I've been listening to many analysts these past few days cite the Case Schiller numbers that came out today along with the existing home sales numbers that came out two days ago as a sign the market is rebounding -- the numbers are *bogus* and here is why.
First - and vital - Case Schiller is a bunch of bunk. They are a 20 metro city index - 20. This is not a national number. They also have a new ETF, UMM, that trades higher if people are optimistic about the market. One of the major indices we "used to use" should be completely removed out of the market because of its now inherent bias.
I'd like to be bullish on real estate too but here is why the numbers suggest otherwise.
1. 11% increase in sales means contracts (number released this week). It doesn’t mean the homes will close. This is up to banks! Have you tried to get a loan lately? :)
2. 32000 more homes sold in May to June than expected. This is 1% of the 3 million in inventory. (note: correction from .01% thanks to Mark Steele)
3. Inventory dropped from 10.8 months to 8.8 months. The 10.8 months was an over inflated number from foreclosures.
4. In major cities it is foreclosures accounting for as many as 60% of sales at incredibly reduced prices. This will create new comps for appraisers, which means many of the homes noted in #1 won't close because they won't appraise!
5. 22% of people are upside down. Studies show that when a homeowner is 15% underwater (owes 15% more than the home is worth) 1 in 4 default on purpose plus the rest that just default. More foreclosures are coming.
6. Foreclosure moratoriums have ended, so we will only now see those hitting the markets.
7. Looking at spring buying numbers - down 21.3% over this time last year. This is a good sign?
8. The tax credit incentivizing some buyers to get off the fence is ending Nov 30, 2009.
9. Jumbo defaults havent hit the market yet.
10. When we hear numbers like "new housing starts up 3%" this is NOT good news! This is inventory which = supply which = downward pressure on prices.
How do you survive in this market? Yes there are some deals!
1. Know your goal (flipping versus living has entirely different tactics)
2. Don’t be deceived by numbers
3. Get a good deal - know the prices
4. Rent when it's appropriate, like if your job isn't stable
5. Buy where jobs are going to - don't buy where they are leaving!
Dani
Tuesday, July 28, 2009
Monday, July 27, 2009
Why the new home sales numbers dont mean jack
Analysts are all excited about the new housing numbers - unfortunately they don't mean anything positive for the market. Let's break this down.
1. There is an $8000 tax credit for “first time” home buyers. From May to June, the percentage distribution of sales of homes with prices under $150k rose from 14% of sales to 20% of sales. (For homes priced in the $150k-199.9k range, the percent of total sales went up from 26% to 28%.) The tax credit ranges are where more sales are. Houses have to be purchased before Nov 30 2009 to qualify. This is impacting sales in the low end.
This is a case of some economist forecasting a low number, and even though it's even lower than last year, people are happy that it's higher than the prediction from the Commerce Department.
2 Hardest hit areas are still hit hard. The increases were in the Midwest of over 40% and the northeast at 29%. The areas struggling are still struggling.
3 REALITY - 11% rise yes, BUT -- this is 384,000 - expected was 352,000. This is where percentages can be deceiving. This is 32000 more homes. There are over 3,000,000 homes on the market. The 32000 homes represents .0106% change in that inventory number.
4. Median home price is down this month (May to June) -- had risen previous 2 months. Price destabilization or downward trend isn't good. We need several consecutive stable months.
5. Still have an 8.8 months supply of inventory in a conservative measure.
6. Single family home sales are 21.3% lower than this time LAST year!
7. The homes sold during spring buying season close usually May-June, so this is to be expected...
8. There is also some fear of rising rates in the Fall that may be driving some buyers into the market.
9. 1 out of 4 homeowners today in default are defaulting on purpose! Once the owner owes 15% more than the house is worth, the rate of defaults that are intentional go up to the 25% level. (Chicago School of Business)
10. Still to come - 22% of homeowners have a mortgage bigger than the value of their home. We WILL see more defaults. This will push prices down. Jumbos haven't begun to show up in the markets yet. Banks will stop lending again, and we will face crisis #3.
1. There is an $8000 tax credit for “first time” home buyers. From May to June, the percentage distribution of sales of homes with prices under $150k rose from 14% of sales to 20% of sales. (For homes priced in the $150k-199.9k range, the percent of total sales went up from 26% to 28%.) The tax credit ranges are where more sales are. Houses have to be purchased before Nov 30 2009 to qualify. This is impacting sales in the low end.
This is a case of some economist forecasting a low number, and even though it's even lower than last year, people are happy that it's higher than the prediction from the Commerce Department.
2 Hardest hit areas are still hit hard. The increases were in the Midwest of over 40% and the northeast at 29%. The areas struggling are still struggling.
3 REALITY - 11% rise yes, BUT -- this is 384,000 - expected was 352,000. This is where percentages can be deceiving. This is 32000 more homes. There are over 3,000,000 homes on the market. The 32000 homes represents .0106% change in that inventory number.
4. Median home price is down this month (May to June) -- had risen previous 2 months. Price destabilization or downward trend isn't good. We need several consecutive stable months.
5. Still have an 8.8 months supply of inventory in a conservative measure.
6. Single family home sales are 21.3% lower than this time LAST year!
7. The homes sold during spring buying season close usually May-June, so this is to be expected...
8. There is also some fear of rising rates in the Fall that may be driving some buyers into the market.
9. 1 out of 4 homeowners today in default are defaulting on purpose! Once the owner owes 15% more than the house is worth, the rate of defaults that are intentional go up to the 25% level. (Chicago School of Business)
10. Still to come - 22% of homeowners have a mortgage bigger than the value of their home. We WILL see more defaults. This will push prices down. Jumbos haven't begun to show up in the markets yet. Banks will stop lending again, and we will face crisis #3.
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