Tag Archives: pending home sales

The Housing Bubble Is Popping

The Seasonally Adjusted Annualized Rate (SAAR) economic numbers are now manipulated beyond the definitional meaning of the word “absurd.”  This is especially true with the housing market and auto sales reports.  – Investment Research Dynamics

Today the NAR released its “pending home sales” index.  On a “seasonally adjusted annualized rate” basis, it showed 1.3% gain over June.  June’s original report was revised lower from +.8% to -.2%.  Mathematically, this downward revision enabled the National Association of Realtors to report a gain from June to July.  Keep in mind this is on a “seasonally adjusted” and “annualized rate” basis.

Now for the real story – at least as real as the reliability of the NAR’s data sampling  Untitledtechniques.   In the same report the NAR shows the “not seasonal adjusted” numbers. (click on image to enlarge) On a year over year basis for July, pending home sales were down 2.2%.  They were down 13% from June.   This is  significant for two reasons.  Using a year to year comparison for July removes seasonality and it removes the “seasonal adjustments.”   Just as important, if you look at historical data for existing home sales by month, “seasonality” between June and July is non-existent – i.e. in some years June sales exceed July and in other years July exceeds June.

The not seasonally adjusted data series is much more reflective  of the real trend in the housing market that has developed this summer than is the manipulated SAAR number vomited by the NAR’s data manipulators.  The 13% from June to July should shock the hell out of housing market perma-bulls.

FURTHERMORE, the not seasonally adjusted numbers are consistent with the highly correlated mortgage purchase applications data.   “Pending” sales are based contracts signed.  Concomitantly with signing a contract – the NAR reported that 80% of all existing home buyers in July used a mortgage – the buyer needs to file a purchase application.  But the Mortgage Bankers Association reported that mortgage purchase applications hit a 6-month low in July.    The mortgage applications data contradicts the NAR’s pending home sales report on a SAAR basis but is entirely consistent with the pattern in the not seasonally adjusted data.

The not seasonally adjusted data are pointing to a rapidly developing housing market implosion – 13% drop in contracts signed from June to July in a two-month period that has little if any seasonality and with 30-yr fixed mortgage rates hitting all-time lows.
Just like the big bubble which finally exploded in 2007-2008, I was early in my call on Housing Bubble 2.0  (HB 2.0).   Because it takes a lot of capital and “inertia” to move the housing market, directional movements take time to develop and they become fast-moving trains with no brakes – until they either hit a wall or hit the ground.  But change in direction happens suddenly.

When prices are moving up, the market becomes very illiquid on the “offered’ side and buyers become ravenous.  This occurred because the Fed dedicated $2 trillion of it’s QE to the mortgage market and the Government made Government-guaranteed mortgages much easier for buyers by taking the down payment requirement down to 3% and in some cases 0%.   But when the market rolls over, supply quickly builds and demand disappears and the market becomes very illiquid on the “bid” side.  The market is about to become very illiquid on the buyer side of the equation.

I made this call in my latest Short Seller’s Journal this past week:

The housing market is heading south now as well. It’s been my view, and I’ve supported this view with detailed analysis of new and existing home sales on my blog, that both the Government (new home sales report) and the National Association of Realtors (existing home sales report) are using their mysteriously calculated “seasonal adjustments” to inflate the true level of homes being sold on a monthly basis. MOREOVER, and this point is crucial to understand, to the extent that there are flaws in the “seasonal adjustments,” the “annualized rate” calculation compounds these flaws by a factor of 12.

As an example, last week’s new home sales report, which showed an unexpected and absurd 72,000 (SAAR) new homes sold in July vs expectations and 154,000 more homes sold vs. July 2015. However, the report also shows the “not seasonally adjusted, not annualized number for July, which never makes its way into the media reports. In that section it shows only 16,000 more homes vs the 154k SAAR headline sold year over for July AND a decline in sales from June to July of 6,000 homes. In other words, the sensationalized headline reports were manufactured out of thin air from the “seasonal adjustments” applied to the monthly numbers and then converted into an annualized rate

As you can see, the Government’s new home sales report is utterly unbelievable. In fact, the Mortgage Bankers Association has reported that mortgage applications to purchase homes hit a 6-month low in July. New home sales are based on contracts signed. With 93% of all new home buyers using a mortgage, if mortgage applications are not being filed, contracts are not being signed. It’s really that simple.

The NAR’s existing home sales report was well below consensus expectations and showed a 3.2% drop in existing home sales from June and a 1.6% drop from July 2015. These numbers are based on closings. Again, if mortgage purchase applications dropped in June and July, we can expect (or at least should expect )that existing home sales reports for at least the next two months will show further declines. Furthermore, the NAR uses the same statistical “adjustment” model as the Government. To the extent that the NAR’s SAAR numbers showed a decline, the true decline is likely much greater.

After the employment, GDP and inflation reports, the home sales reports from both the Government and the National Association of Realtors are among the most highly manipulated economic data reports.  The data is heavily modeled and massaged via the “seasonal adjustments.”

The truth from the ground, based on the extensive footwork due diligence I conduct plus emails from readers around the country reporting similar observations, is that the inventory of home listings of soaring (the published inventory reports by design have 2-3 month lag), prices are dropping quickly, the time it takes to sell a home is increasing significantly and, most important, the potential pool of middle class home buyers no longer have an income level that will support the size of mortgage it takes to “buy” a home.

