Three Reasons Why The Housing Recovery Dream Is Overdone

Tyler Durden's picture

We know its is blasphemous to question the NAR and given the dismal state of the manufacturing sector data in the US in recent months, the entire recovery now seems predicated on good old 'residential real estate' rising phoenix-like from the ashes of negative equity. Goldman's Jan Hatzius ignores the 'see no evil, hear no evil, speak no evil' of the mainstream media's call for a glorious recovery in housing and lays out his own three monkeys. While recent data is encouraging, he is far from sounding the all-clear as the massive instability of seasonal factors; the gradual nature of the 'turn' and wide dispersion between strong and weak markets; and housing's considerably less important role in the broad economy (and macroeconomic spillover wealth effects); all leave the Goldman economist unamused as he sums up his perspective quite succinctly: "while housing may be getting better, it's no longer about housing."

Jan Hatzius, Goldman Sachs: Are House Prices Finding A Bottom?

While the recent house price news is encouraging, we would not yet sound the "all clear" for the housing market or the broader economy.

First, the instability in the seasonal factors over the past few years is a potential source of noise in the recent house price indicators, and also in our model. As shown in Exhibit 2, the seasonal factors in the Case-Shiller home price index have shifted substantially since 2007. The reason is the increase in distressed/foreclosure sales. Since distressed sales account for a much bigger share of total sales in the winter than in the summer, and since distressed properties are typically sold at lower prices, the increase in distressed sales since 2007 magnifies the seasonal pattern of higher prices in the summer and weaker prices in the winter. In addition, the seasonal factors can be also distorted by one-off items such as the 2009-2010 first-time homebuyer tax credit, the foreclosure moratorium taking place in the fall of 2010, and the warmer and dryer than usual winter this past season. All of these complications make it more difficult to assess than under normal circumstances whether the seasonal factors are too large, too small, or just right. This adds to the uncertainty as to whether the better recent numbers indicate a true turnaround in the US housing market.


Exhibit: The Magnitude of Seasonal Factors for the S&P/Case-Shiller 20-City House Price Index Increased in Recent Years


Second, even if the market is gradually turning, as our model implies, the difference between a slightly declining and a slightly increasing national average for home prices is minor, especially given the wide variation between stronger and weaker markets. Our broad view remains that national home prices will remain close to flat over the next 1-2 years, or at a minimum that the recovery will remain very "U-shaped."


Third, the housing market is less important for the broader economy than it was a few years ago. Homebuilding now only accounts for 2.3% of GDP, compared with 6.3% at the peak of the cycle. Thus, even a rapid percentage gain in homebuilding only has a moderate direct impact on GDP growth. Moreover, the macroeconomic spillovers of changes in house prices via the housing wealth effect are considerably smaller than they were a few years ago, given the absence of mortgage equity withdrawal (MEW) as a conduit for translating wealth gains into higher consumer spending. Lastly, the impact of house price changes on the availability of credit via bank balance sheets is probably also smaller than it was a few years ago, as banks have already recognized large losses on mortgage loans and mortgage-related securities and housing-related assets feature less prominently in their balance sheets.

For these reasons, the gradual turnaround in the housing market does not alter our expectation that the US economic recovery will remain sluggish, with real GDP growth averaging 2% through the end of 2013 and risks that are tilted to the downside of our central forecast, at least in the near term.

Put simply, while housing is getting better, it's no longer all about housing.

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veyron's picture

PulteGroup (PHM) stock price would disagree

I think I need to buy a gun's picture

hope and change coming soon bitchez,,,,,,,make sure you have prepared for change so you can enjoy the hope!!!!

Yes_Questions's picture



Three ZH Billionaires not out speculating.

There's your reasons.

redpill's picture

Yes housing prices have bottomed.  House prices have a floor because houses actually exist, and have practical value: if nothing else, you can live in them.  Stocks predicated on a Fed-fueled ponzi scheme though?  That's a different story.  If anything real estate stands to gain from people across the world losing faith in financial markets.  Foreign investors are flooding in to buy homes in the US, especially in multi-cultural meccas like Miami. 

That being said, we are not on the onramp of a robust housing recovery.  Speculators jumping on homebuilding stocks in anticipation of a new boom of new home construction are fooling themselves.  There will certainly be the outperformers in the group but generally speaking this is not going to be an industry of substantial growth for quite some time.  And for the average person that's fine.  We've started to get back to a rational housing market, with rational prices, rational underwriting guidelines, and rational purchase decisions.  So while the stabilization and incremental increases in price may not be big, at least they are real.

Michael's picture

I don't care how much RE foreigners buy in the US, as long as they pay my, their property taxes for my public services. 

