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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).
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WASHINGTON -- The Federal Deposit Insurance Corp., faced with a deposit insurance fund expected to be in the red by the end of Wednesday, moved Tuesday to raise $45 billion by having U.S. banks prepay their premiums for three years. FDIC staff are proposing a multi-stepped program that will require banks to prepay their assessments for 2010 through 2012 when they pay their fourth-quarter premiums at the end of 2009. Additionally, banks will face a three-basis point increase in their premium rates beginning in 2011.
http://online.wsj.com/article/SB125423323602549299.html?mod=rss_whats_ne...
The FDIC are getting the banks to forward pay before they go bust and need bailing out!
I was reading the article when something flashed in my memory bank. Wasn't there a movie some years ago called "Pay it forward?"
Do you suppose this is what the FDIC is trying to make happen? :>)
http://www.imdb.com/title/tt0223897/
if this is not a joke then this is a clear sign
of absolute panic.....
4th quarter fdic activity sounds like it is going
to be a spectator sport worthy of the colliseum...
Government guarantee oxyomoron as FDIC premiums
subtract from bottom line and FDIC already
levered to extinction on credit funny money.
Wait until $23 T pork Congress balks at an election
year bailout.
Contrary opinion: After years of telling people the reason the market went down was more sellers than buyers, we realized the opposite more often true: Few big smart traders far outnumbered by many foolish sheeple, PPPIP notwithstanding.
Now bank REOs outnumber individual homeowners or vulture funds buying, perhaps even more true with less-liquid CRE.
The biggest factor may be the overhang of hidden
RE supply waiting for market liquidity to improve.
Vaseline shaped recovery indeed.
Meanwhile CIC announces buying distressed America now
at a discount.
Remindful of Arabs buying UK who almost went broke.
Recall Mitsubishi et alia bought RCF and PB in 1989.
Rock Bros had to repo RCF and sell it again.
We think Mr Market may be soon hitting toxic gas
pockets of cash illiquidity leading to deadly derivative discontinuities...
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493
Surely this can go on forever:
M&I extends foreclosure moratorium to end of 2009
http://www.reuters.com/article/marketsNews/idCNN289621320090928?rpc=44
* Moratorium was first announced in December 2008
* This is the third extension of the program
Prices are rising because more expensive homes are being foreclosed, thereby driving up the average.
excellent, well reasoned thought.
there are so many things wrong with your comment I am not even going to start........well...here's one thing.
Your logic is flawed. Just because expensive houses are being foreclosed on (due to a lack of jumbo and mega jumbo financing) does not mean more people have the money to buy said expensive houses. Prices are rising because the banks have effectively eliminated the supply. There is some demand for homes right now (I still cant figure out why) so if you have demand and next to ZERO supply prices go up. Simple economics. Foreclosing on "expensive" homes will eventually reduce those home values so they will now COMPETE with less expensive homes...thus creating more supply and eventually causing prices to drop even more. This is another asset bubble passed off as a 'RECOVERY' One more thing that is driving me nuts. HOW CAN YOU HAVE A JOBLESS RECOVERY?????
What the heck does that even mean? Jobs give people money which people spend... You just cant have one without the other I'm sorry.
Generally speaking, the unemployment rate continues to increase after the economy has turned. This is why employment is considered a LAGGING indicator.
CS is not a median price index, it is a paired transaction index, so the change in mix of price range would not in and of itself cause the index to go up.
A mix between distressed and non-distressed transactions WOULD cause the index to change, as Rosie rightfully points out.
Also out today, Fannie announced their dq inventory is growing, further supporting Rosie's point: defaults are not being acted upon, they are just left alone.
You want a bailout? Stop paying your mortgage, you will be able to live rent-free for at least a couple years at this pace.
and on the topic of Deflation
Sep 29, 2009Worst Japanese deflation (on record)
http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_435864....
Simplify. Just ask yourselves, when was the last time an economist has been right or even in the ballpark about any of this?
