PRINT — Pending Homes Sales Crash
The Index of pending home sales fell a record 30% in May to a record-low reading of 77.6 — two hugely pessimistic predictors of future prices nationwide. Yet the combination of two record negatives went barely reported when the stats were announced last week.
So here’s the news for you now, a week late, but new to the marketplace of ideas. Pending-home sales have crashed and now stand below the worst numbers we have seen since the housing crash started in 2006. The rubber bands and duct tape are breaking apart in the property market. Presume the fix of a fall is in.
Take a look at the three charts below. Judge for yourself how important the facts are which the National Association of Realtors (NAR) announced last Thursday (July 1). I personally find them startling, alarming, critical to review.
The oversight by major news outlets — snubbing record negatives — is egregious by virtue of its ignorance of the expiration of the free-down-payment program. The pending-home-sales stat gave us our first view of buyer demand for housing without the hugely popular prop from the federal government.
I am not saying here that the news was buried. I am saying that reporters failed to do the most basic leg work. Even those who lucked out and stumbled upon the record stats, they failed to comprehend the importance of the new data. I would have missed it too if I hadn’t charted the numbers myself, but I did, so I didn’t miss it.
Speculation has run rampant as commentators have wondered about the direction of prices as government support starts to fall away.
The future direction of real estate prices is a major obsession of almost all economy watchers as the monthly bill for shelter overshadows others, as the value of homes is a predominant factor of family wealth, and because the banking sector has huge investments based upon residential property.
“If you’re looking for a silver lining in housing, you aren’t going to find it here,” Mike Larson of Weiss Research said. “Demand has fallen off a cliff in the wake of the tax credit expiration, with pending sales falling by the biggest margin ever to the lowest level ever.”
Mr. Larson’s comment drew attention to the two new record lows. His name is on every story that mentioned one or both record stats. Had he remained silent, these highly relevant record lows would have gone unreported completely.
Of the 15 major media outlets i reviewed, four actually did learn about both of the record negatives, but they didn’t understand the meaning of it.
The statement by NAR announcing pending-home sales makes no reference to either the record fall or the record new low. If their intention was to hide bad news, they got away with murder. Let’s show you the fools who fell for it.
Among the outlets who failed to uncover either of the two record negative stats are Barrons, Dow Jones, The Financial Times, Fox Business, The Los Angeles Times, and Marketwatch.
I reviewed stories on pending-home sales by 15 leading news outlets – in addition to the flunking students mentioned immediately above, I also read Atlaticwire.com, BBC News, Bloomberg, Boston.com, CNBC, Investors’ Business Daily, New York Times, Reuters, US News — and the only difference between the outlets was the extent to which they screwed up this critical epicenter-type data set (Please see the graphic nearby depicting the various degrees of incompetence.).
The future direction of housing prices are arguably the most critical factor in the most critical nation in the most critical financial crisis since the Great Depression. The signs are not hunky-dory in this market. The May pending-sale figures may in retrospect serve as a Rosetta Stone: A perfect guide to the true fortunes of residential real estate. Just in case you have forgotten, we are in one hell of a market, and Mom did not tell us this is what would happen when we grow up.
HousingStory.net estimates current inventory for sale of 3.9 million is 1.2 million units higher than it should be, and not too far away from the record high 4.5 million. Inventory stands at 8.3 months of sales, but it should be at 5.8 months.
Fourteen percent of mortgages are behind on payments — about 7.7 million borrowers or, more starkly, one in seven. A record 4.63 percent of borrowers are in foreclosure. Approximately 13 million homeowners have no equity or negative equity. They would make nothing from the sale of their house if they could sell it. Or they would lose a little or a lot. Thus do we have the phenomena of strategic default — now as common as no-money-down mortgages during the boom.
We are in a pause of a tectonic shift of plates. Prices have been flat since August 2009, but are down 30% from their peak. The fall of 30% was almost completely discounted as impossible prior to its occurrence.
