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"The Fallout Ratio" Is Flashing Red - The Chart That Realtors Don't Want You To See

Tyler Durden's picture




 

Submitted by Lee Adler via The Wall Street Examiner,

Given the way that the Wall Street Journal and its biggest client, the National Association of Realtors keep you in the dark and feed you manure, they must think you are a mushroom. They did it last week with the “existing home sales” and have done it again this week with the “pending home sales” release. Pending home sales were down, not up, in May, as the report said.

Here’s why the WSJ may not be interested in allowing you to see the light of day. Rupert Murdoch’s Wall Street Journal is the PR affiliate of his Move, Inc. which operates websites and mobile products for the NAR. The NAR is the monolithic, monopolistic US housing marketing cartel that controls the market, spending billions to disseminate its propaganda to the public and to manipulate Congress. The incestuous relationship between the NAR and Rupert Murdoch’s organs prevents any possibility of fair and balanced reporting of the news when it comes to housing (or virtually anything else around which Murdoch has his power mongering propaganda tentacles).

“Pending home sales” are contracts, reported at the time the contract was signed by both buyer and seller. “Existing home sales” are the closings (aka “settlements” in some states), when the deeds are transferred. The contract is when the actual, real-time meeting of the minds takes place. This is far more timely market data than the data on closings.

The closing is the official transfer of the deed, which usually occurs 30-60 days after the date of the contract. This data is then delayed in recording and reporting by another 30 days or so. By the time the media reports “existing home sales” the data is stale. Case Shiller compounds the problem by using a 3 month average, causing another 6 weeks of lag.

The Wall Street Journal’s headline was true.

U.S. Pending Home Sales at Highest Level in Nine Years

But this isn’t news. Sales have been at their highest levels in 9 years since February, if we exclude 2010 when tax credits goosed the market artificially. Note that February is when mortgage rates hit their lowest levels since 2012. Since then they have ratcheted higher.

The Journal reported that contracts rose 0.9% in May on a seasonally adjusted basis. No big deal, except for the fact that it’s false. The Journal neglected to report that sales were really down in May, not up, and that apparently a materially increasing percentage of sales are falling through. That fact tells us something more important about the condition of the market than that contracts are at a high level. The Journal has no vested interest in reporting this. It has a vested interest in making the market look good.

Contracts actually fell by 2.3% in May. That’s actual, not seasonally adjusted. This is the real number. The seasonally adjusted number is a statistically manipulated number. Real versus unreal; I report, you decide.

I looked at April and May data since 2001, and there’s not a shred of evidence of a seasonal difference in sales between April and May. Not one scintilla. Sometimes May sales are up a little from April’s and sometimes they are down a little. It’s about a 50/50 split. Yet the NAR and its media handmaidens persist in this charade of presenting seasonally adjusted data as if it is somehow real and meaningful. They assiduously avoid doing any analysis of the actual data. They probably cover their eyes and scream “I can’t hear you” if this data inadvertently crosses their line of sight.

We put the actual data on contracts on a chart and see for ourselves how these real time indicators of the market are behaving. We don’t need any statistical manipulation or propaganda to tell us what the market is doing. We can see for ourselves.

Some contracts fall through and do not close. The number of sales that fall through is also a critical market indicator that no one pays any attention to. I have developed an indicator called the Home Sales Fallout Ratio to give us an idea of the trend of contracts (aka “pending home sales”) falling through and failing to close, and it is telling us that, while sales are at a 9 year high, trouble is brewing in the current version of the bubbly housing market.

 

 

So sales were down 2.3% in May in a possible response to a rise in mortgage rates. And the Fallout Ratio has also broken out as mortgage rates have risen off their lows of February. This could be a harbinger of mass destruction should mortgage rates begin a persistent rise from here. It may be time to get in the fallout shelter and out of the US housing market. Look out for the housing mushroom cloud. Don’t be a victim of the media manure and home sales fallout.

 

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Wed, 07/01/2015 - 15:14 | 6259149 PleasedToMeatYou
PleasedToMeatYou's picture

"Wall Street Journal ... its biggest client (is) the National Association of Realtors"?!?   I wonder if author Lee Adler's been sampling too many psychedelic mushrooms. 

 

"The incestuous relationship between the NAR and Rupert Murdoch’s organs" - colorful imagery. 

Wed, 07/01/2015 - 15:05 | 6259152 KnuckleDragger-X
KnuckleDragger-X's picture

Time for ludicrous speed......

Wed, 07/01/2015 - 15:28 | 6259205 weburke
weburke's picture

are ANY  data figures correct anymore? I have been assuming NO

Wed, 07/01/2015 - 17:40 | 6259737 Fukushima Fricassee
Fukushima Fricassee's picture

Space Balls was racist.

Wed, 07/01/2015 - 15:07 | 6259155 Bill of Rights
Bill of Rights's picture

Way way off topic, but deserves press time

 

Officer Walked Away From Scene After Shooting 4-Year-Old, Family Claims

 

http://www.10tv.com/content/stories/2015/06/30/whitehall-ohio-officer-wa...

