Total Real Estate Lending Contracts!

As a further indication that we are currently experiencing reasonably unprecedented economic trends, the total of all real estate loans for all commercial banks has just registered its first nominal annual decline on record.

This is particularly notable given that the series stretches all the way back to 1947 and thus captures a host of trying economic times including eleven separate recessions.

October 2009 registered a 1.70% annual decline followed by a tepid 0.06% increase in November and then a 0.38% decline in December bringing the total real estate loans held by commercial banks to just over $3.80 trillion.

The following chart (click for full-screen dynamic version) plots real estate loans at all commercial banks since 1947 along with the annual percent change of real estate loans. The light yellow bands indicate U.S. recessions.

Aside from reduced demand, if you want to know what might be keeping banks on the sidelines tightfisted and unwilling to lend take a look at the following chart (click for full-screen dynamic version) that plots nonperforming total loans for all commercial banks.

Notice that as of Q3 2009 the nonperforming loan ratio reached 5.03%, the highest percentage of delinquent or nonaccrual loans to total loans seen in at least twenty years.

NARcasting The Future: July 2009

This week, the National Association of Realtors (NAR) provided their latest estimate of annual existing home sales for 2009 revising their 2009 total year sales forecast down to 4.885 million units.

Of course their chief economist, Lawrence Yun, and current president, Charles McMillan continue their handiwork carefully spinning the notion of a stabilization in the national housing markets while simultaneously promoting the idea that federal legislation to standardize the home appraisal process is required to maintain any real stabilization…

“First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory. However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.” Yun said.

“To maximize the potential for a housing recovery and subsequent economic recovery, we need realistic appraisals that are based on proper comparisons and done by a local specialist,” McMillan said.

For those of you that don’t recognize it… this talk is the simple framing of an appeal (through RPAC the Realtor political action committee) for action from the federal government to contrive the procedures used to conduct fair-market appraisals of residential real estate.

In an effort to put their absurd bias into perspective I compiled all their existing home sales forecasts for 2007, 2008 and now 2009 into a chart along with a list of prominent quotes supplied with each forecast.


12/11/2006 Prediction: 6.40 million units.
Lereah "Most of the correction in home prices is behind us."

1/10/2007 Prediction: 6.42 million units.
Lereah "The good news is that the steady improvement in sales will support price appreciation moving forward."

2/7/2007 Prediction: 6.44 million units.
Lereah "After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008."

3/13/2007 Prediction: 6.42 million units.
Lereah "Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next."

4/11/2007 Prediction: 6.34 million units.
Lereah "Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections."

4/30/2007 Lereah Leaves NAR for Move.com

5/9/2007 Prediction: 6.29 million units.
Yun "Housing activity this year will be somewhat lower than in earlier forecasts."

6/6/2007 Prediction: 6.18 million units.
Yun "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year."

7/11/2007 Prediction: 6.11 million units.
Yun "Home prices are expected to recover in 2008 with existing-home sales picking up late this year."

8/8/2007 Prediction: 6.04 million units.
Yun “With the population growing, the demand for homes isn’t going away – it’s just being delayed.”

9/11/2007 Prediction: 5.92 million units.
Yun “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

10/10/2007 Prediction: 5.78 million units.
Yun "The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains."

11/13/2007 Prediction: 5.5 million units.
Yun "In some ways, the extended real estate boom from 2001 to 2005 created unrealistic expectations that housing is a short-term high-yield investment… 2007 will be the fifth best year for housing on record"

12/10/2007 Prediction: 5.67 million units in 2007, 5.7 million units in 2008.
Yun "The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007."

ACTUAL: 5.652 million existing units sold in 2007

01/08/2008 Prediction: 5.66 million units in 2007, 5.7 million units in 2008.
Yun "A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008."

02/07/2008 Prediction: 5.38 million units full year.
Yun "Where builders have cut construction sharply, and in most areas with improving affordability conditions, we’ll generally see moderately higher home prices."

