Existing home sales rose 7.2% to a 5.24 million annual rate in July, the most since August 2007 and the fourth straight month the figure increased, the National Association of Realtors (NAR) said Friday. Year-over-year sales grew 5%, the increase since September 2007, just before the markets came crashing down the following month.

“The housing market has decisively turned for the better,” said NAR chief economist Lawrence Yun. “A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales.”

Rising sales numbers in the past few months may have triggered previously discouraged sellers to re-list their homes, according to Yun.

Total housing inventory at the end of July grew 7.3% to 4.09 million existing homes available for sale, representing a 9.4-month supply at the current sales pace. However, the raw inventory totals are 10.6% lower than they were last year.

Sellers are responding to rising inventories accordingly: The national median existing home price was $178,400 in July, 15.1% lower than a year ago. But the fact that buyers are dipping their toes back into the murky depths of the housing market doesn’t necessarily mean the sector is trending toward a full-blown recovery.

Turn of the Year Makes for Uncertain Future

One in three homes sales last month came from first-time buyers who benefited from the Obama administration’s $8,000 tax credit, which ends after November. First-timers accounted for almost the same amount in June with 29%. That means there could be a significant drop in purchases when that program expires.

The real estate industry is lobbying Congress to extend the first-time buyer tax credit, and Nevada Democratic Senate Majority Leader Harry Reid told reporters earlier this month an extension is “something we can get done.”

With or without a tax break, consumers in this economy are looking for a bargain much like they are with retail sales and auto sales. The bulk of the first-time tax credit sales have come from lower-priced homes, and NAR data supports that. Sales of homes that cost less than $250,000 were up almost 17.8% year-over-year through June. Meanwhile, sales decreased 13.3% in the $250,000-$500,000 bracket, 18.6% in the $500,000-$1 million range, and 32.7% in the $1 million – $4 million range.

Lost pricing power in the more expensive homes wasn’t lost on Pulte Homes Inc. (NYSE: PHM), which last Tuesday finished its acquisition of value-priced homebuilder Centex Corp.(NYSE: CTX), making Pulte the largest homebuilder in the United States.

“I’m not seeing a tremendous amount of good news on the job or economic front, so I do think it’s important that the [tax] credit get extended,” Pulte Chief Executive Officer Richard Dugas told The Associated Press.

The turn of the year isn’t likely to yield much good news on the job front. Most economists are expecting the unemployment rate to top out around 10%, and although July’s rate dipped one-tenth of a percentage point, the latest weekly initial unemployment insurance claims were discouraging, rising 15,000 to 576,000 for the week ended August 15.

“The improvement in the labor market has stalled,” Scotia Capital Inc. economist Derek Holt told Bloomberg News following the latest jobless claim figures. “Consumer spending will be pushed back on its heels for a longer time than markets are expecting.”

When the bleeding of jobs does peak, an upturn in employment could take some time as the United States experiences a jobless recovery. With an unemployment rate at or around 10%, home inventory levels could creep back in to 2008 territory.

“[The unemployment rate projection] indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate,” Fed economists wrote.  “This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing work forces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.”

Source: Home Sales Will Struggle to Rebound Without Tax Credit Extension

Here are just a few statistics in the news lately from respected market mavens like the S&P/Case-Shiller Indices and the National Association of Realtors:

• The “average” price of homes in the U.S. is down almost 35% from the record highs of 2006.

• “Median” housing prices are down 19% in 90% of the major markets in the United States.

• Building permits were up 4% in April from last year, and homebuilder confidence increased from 16 to 18.

So what do these numbers mean to you?

Probably nothing.

“It’s like a weatherman who combines conditions in Nome, Alaska and Clearwater, Florida and issues an “average” national forecast of 45 degrees,” according to Andrew Waite, a former institutional investor who is now the publisher of a magazine focusing on real estate investing. “Real estate markets are by their very nature ‘hyperlocal. Averages simply don’t apply.”

Waite is the publisher of thePersonal Real Estate Investor, a glossy magazine that focuses on investors who buy houses or condos to manage for income or to fix up and sell for a profit, and he wastes no time in dismissing most of the “indicators” in use as useless and irrelevant.

As a onetime Wall Street venture-capitalist who subsequently joined Silicon Valley’s Sand Hill Road private equity crowd, Waite also understands how the Wall Street investment game is played – and, in the case of the U.S. housing market, the missteps many overly-anxious analysts make as they attempt to create a “one-size-fits-all” picture of the nation’s housing market.

