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While it is
always possible that the housing market has seen its lows, there's still
plenty of evidence that suggests otherwise; among other things:
Potential
supply is significantly larger than what is currently for sale
"What
Housing Recovery? Distressed Sales Still High, Shadow Inventory Massive" (Forbes)
Housing markets
seemed to have turned a corner, with Tuesday’s Case-Shiller
data adding to the optimism. Home prices have risen for a second consecutive
month for the first time since the summer of 2010, but much of this is a
consequence of the falling percentage of distressed sales, while prices are
still more than 31% of their peaks and may take years to recover. With 11.4
million, or 23.7%, of all residential properties with a mortgage under water,
and a shadow inventory worth $246 billion, according to CoreLogic,
a true housing recovery is far away.
The
market is being bolstered by temporary factors
"Michael
Olenick: Still Looking for a Housing Bottom"
(Naked Capitalism)
Every day a
growing crescendo of housing cheerleaders posit the end of the foreclosure
crisis. We’re flipping our way out of the mess that we flipped
ourselves into, is their usual line of reasoning. I’ve looked at
national data, local data, and even data on my own block here in Florida. I
tried to make the evidence prove the market has found a genuine, sustainable
bottom. There are clearly gimmicks giving a temporary boost, a great PR
campaign that may or may not be coordinated, and some foreclosure flippers
that may do well, until they don’t. But the evidence is overwhelming:
home prices are anything but stable.
For background,
a chorus of the same people that created the housing crisis have been
predicting a housing bottom every year or so. They’ve always been right
for anywhere from a few days to a few months, then
the cycle of foreclosures and lowered home values restarts and causes prices
to spiral downwards. This time though, especially in certain micro-markets,
there does seem to be measured home price appreciation.
Two trends are
apparent. One is that banks are delaying foreclosures, or not foreclosing at
all despite long-term delinquencies. The other is that private equity firms
– flush with cash thanks to Tim Geithner’s religious devotion to
trickle-down economics and the resulting cascade of corporate welfare –
have been bidding up and holding foreclosed houses off the market. These two
factors have artificially limited supply and, combined with cheap mortgages
rates, driven up prices. While we can debate whether these strategies
represent the best public policy, these policies are obviously not long-term
sustainable.
The
raw data is less favorable than the headline statistics suggest
"Spot
The Housing Bottom: New Homes For Sale Drop To Lowest Ever; Average New Home
Price Plunges To 2012 Lows" (Zero
Hedge)
Looking at the
headline number in the just released New Home Sales data one would be left
with the impression that the tepid "recovery" in housing may be
chugging along: after all with a seasonally adjusted annualized 372,000 new
homes sold in July, this was an improvement to the revised 359K in June
(ignoring that the US housing market at best continues to drag along the
bottom). This impression, however, promptly changes when one looks at the
underlying data. The reality: the actual number of new homes sold in July was
34,000, the same as in June, and the lowest since March. Of this, a massive
3,000 (yes, three thousand) homes were sold in the Northeast in the entire
month. Where things get worse is when one looks at the number of new homes
for sale. At 142,000 (of which just 38,000 actually completed), this was the
lowest number. EVER.
Two
key drivers are less-than-supportive
"Is This
the End of the Housing Bust? Not So Fast, Says Shiller"
(Total Return)
Many indicators
are pointing to a bottom forming in the housing market. New-home inventories
are at historic lows. Home-builder sentiment has finally turned the corner.
And finally, home prices have ticked up for four months in a row on a
seasonally-adjusted basis.
All that might
make it tempting to call the “all clear” once and for all. But
one of the earliest experts to identify the real-estate bubble, Yale
University professor Robert Shiller, isn’t
convinced we’ve crossed into safe territory just yet.
His reasoning?
The home-price rebound, if that’s what it is, doesn’t yet have
momentum – which Shiller’s research has
found is the most powerful driver of home prices.
Momentum is the
tendency for prices to keep moving in the same direction. It exists, but is a
relatively weak force, in the stock market. In the housing market, though,
it’s proven to be a reliable predictor of where prices will go in the
future.
That’s in
part because of what Shiller calls “feedback
loops.” When someone makes a lot of money off of home-price increases,
his friends hear about it and maybe the media takes note. Others who hear
those stories decide to take their chances buying a home themselves. That
leads to further price increases and more success stories, and the loop
continues.
Feedback loops
can help home prices – as they did during the housing boom – or
hurt them, as they have with all the bad real-estate news over the last few years.
With several
successive months of price increases, you’d think that momentum would
finally be in the real-estate market’s favor. But Shiller
says he stills sees reason to be skeptical.
“It could
be [a bottom]. It’s a real possibility. I just don’t know,”
he says.
Among the
reasons to be wary, according to Shiller: a large
overhang of homes that are either in foreclosure or near it. If those homes
flooded the market, it could push prices down even further.
And though
momentum is the No. 1 driver of home prices, the No. 2 driver, the
unemployment rate, is still well over 8%.
Unusual
seasonal influences paint an overly positive picture of current conditions
"Home
Prices Rise Slightly, But Not in the Philadelphia Area"
(Philly.com)
Michael Feder, CEO of RadarLogic, a New
York firm that provides data analysis for real estate, said that although the
data exhibited more strength to date in 2012 than they have over the same
period in the preceding three years, "this does not necessarily indicate
that home prices have hit a bottom."
Feder and
other experts said the mild winter weather temporarily boosted demand.
"Assuming
that these buyers would have entered the market later in the buying season
under more typical circumstances, the early uptick in housing demand will
have come at the expense of weakness in demand later on," Feder said.
Home prices are
not likely to appreciate on a sustained and meaningful basis, Feder said.
"Rather,
short-term appreciation will paradoxically short-circuit long-term
appreciation and perhaps trigger further declines," he said.
Activity
is being distorted by credit-related factors
"Jonathan
Miller: Don't Buy The Hype About A Housing Recovery"
(Business Insider)
Much of the
housing recovery you've been hearing about is still just hype, says Jonathan
Miller of Manhattan-based real estate appraisal company Miller-Samuel.
"We keep
throwing the 'recovery' word around, but the big numbers are coming from
sources being created from the tight market," he told Business Insider.
"Tight credit is causing rents to rise; falling mortgage rates are
pushing people to buy.
"There's
this sense that no one really has a sense of where we are in the housing
market. Recovery is this very generic, undefined term. Maybe that's a good
thing, not one extreme or the other."
Ultimately, it
depends where you are.
"When you
say 'recovery' you're implying that things are going to go up," Samuel
continued. "In certain markets you might see that, but in some you
won't."
So what does
the seasoned appraiser think consumers will see in the market over the next
five years?
"A
sideways orientation," he said. "For now, it may make lenders more
comfortable and help turn prices around, but I guess I take offense to it
because I think when people hear it, deep down they don't trust the message
either. All it does is create more confusion."
Michael J. Panzner
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