Guest Post" The "Housing Recovery" In One Index
Submitted by Lance Robert of StreetTalk Live
The Housing Recovery In One Index
There have been numerous media stories out over the last couple of weeks about the recovery in housing at long last. Of course, this is the same housing bottom call that we heard in 2009, 2010 and 2011 - so why not drag it out again for 2012. Eventually, the call will be right and they will be anointed with oils and proclaimed to be the gurus that called the bottom. In the financial world you only have to be right once.
However, back on earth, where things really matter, housing is a major contributing component to long term economic recovery. Each dollar sunk into new housing construction has a large multiplier effect back on the overall economy. No economic recovery in history has started without housing leading the way. So, yes, housing is really just that important and we should all want it to recover and soon. The calls for a bottom in housing now, however, may be a bit premature as I will explain.
The Total Housing Activity Index shown here is a composite of the sales of new and existing homes, new construction permits for single family homes and new single family home starts. As you can see we are still near the same lows that we were in 2009 at the end of the recession. Furthermore, and what is really worse, is that the "recovery" was built on the bank of a whole slew of tax payer funded bailouts, tax credits and incentives from HAMP to HARP to the Home Buyer Tax Credit. Not quite the recovery the government was hoping for.
The recent bumps in housing have been due to the warmest winter on record in the last 5 years which is skewing the seasonal adjustments. With 1 in 4 home owners under some form of duress with their mortgage it is only a function of time until a further erosion in price resumes particularly as banks start to deal with the backlog of foreclosures and delinquencies that are on their books.
The bottom line here is that while we have witnessed a very mild recovery in housing from the depths of the abyss; it is important to not forget that it has been with the help of a large amount of artificial support including the zero interest rate policy by the Fed and "Operation Twist" which has suppressed interest rates on mortgages to historic lows. That won't last forever and as we wrote in our article on "Why Home Prices Have Much Further To Fall" people buy payments not home prices.
The shear magnitude of the TOTAL inventory that must be cleared, the potential for rising interest rates, a weak employment market (no job=no house), declining real incomes and rising inflationary pressures will likely keep the housing market suppressed and disappointing for quite a while in the future. This is just a function of economics.
Maybe we have seen the low point in housing? Maybe the bottom truly has been put in? A bottom, however, doesn't mean that a sharp rise in prices or activity is just around the corner. This particular patient could very well remain comatose for much longer than people expect.
(11 votes)
»
- Login or register to post comments
- 18270 reads
- Printer-friendly version
- Send to friend
Housing is now the caboose, no point in even paying attention to it until broader economic issues have been dealt with.
can't deal with some of them...they're presently intractable
Shit needs to collapse.
the bankerz are angry: http://www.huffingtonpost.com/2012/02/24/banker-1-percent-tip-receipt_n_1299280.html?ncid=webmail1
Why do people fuck with the people who handle their food behind a wall?
They're fecalpheliacs?
let them eat 1%
My 'verbel' tip is usually "don't bet on the ponies ", although I sometimes do "don't spend it all in one place", if its small enough.
Housing recovery begins as soon as banks are allowed to foreclose on and resell existing inventory.
The End
What if people don't want those houses until the come down 10, 15, 25, 40, or even 50%?
What if people don't want those houses until the come down 10, 15, 25, 40, or even 50%?
What if people don't want those houses until the come down 10, 15, 25, 40, or even 50%?
It would be better if they did come down that far. I was heavily in real estate during the bubble, and the prices were hugely inflated. Having housing prices so hugely inflated is bad for the young. They can't get into the housing market, and are forced to be renters.
However I am noticing rents getting kind of high, while purchasing houses is costing less, so that very well could lead to more home sales. I am just watching in California though, so I don't know if this is a national trend, and it requires loans for buyers for the market to correct, so it very well might not recover.
Maybe home prices will really fall way down like 3rd world countries. I always hear stuff about them spending 70% of their income on wheat, which doesn't leave much to spend on housing.
If this happens, prices will go down further. If mortgage rates rise, local taxes rise, fuel costs rise, the PI portion of montlhy payments must go down to keep monthly payments the same.
