Never should have doubted your wisdom, I'm sowwwy!
All graphs aside, a lot of homes that I look at have sold a few times (well, almost sold!) Thanks CR,
All the best!
Could this historically close relationship between pending and closed sales have altered in the last 10 months or so? I keep hearing that an unprecedented number of deals keep falling through these days (e.g. due to financing issues, buyers getting cold feet, etc), which could (in theory) lead to an abnormally small percentage of pending deals actually reaching completion.
CR, the WSJ and NT graphs, while of a longer time frame, do not encompass a recession.
The separation seen in the first graph may be an indicator of how pendings disconnect -- due to financing falling through -- during a recession/downturn.
I would not be so quick to say, 'Misleading, nothing here.
Homes sold in the last 12 months often fall out of escrow and can be resold several times in a 12 month period. With credit (lending) tightening I don't see that trend diminishing...
Right. Those graphs all just encompass The Bubble. Almost all Bubble stats are misleading. Post Bubble, in The Bust, the numbers/graph should diverge significantly from The Bubble. I think the CNBC graph illustrates the beginning of this trend.
Sniglet, yes, things could be changing - and that is why I included the NT chart from last month. So far there is no evidence that existing isn't tracking pending.
jg, sure, things could change. But I think the last two charts are better than the first chart. Remember the NT economists are HUGE housing bears, and they think they track OK.
Look at the first source - "housing doom"... anybody recall the financing collapse in August 2007? That certainly delayed or destroyed a few deals. Its taking about 2x longer to close deals now vs 2005/2006 - so the lag time is changing.
The higher rate of escrows falling through recently has had another interesting effect. They are often being counted as comparables for other loans/sales/listings, and the comparables analysis gives a price that is on average too high. Since a market value is composed both of what someone is willing to pay and what their lender is willing to let them borrow, they aren't really comps.
Those "in escrow" properties which fall through generally will sell for less in the future, if at all.
CR - thanks very much - this addresses my question from the last thread; so did JP's anecdote from a local RE office about 1/3 of the contracts not closing.
I think the NAR indicator is misleading because it really only reports attempted transactions, not done deals.
The issue isn't "REOs on courthouse steps" because I have the impression none of these properties are really "bank owned" until after the courthouse sale. Can you confirm how NAR handles this? Most RE agents I know of tend to only report MLS transactions, as if that were the only market (they wish).
I hate to go OT - but I can't figure out what the cost to C will be for the ARS return to their books. These prodcuts have lost value and they are bringing them in (buying them back) at par. Anyone see anything?
Great post, CR.
I wish we could find numbers on failed closes, cuz I'm also wondering about The Sniglet Effect. Near as I can tell, those aggregated numbers are a state secret.
Scott, the NAR doesn't include 'court house step' transactions. My reference to foreclosure sales concerned the resale of houses that have been foreclosed on (those are included).
To be clear, the NAR isn't double counting. When a house is foreclosed - it is not counted. When it is sold to a new buyer, it is counted.
This is the way I'd do it - so I'm not knocking the NAR on this.
CR, note that the scales are different in each of the three graphs. This makes a difference in what you see as a pattern. None of them has left-hand and right-hand scales that are proportional. They should all be redrawn, all may be misleading.
While we're on the topic of numbers we would "like" to see, I would put a vote in for a few things:
- the number of loans that are 100% finance over time
- the number of mortgage applications that are rejected
- the number of loans originating brokers vs primary lenders
Just seeing to total number of bank mortgage applications every month doesn't tell us much because we don't know a) how many of these mortgages are just moving across from the wholesale side or b) if a large portion of the offers are due to people re-applying to different lenders/products until they are accepted.
On-T: CR, what about population increases related to supply and demand, i.e, as the population grows along with available new homes, how do you think that impacts value?
Off-T: For AIG Groupies: synthetic-guarantee contracts anyone?
Re: Other esoteric accounting conventions lay behind AIG's accountants' insistence that the company boost its most recent mark-to-market charge by $3.6 billion. AIG had held that the value of its synthetic-guarantee contracts hadn't deteriorated by nearly the amount that the insured CDOs had. But since there's no real trading market in its highly customized swap paper, the insurer couldn't offer sufficient evidence of that contention. And these days, accountants are leery of accepting mark-to-model pricing that many financial institutions have used in the past to reduce valuation hits to earnings.