My speculation is that the fate of bubble-mortgage debt remains as our key obstacle blocking recovery (Unbelievers should rent the Godzilla movie “Eating the Lost Decades of Japan” for further enlightenment.). Total mortgage balances remain almost unchanged from the peak of the bubble –$11.68 trillion today versus $11.95 trillion at the peak (see chart below).
The data released last week on pending home sales and the dismal record of reporting on that data proves that breaking news business journalism fails even in surface scratching. The cows just want to feed on the grass in front of them and go on to the next field.
The smart investor is going to look at these charts on pending-home sales and have a real advantage over the common media consumer. Readers of my work know I have found pessimistic facts easy to find. The pending-sales figures are a dramatic concurrence — a record fall and a record low.
So I will give you my opinion: All hell has broken loose all over again in real estate. Don’t buy a home. Sell one.
The press release by NAR on pending-home sales. The Fifteen Stories by Major Media Reviewed on Pending Home Sales.
Thank you for carrying the story to Automatic Earth, Business Insider, Implode, Jesse’s Cafe Americain, MortgageNewsClips.com, Patrick.net, Pragmatic Capitalist.
PRINT — Pending Homes Sales Crash
Michael David White is a mortgage originator click here for background info.
23 thoughts on “Pending Homes Sales Crash in a Record Fall to a Record Low as Tax Break Expires. The MSM Misses It. Hook Line and Sinker.”
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The real issue for the real estate market it JOBS, without a manufacturing base (or any new ”ideas” base) we have no recovery. The reason that the market is crashing (again) is due to several things converging at the same time -the ending of the tax break, the realization that the economy won’t recover until we have jobs on the horizon and the filtering thru of demand from people who were priced out of the market. The debt must be dealt with, it must either be paid back (very unlikely) or written off. Until banks are forced to deal with the debt in a real and honest way, this problem will just drag on. Our economic numbers are being manipulated to make things seem ‘not so bad’ when the truth is things are very bad. General population doesn’t realize it (like boiling a frog over a low flame), because they are still in their homes (and many without paying). When they turn on the news, they get propaganda to keep every believing it’s sort of bad, but not for me.
Hi Lucy i like your summary of chaos. thanks for the comment. mdw
mdw, good article; this should be no shocker to anyone.
In my opinion, a second wave of the housing crisis was entirely predictable based on articles like this: http://dailyreckoning.com/the-second-wave-of-the-housing-crisis/ published over a year ago and citing data from a year earlier still.
Does your advice to sell your home apply to everyone, even thos who own their home free and clear, or, to just those would still have a mortgage and are upside down or not yet upside down but soon could be?
Hi Crash Watcher, my advice is to avoid buying and to hustle to sell, but there are a thousand and one reasons that may be a bad call. i’m just trying to establish a prejudice against property investment based upon fact. thanks for your comment. mdw
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Forget interest rates. That’s soooooooo 1980’s.
It’s about prices. Listed prices still assume people can qualify at 5X-6X income, like they did with Option-ARM & Alt-A loans in 2004-2007. (and are now defaulting on)
When listed prices fall to 2.5X – 3.0X income, then, perhaps, you might consider buying.
P.S. I dislike people talking about “Interest Rates” , there’s always this unspoken assumption of “consistent underwriting” — DTI, down-payment, etc The Bubble was created by loss of underwriting. The return of solid underwriting swamps any effect of Interest Rates going from 6% to 5%. Do the math.
Hi Hank, underwriting does change the world. thanks for your comment. mdw
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You hit the nail on the head!!!!!!!! The Anonymous Coward may be in denial as his ARM loan starts spinning out of control. I think most people (who are now getting the picture) stopped paying their mortgage. It will most likely take the bank 18 months to get around to them.
