Monday, March 26, 2012

Housing And Economy Starting To Crash Hard

 Just reviewed March buyer clicks, Google’s analytics on all the sites we monitor – March is turning out to be the weakest month since last October re: Buyer interest  -                                          email from a Realtor in New Jersey to Zerohedge
For many reasons explained in earlier posts, I have been thinking that - contrary to the what is being reported in the mainstream media - the small bounce we have seen in housing was nothing more than a product of the historically record low interest rates, an easing of credit availability and - probably most significant - the implementation of Government-sponsored FHA low down-payment, low rate programs.

If you strip away the seaonal adjustments and other data manipulation methods used by the Government, National Association of Homebuilders and National Association of Realtors, the truth is that real organic single family home buyers are not buying homes.  I define "organic" as the buyers who are not distressed investment buyers.  In fact, even during the period when mass foreclosures were halted until the robo-signing fraud was settled, investment buyers represented typically 30-40% of all home sales.

Today the NAR's pending home sales index was released.  It declined .5% vs. a market expectation of a 1% increase  LINK.   Please note that the pending sales index represents contracts, not closings.  I can't find the number on the NAR website for the latest month released, but in January the cancellation rate was 33%.  Only 47% of all contracts signed even closed on time:  LINK  So even when the headline number appears to be positive and well-spun, the underlying "organic" number is abysmal.   As of the February release, the 3-month moving average of investors as a percent of total buyers was nearly 49%: 
Investors are still rushing into the market, with distressed sales making up a near-record 48.7 percent of sales in February on a three month moving average, according to a new report today from Campbell/Inside Mortgage Finance  - CNBC's Diana Olick, sourced from LINK
In addition, now that the robo-signing fraud case has been settled on favorable terms for the offending banks by the Obama Administration, foreclosure activity is already starting to pick back up:   LINK  So we will see an increase in supply as banks begin to ramp up foreclosures again.  To make matters worse, Obama has directed Fannie Mae and Freddie Mac to unload big blocks of their owned real estate (REO) LINK.   Investors are lining up as I write this to bid en masse on FNM/FRE REO.  These homes will likely end up dramatically increasing the size of the single-home rental pool, thereby putting even more pressure on home values as potential buyers choose to rent instead of buy. 

And make no mistake about it, FNM/FRE are unloading their bloated housing inventory in order to make room for more foreclosures.  A friend of mine told me about a HUD conference last fall at which a friend of his was part of the catering crew.  Apparently the conference was being conducted more like a sales pep-rally to try and stimulate HUD sales and move inventory in order to make room for the next foreclosure wave by the GSEs.    Do you really want to believe the housing inventory numbers being released lately by the Census Bureau and the NAR?  I have maintained all along that the "shadow" inventory is easily double to triple what is being reported by the Government and industry associations.

The fact is that the housing market may have "stabilized" for a brief period of time, but it was a combination of the factors in the first paragraph above that enabled the short respite from the collapse caused by the big bubble blown by Greenspan and the subsequent attempted resuscitation of the bubble by Bernanke.  If you want to know why the housing market will not recover for at least a decade, if ever, take a look at this chart sourced from Zerohedge:

(click on chart to enlarge)

That chart is brutal.  It shows the ratio of people who are actually employed to the total population.  Not only does it show a massive decrease in the number of people working and generating revenue support for Government spending and welfare, but it shows a rapidly declining base of people who could even consider buying a home.  That picture is a snapshot of the true dismal condition of the U.S. economy.

For everyone who is wondering why gold and silver made a big move this morning, Bernanke gave a speech this morning in which he re-opened the door for more QE, after seemingly closing that door at his recent testimony to Congress on the state of the economy and monetary policy. 

But the fact remains that all you have to do read through this post in order to understand that the Fed has no choice but to print money if it wants to prevent a full-scale banking and economic collapse in this country; and, more important, provide the liquidity needed to finance new Treasury bond issuance.  Got gold?


  1. I just wanted to share a local real estate story from here in the Silicon Valley. Housing never really fell that much and is heating up again. Looked at a couple of places yesterday and it was like nothing has changed. Frothy couples willing to pay $800+k for a starter dump on 5000 - 6,000 sq.ft lots. - I feel sick to my stomach as I don't own and don't want to pay that much for something I don't even want. Moving somewhere else is not an option as wife and I have plenty of work and established network and friends.

    I'm not in Real Estate, but clients in my business have work, good money and aren't feeling a thing. We are in our own sort of sick bubble world here.

    1. You can thank the bubble being blown in AAPL and the various internet IPOs like Facebook and Zynga.

      To be sure, there are pockets of "stability" around the country. Denver hasn't been hit much at all on a relative basis. But it will soon all be ugly and most of the country is in a full housing depression.

  2. Good post Dave... especially like the chart. Whad'ya wanna bet that the, "COT is a farce" anti-Gold troll does not stop by today?

    1Kg Ag lunar dragon...

  3. 'Greed is the Beginning of Everything'

    Sedláček: Times of crisis are good for asking the right questions. We have to abandon the obsession with growth in economics. We have to get out of the manic-depressive cycle within which our economic everyday reality operates. And to do so, we have to pay more attention to the manic than the depressive phase, and we have to change the general goal of economic policy. Instead of maximizing the gross domestic product, the goal should be to minimize debt.

    SPIEGEL: How is the one thing supposed to work without the other?

    Sedláček: In a free-market democracy, politicians should be deprived of the right and the authority to incur debt, just as they have already lost the right to print money.

    SPIEGEL: But the temptation to pay for government debts by printing money still exists.

    Sedláček: I propose a new stability pact: In any given year, growth and the budget deficit together cannot exceed 3 percent of GDP.

    SPIEGEL: Meaning that the budget has to be balanced at 3-percent growth, while new borrowing has to increase to 3 percent at zero growth?

    Sedláček: Exactly, and surpluses have to be set aside in boom years. Let's remember the biblical parable of the seven fat and seven thin cows, and the advice Joseph gave to the pharaoh. An economic policy that only pursues growth will always lead to debt. And debt is a dangerous journey through time, while interest is a sinister weapon. Those who don't know how to handle it end up in a medieval debtors' prison, as the Greeks are experiencing today. The next crisis could be deadly.,1518,822981,00.html

  4. I should have bought more gold. I am going to have to wait for the next pullback. The great deflation will start again just before the QE3 announcement. This is getting very predictable.

  5. Did you ever wonder why these criminals get addressed as honorable when announced?



    Bank of Greece complicit in broadscale embezzlement revealed by respectable Greek health site

  6. Since half of the homes in the US are underwater, how can this improve? I'm sure people in those houses would like to sell but can't. This is going to get worse before it gets better.

  7. Financial Oligarchy and the New Robber Barons w/Derivatives Guru Janet Tavakoli

    1. I read somewhere that some of the reported "Housing Units" include prison cells. Something worth looking into.