Imaginary Numbers
Mike "Mish" Shedlock
Friday, March 24, 2006
Some people are not aware of
it but, there are actually two kinds of imaginary numbers.
For a mathematical answer to the question "What is an imaginary
number?" all one has to do is Ask
Dr. Math.
The other kind of imaginary number comes from CEOs, the US government,
and places like the National Association of Realtors (NAR). Today's
lesson is about the NAR.
The National Assn. of Realtors reported Thursday that sales of
existing single-family homes rose 5.2% last month to a seasonally
adjusted annual rate of 6.91 million units. The biggest increase
in two years took economists by surprise. They had expected a
drop of about 1% after five months of declines.
Here are a couple of charts:
Notice the steady rise in inventory.
Notice also that although sales were "reportedly" up
vs. last month, they were still down as compared to the same
month last year.
The telepathic question lines are now open. I am flooded with
two questions.
1) OK Mish so what?
2) Why do you call those numbers imaginary?
Those are both good questions.
Here is one explanation as
to why they are imaginary: The NAR existing home sales numbers
are "survey numbers". The NAR should easily be able
to provide exact numbers by adding up the numbers from all the
local real estate boards. Can this be difficult with today's
computers? Instead they do a quick survey of questionable accuracy.
Let's take our own sample.
California
Sales fell for 5th consecutive month and were 1.7% below February
2005. Inventory is up from a year ago by 40.5%. Nominal year
over year prices fell for 2nd month in a row.
The Orange County Register says: Selling
a home? You're not alone.
Let's face it. There's only
reason to look at the Realtors' monthly existing-home-sale report:
the dirt on inventories. So here's February's "Unsold Inventory
Index" for single-family detached homes being sold by owners:
* The O.C.: 10.4 months worth of homes to sell vs. 5.7 months
for the same period a year ago.
* California: 6.7 months vs. 3.2 months a year ago.
* U.S.: 5.3 months vs. 4 months a year ago.
Inman News is reporting California
home sales plunge 15.5%.
Unsold inventory levels climb
to highest in several years, trade group says.
Existing-home sales dropped
significantly in California in February, falling 15.5 percent
from the same period a year ago, as inventory levels climbed
and median prices continued to escalate, an industry trade group
reported today.
Closed escrow sales of existing,
single-family detached homes in California totaled 513,745 in
February at a seasonally adjusted annualized rate, down from
608,160 a year ago, according to the California Association of
Realtors. Median prices increased 13.7 percent to $535,470 from
$470,920 a year ago.
Meanwhile, the February 2006
median price of an existing home in the state decreased 2.9 percent
compared with January's $551,300 median price.
Florida
The Florida
Association of Realtors is reporting a 20% decrease in sales.
ORLANDO, Fla., March 23, 2006
Statewide, sales of single-family existing homes totaled 13,539
in February compared to 16,916 homes a year ago, for a 20 percent
decrease, according to the Florida Association of Realtors®
(FAR).
Virginia
Seven out of eight 7 out of
8 areas comprising the Northern
Virginia Association of Realtors had fewer sales. All eight
reported higher inventory levels.
Another telepathic question
just came in:
Mish, do you have any evidence
at the national level?
Yes, actually I do. Here goes:
MBA Applications
The Mortgage Bankers Association (MBA) reports Mortgage
Application Volume Down Slightly In Latest Survey.
WASHINGTON, D.C. (March 22,
2006) - The Mortgage Bankers Association (MBA) today released
its Weekly Mortgage Applications Survey for the week ending March
17. The Market Composite Index - a measure of mortgage loan application
volume was 565.0 a decrease of 1.6 percent on a seasonally
adjusted basis from 574.4 one week earlier. On an unadjusted
basis, the Index decreased 1.6 percent compared with the previous
week but was down 13.8 percent compared with the same week one
year earlier.
The seasonally-adjusted Purchase Index decreased by 2.3 percent
to 393.6 from 403.0 the previous week whereas the Refinance Index
decreased by 0.6 percent to 1574.5 from 1583.6 one week earlier.
Other seasonally adjusted index activity includes the Conventional
Index, which decreased 1.4 percent to 833.4 from 845.2 the previous
week, and the Government Index, which decreased 4.4 percent to
117.4 from 122.8 the previous week.
The four week moving average for the seasonally-adjusted Market
Index is down 0.2 percent to 574.0 from 575.3. The four week
moving average is down 0.4 percent to 401.5 from 401.9 for the
Purchase Index while this average is down 0.2 percent to 1588.8
from 1593.4 for the Refinance Index.
The refinance share of mortgage activity increased to 38.1 percent
of total applications from 37.7 percent the previous week. The
adjustable-rate mortgage (ARM) share of activity decreased to
28.3 percent of total applications from 28.8 percent the previous
week.