And he would like you to know that all those gloom-and-doomers are overshadowing a real estate rebound that is already underway.

The Fractionalized Housing Market

The housing market is too fractionalized to put a finger on an “average” price, Waite says.  Real estate is segmented by individual neighborhoods, and is further subdivided by price points and such price-influencing factors as condition, cash flows – and even cap rates on rental properties.

To find the facts about housing prices for his investors, Waite compiles and verifies data directly from records kept by local Multiple Listing Services.  From sales records, Waite determines the inventory supply in months for major markets. That gives him the “hyperlocal” data that reveals an accurate picture of individual markets.

“The formula’s pretty simple,” he says. “As housing inventories shrink in real estate markets around the country, demand and prices go up.”

After examining the statistics for March, Waite thinks he sees a clear bottoming pattern, at least in some markets. If he’s right, the Western United States is already making a comeback and the ripples of resurgence will soon make their way to the Midwest and then to the East Coast markets.

What’s more, the improvement from year to year indicates the bottoming sequence will soon have prices on the rise.

Housing Markets in Western U.S. Have Already Bottomed

Remarkably, Waite’s research reveals the downtrodden Las Vegas housing market has already bottomed and is currently “balanced” between buyers and sellers.  Housing markets in Seattle, Los Angeles, Phoenix and Denver are on the move too:

• Phoenix’s MLS housing inventory is 7.33 months, down from 19.1 months last year.
• Denver’s current inventory is 5.59 months, down 35% from a year ago.
• San Diego’s inventory stands at a paltry 4.19 months, down 58% from a year ago.
• And Las Vegas’ inventory stands at just 6.25 months, down a whopping 64% from an inventory of 17.5 months in 2008.

In fact, Waite sees the trend on the West Coast as a leading indicator that the worst is behind us. In short, if you’re in one of those depressed markets where prices are still dropping, relief may well be on the way.

Here’s the “market-bottoming” sequence as he sees it:

The chart depicts the market for houses in the Western United States.  It follows the natural sequence of a housing market recovery through its progressive phases:  As the supply of homes drop, demand picks up. And as that demand picks up, prices first stabilize and then begin to rise.

Based on this research the housing cycle on the West Coast has already bottomed and prices will start to swing upward in the fall.  Eventually the trend will move from West to East and prices will move up broadly.

But the recovery will be painfully slow getting to certain markets where cities are still being hit with swelling inventories, which is likely to continue to put downward pressure on prices.

Housing supplies in Baltimore, for example, have increased 11% from March 2008, to 15.9 months this year.  Similarly, listings grew from eight months to about nine and a half  months in Houston, and from eight and a half months to 10 months in Charlotte.

But some of the hardest hit markets are clearly on the upswing.  Miami has slashed inventories from a staggering 52 months to 31 months, a decrease of 40%.  Rochester, New York and Boston have each dropped housing supplies by about 13% in the last 12 months.

Some realtors in Boston are even reporting that sellers are receiving multiple competing offers to buy homes for more than their asking price and buyers are entering counteroffers.

Fewer New Homes Stoke Demand

And it’s not just pre-existing home sales driving a rebound in the sector.  In October 2007, new home permit applications stood at roughly 800,000 nationwide.  A year later, in October of 2008, that number had dropped to about 480,000.

Since it takes about 12 months for buildout to progress from permit to finish — and with many builders halting construction altogether — Waite estimates only about 450,000 of those permits will actually translate into new homes that will hit the market in 2009.  And with new home inventories drying up, demand will start climbing as well.

In fact, declining new home inventories are already beginning to stabilize prices in hard-hit southern California, an area where prices were hammered by waves of foreclosures.

KB Home (NYSE: KBH) Chief Executive Officer Jeffrey Mezger said on May 4 home prices in Southern California have begun to stabilize, making his company’s new houses competitive with existing homes, including foreclosures.

“If you go to Southern Cal, as an example, we’re seeing a floor on pricing,” Mezger said recently in a conference call with analysts organized by J.P. Morgan Securities Inc., Bloomberg News reported. “We don’t see prices going down right now, which is a good thing, because then you can set a baseline.”

In March, Los Angeles-based KB Home, reported a narrower first-quarter loss as orders increased for the first time in three years.

And there are other positive signals.

• The median price paid for a home in six Southern California counties was $250,000 in March, the same amount as in January and February, according to San Diego-based research company MDA DataQuick.

