Tuesday, August 24, 2010

The Existing Home Sales Data Bomb

As everyone knows by now, existing home sales for July plunged a record 27% from July and were 25% below July 2009.  This was a record sales drop, as sales of single-family homes fell to a 15-year low.  The Einsteins on Wall Street were expecting a 13% decline, demonstrating once again the uselessness of Wall Street research. Here's the news link:  NAR press release

The National Association of Realtors and CNBC and other mass media of course are finding a silver lining in the fact that the median price was up .7% (that's "point seven percent") from 2009 to 2010.  I would suggest that the home-buyer tax credit was responsible for temporarily stabilizing prices and that the data massaging, otherwise known as "seasonal adjustments," likely produced arithmetic which gives the illusion of slightly higher prices.  At the end of the day because of all of the data manipulation it can argued that a .7% change in the data from July 2009 to July 2010 is not statistically significant/meaningful.  Moreover, the measured inventory (vs. the shadow inventory we all know is out there) increased, suggesting that supply and the lack of tax incentives will negatively influence prices going forward.

Ironically, July is supposed to be one of the peak selling months for homes.  If that's the case, the housing market for the rest of 2010 is doomed.  The Government and the Federal Reserve market interventions have served no purpose other than to keep a market artificially and temporarily propped up, which will ultimately lead to further damage going forward.  The country can not afford to continue tax-subsidizing home buyers at the expense of everyone else and the Fed is largely out of interest rate bullets.  Essentially, all the Government tax subsidy did was keep housing prices artificially high, thereby transferring a massive amount of wealth to the sellers, real estate brokers and mortgage banks at the expense of the moronic buyers and the rest of us.

At some point the bond market will start regressing back up to some mean level of interest rates - i.e. interest rates will head higher - and then we will see a serious wipeout in housing values.  I am not going to put a timeframe on when this will occur, I just know that it will occur and it will start happening when it is least expected.  Of course, judging by the record amount of investor cash flowing into bond funds - see this Bloomberg article:  The bond bubble - it appears as if investors are currently least expecting the bond market to tank. Perhaps the current timeline of the bond market may be analogous to that of the internet stock bubble in 1999.  And we all know what happened in the spring of 2000...


  1. I believe the median home price went up, because a disproportionate number of first time buyers went down...and first time home buyers obviously buy the cheaper homes, on average.

  2. Agree - thanks for pointing that out

  3. The Full Incredible Dimensions of the Sovereign Debt Crisis: Morgan Stanley Let's It Rip
    The most truthful, well reasoned report, from inside elite Wall Street, that I have ever seen has just been issued by Arnaud Mares of Morgan Stanley. In the stunning report, he makes the following observations:

    1. Governments will default. It is only a matter of how and when.

    2. "Financial Oppression" may occur: Imposing below market interest rates on creditors.

    3. The sovereign debt crisis is not simply European, it is global.

    4. It is not GDP but government revenues that matter.

    5. Seen from the angle of government revenues, the U.S. does not compare favorably with Europe.

    6. The fiscal challenge is unprecedented.

    7. The interest of bondholders in no longer aligned with that of the most powerful constituency (The elderly)

    Bottom line: This is not the time to be holding government debt (U.S. Treasury securities included)

    Read the full report below:


  4. SofaKing would like to thank President Obama for being a complete crank.

    I just got the renewal papers for my company's health plan there is a premium increase of 56% for the plan I had to downgrade to last year to have only a 21% increase in premiums. The agent says these fees are required to comply with new regulations in the health bill.

    Thinking about closing up shop. The juice just isn't worth the squeeze anymore.

  5. My view is housing prices over all- some areas are still outliers-aren't going to have a bounce, a bounce, mind you, not a bull market, just a healthy bounce, until 2012. Prices need to be in line with incomes, and the next big move in rates is up.