Hmmm. Let's see... The
Purchase Index four week moving average is down to 401.5. It
was 470 in October, 448 in December, and 447 in January. Does
that sound like nationally increasing sales? Whatever is going
on with the February numbers, be it real or imaginary, the overall
trend should be clear to all but the most obstinate of real estate
bulls: Sales Lower, Inventories Higher.
Missouri
Let's look at one more item
hot off the press today:
The Kansas City Star is reporting
First
default, then despair.
Rising interest rates and a
cooling real estate market conspire to undermine the financial
well-being of homeowners and feed an increase in foreclosures.
More first-time and lower-income
homebuyers are losing the American dream to foreclosures on the
courthouse steps.
Real estate experts in Kansas
City and nationwide say they are seeing a trend in which homeowners
- often using adjustable-rate mortgages - have been unable to
keep up with fast-rising interest rates, forcing them to balance
higher monthly payments against already soaring energy costs
and living expenses.
Making matters worse, experts
say a cooling real estate market makes it less likely that financially
strapped consumers can count on rising home values and equity
to bail them out.
"Many people are living
on the razor's edge," said Kansas City mortgage attorney
Berry S. Laws III. "When their interest rates go up, they
automatically have to pay more for the mortgage. People are betting
their homes will appreciate, but if the value of their homes
flattens out, they face a deficit."
The warning signs are everywhere:
- The Mortgage Bankers Association
reports that the number of home-loan delinquencies nationwide
in the last quarter of 2005 grew to a 212-year high.
- The association also noted
a growing inventory of foreclosed homes, suggesting that banks
are getting stuck with repossessed homes they can't resell.
- Foreclosure.com recently reported
that the total number of foreclosures listed for sale in December
rose 12.7 percent, reversing a recent trend of declining foreclosures.
The online foreclosure-tracking firm estimated that about 92,000
foreclosed homes were on the U.S. market.
Last year, foreclosures rose
25 percent, according to RealtyTrac of California.
Nationally, bank regulators
worry that mortgage delinquencies and resulting foreclosures
will continue to increase this year.
"Rising mortgage delinquencies
in 2005 apparently mark the end of a period of generally improving
mortgage loan performance between 2002 and 2005," said Richard
A. Brown, chief economist for the Federal Deposit Insurance Corp.,
which insures banks.
According to FDIC statistics, the average 30-day past-due rate
for subprime mortgages - those made to borrowers with limited
or less than perfect credit - rose from 5.4 percent at the beginning
of 2005 to 7.1 percent at year's end, reversing an eight-year
decline.
Missouri and Kansas borrowers
may be faring worse.
Missouri's average 30-day past-due
rate rose last year from 7 percent to 9.2 percent, the FDIC said.
Kansas' rose from 5.7 percent to 7.6 percent.
Myra Batchelder, who heads
the economic opportunity program at Demos, a New York think-tank
on consumer issues, sees an ominous future for many Americans.
"The recent jump in foreclosures is a sign of a much larger
problem: The American household economy is at a breaking point,"
Batchelder said.
Bankruptcy obstacles
Some experts are predicting
that the bankruptcy reform law that was adopted last year threatens
to fuel an additional round of foreclosures.
The idea behind the law was
to make it harder for consumers to shed debts. One big change
requires credit counseling 180 days before filing for bankruptcy.
In the past, consumers who
couldn't pay their debts could go to a bankruptcy lawyer and
immediately stop a foreclosure and at least keep a portion of
their home's value.
Not anymore, said Laws, the
Kansas City mortgage attorney.
If homeowners can't make house
payments during the 180-day period before being approved to file
for bankruptcy, Laws predicted, "they won't be able to save
their house. It's a mess."
Real Numbers
- Mortgage indebtedness grew
by $2 trillion in 2004 and 2005 alone.
- Subprime lending grew 25 percent
annually from 1994 to 2003, accounting for one of 10 home loans.
- Qualifying debt-to-income
ratios for subprime loans have risen from 28 percent to more
than 55 percent.
- U.S. average 30-day past due
rates for subprime loans rose from 5.4 percent to 7.1 percent
in 2005.
- Average 30-day past due rates
for subprime loans in Missouri rose from 7 percent to 9.2 percent
in 2005.
- Average 30-day past due rates
for subprime loans in Kansas rose from 5.7 percent to 7.6 percent
in 2005.
The Sad Truth
"The recent jump in foreclosures
is a sign of a much larger problem: The American household economy
is at a breaking point."
Mike Shedlock "Mish"
email: Mish
http://globaleconomicanalysis.blogspot.com/
321gold Inc
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