Sales Volume in Housing Continues to Plummet

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EDITOR’S NOTE: See the recent articles posted this week about the housing market. It is unprecedented — both in the run up and in the fall.

The bubble in housing prices went so much further than anything in history because it wasn’t real — it was fraud all the way through with Wall Street pumping money into an already bloated system and putting pressure on mortgage and real estate brokers, and with the complicity of developers, to inflate housing prices over broad swaths of the market. None of it was real. Comparing the prices to the traditional index of median income, housing prices simply disconnected from the rest of the economy and went where Wall Street needed them to be.

Now, because the securitization scheme was an illusion (no transfers actually made), and the courts allowing millions of foreclosures that are equally false and fraudulent, we have a fake inventory of houses for sale that exceeds anything in history. And it will only get worse unless everyone starts to wake up and people stop walking away from homes that were the basis of a fraudulent sale of loan products that were not loans at all — they were part of an essential scheme of issuance of securities by homeowners who didn’t have any idea that the essence of the their “loan transaction” was securities fraud.

A Reversal for Real Estate After Some Mild Gains

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PRICES for both homes and commercial real estate are falling again. Meaningful improvement may have to wait until there are many fewer distressed properties for sale.

Indexes of the two markets showed this week that the latest declines had almost wiped out the mild gains the two markets had shown after prices appeared to have hit bottom.

The Standard & Poor’s/Case-Shiller index of home prices ended February 3.3 percent below where it was a year earlier, and just 0.5 percent above the low reached in May 2009. The Moody’s/REAL Commercial Property Price Index was reported to be down 4.9 percent over the last 12 months, but still 0.8 percent above its low, reached last August.

In both cases, sales volumes are far below what they were when the markets were booming, and a large proportion of the properties that are being sold were in trouble before the sale. The National Association of Realtors estimates that about 40 percent of existing homes that changed hands in March were either in foreclosure or were so-called short sales in which the house was sold for less than was owed on the existing mortgage.

The commercial property index, which is based on data collected by Real Capital Analytics, shows that 29 percent of transactions in February involved distressed properties — including those already in foreclosure or default, as well as those whose owners had filed for bankruptcy.

“Only when the share of distressed sales meaningfully drops off will we be able to enter the recovery phase,” said Tad Philipp, Moody’s director of commercial real estate research.

As can be seen from the accompanying charts, home prices nationally peaked in 2006 but did not begin to plunge until 2007.

At first, that was widely viewed as a result of problems in the subprime mortgage market. Commercial real estate prices rose until early 2008, but then declined rapidly. The latest values for the indexes show national home prices down 31 percent from peak levels, while the commercial real estate index shows a fall of 45 percent.

The charts show the trend of prices since December 2000. Home prices are about 27 percent higher than they were then, but commercial real estate is up just 6 percent. Meanwhile, in a tortoise-versus-hare tale, home rental rates are higher than they ever were even though they failed to boom when real estate prices soared.

Both indexes are based on repeat sales of the same property, and the relative lack of commercial property transactions — the index counted only 107 in February for more than $2.5 million each — means that the figures are far from exact. But they do show trends.

According to data from Moody’s, hotels and apartments are in the most distress, with about 16 percent of loans in each category classified as delinquent. About 10 percent of loans on industrial property are in trouble, while the figures for offices and retail properties are lower, at around 7 percent.

Over all, the proportion of commercial loans in distress climbed from under 1 percent at the end of 2008 to over 9 percent now. But it has been stable in recent months, providing some hope that the market is no longer deteriorating.

On a regional basis, the same markets tend to have problems in both commercial and residential real estate. The three states with the highest proportion of commercial loans in distress, according to Moody’s, are Nevada, Arizona and Michigan. In Nevada, more than 30 percent of loans are classified as being in trouble, nearly double Arizona’s 16 percent figure.

Floyd Norris comments on finance and the economy on his blog at nytimes.com/norris.

6 Responses

  1. The market is never going to recover and this is the newest side of the illusion HOME SALES.
    THERE ARE NONE!
    EVERY TIME THE NEED TO REPORT THE NUMBER OF HOMES SOLD THIS QUARTER THERE’S A FLURRY OF SALES FROM ONE AGENCY TO ANOTHER, BUT NO FAMILIES ARE BUYING. NO PENDING SALES COMPLETED, NO NEW HOMEOWNERS, NOTHING REALLY CHANGES! BUT THE NUMBERS LOOK GREAT!
    A SHERIFF’S SALE IS RECORDED.
    THEN ASSIGNED TO AN AUCTION.
    THERE IS NO BUYER BUT THE AUCTION HOUSE RECORDS A “SALE” TO ANOTHER AUCTION COMPANY.
    THEY HOLD ANOTHER AUCTION, AGAIN NO SALE, THIS TIME IT GOES TO FANNIE MAE, AND AGAIN SOLD AT A HIGHER PRICE THAN WHEN IT FORECLOSED, HUD AND FANNIE MAE PAY HIGHER PRICES FOR FORECLOSED HOMES.
    FANNIE SELLS TO HUD, AND HUD DOES NOTHING, STOPS PAYING THE TAXES AND THE HOUSE GOES INTO COUNTY TAX FORECLOSURE AND IS “SOLD” AGAIN TO SIT ANOTHER YEAR UNTIL THE NEXT COUNTY TAX SALE WHICH WILL CLEAR THE TITLE, BUT BY NOW THE HOUSE IS IN RUINS AND NO ONE WILL BUY.
    BUT SHELL GAMES GOES ON AND ON AND ON
    F

  2. EULE,

    Yes, that is correct. It is a rip off as well for home insurance. that is why one year ago when we defaulted on our loan to get a mod, the lights when on in my head. So, since I’m underwater, why in god’s name should I pay insurance for a home that I will never get back. If it burns down, the mortgageis underwater. So I researched and got the cheapest possible with highest deductable. If it burns down, I don’t give a shit. So I go cheapest. Funny thing is servicer is now paying for it, in escrow account.

  3. I am woundering where Case/Shiller got his numbers.The put all homes in one bucket , foreclosure or not.
    My CHASE HELOC price was $270,000.00 , my
    Corelogic price was $ 126,000.00 and now , I need a new Home Insurance and my new Insurance would not sell me a Insurance for $ 126,000.00 because the price for replacement would be $ 230.000,00 , that is , for what I pay now. But I am still underwater .
    What a number game..

  4. The Fed Printing money is not a bad short term solution but the Caveat is if you can keep inflation down. Opec under control. Gas prices down. But it is not happening so we are doomed.

    Neidermeyer I enjoy reading your comments.

    Be Strong and Courageous.

  5. The A Man ,

    You are so right ,, the case-shiller is inflation indexed ,, if you bought a $100k property and 10 years later it was valued at $130k and there was 30% inflation over those 10 years it would shows a flat return … Look at your grocery bill , your electric bill , your gas bill ,, the price of commodities ,, we have 10%+ inflation that isn’t factored in ,, for case-shiller to show prices down 3.3% and they’re using the phoney official inflation rate their numbers are optimistic by at least 6%…

    We have a huge oversupply of DAMAGED GOODS (houses with bad titles) that are deteriorating rapidly from lack of maintenance , NO JOBS and the fed is PRINTING MONEY like that’s going to help anything…

  6. Who believes these numbers. Who believes anything today. I bet the numbers are at least 2 to 3 times worse.

    A good Banksters is a Jailed Bankster

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