 

Fucker needs to be hung on the nearest lamp post...

Wed, 07/01/2015 - 16:38 | 6259468 sleigher
sleigher's picture

"The Ellis' attorney says they're waiting to see what comes out of the police investigation into the shooting. "

Who watches the watchers?  Why the watchers do of course...

Wed, 07/01/2015 - 15:07 | 6259158 davidalan1
davidalan1's picture

"must see,  its gourgeous inside"

Wed, 07/01/2015 - 15:40 | 6259237 ParkAveFlasher
ParkAveFlasher's picture

"Voted #1 town for raising a family in the state of NJ, by NJ Best Towns To Live In Magazine"

Wed, 07/01/2015 - 15:49 | 6259266 Never One Roach
Never One Roach's picture

" ... needs a little work ... motivated seller ... "

 

http://fellowshipofminds.files.wordpress.com/2011/05/detroit.jpg

Wed, 07/01/2015 - 15:21 | 6259174 Dr. Engali
Dr. Engali's picture

There has never been a better time to kick a realtor in the nuts.

Wed, 07/01/2015 - 15:40 | 6259236 Calmyourself
Calmyourself's picture

That is about as useful as kicking a bank teller in the nuts, cathartic until one of them shoots you in the face.

Wed, 07/01/2015 - 15:45 | 6259254 thamnosma
thamnosma's picture

It's always a good time to buy.

Wed, 07/01/2015 - 15:16 | 6259183 10mm
10mm's picture

Racket.

Wed, 07/01/2015 - 15:29 | 6259208 chunga
chunga's picture

WOnder how many of these fall through because of clouded titles.

Wed, 07/01/2015 - 15:40 | 6259231 Tall Tom
Tall Tom's picture

That is a good question. But it is even a better question as how many were approved even though the Titles were clouded.

 

What are you going to do?

 

Sue a BANKRUPT TITLE INSURANCE COMPANY AS A REDRESS?

 

Good luck getting one thin dime from a company being sued by everybody and their dogs.

 

The FRAUD and corruption IN ALL MARKETS is pandemic.

 

How many people own your home? Even when your home was PAID OFF they were FORECLOSED UPON after the 2008 MELTDOWN.

 

And many here still trust in the DERIVATIVES MARKET A TITLE IS JUST A DERIVATIVE ON THE HARD ASSET. And the $1.5 Quadrillion Dervivatives Market is  LEVERED, at FIFTEEN TO ONE.

 

That means, ON AVERAGE, the are FOURTEEN OTHER LEGITIMATE CLAIMANTS, who hold TITLE TO THE AVERAGE PROPERTY.

 

And FAR TOO MANY TRUST THAT?

 

SHIT.

Wed, 07/01/2015 - 15:50 | 6259270 Never One Roach
Never One Roach's picture

The realtors and NAR operate on a "Don't ask, don't tell" policy.

Wed, 07/01/2015 - 16:36 | 6259462 chunga
chunga's picture

LOL the first rule of NAR club is you do not talk about bad titles.

Wed, 07/01/2015 - 16:57 | 6259570 uncle_disgusting
uncle_disgusting's picture

I read that as clouded titties at first. Oh.

Wed, 07/01/2015 - 21:42 | 6260575 Bolweevil
Bolweevil's picture

Thank you! Needed that.

Wed, 07/01/2015 - 15:29 | 6259211 Tall Tom
Tall Tom's picture

Good. Let the Real Estate Market collapse as it is also bubblicious.

 

The whole damned system needs to implode and the quicker that it happens then the sooner we can rebuild...if it does not kill us all as a result.

 

This is NOT any problem which can be dealt with. It is a PREDICAMENT with an OUTCOME, a dismal outcome at the very best and more likely it will be fatal.

 

My bet is that the outcome will actually be fatal to BILLIONS and the Nuclear Wars to follow will be an EXTINCTION LEVEL EVENT.

 

Preparing for the worst as far too many believe that Nuclear Wars are survivable...

 

Get your affairs in order as we have not that much time left as air breathers.

Wed, 07/01/2015 - 15:54 | 6259284 Son of Loki
Son of Loki's picture
Greater Houston partnership cuts Houston's job predictions in half

 

http://www.bizjournals.com/houston/news/2015/07/01/greater-houston-partn...

 

 

Wed, 07/01/2015 - 15:49 | 6259268 JRobby
JRobby's picture

Bad link

Wed, 07/01/2015 - 15:46 | 6259249 aliki
aliki's picture

...

Wed, 07/01/2015 - 15:45 | 6259255 aliki
aliki's picture

jim grant interview on CNBC. explains the scam that is chris cristie. our state of nj is so upside down fiscally and this bozo thinks he can fix the entire nation. where comedy hour turns into vomiting hour.

http://www.cnbc.com/id/102802939

Wed, 07/01/2015 - 16:03 | 6259316 Consuelo
Consuelo's picture

Raw, naked ambition knows no bounds - nor decency.    These people have no moral compass - it's all about opportunities to seize, and screw the bridge closings...

