2012 January 20 | timiacono.com

Existing Home Sales Up, Inventory Down

The National Association of Realtors reported that sales of previously owned homes rose 5.0 percent in December to a seasonally adjusted annual rate of 4.61 million, up from a downwardly revised rate of 4.39 million in November, and the median home price rose nearly $4,000 to $164,500 last month, down 2.5 percent from a year ago.

Total housing inventory fell 9.2 percent to 2.38 million units last month, the lowest level since March of 2005, and the months of supply metric dropped from 7.2 months in November to 6.2 in December, the lowest level since 2006.

Distressed sales accounted for 32 percent of all transactions – 19 percent foreclosures and 13 percent short sales – and all-cash sales accounted for 31 percent of purchases as the share of sales made to investors seeking bargains rises at this time of the year since many traditional buyers wait for better weather in the spring or schools to let out in the summer.

Record low mortgage rates, an improving labor market, and rising consumer confidence in recent months have all combined to spur home sales, however, a backlog of foreclosures now working their way through the system in the wake of the “robo-signing” scandal last year may soon change the current supply/demand balance.

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On Root Cause(s), Four Years Hence

I’ll get to the existing homes sales report in just a bit, but, before doing so, I wanted to point readers to this commentary by Jonathon Weil at Bloomberg today that points out one of the most disturbing aspects related to the nexus of politics and finance today – the ongoing partisan divide over what caused the financial crisis a few years back.

The way the discussion gets framed tends to go like this: Did Fannie and Freddie cause the crisis? Although this is the wrong question, I’ll try to answer it anyway by highlighting the difference between the meaning of the words “a” and “the.”

Here goes. Fannie Mae was a cause of the financial crisis. So was Freddie Mac. U.S. government housing policies, which often encouraged people to take out loans they couldn’t repay to buy homes they couldn’t afford, were also a cause. None of these was “the” cause of the crisis, because there was no single cause.

Two people often cited as proponents of the notion that Fannie and Freddie caused the crisis are Peter Wallison and Edward Pinto. Both are fellows at the American Enterprise Institute, a Washington think tank. Wallison was a Republican member of the Financial Crisis Inquiry Commission who wrote a 98-page dissent to the panel’s final report in 2011.

Last month, in an article responding to a column by Joe Nocera of the New York Times, Wallison and Pinto framed their thesis this way: “Our argument is and has been that the financial crisis would not have occurred but for government housing policy implemented principally through Fannie and Freddie and the Department of Housing and Urban Development.”

It’s a debatable, if not a particularly useful, observation. One reason Wallison and Pinto have drawn so much criticism for their work is that they consistently dismiss every other possible cause of the crisis, so that only Fannie, Freddie and U.S. housing policies survive the scholars’ own “but for” test. Never mind interest rates held too low for too long, worthless regulators or banks with excessive leverage, for instance.

Even New York Mayor Bloomberg came down in the “the cause” camp a month or so ago when referring to the role the government played in the housing bubble. It’s simply amazing to me that so many people seem to insist on viewing this as a black-and-white issue – that either Washington or Wall Street are to blame, but not a combination of the two.

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Debt ‘Round the World

Today’s Daily Chart from the The Economist is chock-full of fun and interesting data on public and private sector debt around the world and, based on the graphic below, us Anglo-Saxons are clearly outpacing the rest of the world when it comes to household debt.

Of course, Japan is the unquestioned leader in government debt – about double that of second place Italy – but, flipping through the tabs of this interactive graphic reveals that, overall, the U.K. is the worst of the lot … it’s a good thing they can print their own money.

Friday Morning Links

Greece, creditors edge closer to deal – Reuters
IMF’s Lagarde warns on austerity and growth – BBC
The IMF is no longer serving its purpose – Telegraph
Ireland passes latest austerity test – CNN/Money
Bonds Show Return of Crisis Once ECB Loans Expire – Bloomberg
Moody’s warns it will likely cut ratings on big bank – Reuters
Financial Crisis Narrative Flunks Reality Check – Weil, Bloomberg
FAQ: What’s next for SOPA, PIPA in Congress – Washington Post
More Evidence JP Morgan Stuck the Knife in MF Global – Naked Capitalism
How Deflationary Forces Will Be Turned into Inflation – Mises
The ‘Perils’ of a Gold Standard? – Implode-O-Meter
Alan Greenspan’s ship of fools – Baker, Guardian

Oil prices slip under $100 per barrel – AFP
Gold below $1,650 as euro rally fades – Reuters
Where to put your money if the bond bull stumbles – MarketWatch
Investors exit big-name funds as stars fail to shine – Reuters
JPMorgan alone in raising Q4 commodity risk exposure – Mineweb
Gold ETF remains top investment option last year – Bullion Street
Central bank gold buying hits 430 tons, highest since 1964 – Commodity Online
Paper and Physical Silver Prices Are Not Decoupling Yet – Kid Dynamite
“The Chinese really love gold” – Banks pushing citizens to buy – Reuters
“A Longer-Term Perspective On Gold” And More, From Nomura – Zero Hedge

Shilling says new global recession is here – MarketWatch
About Faster Inflation, Please Stay Worried – Kinsley, Bloomberg
Industrial Production Is Why LEI Is Being Revised – Financial Sense
China’s Manufacturing Contraction Boosts Case for Monetary Easing – Bloomberg
UK retail sales up for December as shoppers shrug off economic fears – Guardian
Abandoning Ship: Italian Paper Likens Merkel to Shipwreck Captain – Spiegel
Is Canada’s economy really dependent on global trade? – Globe & Mail
Housing: Record Low Total Completions in 2011 – Calculated Risk
‘Robo’ Foreclosure Settlement Turns Political – CNBC
O.C. foreclosures take year to complete – O.C. Register
The Fed missed the housing bubble and its effects – O.C. Housing News
A Quartet of Fed Chairmen Body Slam Bernanke – auontrarian

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