Existing Homes Sales Fantasies

Seasonally adjusted, annualized numbers are in no way the actual number of housing units sold during a given month.  The National Association of Realtors takes samples from every region, statistically infers the number of homes sold countrywide during the month, “seasonally adjusts” that number, then computes an “annualized rate” based on its estimates and its adjustment to its estimates.

Not much different than Emeril Legasse taking a handful of this and a handful of that plus a pinch of his seasoning and “BAM” we got our stew.

Having said that, I have no doubt that there was a bounce in home resales in the late spring, early summer.  Why?  Because of this – click to enlarge image:

MortRatesExisting home sales on based on closings (escrow clears). When the NAR reports home sales for a given month, it’s based on contracts that were signed 30-60 days prior to a purchase closing. July sales are thus based on contracts signed in May/June.  You’ll note that mortgage rates starting moving higher in mid-May.  Historically this always triggers a rush into the market by potential buyers (“can’t risk rates going any higher”).  Furthermore,  I know from watching activity in Denver that there was literal mad scramble by mid/lower-segment buyers to get in on the rush into housing before prices go any higher.

It was stunningly analogous to watching the blow-off top of stock market bubble, when retail investors rush to get in on the action.  I’ll have more to say about today’s report later this week, but I have strong data which suggests that lot of the buying was being done by “investor/flippers.”  Anecdotally: I am seeing more “for rent” signs outside of houses all over Denver than I have ever seen before (even more than in 2008-2010);   Denver has become one big “new price” sign;  inventory is starting to flood the market, especially in the over $1 million segment.  Note:  the NAR’s inventory numbers are highly lagged (2-3 months).

On many days when the SPX gets hammered, the homebuilders rally because the algos sell stocks and buy the 10-30yr Treasuries (flight to “safety”/  earn yield trade).  They also pile into the homebuilders because their black boxes are programmed to buy housing stocks when rates drop (LOL).

But today was different:  the SPX fell off a cliff, Treasury yields dropped, but the homebuilders are getting demolished.  Here’s the 5-day graphs from my 2 favorite short-sell ideas.  You can access these reports here:   Homebuilder Short Sell Reports  – click to enlarg:

LowEndLowEnd2

Here’s a comment submitted to a reader of this blog today:

Just sold a home in the Chicago suburbs in an upscale neighborhood, on the market for 6 months, lower price 3 times, put money in to update kitchen, finally sold. We had lived there for 20 years, kids grown, most of the neighbors preping to sell next year. All I can say is good luck!

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