Then turn the prediction on its head and you will have an accurate prediction. Remembering history when the recovery in the Great Depression was declared hysterically several times thruout the decade.
Why dont they just recycle the homes like they do for the cars in cash for clunkers..then of course they dont need to be counted in the inventory because they are going to be demolished anyways...its basically the end result of a war (damaged inflicted) without actually having one.
Just wait, it isn't out of the question for this administration to propose Dollars for Demolitions. They just have to find a way to take care of those pesky squatters... No, I wasn't going to say a pandemic and quarantines - I swear.
I fully agree. As the shadow inventory of homes begins to be recognized, it is entirely conceivable for the government to propose the bulldozer as the solution.
Only issue is that there are so many low income people who cant even afford a home now (not including those who are moving from middle income level to low income level due to continued job losses) that will be pissed off if the adminstration decides to demolish homes just for the sake of reflating home prices (and spurring economic activity). This may be the beginning of some civil unrest.
nope....that's what ninja loans are for...a new
round of those would reflate housing and employment
at the same time...this is chamelot where
businesses and people never fail...
Already happening.
http://housingdoom.com/2009/04/28/unwanted-new-homes-bulldozed/
I watched as a nearby house was destroyed last year. It was an older unit, still viable for the low income market, presumably raised to build a markup unit.
But most interesting is how the demolisher machine grasp and uprooted a modest nearby tree and using that tree as a bludgeon, beat that house to death. With great machine wobbling swings, that tree bashed into the house again and again. It was a surrealistic and horrific sight.
More than half the population of this country needs affordable low cost housing. You would expect that a free market economy would necessarily provide that. But no, it's pretty clear, we have a highly manipulated market, almost centralized in function and childishly suborn in it's refusal to play well with others.
Symbolic of Nature having it's last laugh with civilization as we know it.
God I wish there was a video of that to watch.
Not feasible. The banks are only solvent from an accounting perspective because they haven't written off the real estate. The moment they demolish a house, it demolishes their fraudulent accounting.
Is that like being pretty on the outside? :)
lol....either that or partially pregnant...
Hey just got done reading the hatchet job of your website by Cramer's buddy in NY Magazine.
First I recommend that nobody go to the NY Mag website to read said article as I do not want them to gain any commercial benefit from increased web traffic. Pick it up at a library or read it for free at Barnes & Noble:)
Second, they seem to iterate their stupid article that there is nothing but conspircy theories on this website. While I don't agree with everything that is posted at least things here are discussed and debated. I've yet to see somebody given the keys to Zero Hedge to talk their book and not be questioned ala CNBC. It appears the MSM must be sh*tting a brick over their loss in viewership and readers as more and more people stop believing the bs. being trumpeted by Wall Street and their political mouthpieces in D.C. and open their minds to the possibility that we really don't have capitalism in this country, other than in the small business community, and more a rigged game that benefits large corporations that are "too big to fail.
it's the same old tired cia psyops trick of whispering
conspiracy with rolling eyes to intimidate sheeple
back into their disbelief and compliance....
mega money does not operate on random acts of
incompetence - it is deliberate, planned, and
methodical....
even if you do not believe all conspiracies or any
of them, if you are a thoughtful person and have
any sense of forensics, many of them warrant
examination if not acceptance....
and to zh's credit, they have lobbed over a few
smoking guns confirming the deductions of others....
just because you are paranoid does not mean that they
are not out to get you....
The term "conspiracy theory" is used as a mind killer. Like Pavlov's Dog, the public has been trained to turn off any and all critical thinking at the mere mention of the term.
Ya can't have the ugly masses thinking for themselves can ya?
BTW, this technique is doubly effective for the so called educated class, who usually have a very defined worldview that resists disturbing changes that might prompt a cognitive dissonance.
If it doesn't fit your world view, discard the variant (puzzle) piece of information. Too much trouble reworking the puzzle when it's so easy to throw out the non-fitting puzzle piece.
