The Housing Market: Media-Promoted Fairytales vs. Reality

There was time in U.S. history when journalism reflected true investigative due diligence in which reporters made an effort to verify the validity of the topic being covered and to make a bona fide attempt to report facts. It is a process that is imperative to a healthy democracy. Unfortunately now the media is nothing more than an avenue for Wall Street, corporate America and political elites to promote false realities which are invariably connected to squeezing or stealing money from the public.

The idea that the housing market is “recovering” from the housing bubble that burst in 2005/2006 has been promoted ad nauseum by Wall Street and the housing market cheerleader organizations like the National Association of Realtors and the National Association of Homebuilders. And recently the mainstream media has gone full-throttle at pumping out housing market propaganda promoting the idea that the housing market is healthy.

A perfect example of this is an article by Bloomberg News about a week ago titled, “This New Indicator Shows There’s No Bubble Forming” (article link). The “indicator” is Nationwide Insurance’s “Leading Index of Healthy Housing Markets” report, which it unveiled at the end of March. Bloomberg’s news report was little more than marketing propaganda for the housing market. It was clear that Bloomberg did not research the validity of Nationwide’s new housing market “indicator.” But I did.

Although Nationwide offers no detail regarding the sources for the data it uses, the variables in its index are employment, demographics, the mortgage market and house prices. To be blunt, based on the information about the index provided by Nationwide, its housing index has to be one of the most preposterous economic indicators outside of the employment and GDP reports. The “employment” variable is likely derived from the Census Bureau’s non-farm payroll report, which is widely acknowledged to be statistically useless, if not outright fraudulent (see this commentary: LINK). The fact that Nationwide does not disclose any details about its index other than the parameter labels makes the quality level of the metric highly suspect.

The section of Nationwide’s website that describes its housing market index contains a quarterly report which summarizes the Company’s assessment of the housing market across the country. The report is a pdf file that reads like a marketing brochure for the housing industry, complete with booklet design and housing information. I was curious to understand Nationwide’s motive behind publishing this highly fatuous housing market report. As it turns out, Nationwide also owns a bank which offers mortgages, home equity loans and home equity lines of credit. This goofy housing market health report is a marketing tool for its mortgage business.

Let’s look at some facts regarding the housing market. Bloomberg is correct in one sense: a housing bubble is not about to burst. The housing bubble burst in 2005/2006. That bubble was never allowed to fully deflate. What’s occurred since the Fed began pumping $3.6 trillion of printed money into the banking system is a dead-cat bounce in the housing market – click to enlarge:

Existing Home Sale

The chart above shows the seasonally adjusted, annualized rate of home sales reported monthly by the National Association of Realtors. What the graph shows is a series of “dead cat” bounces in sales volume which occurred primarily from Fed and Government intervention policies. For instance the spike in 2009-2010 was triggered when the Government implemented a first-time homebuyer tax credit effective between 2008 and 2010. The bounce that occurred after 2010 was primarily fueled by big investment funds buying hundreds of thousands of foreclosed and distressed homes. The Government offered zero-percent financing to any big fund which bought big portfolios of foreclosed homes from Fannie Mae and Freddie Mac.

But you can also see the from the red line I added to the graph that, since 2006, home sales volume has been in a longer term secular downturn. The black horizontal line roughly measures the “median” level of home sales that has occurred during this dead-cat, stimulus-induced sales bounce. The current average level of sales is slightly higher than 50% of the peak level of sales in 2006. But in 2006 mortgage rates averaged 6.75%. Currently mortgage rates are below 4%, with one Government program making 0% mortgages available. Contrary to the “housing recovery” mantra the media and Wall Street analysts are trying to drum into the public’s brain, what is occurring in the housing market in terms of transactions volume does not in any way define a “healthy housing market recovery.”

The Bloomberg article promoting the Nationwide Insurance housing index describes the housing market as being “in its best shape since 2001. Ironically, it was just after the tech bubble burst in 2000 that Alan Greenspan began inflating the money supply as means of inflating the housing bubble. Everyone remember when Greenspan referenced “home equity” as being the equivalent of a cash ATM (automatic teller machine)?

