Wednesday, November 28, 2012

Housing Recovery? Yeah Right.

The debt crisis could transform into a currency crisis. That would create a surge in demand for gold. The source of new metal is junior mining companies.  - Morris Hubbert, Precious Metals Market Analyst, Trading Risk Specialist
New home sales for October were released today at 368k "seaonally annualized" contracts for new homes.  This number missed badly vs. the expected 387k.  Worse, the previous month's report - September - had a huge downard revision to 369k from the originally reported 389k.  Please note that these are "seasonally adjusted annualized" numbers and not true new home sales.  Here's the Census Bureau report:  LINK

In fact, the actual number of new homes "sold" was 29,000.  I say "sold" becuase the Census Bureau counts a "sale" when the contract is signed, regardless of whether or not financing is in place.  Of that number, 9,000 were not yet started, 10,000 were under construction and  10,000 were finished but not necessarily delivered.  From my last post on this, the cancellation rate of new home contracts was, in general, in the low 20%  range. Based on subsequent homebuilder quarterly reports, the cancellation rate is closer to 30%, with Beazer reporting a 31% cancellation rate.  This means that OF THE 29,000 CONTRACTS SIGNED, it is highly probable that only 20,000 will actually close and be delivered.  If you annualize this number straight up, you get 240,000 actual homes sales.

A straight up annualization is probably not a bad guestimate as October is a "tween'er" month - i.e. in between the seasonally strong period and the dead period.  At most maybe you could say that the statistically adjusted annualized run is 260,000.  This is 28% below what is being reported.  If you are keeping track, you'll note that new homes as counted by the Government (368k for Oct) are starting to decline again.  It is highly likely, for several reasons to be discussed in a more comprehensive post on housing, that the "recovery bounce" in housing has run its course and we will see the resumption of the bear market in housing.

Folks, the housing bear has only lasted for 5 years at this point.  The Government and Fed combined have dumped several trillion of "stimulus" in various forms into the housing market and they can't even stimulate the annual home sales number up to the its level going all the way back to 1963 (560k), when they started compiling the data:  LINK  Bear markets typically last a lot longer than 5 years and require a long time to wring out the excesses, fraud and corruption that created the preceeding mania.

Just for the record, I am not cheering for another housing decline.  But I am dancing on the grave of everyone who participated in the massive fraud and Government/Fed intervention which spawned the housing bubble to begin with (Clinton, Robert Rubin, Alan Greenspan, Bush, Congress etc).  A fraudulent, corruption-riddled housing finance system created the bubble, it was chased blindly by mindless individuals who made terrible, sub-prime debt fueled investment decisions and it fostered one of the biggest mechanisms of misallocated capital and wealth-transfer in the history of the planet (derivatives and Treasury bonds/US dollar will prove to be bigger).   Unfortunately, we are now going to suffer the consequences of this and printing money is not a viable "Plan B" (see my sidebar at the top).


  1. Spot on in all regards, Dave.

    I look forward to reading your comprehensive look at housing.

    I live in San Diego, and based on my stepwise regression of multiple variables for local sales data over '88-'04, three factors predicted rising home prices: rising employment, falling defaults, and rising sales (Seems to me that those three factors are good proxies for wherewithal to pay, falling supply, and rising demand, respectively).

    Until those three factors start moving in the right direction and consistently, I will remain a renter and expect prices to drop further.

  2. Nice post on housing amigo. A dude on CNBC was being brow beaten for being a gold bull and he said "How do you abandon goldhere? Starting January 1st we have 85 billion a month of unsterilized COUNTERFEITING." To which they basically replied "Why wouldn't you want to be in the Robbie Mugabie Zimbabwe market we'll have after QE4 lifts stocks?"

    We live in a sick world of lies, counterfeiting and deception.

  3. Thanks for the feedback. I need to find some time to put together a comprehensive post. I've compiled data/analysis which includes your three variables. Default rates are sketchy because banks have stretched out deliquencies and for most of 2011 had stopped foreclosures, but I suspect that true default rates are much higher than is represented by bank data, although it's tough to prove outright w/out having access to bank records.

    Employment (true, full-time) and inflation-adjusted personal income levels are still going south. Home prices are a function of renewed subprime financing offered by the FHA and articifially low interest rates/Fed mortgage purchasing.