The only way the housing recovery will start will be with rising wages and new household formation (how about bringing home half a million troops and stationing them in the southern border states... maybe they can stimulate new demand).
Which is why they are trying to manipulate labor and employment statistics to paint a prettier picture.
ALL CABOOSE PASSENGERS!! FREE APPETIZER WEINERS AND RAPIDLY DEPRECIATING ASSETS IN THE DINING CAR!
Obama COULD do something, but he wont.
Give all those below a certain age who will never get social security, a chance to opt out of receiving benefits. Continue paying taxes for the next 2 years to help bolster accounts and the government will give you one of those underwater mortgage houses on FREDDIE MAC AND FANNIE MAE'S balance sheets. Let people make homes instead of bailing out banks who ask greedy prices while squatters and blight move in.
That could get very complicated and add to the morass of moral hazard we are already stuck in. My perspective is that interest rates won't go up, essentially for ever, and that the liquidity may, actually, finally find it's way back to real estate. In any case, the bottom is as well as in, but there are no profits going forward.
Not even close to the bottom. Prices are still artificially supported. Until prices drop to their historic average of 1.5-2.0 times median income, the bottom is not in, and we'll probably drop below the mean before bouncing back to it. If history is any guide, that is.
Jumbo and prime mortgages are going into default now. I'm thinking of how I can profit from it like the squid did?
Just overlay a mortgage reset/recast chart with the Case Shiller chart and that's all you need to know about RE.
The imagery is fitting with you talking to yourself again.
Seriously, only the 1% can afford houses (in actual nice neighborhoods) today
That is simply not true. 30% of all homes in the US are owned outright -- no mortgage.
Hey, but don't let the facts get in the way of a make-you-feel-good story ...
I aint no financial analyst but that looks like a dead cat bounce to me.
We can just de-couple from housing. We had a jobless recovery, we decoupled from europe and went up, now we can de-couple from housing and go up up and away. As my 4 year old say's "please dad please why not?"
Housing will be a sour point for a very long time. Real estate prices in Rome after the fall of the Roman Empire didn't recover until the Renaissance.
Are we measuring using the denarius or the solidus?
Or some other yardstick and if so what?
Genuinely curious...
i think the vandals got a good deal.
the Roman or the Goldman?
Denarious is Ag, a solidus is Au. I'm sure you meant aureus or solidus.
Yes. Post-Roman deflation lasted until the gangster-banksters of the Borgia era manufactured inflation. ff
The actual PM content of the coins from Early Roman to Late Roman era didn't help much....
Tyler, the interest rates will never raise, period.
People should really start to think about the implications of this.
I'm trying to imagine an economy where savings of any kind (including UST) pay zero interest for time periods spaning generations.
ZIRP for too long will cause inflation which will force nominal interest rates up ultimately.
Zero /Interest/ rate/ policy. N.Y. Fed Here is some Geithner /pop-up.
ZIRP doesn't force nominal interest rates up as long as the Fed is there and is willing to buy all debt with newly minted USDs.
This will not be over until the rest of the world finally decides that it really is not in their best interests to keep accepting USDs for anything of value. And in the case of China, that might be some time yet. A half billion idle Chinese workers is a problem.
this is all irrelevant. There is nothing left in our economy that can pay a positive ROI. That's what the rate structure is telling you.
The Fed was expecting an explosion in borrowing to go do things that could yield >.25%. Hasn't happened. That's because the business climate isn't adequate to produce that ROI. So nobody borrows.
Bullshit! One can get a positive rate of return in "our" economy if one borrows at ZIRP and loans to consumers at 30%. It just depends on where one is on the food chain.
How the fuck do you know what the Fed was expecting? I suggest it got pretty much what it was expecting, i.e. a transfer of wealth from the 99% to the 1%.
It just depends on where one is on the food chain...and how many laws they can legally break
Prosecutorial discretion -- it's a bitch when your food chain position is not very high. And it's the reason the "Rule of Law" doesn't work after a while.
core CPI says its all good .....consumers dont purchase food & energy any more
How about all the pension funds ending up as an obligation of the Govt.For one.
