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Guest Post: Housing Recovery: What Has Been Forgotten?
Via Lance Roberts of Street Talk Live,
As of late there has been a flood of commentary written about the housing recovery pointing to the bottom in housing and how the revival in housing will drive economic growth in the years ahead. Just recently USA Today wrote:
"Six years since the start of the greatest housing collapse since the Great Depression, one doesn't have to look very far to see signs of a recovery. Nationally, home prices are rising after more than a 30% drop since mid-2006. More good news arrived Tuesday, as the Standard & Poor's/Case-Shiller home price index reported third quarter prices were up 3.6% from a year ago and September's 20-city index reached its highest level in two years. Foreclosures have slowed in most of the country after having decimated hundreds of U.S. cities. Rather than being a drag on the U.S. economy, housing is now seen as a contributor to growth."
It is true that the revival in the housing market is a positive thing and is certainly something that everyone wants. However, the hype surrounding the nascent recovery to date may be a bit premature. The chart below shows the Total Housing Activity Index which is a composite index of new and existing home sales, permits and starts. The blue dashed box represents encompasses the much ballyhooed recovery since the recessionary lows.
There is no argument that housing has improved from the depths of the housing crash in 2010. However, while the housing market remains at very recessionary levels, recent analysis assumes that this has been a natural, and organic, recovery. Nothing could be further from the truth as analysts have somehow forgotten the trillions of dollars, and regulatory support, infused to generate that recovery.
I recently penned an article showing the $30 trillion, and counting, that has been thrown at the economy, and financial system, to keep it afloat over the last 4 years. Of that, trillions of dollars have been directly focused at the housing markets including HAMP, HARP, mortgage write downs, delayed foreclosures, government backed settlements of "fraud closure" issues, debt forgiveness and direct buying of mortgage bonds by the Fed to drive refinancing and purchase rates lower. Of course, the Fed has also maintained its ZIRP (zero interest rate policy) during this same period with a pledge to keep it there until at least 2015.
The point here is that while the housing market has recovered - the media should be asking "Is that all the recovery there is?" More importantly, why are economists, and analysts, not asking the question of "What happens to the housing market when the various support programs end?" With 30-year mortgage rates below 4% we should be in the middle of the next housing bubble - not crawling along a bottoming process.
But it is in this nascent recovery that we should be recognizing the true state of the average American family. Without such massive intervention it is unlikely the housing market would be showing much of a recovery considering the decline in real wages, and household incomes, over the last four years. Furthermore, while there has been much written about the deleveraging of the household balance sheet - the latest quarterly report shows that the only real decline in debt occurred in the mortgage segment. What wasn't discussed by the Fed is HOW the deleveraging was accomplished which was done though serial refinancing (I am a prime example of 4 times in the last 3 years), foreclosures, short sells, and write downs. Not exactly a bullish commentary of the strength of the average American household.
Lastly, while residential construction only makes up slightly more than 2% of GDP, there is a limit to how much further the current recovery will go. The decline in housing reached extreme levels during the crisis and was due for a bounce back to normal activity levels. We are rapidly approaching an equilibrium of current supply and demand in the market.
According to David Rosenberg:
"We estimate that the builders have caught up about 90% of the way with the recent improvement we have seen in the underlying demographic demand. There may be more upside in terms of pricing ahead. But it is going to be limited and we are not far off seeing some plateau until we start to see the demand indicators improve more forcefully, especially from the first-time buyer, who has been quite dormant during this nascent turnaround in the housing sector."
That may also explain where there has been no increase in the number of residential construction workers during this entire recovery. While home builders sentiment may be ebullient - their actions tell a different story.
Much of the current buying in the housing market has come from speculators and investors turning housing into rentals. This, however, has a finite life and rising home prices will speed up its inevitable end as rental profitability is reduced. Furthermore, the majority of home building has come in multifamily units, versus single family homes, and that segment has been growing faster than underlying demand.
It is important to understand that housing will recover - eventually. However, the reality of that recovery could be far different than what the current media and analysts predict. In an economy that is expected, according to the Federal Reserve, to have a long term economic growth trend of 2.6% - a recovery to historic norms, much less the pre-crises peak, is highly unlikely. However, for now, the housing market is recovering and that is a good thing - just remember what is really driving it.
