This page has been archived and commenting is disabled.
4 emerging trends in the housing market
The market seemed to be stunned that pending home sales fell in spite of mortgage rates being so low that they are essentially tracking inflation. Yet the narrow focus on financial liquidity still continues to miss the slow degradation of the American household balance sheet. I always found this fascinating even during the boom how rarely household incomes were mentioned in the context of purchasing a home. People at networking events or cocktail parties were quick to talk about their “$700,000” or “$1 million” home purchase yet felt that it was taboo to discuss actual income growth. In many ways buying a home with a giant mortgage became a socially acceptable way to flaunt your notion of wealth instead of pulling out your electronic pay stub. So this fall in pending home sales is merely a reflection of the shadow inventory leaking out into the market but also of weak household income growth. The Case Shiller Index made a new post bubble low in synchronization with the new mortgage rate low. What is going on with the housing market?
Case Shiller Index
The Case Shiller Index showed a new post bubble low but overall with year-over-year changes we do appear to be reaching a nationwide bottom. Even the creators of the index discussed that it trails the market by a few months and recent buying does suggest that overall we may be reaching a bottom. You can see this in the index:
The year-over-year drops are starting to stabilize and will likely turn up. Yet this is likely temporary unless wages go up. But as many are noting, a bottom does not mean home prices will rise or even outpace inflation. The push of mortgage rates lower is occurring because the credit markets need more and more dramatic efforts to keep the massive debt game going. So a lower mortgage rate almost becomes like a pay boost for many homeowners and those massively in debt. Yet with rates straddling the lower bound this fuel is being quickly wasted while the Federal Reserve balance sheet still is at peak levels with nearly $3 trillion in “assets” that we have little idea about.
New home sales
The leaking out of shadow inventory also has other unintended consequences. Since we have years of inventory to work through, there is little need for construction or the creation of new homes. In fact, the low range and the high range of new home sales continues to be crushed:
More new homes priced above $750,000 were sold in 2002 than in 2012 and that also applies to homes under the $125,000 range. Both of these markets are down by roughly 90 percent from their peaks and are both near their nadir. You notice that tiny little uptick in the red line? That means whatever new homes sales are occurring are coming from the sub-$125,000 market. Builders that are low-cost are seeing a mini-boost but definitely not in the more expensive segment of new home sales.
Regional sales differences
I find it interesting that the big existing sales jump has occurred in the Northeast and Midwest. The South and West which had the biggest bubbles are seeing more moderate home sales increases. Sure we hear about ravaging hoards of investors swooning in on Las Vegas and Arizona but overall, it doesn’t seem like a massive jump. What do these investors have in mind? The rental market is currently flooded and the flipping action will slow down since the underlying economy is still hurting.
The tight range of sales
The recent tick up in sales which is now losing steam came largely from the ridiculously low mortgage rate that is absolutely artificial. Even in California all the rhetoric about buying a home when put into a bigger picture context shows a very tight sales range:
Where is the massive jump in home sales courtesy to 3% mortgage rates? Could it be that our financially broke state is likely going to be cutting and raising taxes soon? After all, if things were so fantastic you would expect tax revenues to be up but sadly they are not. Remember all the tax revenues we were going to get from the Facebook IPO? Try seeing how well that stock is doing plus you have one of their top winners renouncing their citizenship conveniently to help with taxes. Like Europe is quickly realizing, extending loans into the future is like playing a big game of kick the can. I find it amusing how easily some analysts just quickly accept the fact that the shadow inventory is somehow a normal occurrence instead of a giant pseudo nationalization of the housing market. They talk about the “market” and mortgage rates as if they are being set by the market instead of glorious manipulation to benefit financial institutions. In California, the underemployment is still above 20 percent and tens of thousands are losing unemployment insurance on a monthly basis and falling off the employment statistics but hey, at least we have low mortgage rates!
- advertisements -






Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.
another article that ignores demographics and Location of the bubble. Next....
I love Dr. Housing Bubble. But I was jiust on Fox Business with Lori Rothman discussing GSE tight credit and how an all-cash recovery will be limited.
http://confoundedinterest.wordpress.com/2012/06/06/fed-says-moderate-economic-growth-and-housing-market-improvement-white-houses-mortgage-refi-for-dummies/
New show on HGTV.
'Flip this refrigerator carton.'
If an analysis consists mainly of looking at the first and second derivatives of the Case-Schiller national price index, I would opine that the analysis is superficial.
We are nowhere near a housing bottom. When it is reached, over a decade from now, housing will remain on that bottom for another decade at least.
The longer the government plays games with this market, the longer the decline will last.
Here's how you boost the home sales market. Buy a $3K junk home in Detroit. Install a safe and put in $500K in gold coins. Offer the home for sale for $503K. Clearly it will be appraised for $503K. Now, people can put down $10K and get a $490K mortgage at 3.5% to cover the rest. That's a whopping big leverage. If you're tired of taking care of the house carry away the coins and leave the rest for the bank!
Australia continuing its nosedive due to 1.bubble house prices way out of line with incomes, and 2. slowdown in Chinese demand for Oz resources:
For the year, residential values dropped 5.3 per cent, with Melbourne contributing the worst performance, given its property prices dropped 2.7 per cent in May. Darwin dwelling values slid 2.4 per cent.
