Mr Mortgage: NO SPIN – Oct Existing Home Sales Report

Posted on November 24th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

I heard this morning from several popular media sources that that prices falling, month’s supply coming down and foreclosures as a percentage of total sales rising is a ‘great thing’ for housing.  DON’T BELIEVE IT! These are the same forces as we have seen for the past year and the housing market is worse off today than ever.

This report clearly shows that as values are dropping sales are plunging. THE MARKET IS GETTING MUCH WORSE BY THE MONTH. Values are actually falling at an accelerated rate – as values drop all sorts of bad things happen.  Show me a month where a) organic sales rise b) values stay flat or rise and c) new loan defaults and foreclosures stay flat or drop d) foreclosure related sales rise – that would be a positive. At present, ‘d)’ is the only factor in place.

1) When one person gets a ‘great deal’ on a foreclosure in a neighborhood all similar homes within the appraisal zone (one mile radius) lose value. This puts everyone closer to or deeper into a negative equity position exponentially increasing their likelihood of loan default. This creates more foreclosures, which creates more supply, which pushed home prices down further. This exponentially increases likelihood of loan default, creates more foreclosures, which creates more supply, which pushes home prices down further and so on and so on.  It is amazing nobody understands how devastating this negative feedback loop is. It is great that all of you do.

Make no mistake about it – MOST BORROWERS ARE NOT WALKING BECAUSE THE CAN’T AFFORD THE PAYMENTS. They are walking because all of their after-tax income each month is going out in bills and the largest portion is going to a home worth half of what they owe. When they are spending such a large portion of their income on a massively depreciating asset, it makes good financial sense to dump that asset. When you can’t sell, that means walk away.

2) With respect to month’s supply dropping it makes no difference. Month’s supply is absolutely flawed because a) banks don’t list all their REO for sale – the amount of shadow REO dwarfs that actually listed b) as prices fall home owners trying to sell their properties have to pull their listings because they can’t sell for more than the home is worth c) at the end of the summer selling season inventories always plunge as sellers pull listings awaiting the Spring selling season.

3) Foreclosures now make up 45% of all sales as reported by the NAR. Organic sales, which are typically the all-important ‘move-up buyer’ and gauge the true health of the housing market are at record lows.  Organic sales plummeting means that home owners are not freely able to transact. This tells me a few things a) that home owners are stuck upside down in their home and can’t sell b) the all-important move up buyer is non-existent and can’t even afford to buy the home they presently live in due to lack of financing c) home owners can’t sell their home in order to get the down payment for the new home. Organic sales dropping each month is a leading indicator to foreclosures that most have not put together yet.

4) New loan Notice-of-Defaults, which is the first stage of foreclosure, were running over 40k per month in CA before SB1137 but will get back there soon. Nationally, defaults are running close to 100k per month. Currently 9% of all mortgage loans in existence are in default due to the Mortgage Bankers Assoc of America. Unlike a year and a half ago there is very little that can be done to cure a default – in the past you could sell or refinance. Now, some 75-90% of defaults make it all the way to the foreclosure stage depending on the state.

5) Non-seasonally adjusted sales PLUNGED as values dropped – this is not good. Look at the charts below from NAR. They clearly show the rate of sales has fallen 17.1% in the past 120-days while values have fallen 12.9% during the same period. THIS IS A TERRIBLE TREND…HOME SALES & VALUES ARE NOT GOING IN THE RIGHT DIRECTION.


Home prices must fall much further in most regions in the nation in order to achieve affordability given present financing options. That is of course unless people start paying cash for home, which just may be possible if they continue falling at this pace. Or I suppose if they bring back all of the exotic loans that were lost or everyone gets a 300% raise – these things could solve the problem quickly as well.

Everything done to date, including all of the new announcements from the banks, lawmakers and regulators about mortgage modification have been an attempt to artificially keep values higher. This is not the solution. The solution is to hasten their rush their decent to a clearing price at the same time, preventing as many loan defaults as possible through principal balance reduction mortgage modifications.

I talk about the solution in The Great Loan Modification Pump – GOD SAVE US ALL!

Existing Home Sales Highlights

Source: U.S. October Existing Home Sales Fall 3.1% to 4.98 Million Pace

By Timothy R. Homan Nov. 24 (Bloomberg)

    • Home resales in the U.S. dropped in October and prices fell by the most on record, signaling a deepening housing recession going into 2009.
    • Purchases of existing homes declined 3.1 percent last month
    • The median price fell 11.3 percent to $183,300 from a year earlier, the largest year-over-year decrease since records started in 1968.
    • Mounting foreclosures are pushing down home prices and adding to the inventory of unsold houses.
    • “The large number of homes already on the market and the number of those that will appear via foreclosure over the next several months only add to the diminished prospects for existing home sales,”
    • The median price of an existing home was the lowest since March 2004.
    • Prices fell in all regions of the country, led by the West.
    • Falling home prices make it harder to refinance mortgages and have pushed foreclosure filings up 25 percent in October from a year ago, according to RealtyTrac Inc., the Irvine-California-based seller of default data.
Last Updated: November 24, 2008 10:00 EST

29 Responses to “Mr Mortgage: NO SPIN – Oct Existing Home Sales Report”

  1. Not to mention, as Diana Olick of CNBC reported, that 50%….that’s right…HALF of all mortagages that have been rewritten to help the homeowner are now in default.

