No Housing Recovery Until 2020 In 5 Simple Charts

Tyler Durden's picture




 

Every day (for the past 3 years) we hear countless fairy tales why housing has bottomed and will improve any minute now. Just consider the latest kneeslapper from that endlessly amusing Larry Yun of the NAR, uttered just today: "pent-up  demand could burst forth from the improving economy." Uh, right. Here's the truth - it won't and here is why, in 5 charts from Bank of America, so simple even an economist will get it.

Epic supply backlog...

From BofA: "The foreclosure inventory pipeline that must be cleared in the next few years is very large. Our mortgage strategists forecast that another 6.6 million homes will need to be liquidated over the next five years."

Coupled with a secular shift from plunging demand via habitation patterns, as more and more simply opt to live with their parents...

"Live at home children: Since the recession, the share of young adults that still live with their parents has climbed. Of the 25-34 year age group, 14.2% live at home compared to an average of 10.5% in the first half of the last decade. Similarly, of the 18-24 year age cohort, 54.6% live at home, which is up from the low of 50% early in the last decade, but is close to the longer-term average. We should expect to see the 25-34 year  olds move out of their family homes once the economy heals. It may take more time for the younger age cohort."

Means more and more are forced to rent...

"We forecast household formation to gradually turn higher over the next two years with a notable pickup starting in 2014. This inflow of new  households will be supportive of the renovation market. Many of these new households will initially move into the rental market due to slow wage growth and tight credit conditions, as well as the typical attraction to renting for the young adult age cohort."

Which means home prices will slide ever more as the American Dream of home ownership is forgotten, leading to even less wealth extraction via home equity loans...

"Typically, the decision to renovate a home is a function of the value the homeowner sees in the home and the ability to finance the improvements.  Rising prices is a signal to homeowners that the home is a good investment, so renovating would only increase the potential return on investment. In addition, when home prices are rising, homeowners can borrow against home equity to finance renovations. The housing boom brought a notable increase in home equity lines of credit and second liens, which were used to finance renovations. This has since collapsed along with home prices."

Which means no hope for a long, long time.

...

Actually, there is hope... in 2020.

"The gain in renovations and multifamily building in the next two years should provide some support before the eventual turn in single family  construction begins. Assuming housing starts return to the historical average of 1.5 million by 2016 and renovation spending remains healthy, residential investment will once again become an important part of the economy. We expect residential investment to reach 3.5% of GDP by 2016 and return to the historical average of 4% by 2020."

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Thu, 04/19/2012 - 11:14 | 2358363 SilverTree
SilverTree's picture

.

Thu, 04/19/2012 - 11:18 | 2358371 wang (not verified)
wang's picture

Great interview on Bloomberg Radio this AM (Robert Wetenhall, analyst with RBC Capital Markets) with Tom Keene on housing - link is not yet available

 

the  so called recovery is about to get impaled by a tsunami of foreclosures with prices dropping a further 5% at least - recovery will take years with the added bonus that those who have been living rent free are about to direct some of that windfall of "disposable income" to actually paying for shelter

Thu, 04/19/2012 - 11:20 | 2358385 Oh regional Indian
Oh regional Indian's picture

no housing recovery intended.

Was just thinking last night about my 12 year American sjourn. in effect, magical as it was, in all respects, started with a big fat school loan that followed me back to India...and ended, in June 2006 with jobless me and my equally jobless partner, neither collecting (or collected) any kind of .gov hand-outs even, so FLAT BROKE 9we did drive my awesome 87 528e, in style though.....

We got a million DOllar NINJA loan. 

We were looking at creek properties in Berkely. Such a joke back then. Already.

No recovery is intended. mcMansions will go back to being farm land, irridiated or otherwise.

ori

socthr-e-never-too-late

Thu, 04/19/2012 - 11:31 | 2358432 MillionDollarBonus_
MillionDollarBonus_'s picture

This article fails to take into account the many green shoots in the economy.  For example, we have had consistently positive NFP results coupled with superb bank stress tests, which the doomers always fail to mention. In addition, the successful Greek restructuring indicates that the "imbalances" in Portugal and Spain will be inconsequential, despite the whining from doomer libertarians. In short, the global recovery is strengthening, and we are well overdue for a sharp rebound in property prices in accordance with the fundamentals for global economic growth.

