Fed Mortgage Subsidy Drives Buying Panic In Existing Homes To Bubble Levels

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The NAR Pending Home Sales data for March is a measure of current sales as of the date of the contract. It’s the closest thing we have to a real time measure of sales activity in the existing home market. The NAR’s “Existing Home Sales” represents the closing, that is the cash settlement of the sale reflected in Pending Home Sales, usually two months later on average.  Existing sales represent historical data that’s two months old, plus the lag of the release, which is another month, so the NAR’s existing home sales data is 3 months stale. The release of that data simply confirms what we already knew from the pending home sales data.

People who pretend to predict existing home sales are pulling your chain. The data is already out there. In fact, the local multiple listing services publish sales information, including contract prices, for local Realtor board members virtually in real time. Many organizations have access to real time price and volume data. They just don’t make it generally available to the public. Pundits who have access to that data and pretend to be able to predict volume and price changes are lying cheats. They have the data in front of their faces.

To the credit of Corelogic, they do publish pending sales price data within a reasonable time after they receive it, and way ahead of everyone else playing the housing data game. In a couple of days Corelogic will post the pending home sales price index from March. The February Index showed an annual gain of 10.2%. This should show up in April closed sale prices when they are first reported in early June.  No doubt we’ll see similar numbers for March pending sales/May closed sales.

The widely followed Cash Shiller data to be released tomorrow adds another month to the release time, then lags the data even more by using a 3 month average. The price and volume data in that index is therefore the theoretical average as of 1.5 months prior to the named date, which for tomorrow’s release will be February. That is already two months late because it’s closed sale data, and further delayed in release by two 2 months. It’s 5 1/2 month old data when it’s released. Tomorrow’s data will represent the theoretical average contract price as of mid November 2012.  It’s absolute garbage.  Corelogic just bought the Case Shiller Index. Hopefully, because it’s worthless crap, they’ll just shut it down.

The pending home sales data reflects only volume, not price. It’s a good gauge of market activity. It’s an index, not an actual number, but I’ve compared it with the existing home sales data over the past 8 years in order to derive a formula to convert it to an equivalent sales number. Then I plot this on a chart on a not seasonally adjusted (NSA) basis. The NSA data is actual, not seasonally manipulated to obscure the market’s actual behavior. I compare the current level and rate of change with past levels and rates of change at the same point of the year to see just how the market is doing. The fallout rate between contracts and sales is usually around 10% but sometimes larger when the market is under more severe stress. For about the past year, the fallout rate has been near zero.

This market is getting more active, as you can see. The sales volume trend is continuing on pace and is back to 2006 levels, just off peak bubble levels.

Pending and Existing Home Sales - Click to enlarge

Pending and Existing Home Sales – Click to enlarge


Dividing the sales number into current inventory shows the inventory to sales ratio. It shows just how tight the market for existing homes has become.  This is driving the buying panic.

Existing Homes Inventory To Sales Ratio - Click to enlarge

Existing Homes Inventory To Sales Ratio – Click to enlarge


Finally, here’s an overview of both sales volume and price trends by different measures. Current prices are shown in the listings price data reported by DepartmentofNumbers.com which compiles listing prices of the 55 largest US metros.  While they are higher than the subsequently reported sales prices their trends have proven accurate as an indicator of market direction in real time. Listing prices as of the end of April were 6.9% above the same date last year.

Home Prices - Click to enlarge

Home Prices – Click to enlarge

Listing prices across all markets are not rising as fast as selling prices because more sales are taking place in the more desirable, active markets, whereas the listings data reflects a broader cross section of good and bad markets.  The NAR’s closed sales data showed a gain of 11.6% in February, while Corelogic reported a gain of 10.2% in February pending home sales that will show up in April existing sales data. Housing inflation, like the inflation of stock and bond prices, is raging in the US thanks to the Fed’s subsidy of mortgage rates. Buyers are scrambling to outbid one another for limited inventory in good locations.

However, do not confuse the frenetic buying panic in existing housing with a housing industry recovery. Read It’s A Housing “Recovery” In Orwellian Terms – Here’s The Reality.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

  1 comment for “Fed Mortgage Subsidy Drives Buying Panic In Existing Homes To Bubble Levels

  1. amerousblogger
    April 30, 2013 at 12:29 pm

    The Fed under Greenspan kept interest rates artificially low for 14 years – – likely producing the Bubbles of both 2000; and, 2007-08.  
    In my view, the current data on housing is skewed.  A year ago; 70%, of new housing starts were in Rental Apartments built by Millionaires; who obtained easy credit from the Big Banks.  Also of late; haven’t we all been reading about the pooling of capital by Vulture Capitalists; who are buying 50 – 100 homes at a time, for 20 -30 cents on the dollar?  That will drive down inventories fast – – and prices.  After 3-4 years; the Big Banks finally decided they weren’t any better at Real Estate, than they were at protecting the investments of OTHER People! 
    I will be back soon, and relate to you another Manipulation that Greedy Investors are using to squeeze first-time; and, legitimate home buys, out of the resale market – – especially the foreclosures and short-sales.  They are Slick – – and the practice needs to be exposed.  Would make a hell of a story.
    Enjoy reading your work. Keep it up.
    Don Larson

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