Tag Archives: existing home sales

The Big Short 2.0: The NAR Whiffed Badly This Month

Based on the National Association of Realtor’s “Seasonally Adjusted” Annualized Rate (SAAR) metric, home sales were said to have ticked up 0.7% in September from August. On a SAAR basis they declined 1.5% from September 2016.  In his customary effort to glaze the pig’s lips with lipstick, NAR chief “economist” and salesman, Larry Yun, asserted that sales would have been stronger but for the hurricanes that hit Florida and Texas.

This guy should do some better vetting of the data before he tries to spin a story. The Houston Association of Realtors was out a week earlier stating that Houston home sales were up 14% in September from August and up 4.2% from September 2016. Yun’s fairytale is a stunning contrast to what is being reported from Houston. But it illustrates the fact that the data on housing the NAR reports is highly suspect.

As I’ve been detailing for years, the NAR’s existing home sales report is highly manipulated and flawed.  It works well for the industry and the media in rising markets, but the real estate market has rolled over and is preparing to head south.  Likely rather quickly.  As it turns out, the September existing home sales report released Friday reinforces my view that the market is starting to topple over.  I go over the details in the next issue of the Short Seller’s Journal, with a couple examples which foreshadow a collapse in the over $1,000,000 price segment of the market.  This in turn will affect the entire market.  I always suspected that the “Big Short 2.0” would start at the high-end.  An example outside of Colorado can found here:  Greenwich Sales Plunge.

Four weeks ago I presented a housing-related stock as a short good idea.  The stock is down nearly 10% in four weeks.   How can this be?  Isn’t the housing market hot?  It will be going much lower.  This week I’ll be featuring a housing industry supplier stock that went parabolic and will soon go “cliff dive.”  If you want to find out more about this subscription service, click here:  Short Seller’s Journal info.

I love your Short Seller’s Journal. Keep up the great work – recent new subscriber

Peak Housing Bubble: 2008 Deja Vu All Over Again

Existing Home Sales were released Wednesday and the NAR’s seasonally adjusted annualized rate metric was down 1.7% from July. July was down 1.3% from June. The NAR’s SAAR metric is at its lowest rate since last August. Naturally the hurricane that hit Houston is being attributed as the primary culprit for the lower sales rate. Interestingly, the “not seasonally adjusted” monthly number for the South region was higher in August than in July. Moreover, I’m sure the NAR’s statistical “wizards” were told to “adjust” for Houston. So I’m not buying the excuse.

As for the NAR’s inventory narrative, that’s a bunch of horse hooey. Recall the chart I’ve posted a couple times in previous issues which shows that sales volume is inversely correlated with inventory – this is 17 years of data:

In other words, sales volume increases as inventory declines and sales volume declines as inventory rises. This is intuitive as prospective buyers will get desperate and rush to secure a purchase when inventory is low. Conversely,when a prospective buyer sees inventory climbing, the tendency will be to wait to see if prices come down.

It’s disingenuous for the NAR to claim that low inventory is affecting sales. Based on its own calculus, there’s 4.2 months of supply right now. This is up from 3.8 months in January. In fact, from December through March, months supply was said to have been well under 4 months. And yet, the monthly SAAR sales for each month December through March averaged 4.5% above the level just reported for August. In other words, the excuse put forth by the NAR’s chief “economist” is undermined by the NAR’s own numbers. However, given that the inventory expressed as “months supply” has been rising since April, it should be no surprise that sales are declining. This is exactly what would have been predicted by the 17 years of data in the sales vs inventory chart above.