03/06/2008 Prediction: 5.38 million units full year.
Yun "Significant price declines in some local markets have sharply and quickly improved local affordability conditions, and are inducing buyers to return to the marketplace"

04/08/2008 Prediction: 5.39 million units full year.
Yun "Exceptionally weak home sales related to jumbo loans problems will depress home prices in the first half of the year, but steady liquidity improvements in the conforming jumbo-loan market will help prices recover in the second half of the year"

05/08/2008 Prediction: 5.39 million units full year.
Yun "Although more than half of local markets are expected to see price growth this year, the aggregate existing-home price will decline 2.4 percent in 2008, driven by a relatively few markets that are very oversupplied"

06/09/2008 Prediction 5.4 million units full year.
Yun "We’re seeing healthy price gains in moderately priced areas like Erie, Pa., and Corpus Christi, Texas, and double-digit gains in others"

07/08/2008 Prediction 5.31 million units full year.
Yun "Interestingly, there have been reports of multiple bidding after the large price cuts, so it is possible that most of the price declines have already occurred in those markets."

08/08/2008 Prediction 5.51 million units full year.
Gaylord "buyers [will] get into the market to take advantage of the unprecedented drop in home prices in many areas, as well as a wide selection of inventory, to make an investment in their future,"

09/09/2008 Prediction 5.01 million units full year.
Yun "Nationally, home sales are stable now but are expected to increase in coming quarters."

10/08/2008 Prediction 5.04 million units full year.
Yun "What we’re seeing is the momentum of people taking advantage of low home prices…"

11/07/2008 Prediction 5.02 million units full year.
Yun "…we’re still in a broad period of stabilization"

12/09/2008 Prediction 4.96 million units full year.
Yun "Given the critical role of housing in an economic recovery, we’re confident sufficient (government) stimulus will be offered to bring more buyers to the market,"

ACTUAL: 4.912 million existing units sold in 2008

1/06/2009 Prediction 4.90 million units in 2008, 5.224 million units 2009.
Yun "With a proper real-estate focused (government) stimulus measure, home sales could rise more than expected, by more than 10 percent..."

2/02/2009 Prediction 4.912 million units in 2008, 5.116 million units 2009.
Yun "Forecasting is a hazardous sport at times. With so many pieces of the puzzle now moving in opposite directions, the crystal ball reading has become even cloudier."

3/02/2009 Prediction 4.927 million units.
Yun "One thing is for sure. The economy will not be able to recover in a sustainable way without home price stabilization."

4/06/2009 Prediction 4.964 million units.
Yun "The key to housing stabilization is whether or not there are sufficient buyers of foreclosed homes."

5/05/2009 Prediction 4.968 million units.
Yun "We need several months of sustained growth to demonstrate a recovery in housing."

6/05/2009 Prediction 4.982 million units.
Yun "Just like war, nothing goes as planned…"

7/01/2009 Prediction 4.885 million units.
Yun "Pending home sales… quite a respectable jump..."

Reading Rates: MBA Application Survey – October 10 2007

The Mortgage Bankers Association (MBA) publishes 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 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 increased since last week and now stands near the peak for the year at 6.40% while the purchase volume increased 2.1% and the refinance volume increased 2.7% compared to last weeks results.

It’s important to note that the data is reported (and charted) weekly and that the rate data represents average interest rates, and the index data represents mortgage loan application volume for home purchases, home refinances and a composite of all loans.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since January 2007.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).

The following charts show the Purchase Index, Refinance Index and Market Composite Index since January 2007 (click for larger versions).

The Daily 2¢ - Limiting The Loophole

As many of you already know there is a very juicy loophole in the federal tax code that allows for a gargantuan exclusion ($250,000 for a single homeowner, $500,000 for a couple) of the gain from the sale of a principle residence from traditional taxation, so long as the taxpaying homeowner had used the property as a primary residence for an “aggregate” of 2 years of the 5 years prior to the sale.

The “aggregate” language in the tax code is important as it allows for the flexibility of using the property for other purposes (such as a vacation home or a rental property) during the 5 years prior to the sale but still meet the residency requirement as long as the time the property had been used as a primary residence totals 2 years.

To say that this WAS an important tax loophole for lower to middle income as well as affluent homeowners is an understatement as the notion of such a large tax free capital gain likely greatly contributed to the excitement seen in residential real estate since the loophole was passed into law back in 1997.

