Three "Red Flags" That The US Housing Slowdown Is Accelerating

Tyler Durden's picture

One month ago, we showed three prominent "red flags" that the US housing market was starting to roll over.

Among these were a report by real-estate advisory RealtyTrac, which cited by Bloomberg, said that "almost nine years after the housing-market bust helped trigger the most recent recession, RealtyTrac senior vice president Daren Blomquist sees the industry waving a red flag." He was referring to house flipping by third party investors at auction which was back with a vengeance, and what's worse, the share of foreclosures snapped up by inexperienced mom-and-pop buyers at auction had hit a record 31% in June. As he said, "this a redux of the same fervent speculation that pushed the housing bubble."

The second warning came as a result of the latest sharp decline in spending on furniture and home goods stores, which according to Bank of America credit and debit card spending data, showed that the yoy drop had reached the lowest since the recession period. As BofA said then, "this shows that consumers have delayed spending on housing-related items, which could be a sign of weakness for the housing market."

The third red flag was revealed in the then-latest Credit Suisse survey of real estate agents: "Our Buyer Traffic Index took a sizeable step back in June, slipping to 41 from 52 in May, indicating traffic levels decidedly below agents’ expectations.... Prospective buyers also continue to be deterred by a persistent shortage of affordable inventory across markets, with agents frequently highlighting buyer pushback to rising home prices. On the other hand, agents repeatedly mentioned that low mortgage rates were crucial to supporting demand."

* * *

Fast forward one month and we find that the adverse trends observed in early July have gotten progressively worse, and we can now add one more.

First, as we showed last week - and correctly warned that last Friday's retail sales report would disappoint - the latest "BofA Internal Card Data Shows Significant July Spending Slowdown" showed in addition to another broadly week month of consumer spending, that "we are seeing a continuation of the theme that we flagged in last months’ report – sales at home improvement and home goods stores are weakening based on the BAC card data. After a brief gain last month, sales at home improvement stores tumbled in July, leaving sales down 3.4% yoy. Sales at home goods stores continue to weaken as the yoy rate reached a new cyclical low in July. We see a similar weak trend with sales at furniture stores."  As BofA said last week, this would be a key advance indicator that the US housing recovery has stalled.

 

* * *

Second, following up to last month's disappointing Credit Suisse survey of Real Estate Agents, for July the Swiss bank found even more of the same disappointing trends, noting that there has been "No bounce after last month's pullback as buyers remain hesitant."

This is what survey author Michael Dahl wrote:

Traffic Down Slightly: Our Buyer Traffic Index edged down 1 pt to 40 in July (vs. 41 in June), indicating traffic levels remaining below agents’ expectations following the June pullback. Our Weighted Traffic Index was also down 1 pt m/m. Agents broadly cited a lack of inventory in many markets, particularly at affordable levels. Incrementally, buyers seemed more resistant to higher home prices with some willing to move to the sidelines. Consistent with last month, many buyers also remain hesitant and cautious due to broad economic concerns. Quite a few agents were surprised how quickly demand faded through the Summer, suggesting some payback following stronger Spring trends. On the other hand, many agents noted that favorable mortgage rates continue to support demand, though still not much of an urgency factor. In many markets, comments still pointed to sluggish high-end trends vs. healthy demand at lower price points. Regionally, the Pacific Northwest slowed and now sits in-line with national averages. Parts of Texas and the Southwest improved, while the Northeast, Midwest and California all worsened.

 

More Markets Fall Below Expectations: In July, 7 of the 40 markets we survey saw higher than expected traffic (8 in June), 4 saw traffic in-line (7 in June), and 29 saw lower than expected traffic (25 in June). Portland, Seattle and New York experienced sharp declines. In TX, Austin deteriorated and Houston remained challenged, offset by improvement in San Antonio and Dallas. FL markets remain depressed, led by weakness in Miami, Fort Meyers and Sarasota. California was dragged down by lower readings in Los Angeles and San Diego, while San Francisco ticked higher. Las Vegas and Minneapolis were both strong.