TheSilverJournal's picture

Like anything else, housing pricing are set by supply and demand. The run up in housing prices before the bubble burst helped build a massive amount of supply, and demand is only being held together by gov supporting the entire housing market.

Housing prices in real terms have yet to drop another 75%. The entire market's being backed by the gov and gov is going broke: 95% of newly issued mortgages are backed by gov and gov is dishing out ultra low rates leading to ultra low monthly mortgage payments. When the gov goes broke and rates rocket, the standard $1,000 mortgage payment being achieved with the purchase of a new house will turn into a $4,000 monthly payment, or more.

When the gov goes bust, Americans will become much poorer and they will get rid of second and third homes, and move in together to save on costs such as: property taxes, heating, electricity, repairs.

Also, as the economic situation in the US becomes more dire, the most ambitious will leave the US in search of opportunity, further exacerbating the overbuilding of housing.

AldousHuxley's picture

massive amount of supply controlled by few banks who are only letting few houses on the open market and keeping the rest in shadow inventory.


like the diamond market, banks have cornered the housing market and can set prices higher than nature supply/demand curve would indicate.



Diogenes's picture

"I don't care how much RE foreigners buy in the US, as long as they pay my, their property taxes for my public services. "


You'll love Florida. Foreigners pay double or triple property taxes while using almost no services since so many are seniors, are well off and only reside in the state part time.

SoCalBusted's picture

You can live in a cardboard box too.

House prices have not reached bottom because of supply and demand.  We don't know what the real supply is and we don't know what the demand is.  Even if one had a "stable" job, who wants to be locked into a specific part of the country/world if/when the SHTF and you may have to move for your next "stable" job?

dexter bland's picture

"Put simply, while housing is getting better, it's no longer all about housing."

Well what is it about then?

Housing is the root cause of it all. Housing isn't just construction, finance, real estate. People like to buy stuff to fill their houses with. Like beds which they fuck in and end up with kids who just consume stuff constantly. It helps the romance along if the owners of the houses are comfortably above water on the mortgage and not facing foreclosure.


yogibear's picture

A history lession for all.....

Remember what housing prices dropped from the peak during the great depression??

What did they drop to in Japan (An island, with limited land)?




Snidley Whipsnae's picture

"We know its is blasphemous to question the NAR..."


NAR = Never Are Right

Michael's picture

Agreed. Housing prices are not coming back in the rest of my lifetime.


In case anyone is panicking over the recent early summer heat wave and Colorado fires like the TV tells you to, It's not unusual or your fault.

Yellowstone Fire of 1988(Mad World)

Argentina: Serious frosts have led to a declaration of agricultural emergency and disaster


June 30, 2012

Argentina – More snow in two weeks than an entire normal winter season


Yen Cross's picture

Michael, you are a puppet! Take advantage of your opportunity! Get lost fast!

Michael's picture

If it makes you feel better, millions of illegal aliens became unemployed when the US housing bubble went bust.

Yen Cross's picture

 If it makes you feel better? Get a FACE!  You worthless troglodite! You pop up like a rabid field mouse! Give me something? Anything ? You are a mental midget! Get a job, or at least create an idea.


   I want Snidley, and he is hiding behind a Clown!

Michael's picture

Here's something;

64 million empty vacant real estate properties in China, their housing bubble currently going bust and there is nothing in the known universe that can stop the bust. Imagine how many unemployed Chinese there's going to be.

Yen Cross's picture

 Hey "Clown Face" do you even understand Chinese lending practices? Dip Shit, china just lowered the repo rate! How does that affect you?  You are a mindless Idiot!   I'm after( that pin head) , your cohort!

Michael's picture

Snidely no want to make contact wit chu.

Michael's picture

Is this who you're looking for YC?

Snidely Whiplash: Bondage Practitioner

Yen Cross's picture

 Get lost! As if I would actually watch your worthless diatriabe!?

Yen Cross's picture

Michael, why is it you feel compelled act like a clown? Green Hair, Black eyes Ect...?

   If you have a dark secret, it's ok. Apparantly you want to take the punctuation of this arguement?

  Michael I dont see " Snidley" stepping up? Michael you are your own man?

Michael's picture

Snidely no want to make contact wit chu.

Yen Cross's picture

 Thanks , Pizza Delivery boy. frankley I could care less if you ever make contact with me! I'l deal with both of you like " Boris".

Snidley Whipsnae's picture

Michael... Please don't feed the troll known here as Yen Cross... and probably other screen names. He/She appears here from time to time to derail threads and feeding IT will not add anything to ZH.

BTW... I have no knowledge of or connection to Snidley Whiplash...

Snidley WHIPSNAED was a roll played by great comedic figure, W.C. Fields... I like Fields attitude and performances in his comedy rolls. I left the 'D' off my screen name out of respect for W.C.'s legacy. See Wiki entry for W.C. Fields...