WASHINGTON (AP) -- Citigroup Inc. will buy back more than $7 billion in auction-rate securities and pay $100 million in fines as part of settlements with federal and state regulators announced Thursday.
Also see: Wal-Mart said U.S. same-store sales, excluding fuel, rose 3% last month, but that missed expectations. Additionally, the company offered cautious comments for spending in August, and its stock slid more than 3%
Not trying to pump stocks, but this is all about weakness and a lack of confidence in future value as it relates to inflationary cash burn, including the obvious housing story here from CR:
Initial jobless claims also rattled traders, with the government saying 455,000 first-time filings for unemployment insurance were submitted last week. That was 30,000 more than predicted and up 7,000 from the prior week.
Another factor is the amount of short sales that go pending, but are never converted to sales. There is a very low conversion rate from pending, which just means the buyer and homeowner have agreed on a deal, to closing a deal with the lender taking a usually big hit. These can take months and most have no chance of closing, but sit there in pending status.
Re: those additional one time hits to C's bottom line
This is an interesting example of "money" and "value" because the people that bought the securities will claim a loss on taxes and have a six year carry and then C will write this off and get a credit, then, C will return some loot, which will be a capital gain, and then what, C will wait for these people to return as loyal customers? Maybe I have that wrong?
Citigroup agreed to buy back all illiquid auction-rate securities at face value from all retail customers, charities and small- to mid-sized businesses -- a total of some 40,000 customers nationwide -- by November 5.
"Another factor is the amount of short sales that go pending, but are never converted to sales. There is a very low conversion rate from pending, which just means the buyer and homeowner have agreed on a deal, to closing a deal with the lender taking a usually big hit. These can take months and most have no chance of closing, but sit there in pending status."
Anecdote that jives with this theory: One of my coworkers here in San Diego is in the process of transferring from our Palo Alto office. He has short sale deals pending on TWO townhouses in the same complex. He plans to buy only one, and it's to live in. He's been in limbo since March. In other words, this one instance has likely been counted as two pending sales for the past four months. At most it will account for one actual sale.
A broker freind lamented to me that the length of time between the sale and the closing has become noticably longer, aa lenders are requiring a lot more documentation and scrutiny. This is obviously anecdotal, but if it's happening on a nationwide scale then it would increase the ratio of pending sales to monthly sales.
Pending! Haw. Pending here means if some Daddy Warbucks swoops in with a 20-50% down and cosigns with add'l collateral. Nobody is minting new mortgages without a lot of DD and hefty down payments. Most pendings will fail.
Nice Job CR - eventually, some day, positive numbers WILL come out and there WILL be a bottom. When this happens, it will separate the spinners from the truthtellers in the blogoshpere.
There are a number of bubbleblogs (and commenters) committed to keep the party going at all costs - bury all good news, or spin it to support the idea that its really just more bad news. We are starting to see that now - I gave up on subtly titled "housing doom" along time ago just for this reason.
Again, nice job delivering the straight dope. Its not over by a long shot, but when it is, I know you will be the first to report it.
In the first graph the scale for Pending index goes from 40 to 130. This exaggerates the decline as compared to the second graph which goes from 80 to 130. The third graph which goes from 80 to 150 also exaggerating decline compared to the second graph.
The existing home scale also varies between the three graphs
It is hard to say which scale is most correct. But manipulating scale is one of the more common ways to make a chart say what you want it to say.
burbed writes:
Nice Job CR - eventually, some day, positive numbers WILL come out and there WILL be a bottom.
And that bottom is a long steep drop from here my friend. Didn't guys like you fool enough people with your "housing is an investment" scam? Take out losses to inflation and carrying cost and then tell me how much your "investment" yields...
An informative way to look at the issue is as a comparison of two ratios, pendings to new listings, and closings to pendings, per month or any time frame of choice. Can be done by price range too. Time on the market and inventory numbers are distorted by non-recognition of the difference between properties which get contracts and properties which don't. Looking at the activity as ratios shows what sellers need to do (price) to get a contract signed. That's real days on the market. The ones that don't won't. They aren't functionally inventory because they're not priced to sell.
