Mr Mortgage – May Existing Home Sales Preview

Posted on June 25th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

Below is my monthly CA home sales report for May, which I released on June 19th. For the past two months, it has mirrored the monthly existing home sales report from NAR (due tomorrow) very closely. As you know, the monthly home sales report gets the markets very hot-and-bothered so perhaps this will give you a heads-up. When it comes to housing stats, you cannot read headlines. Despite what the headlines say, the housing market is worsening despite sales increasing. The facts are right here.

Or please see the YouTube version of this post if you’d rather listen than read. Just make sure you rate it high, I work for stars! Best, Mr Mortgage

June 19th – Mr Mortgage – May CA Home Sales Report below

DataQuick just released its May CA Home Sales report“more homes sold,” which on the surface looks great! But the true numbers were far from it. Although more homes sold, inventory is rising and conditions are worsening.

If you back out REO-related sales, the picture is especially bleak with banks taking back 4500 more homes than sold “organically” (an organic sale is a transaction between two private parties and not a home that came from the foreclosure stock). In order to get a handle on the inventory, true burn-rate and market in general, you have to track and separate every piece of the market, which I have done in the CA Housing Market Chart at bottom of the page.

When you look at all of the “parts” of the market, you discover that the CA housing market is at a stand-still and has been all year. In June, only 8,193 homes were taken out of inventory. Year-to-date only 29,759, or 5,352 per month, have been taken out. The numbers are not good. Similar stats can be found in other foreclosure-heavy states nationally.

One would hope that with the number of REO sales increasing and prices continuing to drop, sales would have been up much stronger in the month of May, a peak month for CA housing sales. They were essentially flat.

With the rate of acceleration of shadow inventory, sales need to double from here in order to chew through the inventory already in the “listed” channel and bring the “month’s supply” figures down to the 10-11 months that is thought to be accurate for CA.

In the month of May, the key stats are:

  • 33,024 total sales; up 5.7% over April’s 31,150 but the slowest May since 1995
  • 12,648 foreclosure resales; up 7.15% from last month and 700% from one-year ago.
  • 38.4% of total sales were foreclosure resales; up about 1% from last month.
  • 20,376 “organic” sales (total sales less foreclosure resales)
  • $339k median price; down 4.3% in a single month and a whopping 29.96% in one year. Prices are gravitating towards the most readily avail financing, Agency <=$417 conforming.
  • 43,301 new Notice-of-Defaults, which will result in 34,650 new foreclosures months 4-5 from now.
  • 24,831 homes went back to the bank as REO (shadow inventory)
  • 5,352 units left inventory (total sales less new bank REO)

In addition, in the past 4-months, 167k new notices-of-default were filed. If 80% turn into REO, an average of 33,500 homes per month will be taken back by the banks in the next four months, which is more than sales have been since August of last year.

Next Thursday June 25th, we get the NAR Existing Home Sales Report, which may show a similar headline…”Existing Home Sales Rise.” The stock market likes to get all hot and bothered over this number. But, unless you look at all the data and take it into context, the number is deceiving. With all of the data in hand, it is obvious the market is worsening.

Of the total sales, 38.4% (12,648) were foreclosure resales. Most of this is bank shadow inventory.These homes are typically not listed so they do not show up in the inventory estimates. They are typically sold through real estate agents or large auction aggregators such as the Real Estate Disposition Corp (REDC). Bank REO sales are counted in the monthly Existing Home Sales, which is deceiving. When you compare year-over-year sales, last year foreclosure resales were only about 5% of total sales. It is an apples-to-oranges comparison.

This continues to verify what I have been saying for months, that “the foreclosure market is the real estate market and the banks are the market makers.”

This shadow inventory is being sold at massive discounts to the note amount and recent comparable sales in any given neighborhood and pose the real threat to home prices across the nation. All over the country, neighborhoods are being marked-to-market overnight due to shadow inventory being dumped that was never shown as part of the listed housing stock in the first place.

It is a real problem when the headline sales number is growing and according to the MLS the supply is shrinking, but in reality the true inventory is not falling due to the bank REO growing faster.

This is the first Spring/Summer selling season in five years without a full menu of “exotic/affordable” loan programs to drive affordability. You may think that as prices fall, more homes will sell and that will solve the inventory problem. That is not totally correct. As prices fall, more homes sell but more homeowners are thrown into a negative equity position. This leads to more defaults and even more Bank REO. It is a vicious cycle. Negative-equity is now known to be the leading cause of loan default.

