There were 31,000 new houses sold in the entire freaking country in August. There are 115 million households in the country. Of these new home sales, a full 3,000 happened in the entire Northeastern region of the country. This was the third lowest number of new homes sold in August in history. This is what we get from the lowest mortgage rates in history, government backing of every loan, and a conspiracy between the Wall Street banks and the Federal Government to keep foreclosures off the market? Imagine how great the results will be when the current recession is acknowledged by the public in the next few months.
Show me the housing recovery on this chart.
TeresaE says:
This morning on CNBC, Becky was touting Case-Shiller’s 5% July increase and telling us how great that looks going forward.
Oops.
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26th September 2012 at 10:55 am
Leobeer says:
Dave in Denver’s blog. http://www.truthingold.com
MONDAY, SEPTEMBER 24, 2012
The Truth About The Housing Market
Many of us who have to follow the news closely every day as part of our jobs woke up this morning to headlines of Lennar, the big homebuilder, reporting supposedly robust earnings for the 3rd quarter. The stock was up over 2% in pre-market trading and the bubblevision news stations were doing cartwheels. But LEN stock closed down 1.5% from Friday’s close and the Dow Jones Homebuilder Index closed down 1.14% from Friday’s close. What happened?
If you peruse LEN’s detailed earnings release, some interesting data stand out. The headline shouts out that LEN’s deliveries were up 28% from Q3 2011. But actual increase in units was 785 homes. That’s 43 homes per State in which Lennar operates. 43 homes per State. The total number of homes delivered in Q3 was 3,617. Year to date for 9 months the total is 9,353 homes. Assume a constant run-rate for Q4 and the total deliveries will be 12,400 for all of 2012 (truth is, Q4 will likely be a lot lower than the run-rate due to seasonality). That 12,400 compares to 49,568 homes delivered in Lennar’s 2006 peak selling year. That’s a 75% decline. If you put the 49,568 vs 12, 400 in market context, think about what that means in terms of just how overbuilt and saturated the housing market is in reality, beneath the heavy sales-spin being applied by the industry about “recovery.”
As for Lennar’s reported earinings, again it’s well worth looking beneath the ebullient headlines to see what’s really going on – and I just happened to do that. Lennar reported net income of $87.1 million vs $20.7 million in Q3 2011. However, $25.3 million of that net income came from its mortgage underwriting operations (vs. $8 million in 2011). Since the average price of a Lennar home is about $250k, we can assume most, if not all, of its mortgages get flipped into FHA, FNM and FRE programs – i.e. get sold to the Government/taxpayer. I mentioned in a post earlier this month that the liberalized FHA underwriting standards and QE programs would transfer wealth from the Taxpayer to mortgage underwriters/brokers. Well, there you have it first-hand in Lennar’s earnings report.
Furthermore, Lennar’s $87 million in reported net income, $12.8 million was derived from a non-cash tax accounting maneuver. You can read the earnings report for details if you are curious. But, quite frankly, it’s basically the same kind of non-cash GAAP manipulation being used by banks who are reversing out loan loss reserves in order to pad reported income, as opposed to actually getting a cash earnings benefit. The accounting maneuver serves no purpose other than to pad its bottom line for this quarter, in an attempt to make the stock price look appealing to brokers and investors who do not do their homework. Here’s a link to LEN’s earnings release today: LEN
The reason I wanted to spend time shredding Lennar’s earnings report was because in the last few months unjustified bullishness for the housing market has invaded the mainstream media and certain widely read blogs, Calculated Risk being one of them. For some reason Wall Street, the media and Calculated Risk are looking at recent month-to-month data points and projecting a big housing recovery. The fact of the matter is that most of data is based on accounting and data manipulation schemes, like “seasonal adjustments” and the use of reporting percentage changes rather than actual unit data.
In terms of industry fundamentals – truthful industry fundamentals – it’s the same old story. Yes, there’s been a bit of a bounce in the housing market. We would expect that to happen given that the Fed has successfully engineered record low mortgage rates, there’s been unprecedented stimulus injected into the system over the past 3 1/2 years and taxpayer-sponsored FHA has stepped up its rate of subprime financing.