The other statistic that undermines the “low inventory is affecting sales” propaganda is housing starts. Housing starts peaked in November 2016 and have been in a downtrend since then. Robert Toll (Toll Brothers – TOL) stated directly in his earnings commentary a couple weeks ago that “supply is not a problem.” Furthermore, DR Horton – the largest homebuilder in the country) is carrying about the same amount of inventory now as was carrying at the end of 2007 – around $8.5 billion. The average home price is about the same then as now, which means it is carrying about the same number of homes in inventory. It’s unit sales run-rate was slightly higher in 2007. Starting in 2008, DHI began writing down its inventory in multi-billion dollar chunks. Sorry Larry (NAR chief “economist” aka “salesman”), there are plenty of newly built homes available for purchase.

The Fannie and Freddie 3% down payment, reduced mortgage insurance fee program that has been in effect since January 2015 has “sucked” in most of the first-time buyers who can qualify for a mortgage under those sub-prime quality terms. If the housing market cheerleaders stated that “there is a shortage of homes for which subprime buyers can qualify to buy,” that’s an entirely different argument.

Housing price affordability has hit an all-time low. Again, this is because of the rampant home price inflation generated by the Fed’s monetary policy and the Government’s mortgage programs. The Government up to this point has done everything except subsidize down payments in order to give subprime quality borrowers the ability to take down a mortgage for which they can make (barely) the monthly mortgage payment. At this stage, anyone with a sub-620 FICO score who is unable to make a 3% down payment and who does not generate enough income to qualify under the 50% DTI parameter should not buy a home. They will default anyway and the taxpayer will be on the hook. As it is now, the Government’s de facto sub-prime mortgage programs are going to end badly.

Speaking of the 50% DTI, that is one of the qualification parameters “loosened” up by Fannie Mae. A 50% DTI means pre-tax income as a percentage of monthly debt payments. Someone with a 50% DTI is thereby using close to 70% or more of their after-tax cash flow to service debt. This is really not much different from the economics of the “exotic” mortgages underwritten in the last housing bubble. As the economy worsens, there will be sudden wave of first-time buyer Fannie Mae and Freddie Mac mortgage defaults. I would bet that day of reckoning is not too far off in the future.

The Fed has fueled the greatest housing price inflation in history. In may cities, housing prices have gone parabolic. But to make matters worse, this is not being fueled by demand which exceeds supply.

After all, we know that homebuilders have been cutting back on new home starts for several months now. Price inflation is the predominant characteristic of this housing bubble. The price rise since 2012 has been a function of the Fed’s enormous monetary stimulus and not supply/demand-driven transactions.

The effect of the Fed’s money printing and the Government’s mortgage guarantee programs has been to fill the “void” left by the demise of the private-issuer subprime mortgages in the mid-2000’s housing bubble. The FHA has been underwriting 3.5% down payment mortgages since 2008. In 2008, the FHA’s share of the mortgage market was 2%. Today it’s about 20%. Fannie Mae and Freddie Mac allow 3% down payment mortgages for people with credit scores as low as 620. 620 is considered sub-prime. On a case-by-case basis, they’ll approve mortgage applications with sub-620 credit scores. Oh, and about that 3% down payment. The Government will allow “sweat” equity as part of the down payment from “moderate to low income” borrowers. Moreover, the cash portion of the down payment can come from gifts, grants or “community seconds.” A “community second” is a subordinated (second-lien) mortgage that is issued to the buyer to use as a source of cash for the down payment.

Again, I want to emphasize this point because it’s a fact that you’ll never hear discussed by the mainstream media:  The Government mortgage programs resemble and have replaced the reckless “exotic” mortgage programs of the mid-2000’s housing bubble.

To compound the problem, most big cities are being hit with an avalanche of new apartment buildings.  In Denver, the newer “seasoned” buildings are loading up front-end incentives to compete for tenants.  There’s another tidal wave of new inventory that will hit the market over the next six months.  This scene is being replayed in all of the traditional bubble cities.   As supply drives down the cost of rent, the millennials who can barely qualify for a mortgage that sucks up more than 50% of their pre-tax income will revert back to renting .  This will in turn drive down the price of homes.

