Monday, July 26, 2010

Ignore Today's Housing Bulls: The June data wasn't pretty

If you watched bubblevision or read some bulltard article on the internet today you might have seen a headline similar to this:


May revised down to 267,000"

My Take

OK, let's put this into perspective.  The May number was the worst on record at the previously estimated 300,000 number that we got last month.  As you can see this was revised downward significantly.
The June sales of 330,000 was the worst June in history ever since they started recording this statistic in 1963.  Comparing May to June is essentially meaningless because home sales fluctuate depending on what time of the year it is.  
You must compare month versus the same month from the previous year in order to see an accurate number.
So home sales were not up 24%.  They were up versus May which is a meaningless statistic. 
If you look June's numbers and put them in perspective they look flat out disastrous:
The Bottom Line
If the numbers stay here for several more months you are eventually going to see a panic where everyone runs for the exit selling at whatever price they can (that is if they have the cash to short sell the house).
I will repeat:  Now is not the time to buy a house.  Anyone who is trying to push you into doing so is not looking out for you. 
I hear a lot of Realtors are out there telling buyers that "now is the time to buy" because interest rates are the lowest they have ever been in history.
Folks, this is the worst advice anyone could give you. A credit trader friend of mine made a great point on the whole low rate borrowing scam.
He asked me a question:  "Jeff, if you buy at the lowest rates in history how do you ever have home appreciation?".
I then asked him "What do you mean?".  He replied "Think about it, rates can only move one way going forward over the longer term and that is higher".  He then added "What happens to the home prices when rates are going against you?".
It instantly clicked.  You gotta love the bond boys because they are so good at putting things into perspective.

So basically if you buy now using historically low rates you are GUARANTEED to lose money down the road because rates will be higher when you go to sell it.  
As our issues around are deficit continue to mount higher interest rates are a virtual certainty over the longer term.
Housing is still an investment that one can still make:  The problem is this time it's a guaranteed loser instead of the winner it was from 2002-2006. 
Buyer Beware.
Disclosure:  No new positions taken at the time of publication.


getyourselfconnected said...

Barring a new found on fire eCONomy, if rates rise all new buyers will be insta-underwater. Of course this assumes rates rise, which one way or the other I do not see happening. Still, no reason to step in here unless you have to.

Jeff said...


They will rise.

They may fall more before they rise but 5 years from now they will most assuredly be higher.

The bond market will eventually pull a Greece on the USA.

I can't give you the timing of it but eventually it will happen because we don't have the discipline to stop spending.

Same thing happened in the early 90's to CLinton.

Eventually the guys in Chicago will say enough already.