• The National Association of Realtors says a total of 3.7 million homes were listed for sale nationwide at the end of March, down 10% from a year earlier.

• The supply of homes for sale in 29 major metropolitan areas at the end of April was down 3.6% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif.

That last figure defies normal trends — listings typically increase in April as for-sale signs bloom heralding the spring home-shopping season.  Since 1982, the average increase in April from the prior month has been 4.8%, according to Zelman & Associates, a research firm.

Tom Lawler, a housing economist based in Leesburg, Va., says the decline in listings “suggests that the bottom in home prices is much closer than many pundits believe.”

Still Looming: Foreclosures, Credit Crisis, And Unemployment

But Lawler says the future remains unclear because no one really knows how many homes in the foreclosure process will eventually land on the open market.  Estimates are that some of the nation’s largest banks currently are listing only about 60% of foreclosed homes.

Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), are the biggest owners of foreclosed homes, but they have only about 35% to 50% of those homes listed for sale at any given time, according to industry estimates.

And some foreclosed homes aren’t listed because they’re on the rental market, are undergoing repairs or are subject to legal action or other delays.

Barclays Capital PLC (NYSE: BCS) estimates that banks and investors owned 765,500 foreclosed homes as of April 1, up from 629,100 a year earlier. Barclays forecasts that this inventory will peak at around 1.3 million homes in mid- to late-2010, The Wall Street Journal reported.

The credit markets pose another obstacle to recovery.

There’s no doubt that banks have made it more difficult to borrow money.  And mortgages are far more expensive than they appear, especially for people borrowing large amounts or trying to refinance.

As previously reported in Money Morning, buyers can only get those rock bottom 4.75% interest rates you’ve been hearing about if they put 20% down, borrow $417,000 or less, and boast a high credit score (730 to 750).

And the days of “stated income” loans where you don’t have to document your earnings, and option adjustable-rate mortgages, where you could choose to pay less than the interest due, are long gone.

But while that’s true, it’s also true that mortgage lending is still one of the banks most important sources of revenue.

“Tight lending standards and the credit lockup is absolutely the limiting factor on how soon prices will recover nationwide,” Waite says. “But eventually, banks will loosen their purse strings if for no other reason than it’s their most efficient way to earn profits.”

But the cold reality is that skyrocketing unemployment remains a major threat to the recovery of the U.S. housing market.  The unemployment rate soared to 8.9% in April, leaving more than 5 million workers without jobs. Economists predict the national jobless rate will probably hit 10% by year-end even if an economic recovery kicks off before then.

Consumers who are unemployed cannot buy homes, much less pay for the homes they’re already living in. And even consumers who are afraid that they might be joining the jobless ranks are loath to take on the added risk – making them unlikely candidates to buy a new home either.

Bottom Line: Prices Don’t Matter if You’re Not Selling

But while the current news is full of talking heads espousing the latest “average” numbers about the downward spiral in housing prices, the basic truth is the vast majority of homeowners won’t be selling this year or next.

The typical house is owned for five to seven years, and only about 5% of U.S. housing stock turns over in a single year, meaning only 1 in 20 homeowners plan to sell this year.

And, as Waite points out, houses aren’t a tradeable commodity so there’s no reason why you should consider marking your home “to market” as the Wall Street bankers are being forced to do with  those derivatives they’ve been trying to dump.

In fact, if you’re not in a hurry to sell, chances are good your home will recover at least most of its pricing power in the next few years.

“Unless you have to sell now, you’re pretty much insulated.  If you sell in five years, chances are what’s happening now won’t have any effect on your selling price at all,” Waite said.

Source: “Hyper-local” Stats Show Housing Market Has Bottomed

“So while I look at the housing market as something that gives me grave concern, we are finally beginning to see the seeds of a bottoming,” Alan Greenspan declared Tuesday to a friendly crowd at the National Association of Realtors conference in Washington.

And yet, the Dow slipped another 184 points yesterday, as if utterly ignoring Greenspan’s confident declaration. The tumbling Dow also seemed to be thumbing its nose at Greenspan’s pronouncement that “it’s very easy to see” that the recovery in the capital markets “is going to continue for an indefinite period.”

A couple bad days in the stock market do not make a reliable trend, of course. But unbeknownst to Greenspan, neither do a couple good months. Stock prices have been inflating. There’s no denying that. But meanwhile, the economy has continued to deflate. There is no denying that either. So what is an investor to do? Trust the stock market or trust the economy?