Wed, 07/01/2015 - 17:42 | 6259744 dexter_morgan
dexter_morgan's picture

pffft - bridge closings. I wish that the front-runner for 2016 was just in to stuff like bridge closings. Been following the Hitlery news?

Wed, 07/01/2015 - 16:21 | 6259410 Apocalicious
Apocalicious's picture

Um, ok guys. Sales actually do peak in Mayish through June, maybe July, since that's when families like to move in order to get their kids relocated in time for school. If you've ever bought a house - as a parent with school age kids - you'd know. Pretending there ISN'T seasonality in that chart is ludicrous. Who cares if its Apr-May or June-July, the reality is that time is stronger than Dec-Jan. ALWAYS. I'm not advocating "seasonal" adjustments as a way to smooth this - far from it, give me the clean fucking data. And thanks for the excellent chart.

 

But at the same time, you haven't discovered the next melt down in the real estate market...mass destruction? Jesus, the doom porn gets freaking exhausting. This happens LITERALLY every year...

Wed, 07/01/2015 - 16:33 | 6259450 MSimon
MSimon's picture

So if sales peak in a given time frame vs yearly the adjustment should be down in that frame. Not up.

Wed, 07/01/2015 - 18:35 | 6259946 espirit
espirit's picture

Been trying to sell a custom home in Florida for $120 sq ft. and just reduced to $110 sq. ft.

One fucking low-ball offer for $90 sq. ft. over 3 months.

Fuck you NAR anus lickers.

Wed, 07/01/2015 - 16:43 | 6259491 Shaznardickleze...
Shaznardickleze the Doon's picture

"the doom porn gets freaking exhausting"... Sure thing "Apocalicious"

Wed, 07/01/2015 - 17:49 | 6259766 Fukushima Fricassee
Fukushima Fricassee's picture

"Bootielicious" as Obama is to Mike.

Wed, 07/01/2015 - 17:51 | 6259775 hardcleareye
hardcleareye's picture

I think you are lost in the in the 1970....  how many people with children make up the home sales market!!!!

Most middle class young families cannot afford to purchase a house..  they do not qualify because of the student loans...

Suggest you look at the data for who is buying homes!!!

 

Wed, 07/01/2015 - 17:19 | 6259640 dexter_morgan
dexter_morgan's picture

It still seems like a good time to buy where I'm at if one was in the market. Home prices are generally 40-70% below the last bubble peak. I guess the question is 'how low can they go', which unlike stocks, wouldn't seem to be ZERO. People always need housing, somewhere to live.

Wed, 07/01/2015 - 17:21 | 6259647 MortimerDuke
MortimerDuke's picture

I know a lot of people really find this author annoying but I really like his work which usually involves interesting research in areas that don't get much scrutiny.  But this fallout ratio deserves more analysis, and I hope he gets into it in more detail.  I'd like to know why so many contracts are falling through as the chart seems to indicate a multiple-sigma move in purchase contract failures.  Are they being pulled by the buyer or rejected by the bank or seller?  All three?  Is there even a way to know?  Good article.  

Wed, 07/01/2015 - 17:35 | 6259708 dexter_morgan
dexter_morgan's picture

I agree - seems odd that such a jump in contracts falling through would not have an odd cause.

Maybe it's the radon mitigation costs - thats the big thing around here - about half the homes are failing EPA radon tests, so that's causing sellers to fork out a couple grand more to 'mitigate' it and when many are underwater thay may be saying FUCK THAT.

Wed, 07/01/2015 - 19:48 | 6260197 gimme soma dat
gimme soma dat's picture

In my area, contracts are falling through because of bidding wars that take home sales prices way above what bank appraisers believe the home is worth.  Our home supply is artificially low due to around 1000 properties being sold to foreign investors leading to prices skyrocketing on what's left.  The banks know these homes aren't worth what they're trying to be purchased for so they are turning down the loans. Thus, contracts fail. 

Wed, 07/01/2015 - 17:39 | 6259726 TheLastMan
TheLastMan's picture

My gut says the fallout is occurring because the asking prices have regained altitude but the comps/appraisals are not satisfying the banks.  Zillow values (for what it is worth) are headed up in my neighborhood.

 

Wed, 07/01/2015 - 19:50 | 6260201 gimme soma dat
gimme soma dat's picture

Right.  Prices are artificially high due to low inventory.  Where is all that inventory?  I'd ask China, for starters.  

 

Why isn't anyone asking why inventory is low? 

Wed, 07/01/2015 - 18:06 | 6259822 Sanity Bear
Sanity Bear's picture

go long Hobo Dogs

Thu, 07/02/2015 - 08:38 | 6261585 Scooby Doo
Scooby Doo's picture

How many houses are bank REOs rotting in place? There is one nearby that has been vacant for 6 years. The "lawn" is over 3' high & the garage door is falling apart.

Might this be one reason inventory is low? Banks holding almost worthless properties off the market in order to drive up prices?

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