The American'd have to be fast asleep to believe in it. 

AldousHuxley's picture

WTF is American Dream?

car and a house?

like that is exclusive to America?


millions of Chinese communists have cars and houses too.


so why is it still a dream for US middle class when 3rd world citizens are able to obtain them these days?


Yen Cross's picture

 You do have a Heart? I was waiting for you Snidley. I catch you on other threads.

        As an attorney, do you feel like your younger "BRETHREN" have the same Gusto you do/did?

Yen Cross's picture

Cartoon Character Snidley Whipsnae       Hey Snidley , are you long " Play Doh"?  Hey Snidley are still using the Fiat game plan?

   Still selling em, off Snidley? 

Snidley Whipsnae's picture

YC... I see you are drunk as usual when you show up here. Congrats on the impressive number of NEGS that your comments have accumulated. Are you trying for a record?

Which gov agency are you working for? How much are they paying for math challenged trolls now days? Have your math skills improved or are you still dependent on others to solve your basic arithmatic? Math challenged... too bad since this condition probably leaves you in a sales only roll... or 'management' if you have an 'in' through the ol boy network.


Yen Cross's picture

 Hey ass face/ Quit hiding!

Offthebeach's picture

August 5th, 1945.
Hiroshima Association of Realtors.
"Now's a good time to buy."

PC Load Letter's picture

Maybe the mindless pumpers at NAR would be taken seriously if they stop claiming "Now is the best time to buy a house." No better than the banks on CNBC everyday telling people "Now is the time to be in stocks."

barliman's picture


There is one sure cure for anyone inclined to believe the HOPE-shit "The Housing Market has Bottomed" meme:



The housing market does not matter NOT because of a reduced share of GDP - though failing to note the long term effects of it being reduced to 1/3 of its previous percentage of GDP is not unlike failing to report on a wedding "because, like, there was no wedding ... because the bride took a chainsaw to the wedding party in the back of the church"

 The currently developing recession (i.e. the raison d'etre for the ramp in the markets the past four trading days) is going to be an Extinction Level Event for housing in the United States.

Anywhere you go on the Zilllow link, you are going to see an unbelieveble percentage of underwater mortgages.

Do the math.

How much of an economic contraction will it take before the "Black Hole" implosion occurs with regard to housing?


Vampyroteuthis infernalis's picture

Let's do basic logic here. Young people do not have jobs. Those older people who do have jobs have reduced salaries. Funny zero down give to anyone with a pulse loans are not coming back. This EQUALS NO HOUSING RECOVERY!!

disabledvet's picture

yep. i think if i had a 100 percent return in just six months in my housing stock price i'd at least cash out my initial investment. interesting that the financial media calls these equities "the housing market." what are they, .00001 percent of said multi trillion dollar market? anywho...

Offthebeach's picture

House = Hostage to union town/county pension
bomb. ( Don't worry, it's safe. So long as it's ticking it's fine.)

mmanvil74's picture

Let's not forget that foreclosures sold by banks are not negative equity, they are 100% equity, and a good percentage of those buying foreclosures are using 100% cash.  This sets the floor on housing for US, and the pig (of foreclosures) is almost all the way through the python in the earliest hit states (FL, AZ, CA, NV).   Once the foreclosures are back to "normal" levels, housing will see relatively sudden price increases.

In fact, while national statistics make US housing look as though it is dragging along the bottom, key markets are popping big time - 10% - 25% gains in certain neighborhoods of cities like Phoenix, Miami, San Fran and others so far THIS YEAR.

Housing is at or near historical lows when priced in terms of the DOW, OIL, or GOLD.  

By the time ZHers get bullish on housing, it will have doubled in price (in key markets and in particular types of housing, I don't expect large gains in places like Witchita Kansas, but I do expect gains in communities that attract retirees in FL and AZ for example, and places that attract young affluent professionals like, San Diego, Seattle, San Fran and NYC) even while the national stats will continue to show modest gains for many years to come.  Following national stats only is a bit like just watching the NASDAQ, oblivious to the fact that APPL is up 400% in 5 years.

US housing right now is cheaper than you will find almost anywhere in the world.  I've been all over the world looking at housing and no, you will not find 2000 sf houses in Ecuador, Colombia, or Vietnam for $80,000 like you can right now in Phoenix.  Maybe Africa has cheaper housing than US, but even there, housing in large cities are probably more expensive than US.

Sure, housing may not become a national economic growth engine like it once was for a long time, nor will a positive housing market drag the US economy out of recession (or stagnation, or whatever you want to call it), but it is a great - once in a lifetime - opportunity to buy US residential property, if one buys right (foreclosures from the banks) and in good locations with high (double digit) NET rental returns.

