I've issued several warnings late last year warning of the real estate bubble peaking and popping. I feel I'm especially qualified to do such since I quite accurately called the bubble burst of 2007 - namely housing (look here and here), homebuilders (look here), commercial real estate (look here and here and here and here and there) and banks (Bear Stearns and  Lehman, among many others). Well, exactly ten years later, guest what?

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Published in BoomBustBlog

I've been telling readers and subscribers that the housing market has a considerable amount to fall before we reach income parity. With income currently falling along with rising underwriting standards, that point is actually being pushed even farther into the (event) horizon! We are now at a point where interested parties would be remiss in not pursuing blogs (both in addition to and instead of the mainstream media) to get the nitty gritty analysis on a wide variety of topics. With that being said, I have finally decided to bite the bullet and expand BoomBustBlog by accepting partners in a bid to grow the business. Lethargic media and financial concerns, look out, here comes the BLOGS!!! I am open to ideas and suggestions. Interested parties may contact me here.

From the WSJ.com: Home Resales Drop

The latest data on the housing market underscored its fragility and showed that a glut of homes for sale and a wave of foreclosures and fire sales are holding down housing prices...

Sales of existing homes fell 0.6% in February from a month earlier to a seasonally adjusted annual rate of 5.02 million, the National Association of Realtors said...

The median price for an existing home was $165,100 in February, down 1.8% from February 2009, the Realtors said. Distressed homes, generally sold at discount, accounted for 35% of sales last month.

A separate report Tuesday from Federal Housing Finance Agency showed that house prices fell 0.6% in January and December's numbers were softer than previously reported. The FHFA index -- which tracks the prices of the same houses over time, but only those sold to or guaranteed by Fannie Mae, Freddie Mac or the Federal Home Loan Banks -- is 13.2% below its April 2007 peak.

Inventories of existing homes increased 9.5% at the end of the month to 3.59 million available for sale, the Realtors said. That represented a 8.6-month supply at the current sales pace, compared with a 7.8-month supply in January.

 Of course this isn't news at all to the Green Shoots disbelieving BoomBustBlog subscriber. Excerpts from previous posts over the last quarter that ran in direct contravention of both mainstream media and sell side analyst reports are below:

 The chart below illustrates the seasonal ebbs of month to month price changes.  On a month to month basis, we see hills in the spring and summer and valleys in the fall and winter. During the onset of the bursting of the (first) bubble, this cycle was compressed, but was still there. and lasted throughout the bubble. With the onset of the government stimulus (ex. housing credits and MBS market manipulation), the peaks were significantly exacerbated. Now we are entering into the winter months again, and guess what's happening, as has happened nearly every winter cycle before. The only difference is that this dip is extraordinarily steep! I would also like to add that the month to month price changes coincide exactly with the S&P 500 move downward and upward for 2008 and 2009, to the MONTH! What a coincidence, huh? If this relationship holds,,,, well you see what direction the month to month lines are going and how steep they are, don't you?

csmtmlong.png

  image027.png

As you can see, the residential housing uptrend is now apparently over, and we are resuming the downward decent.

Let's look at the improvement in delinquencies and losses as compared to home prices in the grand scheme of things, a birds-eye view so to speak...

janimage032.png

For data heaving presentations and analysis, feel free to click the links below.

Reality Check for Bank Investors, Mortgage Investors and Home Buyers (March 10th)

It's Official: The US Housing Downturn Has Resumed in Earnest (March 2nd)

It's HELOC Deja Vu,All Over Again (January 19th)

A Fundamantal Investor's Peek into the Alt-A Market (Jan 14, 2010)

Deflation, Inflation or Stagflation - You Be the Judge! (January 12th)

If Anybody Bothered to Take a Close Look at the Latest Housing Numbers...

(December 30th, 2009)

Housing sales and prices come in lower than estimated! What??? (December 24th)

Residential Lending Credit Losses Worsen as Unsustainable Government Support Proves... Unsustainable (December 21st)

The Truth! The Truth? Banker's Can't Handle the Truth!!!

