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Pay Attention to the National Association of Realtors and Their Chief Marketing Agent At Your Own Risk!

Submitted by Reggie Middleton on 10/04/2010 14:14 -0400

Note: See me discuss this topic live on Bloomberg TV, Monday October 4th, 2010 at 4:30 pm!

The National Association of Realtors is a marketing engine, yet their
data and their economist’s opinions are quoted regularly in credible,
mainstream financial news shows and newspapers. WHY???!!! On that note… Bloomberg reports: Pending U.S. Sales of Existing Homes Increase 4.3%

Oct. 4 (Bloomberg) — The number of contracts
to purchase previously owned homes in the U.S. increased for a second
month, a sign the housing market is beginning to stabilize. The National
Association of Realtors’ index
of pending home resales rose 4.3 percent in August, more than forecast,
after a revised 4.5 percent gain the prior month that was less than
initially estimated. Compared with the same month a year ago, pending
sales were down 18.4 percent.

The rise is most likely due to investor’s active in the more
liquid low end of the market getting double counted as they flip
inventory. There is demand in the $275k and lower strata and there is a
steady stream of distressed properties as well. Investors buy the
distressed properties at wholesale prices and turn around and flip them
at retail prices (which were where the wholesale prices were just a few
months ago). This usually occurs in a few months, sometimes in less than
a month. The NAR numbers fail to filter out these investor flips, hence
practically all of this activity is double counted, and this activity
(the flip investor) is actually the hottest part of the market. Of
course, this is not addressed and the numbers are simply presented in an
unrealistic form.

Home sales have steadied after plunging in the months following the expiration of a housing tax credit. Unemployment
projected to stay above 9 percent through 2011 may depress demand in
coming months even as record-low mortgage rates and lower prices make
homes more affordable.

No, they have not been steady. See the chart below.

Housing is “bouncing along the
bottom, unable to gain any traction, but with little reason to believe
it’s going to go any lower,” said Eric Green,
chief market economist at TD Securities Inc. in New York. “All of the
froth has been eliminated from the bubble and all we need now is for
confidence to turn higher and job growth to accelerate.”

125% LTV loans, Freddie and Frannie distorting the market,
moratoriums and cessations on foreclosures (the only way to clear the
market and move towards true price discovery), tax incentives in a
falling market, MBS purchases, ZIRP, no mark to market – exactly how
does this guy figure all of the froth has been eliminated from the
bubble? If anything, .gov is trying their best to insert froth into a
burst bubble!

Economists
forecast pending home sales would increase 2.5 percent, according to
the median of 39 projections in a Bloomberg News survey. Estimates
ranged from a drop of 2 percent to an increase of 5.6 percent.

Adjust the NAR numbers for sales double counted as flips, and you will probably get a number closer to consensus!

“Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market,” Lawrence Yun,
the group’s chief economist, said in a statement. “However, the pace of
a home sales recovery still depends more on job creation and an
accompanying rise in consumer confidence.”

Much more on this guy in a minute, but first…

Orders at KB Home,
a California builder focused on first- time buyers, fell 39 percent
after the deadline for signing a contract to qualify for the federal tax
credit expired. Unemployment and foreclosures make it difficult to
forecast future sales, Jeffrey Mezger, the company’s chief executive
officer, said Sept. 24. “The housing market continues to face
significant headwinds from high unemployment and foreclosures, which are
impeding a broader recovery, and recent net order trends in the
homebuilding industry have injected additional caution into our
near-term outlook,” Mezger said in a statement.

Just open a hedge fund like Lennar! “More Doom and Gloom: Homebuilders Making Better Money as Hedge Funds than Home Builders“

ZeroHedge quotes:

Realtor.org has released the August pending home sales, which increased from a SAAR of 78.9 (of course, downwardly revised from the previous reading),
to 82.3 in August, a 4.3% rise on expectations of 2.1%, mostly on a
jump in South and West transactions, which increased by 6.7% and 6.4%
respectively. And add this to the plethora of data series which
consistently see prior numbers revised adversely: July data was revised
from a 5.2% increase to 4.5%.