    And yet the banksters, including CITIGROUP to the tune of 326 BILLION DOLLARS, can get all the help they need.

    The Long Depression 1873-1896
    The Great Depression 1929-1939
    The 21st Century Depression 2008-???

  2. Ya know, I cant help but notice – why no SOCAL/NOCAL sales report? I mean last month, Mr. Morgtage was johnny on the spot with CA sales – telling us why up was really down and MOM vs YOY mattered more.

    In October, NOCAL/SOCAL sales are up MOM AND YOY. Sales reports were out for a week – why wasnt Mr. Mortgage there to tell us why up was really down?

    By contrast, this report for the US (Which really is DOWN) comes up today, and Mr. Mortgage reports it instantly! Curious isnt it…

  3. Seems to me this thing ends only when owning becomes as cheap or cheaper than renting a comparable property AND enough people who would like to buy have the means to buy to effectuate the right-sizing of home prices in relation to comparable rents. I don’t think that the home price-to-comparable rent ratio has yet reached equilibrium. When it does (12-24 months?), the key to making a bottom will be for would-be buyers to be able to buy with a smaller down payment than the 3.5% mandated by FHA for 2009 and beyond. A return to seller-funded downpayment assistance would clearly be a bad idea – given radically higher default rates. Reducing the minimum downpayment to, say, 2% may work – although higher mortgage insurance costs would undoubtedly have to be borne by the entire pool of people putting less than 3.5% down.

  4. Correct Dan.
    I’m calling 2001 prices.
    At least Wall St. will rebound before housing.

  5. But problems with prime loans are increasing as fast or faster. About 7.5% of prime jumbo mortgages — high-quality home loans too large to be sold to government-backed Fannie Mae and Freddie Mac — were at least 60 days late or in foreclosure, according to LoanPerformance. That was more than three times the level of a year earlier.


  6. MM, Did you coin the phrase “Organic Sales”? I’m starting to see others use it here on the Internet. I think this is actually a “positive feedback loop”, only it’s to the down side…i.e. it’s reinforcing price lowering behavior/trends.
    The sales activity seems to be in the low-end of the scale. The $300K homes in CA are the majority of the transactions. I’ve seen quite a bit written about investors buying these for flips and rental as they just about cash flow or maybe a little positive. First time buyers are coming into the market, which I think is just the manifestation of pent-up demand working.

  7. What positive spin are you reading? I have not seen any positive news reports. Even NAR is dour in thier reporting.

  8. it is ironic to put it mildly that obama’s “new” economic team are all rubin retreads and they are announced on the same day the public is asked to pay 326 BILLION for rubin’s latest management tour de force at ctigroup. yikes!

  9. Mr. M,

    In reference to the “no spin” poster above, a SOCAL/NOCAL sales report (or brief commentary) is definitely in order here to maintain your “no-spin respect” you have worked so hard to earn.


  10. I agree JAllen. In September, I suggested that this ONE SINGLE DATA POINT, suggests things are OK. Mr. Mortgage quickly piped up to “educate” me – oh no “he assured – this too is bad”.

    As I see it, a truthful blogger could accknowledge that this ONE, SINGLE SOLITARY DATA POINT is good news, while still reminding us that EVERY OTHER DATA POINT IN THE WORLD suggests prices will continue to fall for a while.

    However, the essence of “no spin” is to report the good and the bad. This good report came out a week ago – why Mr. Mortgage didnt report it immediately (even though he jumped on this bad news immediately) is indeed very very curious…

  11. Come on guys, Mr. M is a national figure now, can’t be seen to be catering to just California anymore…. By the same token you could be asking where is the Downey Savings story? Meanwhile feel free to write and post your own reports! Otherwise you are just showing up for a free buffet and complaining because they are out of cheesecake… Oh wait, the CA report is for paid subscribers only, how bout them apples?

  12. BertD- thanks. You said what I was thinking. To get this level of analysis and information for free is really a gift. Complaining about it’s absolute perfection makes me suspect the complainers motives far more than the level of analysis. MM has proven himself to be quite accurate and continues to do so.

