Tag Archives: Real estate economics

Housing Bust Is Over! Not So Fast.

The housing experts, Ben Bernanke, the Obama administration, and the Wall Street Journal all want us to believe that the housing market has turned—at last.


The next thing out of his mouth will be Quantitative Easing, Round 3.

Headlines like this are in the news this week: “The U.S. finally has moved beyond attention-grabbing predictions from housing “experts” that housing is bottoming. The numbers are now convincing.”

And this: “Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. “We finally saw some rising home prices,” S&P’s David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.”

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate. Which means they were off by 2%. I don’t think this grounds for celebration.

Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months’ worth despite all the foreclosed homes that lenders own. The fraction of homes for sale that are vacant is at its lowest level since 2006. Which means nothing since the 2006 number was normal, and banks have been holding on to property that they have foreclosed in order to not flood the market and drive up inventory.

In other words, these numbers are completely manipulated by the banking industry in an attempt to normalize the markets.

“Even with the overall economy slowing,” Wells Fargo Securities economists said, cautiously, in a note to clients, “the budding recovery in the housing market appears to be gradually gaining momentum.”

Housing is still far from healthy despite the Federal Reserve’s efforts to resuscitate it by helping to push mortgage rates to extraordinary lows: 3.62% for a 30-year loan, according to Freddie Mac‘s latest survey. Single-family housing starts, though up, remain 60% below the 2002 pre-bubble pace. And, by the way, try qualifying for a mortgage these days. Ha!

Americans‘ equity in homes is $2 trillion, or 25%, less than it was in 2002 and half what it was at the peak, in 2006. More than one in every four mortgage borrowers still has a loan bigger than the value of the house, though rising home prices are reducing that fraction very slightly.

Still, the upturn in housing is a milestone, a particularly welcome one amid a distressing dearth of jobs. For some time, housing has been one of the biggest causes of economic weakness. It has now—barely—moved to the plus side. “A little tail wind is a lot better than a headwind,” says economist Chip Case, the “Case” in Case-Shiller.


From here on, housing is unlikely to be the leading drag on the U.S. economy. It will instead reflect the strength or weakness of the overall economy: The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses. “Manufacturing had led growth and construction had lagged,” JPMorgan Chase economists said last week. “Now the roles are reversed: Manufacturing growth has slowed as private construction comes to life.”

Unfortunately, as we see fewer jobs, all of the new construction will result in a huge inventory of new homes and further bloat an already bloated market.

The biggest threat is that large shadow inventory of unsold homes, homes which owners won’t put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. Another threat is the holdback that the banks have been managing around homes already in foreclosure, so as to not flood the market. They have been trickling onto the market, slowed in part by government efforts to delay foreclosures; a flood could reverse the recent rise in prices. Or the still-dysfunctional mortgage market could get even worse. 

Don’t believe what you read, folks. The housing bust is far from over.



Hoping For Good Housing News? Forget About It!

“The May 2012 jobs report was a step backward for housing in every way,” says Trulia.com‘s Jed Kolko, who pinpoints what he calls “clobbered metros.”

These are the areas with the biggest home price declines during the housing crash and which now have the highest vacancy rates. “Job growth in clobbered metros was just 0.7% through April, not even half of the national average of 1.5% for the same period,” Kolko adds, citing data from a report earlier this week.

The weaker-than expected jobs report for May doesn’t bode well for the overall economy, but for housing it is far more foreboding. From construction, to local economies, even to age segments, the numbers are going in the wrong direction. The construction sector lost 28,000 jobs, down 3.3% from three months ago.

This undoubtedly points to lower housing starts over the summer, despite gains this spring.

We are already seeing a drop in building permits, which were down seven percent in April, even as housing starts rose just over two percent. “The recent trend is reminiscent of the monthly patterns of the spring slowdown witnessed over the last two years that continued through the summer months. If this pattern recurs, we expect that hopes for a meaningful housing recovery will be delayed once again,” says Fannie Mae‘s chief economist Doug Duncan, who also notes that the “hopeful signs of improving consumer sentiment in housing” is not supported by today’s data.

