Wednesday, February 19, 2014

Housing Is In Big Trouble

A lie told often enough becomes truth  - Vladmir Lenin 

When you look at the quote - and the source of that quote - it's amazing how similar the political, banking and media machinery in this country has assimilated the characteristics of the old Russia that we were taught to despise in the 1970's U.S. educational system.  I guess time is a flat circle.  Everything ever done in this world will be done again, over and over. 

The big lie being told to the public right now is that the housing market is in a miraculous recovery,  that inventories are extremely tight and that now is the best time to "invest" in a new home.   Of course, if that were true, why are homebuilder insiders unloading their company shares in epic quantities?

January home sales in Southern California were their slowest in three years:  LINK   The "bad weather" lies do not work there because SoCal was warmer than normal in January.  How about the truth:  the housing market is back in its bear market trend.

The narrative that has been carefully spun around the housing fairy tale is full of lies.  Sure, the way the National Association of Realtors reports inventory makes it appear as if listings are low right now. Look around your area and make note of the number of "coming soon" signs you see.  They're all over Denver.  A couple homes in my immediate area have been "coming soon" since before Christmas.  Did you know that a "coming soon" home is actually on the market but not officially listed in the MLS.  That "coming soon" home is thus not counted in the NAR's inventory.  But it's for sale.

And the big banks have been withholding a large portion of homes they have foreclosed on over the past 4 years.  They can do this because the Fed's QE has injected $2.5 trillion in cash onto their balance sheets.  The homes will soon hit the market, as foreclosures are spiking up again.  If you scan through enough homebuilder 10-Q's, you'll see that homebuilder inventories have seriously ballooned over the last year. inventory is significantly higher than propaganda is reporting.  And if you read my series of articles on the housing market over the past 3-4 months, you'll see the real data showing sales falling at an accelerating rate month the month and that prices are quickly dropping.

We saw even more evidence that the housing market is starting to fall apart today.  Housing starts - which in and of itself is a dubious indicator of housing market vitality - once again spiked lower and was well below the expectations of Wall Street's "brain trust" aka snake oil salesmen.  And the weekly index of mortgage purchase application took another big tumble this week, falling to 19 year lows and down 17% year over year.  Mortgages, by the way, are the life blood of home sales. If applications to purchase homes are plummeting, so is true demand.

As I outline in this article published this morning, the housing market is in big trouble:  Look out below!

If you are thinking about buying a home because you think the time is right, wait for 6 months.  Not only will you have a huge selection of choices but prices will be significantly lower.  If you want to sell your house because you understand the nature of the big lie being told, get it listed now and price it to move.


  1. I live in ground zero of the real estate bubble in Arizona and my wife is a real estate agent. She works with a flipper and none of their properties are moving, not even getting offers. With winter snowbirds here this is the strongest time of the year for real estate and nothing is moving. Her investors have been dumping their prices and are starting to panic. "Just get rid of it" is becoming the mantra. The MLS listings have been increasing every month for three months and sales are declining. I think its about to shit the bed again.

  2. Great color. Thanks! That scenario will be repeated everywhere. It's happening in SoCal and Vegas right now too

  3. Sales have begun stagnating in the Houston area, although inventory is still very thin. I don't expect that situation (thin inventories) to last much longer, particularly if the Fed pulls the trigger on another $10 billion taper. Home prices have run up too far too fast, particularly in the face of higher mortgage rates.

    Some friends of mine went fishing a couple of months ago in the luxury property segment hoping to cash out and move to a newer property. Interestingly, their agent gave them the irrational exuberance sell and overpriced the house. It went under contract, busted out and now they're waiting for another buyer. I'll be surprised if they get one for what they're asking. Builders are still churning out new homes here, and if the macro environment deteriorates further (which I expect it will) I think we'll finally get some additional inventory on the market here in Houston to tame that irrational exuberance. When I say irrational, a listing that popped up today was a great example. The house went on the market for $795K. It's worth about $600K. Sellers are completely delusional; no way in hell it would appraise for anything close to that.

  4. "Thin inventory." How are you defining inventory? I bet if you dig, you can find out how many properties are either sitting empty as bank REO or properties with defaulted mortgages in which the occupant is not making payments but the bank lets them live there and is not foreclosing because the Fed has given it money and it doesn't want to take the hit to income from writing off the mortgage. That's one source. How about the % of homes that are "coming soon?" Those don't hit the MLS until the broker is forced to give up his exclusive.

    How about the number of underwaters who are waiting for a just slightly higher prices and then they'll sell (if they can).

    How's the apartment vacancy rate? I Denver there's 14,000 new apt units coming online in the next few months. This is just the Denver "proper" boundaries. There are copious rent deals already being offered on several new big bldgs that came on stream just in the last 6 months. I know because I just signed a lease in a new building and was chatting with the leasing agent who had all the data. There was one building offering the first month of rent completely free and another one offering a $750 prepaid Visa.

    It's going to get very ugly very soon.

  5. When I say "thin" I'm talking only a month or less of inventory in several of the most popular communities in my area. REO has virtually dried up in terms of what's available, and that's a big reason why sales are stagnating. With little left that's affordable, buyers are having second thoughts (wisely so) about whether they want to buy in this market, that's assuming they can still pay for a home that's 25% less affordable than a year ago. Call it the moral hazard of Federal Reserve Ponzi economics.

    1. Ya but I guarantee you the big banks have a ton of REO or what should be REO sitting on their balance sheet. The shadow inventory is hanging over everywhere. The people buying homes now are unknowingly paying way too much. That will prove out over time.

  6. I have a Denver Real Estate Agent friend who seems a little too giddy about the Denver market right now. Doing what agents do, I s'pose. Still, he's having one of his best streaks ever right now.

    Pasting a message I got from him last week:

    "An exciting year is shaping up in the Denver real estate market. The market numbers are impressive.

    "Inventories continue to drop and median prices continue to go up. Check out the below link. It is quite dramatic - currently at 1/5th of the inventory compared to the highs in 2006!!!

    "The tight market will continue to make this a strong Seller's market... when strategized and executed well, homes for sale can fetch over what would be considered the high end of 'market value'.

    "Buyers need to be ON IT. Be ready to drop everything and run out to see a property just hitting the market."

    1. The inventory narrative is one of the most deceptive and fraudulent stories being pitched right now. Take that link for instance. Where do the numbers come from. The website author does not disclose. MLS maybe? MLS is deceptive.

      Do this experiment: Over the next week as you drive around, take note of how many realtor signs have "coming soon" signs on top. They are all over the Wash Park, Platte Park, Logan/Englewood corridor. Those homes are for sale but not listed in MLS yet. They are exclusive single broker offerings.

      As you drive around over the next month, note how many "for sale" signs pop up on the same routes you drive daily. Since December they have been popping up like weeds in my area and the homes are sitting.

      New FHA lending standards kicked in last month. That will put a break on the sub-prime quality mortgage issuance that drove non-investor/flipper sales last year.

      To be frank, I've NEVER met a real estate broker who wasn't positive. Never. They have a capacity to try and convince you that dog shit smells like roses.

    2. Yeah, I'm going to dig more. I spend most of the month in Portland, OR right now but come back to CO every month for a few days.

      In any case, the "drop everything you're doing and run out and BUY BUY BUY!!!" message is a sentiment indicative of market tops, no?