Looking Askance at Existing Home Sales
Barron’s Alan Abelson discusses the lack of media skepticism when reporting most economic data these days. (Memo to media: A little skepticism, please.)
As an example, he channels Mark Hanson, who makes one of our favorite arguments about housing seasonality.
Excerpt:
“Take the big play given to the 3.6% rise in sales of existing homes last month, which helped power a nearly 200-point rally in the Dow that lifted that venerable index over 9000 for the first time since January. Adding to the excited stock market response was the refrain in virtually every story, whether recounted in print or on the Internet and the tube, that this was the third month in a row of higher sales, signaling that the long-awaited but frustratingly elusive bottom in housing had been reached. Really?
As Mark Hanson of the eponymous real-estate advisory points out, it’s a seasonal phenomenon that until recent years has happened every year.
Indeed, the wonder of it is that, with prices soft and mortgage rates down, sentiment better and supply restrained by foreclosure moratoriums, sales weren’t higher than a year ago. Some of those benign factors are changing, and not for the better: Rates are creeping up, moratoriums are ending and foreclosures are on the rise.
Prices, moreover, are also rising, Mark points out, “but only at the low end, as investors and first-time home owners slug it out for $150,000 foreclosure sales.”
Prices at the middle and high end are a whole different and not very happy story. And Mark notes ominously, “rising foreclosures as the market enters the slow season is a negative housing leading indicator that wasn’t in place in July 2008, but was in place in July 2007,” when the roof started to fall in.
Although it may sometimes seem as if we do, it isn’t that we believe every hopeful bit of news should be dumped on. But an account tempered by a little perspective might give investors and everyone else a truer picture of the way things are rather than the way we wish they were.”
My analysis shows Existing Home Sales were flat for other reasons, but I will save those until Monday . . .
>
Source:
It Could Be Worse
Memo to media: A little skepticism, please.
ALAN ABELSON
Barron’s July 27, 2009
http://online.barrons.com/article/SB124847529046580215.html
July 25th, 2009 at 11:44 am
That was weird — comments were off — seems to be fixed now
July 25th, 2009 at 11:54 am
Housing is still way too expensive. It will simply have to decline in price until a population of workers making 11 bucks an hour (if they can even find steady work) is able to afford it.
July 25th, 2009 at 12:14 pm
some guy
I agree. People got too used to buying houses at multiples of greater than 3 times their annual income level, which is itself too high, IMO. You can’t effectively save money and have room in your budget for other discretionary items at much greater than 2 times. And with taxes inevitably on the rise that will be further exacerbated.
There’s too much focus on the peak prices, with the resultant perception that 30-50% off of those levels just HAS to be a great deal; instead of looking at true affordability based on income.
If we are to get any kind of decent savings rate that is needed for future economic viability, we have to adjust our thinking. And housing prices have to come down. We can’t keep piling up the debt.
July 25th, 2009 at 1:00 pm
With the banks lending at the ” old norm”, 25/36 ratio’s, 5-30% down, depending on lender, prices will stablize at a “new norm”. Its painful but I believe in my neighborhood we are getting there.
I believe the bigger problem for the economy is all those small business owners who were, or are in the shadow economy are going to be frozen out of the new housing market, not having the documented income of times gone by. I believe lenders are now requiring tax return documentation directly from the IRS. Not the old copy of returns or stated income.
This could be a boost for the COFFERS!
July 25th, 2009 at 1:17 pm
I thought this interview with a California state employee was sad, but will be repeated around the country. She and her husband both work for the State and have to accept enforced furloughs which reduce their income about 15%/month. Without a loan mod, they will lose their house. They were making 100K between them. What kind of loan did they have?
http://www.npr.org/templates/story/story.php?storyId=106989058
July 25th, 2009 at 1:53 pm
http://www.star-telegram.com/ed_wallace/story/1505615.html
July 25th, 2009 at 2:03 pm
@ Mike in Nola , a 100k between them in CA is probably about 4500 mo net and paycheck to paycheck life. It is what it is!
July 25th, 2009 at 2:12 pm
mainstreet
I think that’s the point. Too many people have been living on the edge, paycheck to paycheck, with credit as their emergency funds. It was never a good idea nor sustainable. It was bound to fail and it has. But they convinced themselves that they deserved it and that somehow it would all work out. Deep down most knew it but since “everybody lives this way” they figured it must be alright. Now instead of facing up to those facts all too many are willing to blame others for their plight.
With that said there are those who have not brought their troubles upon themselves but have just gotten caught in the sh1t storm.
July 25th, 2009 at 2:16 pm
@ willid3, It’s called GREED! Take a vibrant, profitble business, sell off its assets, make it not profitable, take the money and run. Worker Bee suffers!