On the Latest Housing Numbers (November 24th)

I've been telling readers and subscribers that the housing market has a considerable amount to fall before we reach income parity. With income currently falling along with rising underwriting standards, that point is actually being pushed even farther into the (event) horizon! We are now at a point where interested parties would be remiss in not pursuing blogs (both in addition to and instead of the mainstream media) to get the nitty gritty analysis on a wide variety of topics. With that being said, I have finally decided to bite the bullet and expand BoomBustBlog by accepting partners in a bid to grow the business. Lethargic media and financial concerns, look out, here comes the BLOGS!!! I am open to ideas and suggestions. Interested parties may contact me here.

From the WSJ.com: Home Resales Drop

The latest data on the housing market underscored its fragility and showed that a glut of homes for sale and a wave of foreclosures and fire sales are holding down housing prices...

Sales of existing homes fell 0.6% in February from a month earlier to a seasonally adjusted annual rate of 5.02 million, the National Association of Realtors said...

The median price for an existing home was $165,100 in February, down 1.8% from February 2009, the Realtors said. Distressed homes, generally sold at discount, accounted for 35% of sales last month.

A separate report Tuesday from Federal Housing Finance Agency showed that house prices fell 0.6% in January and December's numbers were softer than previously reported. The FHFA index -- which tracks the prices of the same houses over time, but only those sold to or guaranteed by Fannie Mae, Freddie Mac or the Federal Home Loan Banks -- is 13.2% below its April 2007 peak.

Inventories of existing homes increased 9.5% at the end of the month to 3.59 million available for sale, the Realtors said. That represented a 8.6-month supply at the current sales pace, compared with a 7.8-month supply in January.

 Of course this isn't news at all to the Green Shoots disbelieving BoomBustBlog subscriber. Excerpts from previous posts over the last quarter that ran in direct contravention of both mainstream media and sell side analyst reports are below:

 The chart below illustrates the seasonal ebbs of month to month price changes.  On a month to month basis, we see hills in the spring and summer and valleys in the fall and winter. During the onset of the bursting of the (first) bubble, this cycle was compressed, but was still there. and lasted throughout the bubble. With the onset of the government stimulus (ex. housing credits and MBS market manipulation), the peaks were significantly exacerbated. Now we are entering into the winter months again, and guess what's happening, as has happened nearly every winter cycle before. The only difference is that this dip is extraordinarily steep! I would also like to add that the month to month price changes coincide exactly with the S&P 500 move downward and upward for 2008 and 2009, to the MONTH! What a coincidence, huh? If this relationship holds,,,, well you see what direction the month to month lines are going and how steep they are, don't you?

csmtmlong.png

  image027.png

As you can see, the residential housing uptrend is now apparently over, and we are resuming the downward decent.

Let's look at the improvement in delinquencies and losses as compared to home prices in the grand scheme of things, a birds-eye view so to speak...

janimage032.png

For data heaving presentations and analysis, feel free to click the links below.

Reality Check for Bank Investors, Mortgage Investors and Home Buyers (March 10th)

It's Official: The US Housing Downturn Has Resumed in Earnest (March 2nd)

It's HELOC Deja Vu,All Over Again (January 19th)

A Fundamantal Investor's Peek into the Alt-A Market (Jan 14, 2010)

Deflation, Inflation or Stagflation - You Be the Judge! (January 12th)

If Anybody Bothered to Take a Close Look at the Latest Housing Numbers...

(December 30th, 2009)

Housing sales and prices come in lower than estimated! What??? (December 24th)

Residential Lending Credit Losses Worsen as Unsustainable Government Support Proves... Unsustainable (December 21st)

The Truth! The Truth? Banker's Can't Handle the Truth!!!

