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Guest Post: Existing Home Sales Reflect Balance Sheet Recession

Tyler Durden's picture


From Lance Roberts Of Streettalk Advisors

Existing Home Sales Reflect Balance Sheet Recession

In yesterday's post on the "Implications Of Household Debt Deleveraging"
we outlined the fact that the consumer is working their way through a
debt deleveraging cycle.   In other words, the last 30 years of
Keynesian economic policy has led to the culmination of malinvestment
that consumers are now struggling with.   

Not surprising existing home sales for May fell to 4.81 million units
which is now resuming it's downtrend after brief upticks that were
caused by government incentive programs that dragged forward future
existing home sales.   As the consumer has begun to deleverage their
household balance sheet both new and existing home sales have
decreased.  High unemployment, concerns about current employment,
stagnant wage growth and uncertainty about future economic conditions
weigh on the consumptive attitudes of the consumer.

Year over year the rate of existing home sales has declined to a
negative 15.3% from April's negative 13.8%.  Supply on the market, at
3.72 million, is falling but not enough relative to the decline in sales
as months supply rose to 9.3 months vs April's 9.0 months.   This
supply of existing homes has a broad range of effects on the housing
market as it also dampens new home sales as prices of existing homes are
lowered to get them sold.

The other ominous cloud for the housing market is the huge inventory
of existing homes that are currently delinquent or in the stalled
process of foreclosure.   As these homes ultimately hit the market not
only will that drive existing home prices lower it will create a further
fallout of strategic defaults by homeowners that give up hope of ever
getting back to even on their properties.  

The NAR believes, and continues to hope, that May will prove to be
the year's bottom for the housing sector.  They will be wrong as they
were last year as well, oh, and the year before as the balance sheet
recession continues and consumers hunker down to regain stability in a
weak economic environment that will continue to plague the housing
market for some time to come.


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Tue, 06/21/2011 - 12:06 | 1389184 Long-John-Silver
Long-John-Silver's picture

Welcome to Great Depression II

Tue, 06/21/2011 - 12:38 | 1389294 packman
packman's picture

An important note regarding that graph:

That "household debt figure" DOES NOT INCLUDE MORTGAGE DEBT

I'm not sure why Lance chose to leave that off the graph, being that it's the crux of the whole issue.

Mortgage debt is currently right at 70% of GDP, thus is much, much larger in scale than the 11+% shown on the chart.  Apparently he's only showing credit card, auto, etc. debt.  That's besides the point.

Mortgage debt is shrinking as well - but, unlike the household debt shown in that chart - is still far, far higher than it was in the late 1990's.  In 1997 mortgage debt was 46% of GDP; now it's 70%.  We have not even come close to deleveraging to pre-bubble levels.

Tue, 06/21/2011 - 15:50 | 1389947 trav7777
trav7777's picture

Well, the NAR's economist thinks continued growth in new home construction is a sign of health.  We already ran out of fucking people who could buy a house; more houses than people.  How in the hell at that point is building MORE of them healthy?

The game is up, pack up the equipment and go home.

Also, if you have no income and you default, wtf is 0/0?

Tue, 06/21/2011 - 16:11 | 1390023 StychoKiller
StychoKiller's picture

0/0 = NaN, i.e., undefined

Tue, 06/21/2011 - 13:27 | 1389462 Republi-Ken
Republi-Ken's picture


Keynesian 30 Year Debt?



Otherwise called "Reaganomics Trickle Down Supply Side Tax Cuts We Never Pay For

Cuz Deficits Dont Matter Economic Theory Proved By The Joke Of The Laffer Curve."


And throw in Wreckless (ie Stupid) Military Spending...

like bankrupting an already bankrupt Soviet Union / Iraq / Afghanastan.

Tue, 06/21/2011 - 13:36 | 1389491 Orly
Orly's picture

Palin 2012!




Silly, silly man.


Tue, 06/21/2011 - 15:23 | 1389868 Bertie Bear
Bertie Bear's picture

$18bn missing in Iraq. I've heard of helicopter drops of money in QE but that is far right Republicanism going too far.