Yesterday though, the House Ways and Means Committee, chaired by Representative Charles Rangel (D-NY) set the stage for an aggressive change of the tax code that, if passed into law, would greatly limit the flexibility inherent in the existing loophole.

The proposed changes that ironically ride along within the “Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648)” bill that was requested by President Bush in response to the subprime mortgage debacle, appears to eliminate the tax break for any gain associated to the periods where the property is NOT used as a primary residence.

The bill achieves this feat by introducing the notion of a “period of nonqualified use” which is defined as any period that the homeowner or spouse does NOT use the property as a primary residence.

The bill goes on to propose an exception that, while puzzling and poorly designed, appears to grant an exception to all periods of “non qualified use” that occurs AFTER “qualified” period of primary residency within the final 5 year period prior to sale.

By this they may possibly mean that after an initially fully qualified primary use, i.e. 2 years or primary residency, any "nonqualified" use occurring within 5 years prior to sale would be considered "qualified"

So, in general, come the effective date of January 1 2008, all gain from periods where a property is squarely a second home, be it vacation or investment, will be taxed.

It's important to note that the proposed changes are, in effect, being established exclusively to provide tax revenues needed make up the shortfall derived from the bills primary goal of tax relief for homeowners who had a portion of their housing debt forgiven in lieu of foreclosure.

Keep in mind though that the proposed changes have simply been unanimously agreed upon by the House Ways and Means Committee so there is still the House passage, Senate proposed legislation and passage, reconciliation and of course President Bush’s signature standing in the way of these changes becoming law.

On a side note, one of the authors of the current bill threw in a totally unrelated change to the tax law regarding the time of payment for corporate estimated taxes… isn’t it just lovely how the government works?

BNN MUST SEE TV! – Peter “Dr. Doom” Schiff, Robert Shiller, and Nouriel Roubini

Here’s another new round of fairly calamitous forecasts from three of the most accurate economic prognosticators of our recent times.

Keep in mind that the respective outlook of all three forecasters has not changed measurably in the last year or so and, in fact, it seems quite obvious now that they were among the very few who clearly envisaged the full breadth and depth of the housing decline and the spillover effects that it’s reversal would have on the economy as a whole.

Peter “Dr. Doom” Schiff, President of Euro Pacific Capital joins CNN and CNBC to discuss the mortgage-housing crisis and its effects on the wider economy. Schiff points out that many of the subprime and toxic exotic loan borrowers were not victims but, in fact, speculators.

As lending standards tighten, returning to normal, home prices will correct and home equity will “vanish” leading Schiff to predict that he is “100% certain that we are headed for a severe and prolonged recession” while also suggesting that it will take time for all the aspects of the collapse to fully unwind.

Watch Dr. Doom’s Recent CNN Appearance on BNN!

Watch Dr. Doom’s Recent CNBC Appearance on BNN!

Yale Professor and Chief Economist of MacroMarkets LLC Robert Shiller joins CNBC to discuss the psychology of homeowner sentiment and the outlook for housing.

Shiller continues to suggest that, although the course of the housing market is slow and hard to predict, he is still worried about the impact of the correction and the likeliness for it to worsen.

While homeowners and homebuyers are generally still optimistic about housing and consumption, Shiller suggests that falling home prices and increasing inventory may likely erode that confidence.

Watch Robert Shiller’s Recent CNBC Appearance on BNN!

Watch Robert Shiller’s Recent Larry Kudlow Appearance on BNN!

New York University Professor and Chairman of RGE Monitor, Nouriel Roubini joins Bloomberg to discuss the outlook for housing and the economy.

Roubini now puts the odds of a recession at over 50% with the mortgage-credit crunch and a declining housing market leading to a weakening consumer.

While predicting an inevitable rate cut from the Fed, Roubini suggests that it will likely be too late to really affect the housing decline.

Watch Nouriel Roubini’s Recent Bloomberg Appearance on BNN!

Constructing Capitulation: July 2007

Looking back at July’s results (released throughout August) it’s obvious that the nation’s housing markets are continuing to show significant weakness, even during what, for most measures, is generally the seasonal peak in activity for the year.

