Tag Archives: existing home sales

Housing Sales Start To Tank As Suprime Auto Loan Delinquencies Soar

Note:  For the record, I am expecting the possibility that the new homes sales report for February released today will show an unexpected spike up.  For the past several months, there’s been what I believe to be a pre-meditated pattern in which the existing home sales data series and the new home data series move in the opposite direction.  Let’s see if the trend continues.

The existing home sales data series has become as erratic and unpredictable as the Census Bureau’s new home sales report.  One can only wonder about the reliability of the National Association of Realtors reporting methodology when its Chief “Economist” repetitively states month after month that “job growth continues to hum along at a robust pace.”  Any economist who uses the Census Bureau’s monthly employment report as their evidence that the U.S. economy is producing meaningful, income-producing jobs is either just another propaganda mouthpiece or is of questionable intelligence.  Either way a statement like that is highly unprofessional.

You must be wondering why I’m connecting home sales to the recent data which shows that subprime auto loan delinquency rates are soaring (here and here).  Let me explain.

All cash sales of existing homes in February were reported to be 25% of all sales in February, down from 26% in January.  This means that 75% of existing home sales (93% of new home sales) are dependent on mortgage financing.  The FHA has been underwriting 3.5% down payment mortgages since 2008.  3.5% down payment mortgages are nothing more than sub-prime mortgages “dressed in drag.”  The FHA’s share of the mortgage market soared from about 2% at the beginning of the 2008 to around 20% currently (plus or minus a percent or two).  Fannie Mae and Freddie Mac have been issuing 5% down mortgages for quite some time and lowered the down payment to 3% in early 2015.

If you require a 5% or less down payment to buy a home, you are a subprime credit risk, I don’t care what your FICO score it.

First time buyers represent about 30% of all existing home sales.  A good bet is that the first time buyer segment almost exclusively uses the lowest down payment possible to buy a home.  RealtyTrac issued a report in June 2015 which showed that low down payment purchases hit  a 2-year high in Q1 2015 and accounted for 83% of all FHA purchase mortgages.  Understandably RealtyTrac has not updated this report.  My bet would be that somewhere between 30-50% of all purchase mortgages were of the low down payment variety, or clearly de facto subprime quality.

The Wall Street Journal published an article last year which discussed the rising trend in low to no down payment mortgages:  Down Payments Get Smaller.

This is where soaring subprime auto loan delinquencies come into play.  To the extent that a potential home buyer is behind on his auto loan, it will impede his ability to take out a mortgage of any down payment variety.  In fact, I believe that the U.S. financial system has hit the wall in terms of the amount of debt that can be “absorbed” by potential borrowers. Auto loans and student loans outstanding hit new record highs daily, with both well over a combined $2 trillion outstanding.   In my opinion, this is why existing home sales dropped 7.1% from January, more than double the 3.1% decline forecast by Wall Street.

The National Association of Realtor’s Chief Clown attributes the big drop in home sales in February to “affordability.”  But this is statement seeded either in ignorance or fraud.  Forget the Case-Shiller housing price comic book.  Nearly every major MSA has now entered into the continuous “new price” vortex.  This has been going on Denver since last June.  I’m getting reports from readers all over the country describing the same dynamic in their markets.  This problem is especially acute the high end.  Besides, every mortgage sales portal in existence markets a calculator that take your monthly income and calculates how much house you can “afford.”  Price has nothing to do with ability to get approved for a mortgage.

Speaking of “affordability,”  the cost of financing home dropped to 3.66% in February, it’s lowest rate since April 2015.  In other words, the cost of buying a home actually became more affordable in February.

“There is no means of avoiding the final collapse of a boom brought about by credit expansion”  – Ludwig Von Mises.  The Fed and the Government prevented the collapse of the system that was set in motion by the housing/mortgage market in 2008.  As Von Mises stated, “The alternative is only whether the crisis should come sooner as a result of voluntary abandonment of further credit expansion , or later as a final and total collapse of the currency system involved.”

I believe that it is quite likely that the Fed’s ability to push further credit expansion has reached, or is close to, its limits.  The soaring delinquency rates of auto loans and a housing market which is likely beginning to tip over now reflect this reality.

