Housing: Objects in the Mirror May Appear Closer than They Are

Nobody wants to believe that the housing market has turned.

If you are just generally bearish, it's centered on the consumer's inability to buy anything. The theory goes that the consumers are not going to go out to eat, buy new clothes and certainly not going to buy a new home. Even the greatest investor on the planet Warren Buffett said this weekend, "There's no sign of any real bounce at all in anything to do with housing, retailing, all that sort of thing."

Yesterday, the National Association of Realtors, said the Pending Home Sales Index, (a forward-looking indicator based on contracts signed) increased in March by 3.2% to 84.6 from 82.0 in February. Surprisingly, the index is 1.1% percent higher than March 2008.

While two months is not a trend, what has occurred over the last two months could be the leading edge of a turn in the housing market. As we said in an April 29 post - "Housing: Which way is up?" - affordability conditions is at a 40-year high when looking at median home prices, mortgage rates, monthly mortgage payment, and median family income.

In addition, a government $8,000 tax credit has the ability to increase buying power where there are special programs offered that allow buyers to use it as a down payment.

It was just two weeks ago that we learned the sales of new homes are also showing indications that the housing decline may be near a bottom. The Research Edge MACRO process is built around changes at the margin. While Mr. Buffett and others might not see what is happening on the margin to the housing market, the turn is gaining momentum.

Looking at the market 2.5% move yesterday: market prices don't lie, people do.

The market is confirming that the US housing bottom will be in the rear view soon.

Comments

[themackattack:]

Maybe true, but soon is relative. There is so much pent up inventory that prices are likely to still decline for 6 months or more, even if its starting to turn.

So the impact on the equities markets may be soon, the best time to buy housing is probably still a ways off.

May 05 08:08 AM

[2houndz:]

OK, so you were awake in Econ 101 when they talked about demand. Where were you when they discussed supply? You may want to get familiar with the existing mortgage reset situation, which is still ramping up.

This is possibly encouraging news, but real estate is a lumpy, illiquid asset. Be careful with assumptions that things are getting healthier by the day.

May 05 09:04 AM

[Jimmy K:]

19 MILLION EMPTY HOMES AT PRESENT TIME, that's a lot of homes in the rear view mirror...

May 05 01:42 PM

[altaman:]

Keith baby, did anyone ever suggest that you should take anything you get from that bunch of real estate shills with a grain of salt? I see only a car wreak in my rear view mirror but I see a train wreak up ahead with a rising interest rates, rising unemployment, high RE vacancy and foreclosure rates, falling RE prices and another mass of mortgages and CRE loans coming due or resetting. Ho hum what to think?

May 05 04:40 PM

[yellowhoard:]

A train wreck where the train falls off of a bridge, on top of a train sitting below the bridge that has a train load of nitroglyserine, causing a nearby nuclear power plant to melt down.

You know, that old chestnut.

May 05 04:57 PM

[HardwoodFlo...:]

I’m not saying that there isn't supply out there-there is. In places like FLA, CA, NV they are awash in houses. There is no doubt. But metro areas like Minneapolis only have 25,000. Milwaukee even less. I keep hearing about "shadow supply" and other issues (I think places like Long Beach do have them) but for the rest of us in America (like Seattle) we just don't know what it's like or how there could be 19 Million extra houses out there.

The starts are around 500K. There are 500K in teardowns etc a year so the country is running at a net zero on builds. We add 3 million people a year which translates into 1.5 million households. It's the same old numbers I know but for there to be 19 million houses in extra supply that would mean that ever house built for the last 10 years didn't ahve an occupant. That's crazy.

The country, in normal times builds 1.5 million units a year. that is to keep up with population and tear downs. That's it. 1.5 million units a year and that's normal. I just don't understand where there could have been 19 million units that just arrived on the market. Especially when, since Jan 07 starts have been at or below a million units.

Yes, foreclosures have been running at a high rate since the late fall of 2006. OK. They still represents 1-1.5% of households. But when you factor in the decrease in housing builds your still running at a below replacement rate for housing. This is evidence by the factual information regarding the housing data from the government which has the country selling an incredibly low 4 Million units (versus a normal 8 million) and an inventory of 9.5 months. So this gives us an inventory of approx 3 million units. Let's say there is a huge shadow inventory out there let's say it's an additional 3 million units. That would only be 6 million units and only 9 months supply in a normal selling year.

Listen I agree there are hosuing issues out there- they are regional. This is not one big monolythic blob.

Just wait, you'll see.

May 05 09:51 PM

[joof:]

National single family starts are actually well below 400k

In S California there is less than 3 months listed supply at lower price levels in better markets. Multiple offers and aggressive bid ups over list have become the norm for better properties. Sales rate have been sufficient to counter balance new foreclosure inventory. It costs less to own than to rent in many cases. Since those are the facts, why hasn't the so called shadow inventory flooded the market ?

The upper end end is a very different story

May 06 08:25 PM