Thursday, July 26, 2012

Housing: Look Out Below

I don't think we are at the beginning of the recovery. I think we are at the end of a disastrous debt supercycle that has gone on for the last thirty or forty years, really. It started when Nixon defaulted on our obligations under Bretton Woods and closed the gold window. Incrementally, year after year since then, we have been going in a direction of extremely unsound money, of massive borrowing in both the private and the public sector. - David Stockman, former OMB Director for Reagan and former Congressman
I have to admit, I get excited when I put forth a thesis and the data confirms my view.  I didn't expect immediate confirmation yesterday when I proffered that the housing market was getting ready to go into "collapse" mode again that the "tight inventory" argument being used by perma-bulls/frauds like the National Association Reality was Orwellian b.s.

Yesterday afternoon a reader linked this article from a New Jersey newspaper:  "The long-expected second wave of foreclosures in states where courts delayed their processing appears to have begun in New Jersey and area counties, with filings jumping in the second quarter from a year ago."  LINK  Then this morning Bloomberg reported this:  "Foreclosure filings rose in almost 60 percent of large U.S. cities in the first half of 2012, indicating many areas will have more distressed homes on the market later this year, RealtyTrac Inc. reported."  LINK

THEN, the National Association of Realtors reported that pending sales for June dropped 1.4% unexpectedly in June.  A .9% increase was forecast by Wall Street's Einsteins. Even more significant - and reinforcing a serial of downwardly revising previously reported data - the NAR downwardly revised the pending homes sales number for May.  Here's a LINK  People, this is the seasonal time of year that the housing market is supposed to be at its relative healthiest.  In fact, the NAR data is seasonally adjusted - imagine how ugly the raw data must be.

The NAR's excuse for the drop in pending home sales is "tight inventory."  But we know that's a bunch of b.s.  I know short-sales are failing to close en masse.  I personally know someone who was sitting in a house with  adefaulted mortgage waiting for a short sale to close that failed because the financing fell through.  Furthermore, a lot of the bank-owned inventory was shifted to FNM/FRE, who then off-loaded it onto investors in big blocks thru a sale-to-rent program initiated by the Obama Administration.  The rental inventory is going to balloon back up, including many apartment buildings that have been started and which have caused the building starts statistic to bounce over the past year.  Interestingly, I happened to notice the other day that rental prices for homes in the Denver area had softened up from this past winter.  I wonder why?

As the rental inventory expands and drives rents lower, it will also drive home values lower.  This process will be exacerbated by this coming 2nd wave of en masse foreclosures.  I'm not the only one who perceives this insidious negative feedback cycle starting back up.  I linked this analysis the other day, but here it is again and it's worth reading:  LINK  For every area of the market, I have certain analysts to whom I pay attention, mostly to confirm my own thinking or gain new insight.  Mark Hanson is the guy worth paying attention to for housing market analysis.

If you are thinking about buying a house because your realtor is telling you that the market is tight and prices are going higher, don't do it.  If you are thinking about selling your house to capture remaining equity value, get it done as soon as possible.  This fall/winter could be very ugly, and not just for the housing market...


  1. Great to see that you and Mark have a special talent/weather eye pertaining to the real estate market.

    Keep up the great work, Dave!

  2. michael schumacherThursday, 26 July, 2012

    Those comments from Weil are setting up way that the architect of breaking up Glass-Steagel has turned course and has found god. I used to think that rapists and thugs were the lowest form of human it is most certainly people like Weil (and Greenspan, Paulson, Daimon, et al). Just takes a HUGE amount of balls to come out now after over 12 years of fucking the system and say " bad". No he (they) want something and this is the set-up for it.


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    There’s more.

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    And more.

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  7. Dave, what do you mean "and no just for the housing market?"

    1. whoops. typo. should read "not." as in, every other part of the system

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