I've been listening to many analysts these past few days cite the Case Schiller numbers that came out today along with the existing home sales numbers that came out two days ago as a sign the market is rebounding -- the numbers are *bogus* and here is why.
First - and vital - Case Schiller is a bunch of bunk. They are a 20 metro city index - 20. This is not a national number. They also have a new ETF, UMM, that trades higher if people are optimistic about the market. One of the major indices we "used to use" should be completely removed out of the market because of its now inherent bias.
I'd like to be bullish on real estate too but here is why the numbers suggest otherwise.
1. 11% increase in sales means contracts (number released this week). It doesn't mean the homes will close. This is up to banks! Have you tried to get a loan lately? :)
2. 32000 more homes sold in May to June than expected. This is 1% of the 3 million in inventory. (note: correction from .01% thanks to Mark Steele)
3. Inventory dropped from 10.8 months to 8.8 months. The 10.8 months was an over inflated number from foreclosures.
4. In major cities it is foreclosures accounting for as many as 60% of sales at incredibly reduced prices. This will create new comps for appraisers, which means many of the homes noted in #1 won't close because they won't appraise!
5. 22% of people are upside down. Studies show that when a homeowner is 15% underwater (owes 15% more than the home is worth) 1 in 4 default on purpose plus the rest that just default. More foreclosures are coming.
6. Foreclosure moratoriums have ended, so we will only now see those hitting the markets.
7. Looking at spring buying numbers - down 21.3% over this time last year. This is a good sign?
8. The tax credit incentivizing some buyers to get off the fence is ending Nov 30, 2009.
9. Jumbo defaults havent hit the market yet.
10. When we hear numbers like "new housing starts up 3%" this is NOT good news! This is inventory which = supply which = downward pressure on prices.