Crashachusetts Existing Home Sales and Prices: February 2008

Today, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for February 2008 and simultaneously Standard & Poor’s released their Case-Shiller Home Price Index for January 2008 both showing, perfectly clearly, the truly dire circumstances that have now befallen the Bay State’s housing market.

Whether it was a slow depression brought about by over two solid years of steadily declining home sales and prices, the credit crunch, a looming recession, a palpable increase in inflation of necessities like food and fuel or just simply a change in attitudes toward the notion of a house as a vehicle for wealth, the regions housing markets have now hit a dangerous tipping point (particularly for fancy south end condos... see BostonBubble.com for more).

It appears that we have entered the “price freefall” phase of the housing decline where mounting inventory, declining sales, and negative sentiment all combine to result in plunging home prices which, quite possibly, may continue to decline substantially even through the spring and summer months which are typically strong periods in any selling season.

The Massachusetts Realtor leader Susan Renfrew, apparently left a bit speechless by poor results, could only muster a weak one-liner before degenerating into a robotic regurgitation of the NAR party line.

“February single-family home and condominium sales came in about where we expected them to, which was generally in line with January’s activity … The good buying opportunities that exist today, along with the recent increases in the FHA, Fannie Mae and Freddie Mac loan limits could help improve sales over the next quarter.”

MAR reports that in February, single family home sales plummeted 22.9% as compared to February 2007 with unchanged inventory translating to a truly massive 16.2 months of supply and a median selling price decline of 4.6% while condo sales plunged 34.6% with a 4.0% decrease in inventory translating to a startling 17.5 months of supply and a median selling price decrease of 6.7%.


The S&P/Case-Shiller Home Price Index for Boston, which is the most accurate indicator of the true price movement for single family homes, showed accelerating prices declines (prices are falling faster) with Boston declining 3.39% as compared to January 2007 leaving prices now 10.89% below the peak set in September 2005.

To better illustrate the drop-off in home prices and the potential length and depth of the current housing decline, I have compared BOTH the normalized price movement and peak percentage changes to the S&P/Case-Shiller home price index for Boston (BOXR) from the 80s-90s housing bust to today’s bust (ultra-hat tip to the great Massachusetts Housing Blog for the concept).


The “normalized” chart compares the normalized Boston price index from the peak of the 80s-90s bust to the peak of today’s bust.

Notice that during the 80s-90s bust prices took roughly 46 months (3.8 years) to bottom out.

The “peak” chart compares the percentage change, comparing monthly Boston index values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.

In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 105 months (almost 9 years) peak to peak including 34 months of annual price declines during the heart of the downturn.

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.

February’s Key MAR Statistics:

• Single family sales declined 22.9% as compared to February 2007
• Single family median price decreased 4.6% as compared to February 2007
• Condo sales declined 34.6% as compared to February 2007
• Condo median price increased 6.7% as compared to February 2007
• The number of months supply of single family homes stands at 16.2 months.
• The number of months supply of condos stands at 17.5 months.
• The average “days on market” for single family homes stands at 166 days.
• The average “days on market” for condos stands at 165 days.

NARcasting The Future: March 2008

Today, the National Association of Realtors (NAR) provided their latest estimate of annual existing home sales for 2008 leaving their prior estimates unchanged at a 4.9 million unit annual pace for the first half of the year and a 5.8 million unit annual pace for the second half of the year resulting in total year sales of 5.38 million units.

I’m fairly certain that in the coming months NAR will choose to discontinue publishing first half and second half sales pace estimates and simply go back to stating their total year sales estimate but for now I will chart all predictions.

Note that in this month’s chart I simply broke out each prediction and connected them to the 2007 year end result so as to best capture the flow of predictions.

As usual, the latest forecast comes with another dose of truly ridiculous spin.

In an effort to put their absurd bias into perspective I compiled all their existing home sales forecasts for 2007 and now 2008 into a chart along with a list of prominent quotes supplied with each forecast.


12/11/2006 Prediction: 6.40 million units.
Lereah "Most of the correction in home prices is behind us."

1/10/2007 Prediction: 6.42 million units.
Lereah "The good news is that the steady improvement in sales will support price appreciation moving forward."

2/7/2007 Prediction: 6.44 million units.
Lereah "After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008."

3/13/2007 Prediction: 6.42 million units.
Lereah "Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next."

4/11/2007 Prediction: 6.34 million units.
Lereah "Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections."

4/30/2007
Lereah Leaves NAR for Move.com

5/9/2007 Prediction: 6.29 million units.
Yun "Housing activity this year will be somewhat lower than in earlier forecasts."

6/6/2007 Prediction: 6.18 million units.
Yun "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year."

7/11/2007 Prediction: 6.11 million units.
Yun "Home prices are expected to recover in 2008 with existing-home sales picking up late this year."

8/8/2007 Prediction: 6.04 million units.
Yun “With the population growing, the demand for homes isn’t going away – it’s just being delayed.”

9/11/2007 Prediction: 5.92 million units.
Yun “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

10/10/2007 Prediction: 5.78 million units.
Yun "The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains."

