Has the Housing Market Reached a Bottom?

The National Association of Realtors' Housing Affordability Index remained high in May (171.6%) by historical standards (see chart above, data here), but fell by 7.2 percentage points from April's record high of 178.8%, mostly because of the increase in the median home price from $166,000 in April to $172,900 in May.

The 7.2 point May decline was the largest monthly drop in the HAI in four years, providing further evidence that the housing market may have reached a bottom. Watch for the HAI to continue to fall this year, as both home prices and mortgage rates rise and the real estate market continues to recover.

Comments

[jeandit75:]

Nope

Jul 01 06:57 AM

[Jimmy K:]

agreed. It has not reached the bottom. I have to say I don't understand all his cheeleading for housing? Possibly because Mark is not a renter? Bought at the top>?

Jul 01 08:14 AM

[CLH:]

Maybe not the absolute bottom but with lots of foreclosures out there--a better time to buy will never be found.

I believe this stock market is also a great buy. However, the majority of people will wait and miss the cheap prices. Market already up close to 45%. It wont return and wait for the slow people.

Jul 01 08:25 AM

[swalter:]

Mark - it appears that you have less people responding to your endless stream of cheerleading for the end of de-leveraging. You are going to have to get more creative or amusing.

Jul 01 08:58 AM

[Lok Sang Ho:]

I am with Mark. Considering affordability, considering the slowdown in unemployment--which typically is a prelude to a recovery, and considering the uptick in home prices, as well as stronger sentiments overall, the resets need not be a big worry--unless the homeowners lose their jobs they are unlikely to walk away from their homes, and the lenders will also try their best to avoid foreclosures, which typically would amount to a lose-lose scenario. I am fairly confident the recovery is on the way, even though there are still some risks. Japan's case is quite different. Japan has been dragged down by a super-strong yen which would have sunk any exports-oriented economy.

Jul 01 10:38 AM

[Fred W:]

more re-posting from MHF
I think I need to stop reading your posts, since I have almost memorized your boiler plate by now.
Never mind that I agree with you here.


On Jul 01 10:11 AM Mad Hedge Fund Trader wrote:

> I am getting as tired of hearing about a housing bottom as I am "green
> shoots". Since I have been pelted daily with predictions that residential
> real estate has bottomed for the last 18 months, like hail in a Midwestern
> summer thunderstorm, I feel a public duty to tell you that is just
> not the case. Now that the state and federal moratoriums are off,
> foreclosures are accelerating. There are over a million Option ARM
> and Alt-A loan resets about to hit the fan. Since many owners will
> not see positive equity in their homes in their lifetimes, banks
> are seeing more walk always. The run up in mortgage rates from 4.5%
> to 5.5% has yet to hit the market. Some 18 million homeowners divert
> 50% of their incomes to pay for housing, double the 25% that is considered
> healthy, and many of them are losing jobs. While the volume of units
> sold has rebounded, the action is dominated by speculators, flippers,
> and bottom feeders bidding for properties at 10-40 cents on the dollar,
> not exactly a sign of health. Call me when Ozzie & Harriet Nelson
> come back to the market. I listen to industry insiders call the bottom
> of the Japanese real estate market for 15 years, until they finally
> died, and the market is still a fraction of its 1990 high. I thing
> we are closer to the bottom than the top in terms of price, but closer
> to the top than the bottom in terms of time. You can take that to
> the bank.

Jul 01 10:51 AM

[Dirk McCoy:]

There's a tug of war going on between deleveraging and monetary growth (deleveraging is still winning), deflation and reflation (deflation is still way ahead), and panic and confidence (still somewhere in the middle, but closer to panic). Mark has provided quite a bit of data to suggest that this tug of war is closer to even than conventional wisdom, but in a market like this the data can be affected in less-than-intuitive ways, such as bank repossessions counting as sales at inflated values and consumer confidence improving only because we look to be avoiding total collapse (only 8% of consumers describe current conditions as good vs. 42% as bad, not the stuff of rebounds).

I'm kind of curious- if Flint succeeds with their plans to raze 40% of homes in the city, what prices will those be transferred at and how will that affect the average home price- and when will that happen? It would be interesting to see an index of home prices with current abandoned properties (no one living in them with no near term prospects for occupancy) valued at true NPV, which could be less than zero for all we know...