But if you look behind the media and industry spin on the numbers, a different story than what is being promoted emerges. I’ve detailed the “shadow inventory” aspect to the housing market inventory several times on this blog. In terms of unit sales and price increases being reported, I will refer you to a series of three blog posts by Mark Hanson – here are some excerpts:
On reported price gains: When…
1) rates drop by 30% YoY allowing the 70% of buyers who use a mortgage to ‘pay’ 15% more for a house on the same monthly payment;
2) foreclosures as a percentage of total sales drop 25% YoY lifting the “median” sale price:
3) and you comp YoY against a stimulus hangover year;
…”prices paid” will ‘rise’ and ‘comps’ will look great. But the benefits of stimulus and easy comps will soon turn into headwinds and difficult comps, which is exactly what happened in 2011 following the year+ long home buyer tax credit stimulus pump of 2009/10. LINK and LINK
And on the pending home sale data released by the National Association Realtors:
Pending Home Sales number got everybody hot and bothered because the headline had the word ”higher” in it. But what everybody fails to understand is that this year over 30% of Pendings fail to close. Last year less than 10% failed. In fact, contract failures got so bad into Q2 that NAR quit releasing the data.
Here’s the LINK
I hope everyone has a chance to read those quick pieces by Hanson – they are quite revealing and contain actual data analysis, rather than the hope-laced garbage thrown at everyone by Wall Street, the media and highly promotional industry associations.
Finally, here’s some more cold water thrown on the housing party by Gary Shilling: LINK He sees another 20% downside in the housing market. I think even that projection is optimistic. I’ve said since 2003 that I expect to see a 50-75% decline in housing from the top to the bottom. I am more inclined to bet on the 75% number and I’m beginning to think – short of the Fed printing up money to buy up a few million homes and bulldozing them – that we could see a top to bottom decline greater than 75%. As I’ve pointed out before, Sir John Templeton (of Templeton mutual fund fame and one of the “fathers” of mutual fund investing) said in 2002 and before his death that he wouldn’t touch U.S. real estate until dropped 90%…
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26th September 2012 at 11:18 am
Leobeer says:
The link to Dave in Denver’s blog should have been
http://truthingold.blogspot.com/
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26th September 2012 at 11:20 am
John Angelo says:
Do you see that portion at the end of the chart that looks like a little red check mark? That’s the recovery. Green shoots, I say! Heard it here first. Unless you heard it on CNBC. Or ABC. Maybe CNN, CBS, and the pages of the New York Times. It started to recover in January of 2009. I can’t wait to see what the recovery looks like by January of 2017:
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26th September 2012 at 11:28 am
OF says:
Jan. `96 looks like a recovery… Do I get a bottle of whiskey or what?
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26th September 2012 at 11:59 am
ThePessimisticChemist says:
Put all those foreclosed homes on the market and let the prices come down.
Then I could actually buy a home.
My wife and I have been looking at a lot of homes but they all suffer from the same problem: overpriced.
I’m not paying 2006 dollars for a home thats been foreclosed upon and has been sitting vacant and depreciating for years, which is all in addition to the massive crash in home values.
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26th September 2012 at 12:08 pm
wip says:
I live in the DC area. Inventory is slim here and prices are flyin high baby. I don’t know what everyone is cryin about. Get a j.o.b.
Hot debate. What do you think?
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26th September 2012 at 1:36 pm
John Angelo says:
@wip: I live an hour from the heart of DC in the outskirts of Northern Virginia and yes, we’ve been relatively shielded from the storm compared to other areas. The reason why things are OK in DC is because the federal government has drawn resources away from other parts of the country. It’s a polite way of saying they’re stealing.
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26th September 2012 at 2:04 pm
Administrator says:
The MSM headlines are that new home sales are at a two year high.
Here are some alternative headlines that would also be true:
NEW HOME SALES AT THE SAME LEVEL AS 1982 WHEN MORTGAGE RATES WERE 18%
NEW HOME SALES 30% LOWER THAN SALES IN 1963 AND 1973
NEW HOME SALES 70% LOWER THAN 2005 LEVELS
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26th September 2012 at 2:14 pm
WIP says:
John Angelo,
sarc off
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26th September 2012 at 3:13 pm
a cruel accountant says:
If you buy a house at least it won’t be at the peak of the housing market.
