Thursday, August 29, 2013

Pending Homes Sale Report: The Housing Market Lurches Lower

Before I post my latest work on the housing market, I wanted to quickly follow up on my post about Syria from the other day.  The AP is now reporting that both U.S. and U.K. intelligence officials are back-pedalling on their original assessment that the chemical attack in Syria was done by the Assad Government:
The intelligence linking Syrian President Bashar Assad or his inner circle to an alleged chemical weapons attack is no "slam dunk," with questions remaining about who actually controls some of Syria's chemical weapons stores and doubts about whether Assad himself ordered the strike, U.S. intelligence officials say.
Here's the link to entire article:  LINK

Funny how Obama and Biden were adamant that Assad launched the chemical attack.  To reiterate, this situation reminds me exactly of Colin Powell giving his speech on Iraq's weapons of mass destruction and all the proof the U.S. had of those.  Turns out Powell was lying to entire the world.  I don't know why he was never prosecuted for war crimes.  It's just amazing what the American public is letting the Government get away with...

Yesterday the National Association of Realtor's Pending Home Sales Index was released.  On the surface it was bad.  When you dig through the whole report, it it further confirms my thesis that the housing market is re-entering its bear market downtrend:
The truth of the matter underlying the "dead cat" bounce in the housing market over the past 18 months is that since 2008 the Fed and the Obama Government spent a couple trillion dollars trying to revive the housing market. All they really accomplished was the transfer of a massive number of distressed homes from the big mortgage banks [JPMorgan (JPM), Wells Fargo (WFC) and Bank Of America (BAC)], and from Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), to some large private equity funds looking to speculate on housing and to individual buyers who got sucked into the momentum that was generated. The stimulus has now lost its effect and the housing market is headed back to an eventual lower bottom.
Here's the link to the entire article:  The Housing Market Lurches Lower

I'm still trying to figure out how the remaining housing market bulls think that bounce over the last 18 months can continue when more and more people are being down-graded from full-time jobs to part-time jobs, real disposable income is now declining, interest rates are in an uptrend and the economy is in decline.  I guess for some people hope will always hold stronger than the facts which support the fundamentals...


  1. Sales of New U.S. Homes Fell More Than Forecast in July'

    Purchases of new U.S. homes plunged 13.4 percent in July, the most in more than three years, raising concern higher mortgage rates will slow the real-estate rebound.

    This muni-bond selloff looks like Lehman all over again.

    “The near term movement of the market will potentially, like those in 2008 did, test the courage and perseverance of even the most patient investors. In fact, this market movement has already begun. During the middle of 2013 – from May 1 through June 24th – municipal benchmark yields experienced a ‘Lehman-like’ move when they rocketed up 114 basis points, the fastest increase since the 2008 Lehman Brothers bankruptcy filing.”

  2. Dave, do you think those overseas investors will change your view? I know a lot of Chinese buyers are gobbling up houses in the US.

    1. Most of the Chinese sales are in California. We are talking 600 to 1mm plus purchases. Now I know this from people in the business. The properties being made available are from people that can't or will no longer pay the "sunshine tax". Most of these transactions are cash. As you noted a few days ago Dave, in Northern California the Google/Facebook monies are fueling that area. So.Cal. is Chinese money being put into hard assets to hide from Chinese Govt. Now I know you will ask, "How do you know that?". I have lived in So.Cal for 22 years(yes I sold last week,yea !)and thru conversations with people in and out of the real estate industry seems to be a trend that started 3 years ago. In 2010 the "flippers" got involved and bought distressed property and rehabbed it. Some houses have been flipped 2-3 times. So to your point, it is not healthy organic growth, just flipping and and cash rich Chinese driving the So.Cal market. I'm glad to be getting out! By the way I'm not the original poster, just wanted to let you know what I'm seeing and hearing.

    2. My understanding is that most of the Chinese and Russian and other foreign buying in this country is very high end NYC and South Florida properties and it's being done to launder money.

      I can't speak for California, but given that according to the Census Bureau there's over 14 million vacant properties in this country, it will take a lot of Chinese buying to soak up the supply.

      More and more people in this country are losing the ability to afford a home or afford to stay in the home they own - that's unmeasurable shadow inventory - just look at the details of today's personal income report. Employee compensation dropped $21 billion from June to July.

      No, I don't think Chinese buying will save or put a floor under our market, just like Japanese buying didn't do that in the 1980's.

    3. Yes your right Dave, NYC and FLA is Russian money and FLA also attracts So.American money. Chinese money is mostly West Coast I'am sure that those large suit cases and duffel bags find flights to JFK too. The point I think we both agree on is that the input by all these different groups of people is not sustainable. The true organinc growth comes from job creation so that the generation behind us can have the income in order for you and I to sell. That is what these current buyers will face. When you buy the top and there is no one to sell to. Unless these buyers bring their children over to live with them and then the children take over the homes when the parents are older. That is something thats baked into the eastern culture. In america, not so much.

    4. Dave, I know many Chinese are buying homes in the US because I live in California. I don't know what's the situation in other parts of the country. But perhaps you can read this for some info.

    5. Hi Dave,

      It's the same thing that's happening in Vancouver. Rich Chinese pay 500k to get a maple card. Since Canada loves to take foreign money but not really offer a dynamic job market, these Chinese are so bored they start buying houses. I know because our friends have done exactly this. Vancouver seems to get screwed by the successive waves of Chinese immigrants.