The Yin and Yang Of The Housing Rebound

This rebound in housing stocks makes about as much sense as yesterday’s late-day swing in the market.

Still, here’s the yin and yang of it:

The yin: The always-thoughtful Tony Crescenzi of Miller Tabak, in a note this morning, says that the slide in new home inventory “is still more than 1.5 million above normal, but improvements are occurring. The inventory figure is foremost in terms of what is next for prices.”

He further points out: “The amount of new dwellings needed each year is roughly 1.1 million or 1.2 million because of increases in household formation related to population growth. This means that the amount of new construction is running about 400k to 500k below the level of household formation, an amount that will take a significant bite out of the level of excess inventories. It is a basic fact of life that people need shelter, so it is important to track the amount of new dwellings built versus the levels of household formation. There is inevitability to what will eventually occur, unless of course people return to living in caves, so the only question is that of timing.”

Which gets to the yang: Tony’s note arrived when I was on the phone with a real estate investor I know. We were talking housing stocks. He was saying: “The last census report showed that around 84% of people with above median salaries already own a home. So who is going to buy one?”

Says I: “Move up buyers?”

He: “Move up buyers will also be move up sellers and right now they’re not going to sell.”

Herb’s Hook: They’re not going to sell, at least not at current prices unless they are motivated by any number of reasons, including the reason I would sell right now: To further “short” the housing market and preserve equity. But that’s a dangerous dance, especially with prices nearby not necessarily appealing. I’ve spent the past two weekends sloshing through model homes here in San Diego in price ranges from $600,000 top $1.2 million. (And that’s the low-to-mid end here.) Mantra is, “make us a deal.” Sales reps were handing out “revised” price lists. (They weren’t revised higher!) Incentives were in the tens of thousands of dollars. Inventories are clearly low.

It’s “build to order” at this point at many places. Very few specs being built except to finish projects. There were clearly tire-kickers, but my guess is that many of those were trekking through models as a form of entertainment or to consider their options. The lower the prices, the more traffic — but still nothing like the boom days of a few years ago when builders here were putting your name on a waiting list for the next development. Raising the limit on conforming loans would clearly pry out more buyers and sellers, and help soften the blow. But one thing it won’t do is be the start of a new gold rush into real estate. Over and out.

Comments

[strutzma]

Crescenzi's point that population growth/household formation creates the need for 1.1-1.2million homes each year neglects to point out that the majority of these new "families" are going to be in the lower/middle income range, have lower/middle credit, and will probably NOT be buying a large number of NEW homes, but *may* be able to take a bite out of the growing number of less-expensive existing homes.
Better luck next time Crescenzi...

[Lee Carlson]

Statistics are always fun to read, but don't necessarily apply to other states. In Florida, for example, anything priced over $350,000. is considered a luxury home ! Also, pay is very low in Fl and to top it off, FL has very high R.E. Taxes compared to average incomes and Insurance is virtually unaffordable. ! The average teacher, fireman, policeman, etc. can't afford a home so the state has come up with a special plan that amounts to "giving" the teachers, etc. a down payment ! I guess the rest of the people just have to start living in
caves !....Recent stats. show that Real Estate agents have one "pending sale" per 300 agents ! If this doesn't scare off anyone thinking of moving to FL, especially retirees, then nothing will. The averge price of a recently sold listing is about $265,000. ...So now, tell me how that relates to CA , NYC or Chicago,...it simply doesn't !
The whole "Housing Sector" should be broken down into a State by State analysis because just looking at one state is pointless when looking at the Housing Sector ! Want a real BUY, start looking at Detroit or the quad cities area, Moline, E. Moline, etc. and see how those prices compare,...You can buy a large home in those places for $60,000. But,..no jobs !
I don't look for a recovery in most states before about 2 years !
But what do I know, I have only been selling real estate for 26 years ......! LC

[alex s gabor]

It is false and misleading to tell people that, "It is a basic fact of life that people need shelter, so it is important to track the amount of new dwellings built versus the levels of household formation."

New Dwellings built has nothing to do with the fact that the US dollar is worthless. People want affordable housing and the market is going to force builders and mcmansionaires to deflate the market by short selling.

The mantra for investors now is "short high, buy low, sell lower, and keep buying lower till it can't go no lower", that is the greatest good for the greatest number, not the opposite crap we have been fed for the past 200 years by the idiots and morons who run the global banking establishment!

As for household formation in America, with all those sexually inhibited repubnicans heading out of office from the White House, we will soon see another baby boom twice the size of the 5 million 18 year olds coming online this year, all of whom won't be able to understand how to buy a home for another three years, meanwhile resale foreclosure inventories are rising twice as fast as the demand for new housing, so what idiot is going to buy a new home while the knife is still falling on his wallet?

If I were in the real estate industry, I'd dump my property and buy pennies and cash them in at the Bank of Pen in the Kingdom of Pen, the domain of the Penny King.

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