Real Estate Consultant John Burns has looked at the housing data and reached a rather interesting conclusion: "The housing market has softened much more than is being reported.
Given all the negative news coverage, that’s almost hard to believe. But John does a good job dissecting the data, and he is now concerned that both the publicly disseminated New and Existing Home Sales information is misleading. Even worse, he fears, is that policy makers are relying on this bad data to conclude that the housing market correction has not been too severe.
Regular Big Picture readers should recognize some of John’s conclusions.
Here are his top concerns:
• Closing Data: Sales have actually fallen 22% year-over-year, based on comparing trailing 12 month periods. If you
compare year over year sales, the decline is even more severe.• Mortgage Bankers Association (MBA) Data: MBA Seasonally
Adjusted Purchase Application Index is down 18% from
its peak in September 2005.• Builder Data: D.R.
Horton and Lennar have reported that orders have declined 27% to 37%,
year-over-year — even as they have dropped prices
significantly. These are the nation’s two largest homebuilders.• Realogy Corporation Data: In 2006, there was a year-over-year decline of 18% in brokerage related transactions at Realogy owned firms (Century 21, Coldwell Banker, and ERA)
• 2005-2006 National Association of
Realtors State Data: The NAR is showing some very sharp year-over-year corrections: Florida down 28%; California down 24%; Arizona off 28%. However, the NAR data may actually be understating the falloff. John’s data the more likely actual sales decrease to be closer to 34%, 27% and 38%, respectively. Prior to 2005, John’s data tracked very closely with the NAR, so this deviation is worth further investigation.
The entire piece, and all of its sourcing, is well worth a read.
Source:
Housing is Falling Much Faster than Reported
John Burns Real Estate Consulting (JBREC) http://www.realestateconsulting.com/usanalysis/usanalysis200705.html
And that’s a head and shoulders on the six-month HGX daily chart.
I think the Fed and a lot of mainstream economists/forecasters have gotten the housing market wrong these past few years, frankly. First, they denied there was a bubble at all. Then, when that became impossible due to the overwhelming weight of contrary evidence, they acknowledged “froth,” but said the market would come in for a nice, soft landing.
Now, we’ve seen that sales have fallen sharply, for-sale inventories have surged to the highest levels in recorded history, and prices have fallen for the longest stretch in history. So the new party line is that we’re in for a quick rebound with little or no economic pain.
I just can’t accept that. I expect residential real estate is in for an extended period of lackluster sales, elevated inventories, and significant pricing pressure. Homes are still selling, but only if they’re priced right and top of the line. Everything else is just sitting, sitting, sitting.
Oh Barry,
Don’t you know housing doesn’t matter. It’s not like its a big part of the economy or anything. It’s a rounding error.
Most people have more money locked up in clothing, flat panel tvs and awesome backyard grills. Heck, it cost 40 grand to send the kids to private school nowadays. A home just isn’t a significant purchase any longer.
Look, we all know they stopped making land around George Washington’s time because, as father of our country, he knew that we’d appreciate his efforts to create a healthy real estate market. And we do. That’s why GW is on the dollar bill and not some other guy.
If the value of my home were to fall, Uncle Ben would drop rates to zero, force the dollar lower and flood the economy with so much cheap money that everybody could afford to buy three or four homes. Instead of paying for Chinese goods with dollars, the Fed has a secret plan to pay the Chinese in unsold homes. They need places to live we need stuff. It’s a win-win for everybody.
So stop your whining and lets get this market 200 points higher before the close!
Well at least Big Ben has assured us that the weak housing market won’t spillover into the rest of the economy…
Not!
First quarter new car sales in California drop 7%!
http://www.latimes.com/business/la-fi-briefs18.4may18,1,5380814.story?coll=la-headlines-business
Maybe it’s just me, but Bernanke more and more seems to resemble Kevin Bacon in “Animal House” trying to quell the panicking crowd with pleas of: “Remain calm, all is well!”
Thats were the 130 Boeings come into play.
Hey, the faster housing hits bottom, the faster I get to swoop in and buy some. I was just recently told by a firm that handles foreclosures for the banks to keep my powder dry, as several local developers/builders are going under and there will be partially constructed upscale new homes available as foreclosures.
.
Market so happy! Happy, happy market! Yay, bulls!
True, as of today, the whole economy stands on 130 Boeings.
I like the conclusion: real estate is falling fast so we could sure use some lower interest rates, Mr. Fed.
EthlyAdded – A rate cut by the fed might be counterproductive. Long rates might spike sharply in response, which would make matters considerably worse.
Oh Geez.
Heuristically it is not hard to show that government and industry data is strongly biased to the upside!
I appreciate the points made here but it is just the tip of the iceberg. Mr. Burns did not touch on pricing. That is a complete joke. Talk to folks who are the sellers.
Ask them to talk to you about price after they have added in all the closing costs, all the renovation costs, all of the additional assets that were added to the deal (like car leases and subzero Fridges).
Then tell me if prices are really rising.
I still haven’t found the NSA data for NAR’s sales report for NJ, which ran against trend and posted higher YOY sales (u0 7.6% vs. down 6.6% nationwide).
I strongly suspect that the jump is connected to SA reporting, but I don’t have the 2007 Q1 NSA numbers to compare with the 2006 Q1. I’m not talking conspiracy, I’m talking methodology quirk.
NY and Mass were also up, so a correction on that data could make things look far worse than they did.
More TGIF Randoms!
Housing is falling much faster than reported, from Barry Ritholtz. (I’m getting the last-name spelling down, BR). Here’s where I am on housing. I think it’s bad for the folks in dire straits. If somebody is getting their negatively amortized mortga…
Barry,
Hasn’t Larry Kudlow had you on his show the last 18 months as his “permabear” if I’m not mistaken? Is that a misrepresentation of your stance during that period as we’ve seen a record Dow? I don’t have a videogpraphic memory, but I recall you being pretty bearish last year? True or?
~~~
BR: I flip Bullish and bearish pretty regularly.
I am VERY bearish on the US economy, but have been Bullish on Asia for 3 years now.
We made a very bullish U.S. call in June 2006.
And in August 2006, we suggested shifting away from small cap to big cap in the U.S.
Since October 2006, we increasingly having taking chips off the table.
Our managed accounts are mostly long overseas ETFs, and select US firms, but the holdings are more defensive in nature. The U.S. exposure is primarily energy, materials, insurance cos., and other less speculative more recession-proof holdings
“Instead of paying for Chinese goods with dollars, the Fed has a secret plan to pay the Chinese in unsold homes.”
According to the amount of GSE paper being purchased by the PBoC, looks like this is already being done.