The answer to this question is never clear, except in retrospect. But one thing is always clear: never trust Alan Greenspan’s predictions. “Whatever virtues Greenspan may have displayed during his 19-year tenure as America’s most famous bureaucrat,” we observed in a former edition of the Rude Awakening, “clairvoyance was not one of them. Indeed, his feeble powers of prediction are legendary. Every time he looks into the future, it refuses to look back…

“We admire this cowboy for climbing back onto the same mustang that keeps bucking him off,” we continued, “but that doesn’t mean we expect him to remain in the saddle for very long.”

Indeed, Greenspan seems to spend a good deal more time dusting off his chaps than holding the reins. And yet, the former Fed Chairman continues to draw $100,000 speaking engagements as if he actually had something useful to say. Hiring Greenspan to offer guidance on financial market trends is little like hiring Charlie Manson to lead an anger-management class. There are probably better qualified candidates.

Let us not forget that Mr. Greenspan is the same individual who declared in November of 2006, “Most of the negatives in housing are probably behind us. The fourth quarter should be reasonably good, certainly better than the third quarter.”

Not content to make only a boneheaded prediction about the housing market, Greenspan embellished his November 2006 remarks by volunteering a boneheaded prediction about the U.S. economy. “A lot of people are going to lose their homes,” he said. “It’s a family tragedy. It’s not an economic – or macroeconomic — tragedy.”

Obviously, Greenspan was dead wrong. If he had offered 100 different forecasts in November of 2006, none of them could have been more wrong than the forecast he actually offered. Therefore, the former Fed Chairman’s recent confident assurances about the housing market impart neither confidence nor assurance.

In addition, Greenspan’s latest public appearance seemed to break new ground, as his oracular pronouncements featured more “psycho-babble” then “Fed-speak.” Here’s a representative sample:

“Let me just say that in the most recent period, even after the incredible shock to the world economy that occurred as a consequence of the $35 trillion collapse of equity prices, we saw a bottoming and indeed that bottoming essentially reflected the fact that there is a limit to how far human fear can go.

“All of our history, or I should say our psychological history, shows the fact that we adjust to extraordinary circumstances. And we’re starting to adjust here because history tells us that all measures of fear…tend to have an upside and a downside range; they are range bound. We cannot get too euphoric; we cannot get too fearful. The markets turn on you. And the market started to turn in November of last year and flattened out…and when fear began to ebb, we began to see stock prices move up and this essentially added $10 trillion of market value from March 9th…”

So you see, dear investor, this stock market stuff is not really about dollars and cents after all – and its certainly not about the legacy of colossal errors made by a former Fed Chairman – it’s about the limitations of human fear. Because fear is “range bound,” says Greenspan, so too are the consequences of wayward capitalism. The Dow simply cannot drop to 5,000, if Greenspan’s theory holds, because that would be way too scary.

Ummm…okay.

Your editors have encountered more intelligent theories from 5-year olds. But that does not mean we are rushing to judgment. 5-year olds are right sometimes. But this we know: The future is utterly unknowable, no matter how many predictions Alan Greenspan makes…and no matter how many wacky theories he advances. The future is utterly unknowable…almost.

One thing we know:

Central bankers will print lots of money, especially during times of extreme crisis.

Source: The Stock Market vs. the Economy; Who to Believe

American home prices just suffered their worst quarter in recorded history.

That’s the word from the National Association of Realtors today… the median home price fell 14% from the first quarter of 2008 to the first three months of 2009, to just $169,000. Of the 152 metropolitan areas surveyed by the NAR, just 18 registered annual price gains. Nearly half of all sales during the first quarter were foreclosed properties or short sales. A whopping 3.7 million previously owned homes are still on the market.

Is this rock bottom for U.S. housing? Ehh… probably not.

After staying flat for most of the ’90s, the Case/Shiller home price index more than tripled during a 10-year boom. If this “credit crisis” is what people say it is — a generational calamity, Bill Bonner’s “Depression with a capital ‘D’” — then a mere 26% retrenchment from the peak seems kind of… lame. Even the Dow managed a bigger fall than that.
If you’re a real estate opportunist (or just looking for a damn cheap house), you might want to check out Saginaw, Mich. The median existing home price there during the first quarter was a stunning $30,300, the lowest in the U.S. We won’t pretend to know what’s going on over there, but geez… they’re practically giving ’em away.