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The big money buying/renovating/renting homes in the Phoenix area drove the rental price profits from 15% down to 6% and then they headed to Atlanta... where they are proceeding to do the same thing.
You are spot on Snidley. Now about those wages...
the very big money is in with both feet e.g. Blackstone's inviatation homes
http://www.blackstone.com/news-views/blackstone-blog/blackstone-creates-...
in the article the author muses:
Answer: why would you think the support programs will ever end?
and as for the author's comment on historic norms - he needs to understand that revisionists are in control of both the government and the media such that metrics will be adjusted just wait until the Bernank announces his unemployment targets in this nwo world they will be seet somewhere between 6.5 and 6.8 notwithstanding the socalled historic norms of sub 5%
Cus....cus......cus this can't go on much longer..........can it? I mean, where's the collapse for crying out loud?
<The insanity can exisit far longer than your sanity can.>
CD, the best quote I've heard in a while was "The market can remain solvent longer than you can remain rational."
Happening here in Tampa FL.
Blackstone to buy $1 billion worth of Tampa Bay homes for rentalsBy Drew Harwell, Times Staff Writer
In Print: Friday, September 21, 2012
The more you know about Tampa, the funnier that is.
Here in SoCal they are still building. I watched as some of the last, unmolested hills in the Brea/Diamond Bar area were reduced from their natural state to a bulldozed and backfilled plateau, then covered with boring, overpriced, mediocre-quality, stick-built McMansions.
Who the f%ck is buying these houses right now!?
Theres a sucker born every minute.
http://ericsprott.blogspot.ca/
Off-topic: KC Fed Manufacturing Index huge miss.
http://mam.econoday.com/byshoweventfull.asp?fid=451647&cust=mam&year=2012&lid=0#top
On topic: No housing recovery. Period. End of story.
On the North side of Atlanta, it appears that everything is selling quickly now.
A neighbor just sold a 3000 sq ft place for $600k. The interesting part is that the house on the other side of the street, about the same size, is currently listed for $240k.
Exactly. Housing doesn't recover because someone wants it to, it is always driven by jobs. Housing hasn't dropped anywhere near a normal market pricing. In the last 30 or so years the banksters pumped the housing prices right under our noses by every trick in the book. When houses go from $30,000 to $1,000,000 there is something very wrong, but nobody complained when they got their home equity loan. In fact, we believed it would never end.
Sorry, Lance. Dream on. No jobs, no housing.
What's driving this so-called "recovery" is cheap easy money (isn't that what got us into this mess originally?)
EVERYONE can afford a house when the federal government will back your 100% LTV mortgage with a mere $2.5k down and low monthly payments at a mere 3% interest.
The question becomes: how long can the feds continue to backstop these loans, and how long can 30-year mortgage rates stay at 3%?
Good luck with that...
The Federal Reserve reported last month that for every house for sale in the US, there are 2.5 houses that should be for sale (i.e., they are vacant but not second homes, vacation homes, or have any other reason to be vacant) but are not for sale. This means that about 4M homes are being kept off the market to maintain price stability. This is being underwritten by the banks who own those homes, and they are being underwritten, implicitly, by the Federal Reserve or the taxpayers or both.
These houses have already been vacant for years on average. Likely they will begin to seroiusly deteriorate before too long, and will no longer pose a threat to the housing recovery. Instead, $Ts worth of MBS will be worthless because the underlying houses no longer exist as such. More bailouts on the way...
ditto
If a boxer gets 10 uppercuts and drops to the floor, and he's able to lift his head for 1/10th of a inch, he's already in the recovery progress.
If he's able to stand up...
and still wants to fight...
it's okay... but his chances of winning... not so good... not so good...
but he recovered for a while and the crowd loves that shit because more blood will flow and the game isn't over yet.
MORE BANG FOR YOUR BUCKS!
we dont sell houses here!!..lol
we dont sell houses here!!..lol
Off Topic: Indians hoard 20K tons of gold worth a record 1.16 trillion dollars.
http://www.financialexpress.com/news/indians-hoard-20k-tonnes-gold-worth-record-1.16-trn/1037761
Damn good thing for them that they have nukes already ~ otherwise, the Israelis would probably want to bomb the shit out of them...