 

Prices Move Higher, but Less Broadly than in Recent Months: Our Price Index slipped 5 pts in July to 66 from 71 June, indicating broad price appreciation. Despite the choppy traffic and growing buyer price sensitivity, tight supply has thus far continued to favor sellers. Of the 40 markets we survey, 28 saw higher prices in July (34 in June), 10 were flat (3 in June) and 2 declined (3 in June). Strongest readings were seen in Dallas, Raleigh, Seattle, Austin, Kansas City, Los Angeles and Charlotte. Houston prices continue to face pressure, declining for the third consecutive month.

Summary: if the real estate agents, those who are most familiar with the nuances of the housing market, are this gloomy,

* * *

Finally, the third red flag was revealed today when the Mortgage Bankers Association reported that mortgage demand to buy homes just hit a new 6-month low, despite mortgage rates hovering near all time lows.  

The Mortgage Bankers Association said its seasonally adjusted index of mortgage activity for home purchases, a leading indicator of housing sales, fell 4% in the week ended Aug. 12, according to Reuters.  This took places despite the average rate on "conforming" 30-year home mortgages, dipped to 3.64% last week from 3.65%, the Washington-based group said.

The average 30-year rate touched 3.60 percent in the week ended July 8, which was the lowest since May 2013 and not far from the historic low of 3.47 percent struck in December 2012, according to MBA data. Weekly mortgage activity on home purchases reached an eight-month peak in early June before a decline since even as 30-year mortgage rates hovered near their lowest in over three years.

This suggests that even with near-record low mortgage yields, demand for new home purchases is simply not materializing, and indicates that in addition to a potential lack of supply problem (as per the Credit Suisse report), there is also not enough demand.

* * *

Ironically, as the Fed remains desperate to push rates higher (but not too high) to signal a recovery, the direct impact would be to make housing even more unaffordable for most buyers who, if CS is correct, are increasingly on the fence about jumping into a purchase; it would also result in an even faster drop in demand for mortgage purchase applications, leaving on "all cash" buyers on the margin of housing demand. 

Which, as we asked one month ago, begs the (repeat) question: has the Fed thrown in the towel on reflating US housing - the one asset in which the US middle class has historically invested the bulk of its net worth - and is now focusing solely on the S&P which remains the playground of the 1%? If so, the surge in populist anger witnessed around the globe in the past year is certain to get even worse in the US, just as racial and class tensions in the country have never been worse, as the Fed gives up on America's middle clas.

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TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Aug 17, 2016 10:26 AM

With a levered housing "investment", it only takes a small price drop to get wiped out.  Unfortunately a severe price drop is going to come

Hitlery_4_Dictator's picture

"Unfortunately a severe price drop is going to come",  "Fortunately a severe price drop is going to come." Fixed it for you. 

HopefulCynical's picture

Depends on your perspective.

Average folks will get wiped out - again - because they were told to participate in Bubble Madness - again.

Overall, lower home prices are good for the masses and society.

But a whole bunch of broke motherfuckers...not so much...

Hitlery_4_Dictator's picture

Screw em at this point, they have the same information that I did and could not come to the rigth conclusion and I'm not even that smart. Time to pay the piper for being dumb, greedy and ignorant. 

Paul Kersey's picture

"Prospective buyers also continue to be deterred by a persistent shortage of affordable inventory across markets,"

That's what's happening in my region. New pending sales greatly outnumber the housing inventory coming on line. With nothing to buy, we are still seeing multiple offers. Even infill lot inventory has disappeared. Real estate is local. For instance:

NECN reports from Massachusetts. “The median home price in Massachusetts is now $372,000, a new record. With bidding wars and record prices, the headlines are strikingly similar to a decade ago, right before the housing market tanked. Is history repeating itself? Annie Blatz, president of the Massachusetts Association of Realtors said, ‘We have a very competitive market very high demand and low inventory. That is making our prices go up. This is different from years in the past when we had a different economic set of circumstances when we had high demand and high prices and also high inventory.’”

in4mayshun's picture

Cities and adjacent bedroom communities will be the last to fall, but they will fall the furthest. In my town, where inventories, previously very low, are quickly building and prices are starting to plateau and decline in some instances. Rentals, however, are very difficult to come by. A true tell/tale sign of what is happening.