Flippers who are leveraging up to pay top-dollar will get stuck with their attempted housing “day-trade.”  Studies have shown that it was flippers who were unable to unload their homes who triggered the 2008 collapse, as they “jingle-mailed” the keys back to the greedy bankers who funded the “margin debt” for their failed trade.

It may not look exactly the same as late 2007 right now.   But there’s no question that it will be deja vu all over again by this time next year…

The above commentary and analysis is directly from last week’s Short Seller’s Journal. In the latest issue I presented three ways to take advantage of the coming collapse in the housing and mortgage market, one of which is already down 10%.  If you would like to find out more about this service, please click here:  Short Seller’s Journal subscription info.

I look forward to any and every SSJ. Especially at the moment as I really do think your work and thesis on how this plays out is being more than validated at the moment with the ongoing dismal data coming out, both here in the U.K, and in the U.S.   – James

Existing Home Sales Tank This Summer: Fact vs Fiction

Existing home sales declined nearly 2% in June from May on a SAAR basis (Seasonally Adjusted Annualized Rate).   (SAAR is the statistically manipulated metric used by industry organizations and the Government to spin bad monthly economic data into an annualized metric that hides the ugly truth).

Here is the NAR-spun fiction:  “Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that’s straining their budget…” – Larry Yun chief “economist” for the National Association of Homebuilders.

This has been Yun’s narrative since home sales volume began to decline last year.  His headline mantra of low inventory is mindlessly regurgitated by Wall Street and the financial media. But here’s what the truth looks like (click to enlarge):

Going back to 1999, this data sourced from the Fed, who sourced it from the NAR, shows an inverse correlation between inventory and sales. In other words, low inventory drives sales higher.  Conversely, as inventory rises, sales drops.  You’ll note that the chart does not go past 2015.  This  is because, for some reason, the Fed purged its database of existing home inventory prior to June 2016.  There’s a gap in inventory between mid-2015 and mid-2016.  However, there is this (click to enlarge):

I hate to call Larry Yun a “liar” because it sounds unprofessional. But what else am I supposed to call him when the data completely contradicts the narrative he shovels from his propaganda port-o-let into the public domain? I have no choice.

AS you can see, from 1999 to mid-2015 and from mid-2016 to present, inventory and sales are inversely correlated.

This has been the worst selling season for the housing market’s peak sales months since 2011.  In 2011 the Fed was dumping trillions into the housing market and mortgage finance system.   To make this morning’s report worse, mortgage rates have been declining at a steep rate since the end of December.  Near-record low rates, combined with near-zero percent down payment Government-guaranteed mortgages combined with the lowest credit-approval standards since 2007 combined with the peak selling months should have catapulted home sales much higher this year.

Here’s the problem:  the factors listed above have tapped out the available pool of homebuyers who qualify for a near-zero downpayment, low-credit rating Government-backed mortgage:

The graphic above shows the average household mortgage payment as a percentage of disposable personal income (after-tax income). The graphic above is for those households with 20% down payment mortgages. As you can see, that ratio is at an all-time high. It’s far worse for households with 3% down payment mortgages.  Either the Government will have to roll-out a program that directly subsidizes the households who still want to over-pay for a home but can’t afford the mortgage payment let alone the cost of home ownership – i.e. helicopter money – or the housing the market is getting ready to head south.  This won’t end well either way.

As for the inventory narrative.  New homebuilders are bulging with inventory.  How do I know? Because I look at the actual balance sheet numbers of most of the publicly traded homebuilders every quarter.  Newly built homes sitting in various stages of completion or sitting complete but completely empty often are not listed in the MLS system.  There’s a rather large “shadow inventory” of new homes gathering dust.  This fact is reflected in the fact that the rate of housing starts has been declining for most of the past 8 months.   There’s plenty of new home inventory and homebuilders are open to price negotiation. This is evident from the declining gross margins at almost every homebuilder.

