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Something Doesn't Add Up Here


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2007 May 14, 3:25am   20,698 views  207 comments

by SQT15   ➕follow (0)   💰tip   ignore  

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John Burns Real Estate Consulting has put out in their monthly newsletter that housing if falling faster than is being reported.

The housing market has softened much more than is being reported. We have been advising our retainer clients for more than one year about misleading national sales information, both with the Existing Home Sales and New Home Sales data. We are now going public with our concerns because we are concerned that policy makers are relying on national data to conclude that the housing market correction has not been severe.

Here is our support:
Closing Data: We purchase and compile actual home closing data for approximately 181 counties across the country, which captures the counties where about 55% of the U.S. population lives and a significant percentage of all of the counties where the large home builders are active. This data shows that sales have fallen 22% if you compare sales over the last 12 months to the prior 12 months. On a straight year over year comparison, the decline is much more.
Mortgage Bankers Association (MBA) Data: The MBA Seasonally Adjusted Purchase Application Index, which is a measure of the number of people filling out loan applications to buy a home, is down 18% from its peak in September 2005.1 With presumably more applications being filled out by borrowers who now have to shop around for a loan, how could sales have fallen by less than 18%?
Builder Data: The nation's two largest homebuilders, D.R. Horton and Lennar, are reporting that orders have declined 27% to 37%, year-over-year. 2 3 D.R. Horton and Lennar have dropped prices significantly in many markets to generate sales, while the resale market has not. How could their sales have fallen more than the resale market, even if new home communities tend to be in fringe areas?
Realogy Corporation Data: Realogy, which is the parent company of Century 21, Coldwell Banker, and ERA, participated in roughly 1.9 million brokerage related transactions in 2006 compared to 2.3 million in 2005, representing a year-over-year decline of 18% nationwide.4
2005-2006 NAR State Data: The National Association of Realtors state data does show sharp year-over-year corrections in major states: 28% drop in Florida, 24% drop in California, and a 28% drop in Arizona. Our data, however, shows the sales have probably dropped by 34%, 27% and 38%, respectively. The national numbers include some large states where sales volumes have not corrected substantially, such as in Texas and Ohio, but we believe these markets are not very healthy for other reasons. Interestingly, our calculations were tracking very closely with NAR data through 2005, as illustrated above. We did investigate NAR methodology and have found absolutely no reason to believe that the NAR is intentionally misleading anyone, as some have suggested.
New Home Data: The Census Bureau calculation of new home data does not calculate sales net of cancellations, and cancellations are running much higher than normal right now, which is why the sales numbers overestimate actual sales.

The preponderance of evidence shows that the housing market in vibrant areas where home building is prevalent has corrected much more than some people believe it has.

In summary, we believe that the Fed should know that the housing market correction has been quite steep and is also not showing signs of bottoming out, as evidenced by all of the above information, as well as significant additional research we have conducted. While the Fed has far more to consider than housing, they should know that the housing market could sure use some lower interest rates to help achieve stability soon.

This is my favorite quote "We did investigate NAR methodology and have found absolutely no reason to believe that the NAR is intentionally misleading anyone, as some have suggested. "

Um, yeah.

Overall I love this article though. I think we'll see much more of these types of reports as time goes on. I really think that people don't realize the magnitude of the boom and bust cycle we're in. Most people I talk to are much more pessimistic about housing than they were just a year ago but there is still this feeling that the market will be on an upswing in the near future. Articles like this make that seem unlikely.

Here's the link to the full article

SQT

#housing

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121   Malcolm   2007 May 15, 4:21am  

Another observation you made, can you imagine the conversations, the yelling the shouting, the firings that are going on in some of the lender offices right now. Can you imagine the anticipation of the LA and Riverside lenders right now, those auctions are coming up this and the following weekend.

122   DinOR   2007 May 15, 4:25am  

"a market that is not even hungry"

Eat! EAT!!!