Slowing demand and the now undeniable mortgage-credit-financial crisis are continuing to weigh heavily on housing, setting up for what seems fairly certain to be a new leg down and ultimately a severe housing recession.

The preliminary GDP report for Q2 2007 continued to show a significant drag coming from the decline in residential fixed investment as well as significant revisions to past GDP results better demonstrating the pronounced effects this drag has had for the last four quarters.

The following chart shows real residential and non-residential fixed investment versus overall GDP since Q1 2003 (click for larger version).

The housing weakness also continues to clearly show up in retail sales as consumer’s pullback on spending for some of the most discretionary of goods.


The National Association of Realtors (NAR) released their sixth consecutive downward revision to their annual home sales forecast for 2007 putting the current outlook far below the “rose colored” initial predictions from the start of the year.

NAR Chief Economist Lawrence Yun now suggests that the demand is still out there but it’s just being “delayed”.

Homebuilder confidence continues to decline to near multi-decade lows with respondents indicating that estimates of “present” and “future” conditions as well as buyer traffic continues to slump.

The Census Department’s New Residential Construction Report which continues to indicate horrendous weakness in the nation’s housing markets and for residential construction showing substantial declines on a year-over-year basis to single family permits both nationally and across every region.

The Census Department’s New Residential Home Sales Report that, despite all the traditional media’s “unexpected increase” coverage, continues to show weakness as well as significant downward revisions to April and May’s results.

As with prior months, on a year-over-year basis sales are still declining significantly at 10.2% below the sales activity seen in July 2006.

NAR’s Existing Home Sales Report showing additional confirmation that the nation’s housing markets are continuing to experience weakness with EVERY regions showing considerable declines to sales, across every product (single family, condos), as well as continued increases to inventory and monthly supply.

The June 2007 results of the S&P/Case-Shiller Indices are continued to show weakness for the nation’s housing markets with 15 of the 20 metro areas tracked reporting significant declines.

Topping the list of decliners on a year-over-year basis was Detroit at -11.01%, Tampa at -7.70%, San Diego at -7.30%, Washington DC at -6.96%, Phoenix at -6.55, Las Vegas at -5.09%, and Miami at -4.79%.

Furthermore, comparing the last major downturn in the late 80s and early 90s to the current data may indicate that the current housing downturn is in its infancy with year-over-year declines only just having materialized in the last eleven months.

The Census Department’s Construction Spending report for June again demonstrated the significant extent to which private residential construction spending is contracting.

With the weakening trend continuing, total residential construction spending fell -16.11% as compared to July 2006 while private single family construction spending declined by a grotesque -25.32%%.

Key Report Details:

• The seasonally adjusted annul rate of private residential construction spending has now dropped 23.27% from the peak set back in February 2006.
• Overall private residential construction spending dropped -16.11% as compared to July 2006.
• Single Family residential construction spending dropped 25.32% as compared to July 2006.

The following charts show changes to construction spending (click for larger version):

A Closer Look at New Home Sales: July 2008

As I had noted before, in 2004 new home sales exhibited an interesting phenomena whereby the distribution of home sales, grouped by several price ranges, effectively flipped from what one might conclude to be logical and from the historical norm.

Prior to 2004, in general, the least expensive new homes sold the most numbers of units while the most expensive new homes sold the least numbers of units.

Not a very surprising result as one might easily conclude that the majority of new home buyers cannot, in general, afford the most expensive homes.

After 2004 though, the scenario exactly flipped in that the most expensive new homes easily outsold the least expensive homes.

Now, this could either be explained by the inflating of home prices during the boom, easy availability of bloated loans, home buying patterns, or a little bit of all of these events but no matter what the cause, it appears that the scenario is now in the process of flipping yet again.

Since the peak in 2005 new home sales have been falling among all price ranges but more recently there have been relative strength in the sales of lower priced home and a marked weakness in sales of the highest priced homes.

The interesting point here is that the “flip” that occurred in 2004 was likely an anomaly made possible by the boom which is likely to completely reverse in the coming years as the environment for home building settles back to a more historically normal scenario.

This “re-flipping” of new home sales may serve as a good indicator of the unwinding of the boom.

The first chart shows new home sales for the highest priced new homes, i.e. homes priced above $300,000 (click for larger version). Notice that since 2005 sales have been declining sharply.