11/13/2007 Prediction: 5.5 million units.
Yun "In some ways, the extended real estate boom from 2001 to 2005 created unrealistic expectations that housing is a short-term high-yield investment… 2007 will be the fifth best year for housing on record"

12/10/2007 Prediction: 5.67 million units in 2007, 5.7 million units in 2008.
Yun "The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007."

01/08/2008 Prediction: 5.66 million units in 2007, 5.7 million units in 2008.
Yun "A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008."

02/07/2008 Prediction: 4.9 million units in H1, 5.8 million units in H2, 5.38 million units full year.
Yun "Where builders have cut construction sharply, and in most areas with improving affordability conditions, we’ll generally see moderately higher home prices."

03/06/2008 Prediction: 4.9 million units in H1, 5.8 million units in H2, 5.38 million units full year.
Yun "Significant price declines in some local markets have sharply and quickly improved local affordability conditions, and are inducing buyers to return to the marketplace"

The Almost Daily 2¢ - Nouvelle Riche

It would be an understatement to say that since I learned of the existence of the “Nouvelle at Natick”, a luxury condo project “fused” to the revamped Natick Mall in Natick Massachusetts, I have been a bit perplexed.

In truth though, I have also been also captivated by the many details and news surrounding the project and I have followed along closely.

As you may already know from past posts concerning the project, to me the Nouvelle represents a sort of crescendo of optimism and exuberance of both the notion of American “consumer” and of the modern concepts of “homeowner” and "luxury".

How better could the euphoric sensibilities of the pre-collapse heyday be represented than through a luxury condo project, with units ranging from $439,900 to $1,599,900, that is actually attached to a newly refurbished mall some 20 miles from the nearest city center.

Add to that the fact that the town of Natick has never seen a median condo price higher than $242,000 or that over the last year only 18% of all condo sales for the town sold at or above the LOWEST priced Nouvelle unit with NO sales ever reaching the HIGHEST priced unit, or the many quietly reported details suggesting that the builder, General Growth Properties (NYSE:GGP) has been experiencing very poor, almost nonexistent, sales from the project and the picture becomes even clearer.

But before I get too downbeat and bearish let’s all remember that thankfully not everyone interprets information the same way and that there is certainly room differing opinions on both the fundamental value and personal value we place on the things we purchase.

Remember, these are “luxury” units implying that the buyers are, in a sense, both in the position to expect and desire a bit extra from their living space.

They can afford the extra expense, the space fits their need of location and lifestyle, and risk of re-pricing may simply not be a concern.

To that end, I recently contacted Michael DuGally, one of the current Nouvelle buyers quoted in the many articles (Boston Globe, NY Times, etc.) on the project and here is an excerpt from our exchange.

Keep in mind, Michael was generous enough to answer my questions even in light of the fact that this blog and blogger present some of the most pessimistic and bearish outlook on residential real estate to be found on the web and, as you can see from his responses, he is perfectly aware of the downturn in housing, its causes and its effects on the wider economy.

SoldAtTheTop: Can you describe what you perceive the total experience will be living at the Nouvelle at Natick?

Michael: Convenience. First class building, great amenities, underground parking, our primary view is the small wetlands so feels like being remote even on top of a mall. Access to both work and airport for travel is even time for us. We have our favorite Yoga studio 5 minutes away that we used to have to drive to from Everett.

SoldAtTheTop: Has the builder communicated any information to you regarding any difficulties with the project or the possibility of them leasing rather than selling units?

Michael: No, not yet.

SoldAtTheTop: If leasing the units rather than selling was to occur in the future, would that change things for you?

Michael: We would have to deal with that when the time comes. I don't think it really matters because we we're not snobs about who our neighbors are, and a college party crowd would not lease there anyway.

SoldAtTheTop: Has the builder reduced prices (or increased incentives) on any of the units and if so, are you entitled to any compensation?

Michael: Not yet from what I understand. Not sure if we would be entitled to anything.

SoldAtTheTop: Are you close with any of the other unit buyers and if so, have any others expressed any reservations about their purchases especially in light of the recent downturn to residential real estate?

Michael: Real Estate has been in a downturn for 18 months. All that is happening now is the reality of bigger impact is starting to set in. As you well know, the bubble bursting is GOOD for the economy.

Americans have become ridiculously obsessed with easy debt and deserve a reality check. You can't blame McDonald's for obesity. People make choices. It is a shame that state and federal governments are bailing out people who live beyond their means.

I don't blame the lenders. There are a miniscule handful of real victims. We have been getting easy credit card promotions in the mail for over 20 years now. Do we blame the banks because people use them and end up in bankruptcy? No.

The best thing that could happen to the larger economy is for home prices to adjust to somewhat resemble wages and for the condo "flippers" to be driven out of the market.

Nouvelle had an insane amount of people (hundreds) a couple years ago on a list who paid $1000 for the right to buy them when they went on the market.

Those were fast money flippers. Not people like us making a lifestyle living decision. I don't think you will see a single condo flipper buying at Natick. It is not an easy money investment.

SoldAtTheTop: You mentioned that this will be your primary residence... will you be selling your current property prior to moving to Nouvelle and if so, are you having or do you think that you will have any difficulty?

Michael: We have the nicest unit in our current property, and did so many unique things to it that we have actually a list of interested buyers and a couple offers already to consider.