Nope, not another morsel. My guess is that most of the people in attendance were bottom feeders "looking for value" (not the momentum players) of the last several years. This could set LA and SD becoming one city back by... another 5 years!

123   Malcolm   2007 May 15, 4:27am  

Whoever they were, it was a well advertised event with all of the houses available for viewing. I would say with a reasonable amount of confidence that a good percentage of the buyers today were aware of the auction. They were also cooperating with buyer agents, this is undisputably the new fair market value.

124   Malcolm   2007 May 15, 4:29am  

These prices are about 5 year old prices in my onpinon, maybe 2001,2002 range. It will be interesting because one of the houses is near me. I'm not worried because my strategy is to hold, and I bought at the fundamental value so I see it as a chance to move up, but I expect to see a lot of sad faces.

125   Malcolm   2007 May 15, 4:33am  

I am most interested in what the one in San Olijo Hills sold for. That was a 900K house with a 500K opening bid.

126   DinOR   2007 May 15, 4:40am  

With Riverside's sales down 45.1% and San Bernadino down 46.7% I wish them well over the next 2 weekends. Oh and I can WELL imagine the temper tantrums going on in office complexes all OVER the Southland!

Too bad most of it is misdirected.

127   sfbubblebuyer   2007 May 15, 4:43am  

Man, I don't buy the core inflation one bit. My expenses have risen considerably since January, that's for sure. :D

But then, I use gas a corn. And meat. Steaks are going up steadily. :(

128   Peter P   2007 May 15, 5:24am  

What happened to the latest thread?

129   Ozman   2007 May 15, 5:35am  

I think it was deleted, judging from the early responses.
I have to say it was weird and irrational.

130   Peter P   2007 May 15, 5:36am  

I have to say it was weird and irrational.

Huh?

131   Ozman   2007 May 15, 5:44am  

Talk of dreams and Tsunamis and disaster..
The author was implying he/she may be able to see the future :)

132   Peter P   2007 May 15, 5:45am  

So? What's wrong with some entertainment? :)

133   Ozman   2007 May 15, 5:47am  

Nothing. I didn't say it deserved deletion, just weird :)

134   DinOR   2007 May 15, 5:54am  

I don't have anything against entertainment it's just that many people that post or even lurk here aren't self-employed so to have that kind of talk on your monitor at the wrong time could create a whole lot of explaining.

SoCalMtgGuy had to create an entirely new web address just so people could keep up to speed while at work!

135   Peter P   2007 May 15, 6:22am  

Who wrote it?

136   Randy H   2007 May 15, 6:36am  

What did I miss?

137   Red Whine   2007 May 15, 6:44am  

You missed a new thread that was weird and scattered, and difficult to respond to. Then, it disappeared.

138   EBGuy   2007 May 15, 6:49am  

What did I miss?

Malcolm said the SD market has become unstuck and all hell will soon break loose. Casey evidently can make around $1000/month from Haterz. I think you could fund your kids education from Second Lifers if you try to generate a bit more animosity.

139   FormerAptBroker   2007 May 15, 6:56am  

astrid Says:

> FAB What’s a top 5 grad school?

I should have wrote “Business School” since that is what most of my friends talk about when we say “grad school”. It is amazing how many kids start at GSB, HBS, Wharton, Kellogg, and Sloan with liberal arts undergrad degrees and relatively low math skills…

140   Peter P   2007 May 15, 7:01am  

This time it is different. The H1B quota is now back down at 65000/yr. I believe it was close to 200K/yr a few years earlier.

In fact, I heard that 60%+ of H1B hopefuls who applied *on the first day* for FY2008 was rejected. Will foreign students still want to study/work here?

141   Peter P   2007 May 15, 7:04am  

The person (who shall remain nameless) that wrote that last thread asked that it be removed.