Thu, 04/19/2012 - 11:34 | 2358448 CPL
CPL's picture

God yer a fucking retard. 

 

Is there a home missing a resident?  If you are please retrieve Mr. Millions before the doors are locked for the night.

Thu, 04/19/2012 - 11:41 | 2358472 Hippocratic Oaf
Hippocratic Oaf's picture

CPL

Obviously you haven't had the pleasure of meeting our newly avatar'd MDB.

Take his comments on the lite side. His humor is somewhat needed.

Thu, 04/19/2012 - 12:03 | 2358561 economics9698
economics9698's picture

MDB mentions something serious.  The stress test were given to banks on the event that housing prices would fall, they all passed.  But the real tits up crisis will be when interest rates rise and they are all holding 4% paper.

Thu, 04/19/2012 - 13:59 | 2358942 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

Yes, they all passed, Dexia included.

Thu, 04/19/2012 - 16:22 | 2359439 neidermeyer
neidermeyer's picture

Dexia is a champ compared to SunTrust... I just wonder what the results might have been if the T-Bills and other bonds they hold are hammered with a few % points increase in rates.

Thu, 04/19/2012 - 12:06 | 2358569 Dr. Richard Head
Dr. Richard Head's picture

I also find humor in the responses to MDB's posts.  I sometimes like to kick him verbally with retorts.  Keeps me sharp for when our company's 401K portfolio manager comes in to sell some snake oil to our Board of Directors.

Thu, 04/19/2012 - 12:45 | 2358679 The Big Ching-aso
The Big Ching-aso's picture

 

 

Stupid Question of the Day...................

How can you accurately predict subjective value 8+ years in the future through 5 simple subjective charts?

 

 

Answer:  You phuckin' don't.

 

Thu, 04/19/2012 - 15:49 | 2359328 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Exactly TBC. I looked into my crystal ball and realized that I was going to be a millionaire not so far off in the future. Well, at that point $1 million would buy one Big Mac. Hey, it is the future.

Thu, 04/19/2012 - 16:51 | 2359534 Larry Dallas
Larry Dallas's picture

Up Arrow +1000

Unless of course the RMBS/CMBS machine starts cranking again and China, Germans and everyone else in the developed world has a reason to buy crappy paper again.

Until then, there is absolutely no catalyst for home appreciation forseeable in the next 10 years.

Thu, 04/19/2012 - 17:52 | 2359661 MeelionDollerBogus
MeelionDollerBogus's picture

If they're 5 good charts odds are very good you can see where value will NOT be and draw your own conclusions.

Thu, 04/19/2012 - 12:58 | 2358722 Red Heeler
Red Heeler's picture

"Take his comments on the lite side. His humor is somewhat needed."

I get more of a kick out of replies such as CPL's than MDB's original posts. They're an excellent comedy team - MDB and his legion of unacquainted straight men. 

Thu, 04/19/2012 - 12:14 | 2358593 jez
jez's picture

Naw, MDB is great. And the "green shoots" he refers to are even now pushing their way up between the cracks in the floorboards in abandoned McMansions all across America.

Thu, 04/19/2012 - 14:37 | 2359086 wee-weed up
wee-weed up's picture

@MDB  many green shoots

Obama Admin and DNC talking points

Pure bullshit for sheeple and MSM consumption

Thu, 04/19/2012 - 17:49 | 2359656 MeelionDollerBogus
Thu, 04/19/2012 - 12:32 | 2358648 q99x2
q99x2's picture

Good year to fuck a leopard. What's that? Hehe, oh I see got my glasses now.

Thu, 04/19/2012 - 11:35 | 2358452 Vincent Vega
Vincent Vega's picture

You're just not funny anymore.

Thu, 04/19/2012 - 11:39 | 2358464 Clueless Economist
Clueless Economist's picture

Very good effort, right up there with the original MDB!

I renowned Clueless Economist Paul Krugman salute you sir!