Spoogie - I have no idea what you are talking about. I could care less about carry costs and all that investment crap. I am a bitter renter who wants to buy just to get the wife off my back - thats it. At the same time, I want to wait as long as possible lest I throw more more money away.
CR is a great site - it helped me cut through all the NAR spin and the like and get the straight dope.
Problem is, not all bubble blogs are like this. Some are so committed to spinning everything they are essentially the NAR in reverse. That doesnt happen here.
SOMETIMES, CR looks at the NAR spin and says "this is crap" and SOMETIMES he looks at the NAR spin and says, "this is legit" - he has the GUTS to do this, despite the legions of bitter types who essentially call him a traitor or knifecatcher or (as you suggest for me) a real estate scammer.
I have news for you Spoogie - SOMEDAY - WHETHER YOU LIKE IT OR NOT - THIS WILL BE OVER. It may be tomorrow, it may be 100 years from now. When it happens - those of us who want to buy will do so, and get on with our lives. At the same time, there will be those that stay here, saying "this hasnt even started yet" all the while preaching to each other about all the rest of us bubble heads turned buyers were fools. When that time comes, which camp will you be in?
Never should have doubted your wisdom, I'm sowwwy!
All graphs aside, a lot of homes that I look at have sold a few times (well, almost sold!) Thanks CR,
All the best!
Could this historically close relationship between pending and closed sales have altered in the last 10 months or so? I keep hearing that an unprecedented number of deals keep falling through these days (e.g. due to financing issues, buyers getting cold feet, etc), which could (in theory) lead to an abnormally small percentage of pending deals actually reaching completion.
The article explains that it used to track well, but after April 2006, the divergence started.
CR, the WSJ and NT graphs, while of a longer time frame, do not encompass a recession.
The separation seen in the first graph may be an indicator of how pendings disconnect -- due to financing falling through -- during a recession/downturn.
I would not be so quick to say, 'Misleading, nothing here.
I agree with Sniglet's thoughts.
Homes sold in the last 12 months often fall out of escrow and can be resold several times in a 12 month period. With credit (lending) tightening I don't see that trend diminishing...
jg,
Right. Those graphs all just encompass The Bubble. Almost all Bubble stats are misleading. Post Bubble, in The Bust, the numbers/graph should diverge significantly from The Bubble. I think the CNBC graph illustrates the beginning of this trend.
Sniglet, yes, things could be changing - and that is why I included the NT chart from last month. So far there is no evidence that existing isn't tracking pending.
jg, sure, things could change. But I think the last two charts are better than the first chart. Remember the NT economists are HUGE housing bears, and they think they track OK.
Best Wishes.
Look at the first source - "housing doom"... anybody recall the financing collapse in August 2007? That certainly delayed or destroyed a few deals. Its taking about 2x longer to close deals now vs 2005/2006 - so the lag time is changing.
The higher rate of escrows falling through recently has had another interesting effect. They are often being counted as comparables for other loans/sales/listings, and the comparables analysis gives a price that is on average too high. Since a market value is composed both of what someone is willing to pay and what their lender is willing to let them borrow, they aren't really comps.
Those "in escrow" properties which fall through generally will sell for less in the future, if at all.
CR - thanks very much - this addresses my question from the last thread; so did JP's anecdote from a local RE office about 1/3 of the contracts not closing.
I think the NAR indicator is misleading because it really only reports attempted transactions, not done deals.
The issue isn't "REOs on courthouse steps" because I have the impression none of these properties are really "bank owned" until after the courthouse sale. Can you confirm how NAR handles this? Most RE agents I know of tend to only report MLS transactions, as if that were the only market (they wish).
Average Citizen, thanks.
I don't think there is a problem with this stat - other than it's marginally useful in understanding housing!
To me this just says foreclosure sales are still very strong - something I already knew!
Best Wishes.
I hate to go OT - but I can't figure out what the cost to C will be for the ARS return to their books. These prodcuts have lost value and they are bringing them in (buying them back) at par. Anyone see anything?
Great post, CR.
I wish we could find numbers on failed closes, cuz I'm also wondering about The Sniglet Effect. Near as I can tell, those aggregated numbers are a state secret.
Scott, the NAR doesn't include 'court house step' transactions. My reference to foreclosure sales concerned the resale of houses that have been foreclosed on (those are included).