How many times have you said to yourself (after hearing something "off the wall") "Nah, that can't be true" and you never give it another thought.
oh my god did you ever nail it on the educated
class....they have invested so much money in
infallible education and the superiority of their
own intellects cultivated by abject obeissance to
power that challenges become a matter
to be brought before the majesterium of political
and educational doctrine....
there are still those who think that rousseau was
not a complete unwiped anus and so it goes.....
read Taibbi's rebuttal
In Defense of Zero HedgeFrom Taibbi:
Cyber-ZORRO...Love it. Would make a great T-Shirt
Tiabbi's rebuttal is great, but his next post about Goldman's lobbying effort are GOLDEN! Tyler, you've got to link it and make it its own post. http://trueslant.com/matttaibbi/2009/09/29/sec-weighs-new-rules-for-lend...
Funny you mention the WSJ, if you ever read the comments on many of the articles, few of their readers believe the "green shoots" BS either. guess they are all conspiracy theorists as well.
Or go to the comments section on Marketwatch.com. More conspiracy theorists.
The truth is, after being told year after year that "America is the Greatest Country in History" and "Invest in Equities As a Way to Riches" and "Housing is The Path to A Secure Retirement", and seeing the performance of the American economy in the past 10 years (basically a lost decade), no one believes the lies anymore. Then a self-proclaimed Messiah gets voted in to the White House - and proceeds to follow the exact same playbook as the previous guy (with minor tweaks).
And then you get morons like that "journalist" trying to "out" a blogger who is growing in popularity because he/she/they provides insight into the corruption that everyone feels is there, but just can pin down themselves?
What a laugh.
It looks like the housing industry inventory is being managed the same way DeBeers et al. manage the diamond inventory. You make more money letting them trickle out of inventory just a little at a time to make them look more valuable, meanwhile storing vast quantities in hidden warehouses.
Markets move and news follows. Markets move and fundementals follow. Basic principles of Elliot wave,which unfortunately,only recently I started reading about. Beutifully explained in logical sequence in (daneric elliot wave)where I found this sight through.Proof?the market also dropped about 10 points in the span of 5 minutes after flying up after opening.I still find hard time believing that a p3 is going to be worse than p1,but who knows?I also find it hard to believe that fed printing is not going to affec deflation,but again who knows?
does any of this indicate growthyness?
Now, THAT'S funny! LOL
"THE SHADOW HOUSING INVENTORY IS HUGE"
This shadow inventory is the banks "Gold" reserve. When the SHTF the banks will come out the other side smelling like a rose because they are buying these properties back at pennies on the dollar and holding on to them because they do not want US dollars in exchange for these assets.
No need to invest in gold when you have so much real estate.
Real estate always involved staying power. Inflation at 20% will solve a lot of problems.
"Who knows what evil lurks in the hearts of men? The Shadow knows!
Pigpen, did you ever get that date with Lizzy36?
CD, no I didn't. I am too smelly and have a non speaking role while Lizzie is the star of the show besides that Charlie Brown guy.
Cheers,
Pigpen
My observation on shadow inventory - I have been looking to move within Maryland - and craigslist is full of bank-owned properties (not all readily identified as such, though) for rent. In fact, I am renting a nice recently built luxury townhouse courtesy of Chase bank. JPMC is holding this 3 year old TH (at most bubblicious prices on their books, I'm sure) off market while receiving fractional cash flows, but it's better than nothing.
The excellent Mark Hanson blog explained last month why C-S numbers would appear to show a bottom in housing, but that with the arrival of fall, the numbers would go back to normal (terrible).
http://mhanson.com/archives/173
As to discredited pundits, one need only look to the Bush era's punditocracy and how little it's changed today. People who were consistently wrong about every aspect of the wars in the Middle East, the tax cuts, etc., continue to be featured as guests and commentators on news shows. Others, like the Becks and Limbaughs of the world, remain as accountability-free as ever. Olberman's worship of Obama since the primaries is another example.
I don't care about their ideology, the simple fact is that they were wrong time and again and it has had no bearing on their popularity. So I doubt that Grant or anyone else will be 'discredited' as they are proved wrong. Our country has sadly moved beyond the point where that matters.
