NEW RESIDENTIAL SALES FOR APRIL 2015 SHOWS FULL RECOVERY IS STILL A WAYS OFF. NEW HOUSES SELLING AT 34% DISCOUNT ON AVERAGE

Back on May 19, I showed how the trend in new residential construction looks good. However, I cautioned that Americans have a long way to go until we have a solid economy with most Americans standing upon sound footing. It's likely, residential construction is two to three years away from having recovered.



Today, the Bureau of the Census released the latest New Residential Sales report for April, 2015.







True prices continue to fall reflecting the true state of credit in the USA. Average true prices as calculated in True Dollars™ are now lower than the low true prices hit during the early Clinton years after Clinton inherited the mess from the elder George H.W. Bush.

New houses sell at a 34% discount to the average price calculated from 1963 through 2001.



True median prices are worse today than during the early days of Richard Nixon. New house prices sell at a 29% discount to the average median sales price.



Builders' confidence reveals mixed signals.



Yet, builders seem to be speculating wildly still.






The road to full recovery is a long, hard one.

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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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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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