Home Sales and Foreclosures: Drawn and Quartered

Charles Addams’ Drawn and Quartered, June 1946.

Source: Michael Maslin.

If you follow housing, you may think you have a fairly good understanding of the magnitude of:

• New Home Sales;
• Existing Home Sales; and
• Foreclosures.

There’s a good chance you’re wrong – due to the way that the numbers are reported. Home sales are typically reported on a seasonally adjusted and annualized basis, while foreclosures are not. As a result, even careful readers may have missed the extent to which foreclosure-related activity now dominates the housing market.

Consider the following typical Bloomberg news stories:

Sales of US New Homes in March Exceeded Forecast

April 24 - Purchases of new homes in the U.S. last month were higher than anticipated, providing further evidence the market may be stabilizing.

Sales decreased 0.6 percent to an annual pace of 356,000 after a 358,000 rate in February that was stronger than previously estimated, the Commerce Department said today in Washington.

US Existing Home Sales Dropped More Than Forecast

April 23 - Sales of U.S. previously owned homes fell in March after jumping a month earlier by the most in more than five years, indicating the market will remain depressed for much of the year.

Purchases decreased 3 percent to an annual rate of 4.57 million, lower than forecast, from 4.71 million in February, the National Association of Realtors said today in Washington.

Foreclosure Filings in US Climbed to Record in First Quarter

April 16 - U.S. foreclosure filings rose to a record in the first quarter as employers cut jobs in the recession and temporary programs to delay action on defaults came to an end, RealtyTrac Inc. said.

A total of 803,489 properties received a default or auction notice or were seized, 24 percent more than a year earlier, RealtyTrac said in a statement today.

If I held a pop quiz you might remember the following:

• New Home Sales: 356,000
• Existing Home Sales: 4.57 million
• Foreclosure Filings: 803,489

And if you got all of these right, and firmly fixed in your brain, then you’d be wrong.

This is because the first two figures are seasonally adjusted and annualized tallies of the number of new and existing homes sold in the month of March. Virtually no one ever reports the actual, unadjusted, home sales figures.

The last figure is the number of foreclosure filings that occurred during the first quarter of 2009, without adjustment or annualization.

To see what a difference seasonal adjustment and annualization makes for home sales, consider the following monthly home sales charts (Figure1 and Figure 2), below.

Figure 1: New Home Sales, Seasonally Adjusted Annual Rate & Not Seasonally Adjusted

Top: Common Vertical Axis Bottom: Separate Vertical Axis, Left and Right

Figure 2: Existing Home Sales, SAAR & Not Seasonally Adjusted

Top: Common Vertical Axis Bottom: Separate Vertical Axis, Left and Right

Because of the wide seasonal variation in home sales (seen in the zigzag of the non-seasonally-adjusted [NSA] red lines above), new and existing home sales are typically reported on a seasonally adjusted and annualized rate [SAAR] basis.

Foreclosures, however, are NOT reported on a seasonally-adjusted basis, they are reported on an unadjusted basis.

If all three series – new home sales (from the Commerce Department), existing home sales (from the NAR), and foreclosure starts (from the Mortgage Bankers Association, since I don’t have historical RealtyTrac® data) are plotted on an annualized basis, you get the following chart (Figure 3).

Figure 3: Home Sales and Foreclosure Starts, On Annualized Basis

If we re-represent foreclosure starts as a percentage of existing home sales and new home sales, respectively, then we get the following chart, Figure 4, that indicates the extent to which foreclosures have become as important as home sales.

Figure 4: Foreclosure Starts, As A Percentage of Home Sales

As indicated, from 2000 until 2005 foreclosures (on an annualized basis) represented something like 50% of annualized new home sales and about 10% of annualized existing home sales. As of year-end 2008, foreclosure starts (temporarily suppressed by lapsing foreclosure moratoria) were about 470% of new home sales and about 45% of existing home sales.