On the Latest Housing Numbers (November 24th)

The year 2009 was the year of reflation theories and bubble blowing. Theses of "Green Shoots", catching the bottom, and QE reigning supreme were the order of the day. Sure enough, asset prices (nearly all of them) went one direction, straight up. We all saw it coming, but guys like me who actually count the money and rely on the fundamentals didn't believe it was a sustainable gain. It wasn't a bull market, but a bear market rally. After nearly one year, the reflationists have had their hay day, or have they?

The year 2009 was the year of reflation theories and bubble blowing. Theses of "Green Shoots", catching the bottom, and QE reigning supreme were the order of the day. Sure enough, asset prices (nearly all of them) went one direction, straight up. We all saw it coming, but guys like me who actually count the money and rely on the fundamentals didn't believe it was a sustainable gain. It wasn't a bull market, but a bear market rally. After nearly one year, the reflationists have had their hay day, or have they?

As many people focus on commercial real estate exposure, they forget that we are only about halfway or so through the residential crash. The $8k homebuyer tax credit did serve to support the lower end of the residential market (from my anecdotal observations), but did very little to solve the problem. Basically, prices must fall, credit must be loosened or incomes must rise in order to stabilize home prices. With 10% plus unemployment (incomes have actually dropped since the initial bubble burst) and banks holding on to cash tighter than Fido grips his steak bone, you know what prices really need to do to reach equilibrium. Click the graphs below to expand.

As many people focus on commercial real estate exposure, they forget that we are only about halfway or so through the residential crash. The $8k homebuyer tax credit did serve to support the lower end of the residential market (from my anecdotal observations), but did very little to solve the problem. Basically, prices must fall, credit must be loosened or incomes must rise in order to stabilize home prices. With 10% plus unemployment (incomes have actually dropped since the initial bubble burst) and banks holding on to cash tighter than Fido grips his steak bone, you know what prices really need to do to reach equilibrium. Click the graphs below to expand.

 As explained in "The ARE trying to kick the bad mortgages down the road, here's proof!", the banks are delaying the inevitable. Here is more on the topic.

Delayed Foreclosures Stalk Market

 Debra and Arthur Scriven were served notice in June 2008 that their mortgage lender, a unit of Citigroup Inc., was preparing to foreclose on their home. Fifteen months later, the Scrivens are still in their home near Columbia, S.C., and battling to stay there, even though a dispute with the lender over how much they owe prompted them to stop making regular payments last year.
...

 As explained in "The ARE trying to kick the bad mortgages down the road, here's proof!", the banks are delaying the inevitable. Here is more on the topic.

Delayed Foreclosures Stalk Market

 Debra and Arthur Scriven were served notice in June 2008 that their mortgage lender, a unit of Citigroup Inc., was preparing to foreclose on their home. Fifteen months later, the Scrivens are still in their home near Columbia, S.C., and battling to stay there, even though a dispute with the lender over how much they owe prompted them to stop making regular payments last year.
...

Well, the Case Shiller index has finally produced a positive print. Again, I will probably sound like a permabear, but this may not be all that it is cracked up to be. I have warned readers two years ago that the Case Shiller index, although an econometric marvel, is far from perfect in terms of determing the state of residential housing in the real world. 

The primary suspects are: 

  1. It ignores investment inventory which, when combined with poorly underwritten easy credit loans, was the catalyst for the housing bust in the first place. Investors simply walked away or were foreclosed upon, en masse. 
  2. It ignores multi-family housing, which is a significant portion of the stock in urban areas such as NYC. It is also a much higher risk loan that shows more defaults in mortgage portfolios.
  3. It ignores condos and coops. See "Who are ya gonna believe, the pundits or your lying eyes?" and "Who are you going to believe, the pundits or your lying eyes, part 2". for a clear understandng of how bad off this vital urban and suburban market actually is. The recent Case Shiller condo numbers show a statistical uptick, but as can be seen from the ground (reference previous links), the inventory story is simply atrocious, and their is plenty of additional inventory being built as I type this, which just adds to the foreclosure and existing sales inventory issues.My assumption is the government stimulus (which ends right about now) offering $8k tax breakes, seasonality (as this uptick occurred in the strongest historical selling season, the coming to market of larger apartments as inventory is completed (remember, it appears as if this index tracks gross prices, and not prices per square foot, which can be quite misleading in terms of actual price appreciation), combined with the GSE occupancy waiver (which very well may backfire as it brings back the easy mondy credit days of lax underwriting) is responsible for the trend. Will it last? We shall see, but the laws of supply and demand will apparently have to be suspended. 

