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Home Price Data Slipping
From The Daily Capitalist
Again the main driver in the housing market has been tax credits. The federal government is trying to reinflate home prices and the tax credit has been their main tool. According to the latest data from CoreLogic, March home prices increased 1.7% YoY. They reported that 51 of the 100 core markets they studied increased versus a 42 market increase in February. There is a "but" to this: prices have been declining in the past three months--1.7% for January and February and another 0.3% in March. If you take out foreclosure/distressed sales from the data, from peak to trough, prices declined 21.5% through March.
According to MDA DataQuick data, the market in Southern California is slowing because, among other factors, the percentage of distressed sales is declining. The flippers are starting to run out of product:
Southern California's housing market held its ground in April, data released Tuesday show, with prices rebounding off their year-earlier lows but sales slipping for the first time in nearly two years as the number of fast-selling foreclosure properties dwindled considerably.
The median price for all Southland houses, town homes and condominiums sold last month was $285,000, a 15.4% increase from the April 2009 bottom, when foreclosures accounted for more than half the resale market.
Sales for the region fell 1% in April compared with a year earlier — the first decline in 22 months — indicating that the Southland's supply of cheaper, bank-owned properties is tightening when compared with last year's glut. The month-to-month drop was almost the same, 0.9% compared with March....
Foreclosures have also dropped off considerably as a part of the resale market, accounting for 36.4% of sales in April compared with 53.5% a year earlier and an all-time high of 56.7% in February 2009.
The big news was that mortgage purchase applications plummeted:
The Refinance Index increased 14.5 percent from the previous week and the seasonally adjusted Purchase Index decreased 27.1 percent from one week earlier. This is the lowest Purchase Index observed in the survey since May of 1997. The unadjusted Purchase Index decreased 27.0 percent compared with the previous week and was 24.1 percent lower than the same week one year ago.
“Purchase applications plummeted 27 percent last week and have declined almost 20 percent over the past month, despite relatively low interest rates. The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “However, refinance borrowers did react to these lower rates, with refi applications up almost 15 percent, hitting their highest level in nine weeks.”
What this means is that there is very little holding this market up. The tax credit has stolen future sales which will result in a serious drop in sales. More disturbing is that this is happening as mortgage rates are 4.83%, or historically very low.
There is a lot of data to suggest that the shadow inventory, homes that are in or close to default, will continue to depress home prices, especially without the tax credit. The MBA also reported today that mortgage delinquencies
increased to a seasonally adjusted rate of 10.06 percent of all loans outstanding as of the end of the first quarter of 2010, an increase of 59 basis points from the fourth quarter of 2009, and up 94 basis points from one year ago ...
The percentage of loans in the foreclosure process at the end of the first quarter was 4.63 percent, an increase of five basis points from the fourth quarter of 2009 and 78 basis points from one year ago. This represents another record high.
If Congress chooses to extend the credit, then, prices will continue to hold steady, and flippers will stay in business for a while longer. But at some point the effect of the credits will be like pushing on a string. There are a lot of other factors that will influence future home prices beside the credit. These would be: deflationary pressures from foreclosures, upward pressure on interest rates after the EU calms down, the stagnant job market which I anticipate to continue, and GDP stagnation which I see happening in H2.
Another factor that will weigh on the housing market is the financial stability of the FHA, Fannie and Freddie. Fannie and Freddie are broke, and the FHA is taking on too much risk as it takes up the slack. Without massive inflation to bail these institutions out, I would be wary of their future.
The tax credits show not only is Fed policy disruptive of the housing markets by preventing an orderly deflation/deleveraging of overvalued and over-financed assets, the chance that they will succeed inflating the market only means that they will create a bust-bust cycle: this time the economy will avoid the big boom part of the cycle and slip into stagnation weighed down with malinvestment and too much debt.
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See, I think just the opposite. I would never buy a home that was built more recently than say 2006. The quality of construction materials in modern homes is shit (walls made of wood chips and glue) and it was likely constructed by illegal immigrant labor who don't give a shit about quality of construction. Recent vintage homes won't last 20 years in my opinion before they have to be torn down.