I was early in 2004 when I predicted a collapse in the housing market.  I underestimated Greenspan and Bernanke’s ability to expand mortgage credit.  I was once again early in predicting the demise of the current housing bubble.  Again, I underestimated the Fed’s ability and the Government’s willingness to stuff the average American up to his/her eyeballs in debt.  Regardless of flaws in predictive abilities with regard to timing, my overall analysis materialized in 2008 and it’s a good bet that it’s coming to fruition once again – only this time it is likely that the Fed will be helpless in preventing the inevitable.

A Warning Signal For The Housing Market

PennyMac (PFSI) is a mortgage finance company that describes itself as  a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market.   The stock has been getting crushed and insiders have been dumping shares:

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The graph above (click on image to enlarge) shows PFSI vs. the BKX banking index.  Other mortgage finance stocks have been getting hammered as well.  That steep decline that started on Dec 24 in the graph above was not accompanied by any news triggers.  In fact, PFSI signed a new “warehouse finance” credit line with Credit Suisse for $100mm at the end of the year.  That should be great news if you are a housing and mortgage finance perma-bull.

When stocks decline steeply with no related news events to set-off the price-drop – and when one of the largest individual holders,  Leon Cooperman, is unloading shares – it’s the market’s way of signalling problems not yet recognized by the peanut gallery.  PFSI reported its Q3 earnings on November 4 and with a cursory glance they looked to be what the market expected.  The stock did not do anything unusual.

The action in PFSI’s stock and in some other related mortgage finance and real estate stocks tells me that the “invisible hand” in the market is signalling a significant downturn coming in both home sales volume and mortgage finance volume.  Per the invaluable work of John Williams (Shadowstats.com), when you remove the statistical manipulation and annualization of the existing home sales report for December, it turns out that existing home sales evaluated on an unadjusted monthly basis for the fourth quarter was down 20% from the third quarter.  That’s  not something that you’ll hear about or read in mainstream media or on venues like Seeking Alpha or Realmoney.com or the Motley Fool or Business Insider.

That is what I believe the market is seeing and is why stocks like PFSI are taking a beating outright and relative to the overall banking sector.   Anecdotally, I just got a call from a friend who told me house that would have sold for $620k on his block last year was put on the market two weeks ago for $599.  The neighbors all thought the price was too low.  Two weeks later, today, the price was lowered to $579.  I bet that price will be lowered at least once or twice more before it sells.  And this is an area that was still seeing bidding wars last summer.

UntitledSometime in the next few weeks I’ll be featuring another mortgage-related stock in my Short Seller’s Journal that still has a LONG way to fall before it gets back to its 2008 great financial crisis, pre-QE price.  My picks this week are significantly outperforming the market.   SHORT SELLER’S JOURNAL

A Quick Note On Today’s Existing Home Sales Report

What about the biggest rise in existing home sales on record in December? These guys are offending my sensibilities. By virtue of all the fake statistics and bogus market action, there has to be something seriously wrong right now.  –  John Embry email to IRD

Existing home sales are based on a sample estimate of contract closings.   The actual “sale” took place when the contract was signed 30-45 days ago.  The headline report is based on a “seasonally adjusted annualized rate.”  The big farce about statistics, away from the obvious fact that “seasonal adjustments” are a polite way to say “statistically manipulated,” is that the metrics reported in terms of percentage changes can make an economic report sound a lot better than the underlying reality.

The underlying reality in today’s report is that allegedly a technical glitch cited by the NAR pushed some closings from November into December and therefore artificially depressed the November number and  artificially inflated the December number.  This is only part of the explanation for the 14% seasonally adjusted annualized rate of increase for December vs. November.   The balance of the 14% seasonally adjusted annualize rate metric is most likely attributable to the “seasonally adjustments” applied to the sample data.  It’s analogous to taking the scraps of pig of the slaughterhouse floor and putting these scraps though a grinder to produce “sausage.”

By the way, does anyone find it a bit suspicious that a “seasonally adjusted annualized rate” metric is used to describe what may or may not have occurred during one month? Think about that.

Notwithstanding this statistical smoke and mirrors, pending home sales for November dropped 1% vs an expected rise of .7%.  Pending home sales are contracts signed, most of which evolve into closings, which become existing home sales.  Some of this decline in pending home sales should have been reflected in December’s existing home sales – in other words, it calls into question the credibility of the existing home sales report.