As always, Rosenberg has very good points and data, but he doesn't mention how mix shift can distort the Case-Shiller data. An AP headline says "Index shows home prices rose for 3rd month in July". This gives the impression that the value of a particular home or group of homes has risen in value. Case-Shiller is measuring the average sale price for a different group of homes in the same market each month.
Jeff Gundlach of the TCW fund group knows mortgage backed securities as well as anybody (demonstrated by his long-term investment track record). He gave a presentation a couple of weeks ago and said the claims that housing is out of the woods because of a slight uptick in Case-Shiller is greatly exaggerated. He said the increase has been driven partially by seasonality and mix shift. Foreclosures are accounting for a smaller percentage of sales, which pushes the average sale price up. Short sales are up on a percentage basis, which is favorable for average price because short sales net more than foreclosures. Sales of higher quality properties are also up as a percentage of total sales. That also pushes up the average price. These recent trends are a reason that recovery rates (the percentage of the loan balance that is recovered after all costs) have recently improved.
Thanks.
I posted the following on my site www.crudewire.com
following the WSJ article "Delayed Foreclosures Stalk Market" Sept. 23.
"Not exactly hot news for those following foreclosure activity. I am active in that market and my experience is that of 30 or 40 listed foreclosures at my local Sheriffs Sale, 90% are either postponed or bought by the bank for a nominal sum. This has been consistent for the last 6 months."
Thanks.
I posted the following on my site www.crudewire.com
following the WSJ article "Delayed Foreclosures Stalk Market" Sept. 23.
"Not exactly hot news for those following foreclosure activity. I am active in that market and my experience is that of 30 or 40 listed foreclosures at my local Sheriffs Sale, 90% are either postponed or bought by the bank for a nominal sum. This has been consistent for the last 6 months."
excellent post and point....especially about the
sampling mix....
the question then is what goo remains underneath
the improving numbers and i am inclined to go
with rosenberg....
my other major bitch is that so many people make
such a big to-do over small up and down ticks
without reporting sampling error....without that
information no one has a clue about the numbers..
and forget system variability as a factor in change....
Laurie Goodman, an excellent housing analyst, also wrote about this in a recent report, some of which is excerpted here:
http://blogs.wsj.com/developments/2009/09/28/have-you-seen-your-realtor-...
EVERYONE in the mortgage industry knows there is a significant overhang of delinquent inventory sitting out there. It is becoming a joke.
Sure, recovery rates may improve, but that comes at the cost of foregone interest, as dq cycles are being stretched to the limit.
The "free lunch" is going to the intelligent borrower, who stops paying their mortgage and living rent free for 2 years or more.
I'm a buyer right now. I waited it out and started looking a year ago. Cashed out of my condo in late 05 and have been renting ever since because my next purchase is "dream home" level for me.
I can tell you for certain that prices are rising. Homes that sat for months all got snapped up in a matter of weeks and good homes are getting multiple offers and selling in hours. You can get a seven figure jumbo from B of A for 5.5% fixed for 30 years. Many buyers are buying all cash.
Yes, it's due to constrained foreclosure activity, the FHA programs, easy money, and the tax credits but the bottom lune is that prices are going up and housing craziness, to my dismay, has returned.
My mother was shopping on the low end 8 months ago and I saw this back then and now I'm seeing it in the 2 million range. Now, I'm on the sidelines again. Prudence and fundamentals don't apply.
In addition to other reasons to buy right now, you are committing dollars today that will be worth significantly less 10, 20, 30 years hence.
Tyler, what's your response to this?
http://nymag.com/guides/money/2009/59457/
While watching Melissa Lee and reading this I thought " What a load of crap" day after day after day.
I suppose all those initial "conspiracy theorists" who talked about the late trading mutual fund scandal where nutsos too?
The fact of the matter is, there is a lot of corruption on Wall Street. The article's premise is there is not.