Buy moar xau on this dip! I said the F/X risk wasn't priced in/ Gold is getting pummeled. Buy this dip/
The housing market's best chance is the ongoing distrust of equity markets driving people into tangible assets.
All the delusional are talking of a housing recovery.
Why are they not commenting about jobs/wage growth to support a real housing recovery?
That wouldn't fit the narrative. Duh. (I'm being serious, not sarcastic.)
Why are (insolvent) banks not marking to market?
What wage/job growth? Who is John Galt?
It is true that the revival in the housing market is a positive thing and is certainly something that everyone wants.
We DO? Who wants higher and higher housing costs...?
It is true that the revival in the CABBAGE market is a positive thing and is certainly something that everyone wants.
We wouldn't want high food prices, either, would we?
Love me some Lance!
:D
25 years later and Japan's real estate prices are still deflating. There have been fits and starts but they are still on the decline. We will go through the same process.
We're going to see a big drop next year .. here's a Bloomberg article from earlier this year about the huge number of illegally foreclosed upon houses (faked paperwork) that have been held off the market and will be sold in 2013 http://www.bloomberg.com/news/2012-04-03/home-prices-seen-dropping-10-in-u-s-on-foreclosures-mortgages.html
"Much of the current buying in the housing market has come from speculators and investors turning housing into rentals."
Yeah? Check the Bay Area... this couldnt be further from the truth...
So what? Fools rush in...
There's a fairly large but naive segment of the population that considers housing to be some kind of "investment" and a license to print money. They are eternally, constantly, ridiculously optimistic about this, and only this, sector, ALL the time...
you see these shows on HGTV etc. about these shitboxes in CA that are in desireable areas that are "fixups" (2000 sq ft of rotting stucco and linoleum)for $700k and they look like they should be condemned
My point is these houses are not being turned into rentals. Fools arent rushing in anywhere in the Bay. Its over built. There is no new inventory. There is nothing to "rush in" to. The "fools" as you say it are already here. Very few are moving to the Bay unless their job is moving them there, its just too damn expensive. Jobs are still paying high dollar out here. We all know the shit is going to hit the fan but Silicon Valley will be insulated by much of it.
I suspect anything "paying top dollar" had better have demand (and customers) behind their product who are willing to fund these jobs...and I don't see it.
Yeah ok, all customers will die when the next crash comes and there will be demand for nothing... right.... money will problably ceast to exist as well....
sodomites must make a good buck. also-what you say must be true-it is in BOLDFACE
Hey dumb fuck.... I copied and pasted the boldface in the post... the formating was carried over.
I know of investors buying up single family homes for rentals in the East Bay markets, specifically, in eastern Contra Costa County where median prices are now below $300K. It is happening here, just not to extent it does in Las Vegas or Phoenix or Modesto. And sure, the closer you get to San Francisco, the less you have investor buyers relative to other markets.
SF Bay area is experiencing its own housing bubble in a way on the rental side. Rents for many decent apartments in San Francisco have reached painful levels - a friend is moving out of his 2 bedroom apartment and going over to East Bay because in the past 2 years, the rent has gone from $3200 to $4000 and next month (if he stayed) to $5000. This is a guy who is single and makes more than $150K per year and was splitting the rent with another roommate. How many affluent renters can you count on in any market for any extended period of time? These are not sustainable levels when compared with median income levels. That's not the only example - have many more from developer clients who are building apartments on the Peninsula and Mountain View. Rents average $3000 at least for any well-located, reasonably clean place. Best properties command rents of $4000 to $5000, thanks to well-paid Apple and Google engineers.