We bought pre-construction and very early on that project, and won't lose money. We won't make the killing we thought, but that is the way real estate is.

SoldAtTheTop: What's your take on the current state and future outlook for housing and the economy?

Michael: I think we are heading for a deeper recession, but it should be a softer more gradual blow over the next 8-10 months and will be overall very good for the broader economy in 09 and 10.

The fed will continue to cut rates, but lenders will not be dropping rates as a result. Global economic growth and weakness of the dollar will help in many ways from things going totally south.

New construction and new permits will come to a standstill by this spring, which will help move the record inventory in the market.

Once that is gone, builders I think will be more prudent. This is very akin to the dot.com bubble.

We could argue we are in another bubble with Google at a multiple that would take 1000 years to justify, but largely there is rationale in valuations of tech companies versus blind faith during the bubble days. Same thing will happen with housing.

SoldAtTheTop: Is there any misinformation that has been reported about the project that you would like to correct?

Michael: The Globe (Boston Globe) did a great cover story on Natick, but it focused too much on "Living at the Mall." JC Penney, Cheesecake Factory are not what Nouvelle represents.

It’s simply a blend of city “high rise” style convenience with an urban hook. Sure, for the price we paid we could find a nice place in Boston.

We could not find a 2200 sq. ft penthouse with all the other amenities.

In comparable quality buildings with similar interior standards we would have paid 50-100% more. Not just in price, but in taxes, condo fees, etc. Nouvelle is practical for us both, cutting our reverse commute in half. That is 1 less hour a day of the mass pike. And, we will still be just 20-25 minutes from the city.

NARcasting The Future: December 2007

Today, the National Association of Realtors (NAR) provided their final approximation of annual existing home sales for 2007 on an “up” beat revising their prior estimate up to 5.67 million housing units sold along with providing both their initial estimate for 2008 as well as, of course, another dose of truly ridiculous spin.

In an effort to put their absurd bias into perspective I compiled all their existing home sales forecasts for 2007 and now 2008 into a chart along with a list of prominent quotes supplied with each forecast.

12/11/2006 Prediction: 6.40 million units.
Lereah "Most of the correction in home prices is behind us."

1/10/2007 Prediction: 6.42 million units.
Lereah "The good news is that the steady improvement in sales will support price appreciation moving forward."

2/7/2007 Prediction: 6.44 million units.
Lereah "After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008."

3/13/2007 Prediction: 6.42 million units.
Lereah "Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next."

4/11/2007 Prediction: 6.34 million units.
Lereah "Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections."

4/30/2007
Lereah Leaves NAR for Move.com

5/9/2007 Prediction: 6.29 million units.
Yun "Housing activity this year will be somewhat lower than in earlier forecasts."

6/6/2007 Prediction: 6.18 million units.
Yun "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year."

7/11/2007 Prediction: 6.11 million units.
Yun "Home prices are expected to recover in 2008 with existing-home sales picking up late this year."

8/8/2007 Prediction: 6.04 million units.
Yun “With the population growing, the demand for homes isn’t going away – it’s just being delayed.”

9/11/2007 Prediction: 5.92 million units.
Yun “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

10/10/2007 Prediction: 5.78 million units.
Yun "The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains."

11/13/2007 Prediction: 5.5 million units.
Yun "In some ways, the extended real estate boom from 2001 to 2005 created unrealistic expectations that housing is a short-term high-yield investment… 2007 will be the fifth best year for housing on record"

12/10/2007 Prediction: 5.67 million units.
Yun "The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007."

Reading Rates: MBA Application Survey – November 21 2007

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage decreased slightly since last week to 6.18% while the purchase volume decreased 2.0% and the refinance volume decreased 5.0% compared to last weeks results.

It’s important to note that the data is reported (and charted) weekly and that the rate data represents average interest rates, and the index data represents mortgage loan application volume for home purchases, home refinances and a composite of all loans.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since January 2007.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).

The following charts show the Purchase Index, Refinance Index and Market Composite Index since January 2007 (click for larger versions).

The Gloves Come Off!

In addition to putting together yesterday’s post on the ridiculous “market is hot in Arlington” article, I fired off the following email to Martin Baron (and others), Editor of the Boston Globe:

--

All,

The article published yesterday entitled "Arlington is hottest place in Eastern Mass." takes pandering the real estate advertisers many steps too far.

I implore you to read the article at the following link and then publish a retraction. Also, you might want to look over your "reporters" shoulders from time to time... you know... do a little editing every so often.

http://paper-money.blogspot.com/2007/10/boston-globes-new-bubble.html

Sold

P.S. I'm emailing this link to other media outlets as well...

--

A little snarky I know but the fact remains that the Arlington article was a true absurdity and I hardly believe that I’m alone in feeling near outrage over it.

Well, I did in fact elicit a response and I thought I might share it with PaperEconomy readers along with my in-line retorts (in bold).

This post should function as a decent counter response that I will email to Mr. Baron.

--

Thank you for your email. This story was initiated not at the suggestion of a realtor, but by a reporter. We do not kowtow to the interests of advertisers, potential advertisers, or industry groups. The Arlington story was published in the context of dozens, if not hundreds, of previous stories in the Globe on the generally weak housing market.