  13. When Principle Reduction Happens for Everyone !! Mr. Mortgage will have done his job, until then, keep up the great work

  14. Any idea when Mountain View or Los Altos will begin to see REO sales? We have a friend in the City who pointed us to District 3 and 10 as areas where REO and short sales are available. But, the wife says we’re not pulling our kid out of school, she’s got 2 more years before graduating and I’m afraid we’ll miss the boat.

  15. Prices are coming down. That’s good. People who couldn’t afford their homes are getting out. I don’t have a problem with that. So what if everybody’s value on paper goes down? It was artificially and ridiculously high. Unless they used their house as an ATM and in that case why should I cry?

  16. BertDilbert – Mr. Mortgage is indeed a national figure. Yet a mere 30 days ago, he was all over the SOCAL/NOCAL AND National report, in each case saying “this is bad guys – dont believe the hype.

    Its very coincidental that 30 days later, he drops the SOCAL NOCAL reports that show a single data point of good news, and is still all over the national report which really is bad news.

    A more cynical person would suggest he didnt show these two because there is no way to spin the NOCAL/SOCAL report and show it is really bad. A more cynical person would suggest, he has an alterior motive to not let one single set of eyes disappear from his site. Bad news is what we are all here to see – good news could drive some of us away. Opiate for the masses perhaps?

    Personally, I have no idea why he does what he does, yet the timing is very very interesting dont you think? I wonder what else he sees and decides not to pass on for fear that it may drive some of us away? Curious isnt it?

  17. Ok so some one was asking for CA Data.

    Here it is.

    Total Late in CA as of 16:40 11:24:08
    Total 217,950
    30 Days 115,917
    60 Days 61,932
    90 Days 40,101

    The interesting part of this new surge is the loan amounts. I won’t publish that (the details are reserved for clients) but the average aggregate balance is up by about 75k on this new push.


  18. BertDilbert, peterb –

    I see nothing wrong with respectfully asking “why no NOCAL/SOCAL analysis” when it looks like Mr. M might be cherrypicking and only looking for bad news to report.

    It’s a fair question that should be answered. Your “he’s gone national now” explanation is not serious.

    Mr. M, a comment on NoCal/SoCal is still in order. I’m sure everyone is looking forward to a post to include:

    – tons not even listed shadow inventory(season, etc.)
    – tons of zombie mortgages (kicking the can)
    – problem moving to higher paper grades
    – Alt-A tsunami in ’09
    – unemployment spiking as 1 in 70 (534k) Californians have RE license.
    – Anyone in RE, Fin, Building, REmodeling, Insurance, etc. screwed.
    – Anyone with debt. screwed.
    -CA budget crisis worsening
    – low-end SFRs in bubble areas are close to cash-flowing with 10% down, speaking well for a bottom, provided rents hold up.
    – rents dropping

    So there.

    I guess it’s a lot to expect Mr.M to make the same comments every time every report comes out. It would be easier for him to post a la Mish: “When I see a bottom is in sight, or that the situation has changed, I will post on it. Until then, the situation sucks.”


  19. Peter B – I just saw your comment:

    “Complaining about it’s absolute perfection makes me suspect the complainers motives far more than the level of analysis.”

    You are correct in questioning my motives. At the end of the day, I doubt Mr. Mortgage’s true intentions – my motive is to spread that doubt.

    For example, I read several blogs. A year ago (when all news was truly bad), they reported it as such – and they were right.

    This year, an occasional truly good news story comes out – all blogs I read would interpret that, yet there was a curious divergence in what they would say:

    Some blogs would say “this ONE DATA point is good news, and heres why”… Now, some commenters would get angry and say – no your wrong – heres why. The blogger had the courage to tell us the truth – even if its what we renters didnt want to hear.

    Other blogs would take this one data point and say it too was bad news. Over time I learned these bloggers were mere perma bears – with them there was no chance we would see the recovery because they see everything as bad news.

    As to which type of blogger Mr. M is, I think he is the latter. If he wants to show us he is committed to the truth and not just a perma-bear, he will have the courage to admit that this one single data point is a positive – end of story…

  20. Anti Spin

    Let’s see, I am not expecting a good home sales report for the entire 2009. Specifically because home loans are set to pop off for another couple of years. Here is a concrete example. Talked to a guy in Huntington Beach Ca yesterday, has loan with Citi. Home value down a bit from the top but not hit bad yet, bought in 2004. Says his payment is going to change next year and he is not going to be able to afford it so he is already looking for a mod.

    Put 150k down so he is not underwater yet. So while he is not upside down in his mortgage, he is going to be upside down in his ability to make payments if they change next year.

    California is in a crisis. The unemployment rate is 8.2%. 10% would not surprise me in the first quarter. How does this fit into the picture? What is the point in taking one data point and trying to spin it into a positive when the surrounding conditions make it irrelevant?