From my perspective as a lender (yeah, don't get me started on the irony), many deals and markets are starting to look "priced to perfection". Capital is coming at this market furiously and being deployed at very low yields thanks to ZIRP. If job growth ever slows down just a fraction, this market will see a quick reversal in my opinion - the construction has predictably increased to cash in, but now I see it at a precarious point. To keep this real estate market steady (both commercial and residential), you need Facebook, Google, Zynga, Twitter, as well as many other non-"brand" name companies we don't hear about, etc to keep hiring. All the tech companies that have been doing well in the prior few years, sell their products outside of the Bay area. At some point, there has to be a reconciliation of the economic reality in the rest of the nation/world with the SF Bay area economy. I think that has started to happen with the lower revenue guidance many tech companies provided during 3Q earnings calls.
The Bay area is a special case ,, the homes are too pricey to attract big money to scoop them up for rentals ,, besides the legal environment there is CRAZY ,, It's absurdly easy there to rent a house , default on payment #1 and for minimal money in legal filings remain in the house for 2-3 years.
"It's a housing recovery because I said it's a housing recovery." - The Wizard of the Fed aka Ben Bernanke
i know why construction employment hasn't gone up- the homebuilders are hiring illegals off of the books to build the shitty houses with shitty workmanship at a shitty wage so the employment #s may not reflect the (slight) uptick in homebuilding . and from what i have seen the only people getting loans are fairly(!) secure in their employment-like teachers and cops(read-guaranteed govt $)
I'll agree with you on the (overpaid) government employee getting loans bit, but "hiring illegals" is just the free market in action and they probably can do just as good as job as anyne else.
So I guess the "free market" includes you paying 60%+ of your income in various taxes so the illegals can enjoy all of the stuff like paved roads, education, healthcare(they go to the emergency room for ANYTHING and can't be turned away) at none of the cost(other than a little sales tax) to them. wake up bud-we're all getting fucked
Agreed. Don't blame the "illegals" themselves for that - or their employers (who might be you or I): BLAME GOVERNMENT!
Serious questions I have for people smarter than I: (1) If you own undeveloped land, if and when will building a house be most favorable/advantageous/affordable? (2) Is it possible or even likely that existing home prices will fall, but new construction costs would rise due to inflation of materials (lumber, etc.) costs.? (3) If resale and equity are not a concern because a person intends to stay there a long time, is it better to build now at cheap rates, build later at a potentially lower cost and pay cash, or buy existing later and pay cash [becuase construction costs may remain high?]
Not to worry, Agenda 21 already has a sustainable use for your property.
Gee, that's great! I'm sure I'll be fairly compensated...But honestly, I don't think anybody is "coming for" my property. Not in my lifetime, anyway.
That's what the Jews said, in 1932.
Why would you build or invest in anything when the government is going to take it away from you because they can and want to and none of their appointed judges will disagree with them?
Somewhere in the background I heard someone say "...they wouldn't do that!...."
I hear your point, but that's kind of fatalistic. Bad things are coming, but I'd rather try and be proactive and plan the best I can than just lie down in the road waiting to be ran over. You really think they're going to use eminent domain to take everyone's rural land and then ship people to gov't owned housing in the city? There are too many gun owners for them to try and pull that.
New construction costs have been rising for years. Today, you can't build shitty for the same price you can buy shitty. And if you're not a 1%er, don't even ask about the cost of building quality, which will at least hold up physically over time.
The question of now or later shouldn't be one of nominal costs, but rather opportunity costs, as once you build the house- IT OWNS YOU.
So you recommend renting? You do have to live somewhere (and so do the other 300 million people in this country).
RP,
I hear you and I sympathize - I'm probably in a similar situation to you. Unfortunately, although I think this is a valid question, you're unlikely to get the answer you're looking for here. First, the complexities of your situation are too numerous - it's going to boil down to your personal risk assessment, capital, location, capabilities, and how far you're willing to go to hold onto what you have.
Secondly, love ZH as I do... let's just say this isn't always the best resource to get advice. There are a lot of smart cats here (and I'm not using that animal because I'm stuck in the 70's) and there are a lot of smart alecs as well (and a fair number of trolls and nasties, too - but we know who they are).
I'm guessing you have or have your eye on some land and are considering using it as a bug out when TSHTF. Since living in a tent is really only fun for about 6 hours, you have to decide whether you burn your capital now at low interest rates or wait for a downturn - hoping it overcomes rising prices and interest rates. Problem with inflation is that wages will lag. You could use your eggs later (maybe PM at much higher resell value then) as fuel to repay or buy/build, but you always have to be aware that the government wants to control it. They may not take your land/home outright through eminent domain. But in a sense, they're doing it bit by bit through inflation.