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26th September 2012 at 3:46 pm
Jimi d says:
GOOGLE “JOLIET REMEMBERS” – There you will see newspaper headlines from the years of the GREAT DEPRESION. You will see our leaders of that time telling the masses “ALL IS WELL”. Andrew Mellin, Henry Ford, on an on and on. You can plainly see a ‘time line’ of many YEARS of false statements (beliefs) from the people that were supposed to know what was going on. You will aslo see headlines of salary cuts, municipalities unable to pay bills and so on. Years from now this period in history will be looked back upon as a DEPRESSION ! What the fuck people – we are five years into this thing (2008 – 2012) and for the vast majorityof the world’s citizens nothing has gotten any better.
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26th September 2012 at 4:37 pm
matt says:
TPC,
I am in the same boat, ready to buy but not at these prices. The low interest rates goat people into over-spending on a home that won’t hold the value very long. When interest rates do pop up, it will reduce the value even further.
How about this for housing numbers: I am seeing the same homes being sold twice this year, one at auction to investors and then listed again in 3 months after new kitchnes, floors and lawns are installed. Example $400k house at auction, some remodel and then listed again at $535k. This market is wacked.
The other issue is the tax write-off. If your write-off is interest only, then the lower the rate the less the tax break. And it gets worse because you are actually paying way more principal, sales tax and property tax.
Just watching and waiting. I would love to see silver take one more deep dive and I will line my safe with it.
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26th September 2012 at 4:56 pm
Chicago999444 says:
wip must be a government employee.
Everyone I know with a secure job that pays reasonably well is either an employee of the local, state, or federal government, or works in an industry (defense, transit, medical) that is heavily subsidized, or works for a SRO (self-regulatory organization) for a particular industry, notably financial, mandated into existence by law and which the mandatory members must pay to support whether they are profitable or not.
The public sector thus heavily outweighs the private sector, and the public sector, including the “shadow” public sector of heavily subsidized “private for-profit” entities, is expanding and continuing to grant pay raises and lavish pensions, on the breaking back of a shrinking and increasingly impoverished private sector, which is able to employ fewer people every day.
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26th September 2012 at 4:58 pm
ThePessimisticChemist says:
“How about this for housing numbers: I am seeing the same homes being sold twice this year, one at auction to investors and then listed again in 3 months after new kitchnes, floors and lawns are installed. Example $400k house at auction, some remodel and then listed again at $535k. This market is wacked.”
-matt
Same here, except you can halve those numbers since I live in a fairly low income area (average family of 4 makes $21k a year).
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26th September 2012 at 5:08 pm
Hollow man says:
From the chart looks like we are at levels that began the depression. Still al long way to go to pull out of it. Housing is still way to expensive and wages are not increasing enough lol. Hold what you got if its paid for. This ride has just begun.
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26th September 2012 at 6:07 pm
Kill Bill says:
From what I gather what Bin Lanke does is buy MBS from the bank holding companies and by putting baked bucks into their reserve account at the FED and then pays them something like 2% on that reserve account.
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26th September 2012 at 6:27 pm
Kill Bill says:
So, my question is, and you could win gluten free bread for life for the correct answer, if the same title has been bundled into more than one SIV how many much is that home actually worth?
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26th September 2012 at 6:32 pm
Terry says:
Jimi d -
Thanks for the head’s up about “Joliet Remembers.” Pretty cool.
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26th September 2012 at 7:59 pm
Buddabull says:
I was looking at some land in Columbia county, Pa., it is on the edge of the gas play. I looked at 15 acres with a 2 room cabin with a out house on it with no utilities back in the boondocks. They were asking 150,000 dollars for it. I insulted them with my offer of 70,000, but I thought I was being generous at that. I didn’t need it, but if the price was fair I would have bought it. I am heading to Kentucky in November and see what the have there.
The gas play in up state Pa. is just about dead right now, typical boom bust.
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26th September 2012 at 10:58 pm