selling, then why are builder confidence and single-family housing permits moving up, and why is the S.& P. home builder index up 80 percent since last October?” asks Patrick Newport at IHS Global Insight. “Time will tell if builders and investors have gone out on a limb.”
Several other analysts started to question the strength of the recovery as well, with some just hoping that perhaps a warm winter had pulled some demand forward from spring. Despite a miss on existing home sales in February, the headline pointed to, again, big gains from a year ago.
Yes, we are ahead of where we were, but as we’ve noted so many times here on this page, rising foreclosures will put added pressure on this market, and we may not be out of the woods yet.
“Despite an extraordinarily mild winter, home sales just plod along at a pace last seen during the mid-1990s,” notes Mark Zandi in his monthly report from Moody’s Analytics. “Thus, the underlying pace of home sales may not yet be strong enough to support a long-lasting upturn by home prices.”
Tomorrow we get the monthly reading on the S&P/Case-Shiller home price index. This index hasn’t been improving nearly as much as home sales, but the ever-hopeful housing lobby keeps blaming that on the fact that prices always lag sales, which is historically true, but what in today’s market has followed history?
Home prices are still falling not because of some lag, but because this housing market is running on sales of distressed properties at the very low end. The rest of the market is still stalled.
Fair and balanced?
The methodology they rely on uses pending sales, and with the high cancellation rates, particularly at the high end, I think the actual closings will not match their spring optimism.
Home Prices Have Been Rising for Three Months: Report
Standard & Poor’s reported Tuesday that it’s closely watched Case-Shiller index declined in January for the fifth straight month, with both the 10-city and 20-city composite readings slipping 0.8 percent from December.
But according to John Burns Real Estate Consulting (JBREC), that’s stale news and doesn’t reflect what’s actually happening in the market right now. In fact, the independent research company says home prices are rising.
JBREC conducted its own analysis of home prices in 97 markets and found that over the January-to-March period prices are up in 90 of them. The average price increase over the last three months is 1.1 percent, or a 4.5 percent annual rate, according to data issued by JBREC just before S&P’s Case-Shiller release.
The company also found that home prices have been trending up nationally since January, and even more markets have turned positive recently, with 93 of the 97 markets it analyzed showing appreciation over the last month.
So why are other industry indices still painting a picture of the doom and gloom of freefalling home prices? Wayne Yamano, VP and director of research for JBREC, says it’s because most price indices are on a three-month lag.
Yamano explains that after hundreds of hours of research vetting 23 data sources and running calculation after calculation, JBREC developed the Burns Home Value Index (BHVI), which calculates home values based on prices that are set at the time purchase contracts are negotiated and signed.
Nearly all other indices are based on when the purchase transaction closes, he says, which is typically two months after the purchase contracts were negotiated. Then, it takes one to two months for the closing price data to be compiled and reported, according to Yamano.
He contends that the BHVI is a better assessment of current changes in home prices and precedes median price data from the National Association of Realtors by three months and the S&P/Case-Shiller index by four to six months.
“It is current because it uses what is happening in MLS databases all over the country, as well as some leading indicators we have determined are reliable,” Yamano explained. “We call it a Home Value index because it is partially based on an ‘electronic appraisal’ of every home in the market, rather than just the small sample of homes that are actually transacting.”
JBREC has calculated BHVI index values for the United States and 97 major metro areas, with history going back to January 2000.
“The slow housing market recovery is underway, and it can accelerate or turn down quickly,” said Yamano. “The future is uncertain, and it is even more uncertain when you are using data that is three months old.”
**BHVI index values…“It is current because it uses what is happening in MLS databases all over the country.
——————————————————–
Therin lies the primary shortfall of the index.
The MLS is for realtors only. It is only as good as the information that goes into the system. Thus, always validate closed sale prices with county recorders, NOT the MLS.
ie.,
Realtors are not reporting the true sold prices on homes.
http://www.zerohedge.com/article/are-existing-home-prices-overrepresented-40
I know April 1st isn’t until Sunday, but is this guy [Yamano] for real?
To me “BHVI” sounds like one of those weird urine tests that I get with my annual physical.
1) “…Yamano explains that after …… vetting 23 data sources…”
I sure would like to know who/what those “23 data sources” are.
Here are some guesses
Lawrence Yun
California Association of Realtors
Suzanne said ‘we can do this’
Gary (15% appreciation – It’s In the Bag”) Watts
Can anyone add to this list?
2) “…calculates home values based on prices that are set at the time purchase contracts are negotiated and signed…”
I have no connection with the Real Estate Industrial Complex but even I know that the only statistic that matters is when escrow is complete and the transaction closed.
I think IrvineRenter has mentioned this at least 5 dozen times on this very blog.
3) “…partially based on an ‘electronic appraisal’ of every home in the market, rather than just the small sample of homes that are actually transacting…”
Does he mean like the way Zillow Zestimate works? And we all know how deadly accurate those Zesimates are. <;{
Where does he suppose Zillow gets its data from?
Looks like the basis for an endless feedback loop.
4) "…with history going back to January 2000…"
Then is the BHVI model so good that his back calculations *exactly* match the actual data collected when escrow is complete and the transaction is closed.?
