NO SPIN Sept New Home Sales Report – Sales LOWER

Posted on October 27th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

It is just not what it seems. It never is. This report tells me nothing but the housing market continues down its road worse. Not reporting the facts accurately is what turned a ‘crisis of confidence’ into a full scale global financial system meltdown.

Sept New Home Sales were just released and as with last Friday’s Existing Home Sales, the pundits are cheering this as a sign that ‘housing is bottoming’.  Please see my Mr Mortgage: NO SPIN Sept Existing Home Sales Report. for the truth on last Friday’s existing home sales report.

When you break out ‘NOT seasonally adjusted’ (actual sales) new home sales decreased just like existing sales.  Inventories ticked UP from 8.9 months to 9.1 months. This is just the opposite of what’s being reported.

When you factor in that the Relative Standard Error in this report can reach as high as 24%, the data are highly unreliable and can’t be viewed as bullish for new home sales. Hey, we are probably closer to a bottom but that’s only because the bottom will come in the future and every month we get closer to that point in the future.

There have been worse New Home Sales reports than this one, but not many.  There is definitely nothing here that should make the media cheer the way they are today.

FHA Down Payment Assistance Taken Away as of Oct 1…DPA = 2/3 of All Loans

Please note that all of the FHA Down Payment Assistance was taken away at the end of Sept. Due to this there was a marketing “rush” to sell houses at effective 100% FHA financing prior to Oct 1, so this likely bolstering the September numbers considerably.  TWO-THIRDs of all FHA purchases are DPA loans.

New Home Sales Only 7.5% of Market

The new home sales market is so tiny compared to the existing market and even the foreclosure market, a few percentage up or down means virtually nothing in the grand scheme of things. For example, in Sept 442k existing homes were sold nationally and only 36k new homes sold.

Values Continue to Collapse Leading to Loan Default

While total sales did not plummet in Sept like existing home sales, values on all real estate is continuing to collapse, new homes being no exception. This is being cheered as a ‘necessary step in the market clearing’. While I agree, the pain that is yet to be felt through the revaluation and de-leveraging in residential real estate will be immense.

The chart below sure looks like new homes have been a poor investment putting folks deeply underwater. And this does not include those who took cash out or added a HELOC after the fact.

Remember, home ‘sales’ are very small in number compared to the number of home owners who already own. House price capitulation felt by those that already own, will lead to surging defaults and foreclosures. Home price depreciation is the leading cause of loan default among paper grades above Subprime, such as Alt-A, Pay Option, Jumbo Prime and Prime. Home price capitulation is what is mostly responsible for the rapid surge in loan defaults among higher paper grades we are seeing today.

In addition, it also makes all those loans and MBS sitting on balance sheets worth substantially less due to less collateral support and greater likelihood of loan default. While falling prices will happen and has to happen, until we bottom and stay there for years while the market clears, it will cause substantial damage to home and mortgage owners on the way down.-Best, Mr Mortgage

Let’s break down today’s report for a little closer look and comparison:

2006:  1.051 million new homes sold

2007:  776k new homes sold

2007 year-to-date through Sept: 629k

2008 year-to-date through Sept: 402k

2008 anticipated: 464k new homes sold. (down 36.1% from Sept 2007 ytd)

Now, let’s look at actual home sales in Sept 2008:

Total US: 36k new homes sold. That’s it. Only 36k homes.  Two-thirds have not had foundations poured or are in the construction process.  There were 442k existing homes sold last month. New homes pale in comparison. Also, remember that over 75k entered the foreclosure process by getting a notice-of-default and that includes CA, which dropped by 50% in Sept due to SB 1137, which essentially put a 30-day moratorium on foreclosure notices.

Northeast: 2k new homes sold

Mid-west: 5k new homes sold

South: 21k new homes sold

West: 8k new home sold

Click HERE for a link to the actual Government data.

I am no chart reader, but below looks rather scary.

Actually the above chart looks just like the one below through July 2008.

