U.S. new home sales fell to an all-time low in 2011 for a third consecutive year, amid growing consumer distrust of the same housing industry which helped precipitate the worst economic climate for middle-class Americans since the Great Depression.
Officially, purchases fell 46 percent to a record low of 302,000 in 2011, from the 560,000 new homes sold when the government began tracking new home sales in 1963. However, a Cynical Times analysis found the true decline was much more precipitous once the data was adjusted for population growth.
More along the lines of 67 percent, than the official 46 percent.
The Cynical Times figure for new home sales-per-million Americans was 962 transactions in 2011, when the national population was 314 million people. That compares with 2,958 transaction per million Americans in 1963 when the national population was just 189 million.
Pretending the population remained the same during the 49 years this data was being collected makes the decline seem less precipitous than it really is.
Why doesn’t the government level with consumers by adjusting its housing data to reflect our growing poopulation?
Because the government doesn’t want people to know just how bad things really are in a housing market which has been battered by its own self inflicted wounds. The most serious of which has been the systemic betrayal of the trust of its own customers.
New home sales have averaged 2,719 per million Americans in the 49 years new home sales have been tabulated by the U.S. government. The sales rate has fallen below 1,000 only once. The year was 2011.
“I blame the Fed – front and center,” said economist Dean Baker, a member of the reality-based community who is co-director of the Center for Economic and Policy Research in Washington, D.C. “Amazingly, they just didn’t see the housing bubble and just didn’t see how it could affect the economy.”
The difference between the official 46 percent decline and the actual 67 percent decline being reported exclusively by The Cynical Times is due to the much larger number of people now making home purchases. The U.S. population has grown to 314 million people from 189 million since 1963.
The U.S. Commerce Department does not adjust new home sales
for population. This “oversight” makes the housing market appear to be more robust than it really is.
The government engages in a similar shell game with monthly job creation, by failing to disclose that zero is actually 100,000 to 130,000. That’s the minimum number of new jobs needed each month just to tread water due to population growth, according to most national economists.
“It really shows and highlights the real trend,” Economist Anika Khan of Wells Fargo Securities, said of the sales-per-million figure championed by The Cynical Times. “On a monthly basis it’s hard to tell what the real trend is.”
The annual housing data for 2011 was facilitated by the Jan. 26 release of new home sales data for the month of December by the U.S. Commerce Department. Sales fell short of economist expectations in the final month of 2011. Again.
New home sales declined 2.2 percent to 307,000 in December from a revised 314,000 in November on a seasonally adjusted annual rate. It modifies the monthly data to account for seasonal fluctuations due to weather. Economists had expected an adjusted annual rate of 320,000 for December.
The actual number of new home sales in December was 21,000 on an unadjusted basis, down from 22,000 in November. Those smaller monthly figures represent straight sales. Meaning that’s how many sales actually occurred.
For some reason, the government seems incapable of making the kind of adjustments to its economic data which tells the average voter just how bad bad really is.
New home sales accounted for only 5 percent of the residential real estate market in 2011, compared with 15 percent in 2005. One reason for that decline is the huge amount of used dwellings on the market as a result of middle-class families being forced from their homes.
This is the kind of thing that happens when the Federal Reserve abandons the middle class to predatory business interests
“The housing recovery is going to be extremely slow,” Khan said. “We’re still dealing with a large supply of deeply discounted homes because of foreclosures, short sales, and REOs.”
REO is industry parlance for a real estate owned home – a home owned by a bank.
Middle-class home loss is a huge problem, which the Occupy Wall Street movement has sought to highlight in recent months. The group, which champions a more equitable distribution of wealth in the U.S., held a foreclosure auction blockade today in Brooklyn.
The U.S. housing and banking industries began sowing the seeds for the implosion of the U.S. housing market more than 30 years ago. Its demise has crippled the U.S. economy, which the Fed acknowledges is being held back by the housing market.
Our current economic troubles began with the deregulation of the banking industry by former President Ronald Reagan, a Republican. They were further exacerbated by former President Bill Clinton, a Democrat. Both political machines enacted policies at the behest of industry lobbyists which advanced the interests of the wealthiest 1 percent of Americans in exchange for huge political donations.
Reagan signed a bill in 1980 undermining the state usury laws which capped interest rates in most states at 11 percent. He followed up with a 1982 law that allowed lenders to depart from traditional fixed-rate home loans and begin offering the kind of nontraditional mortgages embraced by predatory lenders. The sketchy mortgages included exotic feature such as balloon payments, adjustable rates and interest-only loans.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 swept away the final state barriers to in-state banking. The Gramm-Leach-Bliley Act of 1999 tore down the walls which previously had separated banking, insurance and investment companies.
Meanwhile, Clinton – who destroyed millions of American jobs when he signed the North American Free Trade Agreement in 1993 – thought it would be a grand idea to increase homeownership by turning Freddie Mac and Fannie Mae loose. The two
government sponsored enterprises repurchase mortgages and bundle them together into an investment vehicle called mortgage-backed securities. As do many big investment banks.
Mortgage Backed Securities helped funnel Wall Street dollars into housing and allowed the two entities to repurchase more mortgages. The resulting influx of capital led to a surge in housing prices.
New home prices soared 82 percent to $246,500 in 2006 from $133,900 in 1995. Millions of Americans borrowed money against the new equity these higher prices created for them and were saddled with huge debts when home values plummeted
The new securities also created a financial incentive for predatory lenders. They targeted homeowners with little or no financial knowledge in their quest for mortgages to resell to the unwitting Fannie Mae and Freddie Mac.
Predatory lenders undermined entire inner-city neighborhoods in the absence of any meaningful deterrence from the Fed. They also encouraged homeowners to refinance their homes under unmanageable terms and encouraged new home buyers to purchase larger homes than they could afford.
The climate of exaggeration in the housing industry ran from top to bottom. It ranged from mortgage lenders, to unprincipled home builders bent on profit growth at any cost, to appraisers who routinely inflated the value of the homes being sold. This broken bond of trust with consumers continues to hamper both the housing industry and the overall economy, despite lower prices and historically low mortgage rates.
The housing industry has tried to proceed with business as usual as if nothing happened when the hosing market imploded in 2006. Instead of taking steps to acknowledge the sins of the past and rebuild consumer confidence in its institutional integrity.
“I think we do need that kind of statement from the industry,” said Lynn Reaser, chief economist at the Fermanian Business & Economic Institute and former chief economist at Bank of America’s Investment Strategies Group. “There’s still a bad taste in many people’s mouths because of the abuses during the (housing) boom.”
Federal Reserve Chairman Alan Greenspan also played a major role in the implosion of the housing industry. He opened the floodgates for deception by opting to allow the market to police fraud itself instead of regulating the exploitation of financially illiterate consumers more aggressively.
A huge pile of broken middle-class families.
The current housing market is a textbook example of what happens when you allow market forces to police fraud, according to Baker.
“It’s kind of a crazy economic idea that companies should be allowed to commit fraud – that they should be allowed to lie, cheat and steal and at the end of the day people won’t do business with them,” Baker said, “but that’s what we did. It just makes no sense. It’s like saying let’s not have police in stores.
“It’s an invitation to abuse. You have to have laws that are enforced and these laws have to include fraud.”