[
I take it back… the Boston Globe is not pandering to real estate advertisers… it is PART of the real estate industry.

Don’t believe me?

Just take a look at the Boston.com real estate section.

The Boston Globe has a direct relationship with real estate financial information firm the Warren Group and TOGETHER they sell home reports for virtually any home in the region. You buy them right through the Boston.com website.

The Globe also hosts MLS searches right on their main real estate web page which means they have established a significant relationship with the MLS Property Information Network (MLS-PIN) which owns the data.

Why is this important? Because this is not mere advertising.

With the property search and all of the associated tools and accoutrements (town stats, open house postings, mortgage rate lookups, embedded videos etc.) they are actually assisting buyers in ferreting out inventory and in nearly every aspect of the sales process.

Yes this is probably good for the consumer… the tools are useful but the fact remains that these are not mere Sunday sections or even banner ads…. we are in a new era of advertising.

These tools represent a nearly complete synthesis of news media and consumption where you literally read news and can simultaneously participate in buyer or seller activity in the same dynamic frame of reference.

Mr. Baron, you can talk editorial independence and separation from advertisers all you want but is it really likely that this hyper confluence of real estate business and media interests plays NO role in editorial decisions?
]

The story's basic premise – that the market for single-family homes in Arlington is unusually robust amid a nationwide housing slump – is supported by statewide real estate data, as well as by multiple interviews with buyers and sellers in the Boston area.

[
The interviews were anecdotal and the data absolutely does NOT support the notion of “unusually robust”.

Your suggestion again simply perpetuates a preposterous notion.

Yes the August median selling price figure you quoting (apparently recently revised from $510,000 to the $506,000 currently reported by the Warren Group) is on par with August of 2005 and near August of 2004 but what you apparently don't understand is that August settlements capture sales that originated in during June and July, easily the busiest selling months of the year.

This tends to make the August median selling price result volatile and not nearly as representative of the annual median price which is the price that actually matters.

No one quotes just the August value when referring to median selling price… they quote the annual.

Look at the following chart for Arlington and you can see what I mean.

Notice that the August (blue) trend line is the jerky and erratic especially compared to the (red) year-to-date through August and the (green) annual lines.

Notice also that, in general, the year-to-date through August is a decent predictor of the outcome of the annual result whereas the August median value is generally quite poor.

Notice also that in 2006 neither the August or the year-to-date through August was a good predictor for the annual result as the median selling price in Arlington accelerated to the downside during the fall months.
]

The story acknowledges that condo sales have slowed, that houses can still languish on the market, and that while Arlington is affordable relative to surrounding communities, homes there can still easily cost a half-million dollars. But the fact remains that Arlington distinguishes itself in eastern Massachusetts by both days-on-market data and median sale prices.

[
Day’s on the market is at best a very rough way to judge market activity as it is really a byproduct of the MLS listing and not actual market performance.

Of course, in a perfect world, a market full of homes that after being listed with a listing services (like the MLS) stay there racking up “days-on-market” until being removed as a result of a purchase would actually be a good indicator but anyone who has actively watched a town’s inventory knows that that’s not the case.

In reality, homes are removed and re-listed frequently for many reasons by both Realtors and sellers.

This skews the number and although it still serves as a rough guide to activity, Arlington’s 83 day average is certainly nothing to get exuberant over.

As for the median selling price… see above.
]

As of October 5, the median sale price for single-family homes in Arlington was $510,000 in August, the most recent month available from the Warren Group – and a traditionally slow month for house sales. In the past week, that number has dipped by $4,000 due to updated Warren Group data. The data is updated constantly.

[
No. Sorry Mr. Baron, the August results represent the highest monthly sales for the year.

It’s important to keep in mind that the sales results captured in August are from purchases that generally originated in June and July and possibly the very first few days of August.

Remember, buying a house takes time and The Warren Group captures the data after it has been finalized by a deed transaction at the registry.
]

The year-to-date median sale price for single-family homes in Arlington is $465,500 as of this afternoon. By that measure, too, Arlington is a standout in eastern Massachusetts. It is also a standout compared to the neighboring communities cited in the story – Bedford, Belmont, Cambridge, and Lexington. Sales data indicate that Arlington’s real estate market was extremely busy this summer, resulting in a higher median sale price in August. As a result, Arlington is on track this year to match and perhaps exceed its busiest-ever year for home sales, 2004.

[
Again, you are expressing an obviously fundamental misunderstanding of the data.

You are treating home sales as if they inflate like the selling price.

Short of some truly fundamental change, home sales at a town level remain relatively constant over time.

In terms of a single town market, there is a relatively fixed housing stock, similar numbers of population, similar household formation and relocations in and out of the town all resulting in a fairly stable numbers of home sales.

Of course there could be a significant period of slowing that would possibly take things down a notch but as you can see from the chart below, even the mortgage-mania that occurred between 2000 and 2006 barely registered.

Further, I don’t see how this is the “busiest-ever” year… doesn’t it look flat to you?

Additionally, I take exception with your notion that, in terms of year-to-date
median selling price, Arlington is a “standout” amongst eastern Massachusetts towns like Belmont, Bedford, Cambridge, and Lexington.

