Here Comes The Housing Boom -- Or Not?

Includes: DIA, PSR, SPY
by: John M. Mason

The housing recovery is happening…and it's benefits are spreading. That is what we read in the Wall Street Journal on Monday morning, see "Housing Recovery Opens Spigot."

"The U. S. housing recovery is starting to show up in corporate results," the article begins.

"Companies that sell power tools, air conditioners, carpet fibers, furniture and cement mixers are reporting stronger sales for the fourth quarter, providing further evidence that a turnaround in the housing market is taking hold."

Good news! But, apparently, not everything connected with housing is a ready-made "slam dunk."

Brett Arends, cautioned us last Saturday in the Wall Street Journal that "Housing is Back--But Housing Stocks Are Due for a Fall."

Arends writes, "While signs for the housing market are indeed optimistic, housing stocks have risen too far , too fast…the (housing) recovery "is already baked into (stock) prices…At this point in the real-estate recovery, homes look like a much better investment than home-building stocks."

But, then, the economist Robert Shiller comes along an hits us with this: "A New Housing Boom? Don't Count on It." Shiller begins, "We're beginning to hear noises that we've reached a major turning point in the housing market-and that, with interest rates so low, this is a rare opportunity to buy. But are such observations on target? It would be comforting if they were. Yet, the unfortunate truth is that the tea leaves don't clearly suggest any particular path for prices, either up or down."

Basically, Shiller is saying, some of the indicators are up … and some of the indicators are not up. It is, Shiller continues, "hard to pin down" what is happening because, for one, "nothing drastically different occurred in the economy" since March of this year." He adds, "It is hard to find an exact cause for the rebound in home prices."Housing prices seem to "keep going in the same direction for a year or maybe more" once they begin on a trend, but, "those prices have generally reverted to the mean fairly quickly, in inflation-corrected terms."

Shiller concludes, "We certainly cannot rule out another boom … But, I wouldn't bet on it."

"History doesn't suggest that another big bubble will come so fast. In fact, before the recent one, the United States has had only one major national home price boom in the last century …"

And, home ownership rates are falling, They were at 69.0 percent in the third quarter of 2006 and were down to 65.5 percent in the third quarter of 2012. Home ownership rates are expected to continue to fall in the next several years. Yet, the Federal Reserve continues to pump large amounts of money into the mortgage market.

And, money is apparently being made, "as we speak" in the housing arena. See my posts in December about getting into the housing rebound, Part One and Part Two. But, this discussion was about big banks, like Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C), and private equity firms, like the Blackstone Group, and the financial subsidiaries of large construction firms. They are buying homes, in large numbers. What does this tell us?

And yesterday at lunch we were talking about what Ally Financial, formally GMAC, was doing in the mortgage area. Robert Shiller is not going with the advice, don't fight the Fed! Given this environment, "This is a good time to buy a first home, to trade up, or to buy a property as an investment," as Brett Arends advises us in his column.

But, unless you are a major "player" or want to be a major player, maybe you should listen to Robert Shiller. "There is too much uncertainty to justify any aggressive speculative moves right now. If you have personal reasons for getting into or out of the housing market, go ahead."

In other words, this is time for those with lots of money to go with the Fed while others should protect what they have. So once again, the government underwrites Wall Street while Main Street can go fend for itself.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.