Nationwide, foreclosures are now commencing at a rate that is roughly half that of existing home sales, and almost five times that of new home sales, when each is represented on a similar, annualized basis. In the former bubble regions – (such as AZ, CA, FL, and NV) foreclosures are even more important.

• Note: For a regional analysis of the importance of foreclosures in “bubble states”, see G. Nechayev and W..C. Wheaton, Torto Wheaton Research, Foreclosures: Where Is The Problem, 6 March 2009.

So, the next time you come across an account of monthly or quarterly foreclosure activity, don’t forget to multiply the figure by twelve or four, to come up with a more-or-less annualized figure.

Comments

[jeandit75:]

Speaks for itself. No time to be long.

Apr 27 07:46 AM

[WebWatcher:]

Excellent analysis. Thanks for this clarification.

Apr 27 08:52 AM

[ksmithdc:]

Interesting read, thanks.

Apr 27 09:33 AM

[nym:]

Please include access to larger figures.

Apr 27 10:49 AM

[Ira Artman:]

Re: NYM - Request for larger figures. They are available at the following sites:

MortgageNewsClips.com/... Slivers
mortgagenewsclips.com/.../

and

RiskCenter.com (free registration required)
www.riskcenter.com/sto...

Thanks for reading. - Ira

Apr 27 12:18 PM

[Arizona Dis...:]

Man do I love stats... good info with an interesting perspective.

Apr 27 03:34 PM

[altaman:]

So in conclusion things are not just really bad, but are really really bad, and not just getting worse but getting really realy worse?

Apr 27 04:05 PM

[Market Sniper:]

Thanks, Ira. All goes to prove that figures lie and liars figure as my Dear Old Dad Used To Say!

Apr 27 05:10 PM

[Jasper M:]

GOOD article.
Can't Wait to see Cetin's rebuttal.
"Housing doesn't matter, because . . . um . . ."

Apr 27 06:16 PM

[HardwoodFlo...:]

Jimmy K! You've got the best picture! (read for the metaphor)

Well there is little doubt that the housing market has been donkey punched by foreclosures. Also, it is obvious that the data, and price index, reflects that foreclosures dominate the amount of sales. I will say it's hard for new home sales to make up a significant portion of sales when new homes aren't being built. But here in lies the dirty sanchez, foreclosures are still the lion share of sales in the west and south. Moreover, they are being handled by banks out of places like Salt Lake that hove no idea what they are doing. They are buying up bundles of mortgaes then turning them over to property managers who are supposed to mow the grass, set up sales and the like. These property managers are making a killing. The houses are sitting and the whoel thing is a wreck. I hear that builders have people who want to build but can't because they can't sell the house they are living in etc.

In places where I am int he midwest, things aren't so bad. Remodel is going on and people are buying houses and, believe it or not, houses are being built.

Banks are doing a land-office business on refi's and the houses that are being sold (a low number something like an annulized rate of 4.5 MM) are being sold to qualified builders! Maybe the sales rates are so low becasue there aren't eenoguh qualified buyers. I still think that the $450K cap on FHA loans is holding back many markets. If they would raise the cap on FHAs to $750 that would be a game changer.

Wake Up- I can't say the numbers are going to be better tfor the west and the south but in two weeks when the housing number scome out for the mid west they are going to be pretty good.

Apr 27 09:09 PM

[HardwoodFlo...:]

Ira- as always- nice post. It would be interesting to see in the sales data how much of total sales is represented by west (ca, nv, az) and how much is the south (fl, ga) and of those sales what percentage are foreclosures...I think that would help us all understand the bend in the graph toward total sales and the % of forecosures that represent those figures.

Apr 27 09:16 PM

[HardwoodFlo...:]

JasperM- I think that Cetin's comment light be something more like:

"the goldilocks economy is made up of greens shoots it's. it's great theat people are losing their homes so new homeowners can buy those homes and get bullish on buying index funds- DOW 16,000!!!!"

