The Chart That Housing Bulls Don't Want You To See

Tyler Durden's picture

It is hard to square the economic circle of homebuilder/REIT-related equities falling (given concerns about the higher-rate environment) with a broad equity market rally as much predicated on the re-blowing of a real-estate bubble as any other real fundamental basis. The conundrum is perhaps even greater when we note that in spite of an unprecedented surge in mortgage rates, pending home sales surged in the most recent data. However, as the following chart makes all too clear, home sales lag mortgage rates with a very high level of correlation and it appears, we suspect, that this most recent surge in home sales (extrapolated by those of that bias to mean that the housing recovery is sustainable even with higher rates already crushing affordability) is merely a pulling forward of activity and will lead to a significant softening in coming months (especially relative to expectations) should the taper-tantrum in bonds remain.



Charts: Bloomberg

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Killuminati's picture




Never One Roach's picture

House sales in my area have plunged. Interestingly, the last few weeks too-many-to-count rental houses have popped up at the same time. Asking three of the local realtors I know from the Club...they said it's the rise in costs; namely, mortgage rates and oversupply.


Makes sense.

Spider's picture

Yeah a 30% increase in mortgage payments per mortgage dollar isnt going to effect housing...

Just keep it quiet and nobody tell the stock algos

NoDebt's picture

Guys, pretty please with sugar on top, can we all go along with the "housing market is getting better" story for the next 30 days?  I just finished my Mom's old house and put it on the market 3 days ago.  Can I cash out before we all decide it's good sport to torpedo my very modest inheritance?

Please.  It's for the kids, after all (me, in this case).  I promise to invest the proceeds entirely in Gold.  I've learned my lesson, I won't do it again, please stop beating me.


joego1's picture

The flogging will continue until JPM is has enough stuff.

markmotive's picture

And the video Canadian real estate agents don't want you to see...million dollar crack shacks in Vancouver.

US Housing Implosion 2.0?

Lore's picture

I can tell you that these examples are extreme. You can find much more reasonable valuations depending on the neighborhood. Naturally, there is a lot of variation depending on factors like convenience (e.g., proximity to SkyTrain), density, speculative development value, and so on.  If you absolutely insist in loving close to downtown (which is where all those examples are located), then you must expect to pay at least $1M.  Basically, you're buying the land, not the house. 

flacon's picture

When the riots start and blood is spilled... who would want to buy land downtown except to be used as a cemetary. 

Lore's picture

My thought as well. You don't want to live in the core when SHTF.

Canada always lags the USA by a few years. Vancouver is teetering, but credit is still flowing and people are still coming. Sales are up; prices are up; sellers are optimistic again. This is a good time of year for sales, with kids out of school and people from cooler parts of the country still looking to the coast for retirement. Bear in mind too that the Canadian government has taken action to prevent ridiculous mortages. The longest now is 25 years, and you have to put ~10% down. Having a pulse and fogging a mirror is not enough.

jbvtme's picture

i'm in toronto for the weakend.  building cranes everywhere. one sign on a half built 50 story said live here this year only 5% down.

Lore's picture

You're right. Apartments are a niche bubble, disconnected from reality. One of my co-workers recently bought a little shitbox sight unseen. Some people are born to a path of self destruction.

Decolat's picture

I went out to a nice restaraunt with my wife and parents tonight, quite uncommon for us, had a good time. The waitress said they will be closing the restaraunt on 'slower days' due to local home construction workers getting laid off and 'moving on elsewhere'. Really.


And that sums up the housing recovery in my mind. Totally figures in with the provided graph. Downward spiral since 2008 here on out. 

Bunga Bunga's picture

Who can afford this? Does the average family in Vancouver make 300.000 a year? Or is it only doctors and lawyers who buy these shacks?

spanish inquisition's picture

As I understand it, you can only get a true 30 year mortgage in Canada if you put down 20%. Under 20%, its based on a 25 year loan schedule with term resets every 4-5 years (think ARM) on fixed interest products or 7 years on a variable interest rate product. Penalties apply for prepayment and I believe, refinancing with a different company on interest not paid to original bank (?). Also have heard rumor that large banks are not financing new large residential projects in the Manitoba Winnipeg area.

All Risk No Reward's picture

Moar is their motto - there is no baseline.  Just moar.

When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes… Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
–Napoleon Bonaparte, Emperor of France, 1815

Colonel Klink's picture

1815 that's SO last century!  People change.


