The NAr released its spin concerning the very poor sales numbers in April. As expected, their words are mostly self-serving bullshit.
Irvine Home Address … 1 GOLDFINCH Irvine, CA 92603
Resale Home Price …… $2,988,500
Stop right there. That's exactly where I lost it.
See that line. Well I never should have crossed it.
Stop right there. Well I never should have said
That it's the very moment that
I wish that I could take back.
I'm sorry for the person I became.
I'm sorry that it took so long for me to change.
I'm ready to be sure I never become that way again
'cause who I am hates who I've been.
Who I am hates who I've been.
Relient K — Who I Am Hates Who I've Been
One of the most life-changing spiritual lessons I have learned (and continue to relearn) is to constantly raise my standards. For example, when I look back on the quality of my daily posts on the IHB, I have consistently raised my standards for accuracy, completeness, and consistency. I work diligently to improve the reader experience by simultaneously educating and entertaining.
I have done many things in my past that I am not proud of. I don't spend much energy beating myself up or feeling self loathing. Instead I raise my standards and change my ways. I am in no position to judge anyone. On this blog, I try to point out the foolishness of people's actions, not to single myself out as being any better (I am not), but to enlighten readers to the errors in thinking bubble era people made so we can all learn from these mistakes and avoid them in our own lives.
The housing bubble was about human frailty not the operations of some unaccountable system. Changing the system is only part of the solution. If people fail to recognize the poor reasoning, faulty assumptions, and incorrect understandings that drove them to their own demise, they will repeat those mistakes and so will others who follow their lead.
The National Association of realtors has gone down the wrong path. They are lost in a mire of their own bullshit, and the only way out is a radical change. I will not be that agent of change as I won't soil myself to join their organization, but at some point, an internal movement may arise where some members say enough is enough and demand the organization stop their dishonorable practices. Who they become may hate who they were.
NAr disrespects its customers
Since Barry Ritholtz post on How to Read National Association of Realtors News Release, I have been contemplating the utter disrespect the NAr demonstrates for its customers through its constant manipulation of data for the sole purpose of convincing buyers to act even if it isn't in the buyers best interest to do so. It angers me that such a corrupt and self-serving philosophy of business is at the core of the NAr because their actions harm so many people.
The NAr doesn't care about its customers. They have no interest in sharing the truth or providing accurate information if such information may cause a buyer not to buy or a seller not to sell. A reasonable deduction from NAr press releases is that they will say anything to generate sales, specifically they want to control buyer psychology.
Spin and bullshit have a purpose. Many people considering buying a home are unsure if the decision is wise, and they look to figures of authority to validate their desires to buy and placate their worries. Unfortunately, realtors are considered experts, so their words carry influence. realtors use this implied authority to their advantage. Therefore, every word that is not data in a NAr press release is designed to positively impact buyer psychology.
Perhaps in an era of steadily rising house prices tethered to incomes, there is little harm in pushing a few wavering buyers into what is often a good purchase. At least that's how realtors comfort themselves. But once realtor induced kool aid intoxication took over, our housing markets became more volatile, and when there is volatility, the market undergoes periods of falling prices when it really isn't a good time to buy.
No part of the realtor business philosophy covers those periods when it isn't a good time to buy. Their spin and bullshit were relatively harmless when fewer people believed it, but in today's volatile housing market, being told when someone shouldn't buy and why is important information — information the NAr is not willing to share even if they were smart enough to figure it out.
Why else would Lawrence Yun have spent the last several years convincing people they should buy homes? He is either incompetent or knowingly complicit in a lie. I assume he is paid well enough to sell his soul.
The specifics of data, spin and bullshit
As a reminder:
Data: Factual statements that present statistics or some measurable phenomenon. Presenting data is ostensibly the reason for a real estate press release. However, the real intention is to spin the data or otherwise manipulate the interpretation.
Spin: The offered interpretation of data that forwards the agenda of the organization issuing the press release. Spin is usually a plausible interpretation that is most often taken out of context, knowingly, by the authors.
Bullshit: An interpretation of data that is either not factual, or the data itself is not factual, or an interpretation that is not plausible based on the data. Bullshit is an obvious lie an organization passes off to a gullible public in hopes that nobody catches on.
With that, let's see what the esteemed National Association of realtors had to say about the dismal market conditions in April.
Washington, DC, May 19, 2011
They can't even write a headline without injecting bullshit into it. Notice the word “ease.” Doesn't it sound positive? We were recently told quantitative easing was a good thing (another lie). The Eagles invite us to “Take it Easy.” Professional athletes talk about “easing” into the flow of competition. But what does it mean for sales to ease?
It means sales went down!
