EXISTING HOME SALES REVEALS OMINOUS BLACK CLOUD OVER THE U.S. ECONOMY. STILL THESE ARE THE BEST TIMES TO BUY RESIDENTIAL REALTY

While some await the Census Bureau workers' next release of New Residential Sales data on May 26, 2015, the National Assoication of Relators have released Existing Home Sales data. The story looks bleak.



Always, numbers without context lack meaning.

While Existing House Sales looked to be bettering from the low of Q4 2008, that bettering stopped August 2013. Since then the trend has been worsening.


In spite of the worsening state of existing house sales, if you have the income, likely these are among the best days to buy a house in decades.







However, far too many Americans cannot swing a mortgage to buy a house. That, my readers, is the biggest problem vexing the economy.



There are many could-be buyers, but few would-be buyers because so few have the means to swing a mortgage. And yet, True Dollar™ prices run near 50% off.




The inane policy of Quantitative Easing impaired extant capital. To restore returns to capital bought with credit, enterprisers had to cut labor.

After all, wages arise solely from capital. Absent capital, there can be no wages.

Not until all of the impaired capital has been written off, can enterprisers begin to undertake new capital on much lower interest rates. Yet, once enterprisers can, new capital formation will give rise to wages.

We're catching glimpses of this dynamic of capitalism expressed in the labor markets. First there was massive layoffs, unemployment and the need to collect SNAP food welfare from Congress. Of late, there has been a steady decline in True Unemployment in the working age population.

Enjoy one from one of my all-time faves, The Boys!

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SEVEN YEARS LATER, WHO IS TO BLAME FOR THE CREDIT CRISIS CAUSED BY THE RESIDENTIAL REALTY BUBBLE? THE U.S. CONGRESS.

Most chucklehead laugh-track TV-watching Americans would like to blame who they believe are evil commercial bankers for the credit crisis of 2008.

Most Americans are bamboozled by politicians. Politicians are too smart for Americans. Politicians easily trick Americans with speeches and TV performances.

The true culprits of the residential realty fueled credit crisis were the men and women of the U.S. Congress,  the Congressmen of the U.S. House of Representatives and Senators of the U.S. Senate.

Successive U.S. Congresses make all the rules through their law, directly and through their agencies, which they authorize. Successive U.S. Congresses caused the residential realty crisis and largest credit bubble in U.S. history through their agencies.

The U.S. Congress through its agencies bundled up mortgages into securities known as mortgage-backed securities (MBS) and hired investment bankers to broker those securities. Successive U.S. Congresses created Government Sponsored Enterprises, GSEs, which make MBS. These GSEs are the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal Agricultural Mortgage Corporation (Farmer Mac).

Another player for the U.S. Congress, the Government National Mortgage Association (Ginnie Mae) did not issue MBS. However, Ginnie Mae technocrats provided backing for MBS by guaranteeing investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).

When all hit the fan, the U.S. Congress made for-profit Private Mortgage Conduits into their scapegoats. A PMC is a firm created to purchase and pool house loans and ready such for sale as securities. PMCs are the private sector equivalents of the GSEs. In the period of 2003 to 2007, PMCs were affiliates of major firms — GMAC Mortgage, Bear Stearns, Citimae of Citicorp, Countrywide, GE Capital Mortgage, Prudential, Ryland.

According to the Federal Reserve, from their own numbers on Mortgage Pools or Trusts, from 2003 to 2007, the outstanding principal balances of mortgage-backed securities insured or guaranteed by GSEs grew 48.1%, growing at a rate of 8.2% a year. In the same period, the outstanding principal balances of mortgage-backed securities of PMCs grew at an eye-poping 242%, growing at 27.9% a year!

It is from these figures that laying blame on PMCs seemed all too easy. What was a 79%-21% split at the start of Q1 2003 became a 60%-40% split by Q4 2007.

However, for every $1 of PMC MBS, there was $1.35 of GSE MBE. Total Congress involvement through GSE and direct agencies Ginnie Mae and the FHA came to $1.50 for every $1 of PMC MBS.