Plus, say you pay it off and "own" your land and home... what's to stop them from raising property tax on "wealthy" land owners by, say, the same ratio that gold has risen - or higher. So instead of a $2,000 annual tax, it's $200,000 or more. Eventually, they'll get it from you if they want. And then you'll have a decision to make.
Remember, these are progressives - it's not going to come overnight. They want it bit by bit. Take out your neighbors one at a time. The reference above to Agenda 21 is apros pros. FWIW, I'm buying now. I understand the risks but I'm not a sheep. I'll pay cash and deal with the attempted theft of my land when it happens. Renting long term has the same issues - I'm just at the mercy of my landlord who is at the mercy of the government, so let's get rid of the middleman so I can have a few years of "freedom". My $.02 anyway. Good luck.
Not necessarily, I don't know what your opportunity costs are.
The nominal cost of the house may rise if you postpone building, but whether your investment & savings choices over-perform or under-perform the inflation baseline in the interim determines whether or not the same house is actually more or less expensive.
But as you said you have to live somewhere, so your options from most to least expensive are build it, buy it, or rent it. If there is a risk of losing a job and being forced to relocate, that is an important consideration. Concentration risk is also important, if all your wealth is tied up between the land value and the construction cost- it is a recipe for bad things to happen. If you can realisticly afford to build it without becoming overly allocated to it, then you might as well enjoy what you have made/saved.
I’m not smarter than you, but I have experience in this field and I like helping fellow rational preppers :)
1) If you own the Land already and are planning on building on it, it will be cheaper now than later.
2) It’s all area specific, some areas would be in decline regardless. It’s not at all likely that existing home prices will continue to fall in good areas. Not with all the Fed intervention.
3) If you plan on living there and have the cash, build it now. Construction costs will only increase going forward, guaranteed. Keep in mind that there are Tax and other advantages to you if this is your primary residence.
On the other hand, if you don’t plan on living there and it‘s an investment, you may want to use your cash to hedge against the markets and currency in other ways. That’s your call, but either way, you want to get out of cash. Good luck.
Sooner or later the builders will catch on and start building 1950s Levittowns to accomodate the wage-challenged masses. Cheap linoleum floors and wall paper....bring it !
Yeah... they are called mobile homes...
Again the Buffet is perfectly positioned.
Look at this chart! This is the algos picking levels! I opened this short trade yesterday/ based on housing numbers before BONERS BBG one liner! I shit you not / 100K aud/usd @ 50/1 (2 thousand dollars) of margin... Not a big deal, if I wasn't prudent!
http://imageshack.us/photo/my-images/338/retrace.png/
Below is from an email received today. Wonder what this portfolio will sell for?
------------------------------
Due diligence materials are now available for this non-performing residential portfolio.
Debtx_6842 consists of 121 non-performing loans with a balance of $8.7 million. The loans are secured by first liens on single family homes located in 22 states with concentrations in Florida, Illinois, Indiana and Ohio.
Final bids are due December 19th, before 2PM ET.
DebtX, 133 Federal Street, Boston, MA, 02110
Maybe $650,000.
Get all invested in reading this and then BAM. The CONTRADICTION statement.
This is a true statement only if prices DO start to rise and therefore there IS the foundation of a housing recovery. CONTRADICTION to the principle of the argument.
I live in Los Angeles, seems like most the housing now being built is "corporate socialist" ie community redevelopment private public partnerships (public liabilities with private control and private profits) nobody is paying,they're all 100% losing on public housing and 10% "ultra luxury", massive CRA stuff everywhere both big and small and school spending like there's no tomorrow.
I wonder, is it the Greeks buying up CA's debt?
The rent market is dependent on rent subsidies, at least in CA where we have a super majority getting a subsidy of one form or another-totally reliant on continued Ca tax increases and borrowing.
Still trying to reinflate that dang bubble again. The bubble has now become a whoopi cushion. All that air remaining inside will come bellowing out once the bond market parks its fat ass on it.