Is is reasonable to assume the NAr chose that word to manipulate buyer psychology? Why didn't they say “April Existing-home sales declined?” That is what in fact happened.
Existing-home sales slipped in April, although the market has managed six gains in the past nine months, according to the National Association of Realtors®.
Slipped? Did the market step on a banana peel? And if the market gained in six of the past nine months that means sales declined in three of the last nine.
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, eased 0.8 percent to a seasonally adjusted annual rate of 5.05 million in April from a downwardly revised 5.09 million in March, and are 12.9 percent below a 5.80 million pace in April 2010; sales surged in April and May of 2010 in response to the home buyer tax credit.
Easing and surging? Lawrence Yun should be writing porn. Perhaps next months sales will be throbbing or pulsing? In all likelihood, sales will be limp as the market remains flaccid.
What are the key facts above?
- Existing home sales went down between March and April. That is very unusual and should be a cause for alarm.
- March figures were revised downward because they have set up their reporting to exaggerate current months sales and quietly revise them lower later — another example of their duplicity.
- The homebuyer tax credit pulled demand forward, and both sales and prices have been hurting ever since.
Lawrence Yun, NAR chief economist, said the market is underperforming. “Given the great affordability conditions, job creation and pent-up demand, home sales should be stronger,” he said. “Although existing-home sales are expected to trend up unevenly through next year, unnecessarily tight credit is continuing to restrain the market, along with a steady level of low appraisals that result in contract cancellations.”
The market is underperforming, but the reasons Yun gave are a combination of spin and bullshit. In most markets (not ours) affordability is good, but unemployment is still a huge problem, and pent up demand is nonsense the NAr comes up with when they have nothing else. Desire is not demand.
What does it mean for a market to “trend up unevenly?” Most housing analysts expect the housing market to decline rather uniformly. Nobody outside of the NAr believes we will see any kind of uptrend even or otherwise. This is obviously spin bordering on bullshit.
I recently asked Are home sales slumping because lenders refuse to lend? Apparently, the tight credit meme is circulating in realtor circles. This is likely a precursor to a lobbying push in Washington to get the FHA and the GSEs to take on more risk by lowering their standards — something which would be disastrous for taxpayers but great for NAr commissions in the short term.
A parallel NAR practitioner survey shows 11 percent of realtors® report a contract was cancelled in April from an appraisal coming in below the price negotiated between a buyer and seller, 10 percent had a contract delayed, and 14 percent said a contract was renegotiated to a lower sales price as a result of a low appraisal.
I have run into this problem myself. I recently had a deal in Las Vegas where I obtained a full asking price offer from an FHA buyer for $95,900. Since it is a flip, it required two appraisals. The first came in at $96,000, but the second came in at $91,000. The buyer barely had the down payment, so I had to chose between killing the deal to wiping out two-thirds of the profit. In a declining market, I took the deal and decided to move on.
More conservative appraisals are better for the overall health of the housing market. I don't particularly like paying the price, but conservative appraisals are part of the solution. Every bubble era loan had some appraiser agree with an inflated value. Prices in Las Vegas went up 40% in 2004 alone. That didn't happen because appraisers were doing the right thing.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.84 percent in April, unchanged from March; the rate was 5.10 percent in April 2010.
“Although sales are clearly up from the cyclical lows of last summer, home sales are being held back 15 to 20 percent due to the very restrictive loan underwriting standards,” Yun said.
Sales are not up. Earlier in the press release the data said April 2010 had 5.8M sales and April 2011 had 5.05M. Further, summer is not a time when we have cyclical lows. That is pure bullshit that doesn't even pretend to mirror any kind of reality. He finishes with repetition of his earlier spin about restrictive loan standards.
All-cash transactions stood at 31 percent in April, down from a record level of 35 percent in March; they were 26 percent in March 2010; investors account for the bulk of cash purchases.
NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said the lending community needs to return to sensible standards. “We want to ensure that qualified buyers will be able to own their property on a sustained basis from a sound credit evaluation, but banks needn’t be so stingy as to only lend to those with the highest credit scores,” he said.
What does a realtor know about underwriting? Isn't restricting credit to those who will pay it back a reasonable reaction to loaning money to so many people who didn't? What he is advocating is a return to subprime lending. It's a low-risk position for him since it isn't his money being loaned to a subprime deadbeat.
“Very high shares of cash purchases, and high credit score requirements, have led to historically low default rates among home buyers over the past two years. This trend implies a gulf is opening between those who can and cannot have access to the American dream of home ownership,” Phipps said. “At the same time, existing guidelines from Freddie Mac and Fannie Mae must be fully implemented so all appraisals are done by valuators with local expertise.”
