Home sales contracts are falling apart 2X as fast as last year

In a rare moment of semi-lucid disclosure, the National Association of Realtors (“NAR”) reported that home sales contracts are falling apart TWICE as often as they did last year, according to the numbers released at its annual convention in Anaheim, California.

In an article published in National Mortgage News, titled: NAR: Sales Falling Through Twice as Often, the NAR said that recently 18% of its members are reporting “contract failures,” which is double the number that were being turned down one year ago.

Why?  Well, according to the Realtors, it’s credit scores and appraisals coming in too low.  Well shave my head and call me Baldy… what do you know about that?  I certainly do declare, how can such a thing possibly be so?  What could possibly be the cause?  Who would have ever expected something like this to happen?

This really is precious, don’t you think?  Absolutely adorable.  Hey, I know how we can fix things… let’s have a bake sale… Lord, I do love a good bake sale.

Apparently, the Realtors are quite surprised that these days even good credit isn’t good enough, so the NAR conducted decided to conduct an “analysis.”  These guys needed to study this problem, because apparently, when the topic of conversation moves beyond the houses themselves, the NAR has no clue what’s going on.

They found that the average credit score needed to get a loan in 2007 was 717, but lo and behold, will wonders never cease, in 2010 is was 760!  So, I guess it’s going up.  Go figure.

“Weighted average FICO scores for conventional loans purchased by Fannie Mae and Freddie Mac eased a bit in this year’s second quarter, declining to 755, but remain well above historic norms, the realty group said.”

Well, thank the good Lord for the NAR’s powerful analysis.  Please do go on… I am totally glued…

Almost three out of every four loans were offered to buyers with scores of 740 or higher, while less than 1% were offered to those whose scores were 620 or lower, NAR said. Twenty-five percent of Americans have credit scores below 599 — almost double the level of two years ago.

Shut the front door!  Twice as many Americans have credit scores below 599 than did just two years ago?  Now why do you suppose that would be?  Want to know what that looks like on a piece of graph paper?  Ever heard of a trend line?  Well, this trend line follows Thelma and Louise’s car at the end of the movie.

The stiffer mortgage requirements have come at a time when banks are seeing strong profits and runs counter to the government’s efforts to use rock-bottom interest rates to get the economy and the housing market moving again, said NAR’s chief economic, Lawrence Yun.

It “Yuns counter to the government’s efforts,” run?  (Wait, flip those.) I meant, it “runs counter to the government’s efforts,” Yun?  How weird is that?  I mean interest rates have been at all time lows for the past… hmmm… oh, I don’t know… shall we say four straight years, and it’s been working great so far, wouldn’t you say?  I mean, we’ve got a housing market that might even rival that of Paraguay.

Listen… Yun… you’re an idiot.  Where did you get your economics degree?  I mean specifically.  Because you should ask for a refund.  Seriously… if you paid for your economics education you got ripped off, dude.

“We need to get back to reasonable lending standards,” said Ron Phipps, the outgoing president of the 1.1 million member trade group.

Reasonable lending standards?  Oh, for heaven’s sake.  I’ll bet Ron thinks that… after all, he’s got to find a way to keep those 1.1 million NAR members paying their dues, does he not?  But, I’m afraid Ron’s fighting a losing battle.  There’s no way he’s going to be holding his ship together much longer.  It’s going to be over soon.

It is, however, nice to see the NAR is offering some continuing education classes.

The convention featured two separate educational sessions on the importance of credit scores and how to improve them…

Improve them up to 760?  That’s a lot of improving.  How much does it cost to improve that much?

LOL… allow me to offer some slightly contradictory advice that is certain to save you a whole lot more than a couple hundred a month.

Unless there are specific reasons for you to do so, like you’re downsizing, or you simply have to move… don’t buy a house right now.  I can absolutely assure you that you will lose money in year one, two and three… and very likely beyond that.  So, RENT!  And revel in it… especially if you’re renting now, there’s no reason to buy something today, because now is definitely NOT a good time to buy.  And if anyone tells you otherwise, ask them if they’d care to debate me on a podcast… that ought to do it.

You want to know what you should be doing now?  SAVING MONEY.  Less buying and more saving is the new black.