The following chart shows both a "smoothed" and raw unadjusted number of new homes sold for four different price ranges (click for larger). Notice that the price ranges appear to be converging and likely flipping back to a more historical normal pattern.


Another way to visualize this issue is to view each price ranges “market share” of all new homes sold (click for larger version). Notice that back in 1999, over 40% of new homes were priced under $200,000 whereas now, new home sales for homes in this price range total less than 20%.

S&P/Case-Shiller: June 2007

The most recent release of the S&P/Case-Shiller home price indices for June continued to show weakness for the nation’s housing markets with 15 of the 20 metro areas tracked reporting significant declines.

Topping the list of decliners on a year-over-year basis was Detroit at -11.01%, Tampa at -7.70%, San Diego at -7.30%, Washington DC at -6.96%, Phoenix at -6.55, Las Vegas at -5.09%, and Miami at -4.79%.

Additionally, both of the broad composite indices showed accelerating declines slumping -4.07% for the 10 city national index and -3.49% for the 20 city national index continuing the first negative slump in annualized appreciation seen since the early 90’s housing bust.

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

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 how young the current housing decline is, having only posted four consecutive year-over-year (YOY) monthly declines to home prices.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only ten months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle (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.

The Daily 2¢ - The New Dukes of Hazard

There has been a lot of discussion lately on whether, by moving too aggressively in shoring-up the market, the latest actions by the Federal Reserve constitute a “moral hazard” which inadvertently conveys to market participants a false sense of security and even impunity leading, ultimately, to inefficient behavior and careless risk taking.

Yet, given the policies of the Fed in recent times, it’s seems hard to differentiate the measures taken by “helicopter” Ben from the former “easy money” maestro in order to determine which era might be deemed hazard causing and which not.

I suppose the best way to judge is simply to watch the sentiment and actions of the market participants themselves to see if they appear to be relying on presumed assurances from a higher power when making their market bets.

To that end, witness this ridiculous clip of CNBC’s Dylan Ratigan closing the NASDAQ yesterday and see if you can divine the answer for yourself.

It’s subtle so I’ll give you a hint… the part towards the end of the clip where, surrounded by a large cadre of Wall Street goons, Ratigan, in a crescendo building cheerleading tone, states “Five days in a row… this markets been higher. You can thank the Federal Reserve for that. Ever since they stepped in this market has been [up up and?] away.”

So I guess the hazard is on, where it ends only time will tell but let’s just hope that it’s not with Bernanke hurling sacks of cash from the General Lee.

Possibly the old TV serial lyric holds a clue:

“Straightening the curves, flattening the hills
Well someday the mountain might get 'em but the law never will

Just two good ol' boys, wouldn't change if they could
They're fighting the system like two modern-day Robin Hoods”

Oh well… it’s just the economy…. By the way, I’m the spitting image of Cooter.

Constructing Capitulation: June 2007

Looking back at June’s results (released in July) it safe to say that the weakening demand and an ongoing mortgage credit crisis are continuing to weigh heavily on the nation’s housing markets, sending them spiraling down yet another leg in this unprecedented housing decline.

The advance GDP Report for Q2 2007 continued to show a significant drag coming from the decline in residential fixed investment as well as significant revisions to past GDP results better demonstrating the pronounced effects this drag has had for the last four quarters.

The following chart shows real residential and non-residential fixed investment versus overall GDP since Q1 2003 (click for larger version).

The housing weakness also appears to clearly show up in retail sales as consumers pullback on spending for some of the most discretionary of goods.



The National Association of Realtors (NAR) released their fifth consecutive downward revision to their annual home sales forecast for 2007 putting the current outlook far below the “rose colored” initial predictions from the start of the year.

Homebuilder confidence continues to decline to near multi-decade lows with respondents indicating that estimates of “present” and “future” conditions as well as buyer traffic continues to slump.

The Census Department’s New Residential Construction Report which continued to indicate significant weakness in the nation’s housing markets and for residential construction showing substantial declines on a year-over-year basis to single family permits both nationally and across every region.

The Census Department’s New Residential Home Sales Report that, renewed declines, even accelerating in some regions, as well as significant downward revisions to last month’s results.

