Posts filed under “Real Estate”

Hypocrites, Inflation, Housing

Keep your eye on the hypocrites as they begin to selectively cherry pick WMD intel inflation data.

They are out in full force. These frauds have been begging – BEGGING – the Fed to stop raising rates. Their rationale? The CPI is overstating inflation,  thanks to the owners equivalent rent.

The recent market damage came from the crowd’s belated realization that these empty no-inflation arguments were as hollow as the heads of those who had been making them. 

If it wasn’t so sad, it would be funny.

Let’s review how this happened: Over the past few years, as inflation built up a full head of steam, we have warned — repeatedly — that CPI grossly understated inflation due to the Owner’s Equivalent Rent. OER  added a mere 2% to the inflation basket,
and at a third of the core rate of CPI, it articifically made inflation
appear low. If we used more accurate reality based data, say the
OFHEO’s measure of actual home owning costs, then that housing portion of
inflation would have been up as  high as 14% year over year.

We referenced charts, pointed you to other sites, highlighted economists who got it, flogged the issue relentlessly. We even helped convince in our small way the NYT to run an article on this. That was ignored by a bevy of hacks, charlatans and soothesayers, all cooing that inflation was non-existent. (Excepting, of course, for everything going up in price).

Now, a selective group of shills and montebanks are coming out of the woodwork to proclaim — once again — that there is no inflation, due to OER.

Sorry, you have not earned that privilege.

If you did not discuss the impact of OER on CPI as housing ignited and ran higher, then you are hereby barred from using it on the opposite side of that mountain. Failure to comply with this edict will result in endless public ridicule and humiliation. (I will personally see to it).

~ ~ ~

On the opposite side of the honesty fence, here are my two favorite commentors on the subject of inflation and/or OER. These are people who have been in front of much of the crowd on these subjects, and deserve to be singled out as credible and intelligent.

Joanie, the Penobscot Princess, observes:

"Look. Here’s how this works with the OER. The elite won’t be hip to this, but
they can follow along vicariously. What do the overwhelming majority
want to know when shopping for a house, eh? Bingo. Monthly nut. Period.
They don’t care what the sale price is, the rate, the terms, nothin’.
Just tell me the amount I need to pay come the 1st and lemme’ outta’ here. Sad, but unfortunately, true.

So when money is so
loosey-goosey that on a monthly basis (a/k/a paycheck to paycheck) it’s
cheaper to own than rent (despite the soaring price of the asset), OER
dies on the vine and drags CPI. Conversely, when money gets more
expensive/tighter (despite any softening of the price of the asset)
more folks turn to renting as this becomes their sole option; buying a
home is now out of monthly reach.
 
When this happens as the numbers are implying at the moment, OER can
accelerate, boosting CPI. In this oversimplified way, the cost and
availability of money is dictating the slack or the tightness in the
rental market. Dig? The BLS is only attempting to measure the cost of
keeping a roof over your head on a monthly (rental) basis.
They are not in the business of assessing whether the underlying asset, the house, is appreciating or depreciating."

And my favorite pure Inflation comments of the past few days conmes from Jeff Matthews says: "D’oh! Inflation!"

"Given the bond market’s shocked—shocked!—reaction to yesterday “core” inflation news, you’d think nobody on Wall Street does any of the following:

1.
Buys gasoline, food or clothing.
2. Rents cars.
3. Buys airline
tickets.
4. Stays in hotels.
5. Eats out.
6. Eats in.
7. Pays
college tuition.
8. Goes to a doctor, a dentist, or a lawyer.
9. Has life
insurance, health insurance, or property and casualty insurance.
10. Pays
property taxes.
11. Goes to a psychiatrist.


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I continue to be astounded by the intellectual dishonesty in this portion of economics . . .

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Existing Home Sales Data (California Real Estate: On Sale!)

Sales of existing homes surprised to the upside yesterday. But one data point does not make a trend. This is the first rise (sequential monthly change) after 5 straight months of falling Home Sales. And that’s before we examine the data.

Before you declare the end of the housing slow down, consider:

- Existing Home sales actually slipped vs. last year by -0.7%; The reported gain was over last month’s data;

- the Inventory of unsold homes soared 7 percent in March, hittting an all-time record; There are now 3.19 million existing homes for sale, or  5.5 months’ supply; That’s the largest inventory since July 1998

- Existing homes edged up 0.3% last month to a seasonally adjusted annual rate of
6.92 million units; (we know that seasonally adjusted data is not always accurate)

- Year over year, the Northeast and Midwest gained, while the previously hot housing markets in the South and the West slipped;

- median home prices are still rising, albeit nmore slowly — up 7.4% year over year, to $218,000.

Here’s a data point that has me scratching my head:  Why are there different numbers for the year-over-year changes for seasonally and not seasonally adjusted?  Was this March somehow in a different season than last year’s March? I am perplexed.

Note that data for existing home sales comes from National Association of Realtors, a group that is certainly an interested party; Of course, as a homeowner, investor, and someone with a public bearish tilt for the second half, I’m hardly objective myself (hey, I try). But this oddity — down -0.5% for the not seasonally adjusted year over year versus down -0.7% for the seasonally adjusted year over year — is beyond my comprehension.

So much for the hard data on existing sales; Today, we get New Home Sales. Recall our prior admonishments that monthly New Home Sales Data are unreliable; look instead to a moving average.

Let’s move onto some anecdotal evidence.  A friend writes:

"Flop! Wow, KB running blue light specials in California. Not surprising,
Chico area was rated one of the most overvalued markets in the country. Houses
in the $200k space.  When was the last time you saw that in California? "

 
Oak Knoll Place Live Oak, CA

Oak Knoll Place Slideshow

Here’s the sales pitch:

"Oak Knoll Place in Live Oak is located in a beautiful
community near the majestic Sutter Buttes. With easy access to Highway 99, it is
ideally located for easy access to Sacramento, Lake Tahoe, Reno and a wide
variety of recreational opportunities. Yuba City and Marysville are
approximately 10 minutes south, Chico is approximately 35 miles north and the
Gray Lodge Wildlife area is approximately 10 minutes west. Live Oak has a
quaint, small-town atmosphere with many nearby recreational water activities,
including the Feather River, Yuba River and Sacramento River. Prices starting
from the High $200′s.
"

I don’t know Live Oak, but houses like that in California are hard to imgaine . . .

More after the jump.

Sources:
Existing-Home Sales Rise Again in March
NATIONAL ASSOCIATION OF REALTORS
WASHINGTON (April 25, 2006)
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/MarchEHS06?OpenDocument

Existing Home Sales  data
NATIONAL ASSOCIATION OF REALTORS
http://www.realtor.org/Research.nsf/files/REL0603EHS.pdf/$FILE/REL0603EHS.pdf

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