Houses Depreciate's picture

With 18 million excess empty and defaulted houses out there and millions more in the pipeleine, there is no shortage.

Doubleguns's picture

60 million living with their parents or grand parents aint helping. 

 

http://www.zerohedge.com/news/2016-08-17/overwhelmed-debt-nearly-1-5-you...

Hitlery_4_Dictator's picture

They are running out of suckers and retarded libtards to prop up thier bullshit, the final market push is to somehow get the prision population (All Liberals) to buy some houses. LOL

Consuelo's picture

 

 

Butt sex will fix all that.

 

I'm still laughing at that one...

 

 

Paul Kersey's picture

Butt sex is the way lawyers are born.

ToSoft4Truth's picture

I think this article is true.

 

Early last month houses in my neighborhood were still flying off the shelf.  That is, I'd see a new for sale sign and within a week a sold/pending sale notice would be put on the sign.

 

This month, not so much.  The house next door to mine has been for sale for about about a month.  I saw two lookers.  One looker couple was of mixed breed. 

CJgipper's picture

August is also one of the slowest months historically.  Back to school has happened.

All real estate is local.  My area is still selling day of, but I live in a good school district right outside the fastest growing city in the US (whose school systems suck).

Hitlery_4_Dictator's picture

MUST. KEEP. BELIEVING. IN. THE. LIES. I understand it's hard to grasp but come on man, you're smarter than that, aren't you? 

CJgipper's picture

I'm talking about comparing July to August in ANY year.  Get a grip.  

 

Comparing Sept/Oct year over year this year should produce some interesting results.  Comparign any given August to the month immediately preceding is dumb.

Houses Depreciate's picture

"All real estate is local" is just another NAR-Tard marketing technique to get the sucker to pay far mroe than the property is worth.

Hitlery_4_Dictator's picture

There is a moron born every min, well less than every min these days. CJgipper must be one of thse morons. Keep that eCONomy going morons. 

Vlad the Inhaler's picture

I'd like to see the last chart seasonally adjusted.

PositiveChanges's picture

The fact that municipalities and states bought into this false "recovery," many have spent the past couple years signing away more of the future to benefit those self-sacrificing, 20 years of looking busy and paid for life, public servants.

The implosion is going to be spectacular.

Most think the bubble was kept inflated just for banksters, and totally overlook the reality of the protected, government unions.

When Math finally reasserts itself it will be brutal for these jackboots, bureaucrats and tax money whores. 

Hitlery_4_Dictator's picture

I pray to God this happens every night. It's funny how many "Christians" think they are doing God's work by being a public "servant". So misguided, are today's Christians. 

Falling Down's picture

I'm with you guys.

Property taxes are used to gouge people in a lot if locales, and ths governmenf-monopoly school assholes have used taxpayer-financed bonds to pay for all manner of unnecessary bullshit for their little fiefdoms. Just wait until the shitstorm hits the bonds markets, pensions and financing of public debt will be affected.

 

 

mary mary's picture

They don't REALLY think they are doing God's work.  Government is just a way to get a job, and a way to send the taxpayers money to their Church members, including their family.

CJgipper's picture

To be fair, this sucks.  Yes, there are many worthless administrators that should have never been paid at all, much less getting pensions.  But pensions are a MAJOR component of compensation for cops and teachers.  So it sucks that you can do that job for 30 years with the expectation of continuing to make just 30-40k a year in retirement and it gets yanked away.  That's not right.  Again, screw the overpaid administration, but you know whose pensions will be whacked and it's not the admins.

mary mary's picture

Again... cops get much larger pensions than teachers.  That's because cops are politically organized, have unions, and work on political campaigns.  That is, cops do the smart things.