Said another way, Congress involvement was one-and-a-half times that of PMCs. Congress involvement in MBS and MBS guarantees between 2003 and 2007 was 50% bigger than all private involvement combined.

Of course, members of successive Congresses couldn't have done this without having enough voters put them into office. They could not have gotten those voters without first either giving them or appealing to their desire for welfare — Social Security, Medicare, Medicaid, SNAP, TANF, Section 8, Pell and many more programs.

During the residential realty credit bubble, there were far too many who borrowed way too much, well beyond what their incomes could support, overpaying way too much for houses they could not afford at the selling prices they should not have paid. Far too many played the game of "getting rich quick" by flipping taking out even bigger mortgages using the proceeds of each flip to buy cars and luxury vacations.

Ah, greed — striving to get something without giving up something in trade — is a horrible error. Oh so many borrowers were greedy with their big eyes seeing dollar signs as they  became flipping realty for big profit geniuses. It's hard to have sympathy for people driven by greed.

Commercial bankers weren't greedy. Commercial bankers sold a product — their credit — and bought a right of action in a purchase and sale from those seeking mortgages. Bankers played by the rules.

People buying houses, taking out HELOCs to buy shiny new BMWs, Mercedes and Ford Expeditions, cars that were once priced beyond their incomes, reckoning they could pay off their HELOCs when they flipped their houses for higher prices, well, that's greedy.

Far too many borrowed too much, many of whom never should have borrowed ever based on their incomes and the potential for price rises in other necessities. As soon as gasoline prices hit highs, many couldn't pay mortgages and drive to work. A little thing like rising gasoline prices drove them to default and technical bankruptcy.

Investors buying mortgage-backed securities, which bundled mortgages based on faulty interpretation of statistics, suckered by blue-skies sales pitches, well, that was stupid. MBS investors were stupid.

And for the last seven years, Federal Reserve central bankers have been taking on these junk MBS, effectively bailing out the previous owners of MBS.



American borrowers were greedy. Blaming businessmen for engaging in business puts the blame where no one should.

Here is an interesting graphic published by the New York Times.

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RESIDENTIAL REALTY REALITY. IT LOOKS LIKE NOW IS THE TIME TO BUY.

Earlier today, in AIN'T THAT AMERICA FOR YOU AND ME. TRUE PRICES OF RESIDENTIAL REALTY OFF ALMOST 50% FROM PEAK CREDIT, I revealed to you the true median price for new and used houses sold has fallen a whopping -48.6% falling at an annual rate of -9.1% a year over the last seven years. As well, the true median price for new houses sold has fallen an eye-blackening -47.1% falling at an annual rate of -7.9% a year over the last seven and three-fourths years.


Here are what prices have looked like during the reign of presidents beginning with Kennedy.




No one can say how long a price rise shall run nor how long a price fall shall run before either trends start. That said here are yearly growth or shrink rates and the time of the trend.



The average annual median price growth for low to peak periods is 5.9%. The average annual median price decline for peak to low periods is -6.5%.




Back in May, 2014, I shared with you the Homeless ratio. The Homeless ratio looks at net charge-offs in relation to delinquencies for all single-family residential mortgages secured by real estate and booked in domestic offices of all commercial banks. Back in May, the Homeless ratio signaled the residential realty mess as over.

And back in May 2014, I said from a house price perspective, this has been the best time to buy since 1980 though not the best time to buy relative to income. If you have the a solid income and have wanted to become a mortgage payer rather than a renter, the window is open for a once-in-a-34-year opportunity.

However, if you are looking to speculate in realty expecting the same kind of return you would get from buying the S&P 500 for price, think again.

As I showed in IS THERE EVER REASON TO BUY GOLD, had someone bought the True S&P 500 at $86.50 at the end of Q1 1994 and rode that until Q3 2000, that lucky one would have enjoyed a yearly growth of 22.3%, double the return of the great gold rush of the 2000s, with the total growth coming in at 251.4%. In the long bull run between Q3 1974 and Q3 2000, True S&P 500 grew at a yearly rate of 7%, growing a full 484.3%.

