Pete Kendall's Socio Times: A Socionomic Commentary

April 24, 2007
Existing Home Sales Plunge in March
Sales of Existing Homes Fall by Largest Amount in Nearly 2 Decades
Sales of existing homes plunged in March by the largest amount in nearly two decades. The National Association of Realtors reported that sales of existing homes fell by 8.4 percent in March, compared to February. It was the biggest one-month decline since a 12.6 percent plunge in January 1989, another period of recession conditions in housing.

The drop left sales in March at a seasonally adjusted annual rate of 6.12 million units, the slowest pace since June 2003.

The steep sales decline was accompanied by an eighth straight fall in median home prices, the longest such period of falling prices on record. The median price fell to $217,000, a drop of 0.3 percent from the price a year ago.

The fall in sales in March was bigger than had been expected and it dashed hopes that housing was beginning to mount a recovery after last year's big slump. That slowdown occurred after five years in which sales of both existing and new homes had set records.

Lenders have tightened standards with the rising delinquencies in mortgages especially in the subprime market, where borrowers with weak credit histories obtained their loans.

There was weakness in every part of the country in March. Sales fell by 10.9 percent in the Midwest. They were down 9.1 percent in the West, 8.2 percent in the Northeast and 6.2 percent in the South.

The steep slump in housing over the past year has been a major factor slowing the overall economy. It has subtracted around 1 percentage point from growth since mid-2006.
Associated Press

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What Plunge? The Real Estate Saga Is Only Just Beginning
Category: NEWS
By: Pete Kendall, April 24, 2007
Since the subprime industry’s unfolding debacle is leading the bursting debt bubble, there is much to learn from it. First and foremost is how important it is to ignore those who continue to suggest that the trouble is over or contained.
The Elliott Wave Financial Forecast, March 2007

forclusre signThe slow by steady deterioration of the housing market recalls that quote about the crash of 1929 from historian John Brooks, which was offered in the April issue of The Elliott Wave Financial Forecast. The one about how easy it was for participants to think that they had survived the debacle when it was still only just beginning. This same glaring sense of relief is apparent in the home and mortgage markets where Merrill Lynch revealed recently that its First Franklin mortgage unit made record numbers of subprime home loans in January and February, even as foreclosure rates building toward a massive 47 percent rise in March. 

But as the article at left attests, housing is anything but healing. Notes another account of the sales plunge: “The fall in sales in March dashed hopes that housing was beginning to mount a recovery after last year’s big slump.” The inevitable price decline forecast Conquer the Crash is also starting to come into focus (for Socio Times' previews of housing's current distractions see the entry of December 7). Even the National Association of Realtors, which has steadfastly underplayed the extent of the housing problem, is now saying it expects home prices to fall this year. It’s projected .7% decline will be the first annual drop since it starting keeping track in the 1960s.

Seems like only yesterday that the housing crisis was a regional phenomenon that was not effecting the strongest markets in California and New York.  According to the latest data, however, 6 of the 10 highest foreclosure rates were in California. In New York, Long Island and Queens median sales price fell 5.3 percent to $900,000 from year earlier and houses took 25 percent longer to sell.  In places like Las Vegas and Colorado where the housing crunch is well established the foreclosure rates are screaming higher. Last December, The Rocky Mountain News noted that experts in other parts of the country “look to Denver to see what’s in store for them.” One of the first things they might want to note is that no matter how bad things get, Denver housing analysts continue to be surprised by the pace of rising foreclosures. With 19,425 foreclosures filed in the Denver area last year, Denver’s exceeded its record year of 1988. Nevertheless, a typical analyst projection is for 20,000 foreclosures in 2007. When the first three months of 2007, brought a “surprising” jump of 30 percent, analysts upped their estimates to “the 25,000 range if they don't level off.” No leveling off is likely, certainly not while analysts continue to expect an imminent leveling.

Parts of Denver where the filings are concentrated are known as the “foreclosure belts.”
These “belts” are starting to appear in other states like Ohio and Florida; so the geographic spread is happening fast. It’s also encrouching on other areas of the economy. One key piece of evidence is an April 23 Reuters story in which GM’s vice chairman Bob Lutz observed the slump's arrival in the automobile sector:
Mortgage 'Meltdown' Hits Auto Sales
The crisis in the U.S. mortgage market has hurt U.S. auto sales this month, General Motors Corp. Vice Chairman Bob Lutz said Monday.

Lutz told Reuters. "A lot of people are finding themselves in a position of reduced affordability and that has had an impact, not just on us, but across the industry."

And don't look now, but the effects of the bust breaking through the U.S. border:
Latin America Feels Pain
Of U.S. Housing Slump
OAXACA, Mexico -- The slowing U.S. housing market already has taken a bite out of the U.S. economy. Now, the fallout is spreading to Latin America.

That's because home construction is the principal gateway industry for immigrants entering the U.S. labor market. Those immigrants contribute the lion's share of the estimated $50 billion in cash sent annually from the U.S. to family members and others in countries south of the border. That tide of cash appears to be ebbing.

Monthly remittances from the U.S. to Mexico have dropped every month since their peak of $2.6 billion in May 2006 -- shortly before new-home construction in the U.S. plunged. In February 2007, the latest month for which data are available, remittances to Mexico had slowed to $1.7 billion.

And here’s the latest from Spain:
Spanish Property, Bank Stocks Plunge on Concern Bubble Bursting
Spanish real-estate and bank stocks tumbled on concern the nation's property boom is imploding.
“This is the burst of the Spanish real-estate bubble,” said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion.

Home prices in the country climbed at an average annual rate of 15 percent between 1999 and 2005. In the 12 months through March, the increase was 7.2 percent, the smallest since 1998.

It’s been almost two years and two months since The Elliott Wave Financial Forecast observed the peak of the Sub-Prime Lender Index (for the updated chart see the March issue) in a Special Section called, “THE REAL ESTATE BUST  BEGINS.” Remarkably, it is still just getting underway. But what a beginning! It fits with the idea that the decline that is now forming is a whopper of a c-wave. C waves are the equivalent of third wave declines. Third waves, notes Frost and Prechter’s Elliott Wave Principle, are “wonders to behold." The opening act suggests that this real estate smash fits that bill.

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It is hard to see through the smoke screen of "we survived the RE crash." Socionomics gives compelling evidence to the contrary. Keep up the good work.
Posted by: James Johnson
April 24, 2007 03:31 PM

Real estate crashes take a long time, so the very small decline in prices so far is understandable.
Posted by: Marc McGovern
April 24, 2007 03:31 PM

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