Housing Demand Growing - Ancillary Evidence

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 |  Includes: IYR, XHB
by: Rubicon Associates

Housing currently is a battle between supply and demand. When people viewed housing as a no lose proposition, the demand exceeded supply and prices went up - way up. Unfortunately, this price action ultimately had negative consequences on banks, credit became harder to come by and the music stopped - leaving many without chairs.

In order for housing to continue to strengthen, there has to be an increase in demand in order to absorb the abundant supply. Recently, we have seen evidence of this through increases in median home prices, sales of existing homes and demand for new homes.

Helping to solidify the housing has bottomed and begun to recover thesis (a view I subscribe to and apparently many investors in home builders believe the same), we have anecdotal evidence from lending officers in the Fed's July 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices.

Among the information released in this survey was the following:

Q: Demand for mortgages that your bank categorizes as prime residential mortgages was:

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Prime mortgage demand has been stronger, and banks have modestly eased standards to accommodate this demand:

Q: Credit standards on mortgage loans that your bank categorizes as prime residential mortgages have:

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Q: Demand for mortgages that your bank categorizes as nontraditional residential mortgages was:

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Nontraditional mortgage demands have picked up (keep in mind that this is one of the sectors that got the banks in trouble) and the banks response:

Q: Credit standards on mortgage loans that your bank categorizes as nontraditional residential mortgages have:

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Tightened standards for making nontraditional mortgages. These mortgages are available, but a buyer had better have some serious ability to pay.

Subprime: There was no changes in either demand or supply of subprime.

Bottom Line: Evidence continues to mount that we have passed the worst of the housing crisis and that housing should continue to recover. In the WSJ Tuesday morning, there was an article about Robert Shiller waiting to see momentum before sounding the all clear on housing. While I agree that momentum is necessary, investors are trying to be the early bird catching the return worm and waiting for all the lights to turn green isn't a luxury we have. At this point, I stand by my housing recovery thesis.

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