So even in the best runs for true median price of new sold houses, buying at the low of residential realty can't compete with buying at the low of the S&P 500.

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AIN'T THAT AMERICA FOR YOU AND ME. TRUE PRICES OF RESIDENTIAL REALTY OFF ALMOST 50% FROM PEAK CREDIT

So today at always must-read Mish, Mike Shedlock says that housing has peaked this cycle in New Home Prices: Are they Really Up this Year? Homebuilder Freebies: Reduced Closing Costs, Free Pools; Housing Has Peaked This Cycle. Is Mike Shedlock right? Not only is Mike right, but if only he knew by how much, he would be shocked.



According to the U.S. Department of Commerce, Census Bureau, median sales price for new houses sold in the USA hit a peak at US$285,600 at the end of April, 2014. The median sales price for new houses sold is up US$23,000 from the previous peak hit at the end of February, 2007.

According to those at Zillow, the median sale price for all houses, new and used, came in at US$207,000 at January 2008 and for August 2014, US$215,000. The median sale price for all houses, new and used, is up US$8,000.

By percent priced in U.S. dollars, median prices for new houses sold are up 8.8% over the last seven and a quarter years, rising at an annual rate of 1.2%. For all houses, new and used, median prices have risen 3.9% over the last seven years, rising at one-half of one percent (0.5%) a year.

Should anyone be wowed over this? All prices get denominated in cash. In the seven years since peak credit of Q4 2007, cash is up a whopping 62.6%, rising at an annual rate of 7.2%. Federal Reserve buying units are up 103.4% since peak credit Q4 2007, rising at an annual rate of 10.7%.

True prices tell a different story. The true median price for new and used houses sold has fallen a whopping -48.6% falling at an annual rate of -9.1% a year over the last seven years.

In true prices, peak median price for new houses sold came at the end of Q4 2006. The true median price for new houses sold has fallen an eye-blackening -47.1% falling at an annual rate of -7.9% a year over the last seven and three-fourths years.

Nothing has changed in the greatest depression of all-time.

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TRUE STATE OF THE UNION: BLEAK HOUSE. HOUSES, APARTMENT HOUSES

The residential realty bubble put on quite a show in the early 2000s.



Americans willingly let their houses slowly rot away.

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THE HOMELESS RATIO REVEALS THE RESIDENTIAL REALTY MESS IS OVER.

The other day, in EXISTING HOME SALES PROPAGANDA SPREADS AT A BIZARRO THEATER OUTLET NEAR YOU, I gave you the Flip ratio and the Glut ratio, which better explain residential realty. Now, I give you the Homeless ratio.



The Homeless ratio looks at net charge-offs in relation to delinquencies for all single-family residential mortgages secured by real estate and booked in domestic offices of all commercial banks.



As you can see, the Homeless ratio falls as house prices fall and experiences violent peaks after sustained run ups in prices.

Now, let's check out average house prices and average house prices to average income.




From a house price perspective, this has been the best time to buy since 1980 though not the best time to buy relative to income. That said, if you have the a solid income and have wanted to become a mortgage payer rather than a renter, the window is open for a once-in-a-34-year opportunity.

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PRICES HAVE BEEN FALLING FOR YEARS! INFLATION? MAJOR DEFLATION HAS BEEN UNDERWAY SINCE 2007. SO WHY DOES LIFE SEEM HARDER? THE ANSWERS ARE COMING NEO.

In THE CONSUMER PRICE INDEX NEVER HAS MEASURED INFLATION, EVER. CLAIMING SO HAS BEEN A EPIC CON JOB, I show how the  "the most widely used measure of inflation," the Consumer Price Index (CPI), fails to measure inflation precisely because those behind it measure prices and not inflation. 

The worst is the jokers at the BLS who conjure the CPI measure current inflated prices by a base of past inflated prices. Stop. Think about that for a moment.

With their failed method, they cannot eliminate the effects of inflation. In short, the CPI is bunco.

Milton Friedman was a famed economist, popular writer and winner of the Nobel Prize in Economics back in 1976. Friedman is famous in egghead circles for having said:

"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." 