As with prior months, on a year-over-year basis sales are still declining in the double digits at 22.27% below the sales activity seen in June 2006.

NAR’s Existing Home Sales Report showing additional confirmation that the nation’s housing markets are continuing to experience weakness with EVERY regions showing considerable declines to sales as well as continued increases to inventory and monthly supply.

The May 2007 results of the S&P/Case-Shiller Indices are continued to show weakness for the nation’s housing markets with 15 of the 20 metro areas tracked reporting significant declines.

Topping the list of decliners on a year-over-year basis was Detroit at -11.06%, San Diego at -6.96%, Tampa at -6.67%, Washington DC at -6.34%, Phoenix at -5.55, Boston at -4.29% and Las Vegas at -4.10%.

Furthermore, comparing the last major downturn in the late 80s and early 90s to the current data may indicate that the current housing downturn is in its infancy with year-over-year declines only just having materialized in the last eleven months.


June's Pending Home Sales Report for June 2007 showing a continuation of the historic decline to residential housing on a month-to-month and year-over-year basis, both nationally and in every region.

The Census Department’s Construction Spending Report for June again demonstrated the significant extent to which private residential construction spending is contracting.

With the weakening trend continuing, total residential construction spending fell -16.39% as compared to June 2006 while private single family construction spending declined by a grotesque -25.82%.

Key Report Details:

• The seasonally adjusted annul rate of private residential construction spending has now dropped 21.80% from the peak set back in February 2006.
• Overall private residential construction spending dropped -16.39% as compared to June 2006.
• Single Family residential construction spending dropped 25.82% as compared to June 2006.

The following charts show changes to construction spending (click for larger version):

Pending Decline: June 2007 Pending Home Sales Report

Last week, the National Association of Realtors (NAR) released their Pending Home Sales Report for June 2007 showing a continuation of the historic decline to residential housing on a year-over-year basis, both nationally and in every region.

Additionally, the Northeast and Midwest regions have fallen back below 100 indicating that, seasonally adjusted, June’s home sales activity was BELOW the average activity recorded in 2001, the first year Pending Home Sales were tracked.

As usual, NARs Chief Economist, Laurence Yun takes a clumsy crack at false optimism insinuating that a bottom in declining demand may have already been reached and possibly even past.

“However, it is too early to say if home sales have already passed bottom, … Still, major declines in home sales are likely to have occurred already and further declines, if any, are likely to be modest given the accumulating pent-up demand.”

The following chart shows the national Pending Homes Sales Index since 2005 compared monthly. Notice that each year, the months value is decreasing consistently (click for larger version).

The following chart shows the year-over-year changes to the national Pending Home Sales index as well as comparing the latest results against the values seen in the peak year of 2005 (click for larger version).

The following chart shows the pending home sales index nationally and for each region tracked (click for larger version).

Note that in the above charts, I had to use the Not Seasonally Adjusted (NSA) data series as NAR changed the methodology for their Seasonally Adjusted (SA) series a while back and never republished the numbers. This is why none of the data appears to be breaking below a value of 100 because it’s the SA series that is now below 100.

Keep in mind the current pending sales decline comes ON TOP of last years historic fall-off so the continued weakness is a sure sign that the decline is not ephemeral.

Look at the June seasonally adjusted pending home sales results and draw your own conclusion:

• Nationally the index was down 8.6% as compared to June 2006.
• The Northeast region was down 2.4% as compared to June 2006.
• The West region was down 5.5% as compared to June 2006.
• The Midwest region was down 8.2% as compared to June 2006.
• The South region was down 12.7% as compared to June 2006.

So it appears that, year-over-year, contract activity is still dropping rather sharply with ALL regions continuing to show significant declines.

I’m Back!

First, many thanks to all the wonderful readers that wished me a happy vacation… It was really nice to come home to so many great emails!

Well, Bermuda was really amazing. I would definitely recommend it to anyone looking for a fun, beautiful, quiet and relaxing island destination.

It has stunning beaches and coves (pink sands on the south beaches!), exceedingly nice people, loads of fish to snorkel at and plenty of great points of interest and activities.