  condo_snapshot_2q09.png

Here is what others around the web are saying as sourced from RGE Monitor: 

Relevent Links

S&P says home prices on upswing in 2Q 09

  FHFA Home Price Index: Home Prices Decline Slightly in Second Quarter

Calculated Risk on Case-Shiller House Price Seasonal Adjustment and Comparison to Stress Tests

 Shiller (creator of the Case Shiller indes) on why housing prices may keep falling

PMI Economic and Real Estate Trends Q2 2009

 

  • The S&P/Case-Shiller 20-City Composite Index fell 15.4% y/y in June 2009 after declining 17.1% y/y in May. Of the 20 cities covered in the survey, 18 showed an improvement in the y/y return in June over May, though the y/y decline continued to be in double digits for 15 cities. The m/m return in June was positive for 15 of the 20 cities after accounting for seasonality. As of June 2009, average home prices are at similar levels to what they were in early 2003. From the peak in mid-2006, the 10-City Composite is down 32.5% and the 20-City Composite is down 31.4%.(S&P)
  • David M. Blitzer, Chairman of the Index Committee, S&P: " This is the first time we have seen a positive quarter-over-quarter print in three years. Both the 10-City and 20-City Composites posted monthly increases, as did most of the cities. As seen in both seasonally adjusted and unadjusted data, as well as the charts, there are hints of an upward turn from a bottom. However, some of the hardest hit cities, especially in the Sun Belt, show continued weakness." (August 25, 2009)
  • Ajay Rajadhyaksha and Glenn Boyd, Analysts, Barclays Capital: Even seasonally adjusted home-price data has been skewed higher during the spring months of this year and last year by an “amplified” version of typical patterns. More homeowners sell their properties during those months, cutting the share of homes being offloaded at distressed prices, as new buyers focus on “desirable neighborhoods” where values hold up better. (via Bloomberg; July 31, 2009) I agree.
  • Calculated Risk Blog: "So far house prices are tracking the baseline scenario, but I believe the seasonal adjustment is insufficient and prices will decline faster in the Fall." (July 28, 2009)
  • Professor Robert J. Shiller, Yale University: Prices may continue to fall or stagnate into 2010 or 2011. There is much less demand for housing than is supply. Even if there is a quick end to the recession, the housing market's poor performance may linger. (via NYT; June 7, 2009) Cities with relatively smaller declines like Boston could show signs of rebound, after the pace of foreclosures has fallen. Given the inventory on the markets and shadow inventory of houses, a scenario where home prices decline for years is more probable. (via Yahoo Finance video; July 14, 2009)
  • Professor William C Wheaton, MIT: The supply side fundamentals of the housing market point to a bottoming out and prices should stabilize soon and resume rising. The excess inventory of housing should be back below normal in 2011. Most US houses are valued at or under replacement cost and decades of house price decline, as was the experience in Japan, is unlikely. (via VoxEU; July 18, 2009)
  • Robert Mellman, JPMorgan: "Declines in the Case-Shiller index probably are moderating, but the latest monthly reading overstates the extent...the number of forced sales entering the market is expected to increase substantially during the second half of this year, a source of significant further downward pressure on house prices." (July 31, 2009)
  • The PMI Group: The risk of home price declines in most Metropolitan Statistical Areas (MSAs) increased in Q1 2009 as per the PMI U.S. Market Risk Index, driven by unemployment and foreclosure rates. 60% of the nations top 50 MSAs have a greater than 50% chance of declining home prices in two years time, with the risk highest for MSAs in Arizona, Nevada California and Florida.
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