Home Prices And Sales Are Going To Tank

Mortgage purchase applications dropped 5% last week.  They were down 15% year over year for the same week in May.  This is May.  May is supposed to be the second or third strongest seasonal month for home sales.  Purchase apps have been down 7 of the last 9 weeks.  This is occurring in the strongest part of the year for housing.  There’s no bad weather  “issues” and, as I’ll show below, inventories are starting to climb quickly.

Purchase mortgage applications are based on contract signings.  The Census Bureau measures new home “sales” on contract signings.  93% of all new homes are purchased using mortages.  This means new home sales for May will disappoint when they are released next week.   Existing home sales are based on closings.  Closings take about 30-45 days right now (note:  time to close is shorter than a year ago – less volume to process).  This means June’s existing home sales report in July will be bad.

Flippers are going to be stuck with homes.  They rely on traditional, mortgage-financed buyers in order to flip.  I saw a big sign on a corner of a very busy intersection in a prime are of Denver that said, “investment homes for sale.”  That’s a flipper looking to flip to other flippers.

I just published an article titled:  Are Home Prices About To Tumble on Seeking Alpha.  I have detail four unmistakable signs that tell us the housing market is dying.  It will soon be dead on arrival…

Economists and Wall Street are missing badly now on their forecasts for everything.  Way too optimistic.  Today’s current account deficit was the perfect example.  They missed by a significant amount.   Hack meteorologists like Al Roker are blushing for them.  The economy will show even more of a contraction in Q2 than in Q1.  Housing is leading the way down.

6 thoughts on “Home Prices And Sales Are Going To Tank

    1. LOL. If we could short homebuilders in our metals/miners fund, that’s the trade we would have on. It worked perfectly from 2005-2010. It will work even better this time around.

  1. I keep hearing from more MSM types how Q2 will be an uptick in the economy due to inventory buildup but beyond that the economy could slow again. It will be interesting to see if you are right about Q2 being worse than Q1. Q1 is revised to -2%. What do you think Q2 will be, and will they change the definition of recession to keep this being identified as such? It wouldn’t surprise me if they did. I fully expect the lame excuses to get more retarded as we go, and the economic calculations to be changed to make things look better. Welcom to the JLE (Jerry Lewis Economy)!

  2. Dave,
    Ive got a good chunk of SRS but am concerned that even though housing goes down they can manipulate it so SRS doesn’t rise. Housing is bad now and the
    EFT is near its 52 week low. How can that be?

    1. Here’s the problem with SRS: It’s 2x invervse IYR. IYR the Dow Jones US Real Estate Index. It’s not new home builders. It’s mostly property trusts. Look at the top-10 holdings: http://finance.yahoo.com/q/hl?s=IYR+Holdings

      IYR has a 3.5% dividend yield right now. You’ll eventually make money on it but it’s not a real home run play like shorting Beazer Homes BZH will be.

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