Kass: The Simple Math of Subprime's Slide

These posts Doug Kass were originally published on March 26 on Street Insight. They're being republished as a bonus for TheStreet.com and RealMoney.com readers. For more information about subscribing to Street Insight, please click here.

It is truly remarkable how the slightest provocation (last week's "solid" home-sales headline) had the media and other permabullish types declare that the housing market has finally bottomed (again!) and that the impact on the subslime mess would be contained.

Here is a more accurate analysis of what occurred in housing last month:

"Home sales increase in the springtime month over month, every year, even if the world is ending. It's called "the homebuying season" for a reason. So you don't look at February vs. January, or April vs. March. No, just like retailers look at Christmas vs. Christmas, not Christmas vs. July, any dummy that follows the housing market looks year over year. Here's the real numbers, and headline the MSM should have reported: Dubious NAR report shows home sales continue to crater, off 3.7% vs. last year, while unsold inventory explodes by another 763,000 units and median sales price (without incentives) is down 7.6% from peak.

February used-home sales (per the dubious NAR numbers) were supposedly 387,000 units, vs. 402,000 units February 2006, down 3.7%. Inventory is now at 3,748,000, vs. 2,985,000 in February 2006, up 763,000 unwanted homes, or 25.6%. And the median sales price (without cash back or incentives) in February of $212,800 is down $17,400 from the July 2006 peak. (Here is a further analysis that underscores the weakness -- not the strength -- in the housing market. -- Housing Panic Blog

Perusing the historically misguided statements by former Federal Reserve Chairman Greenspan and NAR economist David Lereah that follow suggests almost as much denial as Simmons and Fisher registered 78 years ago -- right before the Great Depression roiled the U.S. economy.

Oops!

October 2006: Greenspan foresees a housing "bottom."

"Last week's rise in weekly mortgage applications" could signal that "the worst may be over for housing." -- October 2006.

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2006-07: Lereah on the multiple housing "bottoms" and opining on the quality of mortgage lending.

"It was very clear that the standards had deteriorated ... I'm not a lender though, I kept on saying to myself -- I guess they know what they're doing. -- March 2007.

"It appears we've hit bottom, the price drops are necessary to stir sales. It's working. ... It's important to focus on where the housing market is now -- it appears to be stabilizing and comparisons with an unsustainable boom mask the fact that home sales remain historically high." -- December 2006.