Posts filed under “Credit”

NAR on “Temporary” Housing Problems

I almost miss David Lereah. He was the former chief economist for
the National Association of Realtors (NAR), and author of many fabulous books on how to lose all your money in Real Estate (as well as Tech/Telecom/Internet stocks). Since Housing peaked in
August 2005, we could always count on Lereah for some utterly ridiculous economic absurdity, explaining why the Housing numbers really weren’t
that bad, and why the-bottom-was-in !

Sheer, delightful idiocy.

It was great theater. Each month the NAR could be counted on for denial, cheerleading, and blind stupidity. When the NAR ended
up with a new, somewhat less-hallucinogenic chief economist, I was actually a
bit disappointed.

Well, cheer up kids! At least a little of the ole psilocybin may be back in the NAR drinking water. This month, they served up the following delightful headline:

August Existing-Home Sales Fall on Temporary Mortgage Problems

And ya know, these problems ARE "temporary." Thanks to the entropy of the universe, eventually all real estate will disappear as the universe eventually succumbs to its own mortality (heat death). So if you want to be technical about it, all problems are temporary. Thank you, Lawrence Yun, for that bit of existential insight.

Where was I? Oh, yes, real estate.

What did this month’s NAR report have to say?

• Mortgage availability problems peaked in August (How they know this, I cannot say. But if they said it, well, there’s a chance its true: A very, very small chance).

• There were unusual disruptions in the mortgage market. (Really? I must have issed ‘em)

• We saw a fairly high number of postponed or cancelled sales. (I guess this must be a fairly new phenomena)

• Lower sales contributed to a buildup of unsold inventory. (duh)

• The NAR expects similar results for home sales in September.

Sow while the NAR cannot help themselves but spin the data somewhat — a flack is a flack is a flack — they are no where near Baghdad Bob’s levels.

Of course, most sober commentators who reviewed the data were much more circumspect. Our own response to this week’s utterly dreadful Housing
datapoints were of that ilk:

Wheeee! New Homes Sales, Prices in Freefall

Continuation of Negative Annual Returns in Housing   

Warnings of a Housing Crisis (in Real Time) 

But to really get a sense of how poor the data was, check out what  Floyd Norris wrote in the NYT today:

"With sales of both new and existing homes down, more homes are now on the market than ever before — almost 4.5 million, a figure that is nearly double the number in early 2005, when prices were rising and home builders were reporting high profits.

And many of those homes have been on the market for a while. Of the 178,000 completed new homes that were available for sale at the end of July, fewer than 15 percent found buyers in August. That was the lowest rate in more than a decade.

In late 2006, it appeared that the housing market had stabilized after falling, with new homes selling at a seasonally adjusted annual rate of about one million, and investors bid up the price of home builder stocks.

But with all the bad news, those prices have fallen to new lows. The pace of new-home sales in August was just 795,000, a seven-year low."

But the money shot is the accompanying graphic:


graphic courtesy of the NYT

By late 2008, or even 2009, we should Housing more "normalized. But between now and then, we should expect to see prices drop more, until much of the huge inventory build gets worked off. For those of you who put more faith into futures markets than I do, note that prices aren’t shown bottoming until 2010. 

Temporary?  I guess if your definition of temporary is a few years, well then yeah — its temporary.  But so is everything else . . .


August Existing-Home Sales Fall on Temporary Mortgage Problems
NAR September 25, 2007

For Housing, the Summer of the Unsold
NYT, September 29, 2007 

Category: Credit, Data Analysis, Markets, Real Estate

Fear of a Dollar Collapse, part II

Yesterday, we discussed the potential impact of the ongoing weakening of the US dollar.

Today, we look at a few printing press Money Supply issues. Our focus: The spread between the Fed liquidity action (a/k/a Repos) and the M2 money supply measures.

This is simply a measure of how much cash the Fed is injecting into the system.

The following Bloomberg chart shows the spread between the two of these monetary measures. It is quite instructive:



Speaking of surges: As you can clearly see above (bottom left chart), the amount of MZM (repos) versus M2 during 2007 is enormous.

This means that the Fed is "inflating" at a rate faster today than it did right after 9/11, or during the deflationary scare of 2003.

As we asked Wednesday night, "What did the Fed Chair and the FOMC see that spooked them into a half point (over) reaction?"  I am not sure what is was (and we’ve discussed many of the potential issues over the past 2 years), but the Fed is obviously scared witless. 

The manifestations of this free  printing press are many: Any commodity priced in plentiful dollars will cost more. Crude is now $82; and Inflation Fears Send Gold to 27-Year High.

Why? One way to think about it is supply and demand. Print ALOT more dollars and each one is worth a little less. 

Or, consider it this way: Extracting Oil or Gold from the earth ain’t easy: We have to explore for Oil, determine where it is, how deep, what quality, etc. Then we have to use lots of heavy machinery to extract it, ship it to where it gets processed, refined, used in chemical manufacturing. Some of it gets refined into gasoline, and it is then transported to a network of gasoline stations, and it gets pumped into your car — all for less per gallon than diet Coke or peach Snapple!

For gold, the process is not all that dissimilar.

Just crank up the printing press: Its cheap and easy. But why should us gold and oil producers exchange our hard won commodities (its hard work) for pieces of paper you people are simply cranking out for free? Either give us something of real value — or instead, we will insist on more of your crappy ittle pieces of green paper.

Thus, the inflationary repercussions of a "free money" policy. In fact, every commodity that is priced in dollars can potentially see much higher prices:  Gold, Oil, Wheat, Soybeans, Copper, Timber, Corn, etc.

Its easy to understand why inflation has been called The Cruelest Tax.


BTW, for those of you without a pricey Bloomberg terminal on their desks, a good source for (free) data of this kind is the Federal Reserve Bank of St. Louis’ publication, Monetary Trends. There are always a solid collection of charts showing money supply, economic conditions, etc. Not to get too wonky on you, but this is simply pornography for econ geeks.

There are a few charts after the jump worth reviewing. For the less visual of you, they show that Money Supply continues to grow at a rapid pace, that bank borrowings are increasing.


Monetary Trends
Federal Reserve Bank of St. Louis’
October 2007

Where Crude Goes Now May Depend on Dollar
Futures Close Near $82
WSJ, September 20, 2007; Page C1

Inflation Fears Send Gold to 27-Year High
Weakening Dollar Also an Influence; Metal Hits $732.40
WSJ, September 21, 2007; Page C6

Read More

Category: Commodities, Credit, Currency, Energy, Federal Reserve, Inflation

After the Mortgage Boom

Category: Credit, Real Estate

I Love the Smell of Repos in the Morning . . .

Category: Credit, Economy, Federal Reserve, Psychology, Real Estate

Open Thread: Markets, Inflation, Growth, Recession

Category: Credit, Economy, Federal Reserve, Fixed Income/Interest Rates, Inflation, Markets, Psychology, Trading

FOMC Statement Changes

Category: Credit, Economy, Federal Reserve, Inflation, Real Estate

Bernanke Blinks

Category: Credit, Derivatives, Economy, Federal Reserve, Inflation

Nine Reasons the Feds Can’t Save Stocks

Category: Credit, Derivatives, Economy, Federal Reserve, Investing, Markets, Psychology

Greenspan’s Legacy

Category: Credit, Derivatives, Federal Reserve, Investing, Real Estate

The Fine Line Between Investment Grade and Junk

Category: Credit, Derivatives, Federal Reserve, Financial Press, Hedge Funds, Psychology, Real Estate