You didn't even touch on the Mortgage-Debt Relief Act of 2007, which essentially removed one of the last penalties of walking away, which was the fact that a 1099-c was dropped on your a**. So you have had tax credits to pump up a market that was being driven down in part by tax exclusions provided to those who have walked away or will walk away (until 2012) from their responsibilities.
Talk about a circle jerk.
Econophile,
I understand your point on the tax credits. Thanks for the numbers and we are in agreement there.
But how do you see the MBS playing out? These psychopaths are still pushing these financial bombs, and very successfully I might add. Sure they're ultimately backed by F&F, but they've been diced and sliced and used as collateral on side deals in multiple markets so many times I can't see anyway of unwinding them. Is the folding of F&F the detonator for all of the MBS? If so, then do you still hold to your inflation/ stagflation forecast? I would think massive deflation on a scale never before seen in history, if this is the case. We are talking reduction of values so massive even Helicopter Ben has to see the futility in trying to re-inflate...or am I just being too sane?
In saving the banks, debt was purchased at the expense of productive investment. That is the real crime. For to do this depleted a huge amount of capital, now only recoverable through a penalty in interest, and ill-liquidity. So it cannot be brought to bear, and in conversion, require buyers and recognizing associated loss.
Just think if we gave small business access to $1T in zero interest loans. Think of almost any plan to finance business, loans, grants, whatever, and we have a much better use of $1.25T than to buy junk MBS.
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Yes, there is a limit on mal-investment. We have a finite level of resources no matter what the options for QE. Because this investment must be made correctly and towards opportunity for growth. Now we must pay interest on this money to use it, if at all, with a 60% or more loss from PAR at today's price.
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So we will see real estate price continue to decline. The market will eventually stabilize, but not before this debt is written off. We now see the correction of the bubble, but it was always expected. The debt should have been written off and not purchased by the Fed and administration.
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The Government is the biggest buyer, either directly or backing of loans, when it exits the market will trend down to its normal equilibrium. Perhaps 2001 price or slightly below.
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For any of these Government programs to work, you must first convince somebody that the price paid will at some point produce a good return. Because if this is not the case, buyers should just wait another 18 Months, and then get a fair price. Paying a high price makes no sense regardless if FHA is backing your loan.
Just wait for prices to stabilize closer to mean wages and then buy.
I am actually adjusting my expectations down, because in the process of the FED recognizing loss through MBS conversion, I feel the negative market response will depress prices further.
Mark Beck
John paulson is optimistic on housing or at least he says so.
As we learned from Marla last week, this is part and parcel of our current Farcistic State.
this whole scam needs a name, i propose Mortgate
A massive outbreak of economic cognitive dissonance is being suppressed with wave after wave of manufactured "good news." Every visibly negative bit of data is run through a media and Central State assembly line to refashion it as "good news" and "evidence" that the "nascent recovery is taking hold." Whatever cannot be rejiggered is simply buried or suppressed.
true, true *hit from the bong*
The feds would've done more good buying foreclosures and pushing them over with a bulldozer.
Are you ready for a "bust-bust" cycle?
Bring it on. I've been more than patient.
"What this means is that there is very little holding this market up."
Huh....like duh, dood! I mean, the USD is based upon government-sponsored mortgage loans, which means.....
Yup, there is no economy, there is no media, and as Michael Parenti has described it again and again and again over the years,
we live in a Socialist Plutocracy in America....
Econophile,
The alternative? do nothing? let the markets sort themselves out? no support? or some support?
1. All I see you doing is standing on your soap box bitching about what is wrong, everything is wrong.
2. I don't see 1.. 1 fucking answer to any of the problems you are pointing out.
... All Problems, All the Time and with NO! Answers offered.
So I guess what I am trying to say, in the nicest way possible... what are you offering? negative, whiney Bullshit? with no answers? bang up job, cant live without you... thank God you are here! what would we do without another you?
anyone who wants this information without the cheesey whine... http://mediaserver.fxstreet.com/Reports/7df1ad0c-9c37-4841-86ad-1a9f6ef66d7a/d88ca8a9-8f84-4bf6-bf44-d3fd1110b090.pdf
JW,
Those who have been reading my articles for a while know where I stand, so my guess is that you're relatively new to ZH. Welcome! I'm not bitching; I'm trying to make sense out of the data. We can't agree on everything and this is a good format for that sort of thing. My solution would be to examine the causes of our current problem which I have done before, quite a few times, here and on my site, The Daily Capitalist. My take is that these business cycles are caused by the Fed. The specific flight to housing assets was due to excessive federal interference in the housing markets, such as Freddie and Fannie guarantees of risky loans. I would further blame Wall Street for using faulty risk management models.