And if you’re also a newshound, like us, Saginaw might bring back the memory of this little love shack:

Back in October 2008, a Chicago woman famously bought this Saginaw home on eBay for $1.75. Ouch.
Foreclosures set a new record in April, says a separate report from RealtyTrac today. 342,000 homes were in some form of foreclosure last month. That’s one for every 374 homes in the U.S. — just in April. Over 1.3 million homes have now been lost to foreclosure since the housing correction began in August 2007.
A study out today shows that minorities are suffering the worst of the housing crisis. The homeownership rate among all Americans has fallen 1.7% from its 2004 peak. But for black households, the rate of ownership has plunged 3.8%, more than double the national average. Native-born Latinos have it even worse — down 4.6% from their high.

According to Pew Research, this rise and fall among minority homeowners was directly correlated with the popularization of subprime lending. “Blacks and Hispanics were more than twice as likely to have subprime mortgages as white homeowners, even among borrowers with comparable incomes,” reports The New York Times. (Queue the predatory lending lawsuits.)

And the only ethnicity to not see homeownership rates decline? Latino immigrants, with the lowest rate of all groups studied, have managed to maintain a homeownership rate of 44.7% since peaking in 2007. (Ugh… and queue the flood of hate mail into our humble inbox.)
The credit crunch has hastened the predicted demise of Social Security and Medicare. The Obama administration admitted yesterday that they now expect Medicare to run out of money in 2017, two years sooner than the Bush administration predicted in 2008. Social Security’s imminent insolvency was bumped up four years, to 2037. That’s all under the assumption, naturally, that the economy will recover by the end of 2009.

Even those already sucking the government teat got a dose of bad news. Social Security trustees now predict, for the first time in over 30 years, that recipients will not receive any cost of living increase next year, or in 2011.

In just seven years (2016), the Social Security trust will enter deficit. Eight years at the current pace and Medicare will be totally wiped out. When do you think we’ll start worrying about it… 2015? What a mess.
Last month’s budget deficit was the first April loss since 1983. We hit most of the details of the latest deficit yesterday, but felt obligated to raise this one point today: How can Uncle Sam possibly lose money during tax month? Only the U.S. government can “earn” $266 billion in one month (mostly our confiscated income) and still end up $20 billion in the hole.
All the above is weighing heavily on the market today, but the latest retail sales numbers are pushing traders over the edge. Retail sales fell 0.4% in April and were revised down to a 1.3% decline in March, the Commerce Dept. said today. The Street was expecting flat sales this month and no March revision.

Declines for both months proved to be the last straw for an already nervous market. After registering small gains yesterday, the Dow and S&P 500 raced down almost 2% at the opening bell this morning.
“Who’s surprised?” asks our currency man Bill Jenkins in response today’s retail “shock.” “Economists predicted a rise in sales from last month, but based on what? Here’s the bottom line: 3 million more people have been added to the lines of the unemployed since the beginning of 2009. I’m not sure where a person learns the following lesson, but apparently not in Keynesian Economics 101. So our readers can learn it here: Unemployed people spend no money. (Or at least they spend a lot less, if they have any sense.) Less spending equals fewer sales.

“As of the first quarter, we have already had record budget deficits, and Moody’s has announced that with the planned and continued spending, America puts at risk her AAA bond rating. What will happen to the dollar then? Dollar weakness is going to shock the world even more than today’s shocking sales numbers. Get ready to short the dollar aggressively.”

Need a hand trading currencies? Then definitely check out Bill’s Master FX Options Trader. His strategy is one of the only ways to profitably trade worldly monies without taking on loads of leverage. Details here.
But don’t short the ol’ greenback just yet. Today’s equity decline is doing wonders for the dollar. After cratering at a four-month low of 81.9 yesterday, the dollar index is back up to 82.5 this morning.
“One of the most exciting growth industries,” writes Jim Nelson, finding opportunity amid today’s sell-off, “is Far East Internet service providers. According to internetworldstats.com, 73.8% of Japanese and 76.1% of South Koreans are on the Internet. Even about one in every four Chinese citizens has Internet access. But too many forget that these superpowers aren’t the only places where you can make big money.

“Indonesia has the world’s fourth largest population, over 200 million people, but it ranks No. 16 in GDP purchasing power. Internet access is trailing in the region, with just 10.5% of its population online.

“But it’s the growth that impresses us. In 2000, only 2 million Indonesians had the Internet. That number is going to reach 25 million this year. That’s a massive growth rate… and serious investing opportunity.”