Wed, 06/22/2011 - 00:11 | 1390956 XPolemic
XPolemic's picture

I hear you fellas Stateside have some farms to sell?

Shall we say 954,752,502 acres at say, $1500 even an acre?

By the way, do you know how to grow Bok Choy or Choy Sum?


Tue, 06/21/2011 - 14:53 | 1389751 gabeh73
gabeh73's picture

It seems the Ron Paul-Lew Rockwell-Murray Rothbard-libertarians have opposed every new war(social and military)and every new dollar spent by the government the last 40 years. They have been ignored rather easily. None of them have won control of any branch of government or ben appointed to the Fed.

The Bernanke has been very consistent over a couple of decades in advocating that we should err on the side of extra monetary creation if economist are worried about the economy.
 If the Fed now pulls back on quanitative easing and the economy falters...then will the dastardly supremely powerful libertarian inflationistas be blamed? why are these people not ignored at this critical juncture? why not end the drug war or the afghan war instead or maybe end farm subsidies? this is a wierd time to start listening to these nutjobs.

Let me be clear. Why is the fed pussy footing around?! print more money, buy more bonds, drop it out of a helicopter, buy empty houses! please!

Tue, 06/21/2011 - 12:02 | 1389185 baby_BLYTHE
baby_BLYTHE's picture

thinking about one day selling my Gold to buy a decent home, of course not until I am done with school.

General consensus is we still have significant downside in real estate prices, correct?

Tue, 06/21/2011 - 12:07 | 1389203 wombats
wombats's picture

How much gold are qe talking about?  Maybe you'd like to swap for my house.

Tue, 06/21/2011 - 12:14 | 1389214 baby_BLYTHE
baby_BLYTHE's picture

6 ounces of Gold and about 80 ounches of Silver (mostly junk silver pre 1964).

PMs constitute 80% of my total assets.

Tue, 06/21/2011 - 12:21 | 1389232 mayhem_korner
mayhem_korner's picture

That'll get you a nice place in Detroit or a fixer-upper in Vegas.

Tue, 06/21/2011 - 12:21 | 1389243 baby_BLYTHE
baby_BLYTHE's picture

didn't mean to imply that my purchase would only include my liquidated gold holdings. It would also include cash I have saved on the side.

Tue, 06/21/2011 - 12:46 | 1389260 Caviar Emptor
Caviar Emptor's picture

I think you'll be absolutely right. Gold will get you rich slow, exactly what you want in this economy as all the 'get rich quick' will just end up in giant losses. 

The number of homes available for under the six figure mark in good areas in good states is growing fast. Lots is still being held off market by increasingly nervous owners. It's a buyer's market for the next few decades. 

Tue, 06/21/2011 - 12:32 | 1389287 JW n FL
JW n FL's picture

#1.. House Prices will continue to fall.

#2.. given your limited amount of funds... You should wait for Gold to top out.. buy a home, fix it up the way you want (within reason and your Budget) and maybe think of a garage apartment?

#3 when Gold bottoms out and your house is fixed up.. take a loan out on the house from the bank.. pick the highest LTV they will give you and that you can afford.. take all of those monies and put them back into gold and silver (once again after gold and silver have topped out!).


The interest that you pay, which will never or should never be that cheap again will not matter given the appreciation of you gold and silver holdings.. if worse comes to worse.. sell enough of your gold and silver to pay your house off.. when you are doing well again.. get another loan.. buy more gold and silver.. rinse and repeat as needed.


This is of course the best case scenario, I hope that if there are any problems that they pass quickly for the sake of the young people like yourself and the kids.

Tue, 06/21/2011 - 15:25 | 1389863 FreedomGuy
FreedomGuy's picture

As one who owns bullion, I am keeping it all in safe storage. I am buying a home with a no money down loan using a VA loan. I happen to be one who believes that long term there will be some serious inflation or even hyperinflation. If that happens, you get your home for free and your metals make you the richest man in your neighborhood. If you rent, rents will go up, rapidly if necessary. I confess there are some good deflationary arguments but I think the trend will be inflation over time.