Furthermore, the November pending home sale number should translate into lower closings, i.e. existing home sales, for January.  That latter assertion relies on an unwillingness of the NAR to completely lampoon the statistics for January’s report- an assumption that may be highly naive based on the degree to which the NAR has been adulterating the statistics for at least the last year.

One last thing.  If you find yourself wanting for some intellectual entertainment this weekend, compare the commentary from the NAR’s Larry Yun in the Pending Home Sales report and his commentary in the Existing Home Sales report.   It epitomizes the phrase, “through the looking glass.”

The homebuilder stocks are rebounding right now on the back of that rigged existing home sales report.  One of the featured stocks in this week’s report will either be a homebulder or a homebuilder supplier.  The last h/b supplier I featured is now up (i.e. down in price) over 13% from the 12/7/15 report.  The last h/b I featured 2 weeks ago is now down 8%.  You can access my Short Seller’s Journal here:   SSJ Subscription

 

Statistical Witches Brew Belies The Truth About The Housing Market

The fundamentals of housing are so weak that when the tide does start to go out because of different possible catalysts, it’s going to reveal a mess.  – comment to me from a reader who is watching the disintegration of the housing market “recovery” in California

Despite all of the bullhorn, rah rah rhetoric coming from the National Association of Realtor’s chief cheerleader, Lawrence Yun, the massive intervention in the housing market by the Fed and the Government is beginning to fade quickly.   I guess in the face of evidence far too overwhelming and obvious to cover up with propaganda-laced sound-bytes about “strong jobs growth” and “low inventory,”  the NAR has been forced to admit that the energy market depression – LINK.  At some point, when the “tide does start go out,” everyone is going to wonder why the NAR’s seasonally adjusted hocus pocus data has not transmitted into actual, bona fide sales.

I wrote an article for Seeking Alpha which explains the corrupted foundation underlying the NAR’s statistical witches brew.  In fact, I have evidence direct from the Fed that shows the “low inventory” narrative is 100% false – sales and inventory levels are actually inversely correlated.  Funny thing, that.  But it won’t be funny to the people who chased the price of their dream higher by listening to the “wisdom” of their “friendly” house broker.  You can read my article here:   Existing Home Sales For October Drop More Than Expected.

I toured some middle/upper middle neighborhoods yesterday that up until recently had very little on the market.  Mysteriously, a lot of homes seemed to have popped up on the market for sale in the last few weeks.   I was wondering if perhaps the home broker community had convinced their “pending” sellers to list their homes for Black Friday Month.  You have wonder, what is going on that would cause someone to list their home going into the slowest seasonal period of the year for homes sales?

Bloodbath In Pending Home Sales

The fork-tongued chief sales pimp for the real estate industry, National Association of Reators’ Larry Yun, had this to say:  “Signs of a slowing U.S. economy may be causing some prospective buyers to take a wait–and–see approach.”   Yet, this statement stands in direct contrast to his statement about the bogus existing home sales report from last week:  “The housing market has made great strides this year, backed by an increasing share of pent–up sellers realizing the increased equity they’ve gained from rising home prices and using it towards trading up or moving into a smaller home.”

I wrote a detailed report which showed why the NAR’s existing home sales report was highly inaccurate – Highly Questionable Existing Home Sales Report.   This is the second month in  a row that pending home sales took a dump.  Today’s report supports my analysis that existing home sales likely dropped in September.

What say you, Larry?  Where is all that pent-up demand from people selling their homes and “trading up?”  I will have an in-depth analysis of the pending home sales report later this week.

September Existing Home Sales: Highly Questionable Data

In the context of today’s new home sales report catastrophe – and I’ll have a detailed analysis on that later this week – I continue to question the validity of the National Association of Realtor’s existing home sales report.

Last Thursday, the NAR released its September exiting home sales report, which purported that existing home sales occurred in September at a “seasonally adjusted” annualized rate of 5.55 million.  Notwithstanding the absurdity of taking a data measurement for a single month and expressing it as an annualized rate, the report itself is highly questionable.

Part of my problem with the existing home sales report – aside from the overall methodology of measurement – is that fact that over the last two years there has been a complete disconnect in the correlation between the existing home sales and new home sales reports:

A Pearson correlation coefficient analysis on the 24 months (9/2013 – 9/2015) of data showed just a 47% correlation between new and existing home sales. Interestingly, I ran the correlation coefficient on the data from May 1999 – Sept 2012 and it showed an 87% correlation.