Jim just gave his readers a solid dividend-yielding play in this sector. If you’d like to get the details, be sure to check out his Lifetime Income Report.
Oil is holding up today, even though stocks are in the dumps. As we write, the front-month contract is actually up about a quarter from yesterday’s close, to $59 a barrel.
“Take your coal profits and run,” Bryon King told his Outstanding Investments readers late yesterday. “Coal is besieged. The coal industry wrestles daily with weak demand due to the U.S. economic slowdown. At the same time, the build rate for coal-fired power plants is at a historic low. Sure, in ‘ordinary’ times, coal might stage a comeback. But these are not ordinary times.

“The ‘rock that burns’ is under attack from many quarters of the environmental movement. Primarily, coal is guilty of the environmental sin of emitting carbon dioxide when burned — much more, pound for pound, than natural gas or oil. But it’s not just coal. Coal ash is also under attack, as are the many other byproducts of coal combustion (mercury, arsenic and much else).

“Is the anti-coal movement over the top? Yep. Is the anti-coal ‘science’ valid? Some of it is good; some is dramatically bad. Will the U.S. economy benefit from a precipitous rush away from burning coal? Nope. Will many Americans eventually look back and regret it if the current anti-coal frenzy prevails? Probably.

“But for now, I’m not going to get into the whole scientific and economic debate over the merits of the anti-coal claims. I’m just going to say that if you have a chance to make money in your coal positions, you should take it and move onto other ideas.”
It’s a great day to own some gold. The spot price has perked up $20 from yesterday’s low, now at just over $925 an ounce.
“You asked a question yesterday,” a reader writes: “‘Would you expect more credit card losses during this recession (aka the credit crisis) or the tech bust?’

“For what it’s worth (not much, as it is only my gut-feeling guess), here’s an extreme answer. I expect that the chart you’ve provided will hit 20-30% by the time it is all over, many years from now. Unlike any previous recession/depression, the use of credit cards today is at an all-time high globally, particularly in the U.S. As such, The Daily Reckoning Dicta No. 2 as provided by Mr. Bonner comes into play: ‘The force of a correction is equal and opposite to the deception that preceded it.’

“And with the marginal utility of debt approaching zero with each passing day, one may even be enticed to provide a higher number than merely 20-30%, but I do not wish to go that far into the gloom.”

The 5: Thanks for the forecast.

Source: The Housing Bottom, Doomed Entitlements, Retail Sales Suffer, Sell Coal and More!

Appearing on CBS network’s 60 Minutes, Bernanke told correspondent Scott Pelley that concerted efforts by the government likely averted a depression similar to the 1930s. He also stated the nation’s largest banks are solvent and that he doesn’t expect any of them to fail; and that the U.S. recession will come to an end “probably this year.”

Is this finally the light at the end of the tunnel for the U.S. economy?

We don’t want to appear as perpetual gloom-and-doomers, but fact is, when Bernanke tries to predict the future, he’s usually wrong.

Prediction: The subprime mess is grave but largely contained, Bernanke reassured the Federal Reserve Bank of Chicago in a speech on March 15, 2007.

While rising delinquencies and foreclosures will continue to weigh heavily on the housing market, it will not cripple the U.S. economy, he said. “Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited.”

Reality: The median price of a home sold in the U.S. fell to $170,300 in January 2009, down 26% from a year and a half earlier, according to the National Association of Realtors. This housing crash has spread pain more widely than any before it. Home prices fell about 30% during the Great Depression, according to calculations by Yale University economist Robert Shiller. But back then, the nation was less concentrated in urban centers, and much fewer Americans owned homes.

Other housing downturns in recent decades have been regional; this one is national. Prices in the fourth quarter of 2008 fell in nearly 90% of the top 150 metro areas, according to the Realtors group. And 5.4 million homeowners, about 12%, were in foreclosure or behind on mortgage payments at the end of last year. The Federal Reserve now estimates home prices could fall 18%-29% more by the end of 2010.

Prediction: “I expect there will be some failures” of smaller banks, said Bernanke in February 2008. “Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.

Reality: IndyMac Bank failed in July 2008, with $32 billion in assets. Washington Mutual failed in September 2008, the largest bank failure in history with $307 billion in assets. Wachovia was sold to Wells Fargo in October 2008, amid concerns about its financial health, and Citigroup still scrambles to raise cash from both the government and private sources.

Fortunately for Bernanke, and unlike us at Casey Research, he doesn’t make a living by being right about the future. If he did, we strongly suspect that by this time, he would find himself without subscribers.
Thus, it is a mystery to us why the mainstream media still seem to eagerly soak up his every word, much like a devout Catholic would absorb a papal ex cathedra proclamation. But until the last American has woken up to Bernanke’s fallibility, that likely won’t change.

