Housing Market

All you need to read.

Our comprehensive monthly chart porn packet comes courtesy of our favorite chartist: The Punchline's Abe Gulkowitz who has just released the January edition: "Jump Ball 2012 Will it all Fall Into Place in 2012?" - the narrative is brief (by definition) by as always cuts right to the chase. "It’s a new year and US economic activity is looking better. But magic is still needed to resolve the numerous challenges ahead. The best scenario is that the cyclical upturn gains momentum here in the U.S. and the rest of the world falls into place. Many are right to expect fourth?quarter GDP growth in the U.S. to have been a 3.5% growth pace, but still expect the spillover from Europe and policy uncertainty to cause GDP growth to decelerate over 2012. We have attempted to flush out some issues that are inadequately covered in the press… First, despite impressive improvement in the U.S. business scene, the recovery remains awkwardly distorted. The continuing deep slump in the housing market is partly to blame. The construction sector added only 47,000 jobs in 2011. More than 2 million construction jobs have evaporated since 2007, and the sector’s job count is back to its level in 1996, when the population and the economy were smaller. Second, the role of government spending has become so extended that it might take years to correct. Third, market liquidity measures have been drying up as big banks and financial institutions play defense. This is both a function of new regulatory underpinnings and the morass in Europe. While the focus of politicians and market players has been to remedy the short term necessities in the fiscal and debt crisis, the long?term challenge for Europe is to find ways of reducing its divisive divergence in economic performance and boosting overall rates of growth. If these issues are not addressed and resolved, the continent will remain locked in an asymmetric pattern of trade and stagnant living standards for both rich and poor countries. Such broader issues will require imagination and structural changes to the current framework, and faster growth worldwide than is currently on the drawing board…" Must read for even the most time-pressed and ADHD afflicted flow desk traders.

Remember when the hiring of former Wall Street insider and JP Morgan career man, Bill Daley, by the Obama administration as its latest Chief of Staff was big news last January? Well so much for that. The LA Times reports that the detente between Obama and Wall Street has reached new levels, with Daley's resignation expected to be announced at 3 pm by the president and is to be replaced by Citi's Jacob Lew, who in turn was the guy who oversaw the bank unit that "shorted the housing market." Well, at least Obama now knows to keep away from the JPM crew, whose Jamie Dimon is not all that happy with the president, if he wishes to avoid looking like not only the Wall Street's patsy, but also the guy who fails at sloppy seconds.

All you need to know.

If you ever happen to acquire an inclination for being the subject of disrepute and ridicule I highly recommend endorsing the conceit alluded to in the title. Apparently this issue is ‘so obvious’ that even gold bugs and government officials can reach common ground via the contention that I’m deluded. My folly — if you will — is to maintain that dollar debasement can be bullish for the dollar vis-à-vis other currencies at present. Since this long-standing conviction of ours is once again being corroborated by price action in the currency markets I thought I’d attempt to convince you that I’m not completely crazy. Here I outline why dollar debasement is bullish for the dollar against other fiat currencies in this environment.

Today we get the December employment report and a murder of Fed Doves speaks later in the day.

Construction trends may be good for incumbents, but for homeowners, banks, and taxpayers, they're costly....

As US markets remain in hibernation for a few more hours, Goldman picks out the five critical questions that need to be considered in the context of 2012's economic outlook. Jan Hatzius and his team ask and answer a veritable chart-fest of crucial items from whether US growth will pick up to above-trend (and remain 'decoupled' from Europe's downside drag), whether inflation will find its Goldilocks moment this year and if the US housing market will bottom in 2012 (this one is a stretch). Summarizing all of these in a final question, whether the Fed will ease further, the erudite economist continues to expect an expansion of LSAP (focused on Agency MBS) and an official re-adjustment to an inflation targeting environment. Their view remains that a nominal GDP target combined with more (larger) QE improves the chances of the Fed meeting its dual mandates (unemployment target?) over time but expectations for this radical shift remain predicated on considerably worse economic performance in the economy first (as they expect growth to disappoint). We feel the same way (worse is needed) and recall our recent (firstly here, then here and here) focus on the shift in the balance of power between the Fed and ECB balance sheets (forced Fed QE retaliation soon?).

