Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings November 2010

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing a continued slight improvement for most measures with the overall index moving up 1 point to 16 since last month as home builders continue to plod through the weakest activity seen in generations.

It's important to recognize that currently each sentiment index is showing notable year-over-year declines with each still sitting very near the lowest levels seen in over 20 years, a testament to the significance of the latest pullback.

Further, the "buyer traffic" index is showing the weakest results pulling back some 7.69% since November of 2009 and sitting just above the lowest level ever recorded.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Reading Rates: MBA Application Survey – November 10 2010

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage went flat since the last week at 4.28% while the purchase application volume increased 5.5% and the refinance application volume increased 6.0% over the same period.

It's important to note that with the final expiration of the governments massive housing tax credit subsidy, home purchase activity has been trending down precipitously despite continued declining interest rates.

The purchase application volume remains near the lowest level seen in well over a decade.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages as well as one year ARMs since 2006 (click for larger dynamic full-screen version).

The following dynamic charts show the Purchase Index, Refinance Index and Market Composite Index since 2006 (click for larger versions).

Radar Watching: Feder's Bearish Outlook

As I have noted in the past, since the home price index data provided by Radar Logic is more timely, unadjusted and un-smoothed it is particularly useful for gaining some deeper visibility over our housing markets especially in light of the distortions created by the massive government tax gimmick and other malfeasance.

To contrast, recognize that because the S&P/Case-Shiller (CSI) data is a two month lagged and a three month moving average, the index data will reflect price movement resulting from the government's housing tax scam until at least the September release (July data).

Further, as BostonBubble points out, since Congress moved to extend the closing deadline for the credit until September, the CSI data may not be free of the distortion until the February 2011 release!

The Radar logic data, on the other hand, while lagged by 60 days is reported daily and, more importantly, is NOT SMOOTHED or adjusted so you can expect to see the underlying trends more precisely and substantially sooner than with the CSI.

That being said, I want to highlight the following video bit from Bloomberg (hat tip TMTGSM who originally posted this yesterday) whereby Michael Feder, CEO of Radar Logic, gives what I believe to be possibly the most important piece of macro guidance I have seen this year indicating that real estate activity post-tax gimmick is the "lowest activity in years through the peak season" and that "we may see the bottom fall out".

It's important to note that Michael has a fair amount of foresight given that his firm likely has the transaction data well in advance of the release of each daily data point.

Also, downbeat sentiment coming out of Radar Logic is a fairly significant shift in outlook likely indicating that future data will be indicating some pretty weak conditions.

As for the latest trends, it’s important to note that the 25-MSA Composite has begun to show some of the first year-over-year declines seen since February indicating that as we move through the majority of the "stimulated" transactions, the price trend is weakening.

The latest data shows that as of the middle of June, prices are 0.15% below the level seen in June 2009.

Housing Starts Down 10.6% Month on Month - Nuff Said!

The government sponsored housing bounce is dead... more on the new residential construction numbers later....

Bounce, Crackle and Pop!

The extra-seasonal, “cash for first time homedebtors” fueled housing price bounce having reached its peak in most markets in mid-summer now appears to be completely reverting for some.

The Radar Logic home price data now indicates that there are seven regional markets that have now dropped below their March lows.

This presents an unequivocal bump in the road of the supposed “V” shaped economic recovery as a significant “housing recovery” disappointment shapes up over the next few months.

The following rollup (click for larger) shows the regions that have now completely reverted from the summer peak to break the prior lows seen in March… some even dropping to series lows, resting at levels not seen since the late 1990s.

Note that I added “value” loss for homes purchased at the summer peak and costing either $200K, $300K, $400K and $500K… all losses are well in excess of the senseless $8000 government carrot tax “credit”.

The following are Blytic charts for each of the seven popped markets.

Existing Home Sales Report: April 2009

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for April indicating that home sales are continuing to fall, despite the significant slide to median selling prices, record low interest rates and significant numbers of speculative sales of distressed properties in the western region.

Existing single family home sales were down 2.8% on a year-over-year basis while the median selling price declined a dramatic 14.9% over the same period.

More notably though, the Condos now seem to have fully tipped into the major decline phase with sales declining 9.4% on a year-over-year basis with median selling prices declining a whopping 18.5% over the same period.