To be clear, the NAR isn't double counting. When a house is foreclosed - it is not counted. When it is sold to a new buyer, it is counted.
This is the way I'd do it - so I'm not knocking the NAR on this.
Best Wishes.
JP, I wish we had those numbers too! More info is always better.
Best Wishes.
I agree with Elvis, that we may be seeing an incipient post-bubble trend in the first graph.
Wise (CR) and not-so-wise men/women reading the entrails gives rise to the difference of opinion. So be it.
CR, note that the scales are different in each of the three graphs. This makes a difference in what you see as a pattern. None of them has left-hand and right-hand scales that are proportional. They should all be redrawn, all may be misleading.
While we're on the topic of numbers we would "like" to see, I would put a vote in for a few things:
- the number of loans that are 100% finance over time
- the number of mortgage applications that are rejected
- the number of loans originating brokers vs primary lenders
Just seeing to total number of bank mortgage applications every month doesn't tell us much because we don't know a) how many of these mortgages are just moving across from the wholesale side or b) if a large portion of the offers are due to people re-applying to different lenders/products until they are accepted.
The problem now is theat NAR is a pack of liars, but thery are just taking thier Q from Treasury. Who's the biggest fool.
c&c,
Wait - don't they get to count that as income ala Ambac? (oh wait - that would have to be the other way around AND C's own debt - never mind!)
On-T: CR, what about population increases related to supply and demand, i.e, as the population grows along with available new homes, how do you think that impacts value?
Off-T: For AIG Groupies: synthetic-guarantee contracts anyone?
Re: Other esoteric accounting conventions lay behind AIG's accountants' insistence that the company boost its most recent mark-to-market charge by $3.6 billion. AIG had held that the value of its synthetic-guarantee contracts hadn't deteriorated by nearly the amount that the insured CDOs had. But since there's no real trading market in its highly customized swap paper, the insurer couldn't offer sufficient evidence of that contention. And these days, accountants are leery of accepting mark-to-model pricing that many financial institutions have used in the past to reduce valuation hits to earnings.
c&c,
Here is an article on those additional one time hits to C's bottom line...
Citigroup returning billions to investors
Thursday August 7, 12:05 pm ET
Citigroup returning billions to investors, paying fine in deals over auction securities
WASHINGTON (AP) -- Citigroup Inc. will buy back more than $7 billion in auction-rate securities and pay $100 million in fines as part of settlements with federal and state regulators announced Thursday.
[snip]
Why are banks selling off so hard...
energycon - I still dont see where they list the difference between buyback price and par.
FRED,
ROTFLMAO. your joking, right?
Yes, but not familiar with ROTFLMAO, Geither must be distracted with today's auction...
Rolling On The Floor Laughing My Ass Off
Also see: Wal-Mart said U.S. same-store sales, excluding fuel, rose 3% last month, but that missed expectations. Additionally, the company offered cautious comments for spending in August, and its stock slid more than 3%
OT,
Not trying to pump stocks, but this is all about weakness and a lack of confidence in future value as it relates to inflationary cash burn, including the obvious housing story here from CR:
Initial jobless claims also rattled traders, with the government saying 455,000 first-time filings for unemployment insurance were submitted last week. That was 30,000 more than predicted and up 7,000 from the prior week.
Another factor is the amount of short sales that go pending, but are never converted to sales. There is a very low conversion rate from pending, which just means the buyer and homeowner have agreed on a deal, to closing a deal with the lender taking a usually big hit. These can take months and most have no chance of closing, but sit there in pending status.
c&c,
IIRC, the buyback price IS par for retail and small business - 40K customers nationally?
Re: those additional one time hits to C's bottom line
This is an interesting example of "money" and "value" because the people that bought the securities will claim a loss on taxes and have a six year carry and then C will write this off and get a credit, then, C will return some loot, which will be a capital gain, and then what, C will wait for these people to return as loyal customers? Maybe I have that wrong?
c&c,
What I want to know is what is the difference between par and current value (no bid?)!
linky:
Citigroup settles auction-rate probes, pays fine
[snip]
Citigroup agreed to buy back all illiquid auction-rate securities at face value from all retail customers, charities and small- to mid-sized businesses -- a total of some 40,000 customers nationwide -- by November 5.