I am one who thinks the housing market in most areas outside of D.C. will probably still go lower. The housing bubble is not simply a price problem. It is a huge construction problem, too. Way too many units were built. There never were enough buyers once the speculators dried up. Speculators were selling each other homes that would never be occupied. I remember every night on virtually every channel there was someone telling you how to get rich pyramiding homes. Contractors responded to the (artificial) demand by building more homes and condo's, especially in hot spots like Vegas, Phoenix and Florida. 

The result is that prices probably have to go well below the mean to clear the market. On the demand side a couple may go bankrupt and clear their debt and house. Even if they keep their jobs they are now out of the housing market for seven years and their foreclosed home just dragged the prices lower. Add in unemployed, underemployed, retired too early, etc. and it is easy to see why the market stinks and will probably continue to do so.

I am buying fully prepared for another 10% drop in prices but I want the satisfaction of owning my own place, getting a tax deduction, fixing my living costs and betting on future inflation. In a political economy everything is a wager.

Wed, 06/22/2011 - 00:25 | 1390976 XPolemic
XPolemic's picture

On the demand side a couple may go bankrupt and clear their debt and house. Even if they keep their jobs they are now out of the housing market for seven years and their foreclosed home just dragged the prices lower.

Just out of curiosity, is that Chapter 7 of the code that locks you out the mortgage market for 7 years? Do you think many will be able to renegotiate through Chapter 13?

Wed, 06/22/2011 - 07:36 | 1391207 Tater Salad
Tater Salad's picture

Wow JW, sounds like you must be a genius?  "You should wait for Gold to top out"


Call me when that happens so I can too top the market perfectly!


Tue, 06/21/2011 - 12:10 | 1389208 Long-John-Silver
Long-John-Silver's picture

If the current politicians remain in power you will not be "allowed" to own property. You can already see this happening around Detroit where the government has started bulldozing abandoned property to make way for corporate farms and approved corporate factories. People that can not be forced off their land via excessive property taxes will be forced off using imminent domain laws.


Tue, 06/21/2011 - 12:40 | 1389300 Caviar Emptor
Caviar Emptor's picture

Won't help people's buying power any. Prices are still too high and the downsizing of America will keep them that way

Tue, 06/21/2011 - 21:31 | 1390849 FreedomGuy
FreedomGuy's picture

There is the argument that as long as property is taxed and can be seized for nonpayment you never really own your property. You rent it from the government. I tend to agree with that. Having lived in Florida and watched people forced out of their homes for taxes in an area that became popular it is pretty sad.

When you add the Kelo decision, it's pretty much an airtight case. Government takes anything it wants for most any reason. They just need a "reason" which generally isn't too hard to gin up.

Tue, 06/21/2011 - 12:17 | 1389234 Mr Lennon Hendrix
Mr Lennon Hendrix's picture


Tue, 06/21/2011 - 12:38 | 1389310 narnia
narnia's picture

the clearing of the market in residential real estate & public debt has been deferred not avoided.  when it happens, will the trading value of your PM go down as much as real estate?  that's hard to say.  

it's actually hard to predict whether or not property rights as you now know them will mean anything after the reckoning.  you don't have to worry about the rights of your PM in your hand.

Tue, 06/21/2011 - 12:43 | 1389319 css1971
css1971's picture

Also, gold hasn't kicked into bubble mode yet. Another year or so & it'll be gold fever, like 1980 again.

Tue, 06/21/2011 - 14:06 | 1389605 NotApplicable
NotApplicable's picture

Personally, I would hold the gold and take out a mortgage, otherwise you'll be paying far more for your home, by using valuable present dollars instead of worthless dollars 30 years from now.

That way, you hold PMs as insurance, while receiving any gains they make over the time. If times get hard, that's when you liquidate a little bit so you can keep your note current.