In the meantime, we recommend using the Fed chair’s economic outlooks as a contrarian indicator – if he says the market looks good, run for cover as fast as you can.
***
Bernanke may be wrong more often than not and still keep his job – we at Casey Research cannot afford that luxury. Our subscribers depend on us researching, correctly analyzing, and predicting market currents and emerging trends… which also includes the movements and changing policy decisions of Big Politics.
Our fresh-off-the-presses, FREE special report Obama’s Newer Deal, Part 2 tells you all about the president’s Stimulus Plan, its impact on and implications for your personal life and finances. Don’t miss it – click here now!

Source: When Bernanke Says All Is Well, It’s Time to Duck and Cover

That’s because the total value of residential properties fell $2.4 trillion in 2008, from $21.5 trillion in December 2007 to $19.1 trillion at of the end of 2008, according to a study from First American CoreLogic.

Worse, an additional 2.16 million properties could go underwater if home prices fall another 5%, the study said.

“We have way too much supply and not enough demand,” Sam Khater, senior economist for First American, told Bloomberg. “People aren’t going to purchase a home as long as prices keep falling, and someone who is worried about their job isn’t going to purchase a home either.”

The news comes the same day Toll Brothers Inc. (TOL), the largest luxury home builder in the U.S., reported its sixth consecutive quarterly loss – $88.9 million, or 55 cents a share, down from $96 million, or 61 cents, a year earlier.

Chief Executive Officer Robert Toll, citing research from the National Association of Realtors, said that, “ironically, now is a very good time to buy a home. With the decline in home prices and historically low mortgage rates, home price affordability is at an all-time high.”

Never shy about commenting on housing-related issues floating through Congress, Toll also used the press release that announced quarterly earnings as a soapbox for his solution.

“Many experts continue to believe we must first stem home price declines before we can resolve the nation’s economic and financial crisis. The recent stimulus bill shows that Washington is paying greater attention to our industry; however, we think more is needed,” Toll said in the statement. “We advocate a buyer tax credit of $15,000 to be made available to all buyers of homes, not just first-time buyers: We must motivate the entire food chain of home buyers to stop the decline of home prices.”

Starting today, at least one remedy will take effect.

As apart of President Obama’s $75 billion foreclosure prevention program, loan servicers will lower interest rates of struggling borrowers so total payments are no more than 31% of their gross income. In addition to subsidizing a portion of the reduction, the government will throw in a few incentives.

Source: One in Five Homeowners Underwater: Report

• After recording its worst financial results ever last year, Warren Buffet’s Berkshire Hathaway Inc. (BRK.A, BRK.B) announced it would cut manufacturing jobs and close facilities to buffer itself against the recession. “Berkshire’s operating companies have taken and will continue to take cost reduction actions in response to the current economic situation, including curtailing production, reducing capital expenditures, closing facilities and reducing employment to partially compensate for the declines in demand,” the firm said in a regulatory filing yesterday, Bloomberg reported.

• By trading over-the-counter fixed-income derivatives, JPMorgan Chase & Co. (JPM) generated $5 billion in profits last year, Bloomberg reported citing two sources. The unit was among the most profitable for the company.

• Italian pharmaceutical company Recordati SpA is targeting higher profits and revenue in 2009 and is proposing a 16% increase in its dividend, Reuters reported. “The sales in the first two months are substantially in line with the expectations for the entire year for revenues of about 750 million euros ($946 million), operating profit of about 155 million euros ($195 million) and net profit of about 105 million euros ($132 million),” the company said in a statement.

• China may announce plans to double its $585 billion (4 trillion yuan) economic stimulus this week, Bloombergreported. “It would be a terrific boon to confidence to announce it at the NPC,” Stephen Green, Shanghai-based head of China research at Standard Chartered Bank plc, told Bloomberg.

• With job losses mounting and consumer confidence flagging, new sales contracts on existing homes fell a seasonally adjusted 7.7% in January, the National Association of Realtors said yesterday (Tuesday).  That means the index is down 6.4% from a year ago, MarketWatch.com reported. In December, the pending home sales index rose 4.8%, compared with a prior estimate of a 6.3% gain. The index is based on signed sales contracts; the contracts typically are signed a month or two before the sale is closed, which is when the sales are included in the NAR’s existing-home sales report. “We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit” in the stimulus package, said NAR Chief Economist Lawrence Yun said in a statement. Pending sales for January fell in the Northeast, the South and the Midwest, but did actually rise in the West, the NAR said.