More Mr Mortgage

30 Responses to “NO SPIN Sept New Home Sales Report – Sales LOWER”

  1. Just wait till Oct. figures, with FHA downpayment assistance being taken away. Actually, there was a marketing “rush” to sell houses at effective 100% FHA financing prior to Oct 1, so that was probably bolstering the September numbers to some effect!

  2. For the record, the media is cheering because they are reporting that sales are up (August vs. Sept) on a seasonably adjusted basis.

    For me the main thing is sales (seasonal and non seasonal) are down on a year over year basis. Either way, I agree this is not a very bullish report.

  3. How long will it take to get most of the builders into BK land? End of 2009? I still cant believe that TOL is hanging on like it is in this environment.

  4. Peter, Toll Brothers has roughly $1.5 Billion in cash reserves, which is a lot more than most of their competitors on average, and a very small debt load. As an example Hovanian has only $120 Million and Meritage has only $115 Million on hand. I think they will be around after this is over and probably emerge quite strongly as the bargains will be plentiful.

  5. Re this:

    2007 year-to-date through Sept: 629k

    I think you mean 2008.

  6. no thats 2007 as a comp to 2008. In 2007 ytd, were were already at 629k.

  7. fixed it by adding 2008 at 402k – thanks!

  8. Let’s be clear Mr. Mortgage, you’ve got to get in line and support our newspeak. Remember: “Down is the new Up”. Don’t confuse the huddled masses. Facts are simply too annoying, too harsh on the ears. Let sleeping dogs lie there and try not to point out something other than what we want them to feel. Thinking is hard so let’s avoid it please.

    Your friends and the NAR and CNBC.

  9. Thanks Stu. Wow $1.5B. No wonder. I will stop eye balling them for a short.

  10. Mr. M. if new home sales don’t reach 509K by years end then it will be the lowest sales volumn on record since 1982. That is a whopping 26 years which to me is very telling. This is bad and getting worse and I agree that anyone cheerleading any of these readings needs to start paying much closer attention.

    Nothing good came out last Friday or today in regards to home sales, prices or inventory. All data relative to future home sales are dismal at best. There is nothing in the data to suggest anything near a recovery and anyone attempting to pass it off as such is a fraud in my opinion. Just because things have been horrible and everyone is looking for something… anything to show life has been breathed back into the industry doesn’t mean that it has because of one little blip in a number which can easily be explained away as irrelevant in regards to the future prospects of housing…

  11. Let us not forget that NEW home sales are CONTRACTS! They are not CLOSINGS like existing sales. New home sales are closer to pending existing sales with respect to economic data. Given the high cancellation rates and tightening credit (just wait until these people try to get a 7% mortgage), the newly signed contracts tell us little.

  12. I’m not aware that I’ve read anything about how much FHA is losing on past “downpayments”..anyone have any figures?

  13. Stu,

    You are onto something – whether you are cognizant of it or not.

    “A whopping 26 years… 1982…”

    If one does a bit of reading, one will find that there seems to be a train of thought of just when this ‘bubble’ started. When I say ‘Bubble’ – I don’t mean the last 5 or six years of warp-speed derivatives trading and real estate gonzo. I mean the beginning of a major paradigm shift. That shift being mainly, the philosophy of a debt/borrowing-based economy over a savings and production-based economy.

    Tomes have been written about this, so I’ll refrain from boring you with it here. Stu’s comment however, brings it home. What is right here, right now has been a long time in the making. For those under 40, it may be difficult to digest because you’ve known nothing else besides a borrow & spend & ‘outsource’ method of thought.

    But that is changing – Fast.

    Kook mode = On:

    Get outta debt if you can. Save as much as you possibly can if you’re fortunate enough to still be employed. Have some cash (for now).

    Peace –

    C.C.

  14. MM Great work as always. I am an avid reader and it would appear you are hitting nerves that most are not prepared to deal with. As you and I well know being from cali we are in the epicenter of this whole mess. Nobody wants to accept what is happening. I have been in the industry for 20 years and respect what you are trying to bring to light. I know that the scope of this is well beyond cali, but being a coastal guy in So. Cal. I can tell you this is hitting the High end now not just joe 6 pack. God help us all.

