All of this information about a housing recovery is just plain false. The biggest perpetrator of the housing recovery myth is CNBC and they actually ran this story Friday, showing it is the lower priced homes moving, all other homes are just not moving, period.
There is simply no recovery in housing at this time and if this chart tells us anything, it is that the market will, at best, be flat for some time to come. However, I am of the mind, as indicated in numerous other pieces I have written, that we still have a long way to go on the downside before things begin to level out. This means that banks, 81 YTD, are going to continue closing because they are losing money on these mortgages as people just walk away from homes that they cannot sell and are underwater in.
A full one third of all sales in July were of foreclosed properties, and as more foreclosures hit the market, you can only expect more downward pressure on prices. Foreclosures are only increasing, as we saw from Thursday’s Mortgage Bankers Association report, and that will mean more inventory.
I think that is proof enough that things are just not that good. I may have missed out on a couple of percentage points over the past week, but the market is going to come crashing down in the near future. Why, because all of the data supporting a bull run is over hyped and inaccurate at best. Housing is one of the data points supporting the bull’s case, but look at the data point and tell me that there is a recovery taking place.
Take a look:
U.S. Existing Home Sales Yr/Yr
|$0 – $100,000||Up 38.8%|
|100,000 – $250,000||Up 8.7%|
|$250,000 – $500,000||Down 6.2%|
|$500,000 – $750,000||Down 8.9%|
|$750,000 – $1,000,000||Down 10.6%|
|$1,000,000 – $2,000,000||Down 23.3%|
|$2,000,000 +||Down 32.4%|
Source: National Association of Realtors
As I have said numerous times before, burying and hiding problems through bogus accounting will only make the problem worse long-term. Enron tried it, MCI tried it, now we have the banks trying it through lax mark-to-market regulations. The FASB enacted the mark-to-market because it made sense, if you had to sell a security today you cannot just wait for a nonexistent price to come along, which is what the new regulations let banks do for accounting purposes.
One last point about this, ever since mark-to-market went away bank earnings have all been good. Do you see the problem? Frankly, real estate is still their biggest problem and the above information supports that theory.