Source: Global Investment News Briefs Wednesday, March 4, 2009

The trade group said that sales of already existing houses fell a bigger-than-expected 5.3% in January, but buried within that report was one bit of data that may indicate the death-spiral in the U.S. housing market is nearing a bottom.

The indicator: The supply of housing declined again in January, continuing a trend that started during the summer.

“We’ll have to see if that trend continues. Inventory is already down sharply in the new home market, and if the existing home market can follow suit, it will eventually help stabilize housing,” Mike Larson, an analyst at Weiss Research Inc., told the Dow Jones News Service.

The U.S. housing market will play a key role – if not the key role – in the country’s economic recovery. A house is typically the single-biggest investment that most consumers make, which is why a house is also the typical consumer’s single-biggest expense.

Bursting Bubble, Growing Trouble

A housing bubble – burst by the subprime mortgage crisis – shoved the U.S. into a recession, and helped drag other key world economies along with it.

For housing prices to stabilize, supply and demand have to reach a balance, or equilibrium point. Right now, there’s still an estimated oversupply of roughly 1 million houses on the market. But the supply of available houses has now declined for several consecutive months.

So when sales also stabilize, there will be fewer houses available to purchase, which will cause housing prices to solidify and hasten the pace of a turnaround in both the housing market, and the overall economy, analysts say.

The number of existing homes for sale on the market decreased to 3.6 million in January, down from 3.68 million in December. At the current sales rate, it will take an estimated 9.6 months to sell down 3.6 million homes, the NAR report said.

In January 2008, there were 3.54 million homes for sale. The inventory peak was reached in July of last year.

“The drop in total inventory is an encouraging sign because the number of homes on the market has declined steadily since peaking in July 2008, and inventory is at the lowest level in two years,” Lawrence Yun, the NAR’s chief economist, said in a statement.

Dan Greenhaus, an equity-strategy-group analyst with Miller Tabak & Co. LLC., said that the “supply [and] demand fundamentals are working themselves out.”

But that market equilibrium has yet to be reached and, until it does, expect existing home prices to continue their fall. The national median existing-home price was $170,300 in January, down nearly 15% from last year when the median price was $199,800.

Source:  The One Trend That Hints at Housing’s Recovery

“Trade was relatively quiet on Friday, as both U.K. and U.S. dealers prepared for a long holiday weekend,” wrote currency analysts at Action Economics.

“This said, the dollar slipped through the N.Y. session, weighed down by still strong oil prices, a slumping stock market, and general concerns over the economic outlook,” they added.

In the day’s only hard number, the National Association of Realtors reported that resales of U.S. houses and condos fell 1% to a seasonally adjusted annualized rate of 4.89 million from 4.94 million in March. Bad enough, but in today’s coulda-been-worse environment, it nearly passed for good since it beat economists’ expectations for a drop to 4.83 million.

“Poor home sales and inventory data continued to weigh on the greenback as they underscore that however shallow this contraction may be, the U.S. is now in its 27th month of the rout in housing, with another possible six to twelve to go,” Nadler wrote.

Source: Dollar Falls Back – More Negative News from Housing Sector

Earlier in the day, the euro breached the psychologically significant $1.60 mark for the first time, before yielding it to some late selling. So now what?

It could well get worse, says Kathy Lien, chief strategist at Forex Capital Markets. Noting that the skyrocketing price of oil will affect everything, “This continual rise in inflationary pressures raises the risk of a rate hike from the European Central Bank,” Lien says. And that of course is even more dollar-negative.

Playing into that fear, Bank of France Governor Christian Noyer, who is also a member of the ECB’s rate-setting Governing Council, said Tuesday that the ECB would do whatever is necessary, including moving interest rates, to ensure that inflation returns to the central bank’s target of just below 2% by 2009.

Yesterday’s data included a report from the National Association of Realtors showing that resales of U.S. homes and condos dropped 2% in March. Resales have now sunk 19.3% in the past year, and are down 33% from the peak in 2005.

“There is still little evidence of stabilization in U.S. housing markets, though the recent pace of decline in sales has slowed,” wrote Sal Guatieri, of BMO Capital Markets.

“Sales will eventually benefit from improved affordability, but the near-term picture remains clouded by ongoing job losses and more discriminating lenders,” Guatieri said.