Look at the following chart of year-to-date median selling prices for those towns and see if you can explain how you arrived at the term “standout”.

I don’t see Arlington standing out very much at all… It has the lowest median price but it has always had the lowest median price.

Normalizing each towns results to a base of 100 makes the fact that the sharing the same experience even a bit more clear.


The towns are all essentially following the same path, namely up the boom years and now… heading down again.
]

Regarding the percentage of Arlington homes that sell under listing price:
This data cannot be examined in a vacuum. Without comparing it to data in surrounding cities and towns, and to historical data in Arlington, the figure has little meaning. Even in strong housing markets, homes sell under asking price. That any houses would sell above list price in the current statewide and national real estate market is remarkable.

[
Zip (i.e. use ziprealty.com) any town inside 128 and the number of homes with price reductions is roughly 50% INCLUDING Arlington (at 55%).

Sellers have been reducing prices just to lure buyers into making below list offers on 66% of all sales and list-to-below-list on 90%.

That's significant and it's a good barometer of the depth and breadth of the downturn.
]

Sincerely,
Martin Baron
Editor
The Boston Globe

---

Mr. Baron, originally you published an article that had incredibly poor quality of information with at best a few anecdotal stories supported by numbers that your reporter knew not how to interpret.

Now, you yourself defend the story with an even worse level of understanding.

I have made my case and I’m repeating my demand that you publish a complete retraction placed in a comparable position to the absurdly poor article published on Wednesday and further to cease and desist promulgating such poor quality “news”.

The Daily 2¢ - Mortgage Tsar?

In terms of government response to crisis, you know things are really going haywire when they anoint a new Tsar.

And so it goes for the housing-mortgage meltdown.

Not satisfied with intervening in the “free” market through mere Fed rate cuts and a potentially (in the bag) dramatic expansion of Freddie Fannie and FHA, Congress seems so bent on attempting to prevent a correction in the nation’s housing markets that they are now proposing the “temporary” creation of the position of “Mortgage Tsar”.

Furthermore, Representative Barney Frank (D-MA), Chairman of the House Financial Services Committee, offered up his pick for the spot, former Congressman Jack Kemp.

I think, at this point, it’s safe to say that Congress is getting a little carried away.

Senator Christopher Dodd (D-CT) even suggested that the current circumstances in the housing-mortgage market are akin to a “slow-motion, 50-state Katrina, taking people's homes one-by-one, deva­stating their lives and destroying their communities.”

So, what are the expectations for a “Mortgage Tsar” anyway?

Here is a possible “Mortgage Tsar” credo:

“Willing to combat foreclosure wherever it should strike the innocent and further to prevent the unwitting debt getter from making bad decisions. Stops at nothing to eliminate pre-payment penalties… Able to make a large Jumbo loan conform in a single bound!... look up in the air… it’s a bird… it’s a plane… it’s… it’s… The Mortgage Tsar!”

Congress… Put your hands down and slowly back away from the legislation.

BNN MUST SEE TV! – Peter “Dr. Doom” Schiff, Robert Shiller, and Nouriel Roubini

Here’s another new round of fairly calamitous forecasts from three of the most accurate economic prognosticators of our recent times.

Keep in mind that the respective outlook of all three forecasters has not changed measurably in the last year or so and, in fact, it seems quite obvious now that they were among the very few who clearly envisaged the full breadth and depth of the housing decline and the spillover effects that it’s reversal would have on the economy as a whole.

Peter “Dr. Doom” Schiff, President of Euro Pacific Capital joins CNN and CNBC to discuss the mortgage-housing crisis and its effects on the wider economy. Schiff points out that many of the subprime and toxic exotic loan borrowers were not victims but, in fact, speculators.

As lending standards tighten, returning to normal, home prices will correct and home equity will “vanish” leading Schiff to predict that he is “100% certain that we are headed for a severe and prolonged recession” while also suggesting that it will take time for all the aspects of the collapse to fully unwind.

Watch Dr. Doom’s Recent CNN Appearance on BNN!

Watch Dr. Doom’s Recent CNBC Appearance on BNN!

Yale Professor and Chief Economist of MacroMarkets LLC Robert Shiller joins CNBC to discuss the psychology of homeowner sentiment and the outlook for housing.

Shiller continues to suggest that, although the course of the housing market is slow and hard to predict, he is still worried about the impact of the correction and the likeliness for it to worsen.

While homeowners and homebuyers are generally still optimistic about housing and consumption, Shiller suggests that falling home prices and increasing inventory may likely erode that confidence.

Watch Robert Shiller’s Recent CNBC Appearance on BNN!

Watch Robert Shiller’s Recent Larry Kudlow Appearance on BNN!

New York University Professor and Chairman of RGE Monitor, Nouriel Roubini joins Bloomberg to discuss the outlook for housing and the economy.

Roubini now puts the odds of a recession at over 50% with the mortgage-credit crunch and a declining housing market leading to a weakening consumer.

While predicting an inevitable rate cut from the Fed, Roubini suggests that it will likely be too late to really affect the housing decline.

Watch Nouriel Roubini’s Recent Bloomberg Appearance on BNN!