In my opinion, the low correlation between existing and new home sales which has surfaced in the last two years suggests a high degree of estimation error in the sampling and seasonal adjustment methodology used by both the NAR and the Census Bureau. To the extent that errors are introduced into the monthly calculation, this error is compounded by a factor of 12 when the monthly data is converted into an annualized rate metric.

I wrote an article for Seeking Alpha in which I discuss the reasons why the NAR’s report is highly unreliable in terms of measuring the true level of existing homes sales.  You can read my analysis here:  September’s Existing Home Sales Report Is Highly Questionable.

I do know that I’m starting to see home listings pile up all over the Denver metro area. Prices are starting to drop as well as “new price” signs sitting on top of “for sale” signs are popping up everywhere.  I saw a new flavor a couple days ago:  “improved price.”  That cracked me up but it was also in a mid-priced neighborhood in which homes were selling as soon as they were listed a year ago.   It’s starting to remind me of what it started to look like in Denver in 2008.

In fact, I was driving through an area of Denver that I consider to be a “poster-child” example of a collapsing market earlier today.   The Cherry Creek North neighborhood was the epitome of the buy, scrape and build a mcmansion phenomenon that punctuated the housing bubble.  Today I was stunned at the huge number of homes on the market (from Zillow.com, zip code 80206):

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(click to enlarge)

The average home on the market in this area is over $1 million.  Many homes are listed for several million dollars.  The big question is, why are this many high-price home owners looking to sell their McMansion?    How do you decide to list your home when there’s already 2 or 3 homes listed on your block?

This visual has already appeared in several upscale enclaves.  The “poster-child” house representing where the entire housing market is headed is this home on a golf course in Lone Tree, CO.  Lone Tree is a upper-middle/upper income area that is popular with local businessmen, athletes, oil industry executives and transplanted Californians (I would never live there, although the golf course is nice).   A colleague and I have been watching this house, which was listed for $829k in September and is now offered for $709k:
Zillow.com:  Lone Tree Golf Course House.

If the housing market is supposed to be strong, how come the price of this house has dropped over 14% in just 5 weeks?  The answer is that I believe this how quickly the dead-cat bounce in the housing market is fading.

My latest homebuilder short-sell idea is going to get cut in half, at least, in price over the next 12-18 months:   Homebuilder Loaded With Red Flags.

The Housing Market Mirage

In the context of the absurdly misinterpreted and highly manipulated housing data released so far this week, the Dow Jones Home Construction Index is down nearly 3% from its high print earlier this week, despite the fact that the S&P 500 and the Dow are up close to 2% this week.  The nation’s third largest new homebuilder, PulteGroup, is down 9% from its high-tick earlier this week, after reporting at 6% year over year decline in unit home closings (deliveries).

While I’ll have a complete dissection of yesterday’s existing home sales statistical abortion released by the National Association of Realtors and gleefully delivered by its cross-eyed, dim-witted chief “economist,” Larry Yun, I wrote an article for Seeking Alpha in which explained why the housing starts report is completely useless as an indicator of activity – healthy or otherwise – in the housing market:    The Housing Starts Metric Is Useless

In fact, despite the ebulliently presented headlines, single-family housing starts showed a definitive, statistically significant decline for September from August.  This is the metric that, if it even had any relevance,  would pertain to the extreme overvaluation of the homebuilder sector.

While it’s extremely difficult to short anything in this market, the homebuilder sector is going to hit a wall of reality that will trigger a big sell-off in the sector.  I believe we are seeing the start of that this week.   My latest report delivered 9% to those who purchased it when I published it earlier this week – more if anyone played the near-money, October puts.   There’s still significant room for this stock to go well below $10 eventually.  You can access my report here:  Homebuilder Research Reports.

