Matrix Blog

I was recently approached by Bloomberg View, the editorial arm of Bloomberg LP, to provide commentary on the housing market. I seem to be in good company.

Although their well oiled machine began to append my additional title “Bloomberg Contributor” earlier in the month when being sourced, it wasn’t an oversight on their part. I didn’t submit my first post until last week. It took me a few weeks to get my groove on as I was in the midst of a 2Q14 market report release gauntlet.

Last Wednesday evening I wrote my first post about Lawrence Yun’s attendance at the Zillow Housing Forum and how NAR had become just one of the crowd, and the symbolism of it all. I got the idea when I was sent the Zillow e-vite to attend the conference and I noticed that Yun was to speak.

Excited, I submitted my first post on Thursday morning, unfortunately just before the Zillow-Trulia bombshell deal jumped into the headlines. So I needed to add this new twist – which thankfully made my original point even stronger. I re-wrote my first post and it was placed online last Friday.

Here is the first column of hopefully many to come: Homebuying Gets a Housecleaning

My Bloomberg View RSS feed.

Tags: Zillow, Lawrence Yun, NAR, National Association of Realtors

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The National Association of Real Estate Editors just held their annual conference and one of the experts was Lawrence Yun, the chief economist of the National Association of Realtors.

Admittedly he has always seen the real estate world through different lenses than I so I am often thrown for a loop when I come across some of the rationale for the current state of the housing market.

A local media outlet recapped his NAREE speech but since I didn’t attend and there is no transcript, I’ll go with the following paraphrasing:

Mortgage rates reached record lows in 2012 and 2013 of around 3.3 percent for 30-year home loans. Homeowners don’t want to let go of those once-in-a-lifetime bargain mortgages, says Lawrence Yun, chief economist for the National Association of Realtors. So homeowners avoid putting their homes on the market in order to keep those low mortgage rates and that has resulted in super low inventories of home for sale. Although rates are still low (less than 5 percent) many people are opting to rent out their houses so they can hang onto great mortgages, Yun says.

Here’s another way to look at what he says is happening:

Yun – Home sales are not rising (year-over-year) because mortgage rates are so low that would-be sellers won’t sell. They simply love their low mortgage rate more than moving.

My view – Home sales are not rising (year-over-year) because of a combination of rapidly rising home prices that reduces affordability and historically tight mortgage lending standards that resulted record low inventory. Tight credit keeps the roughly 40% of home owners with low or negative equity from selling because they don’t qualify for the next mortgage. Hence, sales fall.

There is clearly way too much emphasis on mortgage rates in our housing economy.

Tags: Existing Home Sales, Lawrence Yun, EHS, NAREE, mortgage interest rates, NAR, National Association of Realtors

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When I saw this quote by Lawrence Yun, NAR chief economist two weeks ago in the Existing Home Sale Press Release, I was surprised. I didn’t write about it but ran into someone a few days ago who pointed out the same thing so I was inspired.

The home price growth is too fast, and only additional supply from new homebuilding can moderate future price growth.

My reaction:

1. I agree that price growth is too fast. Incomes are stagnant.
2. This partially makes up for him classifying the housing slowdown as temporary back in 2007.
3. When someone who is generally biased towards the positive, goes negative, that’s a red flag.

Tags: Lawrence Yun, NAR, National Association of Realtors

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Last month NAR told us that this month would see another period of robust sales activity as buyers sought to beat the expiration of the first time buyers and existing hoimewoners tax credit on April 30th.

NAR was right about the jump in existing home sales this month.

Still, no real trend is apparent here.

The federal government provided a stimulus to buy homes to help jump start housing and the economy. Pure market forces didn’t deliver the buyers to the closing table this month on their own. What I love about sales stats over housing price stats is sales trends tend to lead price trends. So its a bit weird to say that prices are stabilizing when a key driver of demand was the tax credit – that fueled surge in sales which helped stabilize prices. Remove the stimulus and prices fall.

Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”

When sales drop over the next few months, it would be reasonable to expect sales prices to fall too as the artificial stimulus leaves the economy.

Here are this month’s metrics:

• existing-home sales increased 7.6 percent to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March
• existing-home sales are 22.8 percent higher than the 4.70 million-unit pace in April 2009.
• housing inventory rose 11.5 percent to 4.04 million existing homes available for sale, an 8.4-month supply up from an 8.1-month supply in March.
• inventory is 2.7 percent above a year ago, but remains 11.6 percent below the record of 4.58 million in July 2008.
• national median existing-home price was $173,100 in April, up 4.0 percent from April 2009.
• distressed homes accounted for 33 percent of sales last month, compared with 35 percent in March.