  15. C.C – It is interestng to see the Japanese stock market in 1982 price territory as I type this. 7200 on the Nikkie. Ouch!

  16. Sold reporting as usual. You point out important facts that just aren’t getting widespread attention.

  17. Peterb

    Wikipedia has this to say about the Japanese real estate bubble which peaked in 1990. I wonder if we are headed to the same fate.

    “The easily obtainable credit that had helped create and engorge the real estate bubble continued to be a problem for several years to come, and as late as 1997, banks were still making loans that had a low guarantee of being repaid. Loan Officers and Investment staff had a hard time finding anything to invest in that would return a profit. They would sometimes resort to depositing their block of investment cash, as ordinary deposits, in a competing bank, which would bring howls of complaint from that bank’s Loan Officers and Investment staff. Correcting the credit problem became even more difficult as the government began to subsidize failing banks and businesses, creating many so-called “zombie businesses”

    The long term Nikkei chart is something everybody should take a look at. Could be our furture aftermath.

    http://finance.yahoo.com/q/bc?s=%5EN225&t=my&l=off&z=m&q=l&c=

  18. Bert, it appears Churchill was right when he said “Those that fail to learn from history, are doomed to repeat it” I thought Bernanke was a student of the great depression and has been given all sorts of kudos for his sharp attention to detail. I think he and Paulson need a refresher course my self and I would start with the crisis Japan experienced first and foremost! We certainly seem to be heading in that direction right about now.

    Did anyone catch the following two things that have been brought up on various blog’s? I find them both fascinating and disturbing at the same time.

    1. The $300 Billion Hope for Homeowners Program that was part of the “Bail Out” has only helped 79 people in the first 27 days of operation. Further more 77 banks are part of the program so we have had basically 1 family helped by each bank participating in the program. Doesn’t that seem awfully strange or is it me?
    2. The Tax Payers just funded the purchase of up to $830 Million in foreign debt (commercial paper) from Korea Development Bank. The U.S. Tax Payer is now back stopping foreign banks owned and operated by foreign countries. We are in debt as a result of this and out taxes will rise to help pay for this if they fail. Is that a little odd or again is it just me?

    This is really getting crazy out here and I do not see anything being done to allow this problem to correct itself. Home prices and home sales are still falling like a rock and homeowners are not being assisted at all. Wasn’t this “Bail Out” to help Main Street? How is that working out?

  19. It looks like we’re doing the very same thing the Japanese did in the early 1990’s in an effort to save their failing banks that had made huge bad loans that were defaulting all over the place. Sounds familiar. It’s basically “life support” for the comatose. They dont fail, but they cant really grow either. Kind of a limbo state survival mode. If you cant cut the dead wood from the forest, it chokes all the potential new growth. And just maybe, you get a big fire to clear-out the problem. Nature has a way of not being denied in the long run. Problem is that we have to live while this slow death scenario plays itself out. So we’ll probably be in this limbo stage once we hit bottom for some time. One problem, though, the Japanese actually make things the rest of the world wants. What does the US have to trade? I guess it’s agribusiness for the next 5 years.

  20. Peter, that sums it up quite nicely. In fact the only reason Paulson and Bernanke didn’t do what they said they would do originally (buy up the banks bad paper) is because instantly thousands of banks would have become insolvent. So many banks and lenders have so much bad paper that they would be severely capital impaired if they were to correctly value their holdings. So they instead chose to give them all cash infusions directly. To your point however is the fact that they are so severely in debt that this money is being hoarded to improve their balance sheets. That is not growth and is also not helping anyone out but the executives at these banks. Once they are done receiving all of this money then they will slowly die on the vine and again to your point all we can do is sit back and watch it all happen over the next however many years it takes. Oh, after that we tax payers get to pick up the tab for the biggest bail out in history… that failed miserably!!!

  21. Well we certainly look to be headed to Japanese style zombie companies. That way the government can claim lower unemployment numbers. Japanese are savers, we are spenders. If we start saving, it pulls from our economy since we are 70% consumer spending. Consumer confidence all time record low of 38, not good for consumer spending. Consumer spending is how California generates sales tax revenue and we are falling well short!!! I think when CA totals up October sales tax receipts everyone is going to choke.

