NAR At it Again: Spin Control

The National Association of Realtors (NAR) released monthly housing data today that shows existing-home sales in July increased by a seasonally adjusted 3.1%. While this number may seem exciting and could be interpreted as a thaw in the housing crisis, most other data point in the opposite direction.

Deeper into the report, the NAR mentions that inventories, which currently represent 11.2 months of supply, are at highs not seen since the 1980’s. Additionally, the report states median home prices have fallen 7.1% year over year and sales volume is down 13.2% year over year. The NAR doesn’t provide month over month median price data, citing “mix of homes issues” that are conveniently overlooked in the positive sales volume data.

While this report falls short of “calling the bottom” in the housing market (a tack often taken in NAR economic reports), the NAR has once again obfuscated the true state of real estate markets by focusing on the single positive datum in the entire report.

Yes, there was a blip in sales in the past month, but in the larger picture things remain bleak. Almost 40% of sales were distressed transactions, which is hardly indicative of a market that's poised to rebound. It will take more than a single month of increased volume to convince any rational observer that things are truly on the mend.

National Association of ... Really Really Good Liars

Housingwire.com reports that pending home sales levels have fallen significantly since this time last year, according to data released by the National Association of Realtors (NAR). The NAR report on the same data is titled “Pending Home Sales Rise, Wider Gains Anticipated….”

So where’s the discrepancy? How can the exact same data tell one group that things are getting worse while another group sees it as an improvement? The answer is all in how you look at it. While the NAR points out that their pending sales index was up 5.3% in June relative to May, Housingwire.com thinks it’s more appropriate to compare apples to apples and compare June data to June data. This comparison shows a 12% decline from this time last year.

Who’s right? In this case, we strongly agree with Housingwire. Home sales always make a move up in the summer months, simply as a result of cyclical pressures on the market. By comparing May to June data, the NAR has successfully pointed out this fact. However, in claiming that this increase represents a reason to project overall improvement in the housing market, the NAR is grossly over-exaggerating the importance of that particular statistic. Such spin is commonplace for the NAR, which has been propagating the “buyer’s market” fallacy since the credit crunch began by whatever means available to it. (witness the NAR's chief economist Lawrence Yun's insistence the turnaround is just around the corner ... since January 2006.)

In the uncertain waters of today’s real estate markets, it’s hard to know who to turn to for objective information and analysis. Many in the media will stake a claim to objectivity, but such claims are often exaggerated at best and ludicrous at worst.

In reality, objective information is not easily found and does not come cheap. In some cases, however, it is easy to see when a particular organization’s interests do not align in the least with anything remotely approaching objective analysis. This is clearly the case with the NAR, who’s analysis and reports should be avoided like the plague by anyone actually interested in the true state of the housing markets.

Morgan Stanley Latest Band-Aid Over Fannie, Freddie's Bullet Hole

This post first appeared on Minyanville and our sister site Dawn Patrol.

It looks like all those short-sellers might have been on to something.

Freddie Mac (FRE), the beleaguered mortgage giant that was just weeks ago on the brink of collapse, released second quarter results this morning that were nothing short of abysmal. Along with the financial backing of you, me and all the other US taxpayers, the government-sponsored enterprise now has:

• $831 million loss or $1.63 per share, compared with net income of $729 million a year ago.
  
• Revenue fell 28% to $1.69 billion compared to last year.
  
• $2.5 billion in credit loss provisions and $1 billion in mortgage-related writedowns.
  
• Board approval to slash dividends from $0.25 per share to “$0.05 or less”.
  
• The intention to raise $5.5 billion or more in fresh capital.

Although the company currently meets capital requirements demanded by its regulator, the Office of Federal Housing Enterprise Oversight, it may fall below those levels if the housing and credit markets continue to deteriorate.

Last month, shares plunged on fears that Freddie and its larger cousin Fannie Mae (FNM) would crumble under the weight of mounting losses in their massive mortgage portfolios. The Treasury Department tried to shore up confidence by demanding Congressional approval to support the 2 companies, should the need arise.

Treasury announced this week it had hired Morgan Stanley (MS) to help sort out the mess and assess the two companies’ financial positions.

It takes a very active imagination to think a company capitalized with just $37 billion to support more than $2 trillion in U.S. mortgage debt is anything resembling stable.

Although Fannie and Freddie managed to avoid buying the worst of the subprime mortgages originated during the housing boom, many equally toxic Alt-A and other non-prime loans made it onto their balance sheets. Even marginally savvy originators were able to exploit their automated underwriting and risk systems, resulting in the loss of billions of dollars from questionable loans.

Fannie and Freddie are now paying for their transgressions - or rather, the American taxpayer is paying, since Congress gave Treasury Secretary Hank Paulson what amounts to a blank check to bail out the two failed companies.

The only questions left are: When will Fannie and Freddie collapse, and what form will they take thereafter?

Many advocate for privatization, splitting the firms into several publicly traded companies. Others, mindful of the Federal government’s tendency to privatize profits and socialize losses, expect outright nationalization.

One near-certainty, irrespective of the outcome of their current crisis, is that Fannie and Freddie's ability to keep mortgages rates artificially low will be greatly reduced. That doesn't bode well for anyone considering buying a house in the next 20 years.