Right now, my note is about 2 weeks pay. By the time I make the last payment, it will be worth far, far less. While I will be out of the labor market by then, my worthless pension will cover the payment, and I'll still have my PMs for my own social security.

In other words, never liquidate your most valuable holding if you expect it to remain your most valuable holding.

While I appreciate the idea of not being a debt slave, as long as debt = money, only suckers pay with cash rather than time.

Tue, 06/21/2011 - 19:03 | 1390660 topcallingtroll
topcallingtroll's picture


Tue, 06/21/2011 - 12:02 | 1389187 buzzsaw99
buzzsaw99's picture

Yeah, may will be the bottom, it's always the weakest month of the year. :roll:

Tue, 06/21/2011 - 12:06 | 1389188 DavidC
DavidC's picture



Tue, 06/21/2011 - 12:03 | 1389190 Mae Kadoodie
Mae Kadoodie's picture

I'm waiting to hear from Cramer to call the housing bottom.  Then i'll believe it.

Tue, 06/21/2011 - 12:14 | 1389213 Boston
Boston's picture

He did.  He called a bottom for the summer of 2009.

Tue, 06/21/2011 - 12:18 | 1389224 writingsonthewall
writingsonthewall's picture

He told me to buy Bear Stearns last week (that still cracks me up)

What a national joke he is - you should make him president!

Tue, 06/21/2011 - 12:22 | 1389231 writingsonthewall
writingsonthewall's picture


Tue, 06/21/2011 - 12:18 | 1389223 aint no fortuna...
aint no fortunate son's picture

Is there a self help group called PLA - Pathological Liars Anonymous? If so, Crammer and Yun should be charter members. I suppose they'd just lie about attending meetings tho.

Tue, 06/21/2011 - 12:08 | 1389196 wombats
wombats's picture

Maybe I should quit paying my mortgage.

Tue, 06/21/2011 - 12:09 | 1389199 johngaltfla
johngaltfla's picture

If you live in my part of the country, you already have....

Tue, 06/21/2011 - 12:20 | 1389241 writingsonthewall
Tue, 06/21/2011 - 14:14 | 1389631 NotApplicable
NotApplicable's picture

My guess is, unless you're in "The Club," you will be dealt with eventually, in some federal manner.

Worse yet, it will be after the MSM will blame you for the housing disaster, creating the public outrage (that good ole mandate for change). If they spotlight individual cases, I wouldn't be surprised to see retaliation in the form of arson against them, as greed and envy always make for good class warfare.

If you do quit, I'd set up a trust and pay into it in order to show you have good faith intentions, but until you are presented with a clear chain of title you've chosen to protect yourself against the fraud of paying someone who doesn't have standing.

Tue, 06/21/2011 - 12:08 | 1389209 LawsofPhysics
LawsofPhysics's picture

While the decline in residential and commercial real estate is now well documented.  Can anyone do a similar comparison for undeveloped land.  In particular, arable land.

Tue, 06/21/2011 - 14:15 | 1389619 MachoMan
MachoMan's picture

In my neck of the woods, you've got really soft CRE, large % increase on RRE ($0 - $105k), 5-15% ish decline on RRE ($105k - $180k) and ??? decline (>$180k)[no price discovery as no buyers], and steadily appreciating arable land [NE AR]... 

the arable land doesn't change hands for decades...  anytime any comes up for sale, it's mopped up instantly by neighbors...  and, if there's any sizeable acreage, then some out of the area person/entity comes in and swoops it up/gets into a bidding war with yokels (everyone losing but the seller)...

anecdotal of course...

Tue, 06/21/2011 - 14:28 | 1389667 kaiserhoff
kaiserhoff's picture

For many decades, the turnover in prime Midwest farmland has run about 2% per year.  Like watching paint dry.

Tue, 06/21/2011 - 12:12 | 1389217 Bansters-in-my-...
Bansters-in-my- feces's picture

And the markets rally.....

Fucking delusional bunch.....