This is the type of analysis that is presented in the Short Seller’s Journal.  I research and dig up data and present facts that will never be reported by Wall Street, industry associations and the financial media.  This is why my subscribers were short Beazer (BZH) at $14.99 on May 21st.  It’s currently at $13.39 but has been as low as $12.  It’s headed much lower.  Despite the Dow et al hitting new highs, there’s a large universe of stocks that are plumbing 52-week and all-time lows.  You can find out details about the SSJ here: Short Seller’s Journal information.   In the latest issue I present an in-depth analysis of Netflix’s accounting and show why it’s a Ponzi scheme.

The Housing Market Bubble Is Popping

As with all other highly manipulated data, the financial media has a blind bias toward the “bullish” story attached to the housing market. Understandable, as the National Association of Realtors spends more on special interest interest lobbying in Congress than any other financial sector lobby interest, including Wall Street banks.

New home sales were down last month, according to the Census Bureau, 11.3% and missed Wall Street’s soothsayer estimates by a rural mile. Strange, that report, given that new homebuilder sentiment is bubbling along a record highs. Existing home sales were down 2.3%. You’ll note that the numbers reported by the Census Bureau and NAR are “SAAR” – seasonally adjusted annualized rates. There is considerable room for data manipulation and regression model bias when a monthly data sample is “seasonally adjusted/manipulated” and then annualized.  You’ll also note that mortgage rates have dropped considerably from their December highs and May is one of the seasonally strongest months for home sales.

It’s becoming pretty clear to me that the housing market’s “Roman candle” has lost its upward thrust and is poised to fall back to earth. I believe it could happen shockingly fast. Fannie Mae released its home purchase sentiment index, which FNM says is the most detailed of its kind.

The report contained some “eyebrow-raising” results. The percentage of Americans who say it’s a good time buy a home net of those who say it’s a bad time to buy a home fell 8 percent to 27% – a record low for this survey. At the same time the percentage of those who say its a good time sell net of those who say its a bad to sell rose to 32% – also a new survey high. In other words, homeowners on average are better sellers than buyers of homes relative to anytime since Fannie Mae has been compiling these statistics (June 2010).

Currently the prevailing propaganda promoted by the National Association of Realtors’ chief “economist” is that home sales are sagging because of “low inventory.” He’s been all over this fairytale like a dog in heat. The problem for him is that the narrative does not fit the actual data – data compiled by the National Association of Realtors – thereby rendering it “fake news:”

The graph above shows home inventory plotted against existing home sales from 1999 to 2015 (note:  when I tried to update the graph to include current data, I discovered that the Fed had removed all existing home sales data prior to 2013).   As you can see, up until Larry Yun decided to make stuff up about the factors which drive home sales, there is an inverse correlation between inventory and the level of home sales (i.e. low inventory = rising sales and vice versa).   I’m not making this up, it’s displayed right there in the data that used to be accessible at the St Louis Fed website.

Furthermore, if you “follow the money” in terms of new homebuilder new housing starts, you’ll discover that housing starts have dropped three months in a row. The last time this occurred was in June 2008.   IF low inventory is the cause of sagging home sales – as Larry Yun would like you to believe – then how come new homebuilders are starting less homes? If there’s a true shortage of homes, homebuilders should be starting  as many new units as they can as rapidly  as possible.

Although the Dow Jones Home Construction Index is near a 52-week high – it’s still 40% below it’s all-time high hit in 2005.  Undoubtedly it’s being dragged reluctantly higher by the S&P 500, Dow, Nasdaq and Tesla.   Despite this, I presented a homebuilder short idea to subscribers of the Short Seller’s Journal that is down 13.6% since  I presented it May 19th.  It’s been down as much as 24.2% in that time period.   It is headed to $7 or lower, likely before Christmas.  I also  presented another not well followed idea that could easily get cut in half by the end of the year.

The next issue of the Short Seller’s Journal will focus on the housing market.  I’ll discuss housing market data that tends to get covered up by Wall Street and the media. I have been collecting some compelling data to support the argument that the housing market is rolling over…you can find out more about subscribing here:  Short Seller’s Journal info.