    So while you did not get YOUR CA sales report, Mr. Mortgage did put up another post that proved quite lively with over 250 responses, the most in a long time. On that basis, the Mr. Mortgage Kitchen was serving it up.

  21. I often report on the national scene. I did it last month. Here is the link. # NO SPIN – Existing Home Sales DOWN 9.6% From Aug…Not Good (49)
    Posted on October 24, 2008 10:29 AM

    I prefer to wait to do the CA report until DQ releases teh entire statewide figures, which was not done until Friday. Prior to that it was only Nor & SoCal, which together do not capture the entire state. If you read the statewide report, they do not break out foreclosure related sales for some reason so I have a call into my DQ contact for the data.

    They say sales were the strongest since 2006 but I bet foreclosures as a part of sales jumped from 51% to ??? making for the weakest Oct organic sales month on record. I also have to add in the foreclosure data for the month showing new defaults plus actual trustee sales so I can get a true gauge of the market – with SB 1137 screwing up my foreclosure data, it is really tough to do meaningful analysis on that.

    I will put out a CA report as soon as they get me the foreclosures as a percentage of total sales data.

  22. Well here is the dang report, I found this interesting.

    Use of FHA-insured loans allowing a down payment of as little as 3 percent represented nearly one-third of all Southland purchase loans last month, up from 2 percent a year earlier.

    Assuming almost a third is at least 30% and it was 2% a year earlier then it would be at least 1400% increase in FHA loans YOY. Curious as to what the average down is.

  23. Mr. Mortgage,

    Thanks for the update/comment! Your very useful blog remains at the top of my daily read list.

    Best Regards,


  24. Bert Dilbert said…

    “What is the point in taking one data point and trying to spin it into a positive when the surrounding conditions make it irrelevant?”

    The point is to prove you are honest. To prove that when the real recovery comes (in 2011 as would be my guess), you will be there to say – this really is good news.

    The point is what if you, I, Mr. Mortgage, really everyone is wrong? We wont know the bottom until it has passed – as I see it there is about a 1-2% chance well look back at this report and say it was the bottom, and a 98-99% chance that it was a head fake.

    Some blogs decide to post ONLY bad news, never even discuss the possibility that good news is a head fake or real – these blogs cannot be trusted and only serve as an echo chamber for disgruntled renters to sit around and call knife catcher all day.

    One day, I want to buy a home, I want to quit renting – im not interested in sitting around in an echo chamber being spoon fed more info that fits into what I would like to see.

  25. I understand your points Anti-Spin. I would say I enjoy most correcting the misreporting by the mainstream and financial media.
    Especially the TV stations where cue card readers start professing we have bottomed, Citi won’t love their dividend, etc etc. Therefore, the direction of the blog is pointing out the ‘Truth’. I believe most of the what the media say are agenda or ratings based and the regular Joe 6-Pack gets screwed. I am trying to enlighten him.

    I actually really like Bloombergs format. Only the stories and the anchors dont really visibly show they have an opinion.

  26. For those interested in NoCal/SoCal *sunshine,* the latest (Sept.)Case-Shiller shows YoY San Francisco (-30%), Los Angeles (-28%) and San Diego (-26%)

    ALL down significantly by my calculation.

    I had a look at Contra Costa county and it was UGLY.


  27. Cant look at Case Shiller MSA data – it is very inaccurate. Within the SF MSA for example there are 4.4 million people in 5 counties. Some cities are down 5% because the crisis has not got there ‘yet’ and some are down 70%. The damage is much worse. Also, there still is some question about Case with their pair sales analysis. This may or may not include all foreclosure-related sales. Trustee Sales at auction never count. But bank reo sold sure does even for appraisal comps.

  28. @admin Mr. M. Thanks for the heads up. Clear, Case-Schiller has its flaws – another being not accounting for all the upgrades (granite etc.) put in. Still, it has some use as one of many sources. It’s better than what the NAR/CAR, most realtors etc. spew.

    The drill-down reports here are very good, and the banking stuff is as well.

    Thank you.


  29. Mr. Mortgage – thanks for the response. Also, I am a bit curious in response to case shiller you said

    “Within the SF MSA for example there are 4.4 million people in 5 counties. Some cities are down 5% because the crisis has not got there ‘yet’ and some are down 70%”

    Anecdotally, we see the same thing in a lot of MSAs DC, & Boston for instance. Question for you? Gun to your head, if you had to take a guess, as to the cities that havent been hit hard yet – at what point would you declare them “safe” or “relatively safe”? I.e., if we were in late 2010 and the picture still looked like this (5% down in some areas 70% down in other areas) I would say the 5% down areas arent gonna get hit hard. Thoughts on that timeline?

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