Housing Market

Could housing prices be stabilizing?

All you need to read.

Wonder how Americans can afford to buy millions of iGadgets, a second LCD TV for the shoe closet, and eat at restaurants more than almost any time in the past despite sliding personal income? Simple - increasingly fewer pay the biggest staple bill in a US household: their mortgage. The following story of Keith And Janet Ritter, who have lived in their Fort Washington, MD $1.29MM, 4,900 square foot McMansion for 5 years (which they purchase with no money down) without ever making a single mortgage payment, and who are not even close to being evicted, may explain much about the way US society currently operates, and why other perfectly responsible and hard-working taxpayers (who do have to pay for their mortgage) continue to fund tens of billions in Fannie and Freddie losses who are first on the hook to absorb the implicit losses by allowing families such as the Ritters to live in perpetuity without paying, and the banks to keep said mortgage on the books at par without any impairments.

Less risk, maybe, but that's a long way from a sustained recovery. 

And now for a word from Fireman Tim...

Nearly two years after his catastrophic foray into Op-Ed writing, here is Tim Geithner's latest, this time making the hypocritical case to "not forget the lesson from the financial crisis"... which he himself ushered on America as head of the New York Fed. Frankly we are quite sure it is not even worth reading this drivel: the unemployed man walking has been a total disaster during his entire tenure (at both the New York Fed where he supervised all the banks that subsequently fell, and the Treasury), and we are fairly confident that reading anything written by this pathological failure will cost collective IQs to drop by 10 points at a minimum. Hey Tim: is there a risk the US can get downgraded? Any risk?

European indices are trading in minor positive territory ahead of the North American open with tentative risk appetite. This follows news that the EU leaders have signed off on the EU fiscal pact, with German Chancellor Merkel commenting that 25 out of 27 countries have signed the agreement. The effects of the ECB’s LTRO continue to trickle through as the ECB announce they received record overnight deposits of EUR 777bln from European Banks. Little in the way of data today, however UK construction PMI released earlier in the session recorded the highest rate of increase in new orders for 21 months. In the energy complex, Brent futures have come down below USD 125.00 from yesterday’s highs with WTI echoing the movements, following market reaction to the confirmation that there were no acts of sabotage on Saudi pipelines yesterday, according to Saudi officials. EUR-led currency pairs are trading down on the session, and USD/JPY continues to climb, hitting a 9 month high earlier today at 81.72.

All you need to read.

European bourses are trading in positive territory ahead of the North American following a relatively quiet morning in Europe. Markets are led by the financials sector, currently trading up around 1.10%. This follows yesterday’s ECB LTRO. As such, the 3-month Euribor fix has fallen to 0.967%, a significant fall in inter-bank lending costs. PMI Manufacturing data released earlier today came in roughly in line with preliminary estimates. The Eurozone unemployment rate for February has also been released, showing the highest jobless rate since October 1997. There has been little in the way of currency moves so far in the session; however there may be fluctuations in USD pairs following the release of ISM Manufacturing data and weekly jobless claims later today.

Just like the housing market in the US, following the modest blip higher in December Greek bank deposits, immediately the great unwashed took to calling an end of the Greek deposit outflow and seeing a glorious renaissance for the country's bank industry. Well look again. According to just released data from the Bank of Greece, January saw Greeks doing what they do best (in addition to striking of course): pulling their money from local banks, after a near record €5.3 billion, or the third highest on record, was withdrawn from the local banking system. As a result, total bank cash has now dropped to just €169 billion, down from €174 billion in December, and the lowest since 2006. This is an 18% decline from a year ago, or €37 billion less than the €206 billion last January, and is a whopping 30% lower than the all time deposit highs from 2007, as nearly €70 billion in cash has quietly either left the country or been parked deep in the local mattress bank.

On this leap day, we have a busy schedule which includes the second Q4 GDP revision, Chicago PMI (expect another massive beat courtesy of consumers confident that they can have Apple apps, if not so much food, since they still don't pay their mortgages), various Fed speakers, of which most important will be Ben Bernanke who takes the podium in Congress at 10 am for his semi-annual monetary policy report.

In a previous report, Headwinds for Housing, I examined structural reasons why the much-anticipated recovery in housing valuations and sales has failed to materialize. In Searching for the Bottom in Home Prices, I addressed the Washington and Federal Reserve policies that have attempted to boost the housing market. In this third series, let’s explore this question: is housing now an attractive investment?  At least some people think so, as investors are accounting for around 25% of recent home sales. Superficially, housing looks potentially attractive as an investment. Mortgage rates are at historic lows, prices have declined about one-third from the bubble top (and even more in some markets), and alternative investments, such as Treasury bonds, are paying such low returns that when inflation is factored in, they're essentially negative. On the “not so fast” side of the ledger, there is a bulge of distressed inventory still working its way through the “hose” of the marketplace, as owners are withholding foreclosed and underwater homes from the market in hopes of higher prices ahead. The uncertainties of the MERS/robosigning Foreclosuregate mortgage issues offer a very real impediment to the market discovering price and risk. And massive Federal intervention to prop up demand with cheap mortgages and low down payments has introduced another uncertainty: What happens to prices if this unprecedented intervention ever declines? Last, the obvious correlation between housing and the economy remains an open question: Is the economy recovering robustly enough to boost demand for housing, or is it still wallowing in a low-growth environment that isn’t particularly positive for housing?

Many want to believe that a stock market that has doubled from the March 2009 low (or added $9tn in market cap) has to mean that the US economy is in a healthy long-term recovery. Unfortunately, as Charles Biderman of TrimTabs explains, the PollyAnnas are wrong. The sentiment, built on the three pillars of an improved labor market, higher corporate earnings, and the return of the housing market, are all based upon misleading data. Starting from the position of discovering where the new money is coming from, the Bay Area Beau dismantles each of the pillars one by one and ends by noting that it is not Gold, which has outpaced stock market gains, that is a phantom currency but the USD.

Little that can be added here. The December Case Shiller came, saw, and shut up all those who keep calling for a home price recovery. The Index printed at 136.71 on expectations of 137.11, with the prior revised to 138.24. The top 20 City composite was down -0.5% on expectations of a 0.35% drop. 18 out of 20 MSAs saw monthly declines in December over November, with just the worst of the worst - Miami and Phoenix - posting a dead cat bounce, rising 0.2% and 0.8% respectively. And granted the data is delayed, but the fact that we have now had 8 consecutive months of home price declines even with mortgage rates persistently at record lows, and the double dip in housing more than obvious, can we finally shut up about a housing bottom? Because as Case Shiller's David Blitzer says: "If anything it looks like we might have reentered a period of decline as we begin 2012.” QED

Could Sweden or Finland be the scene of the next European financial crisis? It is actually far likelier than most people realize. While the world has been laser-focused on the woes of the heavily-indebted PIIGS nations for the last couple of years, property markets in Northern and Western European countries have been bubbling up to dizzying new heights in a repeat performance of the very property bubbles that caused the global financial crisis in the first place. Nordic and Western European countries such as Norway and Switzerland have attracted strong investment inflows due to their perceived economic safe-haven statuses, serving to further inflate these countries’ preexisting property bubbles that had expanded from the mid-1990s until 2008. With their overheated economies and ballooning property bubbles, today’s safe-haven European countries may very well be tomorrow’s Greeces and Italys.