Edwin Walter Kemmerer was a famed economist, a man known as "the money doctor." Kemmerer said this about inflation:

Friedman and Kemmerer point the way. Here is the Red Pill that you must swallow if you want to free yourself from the silly, false belief of rising prices means inflation. 

You must come to see that you do not have money. No one does. 

Instead, you have Federal Reserve Bank Units (FRBUs), or if you like better, Federal Reserve Buying Units. FRBUs are what pay for goods. All goods get priced in FRBUs. 

Money is coined metal by weight and fineness. Always, money can exist without banking and government. Cash only can exist with banking and banks. Legal tender cash needs banking backed by the force of government.

In the fiduciary monetary system of centralized bank notes, inflation is merely the growth of the circulating media — cash, which is evidence of past deposits circulating in perpetuity and bank credit in the form of checkable deposits transferred by bank instruments such as checks and debit cards.

Thus, to know reality and escape the Matrix requires you to account for inflation by FRBUs and by no other way. The FRBU deflator is our red pill to see reality. 

INFLATION FIRST, THEN DEFLATION ALWAYS. 

Inflation happened already. That is what led to the banking crisis of 2008.

The damaging effects of inflation become revealed when the growth of credit outstrips the growth of output owing to credit being priced too cheap. Banking crises always happen at peak inflation right in the midst of prosperity.

Have a look at true credit and true GDP.

Since 2008, true bank credit has been falling. True GDP has fallen right along with the fall in bank credit. The fall of bank credit means deflation has been underway. 

True bank credit is down -43.4% from peak credit at the start of Q2, 2008. True Credit has been falling at an annualized rate of -9.1%.

True GDP has been falling and falling. True GDP is down -42.8% from the peak! True GDP has been falling at an annualized rate of -8.9%!

That's a trade depression. Look at it. I call it the Greatest Depression.

AND FALLING PRICES, IT'S TRUE

So let's have a look at true prices, shall we? Prices have been falling for decades since before peak credit. 

Say what?! Yes, it's true. Once the effects of accretion of FRBUs get removed using the FRBU deflator, we get true, inflation-free prices. 

First let's look at food and energy.

It's no wonder chief bankers at the Federal Reserve exclude food and energy from their watch. Yet, always, you hear many decry that your friendly neighborhood Fed Res bankers ignore food and energy prices.

Now, let's look at house prices. 

House prices went on quite the roller coaster ride between 1980 and 2013. Yet, the average price for a house today is lower than in 1980 by 36%! 

Interestingly, the average house price to income has averaged $6.63. The 2012 ratio of $6.44 is under 3% from the average.

Yet, there is a fly in the ointment, which I shall get to soon, the fly on the wall that explains why you suffer.

But first, here is the ugliness that many Americans understand. Tuition prices have risen a whopping 85% since 1980!

WHY MISERY IF PRICES ARE FALLING?

So why do Americans feel so miserable and claim to be broken financially? Well, there is good reason for that too.

A wage is a price and as all prices have been falling, so too have wages fallen.




The average wage has fallen 41% since 1980!




So why have true wages fallen? All should heed my dictum:

Labor makes property. Capital makes property efficiently.

THE CHART SOCIALISTS AND POLITICIANS DON'T WANT YOU TO SEE

True wages have fallen in lockstep with true capital spending per capita of prime age working adults (25-54). Wages and capital are interlinked.

Trading wealth as property in cash and credit in a purchase and sale for wealth as property in things determines the extent of markets. Only in proportion as labor becomes pricier that it becomes profitable to use cheaper methods (capital) to amplify labor.

There are no means by which living standards can better that do not involve the increase in wealth per capita of prime age workers. Increasing returns to capital arise when true wages go up. To discover how to make increasing returns to capital is to solve the problems of poverty and lowering living standard. 

As can be seen here, the growth in prime age working adults in America has been tremendous, up 45.3% since 1980.





And not-so-coincidentally, wages have fallen 41% and capital spending has fallen 49.5%!