So, ignore the chaff, comment at will, but try to be more constructive.
Thanks and sorry for the Barking... I still suffer from new guy syndrome... New people here (including me, I am getting better or trying is more accurate) lash out at people when the anger is from the facts presented...'
You seem to be a better than good sport, sorry to be a ball buster... the lie that is our combined reality has NO! answer... That is something not everyone wants to talk about / note and / or other.
We are screwed and I hate that Fact! more than anything else, ever in my life.. It is like watching an accident happen that could have been prevented... I, myself would like to do more... and I am powerless to make or effect any real change for the betterment of my fellow man. And that really fucking pisses me off!
Once again, you showed your true colors to me today... I will not soon be forgeting what a class act you are or that you stayed positive even under fire... maybe positive is a bad way to say it... on point, maybe a better way to say it.. I am not a professional writer, I not only lack cooth but as well a pleasing vernacular.
My best to you and yours Sir, JW
P.S. I will be signing up over at your site and reading what you have to offer. Thanks for the broad effort, thanks for giving a fuck enough about your fellow man to try and thanks for sticking with it. You are of great service to everyone.
Hi, JW. Your solution was what? To post a link to a Wells rosy scenario? It says housing starts of 672K is a "Strong Report for Housing Starts". That level is not even as high as in 1991 at the low. A 5.8% jump is horrible. Wake me up when housing starts hit 1.4 million. You just bolstered the sentiment of this post. Your suggestions were not forthcoming either in your comment.
I fully expect you to call me some names, but could you add some solutions at the same time? I have no solutions, putting that up front, but sometimes doing nothing is doing something. I always appreciate new information so that I'm not blindsided by catastrophe. I can tell you what "solutions" do NOT work. Dollar whipping a problem, like the gov't is currently doing, is not the solution.
Quoting you, RockyRacoon ... "To post a link to a Wells rosy scenario?"
***** “ The question now is how the housing market will hold up without tax credits. The building permits number was not an encouraging omen—the steepest drop since November 2008. “ *****
***** “ With inventories of completed homes drawn down, there is potential for a recovery in housing; but without the tax credit, will the buyers show up?
• The latest consumer confidence report says “no.” Plans to buy a home dropped to the second lowest level in more than 25 years. “ *****
Quoting you again, RockyRacoon ... "I always appreciate new information so that I'm not blindsided by catastrophe."I edited your post so it would be more in line with the Facts of what I offered.
Better Luck next time, JW
I think you are on the wrong site JW, you must have been looking for cnbc.com
These are CNBC type quotes?
***** “ The question now is how the housing market will hold up without tax credits. The building permits number was not an encouraging omen—the steepest drop since November 2008. “ *****
***** “ With inventories of completed homes drawn down, there is potential for a recovery in housing; but without the tax credit, will the buyers show up?
• The latest consumer confidence report says “no.” Plans to buy a home dropped to the second lowest level in more than 25 years. “ *****
Well its nice to see CNBC offering up the truth for a change then... I would not know, but you seem to be able too speak with some authority for the programing they in fact offer... I would encourage you to NOT invest to, too much of your time watching CNBC... But its a Free(ish) Country and to each thier own!
i think he's on the right site and is getting paid to post here
Are you enjoying slumming it Tip E.? or are you just Tippsey and didn't bother reading what I offered... It is not typical of you to be a Ban Wagon personality Tip E., feel free to go back to the non-ignorant format you noramly use any time now.
Be well Tip E., JW
au contraire, mon ami. i did read what you offered. here are the highlights:
soap box bitching - everything is wrong - 1 fucking answer - negative, whiney Bullshit
one of the rules of the fifty cent playbook is to constantly wrap an argument in these types of emotional trigger words. another rule is to twist the poster's argument into a nihilistic position. another rule is to suggest the site runners (and/or posters) are risking persecution from the Law for exercising their 1st Amendment rights.
e.g. http://www.zerohedge.com/article/volume-surges-market-goes-free-fall#com...
another rule is to be alternatively intimidating & ingratiating (bonus if you can do both in a single post).
of course, i could be wrong about all this and if i am, then wrapped in my humble apology will be a suggestion that you might wanna take a class on how to play well with others. it might come in handy going forward, no matter where or how your bread is now being buttered. for no one likes a bully (save for the bully's mom).
likewise JW, Tip
p.s. yes, i rather do enjoy slumming. one of the rules in my playbook is to always do whatever you do with style....
