Pending Home Sales Plummet 24.2%

The housing market continues to spiral downward, with softness in sales and prices. As of now, the worst
housing slump in 25 years is likely to continue this year, and quite likely beyond that. (see also Housing Futures Fall Through the Roof),

The National Association of Realtors’ index of signed purchase
agreements fell 1.5% to 85.9 for December 2007. The drop in pending sales in November 2007 was revised downwards to 3% (from -2.6%)

Of course, it wouldn’t be any fun if the Housing data didn’t come with some hallucinogenic ramblings from the NAR, and the group did not disappoint this month.

Let’s start our fisking with the WTF!?! headline: "Existing-Home Sales to Hold in Narrow Range, then Begin Upward Trend."

Well, if you think a 24% drop is a narrow range, then I guess you can make so absurd a claim. Here’s the rest of their wild eyed commentary:

"A continuation of soft market conditions is forecast for existing-home sales in the months ahead, with improvement expected by the second half of this year if loan limits are increased, according to the latest forecast by the National Association of Realtors.

Lawrence Yun, NAR chief economist, said sales activity is expected to remain soft through the first half of the year despite a generational low in mortgage interest rates.  “Household formation was only half of what it should have been last year given the demographics of a growing population and sustained job growth, so there clearly is a pent-up demand from buyers who are on the sidelines,” he said.

“Existing-home sales have moved narrowly since last September, but when the full impact of higher loan limits for conventional mortgages begins to impact the market there is likely to be a notable rise in home sales and prices.  If higher limits are enacted very quickly, we’ll see a faster and more meaningful recovery by expanding safe, affordable financing in high-cost areas – that, in turn, would help to stimulate overall economic activity."

And as we have mentioned repeatedly in the past, its not the monthly data, according to NAR’s own
methodology, but the year-over-year data that is most important to methodology of the PHSI:

"In developing the model
for the index, it was demonstrated that the level of monthly
sales-contract activity from 2001 through 2004 parallels the level of
closed existing-home sales in the following two months. There is a
closer relationship between annual index changes (from the same month a
year earlier) and year-ago changes in sales performance than with
month-to-month comparisons

’nuff said. Narrow range my ass . . .



No, Pending Home Sales Index Did Not Rise

Pending Home Sales Index, NAR Housing Market "Bottoms"

Existing-Home Sales to Hold in Narrow Range, then Begin Upward Trend
NAR, February 07, 2008

Pending Home Resales in U.S. Fell 1.5% in December
Courtney Schlisserman
Bloomberg, Feb. 7 2008

Outlook for Sales of Existing Homes Remains Grim
Northern Trust , February 7, 2008

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Real Estate, Speculation & “Occupancy Fraud”

Today’s WSJ had a run of Real Estate related articles that quite frankly, were rather surprising in their gentle naiveté.

The first is the somewhat surprised acknowledgment that speculators were involved in the run up and subsequent deflation of Housing prices.

Of course, every asset class attracts speculators when prices rapidly rise. Its why every big boom ends in a final blow off top — that’s the impact of late-to-the-party speculators — followed by the inevitable spectacular collapse.

The latest after-the-fact revision (see our discussion on "predatory borrowing") has a new name: occupancy

This new nonsense word is a way to duck responsibility for failing to do appropriate due diligence prior to lending out money. Here are the details:

"As lenders pore over their defaulted mortgages, they
are learning that the number of people who bought homes as investments
is much greater than previously believed. Such borrowers turn up frequently in analyses of loans
that defaulted within months after origination. In many cases, these
speculators lied on loan applications, saying they intended to live in
the homes in order to obtain more favorable loan terms or failed to
provide the requested information.

Roughly 20% of mortgage fraud involved "occupancy
fraud," or borrowers falsely claiming they intended to live in a
property, according to an analysis by BasePoint Analytics, a provider
of fraud-detection solutions in Carlsbad, Calif. Another study, by
Fitch Ratings, looked at 45 subprime loans that defaulted within the
first 12 months even though the borrowers had good credit scores. In
two-thirds of the cases, borrowers said they intended to live in the
property but never moved in."

Speaking of fraud — I am curious about these lenders, now claiming they were defrauded by speculators. How many of them asked the following questions, and then did the due diligence to verify the data:

- Do you presently own your primary residence?
- Is your home currently listed for sale?
Or, are you in contract ?
- What is the asking price? Who is your real estate agency?
- RE Agent name? What’s their phone number?

Of course, none of these questions were asked, and no due diligence was performed, as these lenders were whoring clerking out loans as fast as they could process them. After the fact, this lack of due dilly has become "Occupancy Fraud."

If there was any genuine interest in not lending to speculators, its easy enough to verify . . .

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