CheapBastard's picture

Spider, you'll like this Motley Fool Friday article (sorry No Debt):

Friday's "Catastrophic Surge" in Mortgage Rates


If you're thinking about buying a home, then you're probably not going to like what I'm about to say. On Friday, while you were busy nursing yourself back to life following the previous night's celebrations, mortgage rates exploded.

The daily recap from a widely followed mortgage industry publication characterized it as a "catastrophic surge," saying: "today's rise in mortgage rates is among the largest ever, and certainly the largest in the past 10 years. Today alone, rates rose more than most entire weeks."

CheapBastard's picture

Good points. I am seeing similar. I notice houses that actually sell are finally sold at about 15-25% lower then the original list price. Many never sell at all an dhave been oin the market for 98 days....137 days....some over 365 days! Zillow also shows the evaluations and selling problems to be thus for most neighborhoods (except for the outliers like parts of CA where the New Bubble is frothing up).

I see lots more rentals now too. Has to put lots of downward presure on rents. My guess is that trade is overcrowded as everyone plied into that market after taking a weekend seminar on "How to Become a Millionaire Investing in Rental Property." As insurance, maintenance, taxes, etc rise the results will be interesting if not painful.

GenXer's picture

Time to short Lumbar Liquidators and Home Depot

disabledvet's picture

lumber itself has collapsed in price. seems kind of odd that this would be a precursor to a housing boom. interest rates are rising. the economy has clearly downshifted. could be a soft landing...but the Fed certainly isn't broadcasting such a thing. and neither is Wall Street. seem downright gleeful by the whole thing actually...

Stuck on Zero's picture

The explanation is that all the new houses are built of straw.  That way they won't last any lomger than the mortgage.


TWSceptic's picture


Yet he likes physical gold, just as an insurance, even though he thinks everything is fine... 

LetThemEatRand's picture

Housing bulls[hit].

stocktivity's picture

Bad news is good news nowadays...Rally on...It's all Bullshit!!

augustusgloop's picture

Fed will cut to the chase and start buying homes and neighborhoods outright and complete the cycle. Future generations will call them Obamapoli. 

Creepy Lurker's picture

Perfect. Uncle Benny, would you buy my house? I want to move back to Michigan now that Colorado has turned into a socialist hellhole.

Yes_Questions's picture



Yeah.  Fuck Colorado.  Get out while you can.  

I70 East!

Creepy Lurker's picture

It's a damned shame too. I've been here for 20 years. Love the place. The mountains, the high desert, it rocks. I put down roots. Then the Californians started showing up. After fouling their own nest so badly its now unlivable, they are fouling ours in the exact same way.

tao400's picture

I am trying to sell my 2 million dollar house. Our realtor said that there are no buyers, in fact she said in the last month all the buyers have dried up for any house over 500k. I live in a very expensive area so 500k buys very little. a couple months ago, thiings were going gangbusters. the chart above seems to be the answer.

fonzannoon's picture

no middle east or asian buyers with all cash? I see a lot of that in the million plus markets. it's the 500k to 1 mil range where people need mortgages that I see getting stung bad in the near future

LetThemEatRand's picture

True, but there was significant demand among silicon valley buyers (assuming the poster is located somewhere nearby) who would flip their $1.5M place for a $2M new place with a $500K mortgage, but if they can't sell and rates are going up then they are out of the market.    And a lot of foreign buyers with big $$s have already been sucked in.

GoldRulesPaperDrools's picture

The same thing happened in northern VA where they had foreigners driving taxi cabs buying $1M homes with $10k down in cash.  Now that you need a significant down payment, all the construction has shifted to smaller, cheaper (sub $600k) housing but they're still sucking people in.  Good luck when the rates go up and the D.C. jobs dry up.

joego1's picture

D.C. jobs dry up? You mean after everyone has been shuffled off to fema camps? No, not for a long long time. There will be jobs in D.C. until they turn the lights off sometime after the SHTF. Oman will make sure of that.

Croesus's picture

@ Fonz:

I see people across the board getting stung, if they owe a lot on a mortgage, period, regardless of the house value. 

A few years ago, houses in my immediate area were 600K-1M, these same houses today are available at $250K-$400K.

Looking at the lower-priced houses, a lot of the recent starter home buyers are underemployed/unemployed. Add the job insecurity, unhealthy debt picture, the likelihood of bail-ins, and the lack of savings, and most of these people are at serious risk...


fonzannoon's picture

No doubt croesus. Everyone is going go get stung. If rates keep creeping higher and crude does the same stagflation is going to rip the guts out of what is left of this economy. That will look like a picnic when the final stage gets here.