Translation: The housing market still sucks and there is no light at the end of the tunnel.

The Housing Market Continues.

About one out of ten home loans made during the past two years are now underwater.

You might wonder what these people were thinking buying in this market, but here they are. That represents more than 1 million Americans who have taken out mortgages during that period. Most of those were Federal Housing Administration loans that required only a small down payment.

If you’re looking for sobering indicators that the U.S. housing market remains deeply troubled, you need look no further.  Home values continue to fall in many parts of the country, and suddenly it raises the real question of whether low-down payment loans backed by the FHA are contributing to putting another generation of buyers at risk.

As of December 2011, the latest figures available, 31 percent of the U.S. home loans that were in negative equity – in which the outstanding loan balance exceeds the value of the home – were FHA-insured mortgages. 31%!!!

Many borrowers, even since late 2010, who thought they were buying at the bottom of a disastrous housing market, seem to have been caught by a continued decline in prices across wide swaths of America. Even for loans taken out in December 2011 (less than four months ago, and the last month for which data is available) nearly 44,000 borrowers, or about 7.5 percent of the total new home loans, now find themselves under water.

“The overwhelming majority of the U.S. is still seeing home prices decline,” said CoreLogic senior economist Sam Khater. “Many borrowers continue to be quickly wiped out.”

The problem is not uniform around the country. In some areas, such as Washington, D.C., Miami and parts of northern California, prices are on the rise. CoreLogic predicts the overall U.S. housing market will finally bottom out this year, but I continue to project that the bottom of the US housing market will not occur until sometime in 2014.

Khater said that since October 2010, average home prices have fallen 7.4 percent. Overall, CoreLogic data shows that 11.1 million, or 22.8 percent, of U.S. residential properties with a mortgage are in negative equity, unchanged from the summer of 2010. According to the S&P/Case-Shiller 20-city composite index, which tracks home values in 20 major U.S. metropolitan areas, U.S. home prices were down 3.5 percent in February from a year earlier and are now at their lowest level since late 2002. Over the past 12 months, 15 of the 20 major metropolitan areas monitored saw declines.

“This is creating a new wave of underwater borrowers,” said Gary Shilling, a veteran financial analyst and well-known housing market bear. “We have all three branches of government trying to keep people in four bedroom houses who can’t afford chicken coops.”

My projection stands.

This Might Freak You Out.

Happy Easter or Passover or whichever holiday you choose to celebrate today.

For those of you who have been following my blog for the past 4 months, you have probably gotten the impression that I am pessimistic about our future, and that I am cynical about the persistence of the human condition. I have harped on the coming financial crisis in Europe and how it will impact the US, and I have bitched about the free ride that banks have gotten from this administration. I constantly remind you all that Greece is headed for a massive loan default, a huge and ugly political uprising and an unstructured and messy departure from the European Union, most probably followed soon thereafter by Spain, Ireland, Portugal and Italy.

You all know how I feel about the disappearance of the middle class in this country and the dangers of such a dramatic consolidation of wealth among a very few and a collateral consolidation of poverty among a growing third, soon to be half of the country. I carp about the Republican platform moving to exacerbate the problem by lowering taxes on the wealthy while rolling back education, health care and social programs. All of this is true, yet I am NOT a pessimist, nor am I cynical about the inevitability of the human response to crisis. I am actually an optimist, and I always have been, preferring to see the glass as half full as opposed to half empty, and instead of simply pointing out the problems, I have always tried to point out the solutions.

One of you asked me, if I am always wringing my hands over the future of America amid an almost complete vacuum of leadership, what practical, workable things I would do differently to change the direction this country is headed, and to prepare for and guard against some of the speed bumps and outright disasters that await us should we stay the current course. OK, since you asked, here it is:

1. Congress. Work a full year. Either vote to make your health care and pension plan law for everyone else, or vote yourselves into private health care plans and a non-matching 401(k). Pay for your own transportation to and from work. Reduce your staff to twenty people, and pay them market wages. Make all Congressional and employee perks competitive to private industry.