In summary, in May there were 33,024 total sales of which 12,648 were foreclosure resale’s leaving only 20,376 organic sales. This is a multi-decade low for May. There were 24,831 homes for $10.4 billion that went back to banks and 43,301 new notices-of-default. The new NOD’s will bring about 34,650 new homes that go back to the bank as shadow inventory 4-5 months from now. In the past 4-months, 167k notices-of-default were filed, meaning 133,500 homes will go back to the bank as shadow inventory in the next 5-months, which is more per month than monthly sales have been in the past year. The median price dropped once again to $339k and stands 29.96% below its 2007 all-time price peak. Finally, only 5,532 total homes left the inventory pool given how many homes came back to banks vs. total sales. To cap it off, none of these figures include most FSBO or home builder inventory.

If sales do grow and the number of foreclosure sales continues to grow as a percentage of total sales, where does this leave Joe and Jane Homeowner and the Builders?

If sales do not grow and foreclosure sales continue to grow as a percentage of total sales like we are seeing right now, we have the makings of an absolute meltdown on our hands. -Best Mr Mortgage



Record-Breaking CA May Foreclosure Report

CA Housing Stats, The Real Story…4.25-years Supply?!?

Record-Breaking CA April Foreclosure Report

April CA Home Sales Rise, But Not As Fast As Inventories

ALT-A Disaster Looming – Know the Facts!

21 Responses to “Mr Mortgage – May Existing Home Sales Preview”

  1. No problem. The taxpayer will be mopping the mess. What a great system. You can really call it neo-nazi-banking model. 100% of the profits go to me if I am successful. 100% of the losses to the taxpayers slaves if I fail. This is a fantastic business model ! When will these bastards in Washington bail out “poor” Warren Buffett from Wells Fargo ? 🙂 I get the picture loud and clear.

  2. Mr Mortgage, I love your new spreadsheet. It makes everything very, very clear. With it I can see the future: the wave of 40k+ NOD that started in January is just now starting to bite, and its going to keep on biting through at least September.

    I added an implied “cure rate” using the NOD column and the New Bank REO colum assuming a 4 month delay between NOD and REO. This has gone from 58% back in Jan 07 to 38% in May 08. Optimistically projecting that 38% cure rate forward, I see new REO 4 months forward being June=23k, July=26k, Aug=27k, and Sep=27k.

    The only good news I see is that at least the pace of NODs seems to have plateaued for now. Perhaps the printers have run out of ink or something.

  3. The Fed leaves rates unchanged – said (with reference to the economy) “Although downside risks to growth remain, they appear to have diminished somewhat“.

    Am I on crack? the largest housing decline since the Great Depression and things are okay? Utility bill defaults the highest on record and things are okay? Multi hundreds of billions of dollars in write downs (with more coming) and everything is okay?

    W… T…. F?

  4. No, but Bernanké is. Or is it Prozac and Librium ? Anyways the FED has no power. Long term rates are going higher. The LIBOR is going higher. Interest rate spreads are exploding in Europe. The market is regaining its power. As for the rest, it’s just an illusion. Again today, 3 major downgrades; GM bonds, Ford bonds and Chrysler bonds. Default is coming.

  5. Bernanke is in a tough bind. He’s trying to manage both out-of-control inflation and a stagnant economy.
    This is all economic pain we SHOULD have gone through in 2001, compounded by Greenspan trying to put it off, and in the process, generating massive latent inflation. Instead of a normal downturn, we got a middling economy for 6 years before we get hit by stagflation.

  6. Where can I get me some of that crack, I need it so my head doesn’t explode!

    oh, yeah, Cramer on cnbc just now – he is very bullish – you know what that means kids 🙂

  7. Sell Sell Sell!!!!! HOUSE OF PAIN
    The result of all this madness leaves us the daunting task of trying to put a humpty “pump in mo’ money” dumpty economy back together again. It will be almost impossible as there is no forseen future engine for growth. Technology….saw what happened there…..Job Growth……Doing what?…answering phones in India……Real Estate….Well let’s just not talk about that….Making cars…..Maybe to sell to the Chinese and India workers where gas is still under 50 cents a gallon. I think I will just sit here and enjoy a cold one while the economy fall apart under it’s own enormous weight and self inflicted debt. Maybe I can move to Texas and get a nice little place along the Rio and count the illegals crossing over to pass the time. CHEERS!