But let’s take a look at the homeownership rate in the United States, which is graphically tracked by the Fed – click to enlarge:


As you can see from the graph above, since hitting a peak in 2004, the rate of homeownership in the United States has plunged. The red line I added to the Fed’s graph shows that current rate of homeownership is back to where it was in late 1994. Shown in this context, it can only be described as Orwellian propaganda for Bloomberg to describe the current housing market as “healthy.” In fact, the information conveyed by the graph above is that the housing market is fundamentally in a state of deterioration.

Furthermore, the Nationwide Insurance housing market health index uses “demographics” as one of its measurement variables. From a demographic standpoint, the data trend depicted in the graph above is a complete disaster. In this regard, it is beyond ludicrous that Bloomberg and Nationwide can report the housing market to be “healthy.”

Both the financial media and Wall Street have pointed to inexorably rising home prices as evidence that the housing market is healthy and in a state of recovery. However, the Achilles’ Heel of a healthy housing market is rapidly rising prices. The graphic below produced by RealtyTrac shows that from 2012-2014, home prices rose at rate that is 13 times greater than the rise in the U.S. median weekly wage – click to enlarge:


Home prices have been driven higher since 2010 by a combination of the Fed artificially driving interest rates to record low levels and the direct injection of $1.7 trillion into the housing market via the Fed’s mortgage QE policy. In its attempt to stimulate the housing market, the Fed has only stimulated rampant housing price inflation.

The Fed’s housing market intervention policies have created a massive misallocation of capital by both homebuilders and home buyers. Homebuilders have built up a record level of inventory on their balance sheets. Moreover, the artificially induced rise in home prices is a massive wealth transfer mechanism from home buyers to home sellers.

Finally, let’s circle back to the assertion by Nationwide Insurance – and promotionally reverberated by Bloomberg News – that the housing market is in “its best shape since 2001.” 90% of all home buyers and 93% of all new construction home buyers use a mortgage. Because of the high correlation between the use of mortgages and home purchases, the validity of seasonally adjusted annualized rate home sales metrics can be measured against mortgage purchase applications.

The Mortgage Bankers Associations reports mortgage applications (refinance + purchase) on a weekly basis. According to the most recent weekly report, mortgage purchase applications are 31% lower than in 2001. In the context of nearly 14 years of population growth and near-record low mortgage rates, this metric represents a housing market in which sales volume has significantly deteriorated in comparison to the market in 2001. It further invalidates the Nationwide housing market healthy index and demonstrates the complete lack of integrity in the Bloomberg News report on the subject.

The Fed’s market intervention policies will victimize recent homebuyers and homebuilder shareholders when the housing market inevitably “corrects” the market imbalances engendered by the Fed. Unfortunately, the wealth destroying policies of the Fed are exacerbated by a media which is now completely controlled by the few who are benefiting the most from the corrupted Federal Reserve and Government economic policies.

26 thoughts on “The Housing Market: Media-Promoted Fairytales vs. Reality

  1. Good piece Dave. Our local paper (Chronicle) is another good example of media failing to do anything resembling fact-checking. Of course they never miss an opportunity to talk up the local real estate market and overstate affordability by a wide margin.

    Thought you would like to know that new construction sales were YoY negative again in Houston, down 8.5 percent compared to last year. In West Houston (Katy), new construction sales plummeted 40 percent! This was one of the hottest zip codes in the country last year for new home sales. Builders tried to hold the line on prices and paid in a big way as buyers opted for used homes instead. The crash of the oil market is definitely pinching some local pockets.

    Another interesting thing that shocked me was our local board came out with a press release Wednesday advertising a 3.8 percent YoY gain in total Houston area sales, when all of those sales apparently didn’t close. I called yesterday to verify the numbers a day after the press release, and current closed sales were still YoY NEGATIVE by a little less than one percent. Accident? I think not.

