Reggie Middleton's  Instablog

Note: See me discuss this topic live on Bloomberg TV, Monday October 4th, 2010 at 4:30 pm!

The National Association of Realtors is a marketing engine, yet their data and their economist’s opinions are quoted regularly in credible, mainstream financial news shows and newspapers. WHY???!!! On that note… Bloomberg reports: Pending U.S. Sales of Existing Homes Increase 4.3%

Oct. 4 (Bloomberg) — The number of contracts to purchase previously owned homes in the U.S. increased for a second month, a sign the housing market is beginning to stabilize. The National Association of Realtors’ index of pending home resales rose 4.3 percent in August, more than forecast, after a revised 4.5 percent gain the prior month that was less than initially estimated. Compared with the same month a year ago, pending sales were down 18.4 percent.

The rise is most likely due to investor’s active in the more liquid low end of the market getting double counted as they flip inventory. There is demand in the $275k and lower strata and there is a steady stream of distressed properties as well. Investors buy the distressed properties at wholesale prices and turn around and flip them at retail prices (which were where the wholesale prices were just a few months ago). This usually occurs in a few months, sometimes in less than a month. The NAR numbers fail to filter out these investor flips, hence practically all of this activity is double counted, and this activity (the flip investor) is actually the hottest part of the market. Of course, this is not addressed and the numbers are simply presented in an unrealistic form.

Home sales have steadied after plunging in the months following the expiration of a housing tax credit. Unemployment projected to stay above 9 percent through 2011 may depress demand in coming months even as record-low mortgage rates and lower prices make homes more affordable.

No, they have not been steady. See the chart below.

Housing is “bouncing along the bottom, unable to gain any traction, but with little reason to believe it’s going to go any lower,” said Eric Green, chief market economist at TD Securities Inc. in New York. “All of the froth has been eliminated from the bubble and all we need now is for confidence to turn higher and job growth to accelerate.”

125% LTV loans, Freddie and Frannie distorting the market, moratoriums and cessations on foreclosures (the only way to clear the market and move towards true price discovery), tax incentives in a falling market, MBS purchases, ZIRP, no mark to market – exactly how does this guy figure all of the froth has been eliminated from the bubble? If anything, .gov is trying their best to insert froth into a burst bubble!

Economists forecast pending home sales would increase 2.5 percent, according to the median of 39 projections in a Bloomberg News survey. Estimates ranged from a drop of 2 percent to an increase of 5.6 percent.

Adjust the NAR numbers for sales double counted as flips, and you will probably get a number closer to consensus!

“Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market,” Lawrence Yun, the group’s chief economist, said in a statement. “However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence.”

Much more on this guy in a minute, but first…

Orders at KB Home, a California builder focused on first- time buyers, fell 39 percent after the deadline for signing a contract to qualify for the federal tax credit expired. Unemployment and foreclosures make it difficult to forecast future sales, Jeffrey Mezger, the company’s chief executive officer, said Sept. 24. “The housing market continues to face significant headwinds from high unemployment and foreclosures, which are impeding a broader recovery, and recent net order trends in the homebuilding industry have injected additional caution into our near-term outlook,” Mezger said in a statement.

Just open a hedge fund like Lennar! “More Doom and Gloom: Homebuilders Making Better Money as Hedge Funds than Home Builders“

ZeroHedge quotes:

Realtor.org has released the August pending home sales, which increased from a SAAR of 78.9 (of course, downwardly revised from the previous reading), to 82.3 in August, a 4.3% rise on expectations of 2.1%, mostly on a jump in South and West transactions, which increased by 6.7% and 6.4% respectively. And add this to the plethora of data series which consistently see prior numbers revised adversely: July data was revised from a 5.2% increase to 4.5%.

On the topic of the National Association of Realtors, and their marketing gurus chief economists, I assert that BoomBustBlog’s regular constituency is much too bright to fall for the pumping of real estate by the economist of a national realtor association. For those that may be a little more trusting, or a little less mathematically inclined, I will walk through previous proclamations that have come from the NAR and their chief marketing strategists economists…

July 2008 Yun stated “I think we are very near to the end of the housing downturn,” Yun said (AP News).