Thu, 04/19/2012 - 11:44 | 2358466 GCT
GCT's picture

Well done MDB.  I see you have done some more homework at the local CNBC and MSM.  I thought we lost you for a while there.  We all need your daily humor.  While your at it could you please post your charts and figures showing us where we are making our mistakes.  We obviously need to correct our way of thinking and our charts. Historically if you look without government intervention I think it would have been the year 2015.

MDB as you know we tend to believe more when you post your proof in this and thanks!

Thu, 04/19/2012 - 11:42 | 2358474 conork
conork's picture

Ah yes, stress tests, I remember Ireland was put through a stress test, think less than 12months later we had the IMF popping in for a visit.

Thu, 04/19/2012 - 11:44 | 2358478 William113
William113's picture

Why do you waste your time commenting. You must be related to Larry Yun.

Thu, 04/19/2012 - 12:07 | 2358574 EvlTheCat
EvlTheCat's picture

The people down the street from my mother will be happy to hear your suggestion that property prices are about to rebound!  They bought their house at $325 thousand and are now short selling for $175 thousand.  I will run over there and tell them the good news.  Maybe they will hold out for the recovery?

Thanks for the heads up!

Thu, 04/19/2012 - 12:18 | 2358601 Buzzworthy
Buzzworthy's picture

MDB = Robert Brusca?

Thu, 04/19/2012 - 17:41 | 2359636 MeelionDollerBogus
MeelionDollerBogus's picture

MDB = Joe Weisenthal, Business Insider ! just listen to both of them and tell me where you spot the difference...

Thu, 04/19/2012 - 12:22 | 2358617 Thamesford
Thamesford's picture

Hey MDB! I am sure you forgot to type "/sarc" before you hit save, no?

Thu, 04/19/2012 - 12:41 | 2358671 Grinder74
Grinder74's picture

Been eating dog again?

Thu, 04/19/2012 - 12:41 | 2358674 SeattleBruce
SeattleBruce's picture

"fails to take into account the many green shoots in the economy."

 

Let me pick myself up off the floor from mock laughing...you didn't just use that term, did ya?  Seriously?

Thu, 04/19/2012 - 17:40 | 2359635 MeelionDollerBogus
MeelionDollerBogus's picture

what about Japan? Isn't that green shoots? Oh wait, I think the actual color is called Cerenkov blue

Thu, 04/19/2012 - 17:36 | 2359630 MeelionDollerBogus
MeelionDollerBogus's picture

For example, we have had consistently positive NFP results

which are revised down later and actually some have NOT been positive even before revision...

In addition, the successful Greek restructuring indicates

that you're living in wonderland because there isn't any such restructuring...

despite the whining from doomer libertarians

giggity, the MDB money-shot at libertarians ...

overdue for a sharp rebound in property prices in accordance

in accordance to the massive wage increases and new credit lending to home owners... which is ... negative. Ya... good call, MillionFecesBonus. You're a SUPA-STAHHHHHH


Thu, 04/19/2012 - 11:27 | 2358416 Desert Irish
Desert Irish's picture

What it amounts to is even with a 5% drop (I've heard 10% is more likely) everyone that has bought a house since 2008 has effectively lost their deposit so one more reason to walk away further swelling the forclosure backlog. And this is bullish......

Thu, 04/19/2012 - 11:55 | 2358526 WonderDawg
WonderDawg's picture

10% is wildly optimistic. Even Schiller, of Case-Schiller, said last year that prices had another 25-40% yet to fall. This is closer to the truth, but possibly still a bit optimistic.

Thu, 04/19/2012 - 12:29 | 2358628 Bollixed
Bollixed's picture

Yes, but with the coming riots and the burning down of entire city blocks all across have-not-ville what once was an oversupply of housing will become a net breakeven once the obamanites are moved from stadium quarters into the now confiscated rentals units in the onward drive known as spreading the wealth around.

The coming ghettoization of outer-city suburbia will no doubt make that 40% figure look wildly optimistic.

Thu, 04/19/2012 - 12:44 | 2358687 SeattleBruce
SeattleBruce's picture

"Yes, but with the coming riots and the burning down of entire city blocks all across have-not-ville what once was an oversupply of housing will become a net breakeven"

Now there's a contrarian view - gotta love ZH.

Thu, 04/19/2012 - 14:44 | 2359110 wee-weed up
wee-weed up's picture

Trickle-up poverty, bitchez!

