More Tales From the Housing Bust

Hindenburg Digest: More Tales From the Housing Bust

by Mike Whitney / April 27th, 2009

Why is the media misleading the public about housing?

The housing market is crashing. There are no “green shoots” or “glimmers of hope”; the market is worn to a stump, it’s kaput. Still, whenever new housing figures are released, they’re crunched and tweaked and spin-dried until they tell a totally different story: a hopeful story about an elusive “light in the tunnel.” But there is no light in the tunnel; it’s a myth. The truth is, there’s no sign of a turnaround or a “bottom” in housing at all. Not yet, at least. The real estate market is freefalling and it looks like it’s got a long way to go. So why is the media still peddling the same “rose-colored” claptrap that put the country in this pickle to begin with? Here’s an example of media spin, which appeared in Bloomberg News on Wednesday:

“US home prices rose 0.7 percent in February from the month before, the Federal Housing Finance Agency said in Washington today, a sign that low interest rates may be moderating declines in real estate values. . . . Housing market data indicates prices are starting to “stabilize,” and households’ available cash should improve through each quarter of 2009 and into 2010.” (Bloomberg)

This report is complete gibberish. The only way to get a fix on what’s really happening with housing is to compare prices year over year (yoy) not month to month. Clearly, the journalist decided to spin the story from this angle because it offered the one flimsy sign of hope in a sector that’s been reduced to rubble. But, don’t be fooled, housing isn’t staging a comeback. Not by a long shot.

This is from Marketwatch:

“The Case-Shiller index of 20 major cities fell 2.8% in January, the fastest decline on record. The Case-Shiller index rose more than the Federal Housing Finance Agency (FHFA) index did during the bubble, and it’s fallen faster since the bubble burst . . . The index was down 19% year-over-year in January.”

So, the only reason that housing prices rebounded (slightly) in February was because, one month earlier, they were “declining at the fastest pace on record.” That’s not a sign of “green shoots” like the Pollyannas say. It’s a sign of a ferocious ongoing contraction. The only thing that’s keeping housing from collapsing completely is the Fed’s purchases of Fannie and Freddie mortgage-backed securities (MBS). Bernanke’s action has pushed interest rates to record lows giving homeowners a chance to refinance rather than default on their loans. Struggling homeowners have been granted a one-time reprieve courtesy of the US taxpayer. That’s great, but the fact that the Fed is subsidizing the industry to the tune of $1.25 trillion is hardly cause for celebration. What Bernanke should have done is prevented the credit bubble from inflating in the first place.

...New Home Sales Update: On Friday, stocks skyrocketed on news that “new home sales did not fall as far as expected.” Once again, the story was presented in a way that suggested the housing market is “stabilizing”. But a closer examination of Friday’s data reveals how the media has manipulated the facts to create the impression that things are getting better. But they are not getting better; they’re getting worse. Here is a summary of Friday’s “good news”: 

1) The median price of a new home fell $201,400 year over year (YOY)

2) Sales of new homes were down 31 percent from March 2008. They reached a record 1.389 million in July 2005.

3) Distressed properties accounted for about 50 percent of all sales.

4) Inventory (new homes) is still bulging at 10.7 months

5) Foreclosures are at record highs