[Please note:  Five of my homebuilder stock reports have not been updated with recent earnings for quite some time.   The date listed above each report is the date of the last update.  I am offering these reports at a discount if you purchase multiple reports.  Anyone who buys my reports can receive updates as part of the price of my reports.  Please contact me at this EMAIL address if you are interested in all of my reports.  Once I update them with current financials. they will only be available at full price]

Pulte Home (PHM) Is Down 9% Today

The National Association of Realtors served up a big bag of statistically manipulated smelly brown stuff today.  My research has shown that there is not a big seasonal difference between August and September in terms of home sales.  The NAR turned a 6.5% not seasonally adjusted plunge from August to September into 4.7% “statistically adjusted, annualized rate” pile of defecation.

But the “tale of the tape” is Pulte’s 6% drop in home closings and the 9% drop in its stock.  In fact, the Dow Jones Home Construction Index is down 2% despite a 300 point ramp in the Dow.  My report details why there’s easily another 10 points of downside unless the Fed runs the stock market to Pluto.

Anyone who bought my latest research report is now 9% richer if they acted on the information I provided yesterday.  Near-money, October puts are up 100%.

I will have a detailed analysis of the NAR’s existing home sales tragicomedy later this week.

[Please note:  Five of my homebuilder stock reports have not been updated with recent earnings for quite some time.   The date listed above each report is the date of the last update.  I am offering these reports at a discount if you purchase multiple reports.  Anyone who buys my reports can receive updates as part of the price of my reports.  Please contact me at this EMAIL address if you are interested in all of my reports.  Once I update them with current financials. they will only be available at full price]

 

The Real Estate Bust Part 2 (Plus A Resurgence In Mining Stocks)

We’ve seen a big slowdown” said RE/MAX Unlimited realtor Ronda Courtney. “I have a listing that I’ve had to reduce twice in the past month…Sellers are starting to chase the market down,” said Anthony Rael, chairman of the market trends committee with the Denver Metro Association of Realtors.  – The Denver Post – Link1, Link2

Kerry Lutz of The Financial Survival Network invited me back on his show to discuss the housing market and mining stocks.  The housing market since 2010 has experienced what can at best be described as a “dead cat” bounce from its plunge that began in late 2005/2006.  This was to be expected given the trillions thrown at the housing market by the Fed and the Government.

While YTD in 2015 home sales overall are up a bit from 2014, home sales volume actually declined if you compare 2015 to 2013.  The only reason 2015 is up vs. 2014 is that FNM and FRE reduced their down payment minimum from 5% to 3% in January and, along with the FHA, all three agencies reduced the amount premium payment required to fund mortgage insurance for low down payment mortgages (i.e. down payments under 20%).

Furthermore, the primary component of the sales volume this year has been individual “retail” investors looking to generate rental income or to flip.

As we discuss in the podcast, this is the “retail” investor dynamic of “piling at the top of a market” after the sophisticated money has decided to sell, as the institutional fund money has disappeared from the market and many funds are now looking to sell part or all of their rental portfolios in response to a failed business model.

I will have a lot more to say about the housing market in the weeks ahead, but suffice it to say that, unless the Fed can push mortgage rates a lot lower and the Government uses even more taxpayer money to subsidize new home buyers, the housing market is about to shock a lot of people to the downside.

It’s called “The American Dream” because you have to be asleep to believe it. – “Julie Sheats,” Twitter

The “Low Housing Inventory” Myth

Every month the chief “economist” of the National Association – Larry Yun – remarks that “low inventory” is hampering home sales.  But of course no one questions this premise – except for me.

As it turns out, if you examine the historical data in order to question the NAR’s assertions, the facts show that since 1999 – which is when the Fed began tracking existing home sales – relative inventory levels do not drive home sales:

homesales1

In fact – if anything – there is an inverse correlation between inventory levels and home sales. In other words, since 1999, homes sales rise when inventories are low!

It blows my mind that everyone just accepts the NAR propaganda drooled out by its chief snake oil salesman.   I take a sledgehammer hammer to this idea that low inventory levels are holding back home sales in this Seeking Alpha article:   The Low Housing Inventory Myth.

Based on what I’m observing in the metro-Denver market – one of the previously hottest markets in the country – and based on reader reports from other metro areas around the country, it would appear that home listings are beginning rise quickly.  But what’s wrong with this picture?   Inventories are going up as we enter the slowest seasonal period of the year.   Either  sellers are all rushing to try and unload their overvalued home or many of them are trying to get out of a home that is unaffordable.

Certainly this visual, which is become prevalent all throughout the metro-Denver market, smells a little bit like desperation:

PriceReduced