Thu, 04/19/2012 - 15:52 | 2359345 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

"The coming ghettoization of outer-city suburbia will no doubt make that 40% figure look wildly optimistic."

Yes, that is already occurring in certain places. I looked up my former high school in a middle class suburban community. When I attended, it was a fairly good school a few years back.  It was described recently as a "dropout mill".

Thu, 04/19/2012 - 12:37 | 2358660 centerline
centerline's picture

That is my understanding as well.  And it is the good news, considering many other financial investments are even more overpriced relative to the "real world."  Lots of pain coming one way or another.  If the TBTP have it their way, it will be through coordinated inflation.

Thu, 04/19/2012 - 14:18 | 2359017 Slim
Slim's picture

I've read about everything Schiller has said and he's pretty careful with numbers even though he does say he believes that we could indeed go substantially lower (has NEVER said we will or that's his base case...he's careful).  I believe you are talking about Shilling who is pretty bearish and this is his full bear case.  Not saying your wrong but I've seen these confused before and this is a lot more consistent with Shilling.  If you have a link or referencable quote I'd be interested.

Thu, 04/19/2012 - 11:35 | 2358451 narnia
narnia's picture

I'm sure the people of Japan thought that the housing market in 1995 would be back to normal by 2003.  They were wrong.

There's too many involuntary transactions that need to be unwound, too much inventory to be liquidated, and too much credit to be expunged or inflated away for us to get any sense what housing is worth.  

Thu, 04/19/2012 - 12:53 | 2358713 Bicycle Repairman
Bicycle Repairman's picture

The housing market in Japan is never returning to normal.

Thu, 04/19/2012 - 14:07 | 2358969 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

Depends on how you define normal.

Thu, 04/19/2012 - 16:36 | 2359489 neidermeyer
neidermeyer's picture

Normal for Japan is a steadily decreasing population of people in their prime earning years, an aging population (everyone gets one day older each day) , and new births below replacement... most land is still underwater and much of it now glows slightly (as noted by others this "hold until recovery" real estate will be liquidated by force at some point ,, taxes , death , to pay for something that cannot be avoided) ... like us they have shipped manufacturing off to other countries such as Thailand and Malaysia ... their banks are STILL zombies 20+ years later ... they're doomed ... NORMAL SUCKS SOMETIMES...    They needed to pull an Iceland when they could have... they had basically no foreign debt when this started.

Fri, 04/20/2012 - 08:34 | 2360667 Bicycle Repairman
Bicycle Repairman's picture

"Depends on how you define normal."

People living in houses, as opposed to the houses being irradiated wrecks.

Thu, 04/19/2012 - 19:52 | 2359885 rosiescenario
rosiescenario's picture

There will be a psychological spillover from these short  sales and foreclosures....if my neighbor is foreclosed upon, does that make me want to ante up for a new car? Maybe buy another motorcycle? Or does it make me think, hey I better be careful here, or that will be me.

 

All these foreclosures I think will lead to less spending and more saving and I rather doubt the economists have figured that out.

Thu, 04/19/2012 - 12:26 | 2358626 Gully Foyle
Gully Foyle's picture

How come there is no estimate on rising property taxes?

Won't that be the real killer for new home owners?

 

Thu, 04/19/2012 - 16:39 | 2359497 neidermeyer
neidermeyer's picture

Absolutely ,, 5-10 years down the road that 3,000 sq ft house with a $2,000 a month mortgage will have a $100,000/month property tax bill (a coffee will be $100 at 7-11) ... we'll see "Detroit" on a wide scale ... people will buy abandoned houses cheap or free , live in them until it gets sold for unpaid taxes and buy another.

Thu, 04/19/2012 - 14:57 | 2359151 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

<-- Keep renting, don't worry about collapse for a few years

<-- Buy now with FHA loan, fortify house with water, greenhouse, livestock

 

I am so torn...

Thu, 04/19/2012 - 11:13 | 2358369 Clueless Economist
Clueless Economist's picture

I (and Jim Cramer) disagree with your 5 simple charts....we have hit a bottom and are now in recovery.

Prepare yourself for Recovery Summer .

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