Tue, 06/21/2011 - 12:14 | 1389225 Long-John-Silver
Long-John-Silver's picture

A growing bubble is obvious only to the outsiders.

Party on bubble pumpers!

Tue, 06/21/2011 - 15:14 | 1389823 topcallingtroll
topcallingtroll's picture

Party on.

Just hang out close to an exit

Tue, 06/21/2011 - 15:12 | 1389815 topcallingtroll
topcallingtroll's picture

I said yesterday i was going all in.

Learn to do the opposite of what you want to do. Generally that has been the best strategy. I never made much money on investments that i was comfortable with.

I have learned that my natural normal viewpoint serves as a great contrary indicator.

Tue, 06/21/2011 - 12:20 | 1389228 FreedomGuy
FreedomGuy's picture

The other problem with foreclosures is it probably knocks the former home owner out of the market for another seven years. That's a doubly whammy on the market.

Tue, 06/21/2011 - 12:21 | 1389238 Arius
Arius's picture

"The NAR believes, and continues to hope, that May will prove to be the year's bottom for the housing sector.  They will be wrong as they were last year as well, oh, and the year before"


Bring back David Lereah ... the eternal optimist ... or should we say ...

Tue, 06/21/2011 - 12:22 | 1389246 Caviar Emptor
Caviar Emptor's picture

Buzzword of the moment "Balance sheet recession", which was forst promoted by Richard Koo ('Institute For Economic Thinking', no less)

But it's a fatally flawed concept because the hidden motivation is to imply that standard Monetarist/Keynesian remedies will heal the process: stimulus, QE, liquidity, money printing. It's JUST a balance sheet recession is the hidden sub-text. 

In other words, it's a way to rationalize that keeping the Ponzi going is the best medicine for what ails us, along with all of the ills that we discuss here: moral hazard, kick the can, keeping moribund companies alive through deception and anti-competitive practices, changing the rules of accounting, central government economic planning, over-financialization, relegating Main Street to third class citizen status behind Wall Street and Politicians. 

And believing that we're just in a "balance sheet recession" will amplify exactly what created imbalances and nearly destroyed the economy in the first place. The theory insists that there is nothing further to learn, nothing to adapt to or change about the obvious ills in the economic Ponzi. 

Tue, 06/21/2011 - 12:23 | 1389251 Ray1968
Ray1968's picture

Today St. Joseph is getting buried in my yard!

Anyone want to buy my house?

Tue, 06/21/2011 - 12:38 | 1389292 Orly
Orly's picture

House prices will truly bottom when salaries are 2.5 times house prices.  If the average salary is $50,000, then average home prices should be $150,000.

It's not rocket surgery.

Tue, 06/21/2011 - 12:45 | 1389316 Caviar Emptor
Caviar Emptor's picture

Trouble is average is pulled up by the small percent that make 7 figures. 

Median and mode are less misleading and will come in way low. 

But there's another factor: the figure "2.5X" income was devised at a time when other living and working expenses were negligible. Not anymore. And property taxes will get used by increasingly pressed and bankrupt municipal, county and state govs

Tue, 06/21/2011 - 12:48 | 1389323 Orly
Orly's picture

It may not be rocket surgery but I can't add!



It may be true what you say but most can live within these means.  Going by what you say, then the average home price should be about $100,000.

No wonder a lot of thirty year olds are living in Mom's basement.  Unfortunately, there is no basement at The Alamo.

Tue, 06/21/2011 - 12:56 | 1389358 r101958
r101958's picture

Sorry, late on the below reply.

Tue, 06/21/2011 - 13:06 | 1389380 Orly
Orly's picture

Every year, without fail, 19th October is the most beautiful day in Texas.


Tue, 06/21/2011 - 13:16 | 1389423 Variance Doc
Variance Doc's picture

Why is the median "less" misleading and comes in "low"?   What is your frame of reference for "low" and "less"?

I have not seen the data, but I would suspect that the mean and median will not differ by much.  The 7 figures will not pull the mean too much, given a large sample size.

