Tag Archives: mortgage applications

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.

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 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…

September New Home Sales Plunge Nearly 100k From The Original August Report

The stock market remains a real insult to human intelligence.  – John Embry

I’m right about the housing market and I’m right about Amazon.com. The only factor I can’t control is the amount of fraud and corruption that is being engineered by Wall Street in conjunction with the Government in order to try and make it look like the reality that analysts like me report is wrong.

August new home sales were reported originally at a 552k annualized rate. The “annualized rate” format is important to understand because it magnifies any estimation and “adjustment” (i.e. manipulative) errors by a factor of twelve (12x). Here is the original Wall St. Journal headline announcing the “good” news from August: “U.S. New-Home Sales Up 5.7% in August – Single-family home sales rise to new post recession high.” Don’t forget, the market trades off of this headline.

This morning the Census Bureau reported that September’s seasonally adjusted, annualized rate of sales had plummeted to 468k, or nearly 100k from the original August report. But the CB decided that it’s original estimate for August was off by 22k, or 4%. Thus, the media is reporting an 11.5% drop in home sales from August for September. However, the September report is 15% below the original estimate for August – the number which the market originally incorporated into its trading models. The 468k missed Wall Street’s consensus estimate of 549k.

Regardless of what the propaganda laced media is reporting, the housing market is starting to drop quickly. Price does not reflect supply/demand, it reflects rampant inflation that is being manifest in insane degrees of debt-financing which enable homebuilders to raise prices because the amount someone pays who is dumb enough to buy a new home is now a function of how much monthly payment they can afford.

This is why we are now seeing this:

zero money downThat sign is not the the type of promotion you would see in a market in which supply is limited and demand is strong. That is the unmistakable indicator of a homebuilder desperate to unload inventory.

The homebuilders are insanely overvalued relative to their underlying fundamentals, especially debt and inventory levels, which are higher now relative to sales than they were at the peak of the housing bubble.   Furthermore, all of these homebuilders are generating highly negative cash flow from their operations because they are overbuilding inventory to an extreme degree.

I just published a new report on a homebuilder (Homebuilder Reports) that is loaded with red flags, including an ongoing audit by the IRS.  The drop in this homebuilder is just getting started.  In fact, it will soon have a graph that will look like this, which is another homebuilder that I recommended shorting when it was in the low $20’s about a year ago:

This is what the graphs of almost all of the homebuilders will look like, only they will notUntitled
experience the temporary price recovery you see in the graph of this stock.  The price recovery 100% a function of the Fed’s interminable support of the S&P 500.  With Thanksgiving around the corner, a lot of these homebuilders will soon have graphs that look like “turkey shoots.”

 

I Love The Smell Of Economic Napalm In The Morning…

It smells like…VICTORY:

First off, mortgage purchase applications tanked 7% from the previous week. Mortgage purchase applications are now down five weeks in a row. Mortgage purchase applications have been declining now for over a year. Flash headline: if people are not applying for mortgages, they are not buying homes. Kind of throws napalm on the “seasonally adjusted, annualized rate metrics vomited at us by the National Association of Realtors and the Census Bureau

Second, housing starts and permits missed the consensus estimate from Wall Street’s brain trust economic propaganda department.  Now, housing starts are kind of a b.s. number because all a homebuilder needs to do is file a permit on a piece of land and stick a shovel in the ground and it’s called a “start” by the Census Bureau.   Based on my in-depth analysis of several of the largest homebuilders – see: Housing Reports – more than 50% of all new homebuilder inventory can be considered “spec” inventory.

With new home sales volume declining (the unseasonally adjusted, unannualized, actual deliveries net of cancellations, the latter of which are running in the low-mid 20’s percent now), the housing “starts” number is largely meaningless.   This is especially true when you factor in that the big driver in the last year has been multi-family buildings.  I know that in Denver there’s a literal avalanche of large new apartment buildings that are now in various stages of completion.  I also know that all new buildings are now offering 1-month free move-in incentives, including the one I live in, which is less than an year old.  I have had several readers send me emails saying that they are seeing the same thing in their cities.   This means that as apartment rents dive, home rental rates dives and the value of homes in general dives.  This is a full repeat of the last housing bust cycle that began in 2005.

Third, industrial production, which came in at .2% for January but missed the consensus estimate from Wall St., which was looking for .4%.   Worse, the -.1% drop in December was revised lower to a -.3% drop.    The manufacturing component of this index rose .2% vs .4% expected BUT the .3% gain in December was taken away and is now being report as…no gain.

Just a quick observation on the slight gain in industrial production in January.  The biggest influence in the gain reported was output from utilities.  This makes sense because its winter and because every household in the northeast was likely running their heaters overtime with the unusually cold weather.   Also, with the wholesale inventory to sales ratio spiking higher quickly – again, another sign that consumerism is tanking hard –  a lot of the product manufactured in January will likely get tossed on the proverbial log-pile, waiting in vain to be purchased by someone with room on their credit card…

The economy is slipping into darkness quickly. It’s probably why the tension in Ukraine is being escalated, as we learned today that the U.S. is now shipping “tanker buster” jets to Europe at Germany’s apparent request.  “When all else fails, they take us to war” – Gerald Celente.

[post_ender]

The Downward Spiral In Housing Begins…

      • Mortgage applications continue to plummet.
      • Housing starts take a big drop in June.
      • The increase in the homebuilder sentiment index is deceptive.
      • Homebuilder stocks are negatively diverging from the S&P 500.

With middle class household income after inflation declining and the first-time homebuyer cohort over-leveraged on student loan, credit card and auto loan debt, it’s no wonder that mortgage applications filed to purchase a home are plunging.  Folks, the demographic I just described historically is the majority of the housing market – not big institutional funds and flippers looking to make a quick buck.   If first-time buyers and middle class “move-up” buyers aren’t buying, the market eventually collapses.

With propaganda in ALL areas of our economic and political system now at levels that would make George Orwell put a gun to his temple and pull the trigger, I’ve sifted thru the nonsense coming from Wall Street and CNBC and have written an article explaining why the next down-leg in the housing market is about to unfold.

You can read my article here:  Mortgage Apps And Housing Starts Tank.

The two biggest warning flags:   home sales are dropping during what is supposed to be the strongest period seasonally of the year for the housing market and homebuilder stocks are in a downtrend despite that fact that the S&P 500 is headed to the moon.

I have yet to hear any of the housing market bulls explain any of the factors described above…

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.