Want to glance into my crystal ball for a few moments?  Okay, here goes…

  • The banks are not enjoying “record profits,” as we often hear in the news.  They have the same “toxic” assets on their balance sheets that they had in 2008.  The biggest difference today is that the banks are not adhering to several key accounting rules, and because of that no one really knows exactly how they’re doing.  I do know one thing about the banks, however.  Banks make money by lending, and they’re not doing much, if any, of that.
  • Over the last two years, for example, many of the TBTF banks have lowered their reserves in order to make their financials look better than they actually were, and last quarter a few of these banksters actually made their numbers by writing down their own debt based on their creditor’s perception that they may default.  Like, if I owed you $10,000, but you figured I might go bankrupt and not pay, so you were willing to sell my debt for $5,000… and so I wrote down the amount I owe you to $5,000 on my financials.  Nonsense.
  • As of October of 2011, as a result of the “bailouts,” Goldman Sachs still owes U.S. taxpayers $12.9 billion, JPMorgan Chase owes us $32 billion, Morgan Stanley owes us $25.5 billion, and Bank of America owes us $19.7 billion.  So, if they’re in such great shape, why can’t they pay back what they owe?
  • “Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” said Fitch Ratings yesterday. “Further contagion poses a serious risk,” Fitch said.  Have you noticed how the news on Europe is getting progressively worse?  Like at first, it was over there, but now it might be coming here?  Well, of course it’s coming here… just think of the financial crisis as occupying the planet.
  • Any event that triggers default on the trillions of dollars worth of synthetic CDOs that were sold before 2007 could be a disaster that tips the world from recession into deep depression. Nobody really knows what will happen for sure, but it won’t be a small event.  A synthetic CDO, by the way, is a collateralized debt obligation or CDO that is comprised of credit default swaps instead of debt securities, which are based on mortgages and leverage (read: borrowed money).  Many people describe credit default swaps as being insurance against a bond’s default, but there’s more to it than that.  For example, various credit events can require an insurer to post additional collateral, which is what got AIG in so much trouble in the fall of 2008.  Right now, truth be told, we are living on a razor blade, and hoping no one slips.
  • Don’t be fooled by stimulus you can’t see.  Just because you can’t see it, doesn’t mean it’s not there.  So, when Bernanke is flooding the system with money, even though you can’t see it or even feel it… it’s there and it’s affecting things… not forever… but for some period of time.  Now that stimulus is pretty much over, you can expect things to fall faster.
  • Unemployment is rising… when it will be reported as such, I don’t know because the numbers being released are not to be trusted.  For example, the September jobs report showed that the U.S. economy created 103,000 jobs in that month, but as it turns out… 45,000 of those jobs were Verizon workers returning to work from an August strike.  Job creation… well, not so much.
  • According to economist Dean Baker: “The economy has created 99,000 jobs a month over the last three months, about 9,000 more than it needs to keep pace with the growth of labor force. At this pace, it will be around 80 years until the economy gets back to normal levels of unemployment.”  Regardless, news accounts say that the jobs numbers were better than expected.
  • Remember President Obama’s first piece of legislation… the one that approved roughly $700 billion in stimulus spending?  Well, something like $500 billion of that money went to the states, and that’s why the states have been able to operate as if everything is hunky dory.  But, that money is gone now, or soon will be and the states can deficit spend or print money like the federal government can.  So, get ready because state jobs are being cut to the tune of 22,000 a month… my guess would be that pension cuts are coming soon.
  • Foreclosures are steadily rising.  Home prices are steadily falling.  Period.  What else could possibly happen, given the circumstances?  But, you can’t tell that from the headlines.  For example, get ready for the reports showing that sales were up this year as compared with last year’s anemic total, but look below the surface and you’ll find that last year’s total was the lowest in 13 years, and this year’s median price of a home was down 4.7 percent from last year.  And frankly, even those numbers are ridiculous because there’s no real, real estate market… it’s just a mish-mosh of distressed sales and short sales, with only the federal government providing the financing, and a shadow inventory so large that no one can even guess at its size anymore.
  • But nothing goes down in a straight line so don’t be fooled by interim reports offering meaningless comparisons and purporting to indicate that happy days are here again.  Nothing can change for the better until we do something to stop the free fall in housing prices, which means stopping the flood of foreclosures… and that won’t happen until we shatter the stereotype that “people bought homes they can’t afford.”  The problem with believing the happy crap is that it stops us from demanding action from our government.

Meanwhile… back at the National Association of Realtors, the following headline appeared right below the one that motivated me to write this article…

NAR: Housing Market Poised to Turn

The ever-optimistic National Association of Realtors believes the worst housing downturn since the Great Depression is almost over.

So… umm… well, okay… Yay!

Let me guess… according to the NAR, now is a good time to buy, right?

As Yves Smith would say: Quelle surprise.

Mandelman out.

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