CJgipper's picture

And they also get paid less than teachers in any given locale.  Take away the pensions, and the applicants go away, unless you raise the salary.

 

Would you do cop work for 30k no benefits?  I have friends in the job, and that's their salary.  The pension is the reason they're there, clearly.

mary mary's picture

I got no complaint about cops.  I am just tired of everyone beating up on teachers for, what, decades now.  That's just stupid, in a world in which the man with the better technology almost always wins.  In most Southern States, neither cops nor teachers get paid much.  School "administrators" aka "educators" (good old boys, many of whom are ex-football players and belong to The Church) get paid very nicely, though.

vasallo7g's picture

dont you think overpopulation and demand of housing would help in keeping the market from crashing? or the crash would be because the banks would stop giving credits to purchase homes?

starman's picture

If they would ban kids living with they're parents and give them unlimited excess to credit,  this would not be happening! 

 

Hitlery_4_Dictator's picture

Ummm, have you seen the commercials on TV, they have given the liberals full access to credirt for years now, that's why they are living at home. Liberals have caused this crisis by being selfish. 

InflammatoryResponse's picture

you have to "manage" your credit.  Says so on the radio.  I guess if you successfully manage your credit then everything is awesome?

 

conraddobler's picture

Total misread on this.

The driver of housing prices is rental rates and the metric you use to see where you are is historical average home ownership rates and household income.

Household formations are up, rents are up, home ownership rates are at historical lows, that's not where you see a bubble pop.

In the midwest this is as skewed as you will see it to force housing price increases but on the coasts and in some bubble markets of course there are differences and they could be bubbles sure.

 

 

CJgipper's picture

The mom and pop renovations are not flipping.  It's the only way to buy a house anywhere near a real price.  You buy it and fix it.  I and two of my neighbors have done this in a super nice 25 year old neighborhood.  These homes had been held in shadow inventory for 3-5 years by the big banks before they finally dumped them.

Houses Depreciate's picture

Most don't know what the "real price" is. I don't think you do either.

GrokMarkets's picture

Here in the suburbs of Portland Oregon inventory is very high. You can't drive one block without seeing a for sale sign. This is a new thing. Only happened in the last couple of months.

CJgipper's picture

Boomers trying to downsize while the prices are up but being a bit too greedy, yet again.

Houses Depreciate's picture

Incorrect. 

 

Household formation is at record lows, rents are slipping and home ownership rates are at 51 year lows and falling simply because housing prices are massively inflated. And nowhere are they more inflated than here in San Diego. 

CJgipper's picture

The absolute price doesn't matter.  What matters is that the rents and prices have gone up while wages have fallen.  They've been MASSIVELY importing indentured servants under H1B programs to drive wages down.  It's a double whammy of misaligning prices from wages.

Houses Depreciate's picture

And demand has collapsed to 20 year lows as a result.

 

The market will govern. It always does.

the.ghost.of.22wmr's picture
the.ghost.of.22wmr (not verified) Aug 17, 2016 11:08 AM

The National Association of Realtors and Pimps and Whores does not approve!

CJgipper's picture

"Housing g recovery has stalled." 

 

Stalled?  Stalled?

 

We're above 2006/2007 prices and quantity!!!!!!  WTF?

Baby Eating Dingo22's picture

 

 

Everyone knows everything goes to infinity

oddy's picture

The slowdown is accelerating? I'm so confused. Is that worse than the speedup decelerating? 

Father ¢hristmas's picture

Woops, the Ponzi scheme is at the terminal stage where dumb money is the primary source of air for the bubble.

Time to find a new product to entice the goyim into getting juiced for 30 years because they're no brighter than the Natives they ridiculed for being wowed by trinkets.

Shit, guys are still stacking when they should be attending $2,500/plate campaign fundraiser dinners to get private access to politicians to protect their ass from the unwashed masses.

That way you establish familiarity and relationships with the cocksuckers responsible for marking off citizens for the blue helmets when wheelbarrow time hits.