How could you have known that? I wonder. ;)

142   astrid   2007 May 15, 7:14am  

FAB,

Thanks. Though I do somewhat disagree on the substance. I took an investment finance class at Haas one summer and recalled it being relatively easy for this math near-illiterate.

My father has a physics Ph.D and we were talking about math and science last sunday. His view was that the average person does not need to know much math beyond basic geometry, algebra, and understand the basic concept of derivatives and trig. We agreed that the main missing piece from general education is basic understanding for statistics and logic, which is easy for even people of low math skills.

143   DennisN   2007 May 15, 7:44am  

"I should have wrote “Business School” since that is what most of my friends talk about when we say “grad school”. "

I would never even think B School when I hear about grad school. For me it was physics...or math...or finally law.

The only problem in learning about statistics and probability is that it ruins the fun of gambling for the rest of your life....looks too much like homework problems!

144   Peter P   2007 May 15, 7:48am  

His view was that the average person does not need to know much math beyond basic geometry, algebra, and understand the basic concept of derivatives and trig.

If everyone knows how to use the four-function calculator well (square root optional), the market will be more rational.

145   FormerAptBroker   2007 May 15, 7:49am  

DennisN Says:

> The only problem in learning about statistics and
> probability is that it ruins the fun of gambling for
> the rest of your life….looks too much like homework
> problems!

I had a professor that called the lottery a “tax on stupid people that don’t understand statistics”…

146   Peter P   2007 May 15, 7:52am  

I had a professor that called the lottery a “tax on stupid people that don’t understand statistics”…

It is about psychological framing. But I welcome stupidity tax. :)

147   sfbubblebuyer   2007 May 15, 8:11am  

Yah, I got glared at once when somebody said they were going to grad school, I asked what they were studying. When they said to get their MBA, I said "Oh, I thought you meant REAL grad school."

148   Peter P   2007 May 15, 8:24am  

Business school IS a real grad school. There are disputes about whether JDs are real doctors though.

149   Peter P   2007 May 15, 8:25am  

It is a school for graduates.

150   HARM   2007 May 15, 8:38am  

New thread: So, long, David!

151   DennisN   2007 May 15, 8:58am  

"There are disputes about whether JDs are real doctors though. "

Interesting thought. Peter, why don't you let me try operating on you. Then we both will know the truth of the statement.

152   astrid   2007 May 15, 9:56am  

Dr. astrid's medical advice*

For any ailment, take a long and almost unbearably hot shower, then collapse into bed tightly wrapped in a comforter, sleep til much better or much worse.

* Does not constitute real medical advice.

153   astrid   2007 May 15, 9:59am  

GC,

More *medical advice*

Seek professional therapist to discuss your sporadic exhibitionism and unresolved issues about objectifying women.

* Not liable if so called professional therapist turns out to be an analrapist or is otherwise unqualified to provide professional therapeutic advice.

154   Peter P   2007 May 15, 10:05am  

We should replace objectification with objectivism.

155   Ozman   2007 May 15, 10:08am  

We agreed that the main missing piece from general education is basic understanding for statistics and logic, which is easy for even people of low math skills.

Statistics is not easy. Do not underestimate it. Even Einstein had problems accepting the Heisenberg principle. Hence why he later said God does not play dice :)

156   Peter P   2007 May 15, 10:17am  

One cannot adequately understand statistics without multivariate calculus. I once inspired to become a logician, now I am more practical.

157   Ozman   2007 May 15, 10:21am  

I had a professor that called the lottery a “tax on stupid people that don’t understand statistics”

We must have had the same professor.

But then again the stupid FB's must be laughing if the smart people get taxed to bail the stupid FB's.

158   Paul189   2007 May 15, 10:37am  

getting my MBA was the worst mistake of my life

159   HARM   2007 May 15, 10:50am  

Huh?

160   Ozman   2007 May 15, 10:57am  

getting my MBA was the worst mistake of my life

I have always thought Business schools were in the business of making easy money from the privileged few.

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