Lawrence Yun, chief economist for the Realtors, said that the housing rescue bill should play a major role in helping the housing market to rebound. He said an especially significant feature is a tax break worth up to $7,500 for first-time home buyers who purchase between April 9 of this year and July 1, 2009. Yun estimated that up to 3 million first-time home buyers could qualify for that tax break, providing a significant boost to sales at a critical time. “I think we are very near to the end of the housing downturn,” Yun said.

As a point of reference..

Of course, I can go on…

In 2007 Lawrence Yun state there would be no recession in 2008, according to USA Today. Of course, in that year I took the opposite side of that trade and said very bad things were coming. As it turned out I was a tad bit optimistic: Correction, and further thoughts on the topic, How Far Will US Home Prices Drop?, and Is this the Breaking of the Bear? (Yeah, the Bear Stearns and Lehman Brother’s collapse were an easy calls if you read the balance sheets and were realistic about leverage and the real estate situation). This  was also about the time I got into it with GGP’s CFO for calling out their insolvency. He called me names, and then they filed for bankruptcy. Of course, they had an investment grade and buy ratings from the ratings agencies and the sell side: BoomBustBlog.com’s answer to GGP’s latest press release and Another GGP update coming… (among over 700 pages of analysis, review the January 2008 archives or search for “GGP” for more research).

In my post “On the Latest Housing Numbers” of  Tuesday, November 24th, 2009, I quipped.

Lawrence Yun, NAR’s chief economist volunteered,

“We have seen some bulk purchases by investors, but we are not picking up that data through the Multiple Listing Service or through our release data, but we do know that there is some bulk purchases by investors who plan on releasing those properties within a year’s time, when they see a better market condition.”

I don’t believe “better” market conditions are coming any time soon. We are just coming off of the best market conditions anyone will see in their lifetime. Those market conditions were predicated upon unsustainable conditions, hence they came crashing down. They are crashing down, not crashed – as in past tense. I believe we have some ways to go. That is why I am not buying real estate, and I believe that those that are jumping in now are jumping in prematurely.

Personally, I don’t consider Mr. Yun to be a credible source, either. He may be smart and capable, but the extreme bias of his employer (the ultimate real property perma-bull) and the incredibly biased reports of his predecessor color his opinions by default. He is not nearly as bad as David Lereah (who was literally sensationalist-style perma-bullish) was, but he is still not objective. See  The Reggie Middleton Real Estate IQ Test – Who believes the NAR?

This is an excerpt from that post on Tuesday, 08 January 2008

From CNBC.com: Home Sales Seen Holding Steady In Coming Months

Pending sales of existing U.S. homes inched lower in November and should hold steady over the next few months, a real estate trade group said. (I ask, “Why should they do that? Credit is tighter, recession evidence is stronger. Supply is greater, and demand is lower. Hmmm, let me consult the book written by that ex-NAR guru for the answer.” )

The National Association of Realtors Pending Home Sales Index, based on contracts signed in November, dropped 2.6% in November, to 87.6 from an upwardly revised 89.9 in October.

Economists polled by Reuters ahead of the report were expecting pending home sales to decline by 0.5 percent from October’s originally reported 87.2.

The November number was down 20% from a year earlier.

The pending homes sales data suggests that the volume of sales will hold steady for a while before turning upwards before the end of the year, said NAR chief economist Lawrence Yun.

With all due respect to Mr. Yun, Mr. Lereah and the NAR, anyone swift enough to complete the registration form for this blog should know, by now, to discount this association’s data and opinions. They do not do the industry justice with this nonsense. Realtors should actually be the first in the protest line. It is their credibility that is being called into question, for this is THEIR trade group. Credibility is the key!