In the latest issue released yesterday, I also reviewed Amazon’s takeover of Whole Foods:

I just read it and the analysis on Amazon is awesome. This has the potential to be the short of year when the hype wanes and reality sets in – subscriber, Andreas

Toll Brothers Stock Jumps On Declining Revenues And Earnings

Toll Brothers reported its Fiscal Q1 earnings this morning.  Year over for the quarter: Revenues declined nearly 1%, operating income plunged 46.8%, net income dropped 4.1%.   Net income was boosted by the reliable accounting management technique of reducing the estimated GAAP “effective” tax rate, which enables any management to goal-seek a specific net income number.  In this case the goal is to “beat” the Street.  Margins were down across the board.

Oh ya, TOL pulled another stunt that homebuilders use to pump up GAAP net income:  it increased the amount of interest it capitalized by $6 million dollars. This has the effect of boosting operating income by $6 million compared to the same quarter last year because it reduces the amount of GAAP interest expense by the amount that was capitalized. It did this despite a drop in sales.   Its net income would have missed the Street by a suburban mile if it had just maintained the same rate of interest expense capitalized.

For this, the stock jumped up 6% this morning at the open.

The Company blamed the drop in operating income and margins on inventory write-downs.  But these have been occurring every quarter recently and will of course continue going forward.  That write-down only explains $4 million of the $44 million plunge in operating income.

There’s so much more going in TOL’s numbers which point to the continued economic deterioration in its business model.  I will be reviewing this further in this week’s issue of the Short Seller’s Journal, including which put options TOL I bought this morning.

Too many layoffs and store closure news to mention but I’ve realized that there are a lot of school-district (including teachers) layoffs and colleges, or even hospitals staff layoffs. CSX just posted 1000 management level position cuts – link.  By the way, thanks for the Short Seller’s journal, very informative. – note yesterday from a subscriber

Fake News Alert: Existing Home Sales Report

I’m going to have to throw a flag on the existing home sales report for November published today by the National Association of Realtors.    The NAR would have us believe that home sales occurred in November at 5.6mm annualized rate for the month, up 15.4% from November 2015 and up .7% from October.   I will point out that, of course, the orignal report for October was revised lower.  But who pays attention to those details?

Take a look at this graphic sourced from Zerohedge which shows existing home sales plotted vs mortgage applications back to 2013:

I hate to be cynical, or accuse anyone of presenting “fake news,” but the mortgage application data completely contradicts the NAR’s “seasonally adjusted, annualized rate” interpretation of the data it collected. Existing home sales are based on closings (escrow clears), which means the sales report for November is based on contracts signed primarily from October and some in late Sept/early November. But mortgage applications began dropping off a cliff in late August. Clearly the NAR’s seasonal adjustment interpretation of the data is highly suspect.

Looking at the data itself  – LINK – you’ll note that the NAR’s data sampling shows that home sales dropped 6.7% from October.  Yet, it’s “seasonal adjustments” suggest that home sales increased from October to November, despite a massive plunge in mortgage applications during the period in which contracts would have been signed for November closings.

I’ve emailed the NAR several times over the years to have them explain their seasonal adjustments calculus.  Every time I am politely declined.  I will note that they use the same regression analysis model used by the Census Bureau.

The annual rate for a particular month represents what the total number of sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonal adjustments, which are determined by using the X-12 Variant created by the Census Bureau, are then used to factor out seasonal variances in resale activity.

They do at least disclose that, although, if anything, that fact detracts from the credibility of their calculations.  Of course, if I were looking for credibility, I would not advertise that I use the statistical guesstimate package created by the Government…

I would suggest that a year from now, anyone who looks back at the data produced today by the NAR will discover that the number was revised lower by a significant amount.  But who looks at revisions?  The Government and industry promotion organizations know this.  It doesn’t matter how far off the rails their initial “seasonally adjusted” data strays, as long as they revise them at some point in the future, when no one is looking, it gives them plausible deniability if they are ever held accountable.