If it doesn't, then what is the point of BHVI?
5) “…The future is uncertain, and it is even more uncertain when you are using data that is three months old…”
Huh? He got me on this one. Does he mean that what has happened in the past is more uncertain that the uncertainty of the future?
I am still trying to figure this one out. Help!
Moe Veissi, “over the long term home prices have nowhere to go but up.”
…hee hee, he really said that
The HELOC withdrawal machine is now closed.
Have Refis Run Out?
Wednesday, 28 Mar 2012 | 11:17 AM ET By: Diana Olick
The average rate on the 30-year fixed mortgage is up about a half a percentage point since the middle of February, when they hit a record low. Mortgage refinances, however, dropped 24 percent in the same period of time.
That’s a huge reaction to a small move from a record low.
“Rates have been there (3.75 percent) for so long that most everybody who could benefit from lower rates has applied,” says mortgage analyst Mark Hanson. “Now, when rates pop up over 4 percent, it chokes off refi activity, which is sad. 5 percent rates in the U.S. are now prohibitively high.”
Again, a little perspective here. Mortgage rates, spurred by government intervention in the market, of course, are still incredibly low. The problem is that the refinance business has changed fundamentally. This from analyst Barry Eisbruck:
There used to be a product called cash out refinancing. Those quarterly refinancing numbers are amazing from 2003 vs. 2011. In 2003 you had 4.3T of total mortgage volume, 3T in cash out/refinancing and 1.3T in purchase origination. In 2011 it was around 1.3T of total mortgage volume, 75-80 percent of that was refinancing, so probably around 300-400B of purchase origination. These numbers are happening with record low rates and home prices at 1Q2003 levels.”
Here’s another strange point: In the fourth quarter of 2011, mortgages were cheaper than they’ve ever been, and yet refinancing was lower than the previous year, when rates were much higher. It all leads to the question: have refis run out?
“The decline in the Refinance Index this week was driven largely by a 12.0 percent drop in government refinance activity, while conventional refinance applications fell by less, decreasing 3.4 percent from the previous week,” according to today’s mortgage applications report from the Mortgage Bankers Association.
That’s a problem, because government mortgages (largely FHA) are going to get even more expensive on April 1, when the FHA raises insurance premiums.
There will still be some refis going through the government’s HARP2 program, which allows borrowers who have Fannie Mae and Freddie Mac loans to refinance, even if they owe more on their mortgages than their homes are currently worth (“underwater”). Those borrowers have been priced out of the refi market until now, but the program has just kicked into gear, so that could provide a boost.
For others, though, the return on a refi is getting ever smaller as rates go higher. Why do we care about refis? Because they put extra money in consumers’ pockets…money they generally spend, fueling the greater economy.
Wow – interesting interview by Shiller. It truly seems like he’s frustrated with the uncertainty in the market.
I’d be curious for you to put together an analysis for a home in Floral park. Seems like that community could be a good value right now considering pride of ownership in houses and a limited supply of houses in the community. Are they able to weather this storm better than the rest or does being in Santa Ana hurt them further? Love to get your thoughts.
The move-up communities like Floral Park will all be under pressure. It’s very difficult to predict what will happen with smaller enclaves because it only takes a few people who feel as you do to keep prices up. All the high end communities are still elevated well above their historic relationship to rental parity. Most of these communities sell at a premium due to the move-up equity, but that premium is still stretched far above its historic norm.
A friend of mine has made offers on five Floral Park homes in the last few months and lost each in a bidding war. Granted, each was at the lower-fixer-upper-end for Floral Park ($350K-$400K).
No one except ochousingnews seems to recall the extraordinary, pervasive fraud at every level and in every conceivable way that created enough “buyers” and “speculators” to skyrocket prices and loans at the end of the last bubble. Here’s a little reminder of how Realtors…yes, capital R, were heavy buyers and speculators causing much damage through their own personal trading and chicanery:
http://insiderealestate.heraldtribune.com/2012/03/27/prosecution-focuses-on-the-house-that-streinz-built/?tc=obinsite
http://insiderealestate.heraldtribune.com/2012/03/26/why-did-the-adams-fraud-conspiracy-last-so-long/?tc=obinsite
Note the Realtor at the heart of this learned to make money from flips and fake commissions; the bankers who are being jailed also made money from fake transactions, the fake appraiser made money…well, you see the story.
Those fake Realtor and speculator buyers are GONE from the market now, and that’s one reason why there’s still fewer buyers than before. But wait! They are now being replaced as wild buyers with unlimited cash by “new-bubble” speculator investors (many fewer flippers) who forget that rental single family homes make money ONLY when sold. The cash flows net of all repair and vacancy is seldom adequate for return unless the home is sold for an inflated or bubble price. BANKS ARE FUNDING these wild speculators, including in buying vacant property, and if this second wave of bubble stops as banks won’t fund more wild speculators and take a whole new round of loan losses on these homes, then the market could slide quickly and hard in most bubble markets. Somehow people forget that rental homes, as such, degrade a neighborhood’s long term home condition, economic class, and prices if present in enough quantity, and that’s going to be a major shock to many speculators who want to be landlords.