The NAR leadership continues their shameless spin with their chief economist Lawrence Yun suggesting the Federal Reserve needs to subsidize extravagant home purchases by the most affluent in our society and in turn, bail out the Realtor industry.

“The Federal Reserve needs to help restore liquidity for the jumbo mortgage market by buying these loans under the TALF program.”

The following (click for larger versions) are charts showing sales for single family homes, plotted monthly, for 2006, 2007, 2008 and 2009 as well as national existing home inventory and month supply.







Below is a chart consolidating all the year-over-year changes reported by NAR in their most recent report.

Realtor’s New Reality: Existing Home Sales Q1 2009

Today, the National Association of Realtors (NAR) released their Metropolitan Area Existing Home Sales Report for Q1 of 2009 showing, in truly stark and simply stunning terms, the tremendously broad nature of the housing downturn.

Median single family home selling prices, on a year-over-year basis, are now falling in 129 of the 146 metro markets tracked while on a respective-peak-basis median selling prices have fallen substantially IN FULLY 146 of 146 tracked markets.

Further, there are some particularly striking price declines coming from areas of Florida, Nevada, Arizona, Ohio, California and Michigan where all peak price declines have breached the 50% mark while some are nearing -70%.


As for single family home sales, there has been an equally significant shift of sorts (compare the sales charts in my post from Q1 2008) whereby the first tier housing bubble hot spots (California, Nevada, Florida, etc.) now show increasing sales amidst the significant price declines while areas that have yet to fully relent to the price correction have taken the lead in declining sales.

Additionally, while ALL 49 states (NH doesn’t report consistently so they are excluded) and Washington DC continue to show notable peak sales declines, 6 states are now showing year-over-year sales increases with the most significant increases coming from Arizona, California and Nevada.


Of course, the National Association of Realtors (NAR) leadership chooses to focus attention on the few areas showing annual sales increases while simultaneously assuring “homeowners” that their “good condition” homes have not fallen in “value” as much as their own report suggests.

“Over the past couple months, contract activity for home sales, buyer traffic and inquiries about the $8,000 tax credit have all increased,” says chief economy Lawrence Yun.

NAR president Charles McMillian states “Traditional homes in good condition have held their value much better, so owners shouldn’t be overly concerned about median prices. Most sellers can expect a good return if they’ve been in their home for a normal period of homeownership and haven’t excessively tapped their equity,”

The Almost Daily 2¢ - Land of the Lost

So much is made of Japan's “Lost Decade” yet only in America (only during this era I suppose) could it go almost totally unrecognized that we have already experienced a lost decade of our own.

Nearly 10 years of both “real” and nominal stock market losses and comparably long trending weakness in our job markets and yet the assumption of recovery is has never been so fervent.

It could be the speculative energy or maybe we continue to fool ourselves into believing we have real wealth and not just debt and obligations, steadily depreciating “assets” and wishful thinking.

It’s hard to accept a trend that’s turned against you though as the decline continues many will likely find the good times of the past continuously fading to a more humble and fundamental current reality.

In the wake of the “dot-com” bust we conditioned ourselves to accept notions like a “jobless recovery” yet in light of the now more obvious fact that the “recovery” of 2003-2007 was a total fraud we still have yet to admit that that the economy never truly recovered.

Without all the easy lending, financial arbitrage schemes and “feel good” consumer spending the “jobless recovery” would have been simply been a “recovery-less recovery”.

Yet the Bulls suppose that they know better… “We can recover without the jobs…” and “the stock market is way undervalued” they say as if they are aware of a new paradigm within which the economy simultaneously shrinks and grows.

“The banking sector and housing will lead the recovery” says another trader on CNBC.

Yet another trader not only declares the worst to be behind us but that the broad stock markets will continue to rise for the entirety of 2009.

Fat chance.

Below is a simple reminder that our “jobless recovery”, our mega-double-crash stock markets and our massive deflating debt bubble are not independent events playing out simultaneously through happenstance but the organic trend of a topped-out late cycle generational unwind.

S&P/Case-Shiller: January 2009

Today’s release of the S&P/Case-Shiller home price indices for January 2009 again confirms a worsening of deterioration seen in the nation’s housing markets with ALL of the 20 metro areas tracked reporting significant year-over-year declines and ALL metro areas showing large and even shocking declines from their respective peaks.