Tags: Lawrence Yun, NAR, National Association of Realtors

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NAR released their February Existing Home Sales report.

Its becoming apparent to even the most optimistic that job growth will be the yardstick that determines when housing will improve to a point where it is self-sustaining.

“It’s a fragile recovery” in housing, said Scott Brown, chief economist at Raymond James & Associates, in St. Petersburg, Florida. “We ultimately need to see job growth to get a sustainable rebound.”

Seasonally we expect inventory to rise in the spring, we also expect sales to rise.

Purchases dropped 0.6 percent to a 5.02 million annual rate, the lowest level in eight months, figures from the National Association of Realtors showed today in Washington. There were 3.59 million houses for sale, a 312,000 increase from January that marked the biggest gain since April 2008.

NAR’s chief economist is calling for a second surge or we are headed for problems.

Sales are up 7% compared with a year ago, the NAR’s data showed.

“We need to have a second surge,” said Lawrence Yun, chief economist for the real estate lobbying group. However, the jury’s still out, he said.

“Has everything in the gas tank been used up?” Yun asked. “Or is this just a pause before the next step up?”

It’s hard to imagine a “pause” in February. I was surprised a complaint about the weather wasn’t used.

Tags: Lawrence Yun, NAR, National Association of Realtors

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After four consecutive months of seasonally adjusted gains, the

NAR existing home sales stats show a decline that was something unexpected happens.

The salient points:

• July 09 to August 09 sales declined 2.7% (2nd highest total level in the last 23 months)
• August 08 to August 09 sales up 3.4%
• August 09 median sales price $177,700 down 2.1% from July 09 and down 12.5% from August 2008.
• Inventory down 10.8% from July 09 to August 09 and down 16.4% from August 08
• Months supply was 8.5 in August 09 from 10.6 in August 08

As Lawrence Yun, NAR Chief Economist, who is quite adept at cherry picking the data to show it in the best light (that’s his job).

Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process….

…actually says something the should resonate with most who follow this stuff:

…but the decline demonstrates we can’t take a housing rebound for granted.

UPDATE: Just a Blip? Why Housing Keeps Bouncing Around

Tags: Lawrence Yun, NAR, National Association of Realtors

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Source: Tim Iacono-Seeking Alpha

After last week’s NAR June existing home sale release and the always interesting press release [sarcasm] that goes with it.

Resales of U.S. single-family homes and condos rose 3.6% in June to a seasonally adjusted annual rate of 4.89 million, the highest level since last October, the National Association of Realtors reported Thursday. Resales have risen for three straight months. The housing market appears to be healing, said Lawrence Yun, the NAR chief economist. The increase was higher than expected.

I started to write about the fact that we have seen this before. Before I finished writing about it, I came across Tim Iacono’s excellent chart(see above) in his Seeking Alpha post where he shows it much better than I could have. It is clear that the 3-peat pattern happened in late-2006 and early-2007.

I’m not trying to be a wet blanket here and I know these are seasonally adjusted but the inference is that we are close and things will improve shortly thereafter …but its still to make such a call. Housing is local (per NAR)… James Hagerty at WSJ drives home the point that housing is local in his “Home Sales, All over the map” piece.

And Andrew Leonard at Salon summarizes the economic reality we face quite succinctly.

Tags: Lawrence Yun, NAR, National Association of Realtors

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The National Association of Realtors released their May Existing Home Sales Report today and reported:

The Realtors said that home sales rose 2.4 percent to a seasonally adjusted annual rate of 4.77 million last month, from a downwardly revised pace of 4.66 million in April. Prices, meanwhile, were 16.8 percent lower than a year ago.

That’s all well and good, but there was a new wrinkle this month. Someone to new blame for continued weakness in the housing market.

You guessed it: The Appraiser.

“We have just been flooded with e-mails, telephone calls on the appraisal problems,” said Lawrence Yun, the Realtors’ chief economist.

“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.”

This unleashed a flood of appraisal coverage today.

The NYT’s Floyd Norris writes a great blog post on this topic called Realtors: Blame the Appraisers

ACRONYM Alert!!! AMC = Appraisal Management Company.

I was on Fox Business last night with Neil Cavuto. Don’t have the clip yet but the topic was..you guessed it…appraisers and whether we are killing the recovery.