Apr 27 09:19 PM

[Bestsolutio...:]

You Gotta Luv CA.
They have the solution to the Subprime Mortgage Crisis,
all the foreclosures and short sales.To finally stop the falling
home prices and stabilize the housing market.
As per WSJ article( Google:Tax Credit Gives California Builders A Lift )
Some economists state it is doing nothing to help but it also generates
increased TAX revenues as well as Sale tax revenues on household items
and CREATES employment......THIS IS FOR NEW HOMES PURCHASE!!!

PLEASE APPLY THE SAME PRINCIPLE TO ALL THE UNDERWATER,
DEFAULTING AND SOON TO BE DEFAULTING LOANS and turn the "toxic"
bad loans INTO 100% asset based AAA loans.

The "EVERYBODY WINS PLAN" is simple and it is profitable.
A longer term loan at very low interest rates that


MAKE ALL THE HOMES AFFORDABLE.

As in California
They have added $10,000 to the $8,000 credit
to purchase new homes.

WHY NOT USE THE SAME TACTIC TO END
ALL FORECLOSURES AND SHORT SALES
AND TURN THEM INTO AFFORDABLE HOMES.
END THE MASSIVE INVENTORY ON THE MARKET
AND STABILIZE PRICES.

The "EVERYBODY WINS PLAN"

ALL LOANS TO BE MODIFIED AT 105% of
FAIR MARKET VALUE.
NEW LOAN GOES ON THE BOOKS
It is a 10 year loan at 4% with a balloon payment
of the balance.

THE LOAN
PER $100,000 will have a PITI payment of
$467 per month fixed for 120 Months.

YES,a $100,000 home will be an affordable residence
for an American homeowner for $467 per Month
..TOTAL PITI (PRIN. INT. TAXES, INS.

A $200,000 home will be $934
TOTAL PITI.

TOO GOOD TO BE TRUE?????

It just may be true using the California way-
Federal contribution of $100 per month for interest
instead of cash gift up front
and State contribution of $100 per month for taxes
instead of cash gift up front.
Both fed and state will benefit from giving.Yes If loans are
FDIC and Home Bank Loans they would be
"Stimulating the cash flow to banks and firm their assets.
The state will more than increase their tax revenues by
giving.Giving back on the 8% of homes in trouble will INCREASE
the income from the other 92%
EVERYBODY WINS!!!!

Too Good To Be True????

you will have to ask me for details of the "EVERYBODY WINS PLAN"
in order to find out how 120 payments of $467 with $100 (Fed) and $100 (State)
pays a $100,000 Note at 4%.

I await your request for free details: bestsolutionsfl at aol dot com

Carmen Basilovecchio
Best Solutions Fl Real Estate
9804 S Military Trail E-10
Boynton Beach,Fl 33436

Basics:
On new loan of $100,000.
10 years payments (120)
at $467,$100,and $100 equals $80,040
which is applied as follows:
PRIN -$15,000
INT -$40,000
TAXES-$15,000
INS -$10,000
THIS REDUCES THE AMOUNT OWED ON THE HOUSE
PER $100,000 TO $85,000.
THIS BALANCE IS PAID IN FULL with a new 30 year mortgage.
HOW THIS FOR "SMOKE AND MIRROWS:
*$40,000 paid to FDIC insured banks or Home Loan Bank
with no government stock issues
*$15,000 paid in property taxes,a net gain
*and if you really want to help the economy how about
$10,000 IN INSURANCE PRIMEUMS GOING TO AIG
TO HELP GET TAXPAYERS MONEY BACK.
HOW MANY JOBS WOULD BE SAVED AND NEW ONES CREATED.
And do not forget ,about 6 million homeowners with excellent credit with EQUITY
(the ignored part) in their home.What do you think they will do the the most
important part of the economy-CONSUMER SPENDING?

Apr 28 08:04 AM