20 years of Japan style deflation would be heaven in comparison.

otto skorzeny's picture

the banks only seem to be writing loans on new houses and then quickly turning these dog loans over to the the govt ASAP. there have been for sale signs sprouting all over the last few months w/ people buying into the "housing recovery " lies from the MSM- this glut is driving prices even lower with increased competition- more unintended consequences. the local taxing bodies love the new construction ( even slashing tap-on fees and permit costs because they know they'll quickly recoup those on taxes) because they ignore foreclosure and short sale prices for assessments and use these new homes to increase assessments- so nobody gets a fucking break from these cocksucking thieves on property taxes. 

Croesus's picture

@ otto skorzeny:

I don't remember where I read it, but someone in the "community" said that government is backing itself into a corner at all levels, and it's the damn truth.

Property taxes here go up every year, mostly because of the school system, 64% of which is going to salaries and pensions. "Doing it for the Children"......meanwhile, half of them can't even put together a damn sentence, and are completely feminized and pacified by this feel-good propaganda that gets drummed into their heads.

In my county, the county commissioners recently voted to spend $60K, to hire a consulting company to determine where/how money is being wasted.....

I'd laugh, if it wasn't so g-damned sad.

otto skorzeny's picture

I go in every year to get my home reassessed lower for taxes and last year the old bag working with me said " you should consider it a privilege that you get to pay taxes(5 figure$ worth) for such good govt services" - it took all of my effort not to choke her to death.

Croesus's picture

@ Otto Skorzeny:

Our locally-elected shitheads sound just like yours...

Sadly, these people actually believe they are 'doing the right thing', and the concepts that are common knowledge to you, me, and most ZH regulars are completely lost on them.

They'll figure it out eventually.....after it's too late.

otto skorzeny's picture

at this point everyone working for .gov assumes a "you fucking owe us " attitude. my brother- in - law is a 6 figure firefighter and I can't even stand to be in the same room as the whiny bitch.

otto skorzeny's picture

moonbean knows the only thing standing between him and a gallows is this thin line of jackbooted swine. he has his tongue placed squarely on the taint of the public employee unions.

Croesus's picture

@ Otto:

The attitude they have is what gets on my nerves; John G's post below sounds a lot like me (and probably you), regarding the property tax situation.

It goes up every year, while the quality of service goes down. You go in for the appeal and get lied to, and jerked around, by people who think they're "getting one over on you".



otto skorzeny's picture

at this point the "services" consist of the govt making payroll and paying pensions- without the tax bucks the boot on your throat no longer exists. why can't the Bernank just print up a few hundred billion to cover everyone's tax bill?

FreedomGuy's picture

I have some in laws who work for the federal government. They make more than primary care doctors and will retire at full or near full pay. I cannot stand hearing how much whiney government workers make. The stats say double the private sector wages and benefits. I want pay scales made public so people can see that we actually serve the government.

Handful of Dust's picture

<<"you fucking owe us " attitude>>


Am I too late to grab one of those free, zero-down, no proof-of-job houses?  It's only fair they give me one too!

JohnG's picture



So do I.  Every fucking year.  It's like a ritual.  With me, I have a large property, yet only a tiny fraction (13 acres) is what's "improved."  The rest is all trees.  It's the unimproved area that they mark up every year and I just don't quite understand how they - every year - tell me it's worth far more than it is.

I'm a tree farmer (also some eggs, turkeys and a couple dozen cows), way in the middle of nowhere.  Slow work (heh) and I stock it with deer and turkey and lease it to a couple of hunting clubs.  Weyerhauser comes in every 5 years and harvests 1/4 of the property, then replants. 

Trees are worth less right now than they were 5 years ago, and the county every year tells me different.

Pisses me off.

ebworthen's picture


You're a land owner who believes in his rights?

You are the enemy.  They are probably eyeing your property for an employee training center, Governor's retreat, or FEMA trailer camp.

Can't you just move into an apartment in town, get an EBT card, and shop at WalMart like the other serfs?

JohnG's picture



There's a great line in the movie "Jeremiah Johnson."

He was asked if he wanted to go to town.

His reply was: "No, I've been to a town."


FreedomGuy's picture

Yes, the property tax is a racket on multiple levels. Government knows it is far too big, heavy and expensive to fight. They just raised my taxes again for far above what I could sell my place for. They used to use only about 80% of the value but now it is more like 110%.

The rational way to tax would be to simply send everyone a bill just like all your other bills. However, property value taxes have built in revenue increases without ever having to lift a finger or put a tax to a vote. Your property could double in value, yet it does not mean that the cost of services rise or your income and ability to pay.