      1. Thanks Dave.

        I had an interesting day. Talked to both our local newspaper (Houston Chronicle) and a local TV station about the stunt our local real estate board just pulled. The explanation HAR apparently provided to the local reporter at the Chronicle is laughable. They said the press release “stat” report will always be higher than what’s in Tempo (MLS) at the beginning of the month. I knew that was horseshit, so I went back and cross-referenced the last five years of March press releases with actual MLS data. Turns out, the press releases actually UNDERSTATED final sales in 3 of the last 5 years in March. Go figure!

        Our local board reported that Houston sales increased 3.8 percent in March, when the actual MLS data showed a year-over-year decline. 48 hours later and the actual sales data in MLS is still showing a YoY decline. Amazing “estimate” our board apparently provided this week. Simply appalling.

        1. I think there’s a lot of that going on all over the country. I also think a sizeable portion of the existing sales volume we’re seeing is flipper buyers. There’s ads for flipper seminars that are running all day long on the local sports radio.

  2. I make my income through installing safety rails during new construction. The new housing start up have dropped drastically. A few years ago having between 30 and 60 starts a week was normal. Now if I get 10 I am lucky.

    So yes it is propaganda just like the government claiming a 5.8% unemployment rate when 91 MILLION working age Americans are out of work with a population of 320 million, including children. Do the math!

    1. I wish I knew. But there’s a chance this year. I’m going to introduce a reader Q&A feature on this blog. Still working on how I’ll implement it. Stay tuned…

  3. Well it sure is tough out there for renters. Is it really fair for renters to have to first pay taxes on their wages that they immediately have to surrender to their landlord? Since when is anything in life free, right? Especially when it comes to the Federal Reserve. Still, of all wages, these earnings at the very least should be tax free. Any business benefits in this way. And now corporations have the rights of a person. So why wouldn’t people have the rights of a corporation. I suppose the Real question would be: Will any correction in the housing costs help lower the rents for tenants or will it just exacerbate the costs even further as did the 2007/2008 crash / bailouts?

  4. Peyton Manning in a tub full of ice – No more feeling in my toes……
    Sing the jingle with me….”Nationwide is on your side!”

  5. Dave – this posted this morning on the Housing Bubble Blog by Ben Jones, the moderator of the blog:

    Comment by Ben Jones
    2015-04-10 06:39:53
    ‘From Denver north to Fort Collins, Front Range homes are in high demand. And the market is taking its toll on those seeking a place to live. McCoy’s first offer was usurped when an investor swooped in and offered cash — even though she was willing to pay $10,000 over the asking price. Eventually, she ended up compromising on space — the home she plans to buy is half of a duplex, without the third and fourth bedroom and garden spot she originally wanted.’

    ‘With two children and a dog, McCoy knows her family will outgrow the duplex at some point.’

    ‘But with a budget of $250,000, there wasn’t much else she could afford, unless she was willing to live far outside of town and commute into Fort Collins each day. The median price of a home in the town has increased 25 percent in the past year. As of February, it was $314,850.’

    ‘”It was very, very eye-opening to come back into the market just two years later,” she said. “Even the house that we purchased when I moved here two and a half years ago, that same house, I wouldn’t be able to afford it right now.”

    ‘That’s the case for a lot of people. Middle-class workers are now getting priced out of the city, said Paul Hunter, who is chair of the Fort Collins board of Realtors and has been selling real estate here for decade.’

    “Your average earner making forty or fifty thousand dollars a year, one year or more ago would be able to find a great starter home for under $225,000 in Fort Collins,” said Hunter. “That almost doesn’t exist anymore.”

    1. That’s old news. The market is starting to cool. A lot of people are still moving to Denver, but the massive energy sector layoffs will cure that problem.

      HERE’S A FACT PUBLISHED BY ZILLOW: 40% of ALL homeowners in the the Denver MSA STILL have effective negative equity in their homes. That’s why middle market inventory listings are thin. Anyone underwater but can still make monthly mortgage payments won’t list unless the HAVE to sell.

      However, ask Ben Jones this: How does he explain the literal flood of homes over $750k on the market? It’s beyond stunning – it’s shocking. The high end is flooded with listings. Eventually this will push the entire market lower.