On the topic of the National Association of Realtors, and their marketing gurus
chief economists, I assert that BoomBustBlog’s regular constituency is
much too bright to fall for the pumping of real estate by the economist
of a national realtor association. For those that may be a little more
trusting, or a little less mathematically inclined, I will walk through
previous proclamations that have come from the NAR and their chief marketing strategists economists…

July 2008 Yun stated “I think we are very near to the end of the housing downturn,” Yun said (AP News).

Lawrence Yun, chief economist for the
Realtors, said that the housing rescue bill should play a major role
in helping the housing market to rebound. He said an especially
significant feature is a tax break worth up to $7,500 for first-time
home buyers who purchase between April 9 of this year and July 1, 2009.
Yun estimated that up to 3 million first-time home buyers could qualify
for that tax break, providing a significant boost to sales at a
critical time. “I think we are very near to the end of the housing downturn,” Yun said.

As a point of reference..

Of course, I can go on…

In 2007 Lawrence Yun state there would be no recession in 2008, according to USA Today.
Of course, in that year I took the opposite side of that trade and said
very bad things were coming. As it turned out I was a tad bit
optimistic: Correction, and further thoughts on the topic, How Far Will US Home Prices Drop?, and Is this the Breaking of the Bear?
(Yeah, the Bear Stearns and Lehman Brother’s collapse were an easy
calls if you read the balance sheets and were realistic about leverage
and the real estate situation). This was also about the time I got into
it with GGP’s CFO for calling out their insolvency. He called me
names, and then they filed for bankruptcy. Of course, they had an
investment grade and buy ratings from the ratings agencies and the sell
side: BoomBustBlog.com’s answer to GGP’s latest press release and Another GGP update coming… (among over 700 pages of analysis, review the January 2008 archives or search for “GGP” for more research).

In my post “On the Latest Housing Numbers” of Tuesday, November 24th, 2009, I quipped.

Lawrence Yun, NAR’s chief economist volunteered,

“We have seen some bulk purchases by investors, but
we are not picking up that data through the Multiple Listing Service or
through our release data, but we do know that there is some bulk
purchases by investors who plan on releasing those properties within a
year’s time, when they see a better market condition.”

I don’t believe “better” market
conditions are coming any time soon. We are just coming off of the best
market conditions anyone will see in their lifetime. Those market
conditions were predicated upon unsustainable conditions, hence they
came crashing down. They are crashing down, not crashed – as in past
tense. I believe we have some ways to go. That is why I am not buying
real estate, and I believe that those that are jumping in now are
jumping in prematurely.

Personally, I don’t consider Mr. Yun to
be a credible source, either. He may be smart and capable, but the
extreme bias of his employer (the ultimate real property perma-bull)
and the incredibly biased reports of his predecessor color his opinions
by default. He is not nearly as bad as David Lereah (who was literally
sensationalist-style perma-bullish) was, but he is still not
objective. See The Reggie Middleton Real Estate IQ Test – Who believes the NAR?

This is an excerpt from that post on Tuesday, 08 January 2008

From CNBC.com: Home Sales Seen Holding Steady In Coming Months

Pending sales of existing U.S. homes inched lower in November and should hold steady over the next few months, a real estate trade group said. (I
ask, “Why should they do that? Credit is tighter, recession evidence
is stronger. Supply is greater, and demand is lower. Hmmm, let me
consult the book written by that ex-NAR guru for the answer.” )

The National Association of Realtors Pending Home Sales Index,
based on contracts signed in November, dropped 2.6% in November, to
87.6 from an upwardly revised 89.9 in October.

Economists polled by Reuters ahead of the report were expecting
pending home sales to decline by 0.5 percent from October’s originally
reported 87.2.

The November number was down 20% from a year earlier.

The pending homes sales data suggests that the volume of sales
will hold steady for a while before turning upwards before the end of
the year, said NAR chief economist Lawrence Yun.