The mode is a useless statistic, for it just denotes the highest frequency on a plot and that is subjective - just change the bin sizes and watch the mode change.

@ Orly, I agree with you that financing a large purchase, one should should use a *subjective* multiplier of income.  It might not be 2.5 for everyone, but housing should not consume a large portion of your gross monthly income  (that is for you to determine by yourself and thinking for yourself is more than half the battle.)  Your point is well taken.

Tue, 06/21/2011 - 13:57 | 1389581 Orly
Orly's picture

"one should should use a *subjective* multiplier of income."

Once upon a time, that is the most a reputable bank would lend regarding mortgage...and that was with stellar credit to boot.

Tue, 06/21/2011 - 13:53 | 1389554 HangSorosHigh
HangSorosHigh's picture

the figure "2.5X" income was devised at a time when other living and working expenses were negligible

Eh? Households used to spend 20+ per cent of income on food, once upon a time. Living expenses were definitely not negligible.


Tue, 06/21/2011 - 12:59 | 1389357 r101958
r101958's picture

I think you meant 125k ?

Tue, 06/21/2011 - 14:33 | 1389677 Publiusamericanus
Publiusamericanus's picture

House prices will truly bottom when salaries are 2.5 times house prices.  If the average salary is $50,000, then average home prices should be $150,000.


That presumes only one person in the household works. That is not the case in the US, though the actual experience of households is coming closer to that, both involuntarily and through demographic progression.

Tue, 06/21/2011 - 12:39 | 1389296 PaperBear
PaperBear's picture

I think it is a long way from hitting bottom.

Tue, 06/21/2011 - 12:36 | 1389303 tahoebumsmith
tahoebumsmith's picture

The American Dream turned into the American nightmare. Innocent hard working families got suckered into a MBS and CDO fueled game at the casino called speculation. You had first timers losing everything and seasoned stable people moving up and losing their equity. The CRONIES planned the fall from the start, they saw too many Americans actually gaining real wealth and wanted to take if from them, so they did. They used the system to cover their own asses,  AIG CDS , Fannie Mae and Freddie Mac and the Federal bailouts so they could get a payout on both ends of the scam. Now that they have sucked 8 TRILLION in net worth from the casino patrons they are starting to realize the Casino is emptying out. Only a few penny slot players left along with a few high rollers in the back room hoping they can win back their losses with cheap credit from the house. Until home prices fall enough to match ones ability to pay, there will be no housing recovery. Based on the fact that Americans are unemployed or underemployed we still have along way to go before the American dream becomes reality again. Tell the NAR to put that in their pipe and smoke it, it's probably better for them then all the crack they have been smoking for the past few years.

Tue, 06/21/2011 - 14:22 | 1389648 Collateral Damage
Collateral Damage's picture

The reason that mortgage debt was not included in the graph is because if you have a mortgage then MOST likely you are not looking to buy an "existing home".   So, the idea is that if you are heavily leveraged you aren't going to qualify to buy a home so until the balance sheet is delevered existing and new home sales will be weak.

Regardless, the end result is the same rather you include the mortgage debt or not.   The household balance sheet is being deleveraged and that will continue to supress existing and new home sells.

Tue, 06/21/2011 - 15:34 | 1389890 downrodeo
downrodeo's picture

Gotta love the NAR. They are the 'true believers' with respect to the recovery. Hope is a ball and chain.

Tue, 06/21/2011 - 16:06 | 1389997 PulauHantu29
PulauHantu29's picture

House prices will "correct" like all market cycles but it will take 10-12 years imo...maybe lots longer if jobs never return.

Tue, 06/21/2011 - 16:57 | 1390227 Praetorian Guard
Praetorian Guard's picture

I was talking to a gent that takes care of distressed property/foreclosed (upkeep) and he indicated that Fannie and Freddie are getting ready to dump their shadow inventory VERY soon!!! He said housing prices will plummet and that their business (upkeep property) is taking a huge hit... sad times.

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