      Also, new apartment buildings are begging people to move in. Everyone in my building who has been looking at other buildings is literally getting hounded by leasing offices of the buildings they visit. The Denver apartment market is about to literally collapse with inventory.

  6. Great article Dave… thanks again for being skilled in this sector and calling a spade a spade. My big question is this. After the collapse of the USD, what happens to the world of credit?
    Q: Since credit/debt got us into these distorted valuations of everything (houses, cars, luxury items, 2nd homes, etc ad naseum ) over the past 50+ years, withOUT credit, specifically, who can buy a house? Without credit, buyers can’t buy and markets collapse further, period.
    OR, do you think Credit will exist After the USD collapse/replacement as the worlds reserve currency (rapidly approaching).

  7. Thanks for the great info you provide. Truth is so difficult to find these days…especially from the gooferment. Concerning lies and deception here’s one from the US Code which may be useful at times:


    § 1001. Statements or entries generally
    (a) Except as otherwise provided in this section,
    whoever, in any matter within the jurisdiction
    of the executive, legislative, or judicial
    branch of the Government of the United States,
    knowingly and willfully—
    (1) falsifies, conceals, or covers up by any
    trick, scheme, or device a material fact;
    (2) makes any materially false, fictitious, or
    fraudulent statement or representation; or
    (3) makes or uses any false writing or document
    knowing the same to contain any materially
    false, fictitious, or fraudulent statement
    or entry;
    shall be fined under this title, imprisoned not
    more than 5 years or, if the offense involves
    international or domestic terrorism (as defined
    in section 2331), imprisoned not more than 8
    years, or both. If the matter relates to an offense
    under chapter 109A, 109B, 110, or 117, or
    section 1591, then the term of imprisonment imposed
    under this section shall be not more than 8years.

    Now I ask anyone, are “they” not guilty….???

    I’ve noticed in the area where we live (Black Hills of South Dakota, Fall River County), they have attempted to reassess values of homes dramatically. I guess they figure no one would complain. They tried to raise the value of one property (home) by 42%. Well they heard from me and got it dropped to about a 10% increase. On a mobile home we have, they assessed it higher than I payed for it back in 2000. Well, that changed, too…and got it back to around 65% of purchase value. That was reasonable.

    Bottom line is home values have mostly declined (exceptions, of course), but I really haven’t seen the taxing parasites make adjustments to this and instead, have attempted to tax us more. If that happens to anyone, I suggest that one should address this issue.

  8. While there may be localized markets around the country where something of an improvement is happening in the housing market, these are exceptions and not the rule. I’m not sure we’ve even come close to seeing the bottom. Nor do I believe a Housing Recovery is even possible when you have a huge glut of foreclosed homes, or homes somewhere in the process of being foreclosed upon, that are not even on the market.

  9. I live in Northern Calif. up toward the Oregon border and our house prices collapsed after the boom and they have never come back and they even may have gone down but we have the Chinese buying homes in the bay area and LA which are driving the prices up in those areas and they are paying cash and I have just heard of a standard house near the freeway going for a million dollars in the San Mateo area and I am flabergasted at them paying these prices

  10. From New York Times 29Mar15
    MIAMI — In September, Susan Rodolfi celebrated an unusual anniversary: five years of missed mortgage payments.

    She is like a ghost of the housing market’s painful past, one of thousands of Americans who have skipped years of mortgage payments and are still living in their homes.

    Now a legal quirk could bring a surreal ending to her foreclosure case and many others around the country: They may get to keep their homes without ever having to pay another dime.

  11. Hi Dave,

    Why do you think the Toronto and Vancouver real estate markets are going crazy.And why was Canada not affected like U.S.

    1. From what I’ve read, every part of Canada except Vancouver right now is starting to crash. The Canadian Central Bank has been as stimulative with its monetary policy as any of the western CBs.

  12. Hi Dave, thanks for keeping all this coming. I am curious what you think of the situation in the Bay Area, most specifically, SF and the Peninsula? It seems like there is a new level of mania there that just does not seem sustainable. Any thoughts on when it will finally blow?

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