I will yield to the fine Gentleman from Canoe Land!
In my defense when time is limited by phone calls and life’s little pesky problems I do have to cut bait and run... which would leave me in completely in “Dereliction of Duty” land…
I will go back and see what I missed or did or worse..
Be well, Tip E.
If so, whoever is paying him is getting robbed.
What he is offering is a very appropriate warning to anyone listening to the MSM BS opinion that all is well. Anybody considering buying a home now will save a lot of money and grief by his advice.
Please FO if you just live in FL and are depressed that you timed the bubble wrong. Don't be a stupid asshole your whole life.
I can only assume that this is some wanna be type spin you are offering on the facts that I offered?
I don't get it? Maybe you are practicing on me... practice makes perfect, although I am not in favor of spin or ignorance as a rule... But they say ignorance is bliss and if spin makes you happy then follow your heart.
Sincerely, JW
JW, have you had a recent head injury?
Just curious.
Don't you think it's too early to call the sales decline a trend considering the tax credit just expired? There is no doubt demand was pulled forward into April by the incentive, so it should come as no surprise to see the fall off in May. I think the more important data observations are in the months ahead. Look at auto sales surrounding cash for clunkers (spike, drop, gradual climb)...I think this is what the gov't is hoping for. If rates stay low for a few months, and the economy doesn't turn south, I think it could happen.
The pace of sales will pick up as more and more distressed sales hit the market, foreclosures and short sales are ramping up. More sales <> good.
But to your point, May sales will be terrible because a lot of sales done in early May will be backdated to April
For several days I have been warning of EURUSD buying support as detected by my indicators, and this has been confirmed by the recent break out.
The proprietary indicators I use can identify trend changes before they occur.
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
This gives me a giant headache. Everyone needs a home to live in, what happens when everyones' home values go to hell?
Home values are not going to hell, they are retuning to fair value. Unless Obama's "Making housing Unafordable" inflates them again.
This prices are not normal still high, there is overcapacity and overvalued assets, like stocks and houses, built during last 30 years the system must work out.
The thought of Uncle Sam bulldozing houses to reduce "oversupply" horrifies me like the stories my grandparents used to tell of cattle herds shot & bulldozed, of shiploads of grain dumped in the ocean back in the '30's.
You are so right, Rider, that houses must return to fair value, i.e. what a working person can afford. It's tragic that the value of many houses is going to hell just from neglect & vandalism.
Discl: underemployed Realtor doing a $13/hr job for the medical bennies. Thank God wifey's SS is covering the mortgage!
I buy.
What is the value of a house when you still got enough room to build more and modern houses?
People forget that nobody likes to buy a old house. It needs fixing up, and it's not 100% what you wanted it to be. If you build your own it does.
Houses of 200 years old? would you want one and pay to much for it? and do repairs?
Housing prices can still go down A LOT MORE! Look at Detroit!
That is what we are heading at if this doesn't stop.
And you can't stop it, unless you start tearing down houses till demand gets bigger then supply.
That means tearing down millions of houses while there are people who don't have a roof over their heads... imagine that to be the solution...
Wouldn't want to make that decision.
So let's just suppose Fannie has a lottery for some of the houses it's holding the keys to -- sell tickets for a dollar a pop, unload only what the market will bear in any region. Fannie will still be broke when the inventory is gone, but 1000's if not mm's will have roofs over their heads, neighborhoods will improve with less abandoned housing stock, and there will be a stream of payments from Fannie to the UST i the meantime. What's not to like, that isn't already a given (collapsing housing bubble, foreclosure epidemic, homelessness, etc.)?
problem, if you don't have the money(or close to it) to do it on your own, it won't work.
possesing a home is not the same as maintaining it. I have RE experience. Getting into a home is the tip of the iceberg. I have repeatedly seen well intentioned foolish attempts to impart the joys of having a home. all ending in failure.