Default rates over the last two years have not been historically low. By pre-bubble standards, default and delinquency rates are still elevated mostly due to declining prices and ongoing unemployment problems. His reference to implementing existing guidelines is a subtle push for higher appraisals.
Notice the emotional appeal to the American Dream. What he advocates didn't work out well last time.
The national median existing-home price for all housing types was $163,700 in April, which is 5.0 percent below April 2010. Distressed homes – typically sold at a discount of about 20 percent – accounted for 37 percent of sales in April, down from 40 percent in March; they were 33 percent in April 2010.
“Home values, despite month-to-month volatility, have been remarkably stable in the range of $160,000 to $170,000 for the past three years,” Yun said. “Stable home prices in turn will steadily lower loan default rates, including strategic defaults.”
There has been very little month-to-month volatility. Prices rebounded steadily from March 2009 to May 2010 when the government subsidies ran out, and they have been falling steadily ever since.
There is no reason to believe stable home prices will steadily lower default rates. Stable prices probably will prevent additional strategic defaults, but only good jobs and reasonable payments will steadily lower default rates.
Total housing inventory at the end of April increased 9.9 percent to 3.87 million existing homes available for sale, which represents a 9.2-month supply at the current sales pace, up from an 8.3-month supply in March.
I am surprised they didn't inject some spin to take the sting out of that ugly statistic. How is the housing market supposed to recover with a 9.2 month supply of homes on the market?
First-time buyers purchased 36 percent of homes in April, up from 33 percent in March; they were 49 percent in April 2010 when the tax credit was in place. Investors slipped to 20 percent in April from 22 percent of purchase activity in March; they were 15 percent in April 2010. The balance of sales was to repeat buyers, which were 44 percent in April.
As i reported last week in Shadow inventory can not be absorbed by first-time buyers, the homebuyer's tax credit of $8,000 merely pulled forward demand from 2011 into 2010.
Phipps added that proposals and regulations are being considered in Washington that could further constrain the housing market. “One of the most damaging proposals would effectively raise downpayment requirements to 20 percent, which would slam the brakes on the housing market,” he said. “What we need to do is simply return to the sound standards that were in place before the introduction of risky mortgage products.”
Twenty percent down payments would not damage the housing market. Calling the proposal damaging is spin, and claiming it would put the brakes on the housing market is bullshit. If implemented, a 20% down requirement will lower prices and make markets much more stable. Those are good things.
I found it amusing that he concluded with stating that we should return to pre-bubble lending practices. Well, that is 20% down and 30-year fixed-rate mortgages, something he claimed was bad one sentence earlier.
“Our data shows only one out of five first-time buyers needing a mortgage could afford a 20 percent downpayment, and without first-time buyers the trade-up market would stall with very negative consequences for housing and the overall economy,” Phipps said.
It wouldn't surprise me that very few first-time buyers have 20% to put down. When 100% financing became available during the bubble, people stopped saving money for down payments because it was unnecessary. Couple that with a severe recession from the collapse of the housing bubble, and very few buyers have the savings necessary to complete such a large purchase.
“Ironically, low downpayment FHA and VA loans, which are so critical to this segment, have performed well and never needed a taxpayer bailout because those borrowers stayed well within their budgets.” NAr consumer survey data shows 56 percent of entry level buyers in the past year financed with an FHA loan.
The reason FHA and VA loans from the bubble era performed better is because there were so few of them. With subprime lenders giving out copious amounts of free money with little or no documentation, FHA market share dropped from its historic 8% to 10% average to about 2% of the market. Fortunately, FHA and VA did not lower their underwriting standards to compete during the bubble. Unfortunately, they have become the replacement for subprime in the deflation of the bubble, and the losses from strategic default are starting to add up.
We may yet have to bail out the FHA. Insurance premiums have more than doubled on FHA loans in the last 18 months, and it still may be too little too late to prevent a bailout.
Single-family home sales slipped 0.5 percent to a seasonally adjusted annual rate of 4.42 million in April from 4.44 million in March, and are 12.6 percent below the 5.06 million pace in April 2010. The median existing single-family home price was $163,200 in April, which is 5.4 percent below a year ago.
The spin highlighted in the previous sentence is a fact, but its placement near the end of the press release was done to purposefully lessen its impact. Let me help them, SALES AND PRICES ARE DOWN!!!
Existing condominium and co-op sales fell 3.1 percent to a seasonally adjusted annual rate of 630,000 in April from 650,000 in March, and are 15.0 percent below the 741,000-unit level one year ago. The median existing condo price5 was $167,300 in April, down 2.3 percent from April 2010.
Regionally, existing-home sales in the Northeast fell 7.5 percent to an annual pace of 740,000 in April and are 32.1 percent below a year-ago surge. The median price in the Northeast was $225,400, which is 7.3 percent below April 2010.