If there is anything that the European banks' negative response to the LTRO's invitation to use "free money" and relever even as Europe faces a perfect storm of deleveraging in 2012 (a topic beaten to death by us here previously) is that the problem at the root of the European financial crisis is not a liquidity one - it is, and has always been one of solvency, or, said otherwise, a problem when bank assets do not generate enough cash flow to satisfy cash outflows from bank liabilities, period, the end. Everything else is irrelevant. And while the market is fascinated in complete noise such as at what price will Italian bonds price in minutes, what the real focus should be on is the state of the primary driver that led Europe into (and eventually will take it out of) the credit bubble- housing. Today, Bloomberg provides a quick update of the Spanish housing situation which can be summarized as follows: horrible and getting much worse, because as October data shows, lending has imploded, down nearly by half just from a year earlier, while the average price is down over 7%.

And here we go:

EXISTING U.S. HOME SALES REVISED DOWN BY 14% FROM 2007-2010
EXISTING HOME SALES REVISED DOWN BY 15% IN 2010 TO 4.19 MLN

Thank you NAR for proving what everyone knew: that the US housing market is one big lie. And next: here come the historical GDP revisions.

Everyone exposed to losses in the corrupt, speculative apex of malinvestment known as the U.S. housing market doesn't want a truly healthy housing market, they just want a return to the bubble era. Sorry, folks, ain't gonna happen. (And yes, I own property, too, but it is what it is.) Bubbles do not reinflate, even with the Fed chanting its Keynesian Cargo Cult mantras ("zero interest rates forever!") and waving dead chickens over the embers. The conditions which inflated the bubble cannot be called up by incantations; faith in the system has been destroyed, and only the complete socialization of the mortgage market by the forces of Central Planning--the Fed and the Federal government's Socialized Mortgage Makers, Fannie and Freddie-- have staved off the complete collapse of prices which would have wiped out the banks and cleared the market via actual capitalism in practice, i.e. a transparent marketplace which is allowed to discover price. Despite the fact that a truly healthy housing market is anathema to the Status Quo and current property owners sitting on huge mortgages, let's lay out the necessary characteristics of such a housing market. A lot of this will strike many of you as counter-intuitive, but that only highlights the pervasiveness of the speculative propaganda that slowly hollowed out our culture's previous understanding of housing and replaced it with a devilishly magnetic financialization model.

What is more worthless than a run-down unmaintained home that is unloved?

The answer to this question is the expected value of your social security pension!

Since most of us only deal with mortgage loan origination fees when we buy a home or refinance a mortgage, the average citizen will have a tough time sorting out the often-arcane issues at stake. But the bottom line is straightforward: the already-limited mortgage market is about to become more limited, as small mortgage brokers are being shoved out of business. Call it “unintended consequences” or a cloaked plan to channel more of the mortgage business to the “too big to fail” big banks, but regardless of the motivations, the rules end up limiting consumer choice and making it harder for home buyers to get a loan. That's bad for housing in two ways: limited competition drives costs up, and marginal buyers will find nobody wants their business because it's simply not worth the compensation allowed by the Fed's new rules.

Some 97% of the financing for the housing market is about to disappear. If Fannie Mae and Freddie Mac aren’t recapitalized soon, the home loan market will be privatized. One bubble too far. A free, unsubsidized market for home loans will be a much more expensive market. The grim outlook for home prices. That is when we find out how much freedom really costs.

Hopefully today's 4th consecutive decline in home prices, as per the earlier noted Case Shiller October data (and with both mortgage rates and foreclosure inventory surging, we are willing to bet that following the reported November and December CS data, the decline will be for half a year straight), makes it sufficiently clear that housing has double dipped, and that the primary goal of Bernanke, which is not to pad banker bonuses, but to reflate home prices and recreate that mythical HELOC "fake wealth effect" piggybank, has been a complete failure (he sure is succeeding in getting WTI about to soon hit $100/barrel). Just in case there are any doubters left, Nouriel Roubini sat down with CNBC's netnet to confirm what virtually everyone else already knows: "It's pretty clear the housing market has already double dipped," per Nouriel, who recently took advantage of the NYC housing downturn and bought a $5.5MM pad. "And the rate of decline is stronger than in previous months" - precisely what we pointed out a few hours back. In other words, the double dip is accelerating. Today's jump in 10 and 30 Y rates will not help.