In the next issue of the Short Seller’s Journal, I’m going to present a comprehensive analysis on the housing market and the damage already inflicted on it from a 1% rise in mortgage rates.  Despite the fact that S&P and Dow have been pushing all-time highs almost on a daily basis, the DJ Home Construction index is down over 11% from its July 52-week high.  I will show why in this next issue.  You can access more information and subscribe to the SSJ using this link:  Short Seller’s Journal.

 

More On The Government’s Fraudulent New Home Sales Report

This is from a reader who posted this comment:

I live in “the south” in a very very nice area by the beach.  A “developer” built over 20 new homes and purchased several more lots to build on.  His last home sold 6 months ago and the rest stay EMPTY!  Lock box, not sold, and some for sale signs have been taken off to decrease competition from the other people trying to sell their home.

The average asking price is $500,000 .  The lots are cleared but undeveloped. He put a sign up on one lot to show the home that “could” be built there IF anyone purchased it.
In short… IT’S OVER! WE’RE BACK TO 2007 LOOKING DOWN AT A DEEPER AND STEEPER DECLINE!

I’m beginning to think that the Census Bureau now includes “intent to sell” as a “sale” because I’m sure there’s a lot of people who are thinking of selling of in order  to “get ahead of the market.”  Sorry, it’s too late.

More On Yesterday’s New Home Sales Fraud

As I detailed yesterday – LINK – yesterday’s new home sales report was complete fiction. Notwithstanding all of the other statistical manipulations that go into the Government’s Seasonally Adjusted Annualized Rate of sales metric, including flawed data sampling, Mark Hanson – who does cutting edge housing market analysis – reduced yesterday’s new home sales report to its essence:

A rounded 4,000 more homes sold on a Not Seasonally Adjusted basis than in June, ALL from the Southern region.  This added up to a massive 72,000 month to month and 114,000 year over year Seasonally Adjusted Annualized Rate surge and headlines of “9-year highs,” all due to bogus seasonal adjustments that should not have applied due to the number of weekends in the month…”  – Mark Hanson, M Hanson Advisors

The 4,000 more homes sold in the South month to month more than likely results from flawed data collection, for which the Census Bureau is notorious.  But even assuming that the number is good, the Government’s “seasonal adjustment” sausage grinder translated that into 72,000 more homes sold in July vs June and 114,000 year over year on a Seasonally Manipulated Annualized Rate basis.

Not to pile on to what now should be the obvious fact that the Government’s new home sales report is not more credible than its employment report – both for which the Census Bureau collects the data – Credit Suisse published research earlier in this month for July in which its market surveys showed that:

  •  its “buyer” index declined in July to 40 from 41 in June;
  • expected traffic declined in 29 of 40 markets in July vs 25 in June – including Portland, Seattle and New York experiencing “sharp declines;”
  • “Florida markets remained depressed;”
  • California overall was lower in July

Finally, the Mortgage Bankers Association reported that purchase mortgage demand hit a 6-month low in July.  New Home “sales” are based on contracts signed.   If mortgage applications and contract signings are highly correlated, as 93% of all new home buyers use a mortgage.  If mortgage applications are declining, it means that contract signings are declining.

How on earth is it at all possible that the Government was able to measure a 9-year high in new home sales for July when every other actual market transaction indicator declined, some precipitously?

The housing market is headed south right now.  Inventory is piling up all over metro-Denver, especially in the high-end areas.  Emails to me from readers who are industry professionals all over the country are reporting similar occurrences in their areas.