Jul 01 11:00 AM

[John Lounsbury:]

Some of the headwinds for housing include the expectation of rising unemployment over the next 1 - 2 years. Approximately 6,000,000 jobs have been lost so far in this recession. If unemployment tops out at 10.7% that is another 2,000,000 jobs lost; at 12% 4,000,000. Add to that the rising number with reduced income (part-time for economic reasons) already up approximately 6,000,000 in this ressession and likely to continue rising until six months or so before unemployment peaks. Many millions more are living in fear of losing their jobs.

A major reason for the high level of affordability is the absense of buyers. How many millions out of the 12,000,000 ro 16,000,000 would be prospective house buyers if they had normal work and income levels? Are there at least as many in a fetal position (financially speaking) because of uncertainty about continued employment?

If I add these numbers up and assume that 5-10% of that 25 - 35 million would be prospective home buyers in normal times, there is an absence of buying pressure for between 1 and 3.5 million units. These are missing from the house buying market compared to what would be the case in a normal economy. If these potential buyers returned to the housing market, inventories would return to levels seen in healthy housing markets.

Affordability is meaningless as long as there is a shortage of buyers.

There is a viscious cycle here that must be broken.
1. Employment can not improve until the economy is in recovery. 2. The economy can not have a significant recovery until the financial system returns to more normal operation.
3. The financial system can not stabilize until the housing market stabilizes and default risks decline.
4. The housing market can not stabilize until more normal buyer demand returns.
5. Buyer demand can not return until employment declines stop and unemployment starts to go down.
6. Return to 1.

Jeff Miller has a good article today discussing some of the complexities of reading housing market indicators seekingalpha.com/artic...

Jul 01 11:44 AM

[tuj:]

Ahh the great "Dr." Perry. Let's go over your track record:

First, you said the housing problems were contained in only four states:

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Case-Shiller would strongly disagree with that assessment.

Then you exclude 5 to try and show foreclosures are decreasing:

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Then you called a bottom in the housing market in 2008:

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Then you said that affordability was higher than ever (duh, prices crashed), and you went on about this FOR MONTHS:

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And yet you're still looking for a bottom?

Then you equate increasing sales in some of the worst markets to 'recovery' without understanding that many of the existing home sales are being 'short-sold' (REO) by banks to get them off the books.

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And you don't seem to understand that much of the mortgage activity increase has been in refi's:

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And lets not forget that you also believed that job layoff's peaked in January:

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You are taking a sub-50 reading of ISM as "positive":

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And finally, my favorites, you said there was no recession, and no credit crunch.

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I don't know what makes you qualified to call a bottom in housing, let alone anything else. You've been nothing but a relentless bull on virtually everything.

Jul 01 12:58 PM

[Ted Hurlbut:]

I believe we're in a bottoming phase overall, but the housing market is likely to be a drag on any recovery. There's still too much inventory and unemployment is driving fresh foreeclosures. Housing may have led us into this, but it's not going to lead us out. And the anticipated problems in the commercial real estate market will only increase the headwind.

www.hurlbutassociates.com

Jul 01 01:00 PM

[CautiousInv...:]

A number of interesting points have been made and I believe it is difficult to make a strong case for housing; the correction has further to go.

Prices are declining, foreclosures are rising, interest rates are edging up, underwriting standards are increasing, appraisals are less friendly, housing initiatives are failing, unemployment is increasing, a large number of resets are right around the corner, first time home buyer tax credits will expire at the end of the year, banks are keeping back 600,000 or some homes from foreclosure and buyers see "deflation" in housing and are deferring decisions to purchase. Plus, as John notes, there are a multitude of adverse feedback loops that perpeuate instability.

There approximately 50 million homes with mortgages and Gary Schilling expects that before this cycle is completed 50% to 60% of these homes will be underwater.

Jul 01 01:42 PM

[HardwoodFlo...:]

Well, simply, no. The affordability index is immaterial if you can't get a loan. I'm not talking about anything under $430K but, rather, over. Banks will not lend to anything other than a loan that has FHA backing. So JUMBOs don't exist until that happens there will be no recovery. Period.

There is no point in even having a housing discussion until that happens. The affordability index is irrelevant.

Jul 01 04:50 PM

[HardwoodFlo...:]

First of all how did MHSpammer get to the top 10? Obviously he has figured out a way to game the system. I know I haven't posted in a long time but the last I rememeber he had like 4000 posts(50% spam) and wasn't even in the top 100? I'm using dialectics here and also speaking in the MACRO.

Jul 01 04:55 PM

[Can'tSpotAB...:]

I'm so tired of MP.... Thanks tuj for calling him out. Don't bother going to his blog, if you post anything that is contrary to his fairy tales you will find your post deleted.

Jul 06 06:25 PM