Is it not true that GS was paid 100 cents on the dollar for their AIG positions, while months previously, Financial Guarantors who has EXACTLY the same positions with EXACTLY the same banks settled for 30-50 cents on the dollar?
I don't know about these flash trading stuff, but deals like the AIG deal I understand very well, and it was pure robbery. I didn't see the MSM talking about it.
We're all paying everyone involved already, why wouldn't the banks keep holding out forever? The smart borrowers are.
The administration's planto stem foreclosures will provide incentives and payments to mortgage lenders and homeowners to promote mortgage loan modifications. The list of recipients below shows the allotment to each participating servicer, but some of that money will also go to lenders and borrowers. So far, the Treasury has set aside a total of $22.3 billion.
http://bailout.propublica.org/programs/6-making-home-affordable
Top 3 (over $10B so far):
BAC
JPM
WFC
next: American Home Mtg, Citi, GMAC!
http://www.zerohedge.com/article/another-amusing-media-interlude
One. Handed. Clock.
I suggest you all get to Barrons.com and read the A Ableson cliff notes on a long article he cited. IT is bad and not getting any better out there and the surveys ect are just not getting it. As long as the RE or CRE is in deep trouble, so is this house of cards BB, TG and Dearest Leader are praying doesn't fall apart AGAIN.
my mortgage has been unpaid since May, 2008 and I lived there till the day before I filed bk in May, 2009.
Though Citimortgage filed foreclosure proceedings in January, 2009, they didn't even bother to file a lift of stay in my bk proceedings to move forward with the foreclosure...despite my surrendering the property and notifying them.
I am in real estate and there is an overabundance of people not paying, staying in their homes and lenders simply overwhelmed with the volume of foreclosures.
The banks newest scam is to try to convince homeowners that the bank feels for them and if they make three reduced monthly payments and submit a "package", the homeowner may qualify for a mortgage modification.
That's an even better con than the best collection agency can come up with to squeeze one more dollar from a debtor.
lol.
So why does this shadow inventory exist?
Bank incompetence? Act of God? Or a foolproof mechanism to restrict supply from the market and cause prices to rise.
It's not like artificially restricting supply hasn't been tried before. Look how well it has worked for the stock market.
In these circumstances, what makes you sure this shadow inventory will hit the market anytime soon when it's already working so well, both in the US and in the UK?
"Old tricks are the best tricks"
W
the shadow inventory exists for several reasons:
1. the banks and courts cannot timely handle the sheer volume of foreclosures.
2. it would be extraordinarily unpopular politically to have all the current foreclosures addressed and simultaneously flood the market with homes for sale at the same time people are put out of their homes...especially given the public's view is that the banks were bailed out...so why aren't the homeowners being bailed out...instead of being thrown out of their homes.
3. if the inventory was coming onto the market faster than it is, it would dramatically impact whatever is left of the "normal" real estate market, e.g. the person moving for a job or retirement and wanting to sell their home "in the normal course of affairs."
We have not yet seen the real impact of unemployment yet. Not only on foreclosures and and other credit defaults (credit cards, lines of credit, etc.), but on the people whose unemployment benefits run out and there is still no work to be found.
Is this ... . . . . .
"shadow supply " . . . . .
any different than the . . . . .
"shadow demand" . . . . .
that is out there ?!?!?!?!?
Same old system new day.
http://www.youtube.com/watch?v=zX2ZwjSdVS4&feature=related
by now the O-team PR machine should, if they are worth even one cent, noted that the average american does not believe the green shoot bs; if there is no urgency to change tactic from this MSM bs greenshoots, then the O-team would be held responsible for losing congress next year, and Mr O would be like Bush senior and carter, one term prez. SO next 6 months would test Mr O's survival instincts versus his loyalty to the money from vested interests; and I bet there would be temporary suspension of vested interests and some heads would be rolling in washington, starting with tiny tim and sec would be nice
Rosenberg always makes some good points but he is so consistently wrong on the market that i begin to wonder whether he is worth reading ... don't get me wrong, it's quite interesting but ultimately doesnt help that much