The Government can populate the news headlines with fraudulent propaganda – something which has become de rigeur – but propaganda and fraudulent economic reports do not generate real economic activity.  At some point the elitists running the system will be at a loss to explain the difference between their lies and reality.  That’s when we’re all in big trouble…

Housing: I’ve Worked Thru 4 Bubbles – They All End The Same

The three primary drivers of the economy are starting to head south:  retail, housing, autos.  I can smell the housing market slipping away now. I’ve been early on housing, like I was when the mid-2000’s Bubble 1.0 popped, but I was eventually very correct (I sold my dream house in November 2004).

The housing market is beginning to crater. I draw on “hands on” data from the Denver area because I can get “boots on the ground” due diligence accomplished. Denver is considered somewhat of a demographic “bellweather” for economic trends as they unfold. I don’t care what the media propaganda is reporting, in Denver housing sales are rapidly slowing, inventory is rapidly building and prices are falling. I’ve witnessed two $2 million+ homes in my area reduce their offer price 14% and 20% respectively shortly after their initial listing.

Ultra-high end resort areas are starting to get killed. Aspen is reporting that sales are down more than 42% in the first-half of 2016 vs. 2015: Aspen’s Sustained Nosedive. Same with Long Island’s Hamptons, where sales volume in East Hampton and Southampton plunged 53% and 48% respectively from a year ago: LINK.

Once the high-end wets the bed, the rest of the market follows very reliably and obediently.

My view is supported by the homes sales data for July reported by Redfin.com last week. According to Redfin, home sales (closings) fell 11% in July:  LINK.  Redfin of course concocts a ridiculous calculus to rationalize the decline, but that’s nothing more than a disconsolate effort to defer acceptance of the unpleasant but inevitable reality.

Perhaps most shocking in Redin’s report is the extent to which the bottom fell out of what had been some of the hottest markets in the country.  Year over year for July closings fell 46% in Vegas, 24% in Miami,  21% in Portland, 20-% in Oakland and 11% in Denver.

I’ve been focusing on the housing market in my weekly Short Seller’s Journal  because the homebuilder and related home construction stocks are no-brainer shorts.  It’s been my view that flippers/”investors” have been the majority of existing home sales volume reported this year.   I have a subscriber who is three decade-plus real estate professional in Denver who is sharing some great insider color on the market, something you will NEVER get from the National Association of Realtors:

You are spot-on the housing market.   I think the flippers in Denver metro are driving the under $400,000 price to a frenzy and the over $500,000 in the burbs are dropping in price. Some of these flippers have 8-10 houses at the same time. A little jiggle and they will dump. Then the part time rental landlords follow in selling as the rental market gets tough

I am selling a $309,000 condo and showing another buyer $300,000-$350,000 houses in the same part of Denver. Condos and houses of the same 1980’s age are not worth the same. Every time the condo and house of same square footage and age get the same price, the prices fall. Condos go down the farthest of anything.

I believe the flippers who are facing getting “stuck” with their inventory will start to panic and look to unload their “investments.”  Many of them are using debt to make their purchases.  This of course will hasten the downturn in housing. This is exactly how the end of the big Housing Bubble 1.0 was triggered.

The current housing bubble is the most extreme of the four bubbles I have witnessed since the late 1970’s.   Prices for new homes have moved above the prices of the last bubble. In many areas, existing home prices are now at all-time highs.  This is despite the fact that sales volume is roughly 2/3’s of the volume of the last bubble.  This activity is occurring amidst rapidly rising inventories.
The next downturn in housing will be worse than the last one because the Government Untitled1has aggressively stuffed as much mortgage debt as possible into the system with its 3% to no-percent down payment programs, reduced mortgage insurance requirements and by looking “the other way” on credit scores.

If the Fed hikes rate in September, as it incessantly insists will definitely possibly happen, it will be lights out for housing.  On the other hand, it can only take interest rates down 50 basis points to zero, probably will not enough stimulate sales because anyone with a high degree of monthly payment sensitivity has most likely already overpaid for their “dream” home.  When the Government introduced 0-3% down payment programs plus subprime programs.