July 25th, 2009 at 2:25 pm
I don’t have much sympathy for someone who loses their house because of a 15% drop in their income. What would happen if one of them lost their job? Would they starve to death? Gimme a break…
July 25th, 2009 at 2:57 pm
@Mike
My rent on a 1 br apt is $1200/mo, and I live in a student ghetto. Sacramento isn’t a terribly expensive housing market compared to other places in CA I could mention, but imo housing there is still several orders of magnitude more expensive than most of the country. For example, my friend recently moved to Ohio to go to optometry school and he’s paying $380/mo for a 1 br apt.
Also, an anecdotal: I spoke with an American Eagle supervisor at LAX who told me that they were adding flights in my area because they had cut too deeply.
July 25th, 2009 at 4:01 pm
Here is an artist who is teaching the worker bees what to do:
http://www.boingboing.net/2009/07/23/artist-takes-190000.html
Resist.
July 25th, 2009 at 4:17 pm
@Mregan
Ha! Great article! I do 99% of my banking through a credit union, but my credit card goes through BofA. I mailed them my June payment two weeks early, but when I checked my account in early July they had tacked on a late fee and said I missed a payment. I called them up and they basically said I was a liar. Then I said that I had never missed a payment and it was possible they had lost it. They said “we post payments as soon as we get them…we don’t lose them” but they reversed the late fee after much haggling.
Why do I bring this up? Because yesterday I got an automated robocall from BofA: “We apologize, but we had an issue with our June payments and your check was received but not cashed…”
Time to switch my credit card business to a credit union as well!
July 25th, 2009 at 4:24 pm
Fantastic link, MRegan. If more of us did that with the big boys on Wall Street, then we could see real change.
July 25th, 2009 at 4:25 pm
@franklin411: See that. Your hard earned tax dollars at work to save indispensable firms like BofA. What would we all do without them if they were allowed to fail?
July 25th, 2009 at 7:58 pm
How about some humor and reality!
I have send this to my friends knowing that they will NOT appreciate it
FINANCIAL HEROS:
Part 1:
http://www.youtube.com/watch?v=ECIuteQB8hw
Part 2: http://www.youtube.com/watch?v=33OE65bNclc&feature=related
Part 3:
http://www.youtube.com/watch?v=TxylHPnoloI&feature=related
Part 3 is the best.
July 25th, 2009 at 8:31 pm
I am glad that you all enjoyed the link. I guess what the takeaway for me was that the artist redirected his resources to a local outlet. It seems to me that there is any proposition in that. In light of the TARP, TALF, PPIP, WFT, HFT and SLP etc, it seems nearly insane to be participating in such a mediated and alienated investment environment. It is like funding the very people who are swindling you, a sabiendas!
Sorry that my response comes much later than the earlier comments. I got distracted planning how to bring the Man down. It’s a great plan, all I need are 15,000 tins of tuna (in water) and a picture of Jeffrey Gannon and George Bush doing the Cheney and boom! Life, Liberty and the Pursuit of Happiness.
July 25th, 2009 at 9:41 pm
Regarding the guy in NZ that pulled his money out of the bank. Of course the obvious question is why do you want to borrow 80K when you have 190K just sitting in the bank? We don’t know the whole situation or his plans for that 190K but it does also point out how we live in a very leveraged world.
That said, I’ve been strongly advocating a boycott the big banks campaign myself. Take your business and capital elsewhere. Why anybody would bank with them or do other business with them now is beyond me. (realizing there are some circumstances where it may be unavoidable or necessary, I suppose)
Starve the beasts!
July 25th, 2009 at 9:43 pm
@ Franklin: “…my friend recently moved to Ohio to go to optometry school and he’s paying $380/mo for a 1 br apt.”
Where did your friend move? I went to university at Ohio State in Columbus from 2002 – 2006. When I lived in the area, you couldn’t find a shitty 1-bedroom for that rate. You could get a horrible 2-bedroom and the split cost with a roommate for that price.
July 25th, 2009 at 10:09 pm
F411:
I don’t like spending time on mail when you have not control over delivery. You can have payments made electronically from a checking account. I go online each month and tell them how much they can take and when. Then print the confirmation page with Acrobat, so I have proof if there’s a screwup.
July 26th, 2009 at 5:41 am
Interesting article on the big home builders. While there are statements about green shoots from some of the people quoted, the article notes the lack of substantiation.
Lennar Signals Fleeting Builder Rally as Buyers Flee
http://www.bloomberg.com/apps/news?pid=20601109&sid=aOAsVYtdZzpg
July 26th, 2009 at 9:07 am
So the rich, or alleged rich, are getting into the rent-out-our-house-til-the market-comes-back act. From this morning’s Houston Chronicle:
High-end home lease
In today’s sluggish real estate market, homeowners who can’t sell are leasing their properties until the market turns around — even on the very high end of the housing spectrum.
A 26,214-square-foot Mediterranean manse in Piney Point that’s been on the market for two years is now for rent. The price: $60,000 a month.
The house has eight bedrooms, 10 full baths and a four-car garage. It sits on 40,000 square feet of land.