Short-sell ideas are starting to work again.   The short-sell selections in my Short Seller’s Journal have now worked four weeks in a row.   My pick from 3 weeks ago is down 6%.  At one point it was down 10%.  The pick from two weeks ago gave subscribers a quick 13% drop after it reported earnings and it’s still down 10%.   My pick from last week is down nearly $2  (2.3%)  after 2 1/2 days of trading  but the puts are up 42%.  I am also making several homebuilder short recommendations now each week.

You can subscribe to the Short Seller’s Journal by using this link:   SSJ subscription.

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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?

A Bearish Warning From The Pending Home Sales Report

The warning signals are coming from several sources now.   Many major MSA’s have gone from apartment rental shortages to oversupply with more supply on the way;  Sam Zell recently unloaded a big chunk of apartments from his flagship REIT – a repeat of a  move he made in 2007;  housing prices have been dropping for the better part of the last year in several MSAs – 30% All Homes Lost Value Last Year;  large investment funds are now starting to  unload large portfolios of homes that had been  structured for  high yields from rents but have significantly underperfomed.

The crux of the problem is that the Fed’s massive stimulus of the mortgage market, combined with increased Government subsidization of FNM/FRE/FHA mortgage programs, accomplished no more than temporarily stimulating a small bounce in homebuying.  But a large portion of this homebuying was done by “investors” and flippers.  That ship has sailed as housing prices, contrary to the calculus reported by the Case-Shiller index (which Robert Shiller has admitted in the past is flawed) have been declining in most cities since the spring.  Flippers are now finding themselves stuck on homes that they are unable to flip unless they are willing to eat loss.

I explore the significance of the latest Pending Home Sales Index report, which has now declined in 3 or the last 4 months in this Seeking Alpha article:  Pending Home Sale Indicating The Bear Is Back.    This is true despite the fact that the Government just allocated more taxpayer support by rolling out  a zero-down mortgage program for the low-income demographic.   As I discuss in this article, mortgage subsidies won’t help a population that can’t earn enough income to support the monthly cost  of home ownership.

I have published a new homebuilder report which shows why this particular homebuilder is going to get cut in half in price over the next year.  This company happens to focus on the lower-end homebuying demographic and it recently reported a continued decline in unit sales.   This stock fell 9% after it reported and it has yet to rally back to its pre-earnings level despite the massive move up in the S&P 500.

You can access this report here:  HOMEBUILDER REPORTS

In response to several recent inquiries, I’m offering a package of my older homebuilder reports at a discount.  The numbers in the report are dated but the primary premise explaining why each homebuilder is a great short is still intact.  In fact, two of the companies are now well below their stock price when I published the reports, despite the fact that the S&P 500 is significantly higher than when the reports were published.  There’s a message there…

I am offering the older reports at a discount until I get the numbers up-to-date, which  I will be doing over the next couple of weeks.  Anyone who buys these reports will be entitled to receive future updates per my report buying policy.  If you are interested, contact me at investmentresearchdynamics@gmail.com

 

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.

The Economy Is Tanking – Housing Is Next

Do not get pimped into buying house now.  Wait 6 to 12 months if you really want to take on that expense because you will get a much better price.  The housing metrics promoted by Wall Street, industry associations and Bloomberg/Fox Biz/CNBC are just as bad as the Government’s seasonally adjusted, annualized rate pig vomit.

Denver is turning into one big “New Price” sign.  Also, I’ve never seen more homes “for rent” in central Denver than now.  Ma n Pa investors will take it in the back side on those homes and I bet many of them are stuck flippers or “swing traders.”  Unfortunately for everyone, many of the Ma n Pa retail price chasers started using mortgages to make their “investment” purchases.  Many of them also checked the “vacation home” box on the mortgage application to get better financing terms.  This will not end well.

Inventory now is piling up across the price spectrum more quickly than the brown stuff waiting to hit the fan blades.  The upper-end price segment of market has more inventory listed than I can recall seeing 2008.  Some small enclaves with psuedo, over-priced mini McMansions have 15-20% of the homes on the market (see Highlands Ranch Golf Club area, for instance).

I wrote an article for Seeking Alpha which explains how some of the “lower profile” housing market metrics are telling a completely different story than the pump and dump headlines on which most of the world reacts:

The bounce in home sales since mid-2010, which has been driven by the Fed’s near zero interest rate policy and $3.6 trillion in QE, has lasted longer than I expected. However, data released recently suggests that the housing market may finally be rolling over. Both mortgage purchase applications and pending home sales declined unexpectedly in July. This data followed a large unexpected drop in new home sales in June (released at the end of July).

You can read the rest of this article here: Renewed Downturn In Housing Starts

Hovnanian will be the first homebuilder to hit the wall this time around. But I have two research reports on companies that will be #2 and #3. I believe one of them may not see 2016’s Christmas. You can access these reports here:  Homebuilder Short-Sell Reports

#2 is the report posted in February.  While it’s not easy shorting anything in this market, patient traders will make a lot of money shorting the homebuilder sector.  The stock prices of these companies have completely dislocated from the underlying fundamentals.  When fundamental reality hits, it will be a bloodbath.