Factor in ultra low mortgage rates and housing is a no brainer investment for anyone who does not trust stocks or bonds or any other Wall Street contrived "security".  Just give the math a chance: 30% down on an $80,000 house with 30 year mortgage at 4% for a house that rents for $1000/month.  If you are lucky enough to buy a personal residence with even less money down, all the better.

Middle class Americans, aka "the dumb money", the ones that were buying their 6th "investment property" late in 2006, are prone to buying at the top and selling at the bottom.  They will be renters now for a long time until housing looks like a golden opportuntiy again, by which time it will be time to unload your rental properties to them for a tidy gain.

barliman's picture


So, other than you've sunk a lot of capital into real estate (and need the market to pick up so you can sell out of it), what else about your book are you selling?

And you completely avoid discussing the economic impacts that will result in areas that are currently seeing more than 35% of mortgages underwater when the economy contracts.

Especially clear is your dodging what happens when the coming recession drops home prices off another cliff ...

... Or the continuing rise in property evaluations/taxes divorced from current market prices makes the property taxes on a monthly basis 30% or more of the mortgage?

Would you mind providing an explanation of the relevance of U.S. home prices with respect to the rest of the world? Why should that affect someone's investing decisions if they are never going to buy a residence somewhere else in the world?

What EXACTLY is your role in the real estate chain?  I know!   You're a real estate agent, aren't you!?!

The best case argument that can be made regarding the housing market in the U.S. is:

If your net cash position is greater than $ 10 million USD and you have a 10+ year high risk tolerance to 30% downside in the near term against 50% upside in the 10+ year term ... then you might take 10 - 15% of your net cash position and invest in very select properties in cities where the current underwater mortgage percentage is less than 5%.

But then, you had better hedge that risk substantailly with an offsetting portion of your net cash position.

"Buy when there is blood in the streets."    Baron Rothschild


beachdude's picture

Search 92651. Search up and down the SoCal coast. From Laguna and Newport up to Manhattan and Hermosa.

When will the beach cities slide?

barliman's picture


If you remove your head from the sand ... or wherever else you might have it stored ...

... you could take a moment to notice the 92651 zip code has 10% underwater mortgages for what has long been considered some of the BEST real estate iinvestment property in the world.

In the real world, rather than the pharmacologically assisted one you must live in, the fact that 1 in 10 properties of this level of real estate is now worth LESS than the buyer paid for it is equivalent to being told you have a new volcano as a tourist feature.

No, alarm bells yet?

Slide up the coast to Malibu - one of the most recognizible "neighborhoods" in the world - 16% underwater - math is hard, so let me help you out - 1 out of every 6 is now worth LESS than the buyer paid for it.

I know I am going to be setting the bar to high for you here (i.e. most 14 year olds would be able to clear it) ...

Google what the normal percentage of underwater mortgages for those same beach cities has been over the last 50 years.

For the casual reader who wants an education; fire up the link, go to the zip code and then click the zoom out (minus sign) three times.

Well .... FUCK ME!  Orange County is a little island of orange at 25% underwater surrounded by a sea of red.


beachdude's picture

That's how I see it as well, but I live here. The statistics may show 1 in 10 homes underwater, but inventory is low as not many are selling. I've been waiting for prices to soften since '05 when I sold near the top in anticipation of the housing bubble crash. The fact is that most, if not almost all, don't need or even want to sell.


This slow motion train wreck is just testing my patience. That's the reason I asked for others opinions here... how they saw things.

You, barliman, are evidently an abused, angry human being. I'm sorry for you, but feel free to limit your commenting here.

in4mayshun's picture

And we know stock prices never mislead.

veyron's picture

Indeed, but at least I'd hope the author would address the point.  Alas, it is goldman sachs ...

Peter Pan's picture

While we continue to view the situation as a housing crisis rather than as a homelessness crisis, while we wait with baited breath for house prices to rise but wages and jobs remain soft to say the least, and while we see banks reluctant to take write offs so that it does not affect their balance sheets, we will not see any real of recovery in housing prices, reduction in foreclosures, or inventory decreases.

Snidley Whipsnae's picture

veyron... PulteGroup stock prices are whatever the 'President's Working Group', sometimes known as the plunge protedtion team, wants them to be. In this respect PulteGroup is no different that any stock on any exchange, any bond, or any commodity.

All mkts are now levitated or depressed according to the misguided desires of the Fed, big banks and crooked pols; ie, misguided for those whishing to save or protect their savings from a dollar that has been debased by 96% by the Fed, which is charged with maintaing 'price stability'...

When the next crash comes to equties, PHM will be a loser along with the majority of listings. 

Even LIE BOR is not exempt from rigging.

...and real estate has not reached it's final bottom by a large margin. RE will not turn around until a driver for jobs is found. When will that driver be found?