With all due respect to Mr. Yun, Mr.
Lereah and the NAR, anyone swift enough to complete the registration
form for this blog should know, by now, to discount this association’s
data and opinions. They do not do the industry justice with this
nonsense. Realtors should actually be the first in the protest line.
It is their credibility that is being called into question, for this
is THEIR trade group. Credibility is the key!

Notice how accurate that NAR prediction was for 2008! From my blog post that day in 2008:

My take: I believe that my blog’s
readers are considerably above average in financial acumen and common
sense. The NAR is simply not an entity to be taken too seriously, due
to the obvious conflict of interest exemplified by their ex-economist,
[[David Lereah]], who published some of the most absurd BS I have
ever seen come from a nationally reknown organization. Examples of his
work from Wikipedia: Are You Missing the Real Estate Boom?:
Why Home Values and Other Real Estate Investments Will Climb Through
The End of The Decade, And How to Profit From Them was published in February 2005 at just about the tippy top of the bubble (that takes some talent). One year later in February 2006, as the market is already on it’s way down, Lereah retitled his book Why the Real Estate Boom Will Not Bust and How You Can Profit from It. Lereah’s previous book The Rules for Growing Rich: Making Money in the New Information Economy touting investment in technology company equities was published in June 2000 at the onset of the collapse of the dot-com bubble.
This extreme cheerleading has died down substantially, but the overly
optimistic spin is still evident with their new economist, Lawrence
Yun.

I actually believe the Case Shiller graph
above to be misleadingly optimistic due to my doubts about seasonality
filtering and the exclusion of investor related properties (flips, see
A reminder concerning popular housing indices) which are dominating the lower end of the market.

So on that note, I will present a graph that captures national
economic house sales activity superimposed against the Case Shiller
index, but before I do that let’s laugh at the NAR’s ex-chief marketing strategist economist…

Publications from Wikipedia

Lereah’s book The Rules for Growing Rich: Making Money in the New Information Economy^[5] touting investment in technology company equities was published in June 2000 at the onset of the collapse of the dot-com bubble.

Lereah has produced four titles on real estate investing. His most
recent book, “All Real Estate is Local” was published by Doubleday in
2007. His 2005 book Are You Missing the Real Estate Boom?: Why Home
Values and Other Real Estate Investments Will Climb Through The End of
The Decade—And How to Profit From Them^[6] was rereleased in February 2006 as Why the Real Estate Boom Will Not Bust—And How You Can Profit from It.^[7] Before departing the NAR, Lereah wrote All Real Estate Is Local: What You Need to Know to Profit in Real Estate — in a Buyer’s and a Seller’s Market in 2007.^[8]

NAR chief economist David Lereah’s book^[6] in February 2005.

Lereah’s book^[7] in February 2006 months before the real estate boom bust.

Lereah’s book on investing in information technology appeared in June 2000 as the dot-com bubble collapsed.^[5]

Now, let’s put this all together to see what we get (reference each
date above to the chart below. Unfortunately, I did not chart the
dot.com bubble crash, which Mr. Lereah so accurately timed to the
contrarian side (literally, almost to the month), so we will have to leave that one out…

Subscribers have access to all of the data and analysis used to
create these charts, in addition to a more granular application, by
state in the SCAP template and by region in housing price and charge
off templates – see

Click here to subscribe.

Next up…

The Full Google Forensic Analysis: for all of those who wondered how
Google will make money from Android and the other initiatives it is
undertaking as well as how it will effect valuation, well here you go.
About the likelihood of those sovereign defaults: I will walk
through the near inevitable default of one European sovereign state, in
public!
Now that third quarter is over, and the housing situation still
looks ugly, how will the big banks fare after 100% pops in their stocks
the year before? Multiple forensic updates…
Do you believe this portable computer cum smart phone thing is not
only the wave of the future but the catalyst for significant corporate
wealth? Well, I do and I will browse through some of the potential
winners in the space.
Last but not least will be a very extensive forensic analysis of Apple.