Housing Doubters Must Now Contend With Data
- Joshua M Brown
- August 8th, 2012
No one in their right mind would refer to the current trend in housing as a rip-snorting bull market - but to dismiss the amelioration out of misplaced loyalty to a long-held pessimistic outlook would be a mistake.
As a refresher - the Fed is making it so the banks can keep millions of foreclosed properties on their books forever and never mark them down. Elsewhere, there's also been some accounting changes that allow the banks to mark-to-make-believe to some extent. I'm not asking you like or approve of these things, just to understand that they are happening. They put the banks in a position of flexibility in terms of pricing and the timing of when they sell them off.
There are buyers for foreclosed homes - Wall Street is raising billions of dollars in new vehicles to scoop them up. Hedge funds are buying them up as well. This will intensify as it's a trade with homerun potential over the next decade and Big Money needs a homerun right about now.
The typical housing permabear (yes, there is a such thing now) will frequently cite the "shadow inventory" of foreclosures that will swamp the market when it comes up for sale. They don't get it - it won't be coming to market at all. At least not until such time as the banks want to offer it. And now there are hungry buyers, negating that aforementioned stale thesis even further.
And of course, this combined with the secret ingredient (T.I.M.E.) is leading to some interesting signs of improvement in the housing market...
From WSJ's CIO Report:
A housing rebound bodes well. We’re starting to see more signs of life from one of the lynchpins of the economy—housing. As the Journal’s Nick Timiraos reports, home prices rose by 2.5% in Q2 – the largest percentage jump in at least seven years, according to data from CoreLogic. Freddie Mac, meanwhile, offered some stats of its own using a different methodology, which showed a 4.8% increase from the previous quarter — the largest rise since 2004. The spike in home prices also helped Freddie Mac post its best quarterly profit since the government took control of it four years ago.
The gains are mostly down to dwindling supply – new-home construction is still depressed and banks have been slowing their foreclosure processes, while low interest rates are helping boost demand. But the trend seems to be a broad one. “CoreLogic said 71 of the nation’s top 100 metropolitan areas saw prices rise on a year-over-year basis in May, compared with just 19 markets in December. That was the largest number of rising metro areas since November 2006, when home prices began to tumble.”
CNNMoney points out another positive sign: Last month’s jobs report showed that homebuilders added 5,800 workers in July — about the same number they were adding during the real estate boom of 2005 and 2006.
Bill McBride also has even more notable data on the continuing improvement in the housing market and its fledgling impact on the rest of the economy...
From Calculated Risk:
I expect CoreLogic and Zillow to report a meaningful decline in the number of homeowners with negative equity in Q2. We might see something like 1 million households that regained a positive equity position at the end of Q2 2012. These are borrowers who might find it easier to refinance, or sell if needed.
We will probably also see a meaningful decline in the number of newer mortgage delinquencies. Note: The MBA Q2 National Delinquency Survey results will be released this Thursday.
Another impact that we've discussed before is the impact on listed “For sale” inventory. Seller psychology is very different if prices are perceived to be falling, as opposed to if prices are stabilizing or even increasing. If potential sellers think prices will fall further, then they will rush to sell and list their homes right away. That behavior pushes up inventory. But if potential sellers think prices are stabilizing, and may increase, then they are more willing to wait until it is more convenient to sell. I think we've been seeing this change in psychology for some time.
I am of the belief that the one thing that can stave off a new recession is a steadily improving home market. The wealth effect from housing is 10X vs whatever the hell Bernanke is trying to accomplish by pumping up the stock market. Let's hope the trend continues.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.