Home Sales Surge 5.1%... err Drop 4.6%... err... umm..

I guess it's all in the spin. Despite horrific year over year drops in home values, despite record low mortgage rates, despite all the King's Horses and all the King's Men being thrown at the housing market, unit sales FELL 4.6% year over year. That's the truest measure for a very seasonal purchase but that's not the Kool Aid spin today, since sales "increased" over January's levels. Makes for good headlines. Oh well, 5% mortgages are not driving the "right" amount of buying, so 4% it will be! And if not 4% - then 2%. If not 2% we'll pay you to take a mortgage! I mean that is effectively the deal we are giving "private investors" to buy toxic assets. But in Cramerica, its corporate socialism first, and people socialism second (or never) - no money for healthcare for all but plenty to fund hedge funds buying mortgages. But I digress!

Existing home sales are really the only report I am concerned about - the fact we are still building new homes is an affront to sensibility but hey, they are excellent political donors as well. For our thesis [Feb 11: Beginning Starter Stake in First National Financial (FNF)], all we care about are that houses of the foreclosed type are changing hands in large quantities - and this is exactly what is playing out. Ah, economics 101 still works... lower prices stoke demand. Inventory continues to be troubling but that's ok, remember it's all in the "headline spin"

Most important long time readers - my TOP END target of median home prices that I set out in December 2007 (when we were told it was impossible for home prices to fall nationally) has been ACHIEVED. [Dec 6, 2007: Analysis - What Should Median Home Prices Be Today?]

2008: $52,134 x 3.2 ratio = $166,829

That's still a $40,971 drop in median pricing or just under 20% from today's levels.

And again the above assumes we don't return to historical norms.... and we have no inflation, and we have no pressure on household incomes from growing credit card debt, and we don't go into recession, and people don't start losing jobs, and ... and... and...

Where are we today?

• The median price of an existing home decreased to $165,400 from $195,800 in February a year earlier.

So obviously we have many of the mitigating factors I facetiously listed above (recession, job losses) - but they are somewhat offset by the government engineering programs and rates to previously unheard levels. We still have lower to go. You might ask what my bottom end range was based on historical norms?

$48,201 x 2.8 ratio (historical average for past 30 years) = $134,962

Feel free to read the post from 2007 for the full reasoning I broke out, which at the time was to be laughed at in punditry circles :) "They" said a national housing price drop could never happen [Jan 24, 2008: They Said it Could Never Happen. Ever.] Just understand if we hit that level the % of Americans underwater will go from "scary" to "apocalyptic" - remember my prediction from early 2008 was at least 1 out of 4 Americans will be underwater (25%). We're on the way to that one as well (20% and counting). [Mar 9, 2009: One in Five Houses Underwater] Underwater people are prisoners in their home if they don't have the savings to bring to closing to "get out of jail". And we already know the national crisis that is our lack of savings. So this limits social mobility and the the ability to move across country to where the jobs are (i.e. apparently Washington D.C.)

More on today's housing data via Bloomberg

• U.S. Sales of previously owned homes unexpectedly climbed in February ("climbed" versus January) as record foreclosures brought bargain hunters into the market to take advantage of lower prices. Sales were down 4.6 percent compared with a year earlier. (that's reality in the real estate market)
  
• Purchases increased 5.1 percent to an annual rate of 4.72 million from 4.49 million in January, the National Association of Realtors said today in Washington. The median price slumped 15.5 percent from a year ago, the second-biggest drop on record.
• Distressed properties accounted for 45 percent of all sales.
• Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia, who had forecast an increase in sales. “We’re reaching a point where extreme sales declines will not happen, but we haven’t seen stability yet. There’s a long ways to go.” (I agree, we cannot drop 15% a year for the next few years after such a dramatic drop already... the rate will decline and just wait for the Kool Aid the moment that begins to happen)
• The number of unsold homes on the market at the end of February represented 9.7 months’ worth at the current sales pace, the same as in January. The group has said a five to six months supply is usually consistent with a balanced market. (still poor and the dirty secret here is banks still have lots more properties to unload on the market as to the future unemployed)
• The National Association of Realtors affordability index reached a record high in January.
• Home foreclosures were up 30 percent in February from a year earlier, according to RealtyTrac Inc., an Irvine, California-based seller of default data. A total of 290,631 properties got a default or auction notice or were seized by banks. Properties that received a foreclosure filing for the first time totaled 161,976, the highest in RealtyTrac records dating to January 2005. (keep in mind we have had MANY foreclosure holidays as banks "wait" to see what Washington is going to bring - so take that number with a huge grain of salt; it's even worse than 30% increase in "reality")

[Feb 13, 2009: US Home Prices Fall to 2003 Levels]
[Dec 24, 2008: Median Home Prices Fall Most Since Great Depression]
[Feb 10, 2008: Kedrosky - The Next Wave of Mortgage Defaults]
[Dec 8, 2008: More than Half of Homeowners with Modified Loans are Back in Trouble]
[Jul 10, 2008: Foreclosure Activity Map]
[April 13, 2008: Unintended Consequences of the Coming Socialization of the Housing Market]
[Mar 25, 2008: WSJ - Wave of Foreclosures Drives Prices Lower, Lures Buyers]
[Mar 19, 2008: Alt A Mortgages Beginning to Break Down]