Apartment prices fared better than houses and the premium market suffered more than most.
"Premium dwelling values have fallen by 6.1 per cent over the 12 months ending April 2012 while dwelling values at the affordable end of the spectrum are down by just 1.5 per cent,'' Tim Lawless, senior economist with RP Data, said.
http://www.theaustralian.com.au/business/home-prices-drop-despite-rate-c...
The world will be in a deleveraging mode for a long long time.
"Australia continuing its nosedive due to 1. bubble house prices way out of line with incomes, and 2. slowdown in Chinese demand for Oz resources:"
Coming to a Canadian market near you,(same conditions):
a house in Toronto is just short of $1M dollars when average per capita incomes for that city are about $40K /year.
Quite a disconnect, I would say, if that's not a bubble I don't know what is.
Ther Geithner equivalent is kind of worried, he should be:
"Canada could be buffeted by contagion from Europe: Flaherty G20 ministers to discuss Europe crisis on Tuesday By Allison Martell, Reuters June 4, 2012 Read more: http://www.calgaryherald.com/business/Canada+could+buffeted+contagion+from+Europe+says+Finance/6726149/story.html#ixzz1xEVkNP1H "Very few people actually qualify for the low rate. There is also a mountain of income verification paperwork and multiple requests for cash collateral to go through and lengthy close times. That's for people with 800+ FICOs and 20% or more down. I saw one where it was 75% down and it still took 6 months. That was awhile ago though on a more expensive property. People with 700+ scores are probably 100 basis points or higher than "best rate" depending on locale with deep scans of history dating back to DOB along with multiple interviews with psychiatrists, astrologers, psychologists along with a very humiliating body cavity search with images sent to former lovers asking to "name that Cavity".
Anything below 720 is a sub-prime renter in a copper-less door-less windowless condemned property for 2G a month.First 6 months rent up-front.
Of course there is just a tinge of over amplification in this post.
...and all the people who think they got away with something by walking away from their "underwater" house only ruined their chances NEXT time they want to buy.
The homebuyer "pool" is exponentially smaller.
I was clear on my house but decided that I should get half my equity out, got a 3% 15 yr fixed from Navy Fed. It was 2.5 months of paperwork hell to get it and I have good credit and my business income is solid.
I am not sure who could qualify for a 20% down mortgage at the best rates, I also found that the appraisers are 'scared' and are very conservative on valuations. No wonder sales are so slow.
With unemployment rising, food stamps at 50 million (and soaring) and uninsured at 50 million (and rising), I don't see house prices "bottom" any time soon.
I have to agree with Shiller that another 20% drop will proceed downward.
Thing is, rather than letting prices drop down to clear the market, many will absorb the loss themselves all while engaging in mark-to-unicorn accounting to hide the fact.
With this in mind, I don't see prices dropping so much more, as I do watching the market stagnate until inflation in all other things restores some bit of a reasonable balance.
Like any real estate agent will tell you, people buy their homes just like they buy their used cars: it's all based on the payment they can "afford," not the actual price of the asset.
A $2,000 monthly payment at 4% interest (30yr term) buys about a $450,000 home. So naturally a buyer with a $2,000 budget will look for homes priced up to $450k. Of course once these artificially suppressed rates revert back to a historical norm of just 7%, the guy with a $2,000 monthly payment buget can buy only a $300,000 home.
Current rates are masking what will likely be another significant leg down........................
Yea, and add to this the fact that when the $450k home drops in value to $300k, the underwater owner renegs on his mortgage and that house forecloses and comes back into the inventory again too. It's a viscious spiral until you get to the true bottom.
Thanks for the article.
dont' buy that house.
you want to know how to get rich?
don't buy anything.
live in the same house for 50 years, don't own a car, Google Grace Groner
So: buy 3 shares of stock, never spend any money, live to be 100 and you too can be a millionaire?
I know it worked for her but hardly a plan the rest of us can profit by.
LOS ANGELES (Reuters) - The smell of rotting food and decay inside 10956 South Wilmington Avenue, Los Angeles, was overwhelming.
A burst pipe in the kitchen ceiling leaked water onto a floor littered with half empty cans, razor blades, odd shoes, stained clothing and an upturned, mold-ridden sofa. Windows were smashed and boarded up.
The vacant home was foreclosed on in August 2011 by Bank of America, which has done nothing to repair it.
Of roughly 400 bank-owned homes surveyed in the area, half are in a state of blight, with a third "seriously blighted," according to two activist groups, Good Jobs LA and the Alliance of Californians for Community Empowerment.
U.S. cities struggle with blighted bank-owned homes(Reuters)http://news.yahoo.com/cities-struggle-blighted-bank-owned-homes-04110815...
Struggle? City government critters absolutely LOVE blight, as it gives them a mandate for action (not to mention access to funds from Uncle Sugar).
What do the "bobbing heads" mean when they say "housing recovery?"
Do they mean a return to the bloated home prices that CAUSED this recession?
Prices will continue to slide until existing inventory and "new" foreclosures are ALL sold.
Sales will continue to drop until unemployment improves.
Let me summarize this with a quote: "Here's a bottom. Now's a good time to get in."
I've heard that before, but not since my marriage certificate was filed at the courthouse..................