Self reinforcing viscious circle.
lol...savings PAY?
Savings either generate a return or they shouldn't pay. Interest doesn't magically pay itself...someone has to take that money and earn a return beyond the interest rate paid.
Our economy isn't capable of generating the types of yields it used to. It's a 0% economy now, like Japan.
Never might be an exaggeration, but I would agree with "not until there's a system reset". The gubbermint can, in no way, afford for interest rates to increase substantially. They just don't have the means to pay the interest on the debt and they can't collect enough money from the taxpayers to do so.
The reason interest rates are so low is because there's no other way to fund the guns and butter without massive borrowing and there's no way that the spending for guns and butter is going to decrease in an amount that is necessary to begin reducing the debt until it's Game Over.
wrong.
Reset?
Reset WHAT? You people realize that even if we "reset," OIL production is not going to reset back in its lifespan to where we can grow it again, right?
The reason interest rates are low is because there IS NO DEMAND for credit. Bankers can only charge what the market will bear.
Reset as in all debt, including Ben Franklin variety, goes away.
You're full of shit. The reason interest rates are low is because the Fed buys trillions of it at insanely high prices with trillions of newly created USDs. Bankers aren't interested in loaning money to ordinary people except at usurious interest rates when they can get guaranteed rates of return by borrowing from the Fed and loaning to the Treasury.
There's plenty of demand for credit. I'd borrow to buy gold and silver if I could at a reasonable rate. Margin rates are too high when you consider the lack of risk and the cost of funds.
Total simple genius.
Interest rates fixed.
Currency generically/consistantly devalued.
Total genius. Happening as we speak.
How many Ounces of Gold does it take to buy the
Average U.S. House? http://www.investmenttools.com/futures/metals/welcome_to_the_page_about_gold.htm#re_goldHang on. In the first Great Depression, you could get a block in Chicago for an oz....
and a block of detroit now
I'm holding out until I can buy the whole Copper Country area....
Hey! That's my turf!
I suppose I can move a few counties South ...
The Dells are nice.
Wil you be a good neighbor, or will hostilities ensue?
Maybe the value of my house is declining, but I'll still own it free and clear in a few years. Still better than paying rent, I say.
Nobody owns a home free and clear in the US. We occupy it at the pleasure of our feudal lords and only so long as we make the required tribute. I own my home "free and clear" and live down a dirt road. Still, it can be taken from me at any time should I fail to pay my property taxes.
"it can be taken from me at any time should I fail to pay my property taxes."
And if Reconstruction is any example, the taxing authority can increase taxes to the point that the property "owner" can no longer afford to pay them and has "her property" confiscated by the feudal lords.
I think the current powers that be are using the Bolshevik playbook vs the Kulaks... they will bleed all the independent wealth away
Interesting - yep, you may have identified the next housing crisis....tax foreclosures.
this is why i don't buy land or a home; i have the money; but... when the SHTF, governments will be squeezed by the bankers and levy taxes on everything; and try to pop us like a zit. They will actually want to take your land from you, to give it to the bankers for payment of the national debt. crazy, criminal, but it's coming...
That's one reason I have a mortgage. If home "ownership" gets too expensive compared to renting, the PTB gets to eat their own shit sandwich.
True but bankers don't shoot real well and they tend to have necks that can't support their corpulent bodies when suspended from trees
Local Government prefers having people in houses paying property taxes to acquiring property through default. In California, the abilitty of Counties to increas property taxes is tightly controlled - just look what has happened to coubnty budgets post crash if you don't believe me. Addditionally, you must be delinquent in property taxes for six years before the county ends up with the property.
Sensei - maybe your road is 'dirt' because you own it? You obviously intensely dislike local government - that is your right. However, please do not misrepresent the facts.
Local Government prefers having people in houses paying property taxes to acquiring property through default. In California, the ability of Counties to increase property taxes is tightly controlled - just look what has happened to county budgets post crash if you don't believe me. Addditionally, you must be delinquent in property taxes for six years before the county ends up with the property.
Sensei - maybe your road is 'dirt' because you own it? You obviously intensely dislike local government - that is your right. However, please do not misrepresent the facts.