[snip]
"Another factor is the amount of short sales that go pending, but are never converted to sales. There is a very low conversion rate from pending, which just means the buyer and homeowner have agreed on a deal, to closing a deal with the lender taking a usually big hit. These can take months and most have no chance of closing, but sit there in pending status."
Anecdote that jives with this theory: One of my coworkers here in San Diego is in the process of transferring from our Palo Alto office. He has short sale deals pending on TWO townhouses in the same complex. He plans to buy only one, and it's to live in. He's been in limbo since March. In other words, this one instance has likely been counted as two pending sales for the past four months. At most it will account for one actual sale.
What I want to know is what is the difference between par and current value (no bid?)!
"all illiquid auction-rate securities"
VALUE = Much less than they are paying = loss for C
Good example of lies, damn lies, and statistics.
CR,
A broker freind lamented to me that the length of time between the sale and the closing has become noticably longer, aa lenders are requiring a lot more documentation and scrutiny. This is obviously anecdotal, but if it's happening on a nationwide scale then it would increase the ratio of pending sales to monthly sales.
Pending! Haw. Pending here means if some Daddy Warbucks swoops in with a 20-50% down and cosigns with add'l collateral. Nobody is minting new mortgages without a lot of DD and hefty down payments. Most pendings will fail.
Nice Job CR - eventually, some day, positive numbers WILL come out and there WILL be a bottom. When this happens, it will separate the spinners from the truthtellers in the blogoshpere.
There are a number of bubbleblogs (and commenters) committed to keep the party going at all costs - bury all good news, or spin it to support the idea that its really just more bad news. We are starting to see that now - I gave up on subtly titled "housing doom" along time ago just for this reason.
Again, nice job delivering the straight dope. Its not over by a long shot, but when it is, I know you will be the first to report it.
Scale matters to these graphs.
In the first graph the scale for Pending index goes from 40 to 130. This exaggerates the decline as compared to the second graph which goes from 80 to 130. The third graph which goes from 80 to 150 also exaggerating decline compared to the second graph.
The existing home scale also varies between the three graphs
It is hard to say which scale is most correct. But manipulating scale is one of the more common ways to make a chart say what you want it to say.
Lee
I call bottom!
Ha ha ha ha. I kill me.
I dont care what the charts say, I have seen the numbers at the brokerage level. The pending sales stat is as meaningless as median price.
burbed writes:
Nice Job CR - eventually, some day, positive numbers WILL come out and there WILL be a bottom.
And that bottom is a long steep drop from here my friend. Didn't guys like you fool enough people with your "housing is an investment" scam? Take out losses to inflation and carrying cost and then tell me how much your "investment" yields...
An informative way to look at the issue is as a comparison of two ratios, pendings to new listings, and closings to pendings, per month or any time frame of choice. Can be done by price range too. Time on the market and inventory numbers are distorted by non-recognition of the difference between properties which get contracts and properties which don't. Looking at the activity as ratios shows what sellers need to do (price) to get a contract signed. That's real days on the market. The ones that don't won't. They aren't functionally inventory because they're not priced to sell.
Spoogie - I have no idea what you are talking about. I could care less about carry costs and all that investment crap. I am a bitter renter who wants to buy just to get the wife off my back - thats it. At the same time, I want to wait as long as possible lest I throw more more money away.
CR is a great site - it helped me cut through all the NAR spin and the like and get the straight dope.
Problem is, not all bubble blogs are like this. Some are so committed to spinning everything they are essentially the NAR in reverse. That doesnt happen here.
SOMETIMES, CR looks at the NAR spin and says "this is crap" and SOMETIMES he looks at the NAR spin and says, "this is legit" - he has the GUTS to do this, despite the legions of bitter types who essentially call him a traitor or knifecatcher or (as you suggest for me) a real estate scammer.
I have news for you Spoogie - SOMEDAY - WHETHER YOU LIKE IT OR NOT - THIS WILL BE OVER. It may be tomorrow, it may be 100 years from now. When it happens - those of us who want to buy will do so, and get on with our lives. At the same time, there will be those that stay here, saying "this hasnt even started yet" all the while preaching to each other about all the rest of us bubble heads turned buyers were fools. When that time comes, which camp will you be in?
I think the divergence of pendings v sales
will explode in the next issue.
Mortgage bankers are wounded and nervous.
Lost another loan to trainwreck.
.