Existing-home sales in the Midwest rose 5.7 percent in April to a level of 1.12 million but are 16.4 percent below a cyclical peak in April 2010. The median price in the Midwest was $133,200, down 5.1 percent from a year ago.
In the South, existing-home sales declined 1.0 percent to an annual pace of 1.95 million in April and are 9.3 percent below a year ago. The median price in the South was $142,800, which is 4.1 percent lower than April 2010.
Existing-home sales in the West slipped 1.6 percent to an annual level of 1.24 million in April and are 0.8 percent below April 2010. The median price in the West was $203,400, down 6.1 percent from a year ago.
The National Association of realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
Is the NAr the voice for real estate? I think we can do better. Real estate agents can do better. Barry Ritholtz put it this way last September:
And, buyers have figured out that the NAR news releases are unmitigated fantasy. They have learned that any organization that has to go to such lengths to spin bad news must know that the news is much much worse. The result has been a Real Estate buyers strike.
Here it is, three years after that lame defense of NAR spin, and we can see the damage that spin has wrought. It is readily apparent that the NAR has become counter-productive to the agents they are supposed to be serving.
No, the NAR is not supporting you. They are making your jobs much, much harder. They are spinning the public, and doing you an enormous disservice.
Try RealityTM! Its what is working these days.
Reality and truth are casualties of a philosophy that believes manipulation by a trusted adviser is acceptable behavior.
How many realtors made representations to clients during the bubble that induced trusting sheeple to buy homes they couldn't afford?
Do realtors feel guilt over their actions? Actions that caused pain and suffering to those who believed it? Aren't realtors responsible for their representations?
I haven't read any remorseful confessions from realtors, and I don't think that's asking too much. Some lenders feel bad about what happened, but realtors don't feel responsible. They should.
Do the rules apply to the high end?
Shevy and I have been telling people not to buy a house unless you plan to hold for at least 3-5 years and perhaps longer because it will take that long for prices to bottom and them appreciate enough to cover the transaction costs.
Apparently, the high end does not need to worry about that. Prices of the best homes just continue to go up 10%+ per year so no matter when people buy, they can always escape with a profit, right? I don't think so.
The owners of today's featured property bought a year ago, and despite continually dropping sales and asking prices, they believe their house has appreciated nearly 10% last year.
Realistically, they are playing the breakeven negotiating gambit where they price it high enough to pay the commissions and lower their price to get out for what they paid. I don't think it is going to work. Do you?
Irvine House Address … 1 GOLDFINCH Irvine, CA 92603
Resale House Price …… $2,988,500
House Purchase Price … $2,600,000
House Purchase Date …. 4/8/2010
Net Gain (Loss) ………. $209,190
Percent Change ………. 8.0%
Annual Appreciation … 12.0%
Cost of House Ownership
$2,988,500 ………. Asking Price
$597,700 ………. 20% Down Conventional
4.56% …………… Mortgage Interest Rate
$2,390,800 ………. 30-Year Mortgage
$522,823 ………. Income Requirement
$12,199 ………. Monthly Mortgage Payment
$2590 ………. Property Tax (@1.04%)
$600 ………. Special Taxes and Levies (Mello Roos)
$623 ………. Homeowners Insurance (@ 0.25%)
$0 ………. Private Mortgage Insurance
$610 ………. Homeowners Association Fees
$16,622 ………. Monthly Cash Outlays
-$1789 ………. Tax Savings (% of Interest and Property Tax)
-$3114 ………. Equity Hidden in Payment (Amortization)
$1016 ………. Lost Income to Down Payment (net of taxes)
$394 ………. Maintenance and Replacement Reserves
$13,128 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$29,885 ………. Furnishing and Move In @1%
$29,885 ………. Closing Costs @1%
$23,908 ………… Interest Points @1% of Loan
$597,700 ………. Down Payment
$681,378 ………. Total Cash Costs
$201,200 ………… Emergency Cash Reserves
$882,578 ………. Total Savings Needed
Property Details for 1 GOLDFINCH Irvine, CA 92603
Sq. Ft.: 4510
Property Type: Residential, Single Family
Style: One Level, Tuscan
View: Canyon, Hills, Mountain, Panoramic, Yes
Year Built: 2003
Community: Turtle Rock
Simply gorgeous single story estate with private guest quarters located in the prestigious guard gated community of Shady Canyon Villas. Quality upgrades include granite chef style kitchen with breakfast island, stainless steel appliances, formal dining room, 500 bottle wine closet, rich hardwood and travertine floors, custom paint, coffered ceilings, venetian plaster entry, custom lighting system plus so much more. Professionally landscaped courtyards with romantic fireplaces, outdoor cabana, and endless views to enjoy!