Born-again socialism revivalist preachers like Thomas Piketty who attack wealth simply do not understand trade and commercial life at all. 

Having more wealth is what makes all better off. More wealth comes from more efficient production. More efficient production comes from more capital.  More capital spending per worker raises wages. 

While the living standard in America has been falling, the living standard for Chinese has been rising. Why is that? There has been more capital spending per worker in China since the Chinese turned capitalist.

It's the same story everywhere.

Be sure to check out these:

• WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE.
• WORK NEVER CREATES VALUE. WORK CREATES PROPERTY.
• INFLATION REVEALED! "REAL GDP" AND FEDERAL RESERVE BANK UNITS.
• THE THEORY OF TRADING PROPERTY FOR PROFIT
• FALLACY FRAUGHT FORBES TRIES TO STOKE FEARS OF HYPERINFLATION

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EXISTING HOME SALES PROPAGANDA SPREADS AT A BIZARRO THEATER OUTLET NEAR YOU.

So today, residential realty numbers have many busy fingers writing the latest propaganda scenes for American commercial and political life.

The busy ones at Reuters seem to have spun the story more than most with their stories Existing home sales rebound, inventory increases and Housing sector turning the corner.

Numbers are meaningless without context. Even pictures that seem bleak such as downward curves can't tell anyone anything without context.

To understand what is going on, you need to see existing house sales and existing house inventory in context of the civilian population, specifically the civilian non-institutional population.

First, let's look at the Grouper Ratio.



Today's number is a scant 5.29% above the long run average Grouper Ratio of 558. 

The Grouper Ratio tells you how many persons for each house sale. The higher the number, the more persons for each sale. Looking at it another way, there are fewer sales per person.

The peak came January 1, 2009, when there were 1,077 persons per sale. So today's number has fallen an impressive 45.4% from the peak.

However, the low came on June 1, 2005, during the heyday of the last peak-flipping prosperity when everybody wanted a house and there were only 300 persons per sale. So, from the low, today's number looks bad, up 96.2%!

So looking at the chart, the higher up on the curve, the worse reality is. Today's Grouper Ratio is par for after the realty bubble of the early 2000s.

Now, let's look at the Glut Ratio.

The Glut Ratio tells us how many persons there are in the wildest schemes who could buy a house from those wishing to offload a house to the next sucker.

Today's number is 21.8% down from the peak Glut Ratio of 138 hit back on January 2013. However, today's number is a whopping 88.2% above the Glut low hit on July 1, 2007, when there were 57 persons for every house available.

Today's number is 19.8% of above the long run average Glut Ratio of 90. It looks like there is way too much inventory still relative to civilian population.

So looking at the chart, the lower down on the curve, the better reality is. 

It's hard to say what the long run average should be for the Flip Ratio and the Glut Ratio since realty data only goes back to January 1999. Now, let's look at the True Credit™ bubble to see if we can be helped.




The first leg of the massive Greenspan bubble ran from April 1994 to January 2001. A pause came between July 2002 and January 2004. Then Greenspan and his boy wonder sidekick Ben Bernanke turned up the credit heat creating the largest credit bubble in the history of America since Nixon closed the gold window.

So if we compare the Flip Ratio and Glut Ratio to the averages for each respectively between 2002 and 2004, the Flip Ratio is 21.5% above the average for that time and the Glut Ratio is 6.3% above.

To get a better gauge for residential realty in relation to the economy, have a look at New Privately Owned Housing Units Started relative to True GDP. There is a return link at the bottom of the page to get you back to Bizarro Theater. You can access that chart anytime from the Bizarro Theater Dashboard.

Housing starts are at historic recessionary lows. Compare today's number with 1975, 1982, and 1991. 

For those nostalgic for the residential realty bubble, here is the NAR's cheerleader, and yet another Ph.D. in economics spewing irreality from the false doctrine that is economics.