A Closer Look at New Home Sales

As I had noted before, in 2004 new home sales exhibited an interesting phenomena whereby the distribution of home sales, grouped by several price ranges, effectively flipped from what one might conclude to be logical and from the historical norm.

Prior to 2004, in general, the least expensive new homes sold the most numbers of units while the most expensive new homes sold the least numbers of units.

Not a very surprising result as one might easily conclude that the majority of new home buyers cannot, in general, afford the most expensive homes.

After 2004 though, the scenario exactly flipped in that the most expensive new homes easily outsold the least expensive homes.

Now, this could either be explained by the inflating of home prices during the boom, easy availability of bloated loans, home buying patterns, or a little bit of all of these events but no matter what the cause, it appears that the scenario is now in the process of flipping yet again.

Since the peak in 2005 new home sales have been falling among all price ranges but more recently there have been relative strength in the sales of lower priced home and a marked weakness in sales of the highest priced homes.

The interesting point here is that the “flip” that occurred in 2004 was likely an anomaly made possible by the boom which is likely to completely reverse in the coming years as the environment for home building settles back to a more historically normal scenario.

This “re-flipping” of new home sales may serve as a good indicator of the unwinding of the boom.

The first chart shows new home sales for the highest priced new homes, i.e. homes priced above $300,000 (click for larger version). Notice that since 2005 sales have been declining sharply.

The following chart shows the unadjusted number of new homes sold for four different price ranges (click for larger). Notice that the price ranges appear to be converging and likely flipping back to a more historical normal pattern.

Another way to visualize this issue is to view each price ranges “market share” of all new homes sold (click for larger version). Notice that back in 1999, over 40% of new homes were priced under $200,000 whereas now, new home sales for homes in this price range total less than 20%.

Crashachusetts Existing Home Sales: June 2007

Yesterday, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for June 2007 showing continued declines in demand in the regions residential housing market with the sales of single family homes dropping 6.0% compared to June of 2006.

Along with the release, MAR President Doug Azarian continued to spin his optimistic tale of price stabilization and inventory balance even in the face of renewed sales declines.

“While the second quarter wasn’t able to sustain the momentum of the first quarter compared to the year before, it was still very active … Looking at year-to-date numbers, we are not far off last year in terms of sales and median prices, while inventory and months of supply continue to go down. With only 7.5 months of supply, the residential market is now in ‘balance’. This is typically a good time for both buyers and sellers to come together.”

Azarian forgets to mention though that not only are inventories back on rise with the number of single family homes on the market increasing 1.7% since just last month, June is historically the region’s best month for sales effectively skewing the “months of supply” in favor of an unusually optimistic result.

Not that a little “smoke and mirrors” is all that out of the ordinary for MAR but let’s take a closer look to see how accurate it was for Azarian to call the market “balanced”.

First, the “months of supply” figure is calculated simply by dividing the total current inventory by the current month’s sales result.

For June, MAR reported a current inventory of 37,498 single family homes and 4,959 single family home sales resulting in 7.56 “months of supply”, a significant decrease from the 9.5 “month of supply” seen just this May.

But inventories have actually increased since May and June’s single family home sales were weak falling 6.0% below the results seen last year, so how could the “months of supply” have declined so dramatically?

Take a look at the chart below and it’s easy to see that June is by far the most active sales month for the year typically registering substantially more sales than the average month. (click for larger version).

This makes the June sales result NOT the best choice for calculating a truly accurate “months of supply” as it represents an anomaly in sales with respect to the rest of the year.

Possibly a better choice would have been to simply average the monthly sales results seen in to date in 2007 and use that as the denominator.

This would yield an average of 3462 single family home sales per month resulting in a likely more accurate 10.8 “months of supply” of single family homes.

Also note that as seen in the chart above, home sales are continuing to weaken with 2007 results generally coming in below 2006 which were generally below the results seen in 2005.

As for home prices, MAR reports a decline of 1.6% to the median price for a single family home as compared to June 2006 while the Warren Group again reported a more significant drop of 4.6%.

As with last month, the Warren Group’s results are more consistent with the latest results of the S&P/Case-Shiller home price index for Boston and likely far more accurate than the MAR’s MLS-listed only result.

With significantly falling prices, continued declining sales volume and a slowing pace of sales, it seems hard to believe that Azarian’s “market balance” call and optimistic outlook has any merit especially when considering that all of this weakness is coming on the back of the historic declines seen in 2006.

A more likely scenario is that our area is experiencing a fundamental correction to prices that, through unusually low interest rates and historically easy lending standards, were able to rocket to irrational heights during the run-up years.

To better illustrate the drop-off in home prices and the potential length and depth of the current housing decline, I have compared BOTH the year-over-year and peak percentage changes to the S&P/Case-Shiller home price index for Boston (BOXR) from the 80s-90s housing bust to today’s bust (ultra-hat tip to the great Massachusetts Housing Blog for the concept).


The “year-over-year” chart compares the percentage change, on a year-over-year basis, to the BOXR from the last positive value through the decline to the first positive value at the end of the decline.

In this way, this chart captures only the months that showed monthly “annual declines” and as we can see, if history is to be a guide, we could be about one third of the way through the annual price declines with the majority of falling prices yet to come.

The “peak” chart compares the percentage change, comparing monthly BOXR values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.