Government Sponsored Mortgages Go Full Retard: 2008 Redux-Squared

This is a note to me from one of my Short Seller Journal subscribers:

As a 20 year real estate agent, investor and wholesaler in Atlanta,  I’d like to add my comment to your analysis. I totally agree that things are not what they seem to be in housing.  I despised the NAR [National Association of Realtors] when I was a member because of their “it never rains” housing reports and their confiscatory attitude toward realtor dues and their subversive political activity.  I eventually gave up my agent’s license when they started forced PAC contributions in 2010.  Edward Pinto of the American Enterprise Institute told me that NAR is spending $55 million a year for lobbying on housing issues. The NAR never met a loan they did not like.

I’ve been working the Atlanta metro housing market since the early 1990’s. I can tell you that this time around is different in that the home buyers I’m seeing in entry level FHA neighborhoods are mostly “minorities” (some are refugees), and virtually every neighborhood in my general area northwest of Atlanta is being sold with 100% financing via USDA loans. There is NO equity in these neighborhoods, and most of the selling prices are as high or higher than 2006-07.  The mortgage fees and costs for things like PMI and funding fees are added into the payment along with ever rising tax and insurance payments. The outcome is not going to be pretty.

I do not know when exactly, but at some point, I’m going to make that massive killing in housing stocks that I missed out on in 2009. I knew that crash was coming as early as 2004, from reading mortgage data, but I did not think to short the home builders! This time I won’t miss.   Enjoy your work very much.

There you have it. That’s the truth from the trenches.  “The NAR never met a loan they did not like.”  But guess what?  All these 3% to no percent down payment mortgages are being subsidized by you, the taxpayer.  Instead of Countrywide originating subprime  nuclear waste and dumping it on Wall Street (and into your pension fund), this home finance scatology  is being sponsored by the Government through Fannie Mae, Freddie Mac, the FHA, the VHA and the USDA.

Now Quicken – through Taxpayer-sponsored Freddie Mac – is offering 1% down payment mortgages (LINK) that also avoid the use of PMI insurance.  The PMI insurance is was a requirement for low down payment mortgages (below 20%), but the NAR and other PACs successfully lobbied to have this requirement removed.  The funds from PMI were put into a trust that was used to help cushion blow when low  down payment buyers defaulted.  It was a thin layer of protection for the Taxpayer.  Now that’s been removed.

Most of the homes being sold to actual buyers are now financed with Taxpayer funded subprime mortgages.  If you note in the article about the Quicken product linked above, it references that these are not considered “subprime” mortgages thanks to rule changes.  We can call a “nuclear bomb” a “snow cone” instead, but it’s still a nuclear bomb.

When a buyer closes on a low down payment house, the buyer is underwater on the mortgage after netting all the costs that are included.  Home prices are not going up as reported by Case Shiller and the Government.   Look around at all but the hottest markets and you’ll see a plethora of “price reduced” offerings.

This is going to get ugly again.  Interestingly, I run into lot of people who agree with me that what’s coming will be worse than 2008.   I reiterated a short on a big homebuilder less than two weeks ago that is down almost 9%.  Despite the general upward push in the SPX since mid-Feb, I’ve had several picks that are down double-digits on a percentage basis, including a mortgage company that’s down 15% since late March, a consumer durables stock down 17% since mid-April and an auto seller that’s down over 18% since early June. This is because the Fed is concerned with propping up the Dow and the S&P 500  for propaganda purposes.  But individual stock sectors are melting down.  The home construction and auto sectors will be a blood-bath.

You can access my research with these ideas here:  Short Seller’s Journal.  It’s a weeklyNewSSJ Graphic  report for $20/month delivered to your email on Sundays. In recent issues I’ve been reviewing past ideas that have not worked since mid-Feb because of the Fed’s market intervention. Many are better shorts now than back then, as conditions in the general economy have deteriorated since then.  I also provide at least one new idea per week.

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