They don't "acquire" anything, they sell it at auction just like a foreclosure and the new owners have to pay the back taxes, then continue to pay going forward.
OR...some bank might come along and dispute that you own in and will attempt to foreclose on it. That scenario has happened too many times. I have no idea who would've "junked" your comment.
What if you have been paying the wrong party and they never had a right to your payment and it was never applied to any payment book of the party that might. You'd be in with the 85% of folks with mortgages. You'd be waiting for the laws to change that the real owner could come try to get it back because of that silly mistake. Shoot, the laws say they can do that now.
People shouldn't assume just because someone takes your money they have any right to. It's an MF Global World, and they learned their craft from the MBS and REIT scams that came before them.
By now you've been spanked hard enough on this blog to know to quit your Dave Ramsey "Christian Savings Bootcamp" and Suze Orman's "The Yenta Mother-In-Law You Need But Never Had" subscriptions to believe such bullshit. Stop paying your taxes and tell us what happens. Or better yet, get educated in the real world.
Back when BS Biden was proclaiming a "recovery", Martin Armstrong penned a piece from prison that housing would not recover until 2032. This may be the best economic prognostication ever made.
Can't wait for his movie to come out
housing bottom 2112....slow bleed until all the old inventory is pushed over
ah, 2112
RUSH
http://www.youtube.com/watch?v=LQEgZNqa8jE
Rush will still be touring
a report from the trenches. my company exhibited at the international builders show in orlando earlier this month. i came away with several impressions after working the booth for several days.
1. overall, show attendance and potential business was much greater than last year.
2. many attendees from the d.c. area. business is booming around d.c. (your tax dollars at work).
3. custom home builders were in great abundance (builders who build for the rich are doing ok - those building for the middle class; not so great).
4. business good in canada and in some areas of the midwest. texas holding steady.
5. number of exhibitors were at a low point.
i'm a cassandra and not a pollyanna, but the show did provide a fine illustration of the fact that home construction is regional, regional, regional. the fact that you can buy a home in detroit for a dollar has no impact (excepting psychological) on the price of a home in peoria. thus, even with the overhang, there will be regional markets which continue to do well. my theory is that as gas prices increase, the granularity of the housing market will become even finer (smaller) leading to micro housing shortages in those areas with stable to increasing employment. thus, areas which are now depressed due to competion from reo inventory which is located $5 worth of gas away will suddenly become attractive when the reo competition is located $10 worth of gas away.
Dupe post
Show attendance at trade show and prospective business looked positive.
Read: Attendees likely builders with nothing to do and got to write off a trip to Orlando. Also I can't imaging gas prices correlating to micro housing shortages anytime soon. Just an opinion and thanks for yours.
Only 2 government officials should have the authority to lie (ok... maybe a few more); the Secretary of State and Secretary of Defense. Give them official liar status and hold everyone else accountable for their words.
Why?
Justify your statement please.
Is SockPuppet 2.6 up?
License to lie = for national security reasons.
More important than housing inventory, even more important than house prices and mortgage rates is one of the truly underestimated threats to housing and the economy in general: The cost of home ownership. And in our Biflationary economy, it has gone bonkers.
It used to be that a real white elephant of a home went for pennies if the new owner agreed to just pay the back taxes. Now if that weren't already enough of an issue, there's something so much bigger: the anticipated future cost of owning and operating the home.
Because of reckless monetary policy and a political climate hostile to any form of preparation, the cost of ownership is and will be prohibitive to most in the middle class. It will be a wild card that many will balk at because of unpredictable spikes. Here are some of the jokers in the wild deck of cards: Energy costs. As we've covered abundantly this week, forget the propaganda. Energy costs are going to soar. That includes electricity, heating and A/C. Maintenance and upkeep: with all raw materials climbing, the cost of having a presentable home, let alone a saleable one, will rise and rise. Insurance: the broke zombie financial companies will keep trying to milk you for all they can just to survive. And lawyers will be at the ready to sue for anything. Waste disposal and water will rise. Home security. Home improvement. And taxes: as broke municipalities get broker, they'll need sources of ready cash. And homeowners are their captive audience. And many more hidden costs.
