In examining the NAR's existing home sales report from Friday, March 23, the real big news, in my opinion (and how the headlines should read), is the 7.6% slide in median home prices since July 2006, when the median price was $230,000. That's $18,000 in "equity" that has gone up in smoke. (Just assuming, for simplicity, that the "mix" of homes sold in the data is little changed - we're talking about a set of large numbers, so this tends to be so).

If you bought then, with no money down, and assuming closing costs of $3,000, you could be $21,000 in the hole right now. If you factor in real estate placement fees of 6% (another $12,700), you are looking at a median loss of $33,720 on the sale of your "median" home right now! OUCH! That's a tragedy on a massive scale. For the 605,000 who bought then, that translates to an approximate loss of $12 billion in "equity" (without consideration for real estate fees). For all who bought in 2006, the number could be as high as $75 billion... OUCH (again)!

Courtesy of the Wall Street Journal (After a Few Rants)...

I plan on keeping this blog weekly, but people have to see this article... It's important that we have full knowledge of the actual data on housing, especially given the provider (NAR - National Association of REALTORS) ) ... and especially when seasonal adjustments and other manipulations come into effect, such as the NAR's phantom downward revisions of year-ago data (curious, because usually these revisions occur within one or two months... seems convenient that, when they wanted to keep the train rolling, prices were "higher" and now, at damage control time, "oops, they weren't really that high after all!").

I'm not anti-home ownership... I think it's a great thing when you can get even a moderately reasonable price. However, prices aren't reasonable at the present (by any sane measure), and as such, I'm against making a first-time home purchase in the Northeast and the West at this time. (I will provide a post on the detailed calculations behind it in the future, but suffice it to say that, given the differences between prices and rents, if they persist, then renters are better off renting for the rest of their lives). As I've said on this blog before, NO INVESTMENT IS GOOD WITHOUT FIRST CONSIDERING THE PRICE. That's just common sense. There are plenty of great assets out there, but paying too much can turn a great asset into an atrocious investment (see: stock market bubble).

What I am against is the NAR... One should always be somewhat suspicious of any information received from a group whose motives are driven not by public service, but by PROFIT OFF OF YOU! No, they don't lie, but they do want to paint as rosy a picture as possible (it all depends on what data you throw out, and what you keep - learned that in Investment Banking, where EVERY client we visited was undervalued compared to their comps - how do you think we did that?). A REALTOR has a vested interest in keeping the overpriced party going. They would much rather get 6% of $300,000 than 6% of $150,000 (Remember that's YOUR MONEY they are taking, and, in a $300,000 house, that's an extra $18,000 in appreciation and pay-down of debt principal, on top of your closing costs, that you have to make up to break even).

As a primer, the true rate of home sales was 4.6 million annually in February... The extra two million is a seasonal adjustment that is determined by a statistician... a very subjective number... we'll learn more in the coming months, when the "seasonal" factors go away.

And now, the article as promised...

Home-Sales Surge May Not Reflect Subprime Woes

By MICHAEL CORKERY
March 24, 2007

Sales of previously occupied homes rose unexpectedly last month, but economists said the increase was partly driven by unseasonably warm weather and didn't fully reflect the current turmoil in the subprime mortgage market.

The recent surge in defaults on subprime mortgages, those for people with weaker credit records, has forced lenders to tighten their standards. That is expected to eliminate many potential home buyers, damping sales in the months ahead.

The National Association of Realtors said sales of existing homes increased 3.9% in February from a month earlier to a seasonally adjusted annual rate of 6.69 million units. That sales rate was 3.6% below the year-earlier level.

The latest data reflect completions of home sales in February that resulted from purchase agreements that were mostly signed in December and early January, when unusually warm weather in the Northeast may have enticed more people to shop for homes. The Northeast led the nation with a 14.2% surge in sales in February from a month earlier, while sales increased 1.6% in the South and 3.9% in the Midwest. They were unchanged in the West. Economists also cautioned the unusually warm weather may have confounded seasonal adjustments meant to compensate for lower activity in winter.

"This was purely a fluke number," said Joshua Shapiro, chief U.S. economist at consultancy MFR Inc. "You can bet dollars to doughnuts that next month this number is going to come right back down."

The national median home price dropped to $212,800, a 1.3% decline from a year earlier. Without a downward revision in the year-earlier median, the decline would have been 2.1%, said Thomas Lawler, a housing economist in Vienna, Va. Mr. Lawler said it was the second month in a row that the NAR has revised the year-earlier median price downward. NAR chief economist David Lereah said such revisions are automated and "happen all the time."

Some analysts say price cuts and low interest rates are bringing buyers back into the market, which helped boost sales in February and in the previous month. But the outlook for the housing recovery is clouded by the meltdown in the subprime mortgage market that is beginning to stymie many borrowers with poor credit from obtaining financing.

Mr. Lereah predicted Friday that credit tightening will reduce home sales by 100,000 to 250,000 annually over the next two years. Most economists say this winnowing of home buyers is only now emerging and could drive down home sales in the coming months.

"Our view had been that sales were going to turn around in middle of '07," said Patrick Newport, economist at consultancy Global Insight. "But I don't think that is going to happen because a segment of the home-buying market is not going to be able to borrow money."

The inventory of homes for sale rose 5.9% to 3.75 million at the end of February, which represents a 6.7-month supply at the current sales pace. That's down from a 7.4-month supply in October.

Economists say the number of homes on the market typically increases in February as the peak spring selling season kicks off. In some markets, rising foreclosures threaten to worsen the glut of homes offered for sale. Credit Suisse analyst Ivy Zelman estimates that foreclosures could add as much as 20% to the current inventory of existing homes.