Notice how accurate that NAR prediction was for 2008! From my blog post that day in 2008:

My take: I believe that my blog’s readers are considerably above average in financial acumen and common sense. The NAR is simply not an entity to be taken too seriously, due to the obvious conflict of interest exemplified by their ex-economist, [[David Lereah]], who published some of the most absurd BS I have ever seen come from a nationally reknown organization. Examples of his work from Wikipedia: Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade, And How to Profit From Them was published in February 2005 at just about the tippy top of the bubble (that takes some talent). One year later in February 2006, as the market is already on it’s way down, Lereah retitled his book Why the Real Estate Boom Will Not Bust and How You Can Profit from It. Lereah’s previous book The Rules for Growing Rich: Making Money in the New Information Economy touting investment in technology company equities was published in June 2000 at the onset of the collapse of the dot-com bubble.  This extreme cheerleading has died down substantially, but the overly optimistic spin is still evident with their new economist, Lawrence Yun.

I actually believe the Case Shiller graph above to be misleadingly optimistic due to my doubts about seasonality filtering and the exclusion of investor related properties (flips, see A reminder concerning popular housing indices) which are dominating the lower end of the market.

So on that note, I will present a graph that captures national economic house sales activity superimposed against the Case Shiller index,  but before I do that let’s laugh at the NAR’s ex-chief marketing strategist economist…

Lereah’s book The Rules for Growing Rich: Making Money in the New Information Economy^[5] touting investment in technology company equities was published in June 2000 at the onset of the collapse of the dot-com bubble.

Lereah has produced four titles on real estate investing. His most recent book, “All Real Estate is Local” was published by Doubleday in 2007. His 2005 book Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade—And How to Profit From Them^[6] was rereleased in February 2006 as Why the Real Estate Boom Will Not Bust—And How You Can Profit from It.^[7] Before departing the NAR, Lereah wrote All Real Estate Is Local: What You Need to Know to Profit in Real Estate — in a Buyer’s and a Seller’s Market in 2007.^[8]

NAR chief economist David Lereah’s book[6] in February 2005.

Lereah’s book[7] in February 2006 months before the real estate boom bust.

Lereah’s book on investing in information technology appeared in June 2000 as the dot-com bubble collapsed.[5]

Now, let’s put this all together to see what we get (reference each date above to the chart below. Unfortunately, I did not chart the dot.com bubble crash, which Mr. Lereah so accurately timed to the contrarian side (literally, almost to the month), so we will have to leave that one out…

Subscribers have access to all of the data and analysis used to create these charts, in addition to a more granular application, by state in the SCAP template and by region in housing price and charge off templates – see

• House price data, 2nd Quarter 2010
• Bank Charge-offs and Recoveries 2Q10
• The very extensive SCAP Assumptions, showing the credit metrics banks needed to submit for the stress tests of 2009, Updated for last quarter on a state by state basis_09082010 Web

Click here to subscribe.

Next up…

• The Full Google Forensic Analysis: for all of those who wondered how Google will make money from Android and the other initiatives it is undertaking as well as how it will effect valuation, well here you go.
• About the likelihood of those sovereign defaults: I will walk through the near inevitable default of one European sovereign state, in public!
• Now that third quarter is over, and the housing situation still looks ugly, how will the big banks fare after 100% pops in their stocks the year before? Multiple forensic updates…
• Do you believe this portable computer cum smart phone thing is not only the wave of the future but the catalyst for significant corporate wealth? Well, I do and I will browse through some of the potential winners in the space.
• Last but not least will be a very extensive forensic analysis of Apple.

More Reggie Middleton on Residential Real Estate:

Is the US Government About to Forgive Mortgage Debt? Let’s Crowdsource Our Way Through a Scenario or Two!

Why the Case Shiller Index, Although Showing Another Downturn Coming, is Overly Optimistic and Quite Misleading!

Because 105% LTV On Depreciating Property Wasn’t Good Enough for the US Taxpayer…

I Told You Housing Was Going to Take a Downturn for the Worse. I’ll Tell You Something Else, We Are in a Housing Depression! It’ll Get Worse Until Market Forces Rule Over Government Bubble Blowing!

As I Made Very Clear In March, US Housing Has a Way to Fall

It’s Official: The US Housing Downturn Has Resumed in Earnest

The Great Global Macro Experiment, BoomBust Cycles, and the Refusal to See the Truth: Bubble Economics in the Mainstream Media