    The banks want to tighten and only make good loans and the government wants credit to keep flowing at any cost. I think we can call this situation Stag Nation.

  22. Stu

    you said:
    “Peter, that sums it up quite nicely. In fact the only reason Paulson and Bernanke didn’t do what they said they would do originally (buy up the banks bad paper) is because instantly thousands of banks would have become insolvent.”

    I don’t think that is the only reason. It would change from “the bank foreclosed on my house” to “the government foreclosed on my house” I don’t think the government was prepared for that.

    The other option was to sell the paper to yet a third party, immediately discounting the paper. This would expose the lie that taxpayers could actually make money on the deal. This way the government is able to hide the lie within the banking system.

    As to new home construction after the 1990 S&L fiasco from Wikipedia:

    “The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990–1991 economic recession. Between 1982 and 1991, the number of new homes constructed per year dropped from 1.8 million to 1 million, the lowest rate since World War II. [2]”

  23. I don’t know guys, something tells me our bust will be much more spectacular than the Japanese molasses slide.

    The Japanese scenario can only work for the US if the whole world suddenly decides to credit us even more at their own disadvantage, because there aren’t internal savings to do the zombification. I don’t see a reason for that to happen.

    Something tells me that after some attempts of stabilization, the system will hit the wall in the Treasuries market.

  24. LOL/ So funny how history repeats itself. You’d think people would learn eventually. I guess after a while ‘We the People’ just accept it.

    One day the people of this country will wake up and realize that the land their forefathers had fought and died for will be completely owned and controlled by the government that was set up to prevent this from happening.

  25. My two fears: We’re headed for “stag nation” (sounds like a bar in San Francisco.) and the govt will be raising taxes on anyone they can find to pay them without going postal about it.

    Looks like at best we get stag nation. Maybe a lot worse. And I suspect that after the elections, there will be talk of all kinds regarding taxations, fees, etc…needing to be “re-examined”. And perhaps the IRS will be getting it’s teeth back? I think so. 2009 is going to be one ugly year from all points of view. IMO.

  26. This is our big headline of today… I guess they will have an 800 number to call if you get turned down for a loan. The thing that got us into the mess was bad lending standards but seems the White House insists that loans be made regardless of quality. I guess we have gone from the Fed discount window to the Treasury discount window.

    White House tells banks getting federal aid to quit hoarding money and start lending it

    WASHINGTON (AP) — An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

    “What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House press secretary Dana Perino said.

    Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government.

    “They will be watching very closely, and they’re working with the banks,” she said.

  27. Great. Now the gov’t will own the banks, the money, and soon all industries. At least any that need loans.

  28. Stu – Do you have the list of 77 Banks that are in with Hope for Homeowners? All I can find are warehouse lenders and when I approached Indymac (Imfb) of all get out I was told that they would not participate because “it doesn’t make good business sense”. I am told that may others are taking the same tack.

    Seems more like Hopium for Homeowners to me.

  29. Joeseph

    Here is a link to Hope for Homeowners and a link to a updated list is on the page.

    http://portal.hud.gov/portal/page?_pageid=73,7605762&_dad=portal&_schema=PORTAL

  30. So let me get this straight. A lame duck President is trying to bully a bunch of banks into lending. Never mind that he has no authority to do so and no legal manner in which to utilize in order to force them to do so. Banks are broke and NEED this money to survive of which many will probably still fail. They cannot afford to lend it out and are not going too. That would be financial suicide if they were to do so and might as well just hand over the keys to Paulson after the loans are made because they will be all done at that point. Long term notes with minimal gains will not do it. They can’t sell the paper so that is not an option. They owe more than their worth even with the loans due to over leveredge and businesses and people are pulling their money out for the same reasons the banks are hoarding their money… they have no choice!!!

    This plan still amazes me and by the way, when you have to force somebody to do something they don’t want to do, doesn’t that kind of tell you something? Like maybe they shouldn’t be doing it for starters…

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