We even rented a small Boston Whaler and spent half a day shooting to-and-fro across the Great and Little Sounds and to the back side of the island around Spanish Point.

We were literally whizzing in-between the island ferries and alongside cruise ships! They are VERY laid back on that island to say the least.

Also, with Jet Blue now flying there it’s MUCH cheaper to get to than it had been in the past… Just $200 round trip from Boston (and likely other cities as well).

Better yet, it’s such a short flight… only 2 hours from many cities on the east coast and the Bermuda International Airport is extremely easy to get in and out of. It’s so quick and easy that your arrival and departure days almost become full days on the island.

On the way home I found myself plotting out just how and when to get back there again in the near future.

As for the housing and economic events that have transpired since I left all I can say is WOW!

Is there any doubt now that Great Decline is in full swing?

Is there any doubt that Bernanke and the Fed, Paulson and Lazear, and all the Bullish pundits, either purposefully or not, underestimated the depth and breadth of the housing collapse and the spillover effects it’s having on the general economy?

It seems clear to me that, at this point, Bernanke, not Yun, is the new Lereah and that no amount optimistic speak of the health of the overall economy, false notions of “containment” or even massive injections of liquidity is going to spin the tide against this colossal bust.

The mortgage market is imploding, homes sales are continuing to slide, inventory is rising and prices are falling.

Most American consumers are tightening their “discretionary” belts and many are losing their homes to foreclosure.

The only question now is how long will it take for this ugly deterioration to completely unfold and lead to recession and a reversion to the mean for home prices?

As we can see from last week, the collapse is quickly becoming one of the biggest stories of our time… far larger, I think, than all the bubble hype that ginned up the mania to begin with.

We are still at the start of this immense process and as it becomes clearer and more obvious to the average American that the glory days of the run-up are long gone, I expect to see the real correction kick in.

On Vacation!

I’ll be away on vacation for the next week so I thought I would take this opportunity to recommend a few of the excellent blogs on the blogroll that you can read in order to stay completely current on the housing decline.

Don’t forget, while I’m away the Inventory Tracking Tool, S&P/Case-Shiller/Futures Tool, OFHEO HPI Tool, and Bubble Times are always running and up to date so check them daily.

Also, although BNN - The Bubble News Network will have no new videos added until I return, there is now OVER 300 bubbly clips posted up there... So Watch Away!

For up-to-date blogging on housing and lending, as well as interesting analysis and charts of the Countrywide Financial REO inventory check out the Countrywide Foreclosures Blog.

For an exceedingly interesting perspective on the US economy including complete coverage of the housing fiasco read Immobilienblasen.

For BNN-style video-blogging there is both the Real Estate Video Blog and the New York City Housing Blog with daily video posts of all things bubbly.

For S&P/Case-Shiller and OFHEO charts as well as a host of other really impressive charts check out Housing Bubble Bust.

For Bubble Times-esc and Digg-styled Housing Bubble news you can turn to Housing Bubble News Central and Speculative Bubble.

For the best in regional coverage of the housing and mortgage meltdown read any of the blogs in the US Regional Section of my blogroll particularly:

• Boston Bubble
• Sacramento Landing
• The Marin Real Estate Blog
• The New Jersey Real Estate Report
• The Second City Bubble blog
• The Chicago Bubble Blog

Happy bubble reading and be sure to check back to PaperMoney as I’ll be sure to be blogging away as soon as I return.

S&P/Case-Shiller: May 2007

Yesterday’s release of the S&P/Case-Shiller home price indices for May continued to show weakness for the nation’s housing markets with 15 of the 20 metro areas tracked reporting significant declines.

Topping the list of decliners on a year-over-year basis was Detroit at -11.06%, San Diego at -6.96%, Tampa at -6.67, Washington DC at -6.34%, Phoenix at -5.55, Boston at -4.29% and Las Vegas at -4.10%.

Additionally, both of the broad composite indices showed accelerating declines slumping -3.38% for the 10 city national index and -2.83% for the 20 city national index continuing the first negative slump in annualized appreciation seen since the early 90’s housing bust.

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

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 how young the current housing decline is, having only posted five consecutive year-over-year (YOY) monthly declines to home prices.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only twelve months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle (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.