Further, there continues to be a notable re-acceleration of the price slide with the 10-city index dropping 2.52% and the 20-city index dropping 2.76% just since last month.

In all likelihood, we are now firmly sliding down an even more momentous slope of home price declines as the continued economic crisis and dramatically accelerating unemployment work to both crush consumer sentiment and force panicked mortgage lenders to continue to tighten their lending standards.

As the housing decline enters the year of the “Prime-Bomb” a larger and much more damaging population of homeowners will face historic levels of financial stress the outcome of which is, at the moment, very hard to calculate.

The 10-city composite index declined a record 19.40% as compared to January 2008 far surpassing the all prior year-over-year decline records firmly placing the current decline in uncharted territory in terms of relative intensity.

Topping the list of regional peak decliners were Phoenix at -48.50%, Las Vegas at -46.49%, Miami at -43.38%, San Francisco at -43.06%, San Diego at -40.78%, Los Angeles at -39.21%, Detroit at -38.95%, Tampa at -37.33%, Washington DC at -31.51%, Minneapolis at -29.77%, Chicago at -22.42%, Seattle at -19.72% and Boston at -17.39%.

Additionally, both of the broad composite indices showed significant declines slumping -30.16% for the 10-city national index and 29.11% for the 20-city national index on a peak comparison basis.

To better visualize the results use the PaperEconomy S&P/Case-Shiller/Futures Charting Tool as well as the PaperEconomy Home Value Calculator and be sure to read the Tutorial in order to best understand how best to utilize the tool.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a year-over-year basis.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights both how young the current housing decline is and clearly shows that the latest bust has surpassed the prior bust in terms of intensity.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are still likely less than half of the way through the portion of the decline in which will be seen fairly significant annual declines (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.


In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

Notice that peak declines have been FAR more significant to date and, keeping in mind that our current run-up was many times more magnificent than the 80s-90s run-up, it is not inconceivable that current decline will run deeper and last longer.

New Home Sales: January 2009

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for January showing continued and eve accelerating deterioration in demand for new residential homes across every tracked region resulting in a startling 48.24% year-over-year decline and a truly horrendous 77.75% peak sales decline nationally.

It’s important to keep in mind that this stunning year-over-year decline is coming on the back of the significant declines seen in 2006, 2007 and 2008 further indicating the enormity of the housing bust and clearly dispelling any notion of a housing bottom having been reached.

Additionally, although inventories of unsold homes have been dropping for well over a year, the sales volume has been declining so significantly that the sales pace now stands at an astonishing 13.3 months of supply.

The following charts show the extent of sales declines seen since 2005 as well as illustrating how the further declines in 2009 are coming on top of the 2006, 2007 and 2008 results (click for larger versions)


Look at the following summary of today’s report:

National

• The median sales price for a new home declined 13.47% as compared to January 2008.
• New home sales were down 48.24% as compared to January 2008.
• The inventory of new homes for sale declined 29.3% as compared to January 2008.
• The number of months’ supply of the new homes has increased 35.7% as compared to January 2008 and now stands at 13.3months.

Regional

• In the Northeast, new home sales were down 50.9% as compared to January 2008.
• In the Midwest, new home sales were down 33.8% as compared to January 2008.
• In the South, new home sales were down 45.9% as compared to January 2008.
• In the West, new home sales were down 59.9% as compared to January 2008.

Existing Home Sales Report: January 2009

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for January which firmly indicates a new leg down in home sales despite the significant slide to median selling prices fueling speculative sales in the western region.

The report continues to show stunning declines to the median selling price for both single family homes and condos across virtually every region.

The NAR leadership continues their shameless spin with their chief economist Lawrence Yun suggesting that buyers were sidelined by all the “stimulus package discussion” and that the housing markets will soon benefit from the government handouts:

“Given so much stimulus package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of housing stimulus, … The housing market will soon get a lift from very favorable buying conditions – not only from improved affordability, but also from the stimulus of an $8,000 first-time home buyer tax credit, and higher conforming loan limits that will allow more people to tap into 50-year low mortgage rates.”

The following (click for larger versions) are charts showing sales for single family homes, plotted monthly, for 2006, 2007, 2008 and 2009 as well as national existing home inventory and month supply.







Below is a chart consolidating all the year-over-year changes reported by NAR in their most recent report.