Most of the good appraisers I know don’t work for Appraisal Management Companies nor are they getting much work from the national retail banks. Why? Because they don’t agree to work for half the market rate, crank out work in 24 hours that doesn’t allow enough time to research and cut corners because of their low fee structure.

But they likely got most of the appraisal volume during the spring mortgage boom with record low mortgage rates.

AMC’s are the unregulated byproduct of the Cuomo/Fannie Mae deal called HVCC or Home Valuation Code of Conduct. Generally, the lowest common appraisal denominator work for AMCs and you get what you pay for – usually garbage.

The likelihood of fragile deals blowing up because some out of area yahoo comes to bang out a dozen reports in one day and has no idea what is going on in the local market is likely to come in low on the value because they think that’s what the bank wants. And guess what? AMCs and the appraisers they use got most of the work during the spring.

NAR doesn’t seem to understand this – they seem to be inferring appraisers are singlehandedly stalling the housing market. Appraisers don’t all get together and say “Gee, lets all do a really bad job on our appraisals these days. It systemic. Banking wants to use AMCs. AMCs want to make a profit so they hire cut rate appraisers.

The NAHB press release today was even more silly. More on that in the next post. Like anything associated with appraisals, many know something is wrong, but they have no idea what it is.

Tags: Lawrence Yun, Pending Home Sale Index, Appraisal Management Companies, HVCC, NAHB, AMC, PHSI, NAR, National Association of Realtors

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Back in January, David Lereah, former chief economist for the National Association of Realtors, came clean with the Wall Street Journal. It appeared to be more of a timed interview to coincide with the start of his new venture.

Mr. Lereah, who says he left NAR voluntarily, says he was pressured by executives to issue optimistic forecasts — then was left to shoulder the blame when things went sour. “I was there for seven years doing everything they wanted me to,” he said, looking out his window to his tree-filled yard in this Washington suburb.

Of course his successor, Lawrence Yun, who started off with the same hard core spin, but a few months into the credit crunch pulled back from his wildly optimistic ways which was, for lack of a better word, refreshing (relatively speaking).

Coverage after the WSJ article was here, here, here and here, etc. You get the picture.

The spin from NAR was excessive and offensive during his reign – so much so he inspired blogs like David LereahWatch and kept the blogosphere full of content for many years. I remember thinking the disconnect of his press releases during his reign was significant and infuriating.

I got to meet him in the green room before we were both on a CNBC special in 2004 at his height (I was an obviously lesser figure in the program) yet he seemed embarrassed about his prognostication.

It’s hard to imagine that NAR and Lereah were not acting as a team in the false message delivered in a procession of press releases. Although both have separated ways, NAR and Lereah are still at it.

MarketWatch did a humorous recap of the major forecasting errors provided by Lereah.

So why am I bringing all this up when I said I was tired of the topic of Lereah?

Because I came across a press release today from his new venture Reecon Advisors, Inc. For $495 per year, you can get to hear what Lereah thinks about the housing market – he writes his newsletter from home and has less than 50 subscribers but hopes to get more. Because he is now independent, he will provide an non-biased viewpoint. Ok, doesn’t the very fact that he would say this completely discredit because it infers – he – can – be – bought. Why is now different?

Listen, I don’t fault the guy for trying to make a living. After 7 years of hard core spin, a subsequent apology that confirmed this, mockery by the blogosphere who outed his frequent misdirections, and later disenfranchisement with NAR, who on earth would actually subscribe?

The web is a beautiful thing. You can set up a web site and appear like a big research think tank. Makes your head spin doesn’t it.

Tags: CNBC, Lawrence Yun, David Lereah, NAR, National Association of Realtors

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I am a bit taken aback by the army of real estate marketing gurus and top line real estate agents that are openly talking about the weak housing market as part of their public image.

It does seem to give the real estate brokerage industry more credibility but I have a hard time processing this new market acceptance, perhaps because the hard sell was on prime time for so long. Heck, even Lawrence Yun of NAR has injected less rosy projections into the converation than his predecessor David Lereah would have ever dreamed of.

In fact Doom & Gloom has proved very lucrative for some as of late (they’re all in Davos): Nouriel Roubini (Dr. Doom), Robert Shiller (Irrational Exuberance), Nassim Taleb and others. And I say good for them!

Ben McGrath writes an excellent article and provides a fascinating perspective in the companion podcast about predictions of economic and social collapse.

It’s been completely fascinating to witness the seemingly overnight global change in the financial investment perspective. I am not clear on whether this is a long term change or simply an immediate reaction to everyone’s smaller paycheck.

