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Smoke, Mirrors and the Residential Housing Market

|Includes: Fannie Mae (FNMA)

Real Estate professionals are a strange group.  Remember that cheerleader from high school, with the perky attitude and indomitable spirit?   That is what I am reminded of every time I hear from the National Association of Realtors.

Here is a recent headline:

"Existing-Home Sales Record Another Big Gain, Inventories Continue to Shrink"

Ok - for you that didn't know here is how the real estate industry tracks sales and inventory.

Sales per month are seasonally adjusted and annualized.
Inventories fell to 3.57 million or 7 months supply.

Why doesn't this make any sense to me? 

The Real Estate industry is misleading people on two fronts:

1. Annualized sales distort one time changes - both up and down.
2. Inventories!? Just because banks are holding inventory off the market or unable to process the number of foreclosed homes does not indicate that the market is recovering.  

Try to follow this:

Annualized sales using October numbers are 6.1 million -- let's just multiply 6.1 x 10/12 and we get = 5.591 million existing homes sold January - October 2009.

Foreclosures for 2009 through September were roughly 2.6 million. 
2.6 million divided by 9 = 292,000 more homes foreclosed in October, add that to the 2.6 and we get 2.921 million homes foreclosed.  About 52% of total sales would have to be foreclosed homes in 2009 if the inventory was in line with market demand.  The annualized number reported is closer to 41%. 

What happened to the missing foreclosed homes?  Obviously it wasn't added to the bogus inventory number - which is just home that are currently "for sale".

From Fannie Mae's (FNM) 3rd Quarter 2009 Financial Report:

Our annualized single-family foreclosure rate increased to 0.72% for the first nine months of 2009, from 0.54% for the first nine months of 2008. Our single-family foreclosure rate was 0.52% for full year 2008.
Despite the increase in our foreclosure rate during the first nine months of 2009, foreclosure levels during this period were less than what they otherwise would have been because of our foreclosure moratoria and directive to delay foreclosure sales until the loan servicer verifies that the borrower is ineligible for a Home Affordable Modification and all other foreclosure prevention alternatives have been exhausted.

I know I'm preaching to the choir on this except for a few industry cheerleaders.