When Will Housing Turn Around, If Ever?

Includes: BAC, BCS, HHC, WFC
by: Benzinga

By Jonathan Chen

With Wednesday morning's mixed picture, the answer to the question remains a big "no one knows."

August housing starts came in at 571,000, down 5% month-over-month. Building permits were a little better than expected, coming in at 620,000. Economists had been expecting 590,000 starts. This is up 3.2% month-over-month.

The August numbers are almost what we have seen for the past couple of years, and ever since the housing market turned down in 2006. There are bits of bright lights in the housing market around the country, with the Miami market turning around. Other markets like Phoenix, Las Vegas, and others are still horrible, and will take years to finally get right.

Last week at the CNBC Delivering Alpha conference, there was a panel on real estate, especially the housing market. On the panel were Bill Ackman of Pershing Square, Sam Zell, Chairman of Equity Group Investments, and Barry Sternlicht, Chairman and CEO of Starwood Capital Group.

Ackman was slightly more positive on the Las Vegas market than others have been. Ackman is the Chairman of Howard Hughes Corporation (NYSE:HHC), which owns a significant amount of land there. He mentioned potentially taking Fannie Mae and Freddie Mac and merging the two government sponsored entities, and turning them into a real estate investment trust which rents out single family homes to the American public.

Barry Sternlicht was able to touch more on the U.S. housing market, and said that the Obama administration is killing the confidence of the consumer, thus holding back any kind of recovery in housing. Sternlicht said we are going to need new houses across the country. The level of 350,000 single family homes is not sustainable going forward, it needs to go higher. Sternlicht said that pools of capital are looking for yield, and you could pool money and leverage it up to get returns in real estate. Silicon Valley is on fire, and Sternlicht said that it is feeding on itself.

The Obama administration has done an alphabet soup of programs to try to stimulate housing, and based off Wednesday morning's numbers, nothing has worked particualrly well. With news recently that the FHFA is going to sue the banks who sold mortgage backed securities, such as Bank of America (NYSE:BAC), Barclays (NYSE:BCS), Wells Fargo (NYSE:WFC) and other major mortgage holders, the confidence level continues to weaken.

Sam Zell was also on the panel, and while sharing the disdain held by Sternlicht for the Obama administration, he was positive on the housing market going out five years. He was also positive on Ackman's idea of a REIT renting out single family homes. "You can't create a REIT unless you are dealing with producing properties. The good news is there is a lot of scale out there." Zell said if done correctly, there would be massive interest in creating a REIT that leases single family homes similar to what the panel discussed.

Many expect housing to take at least another two or three years to come back to levels where it is finally stable, and even start to see a slight uptrend. The pessimism has not overcome the market just yet, despite going on for almost five years. Today we get August existing home sales, as well as the weekly MBA Mortgage Index. There is nothing to suspect that these numbers will be any different than what we have seen recently in housing data.

Housing is still in a sorry state, and from the looks of the data, and the opinions of the experts, housing still has a long way to go.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.