Sales of Existing Homes Nonexistent

Sales of US existing homes fell 2.6% to an annualized rate of 4.86 million from a 4.99 million pace the prior month.  Existing home sales are down 16% year-over-year.  The median home price dropped 6.1% from June of last year to $215,100.  Sales declined in three of four regions with only the West showing an increase in sales of 1% with the median price dropping by a whopping 17%.  This is perhaps indicative of the steep markdowns going on in California as lenders try to dump properties they repossessed as the result of foreclosures.  Inventories of unsold homes rose to 4.49 million from 4.482 million in May.  This represents an 11.1 month supply at the current sales pace.  Apparently, about a third of last month's sales were foreclosed properties.  According to the perennially cheerful chief economist of the National Association of Realtors Lawrence Yun "There are signs of pent up demand."  I'm not sure where he's been looking for all of that pent up demand.  Does he have potential buyers locked in his hall closet?  If so, for the love of God, let them out!  It seems hard to believe that there is any pent up demand with sales and median home prices declining month after month.  What is more than likely happening is that the market is adjusting to reflect actual demand by people who can afford houses based on reasonable lending terms.  We will not return to the free-wheeling days of 7.25 million existing home sales per year, the peak reached in September 2005, unless every single subprime and Alt-A lender that has gone bust is resurrected and resumes lending no-doc, negative am, option arm, cash-out loans.  And that is a reality that homebuilders, mortgage lenders, and investors must face before conditions improve.  

Update:  Freddice Mac's 30 year fixed rate mortgage average was up to 6.63% from 6.26%.  That is a mighty big leap in one week, due to both rising treasury yields as well as widening spreads.  Anyone who can tell me how this will affect next month's existing home sales numbers gets a gold star.

Pending Home Sales Unexpectedly Rise, Proving Every Dead Cat Has Its Bounce

The pending home sales index unexpectedly rose in April by 6.3% to 88.2 from the previous month.  Lawrence Yun, chief economist for the NAR, claims that this is due to an increase in bargain-hunting in areas where home prices have declined significantly.  The pending sales index, which is based on signed contracts for previously owned homes was 13.1% below the level of 101.5 in April 2007.  Pending sales in the Northeast decreased by 1.9%, while sales in the Midwest, South, and West all increased by 13%, 4.6%, and 8.3% respectively.  The NAR is forecasting existing home sales to reach 5.4 million this year and 5.74 million in 2009.  Based on those estimates, Mr. Yun may be campaigning for the head post at the National Association of Delusional Home Sales Optimists.  I'd like to point out to Mr. Yun that April existing home sales pointed to an annual pace of 4.89 million homes.  I'm wondering where the extra 500,000 units are going to come from to fulfill his estimates.  Those who are actually interested in purchasing a home in this dismal and uncertain economic environment are asking:  Can't we all just get a loan?  The banks are more than willing to comply, provided you have real assets, real cash for a hefty down payment, a real job, and maybe a kid or two for collateral.  5.4 million homes sold this year?  Time to throw another dart at that dart board...  

Home Prices Decline Further, New Home Sales "Increase"

The Case-Shiller housing index showed declines in home prices of 14% year-over-year and 6.7% from the fourth quarter. Las Vegas led the pack with a 26% drop, followed by Miami and Phoenix with 25% and 23% declines respectively. Meanwhile, new homesales rose 3.3% to an annual rate of 526,000. The reported "rise", however was due to a downward revision of the prior month. Last month's number was originally reported at 526,000, the worst level in 17 years. Today, last month's number was revised down to 509,000, and this month's number was reported at 526,000. This leads to a headline-friendly "rise" of 3.3%, or a fancy way of saying that new homesales remained at 17 year lows. With consumer confidence at 15 year lows, it's hard to imagine that consumers are going to rush out to buy new homes, or new cars, or furniture, or shoes, or (insert any consumer goods here)...

Pending Home Sales Hit Record Low, Again

Pending home sales hit a record low for the second consecutive month in March. March's reading was down 20.1% year-over-year and 35% from the index's peak in April 2005. With the recent resilience in homebuilder stocks, powered by those who must believe that the housing market is bottoming, these numbers should be a disappointment. In my universe of understanding, a bottom should be followed by some sort of uptick, not continuing declines. The nagging persistence of weakness in the housing market is perplexing to those who subscribe to the theory that loose monetary policy always juices the market. The Fed has done its part, now where are all the buyers? Or was a large portion of demand in the housing market merely the result of lenders handing money to anyone with a pulse who claimed to have assets and income?
A close look at Fannie Mae's earnings yesterday reveals that the company has a problem with its Alt-A portfolio. Apparently, $946 million of the $2.2 billion in losses incurred during the first quarter involved Alt-A loans. The company went on to state that it had $344.6 billion in Alt-A exposure and a limited strategy for stemming future losses. For those unfamiliar with Alt-A mortgages, they are backed by loans to borrowers with higher credit ratings than subprime but have little to no documentation of a borrower's assets or income. Fannie's Chief Daniel Mudd said the vintages performing the worst in a four-year average book were late '05, '06, or early '07. This should not come as a surprise as housing prices peaked in 2005, and mortgage lenders dropped like flies in early 2007, causing what is the biggest problem for current mortgage borrowers: the lack of ability to refinance. The inability of overextended borrowers to refinance into a more favorable loan is the root of surging delinquencies leading to foreclosures. It is such a big problem that I don't believe any government plan will be able to adequately address it.
Here is the link to a fantastic post on a UK blog which follows the path of one single mortgage pool of $500 million in Alt-A loans securitized by Washington Mutual in May 2007. The average credit score of the pool was 705, 92.6% was originally rated AAA, even though only 11% provided full documentation of assets. Less than one year later, in April 2008, 29.07% of the pool was 60 days delinquent or more, 13.87% was in foreclosure and 6.21% was an REO (the property had reverted to the lender after foreclosure.) These numbers grow worse and worse every month. When I hear the pundits talking about the prices of MBS being grossly understated due to unrealistic default rates priced in, I wonder if they've looked at some of these stats. This particular pool, which was not even subprime, is looking at potential default rates of over 50% and it isn't even a year old. Then I look at FNM's statement that it has $344.6 billion in Alt-A exposure. I scratch my head at why everyone rushed out to buy FNM's stock yesterday. Then I go to Costco and buy my alloted bag of rice for the day.