Friday, February 26, 2010

January Existing Home Sales Falter; Treasury Allows it Has a Plan to Cease Every Foreclosure Pending Review.

Existing home sales were just released and they were not good.  This number is FAR more important than new home sales released earlier in the week, since 90% of transactions in the US are for existing sales.  Now to be fair, just as I derided the mainstream media (financial and otherwise) in the spring and summer for being giddy over "improved" sales since they were assessing the real estate market on a sequential basis (month over month) rather than how it should be - year over year, I will say the same now.  You cannot determine how the real estate market is doing by comparing January to September, or May to November.  This is a very seasonal business and one should compare year over year.  So some of today's hand wringing is misplaced as will the certain to be cries of joy when May 2010's data is better than February 2010's.
  • Sales of previously occupied homes took a large drop for the second straight month in January, falling to the lowest level since summer. It was another sign the housing market's recovery is faltering.
  • The National Association of Realtors said sales fell 7.2 percent to a seasonally adjusted annual rate of 5.05 million from a downwardly revised pace of 5.44 million in December.  Economists expected a slight increase to a rate of 5.5 million.
  • The report "is certainly not good," said Lawrence Yun, the trade group's chief economist.  (if you've been following Lawrence Yun, as we have since 2007, you know he is the cheeriest industry cheerleader economist in the galaxy - so to get him saying "it's not good" means a lot)
  • Sales declined throughout the country, falling the most -- nearly 11 percent -- in the Northeast. Sales fell by about 7 percent in the South and Midwest and by more than 5 percent in the West.
  • The median sales price was $164,700, unchanged from a year earlier and down 3.4 percent from December.
  • The bleak report comes after the government reported Wednesday that sales of newly built homes plunged 11 percent to a record low in January. The report, which measures signed contracts to buy homes rather than completed sales, also came as surprise to economists.
[Cursory goldilocks economy excuse: "it was the weather's fault!"]

With that said, I will stick to my assessment than the now fully subsidized housing market is going nowhere fast.  While prices won't spiral downward as they did in the first part of this bubble bursting, I would not expect any great recovery.  Prices are now reaching the levels I predicted in 2007, when almost all the punditry said housing prices could never fall on a national scale in Cramerica.  [Dec 6, 2007: Analysis - What Should Housing Prices be Today?]  But now that prices once more are somewhat in line with the long term ratio to income, you have a very debilitated US consumer, especially in the lower 2/3rds of the income strata.

Further, the patient is now full of morphine, being handed historically low mortgage rates, with multiple government agencies (FHA, Freddie, Fannie) now purposefully losing money [Jan 5, 2010: WSJ - The Treasury Department's Christmas Eve Masscare of the US Taxpayer] so that the housing market can be supported... along with outright bribery to get people to buy homes via tax credits, which in many states are now being used in lieu of down payments.  All that and we still are seeing quite limp activity in the housing market.  Reason? Despite record affordability we still are ABOVE the long term trend line of home ownership.  Many potential buyers of 2010-2012 were brought into the 2009 market by the hail mary (kick the can) of $8000 first time taxpayer credit.  Hence we need to now reach for ways to bring in the 2013-2015 home owner (most of which are probably in high school or college) with the next round of morphine.

Like any good drug junkie, it will now take even bigger and bigger doses of said drugs to get the same high.  Meaning mortgage rates would need to go to mid 4% or lower, or tax credits would need to be expanded from $8000 to something even higher, etc.   We have now created a government dependent monster and taking away the crutches will be even more painful.  So for now all we have accomplished is a repeat of the same policies that caused the issues in mid decade - but skipped the banks and put the liabilities directly on government (now and in the future) - after all there is no greater sucker than the US taxpayer (born or preferably unborn - after all the unborn have no say) [Nov 18, 2009: Toll Brothers CEO - "Yesterday's Subprime is Today's FHA"]   Don't even ask what happens in the housing market if mortgage rates see 6.5% on average, with no government bribery or multiple federal bodies willing to take losses quarter after quarter (piled onto future generations of taxpayers) so as to support home prices today. 

Long time readers will know of all the proposals that have been enacted or proposed the past few years - there are so many I have lost count.  Among my favorites - can't afford to be a real homeowner? No worries - you can be a faux homeowner - rent your own home back from Fannie Mae.  [Nov 5, 2009: Fannie Mae's New Deed for Lease Program - Rent your Home from the Government]  Well, as the government creeps more and more (is it possible?) into the real estate sector, we have reports that there is a program floating in Treasury to stop all foreclosures at the door until it is run through the government's HAMP program.   And why not - I am just waiting for the ultimate proposal - the government buying our homes back at 2006 prices.  Or paying the mortgages outright.  After all money is free in America.  And then Wall Street can be 'astounded' by the 'strength' in the housing market as it was last year and run stock prices up, and we all win here.  Throw a few trillion at any problem, and we can "fix" everything.
  • The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.  The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.
  • About 89 percent of outstanding residential mortgage loans are covered by the voluntary HAMP program.
While the GOP most likely is opposing this for no other reason that it's a Democratic based idea, I agree with them on this one.   Let these people start over, let home prices fall to the right spot (i.e. a market price) and stop stealing from the savers, renters, and future children of the country so to subsidize the homeowners (of which I am one) and non savers.  At a certain price point (however low) new people can enter the real estate market as home owners on their own 2 feet without government hand holding.  I believe that's how it used to work - but at this point Mother Russia probably has a more free market in real estate than the United States of Handouts. 
  • “By every empirical measure, HAMP has failed,” according to the 18-page report released by Republicans on the House Oversight and Government Reform Committee. “In its current form, HAMP both hurts homeowners who might otherwise spend their trial-period mortgage payments on rent and also distorts the housing market, delaying any recovery.”
At what point does government say home prices are not allowed to fall below $X?  This is where we are heading....

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