  4. Thanks for your thoughts Dave, good stuff !

  5. Hey Dave The TPTB are desperate to keep house prices up to prevent a collapse in local property tax revenues.

  6. The Madness Of A Lost Society

    °°°°°°°°°°°°°°°°°°°28 November 2012
    Chris Hedges: The Wall Street Cult of the Self and Ochberg: Coping With a Narcissist

    As Ochberg implies, psychopaths don't have ethical considerations, and narcissists and asocial personalities don't care.

    In layman's terms I think most of these fellows have a great hole in their being. They know that something is not right with them, but their egos will not allow them to acknowledge it.

    Those who gravitate toward the corporate power structures can be quite successful in some organizations. But despite outward success they are always restless, unfulfilled, and tend to project their dissatisfaction outward and ascribe it to others. If they succeed it is all them, but if they fail, someone else is at fault.

    They are incapable of trust, because everything they do is a facade, a lie. Therefore they rarely have a real relationship with their families, and at best view them as a desirable addition to their collection. They have utter contempt for other people, although they will use flattery and other means to create a dependency while they are using them. And after that is done, they will be discarded without another thought.

    They are like sharks, endlessly seeking to fill their terrible emptiness with possessions, be they things or other people. They are literally insatiable in their needs, and highly focused in their pursuit of them.

    They are very clever in finding the weaknesses in people and organizations, and will exploit them ruthlessly. Ethics and conscience provide no brake or boundaries on their willingness to say and do anything that is required to achieve their ends. If you attempt to thwart, be prepared for something a little different, and completely off the hook in response.

    Goldman Wins Again As European Union Court Rules To Keep ECB Involvement In Greek Debt Fudging A Secret

    Three years ago, a hard fought landmark FOIA lawsuit was won by the great Bloomberg reports, the late Mark Pittman, in which the Fed was forced to disclose a plethora of previously secret bailout information, which in turn spurred the movement to "audit the Fed" and include a variety of largely watered down provisions in the Frank-Dodd bill. This victory came despite extensive objections by the Fed and the threat that the case may even escalate to the highly politicized Supreme Court, which lately has demonstrated conclusively that not only is justice not blind, but goes to the highest ideological bidder. Moments ago, Europe just learned that when it comes to secrecy of its supreme monetary leaders, in this case all originating from Goldman Sachs and defending data highly sensitive to the same Goldman Sachs, the European central bank's secrecy is not only matched by that of the Fed, but even more engrained in the "judicial" system of the Eurozone, after the European Union General Court in Luxembourg just announced that the European Central Bank will be allowed to refuse access to secret files showing how Greece used derivatives to hide its debt. Why? Simple: recall that it was Goldman Sachs who was the primary "advisor" on a decade worth of FX swaps-related deals which allowed Greece to outright lie about both its fiscal deficit and its total debt levels, and that it was a Goldman alum who became head of the same Greek debt office just before the country imploded. And certainly the ECB was involved and knew very all about the Greek behind the scenes shennanigans. And who happens to be head of the ECB? Why yet another former Goldman worker, of course. Mario Draghi.

  7. I'm fairly certain the default rates are much higer as well. The banks are just not foreclosing and would much rather have the homeowners continue to live there, pay the taxes and maintain the house rather than having it go into disrepair and be responsible for the upkeep during a down market.
    That being said I work in Manhattan, more specifically Hells Kitchen which as recently as 20 yrs ago was one of the biggest rat holes imagineable. It's anything but that now and housing is through the roof. Just across the street from my building on 10th ave they recently converted the old Sony recording studio to condos / coops and a three bdrm is selling for almost three million dollars and are 80% sold out! The only housing crisis for most of Manhattan is the lack of affordable housing.

    1. I know Hell's Kitchen area well. I got hepatitus eating oysters at a neighborhood bar there back in 1988 before going to see the remastered version of "Lawrence of Arabia" at the Ziegfeld Theater. I lived in NYC for 15 years.

      From what I've been reading, there's a massive supply of mid-market rental buildings coming on-line in NYC and it's starting to drive down rents, which eventually will drive down values.

      Unquestionably, and mostly related to Wall Street's fiat flooding and very wealthy fiat-derived foreign wealth buyers, the higher end of the owner market is still strong. Although I've read about some indicators of cracks forming in the values there too

  8. Hepatitus, Yikes! Glad I don't like raw oysters In all honesty I haven't done any in depth research regarding rents and the price of condos and coops in Manhattan just what I see in the for sale listings in the local free rags but the areas that were expensive are even more so now, particularly Tribeca.

    I was reading they just received approval to build a 80 story hi rise on the corner of Leonard and Church St which will be way completely out of character for that area. There's probably already a laundry list of Chinese billionaires lining up for the Penthouses