First pride of ownership is required to carry out maintenance. Second, skill to do it. and Third the MONEY to do it.
if any of those ingredients are missing, you will turn a valuable asset into condemned tear down in no time flat. Don't clean the toilets, don't fix the siding after a storm. don't sweep and mop, and you can turn a mansion into a cesspool in a few months. Seen it.
intriguing idea. may have to ease up somewhat on the only what the market will bear constraint though; doesn't look like the market's bearing what it's got. speaking of bear, they say your first sale is your best one, in a bear market, so from fannie's point of view liquidation may beat holding.
"People forget that nobody likes to buy a old house. It needs fixing up, and it's not 100% what you wanted it to be. If you build your own it does."
This is non-sense.
imo "non-sense" is a bit strong. controversial certainly. an overstatement most likely. but a grain of truth in it, perhaps several. many is the architect who maintains something of the sort.
Yeah, I'd say most Americans are going to discover that they'll be lucky if anything in their entire future is 50% what they wanted it to be.
Makes sense. We were house hunting for awhile this year. There are so many houses built from 1900-1960 that people frankly just don't give a shit about. These houses truly do need to be demo'd and built anew, problem is, after 75 years of mortgage trading there is still $100k owed on these PoS homes. Also, say we do demo them, who's going to take that hit of killing a home that still has at least some value?
I agree with you, but everytime I try and wrap my head around the housing market I quickly hit a wall. Our economy is sort of built upon a job infrastructure centered on expanding the suburbs. Should it be transformed more into repair? Or should we keep building outward? Or demo the shit standing and rebuild?
I just fear for what is going to happen. I'd like things to stay somewhat steady, but we all know that can't happen forever.
Depending exactly on the what and where I am generally much more favorably disposed to a pre-1945 house than one built during one of the many post-war real estate booms. Some materials are better these days but a lot aren't at all. Granite counter tops have sold a lot of shit houses in the last ten years.
A friend lives in a house put up in the 1640's. Now that thing is solid (although I wouldn't want to try and install a hot-tub or HVAC in it). The avocado and gold decor in the 1970's upstairs bathroom could use a make-over but the original "Indian shutters" on the inside of the windows (to protect against arrows) might come in handy again soon!
It's so complicated. It you demo them... well you can't because they are still in the books of big banks at a to high price value.
Banks are still at a very high risk.
Freddy and Fanny must implode and go bankrupt. It will be messy. But by waiting it gets worse.
Somebody needs to do the non popular thing.
The US can't take the cost because that would trash the dollar
...
there is no way to go. I think it's to late.
They should have done nothing and not save Fanny and Freddy and AIG and CITI. But they did and by doing it, there is no more way back.
We were doomed 1 year ago.
Southern California defaults alone are creating bone crushing losses for some lenders. Check out these little Pasadena squat houses now sitting in the shadow inventory.
Cali is officially crowned the undisputed Champ of Shadow Inventory. More of it laying around empty than is listed on the MLS.
www.doctorhousingbubble.com
First, Freddy and Fanny are bankrupt.
Second, the best time to 'trash the dollar' is when it is already really bid up by the flight to "safety"
:)
My god, that means a lot of high income morgage funds will get trashed again. There are actually quite a lot of retirees who escaped into them to cover former losses and protect their pension income.
How much of the economy, direct & indirect, does housing account for? I've been arguing that housing and employment (linked) tell the story of our future...
a lot of old people morgage their houses and with the money they invest it in high income funds. with the money they make they downpay the house and pay for their lifestyle.
Houseprices go down, funds go down, income goes down = extra morgage defaults because they can downpay the house, funds go down even more, income goes down even more....etc...etc...
That systems works great! as long prices go up, not down. once they go down there is actually no stopping it.
This also explains the +10% morgage defaults.
Congress understands nothing about economics and pulling future sales into the present. This is precisely what happened with the C4C program and exactly what's happening here. At some point sales will disappear because we've brought them all into the present day.
It's not magic, it's just common sense, but Congress fails miserably every time in thinking that they can just stimulate past the problems without recourse. Eventually you have to quit subsidizing the market and when that happens reality bites you back, often harder than it would have had you let the situation alone.