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YOU LIVE AT THE MERCY OF A CLOWN-CAR DRIVEN BY MEN AND WOMEN OF THE FEDERAL RESERVE

"What’s keeping people from buying houses is the fact that other people aren’t buying houses. If there were some sense that a bottom was forming in the market or in house prices, we probably could actually see a pretty quick snap-back, an increase in housing demand, and that in turn would feed back into the credit markets, I think, in a very beneficial way. So there’s the possibility that, if the housing market can get restarted, we could get a relatively benign outcome." ~ Ben Bernanke, then Chairman of the Federal Reserve and Economics Ph.D., MIT, from the January 29–30, 2008, Meeting of the Federal Open Market Committee of the Federal Reserve

Today, the Federal Reserve System, the privately-owned, monopoly bankers' bank established by Congress and President Wilson in 1913, released documents from the 2008 Banking Crisis, which key executives revealed their beliefs about banking, credit and trade. The quote of Bernanke above is one of the many silly-minded beliefs expressed by a handful of men and women who lord over the lives of all Americans because they control the Federal Reserve and thus all of banking and credit for Americans.

Too bad Ben Bernanke has no idea about what keeps people from buying houses. Too bad for us, a Congress and President Wilson back in 1913 decided that a central bank monopoly should be created to govern over all of banking, naming it the Federal Reserve, and entrusting guys like Ben Bernanke to run it.

Bernanke seems to believe that Americans are mindless lemmings who buy houses on whims merely because they see others buying houses on whims.

There is one great axiom that governs all of trade, the Axiom of Profit. The Axiom of Profit holds the sum of sales must at least equal the outlays for production otherwise, the producer goes to ruin. And for wage earners, the Axiom of Profit is alike — the sum of wages (income) must at least equal the outlays for living, otherwise the wage earner goes bankrupt.

Almost all persons rely on obtaining mortgages for buying houses. When prices for houses rise too high, and when the sum of wages fails to equal outlays for taxes, gasoline, heat, food and the like, the wage earner lives at a loss and thus falls to ruin. 

What kept people from buying houses past the peak of the realty bubble is that all those could buy on the way up, already bought. There were no other Americans willing to buy. Everyone else, even if they had profit from the sum of wages exceeding their outlays for living, were unwilling to pay prices for houses and take on debt service. Mostly though, almost all of those who didn't buy couldn't buy at the offer prices and still break even.

What a Residential Realty Bubble Looks Like

Even those who had bought began to live at losses when prices for gasoline rose high enough to push them into the red. Once the avalanche of collapse began, many mortgage-serving wage earners lost their jobs and thus their wages. Widespread collapse of the general economy followed.

As I explained in WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE, profits and prices are the key indicators, which give signals for trade among a people. The Law of Prices and the Axiom of Profit reveal the true governing forces irrespective of markets-meddling political action. 

The key factors that must be watched are bank deposits and profits. Any banker worth her salt, will tell you bank deposits aries from discounting and re-discounting commercial paper, from loans and from profits. Deposits represent buying power and lead to rising prices when deposits outstrip property production. Rising prices crimp profits, eventually causing losses for many, leading to collapse.

No where in the discourse among powerful Federal Reserve executives can anyone find discussion about deposits, deposit growth, profits, falling profits, losses and prices. No where did these men and women with their fancy academia credentials discuss the crucial relationship between deposits growth and profit or loss growth for what was a $14.8 trillion system of trade, 95% of which was based on credit.

The Federal Reserve needs to be stripped of its power in setting interest rates. It doesn't matter who sits as Chairman of the Federal Reserve. A handful of men and women lack omniscience and without doubt are not smart enough to know what should be the interbank lending rate and what should be lending and borrowing rates for commerce. 

As I explained in WHY FUTURES MARKETS SHOULD SET THE FEDS FUNDS RATE RATHER THAN THE FEDERAL RESERVE BOARD OF GOVERNORS that through the brilliance of a futures market, Americans could safeguard their livelihoods for all time returning to freedom, returning to living among a people who get rich from earnest effort rather than political connection.

For his adult life, prior to getting the appointment at the Federal Reserve, Ben Bernanke worked as a school teacher, spreading the mythology of economics to young minds. Bernanke never worked in banking nor held any job related to credit, the chief material of buying and selling, the whole of trade, or what many call "the economy".

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