When it was first listed, the property was priced at $18 million. It has since been reduced to $12.9 million.
Martha Turner Properties has the listing.
Turner said the most expensive rental she remembers was a fully-furnished turn-of-the-century estate on Westmoreland that leased in 1978 to a Saudi princess for $25,000 a month.
The Piney Point property is owned by Douglas and Melanie Johnson, according to the Harris County Appraisal District, which has the property appraised at $5.7 million.
July 26th, 2009 at 11:34 am
I keep hearing that the high end of the housing market is faring worse than the low end at the moment, but the data paints a different picture. Note that the increase in the average home price was larger than the increase in the median home price, suggesting that higher-priced homes are appreciating at a faster rate than lower-priced homes.
“Prices were up, however, by a rather robust 4.1% for the median (which was $181,800) and 4.2% for the average house sold (which was $227,300).” – Dennis Gartman summarizing existing home sales data for June.
I am in the deflationary camp, but this data doesn’t support some of the claims made in the media.
July 26th, 2009 at 1:13 pm
Knowing Houston, there are a couple of different things happening in the real estate market here. I suspect these are repeated across the country.
Wave of foreclosures and short sales in the low-end where the sub-prime loans to blue-collar workers were concentrated. Example link: (Look at all the cheaply sold houses, remember these are generally nicely kept houses in suburbs, not exurbs, in decent streets, with a high proportion of Indian / Mexican people).
http://www.zillow.com/homes/map/houston_rb/#/homes/for_sale/map/29.68769,-95.574959,29.680233,-95.587833_rect/15_zm/0_mmm/1_rs/
A locked solid property market on the high end where barely anything is selling. Example: This is inside the 610 loop and practically nothing has sold, despite a huge number of house for sale. This is a train-wreck that hasn’t quite hit yet.
http://www.zillow.com/homes/map/houston_rb/#/homes/for_sale/map/29.711603,-95.430098,29.696693,-95.455847_rect/14_zm/0_mmm/1_rs/
July 26th, 2009 at 1:21 pm
Having read some of the posts on this thread, I strongly suggest you look at the two links I posted. Nothing in those two links is contrary to mildly rising median prices.
However, I believe adbutler is effectively dissembling when he/she looks only at 2nd order effects in the data such as median prices. There are clearly different ‘zones’ within the housing market, that are behaving very differently. Look at the lack of sales in the ‘higher-end’ of Houston, and perhaps wonder if maybe 10 or 20% of those houses were purchased on pay option ARMs soon to reset…
July 26th, 2009 at 1:30 pm
[...] Seasonality factors in Existing Home Sales [...]
July 26th, 2009 at 4:12 pm
watmough
Don’t know that it’s dissembling. I could envision various scenarios where you could have rises in prices in certain sectors that would give you stats like that without the market being really any healthier. One of the Jim the Realtor clips mentions getting bidding wars when some 4-500k house has the price dropped enough by the bank, say to 300k. The house will sell at a big loss compared to the mortgage but could still drive up the median and the mean.
Agree about Houston. Just need to drive around West U, say up the Buffalo Speedway and see the spec houses and McMansions just sitting. Some I’ve seen actually identify the bank as the owner.
July 26th, 2009 at 7:36 pm
CA is cutting employee pay 15% via furloughs and small vendors take a similar haircut when they cash IOUs, the place is an absolute trainwreck.
TeamBush ran record deficits during good times and obviously most of the states didn’t manage their financial affairs much better either. I was going to suggest we go back to states issuing their own currency but the CA IOUs are the virtual equivalent.
The CA budget is filled with gimmicks and they’re chasing a moving target (collapsing tax revenues). A CA bankruptcy is going to go right down to the wire – but even if the Governator was a Nazi (he is , sort of) O’B would never let them fail, CA is 15% of the national economy and the cost of all government borrowing would absolutely EXPLODE and Dow 6600 would be a fond memory.
If our biggest state with 40M people and 15% of GDP failed that would tip the US gevernment into a Moodys/S&P downgrade n’est pas?
July 26th, 2009 at 8:31 pm
It seems to me that the banks are playing chicken with their large shadow inventory of foreclosed homes. If they start selling them in earnest then prices collapse in the bubble areas, people already underwater throw in the towel and the banks have huge losses on their foreclosure sales and additional loss reserves and writedowns. They are pressuring the US to buy their inventories at a “fair price” to avoid armageddon. The $50B Tiny Tim has left in his quiver ain’t enough!
July 26th, 2009 at 11:15 pm
Mike, yes, I totally agree. I think we have some badness coming down the line. Have we seen the Case-Schiller resale numbers rise at all? (Since they are repeat sales, we should see them bump if prices really are recovering)
We’ll probably see a few glimpses of recovery in certain areas, especially low-end, but highish-end houses that bubbled up will drop like stone over the next few years.
Sorry to adbutler, I was a tad harsh.