Rosenberg On The Ongoing Case-Shiller Fallacy
The ever-sober Rosenberg debunks yet another market driving headline, this time focusing on the recurring optimism presented by Case-Shiller, which was sufficient to drive futures up from negative territory. And while the headline number is sufficient for an epilepsy inducing Breaking News flasher and recurring Green Boxes out CNBC, doing the preposterous and actually reading between the lines reveals the following facts on shadow inventory, which Zero Hedge among many others, has been highlights for a long time. From Rosie's earlier brief:
THE SHADOW HOUSING INVENTORY IS HUGE
The bulls had a field day with the “improved” housing inventory data in the August reports, but what they can’t explain is why it is that prices continued to deflate. That can only mean that at the last price point, there were still more sellers (supply) than buyers (demand). Indeed, the “shadow’” inventory that does not show up in the official data is closer to 7 million housing units (equivalent to two years of supply!) when you add up all the current foreclosures, the homes entering into the foreclosure process and the number of mortgage borrowers who have not made a payment in the past year.
Let’s examine the data (courtesy of the WSJ):
- The “shadow’” housing inventory in the U.S. is closer to 7 million units (equivalent to two years of supply!)
- As of July, there were 1.2 million loans that had just entered the foreclosure process.
- There are an additional 1.5 million existing units making their way through the foreclosure process.
- And, a further 217,000 homes in which the borrower has not made a mortgage payment in the past year, but the lender has yet to file notice. In other words, 17% of the homes that are a year past due or more are not yet in foreclosure, up from 8% a year ago.
This inventory has yet to hit the market, but it will. So pundits that get excited about two or three months of Case-Shiller data are spending too much time looking out the back window. More deflation is coming in residential real estate — this bear market in housing ain’t over yet. Remember, homes that are foreclosed typically go on to the market at discounts ranging between 10% and 50%.
Amusingly, Rosenberg, also take a quick jab at Jim Grant who is the latest convert to the V-shaped recovery camp. When the dust settles, after all the government stimuli, incentives, subsidies, backstops, and guarantees (all $23 trillion of them), have been exhausted, the pundit landscape sure will look different (and much, much more discredited).
The latest trend in the labour market is a growing shift towards claimants for disability benefits — the number of people that have filed for Social Security disability has surged 23% in the past year; yet another disturbing outcome from the severity of the recession’s impact on the labour market. Also have a read of the somber job market outlook on the front page of the Sunday NYT — U.S. Job Seekers Exceed Openings by Record Ratio. Those economists calling for a V-shaped recovery because the greater the decline, the greater the rebound clearly have no clue as to what role the trauma on the household balance sheet from the record amount of wealth that has evaporated in the past two years, and the trauma on the personal income statement from the lingering strains in the labour market, are going to exert on consumer attitudes and spending going forward. Those that refuse to believe how the nature of this particular asset and credit recession has altered the consumer approach towards the household budget, should really have a read of Clip-and Save Renaissance that made its way onto page B1 of last Thursday’s NYT — coupon usage is up 23% from a year ago and the survey found that the income group that is now using coupons the most are the highest ($70k and up).