Keep in mind that very soon, soaring energy costs and declining median incomes will make new buyers shun the old McMansion or anything that won't keep a lid on expenses for energy and upkeep. Large homes and old homes simply won't compete with smaller, energy efficient ones.
Copy that.
Have a huge house in a cold climate. No prospective buyers for nearly two years...and it's a great place (if you don't mind heating all that square footage, paying for big electrical system, and filling the tractor to groom the acres). People want simpler, smaller homes these days and I can't blame 'em one bit.
3+ yrs. to fix the most impotent sector of america's economy at a lost to the public's personal [home equity] pocketbook now eclipsing $7tn --- but, it's OK to bail out TBTF's & AIG
pathetic
Take away builders starting homes and never finishing them, because they have to break ground or their stock would tank on the news of no new construction, and speculators buying up forclosed homes for cash, and you would have an index 60% lower.
People are still buying homes, but only when they have to due to jobs. The rest of the homes are bought by people trying to buy out your house at pennies on the dollar and rent it out to someone paying $300 more a month than what the mortgage payment would be.
As always the stock market distorts the reality of the situation. Would Toll, Lennar and the others be so upbeat if they were private? Would they be breaking ground on new projects if their market cap wasn't dependent on it?
How could interest rates ever rise?
Even with record low historical rates the debt is so high interest expense in 2011 was $454 Billion.
If rates were to go up even a little bit, the majority of the federal budget would have to go torwards interest payments. OOps!
http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm
You may think about the word "ever".....
....because, what you actually mean is "ever in the current environment".... which assumes that it is sustainable.
How many times do you think you can halve people's income anyways?
Anecdotal, but I did sell a house this week.
Of course, I bought it dirt cheap for $32,000, put less than $20,000 into it to make it a turnkey living space and then sold it way below everything else on the market for $89,900. Had it listed for less than a week. Only if you underprice the suckers who are trying to offload their homes can you move anything. That's what these idiots don't want to admit: The prices have about another 10-20% to drop before these things will flow again.
Still, in the meantime, I'll take the $40,000.
Even if it doesn't by as much PMs as it used to.
The prices have about another 50-75% to drop before these things will flow again.
there, fixed it for you
You ha 52k in, what would it have rented for if you don't mind my asking?
The whole thing really pisses me off.
What pisses me off is my fucking State raised property taxes (damned near double) at the height of this mess and is STILL collecting at these higher appraisal values which everybody knows were total bullshit from the beginning.
Sir, can I interest you in some tar n feathers to bedeck your local revenuers in? When I learned of people in Revolutionary times doing such I thought "how barbaric". It was only because in 7th grade you're not able to appreciate how mad a tyrannical govt can make you.
Hey guys and gals, here is a article from October 11, DataQuick. I'm sure there are more current posts. Has anything changed since 2 TRILLION dollars were injected into the global banking system? A bag of DORITOES is a little smaller, and more expensive.
Are the banks passing on "so called" record profits VIA mortgage write downs and bringing inventory to market? Are banks offering any type of SWAP programs to home owners? Are banks really financing "Builders", I doubt it?! The banks are restructuring crap that was on the books 5-6-7 years ago!
The housing "bubble" was intentionally BLOWN by Bushee II and Greenespan. They didn't want a depression on their watch after the stock market implosion.
They handed it off to the next 8 year village idiot. Funny how nobody hear jackshit from Bushee or Chenee anymore. They know they fucked the country.
So the economy was on the downhill way before this shit got started. Housing will be depressed for YEARS. What a bunch of shit, people talking about a recovery. And of course, the overall economy was on a decline back in the 90's as we shipped everything and anything to CHINA Inc.
Right now our economy is easily 1.5 trillion a year lower than what the numbers show. Actually it's more. So don't tell me about some bullshit recovery in housing. That's the last thing to be concerned with. No, let's see how things work out when we just balance the budget and when all the future liabilities (pensions, SS, MC, etc) get properly funded.
Now we're talking some real shit!