  8. All of this idiot advice from articles like this one on cnn telling the sheeple to buy now before rates rise further is absurd. Rising mortgage rates will truly collapse an already reeling market. If you truly believed rates were on the way up, especially given the current situtation, why would you want to buy. You would literally be stepping in front of a freight train as affordability, and subsequently prices, plummeted further giving you negative equity in a flash. Why not just step aside and wait. Its amazing the advice people get reading mainstream press from the ‘experts’. I believe rates may rise fairly quickly as they did on the way down. Also, if you believe unemployment will be rising and the economy weakening at the same time rates are rising. You really really would be an idiot to take the advice of this article.

  9. Why does the California Association of Realtors say that May 2008 sales are up 20% over May 2007 sales? What’s up with that?

  10. Toby – do you believe anything any realtor assoc says? They are the best alchemists of all time.

  11. Will – crazy logic hey? I can see ‘refi before rates soar’ but not ‘buy a home before rates soar’. Toby – that is a perfect example of realtor assoc logic.

  12. Actually if you read closer they never said CA housing sales were up 18%. They said ‘a local real estate group in CA said sales were up 18%’. Great spin. WTF is a ‘local realtor group in CA’.

    “On Wednesday there was some good news for California, which has been one of the hardest hit states in the housing crisis, when a local realtor group said that sales there jumped 18% in May compared to May 2007.”

  13. Still the median price in DOWN 35%. Realtors are psychopath liars. Anyways who cares today ?

    There are rumours this morning on Bloomberg, that General Motors is on the brink of bankruptcy. The stock is crashing anyways. James Chanos says that GM won’t be able to finance and cover up over its car problems but also its mortgage lending problems. This thing like Ford is going to zero.

  14. The market is voting today on Bernake, and he failed. . .if he had raised interest rates .25, oil would have gone down $20 a barrel. . .OPEC said today it was the weak dollar that is causing the problem, and I would have to agree. . .the housing market is dead anyway, so raising short term rates would actually help long term rates, but Bernake is in WAY over his head. . .when the history books are written, he will get a lot of the blame.

  15. and the rate cuts did very little if anything to help people refi anyway, most of them were or are so underwater no one will refi them….all it did was push people who had a bit of money to the edge with higher prices. The markets should have been left to correct, the people who prepared for this or did not spend more than they made would have been fine, and the people who deserved it would have lost out. The help is only been for the very wealthy – great, ah….Rome is Burning, guys,…hello?

  16. >>Actually if you read closer they never said CA housing sales were up 18%. They said ‘a local real estate group in CA said sales were up 18%’. Great spin. WTF is a ‘local realtor group in CA’.<<

    I am certainly not defending these clowns, but it wasn’t a local group making the claim. It was the state association:

    They do appear to be using an annualized rate, but that still does not jibe with May 2007 numbers.

  17. Mr. Mortgage,

    You are a sham. I am embarrassed for you.

    First, DQ does NOT count auction and courthouse REO sales in their numbers, nice try.

    Second, you want to back MLS REO sales out of sales, but then compare the burn rate to inventory that includes MLS REO inventory, wtf?

    I could go on, but I don’t need to. I can’t believe anyone gave you airtime other than

    Forever Yours,

  18. I noticed you moderate, do you have the balls to let my post through?

  19. WTF – This one is for you.

    Do you know how many auciton and courthouse REO sold in CA last month? If you did you would not have made that comment.

    97.7% of all homes at auction went back to the bank in May. 98% in April. Only about 1000 homes sold at the ‘foreclosure auction’ in May so your point is worthless.

  20. Wow wee ! It means that real estate sales are NIL ?
    In reality there were no sales in april and may.
    This is depression stuff. 🙁

  21. I saw the 18.1% headline and was confused as well. I believe they removed “new home sales” from their data to make the numbers look rosier. Beyond the headline this is what the article states:

    “Statewide home resale activity increased 18.1 percent from the revised 358,640 sales pace recorded in May 2007.”

    According to the Data Quick report total sales are down 10.7% May last year:

    “A total of 33,024 new and resale houses and condos were sold statewide last month. That was up 6.0 percent from 31,150 in April and down 10.7 percent from 36,975 for May last year. Last month’s total made for the slowest May since 1995 when 32,223 homes sold.”

    I think what’s hidden in the CAR report is that “new home sales” are pretty much non-existent compared to a year ago. I’m no expert, but that’s what it looks like to me.

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