Tag Archives: mortgage rates

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

Existing Homes Sales Drop 3x Faster Than Expected

Existing home sales for August were released Monday.  They declined nearly 5% from July, with July revised down from the original report.  The brain trust on Wall Street was expecting a 1.3% decline.

It was only a matter of time before home sales started dropping again.  But a drop of this magnitude in August took me by a bit of surprise.  Of course, the National Association of Realtor’s chief “economist” offered pathetic excuses for the hammer applied to home sales in August with half-truths, distorted truths and omission of facts.   I was actually a bit shocked by the transparency of his apologies for the highly disappointing report.

For instance, every month he blames disappointing sales on low inventory.  The NAR is showing 5.2 months of supply as of the end of August.  However the inventory jumped to 5.2 months of supply from 4.9 months in July.  And the NAR inventory numbers are lagged by a couple months and do not include “coming soon” listings, which are listings exclusive to the listing broker for typically 30 days before they hit the MLS database.

Furthermore, based on what I’m seeing all over the metro-Denver area, the number of new listings accelerated toward the latter half of August and continued to increase on a daily basis throughout September.  This is interesting because typically listings tail off toward the end of the summer as families focus on back-to-school and then the holiday season. Even worse for the market, price reductions are hitting the market at an alarming rate.  It reminds me of 2007-2008 in Denver.

I get emails from readers describing similar observations in several other cities.  If you are not seeing what is going on in Denver, stay tuned because it is “coming soon.”  If the demographic pattern is similar to the pattern that developed when the housing bubble popped, Denver’s market was hit earlier than most of the other top-20 MSAs, the what is occurring in Denver with regard to an inventory pile-up will soon be all over the country.

The headline numbers and the data referenced by the NAR’s chief “economist” are “seasonally adjusted” and converted into an annualized rate of sales.  Any distortions in the data are exacerbated by when monthly data is converted into an annualized rate.  But let’s take a peek at the “unadjusted” data as reported by the NAR.

On an unadjusted basis, existing homes sales dropped 8.3% from July.  YTD there were 3.55 million homes sold. Compare this to the 5.3 million “adjusted, annualized rate.”  In order to cleanse “seasonality” out of the unadjusted monthly comparison, I looked at what happened from July to August in 2014.  Last year for the two month period home sales fell 3% on an unadjusted basis month to month.  In other words, the month to month drop this year is quite bit worse than it appears in the headlines.  The months’ supply at the end of August 2014 was 5.6.  Just for the record, in 2013 unadjusted sales from July to August were flat, declining by 1,000 homes.

Perhaps most interesting is the fact that the annualized, adjusted  sales rate in August 2015 was 5.2% below the same number that was reported in 2013.   Interesting that Larry Yun leaves that comparison out of his pathetic apology for a housing market report that was likely even much worse than was featured by the headline-regurgitating mainstream media.

Unlike Larry Yun, who seemed to make shameless love to the numbers, the stock market apparently hated the existing home sales report.  On a day when the S&P 500 closed up almost 9 points, the homebuilder index fell 1.3%:

Graph1

The homebuilders popped at the open on the heels of Lennar’s Q3 earnings report, which was mostly hype backed by little substance.  The homebuilder index dropped a bit on the horrific existing home sales reports but remained in positive territory.  It would appear that it took the smart money about 90 minutes to analyze and absorb the sales report, because around 11:30 EST, the homebuilders fell of cliff.

I’m expecting home sales to drop at a faster rate going forward for several fundamental economic reasons.  I’ll have a lot more analysis and commentary on this later this week.

Big Cracks Forming In The Housing Market

How many of you reading this were aware that new home prices are down 12% since October 2014?   Do not believe the propaganda.  The headlines are full of lies.  The numbers themselves are lies.

The 2.2% gain in new home “sales” from the Census Bureau was driven by what is likely a corrupted “sales” report from the northeast region.  I am putting “sales” in quotes because “new home sales” as reported by the Census Bureau are based on contracts signed.  How many of you were aware of that?   On average right now roughly 20% of all contracts signed are cancelled.  So the report has a natural 20% error built into it.

But wait, it gets better.  According to the Census Bureau’s stated methodology, in areas where it can’t get data on contracts from homebuilders, it resorts to “guesstimating” the number of new contracts based on the number of permits filed in that area.  In other words the Census Bureau’s data is outright an insane guess in some areas.

As it turns out, the CB is telling us there was an 87.5% jump in “sales” in the northeast in May vs. April.  Well, guess what?  It also turns out that there was a huge spike in permits filed in the northeast in May.   I wrote about this here:  Housing Starts Plunge, Permits Spike Up

Let’s look at some truth.  First, here’s a graph that might startle you:

ConstructionSpending

The graph above shows the year over year monthly change in private residential construction spending. You can see that the metric is falling off a cliff, just like it did when the Housing Bubble 1.0 popped.  You shouldn’t need any more evidence to tell you that what is being reported by the media, Larry Yun, Wall Street and the Government is a complete fraud.

But it just so happens that I wrote a report for Seeking Alpha in which I take a scalpel to the latest Census Bureau reporting abortion and demonstrate that the Housing Bubble 2.0 is about to pop:   May New Home Sales Were Not As Reported

As you can see from the graph above, the homebuilder sector is down 5.3% since its recent high close on April 1. During the same time period the S&P 500 has been flat. This divergence from the market indicates to me net selling by “smart” money. The pattern in the graph above also correlates with the move in mortgage rates from April to the present. If mortgage rates continue to trend higher, I believe it will exert forceful downward pressure on homebuilder stocks.