In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 105 months (almost 9 years) peak to peak including 34 months of annual price declines during the heart of the downturn.

Notice that peak declines have been more significant to date and, keeping in mind that our current run-up was many times more magnificent than the 80s-90s run-up, it is not inconceivable that current decline will run deeper and last longer.

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.

June’s Key Statistics:

• Single family sales declined 6.0% as compared to June 2006
• Single family median price declined 1.6% as compared to June 2006
• Condo sales declined 3.6% as compared to June 2006
• Condo median price increased 4.4% as compared to June 2006
• The number of months supply of single family homes stands at 7.6 months.
• The number of months supply of condos stands at 7.2 months.
• The average “days on market” for single family homes stands at 126 days.
• The average “days on market” for condos stands at 124 days.

Reading Rates: MBA Application Survey - July 18 2007

The Mortgage Bankers Association (MBA) publishes a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage declined since last week and now stands at the near peak for the year at 6.61% while the purchase volume decreased 1.6% and the refinance volume increased 4.9% compared to last weeks results.

It’s important to note that the data is reported (and charted) weekly and that the rate data represents average interest rates, and the index data represents mortgage loan application volume for home purchases, home refinances and a composite of all loans.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since January 2007.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).

The following charts show the Purchase Index, Refinance Index and Market Composite Index since January 2007 (click for larger versions).

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings July 2007

Today, the National Association of Home Builders (NAHB) released their Housing Market Index (HMI) showing additional evidence that the new home market is experiencing a new leg down in declines.

Measuring builder confidence across six key data points, the builder survey has been a bellwether for the new home market since 1985.

The component measures used to formulate the overall HMI are respondent ratings on “present conditions”, “future conditions” and “buyer traffic” all of which continue to indicating significant current and future weakness as the new home market slumps its way slowly forward, now long separated from an exceptionally disappointing spring selling season.

In fact, July’s “present”, “future” and “buyer traffic” condition results have moved to the worst levels seen since early 1991 when the nation’s housing market was slumping through its last major housing bust.

The following charts show “present conditions”, “future conditions” and “buyer traffic” both smoothed since 1986 and unadjusted since 2005 (click for larger versions).

Keep in mind that for each measure respondents are asked to assign both a “good” and “poor” rating so in each chart you will notice “good” slumping while “poor” is surging.

Pending Home Sales: April 2007

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for April 2007 showing a continuation of the historic decline to residential housing on a month-to-month and year-over-year basis, both nationally and in every region.

Additionally, the Northeast, Midwest and West regions have fallen back below 100 indicating that April’s home sales activity was BELOW the average activity recorded in 2001, the first year Pending Home Sales were tracked.

Proving that not every shill economist can bluff economics data with the deftness of the “late great” David Lereah, the new “fill-in” NAR Senior Economist Lawrence Yun blatantly presents false outlook.

“It looks like we may be leaving a period of market disruptions, and for the past two months the pending home sales index has been similar in year-ago comparisons, which means home sales might ease but should be fairly stable in the months ahead,”

Similar to year ago comparisons!!?

I suppose, if you call 10% year-over-year decline for each of the last two months similar.

Yun then goes on to suggest that the subprime meltdown is over and the “disruption” has played itself out.

“In April, existing-home sales declined in part because some subprime lenders went out of business and disrupted the market, but the impact appears to be diminishing and mortgage applications have risen in the last month,”

Keep in mind the current pending sales decline comes ON TOP of last years historic fall-off so the continued weakness is a sure sign that the decline is not ephemeral.

Look at the April pending home sales results and draw your own conclusion:

• Nationally the index was down 10.2% as compared to April 2006.
• The Northeast region was down 15.4% as compared to April 2006.
• The West region was down 11.7% as compared to April 2006.
• The Midwest region was down 4.4% as compared to April 2006.
• The South region was down 10.4% as compared to April 2006.

So it appears that, year-over-year, contract activity is still dropping rather sharply with ALL regions continuing to show significant declines.

GDP Report: Q1 2007 Preliminary

Today, the Bureau of Economic Analysis (BEA) released their second installment of the Q1 2007 GDP Report showing truly anemic growth of 0.6% weighed down by, amongst other things, continued weakening to fixed residential investment.

Major praise has to go to Professor Nouriel Roubini for his accurate forecasting having called this deceleration to GDP well in advance as well as virtually nailing the actual figure earlier this month in his post on the “growth recession” while the advance GDP report suggested that growth was closer to 1.3%.

Residential fixed investment, that is, all investment made to construct or improve new and existing residential structures including multi–family units, continued its historic fall-off registering a decline of 15.4% since last quarter while shaving .87% from overall GDP.

Housing continues to be, by far, the most substantial drag on GDP subtracting an amount roughly surpassing to the contributions made by ALL non-durable goods including food, clothing, gasoline, fuel oil.

Keep in mind that the initial GDP reports are highly revised so it seems likely that the coming report (Q1 final) will further capture the historic housing market weakness seen in the first three months of 2007.

The following chart shows real residential and non-residential fixed investment versus overall GDP since Q1 2003 (click for larger version).