Side note: It is to my understanding that second mortgages taken out from a bank equalls even a bigger loss to that bank and they sure don’t want that on their balance sheet. Why would a bank want to pay property taxes, maintanace and then eat the cost of a second-third mortgage for some guy that thought he needed a new sports car or bass boat. I can only imagine how this is going to end for folks who could not live within their means.
Hi Tod, i have wanted to research 2nd mortgages, but never have. i think the major banks had a strong affection for seconds — because of the floating rate and because the 2nd lien gave them an automatically higher rate due to risk. but you know what they didn’t have anybody home in those underwriting teams when it came to falling prices. thanks for your comment. mdw
Michael, we recently read a truly informative article about WHY the servicing banks – the largest are of course the Big Bailed Out Banks, and the purchasers of Countrywide, WAMU and Wichovia – prefer foreclosure over modifications.
That thesis was that IF they do a mod they gain little or nothing, but if they pursue a foreclosure, they keep the higher interest 2nd mortgage AND they retain not only control of the foreclosure’s proceeds, but ALSO they control how that money is invested AND they get to keep ALL of the income it generates.
The profits they gain from that “game” are greater than the profits they gain form “servicing” U.S.
We will see if we can find it, and forward it to you, asap. Great article, again.
Interest rates could be 1% it would make no difference to home sales.
The market has refused to adjust, the market has been propped up and then dropped and now the lowest of interest rates will make no difference to sales.
Housing is about to crash in price.
Without jobs or job growth home prices are going nowhere fast.
If you are foolish to buy now expect to be underwater the day you sign your loan, which is why there are “ZERO TRADITIONAL LOANS” available. The banks are not stupid, the buyers are.
Home prices will crash to unseen levels.
Even the VP of USA said forget about the 10 Million jobs losses which were created between 1999-2008 and wiped out in one single swoop..
No Jobs,No Mortgages, No Consumer Spending = Major Deflation
Hi Interest Rate, i think we could be confident if we were confident that America is competitive and creating great jobs. that’s not what we are thinking right now. thanks for your comment. mdw
anonymous coward – “The fall was expected because of the tax credit. But with interest rates at record lows, there is new incentives so it should recover. Eight thousand is an OK incentive. A 3-4% mortgage rate is an even bigger incentive.”
You’ve missed the point… This “new” fall has little to do with the tax credit and more about the maturing loans from 2005-2007. This is the beginning of the second wave of silly people who thought they’d be cashing out by 2010. The record low interest rate is just worm on a hook. Wanna know how to take advantage? If you expect another 12-20% drop in home values over the next 1-2 years, make your offer reflect that. No, you won’t make friends with the current home owner, but you minimize your chances to ever be under water. There will be slow growth ahead after this next dip.
Hi G, the future is more mysterious than you give it credit for. thanks for your comment. mdw
G, too, there is a puzzlement, however. Recently we learned that 80% of all subprime & ARM loans made between 03 and 07, in the sand states are now in a “default status” – late on their payments and about to be foreclosed on, strategically defaulted, or already foreclosed upon.
The reason that is a puzzlement is that more than half of all of those ARM & subprime RE loans were made during the same years, in the same state. About 73% of their loans, or US$ 2.5 Trillion, were made by investment bankers as non-agency securitized RE loan packages.
Now, 50% of ALL foreclosures over the last few years are also in those same 4 states.
So, the question is: Have most of those bad ARM & subprime RE loans already been washed out of the system? Or/and, are they now included in the One (1) million foreclosures expected to be complete by the end of this year? Bcuz, IF that is true, there may be very few, if any, bad subprime &/V re-set ARMs left. The problem we all are looking for/at simply no longer exists.
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The fall was expected because of the tax credit. But with interest rates at record lows, there is new incentives so it should recover. Eight thousand is an OK incentive. A 3-4% mortgage rate is an even bigger incentive.
Hello Anonymous Coward, i have never heard of 3% to 4% rates as being on the horizon, but they are falling and will make a difference. On the other hand, the recent records in pending sales is dramatic. thanks for your comment. mdw
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