Yes, Elvis has left the building (in Illinois), but the Boss was at the 50 yard line.

UPDATE: Optimism is the cure for the downturn.

Tags: Robert Shiller, Lawrence Yun, David Lereah

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When I heard the latest NAR existing home sale stats released today, I fought back the urge to ignore them because of the past spin of David Lereah and the fact there is no national housing market, blah, blah, blah.

Here’s the NAR position:

Lawrence Yun, NAR chief economist, said home prices continue to fall significantly. “It appears some buyers are taking advantage of much lower home prices,” he said. “The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal balanced conditions. Buyers will continue to have an edge over sellers for the foreseeable future.”

Here’s type of coverage on the news release today, which was consistent:

The number of existing homes sold in December rose 6.5% from the previous month, according to a report released Monday, as bargain hunters took advantage of plummeting prices.

The National Association of Realtors said that home sales increased to a seasonally-adjusted, annualized rate of 4.74 million units. That’s up from a revised pace of 4.45 million units sold in November and more than the rate of 4.4 million units projected by a consensus of industry analysts as reported by Briefing.com.

Tim Iacono, a regular contributor to Seeking Alpha, made a great chart trending number of sales and inventory (above). When you read the news coverage and press releases, you don’t get the perspective this chart provides:

• The number of sales are less than half of those in 2005 (blue line).
• The credit crunch that began in the summer of 2007 initiated a new low level of activity, has been remarkably level.
• The positive news of the 6.5% monthly uptick in the number of sales, in the context of post-summer 2007 credit crunch, suggests we may be moving into a lower level of activity.
• Without the surge in west coast foreclosure sales, the levels would likely be far lower.

In other words, this is so not over.

Tags: Lawrence Yun, David Lereah, NAR, National Association of Realtors

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The Federal Housing Finance Agency (FHFA) announced that the conforming loan limited for mortgages will remain at $417,000.

The Federal Housing Finance Agency (FHFA) today announced the conforming loan limit will remain $417,000 for 2009 for most areas in the U.S. but specified higher limits in certain cities and counties. The conforming loan limit is the maximum size of loans that Fannie Mae and Freddie Mac can purchase in 2009.

According to provisions of the Housing and Economic Recovery Act of 2008 (HERA), the national loan limit is set based on changes in average home prices over the previous year, but cannot decline from year to year. Loan limits for two-, three-, and four-unit properties in 2009 will remain at 2008 levels as well: $533,850, $645,300, and $801,950 respectively, for homes in the continental U.S.

In theory, if housing markets continue to fall sharply in certain parts of the country, the implied mortgage risk will actually increase because the cap on the mortgage limit can not be reduced. Of course we are in the middle of a financial crisis caused by throwing risk out the window so it’s ironic that it’s actually against the best interests of the financial market to be more conservative in this regard. Probably because that’s not really the problem.

So we keep the loan limit the same again despite:

• declining market conditions
• change the name of the agency to FHFA from OFHEO (OFHEO was responsible for oversight of Fannie and Freddie before they needed to be bailed out)
• run by the same person as before who now suggests FHFA has plenty of ammunition (no offense intended to Mr. Lockhart).

From the contrarian department…

Yet here’s something new (hat tip to Holden Lewis of Mortgage Matters) that definitely doesn’t conform to longstanding rhetoric from someone who reported last year at this time about 5 months in a row that the problem with credit was temporary…

[NAR Chief Economist Lawrence] Yun says, without giving specifics, that the federal government should step in to stabilize house prices. That’s quite a plea, coming from a representative of an organization that’s usually all for hands-off government. There’s nothing like a severe recession to make free-marketers abandon their principles with alacrity.

And the contrarian-contrarian department…

Here’s an opinion that’s contrarian to those who claim to be contrarian: lowball offers in a weak real estate market don’t work according to accomplished real estate author, writer, agent, speaker Ali Rogers, well-known for her book “Diary of a Real Estate Rookie“

Some real estate gurus would argue that that’s okay, you should go ahead and make ridiculous offers, because if you’re willing to ask a gazillion people you’ll finally run down one exhausted one who will capitulate. Then, hey, it’s like you won the lottery.

One problem with that strategy: I don’t generally think it works.

Tags: Conforming Mortgage, FHFA, Fannie Mae, Lawrence Yun, OFHEO, Bankrate.com, NAR, National Association of Realtors, Freddie Mac

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