S&P/Case-Shiller: March 2007

Today’s release of the S&P/Case-Shiller home price indices for March continued to show weakness for the nation’s housing markets with thirteen of the twenty metro areas tracked reporting significant declines.

Topping the list of decliners on a year-over-year basis was Detroit at -8.38%, San Diego at -5.97%, Boston at -4.86%, and Washington DC at -4.78%.

Additionally, both of the broad composite indices showed accelerated declines slumping -1.88% for the 10 city national index and -1.36% for the 20 city national index resulting in the first negative appreciation on an annual basis since the 1990-1991.

To better visualize the results use the PaperMoney S&P/Case-Shiller/Futures Charting Tool and be sure to read the Tutorial in order to best understand how best to utilize the tool.

Crashachusetts Existing Home Sales: April 2007

This week, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for April 2007 showing further weakness to the regions residential housing market.

Along with the release, MAR President Doug Azarian continued to maintain an optimistic outlook on the trend.

“The housing market continued to trend in a positive direction for the month of April … While the number of detached single-family homes sold was down, the 1.7 percent decrease year-to-year was the lowest we’ve seen in the month of April for the past three years. … With inventory levels decreasing and interest rates still low, demand should continue to keep prices stable through the end of the spring home buying season,”

Probably the most notable data-point of the report is the continued increase of the average “days on the market” resulting in an increasing monthly supply.

Although the total residential inventory is lower now than in April of 2006, the sales pace is continuing to slow.

It’s important to remember that we are again seeing year-over-year sales declines “on the back” of last years historic sales drop-off indicating truly fundamental weakness.

This is inevitably resulting in climbing inventories that for some towns, such as Concord, are exceeding last years levels while many other towns continue to simply trend upward.

Use the PaperMoney Inventory Tracker to follow your town’s daily inventory as well as visualize the inventory changes that have occurred over the last year.

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.

April’s Key Statistics:

• Single family sales declined 3.5% from March and declined 1.7% as compared to April 2006
• Single family median price increased 0.3% from March and declined 2.3% as compared to April 2006
• Condo sales declined 0.7% from March and increased 0.7% as compared to April 2006
• Condo Median Price declined 1.6% from February and increased 2.6% as compared to April 2006
• The number of months supply of residential properties stands at 10.0 months.
• The average “days on market” for single family homes stands at 150 days.
• The average “days on market” for condos stands at 143 days.

BNN - MUST SEE TV!

Today brings six great additions to the BNN lineup, most notably, a Nightly Business Report interview with Federal Reserve’s Michael Moscow in which he admits, in so many words, that the housing decline has been more significant than the Fed had anticipated last year.

“As we move through this year, I would expect to see the housing market stabilizing, but no one can say exactly when that’s going to happen. I had thought it was stabilizing toward the end of last year as well and then we had some numbers that turned out to be worse than expected.”

Watch Moscow backpedal on BNN!

Next up there is News Hour interview with Treasury Secretary Henry Paulson in which he states that the US has experienced a “major” housing correction that was inevitable after years of historic gains. “That correction has now been significant, we think it is near the bottom, it will take a while to work its way through the system.” Unfortunately, Paulson only reiterates the same guidance he offered last year prior to the housing market taking another major leg down.

Watch Paulson call the bottom again on BNN!

Then there was Bernanke’s latest take on the subprime meltdown. Although Bernanke underestimated the extent to which the mortgage market would slide, he continues to present an optimistic outlook.

“How will developments in the subprime market affect the evolution of the housing market? We know from data gathered under the Home Mortgage Disclosure Act that a significant share of new loans used to purchase homes in 2005 (the most recent year for which these data are available) were nonprime (subprime or near-prime). In addition, the share of securitized mortgages that are subprime climbed in 2005 and in the first half of 2006. The rise in subprime mortgage lending likely boosted home sales somewhat, and curbs on this lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters. Moreover, we are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets. All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

Watch Bernanke talk containment on BNN!

Next, we have an excellent segment where Marc Faber, founder and managing director of Marc Faber Ltd outlines all the assets, sectors and regions in which he sees bubbles. In an era of historic liquidity, it’s not surprising that there are price bubbles in virtually every asset. Faber suggests that “everything will come down and massively so.” Additionally, Faber sees the whole global bubble scenario resulting from the inflation of the US housing bubble.

“The global liquidity was fueled largely from the American current account deficit, coming largely from the trade deficit, coming largely from US consumption, which was driven from the asset inflation in the US, most notably the housing market.”

Watch Faber talk Bubbly on BNN!

Next, Mortgage Bankers Association Chairman John Robbins discusses the subprime meltdown suggesting that the extent of the mess has been “oversold”. While pointing the finger squarely at predatory lenders for their obvious role in the current meltdown, Robbins adeptly downplays the possibility of any spillover and grater effects on the general economy.

“[the subprime meltdown] is certainly not expected to cause any great pain to the financial markets and shouldn’t bleed over to a great degree.”

Watch Robins spin on BNN!

Finally... Want to get cash out of your home without those pesky monthly payments and interest charges?

This CNBC segment features a new home equity product from Rex and Co. that allows homeowners to “borrow” against the future value of their home. That’s right! You get cash now, no payments and when you sell, you return the favor.

Watch and learn at BNN!