Pass the following laws effective immediately: a) Crowdfunding, without SEC restrictions. This will create jobs. b) Banks must within 30 days, re-structure all home  mortgages to real-estate appraised market values, no exceptions. This will be grandfathered as a condition of the earlier bailout. The effect of this law will stabilize the housing market. c) Pass an emergency Banking law that gives homeowners who have been un-employed for 6 months or longer a free ride on their mortgage payments for an additional 12 months, and do not accrue those carry costs onto their existing mortgages; in short, the Banks eat the difference, further stabilizing the housing market. d) All banks who have foreclosed and now own REO properties must keep those properties on their books for a period of 5 years, and will not be allowed to bring those homes to market during that period but must maintain them in sell-able condition, but without sales signs in the yards, and without MLS listings. This shift in mortgage risk will result in the proper distribution among the two parties who have taken the risk of an ever rising housing market, and will completely stabilize the housing market.

e) Pass another emergency Banking law which restricts investment in European banks and Sovereign bonds and requires US banks to withdraw their positions in European banks and Sovereign bonds to 10% of all foreign holdings. This will mitigate the impact of Eurozone failures and defaults on US banks. f) Re-enact a version of the Glass-Steagall Act, restricting US commercial banks from investment banking, and break up the current US banks within a 90 day period, restricting derivative trading to it’s purest form and disallowing exotic contracts to be traded under the guise of derivatives. This is a lot easier to do than it appears and it will greatly reduce volatility in the markets. g) Raise taxes 6% on those earning over $250,000 per year, and 10% on those earning over $1,000,000 per year. h) Reduce the capital gains tax to 10%.

h) Eliminate all subsidies for Oil companies and Industrial farms. i) Repeal the Citizens United ruling. j) Freeze existing lobbyists and restrict lobbying spending to $1,000,000 per firm. k) Pass an emergency job-funding bill that invests $200 Billion in infrastructure construction projects administered by the Federal, not the State government. l) Repeal No Child Left Behind and re-direct that money into teaching, arts, music, science and sports. m) Sponsor a National Program equivalent in funding to putting a man on the moon in today’s dollars, that has a goal of getting America to the number one position in Reading, math and Science across all grade levels within 5 years, and create ridiculous rewards for students and teachers who achieve those goals. n) Reduce the number of Federal cabinets and Agencies to 500, and fully pension all of those people whose jobs will be eliminated.

o) Eliminate the Federal Energy Management Program and create a single Agency whose only goal is to achieve fossil-fuel independence by 2020, and staff it with proven entrepreneurs who are vested in a ridiculous amount of Federal stock options, so that when they achieve that goal, they will be rewarded just like in real life. p) Nationalize all Police and Fire and create a single intelligence agency while eliminating the CIA and the FBI. q) Cease the prosecution of all wars and withdraw combat troops from current theaters of war, while re-building the VA and re-distributing those funds to veterans hospital care and housing, education and job benefits. r) Pass a law that eliminates filibustering, and requires that every bill that is introduced into Congress be written in plain, 8th grade English and posted on the Web for a period of 60 days with automatic response mechanisms that requires the authors and proponents to respond to every citizen query in person, and the attendant dialogue be required to be appended to the bill prior to allowing a vote by Congress. This may eliminate any bill from being enacted by Congress, other than those emergency bills.

s) Shut down unemployment, and instead write a tax-free check  for $100,000 to everyone who was drawing those benefits and give them one year to prove that they could start a successful business and employ at least one other person. If they succeed, they could draw down additional funding to expand their business. Half may fail, but the other half that succeeds would eliminate unemployment, and it would cost only slightly more than the banking bailout of 2008. Think about it: Eliminate Unemployment!

While I am tempted to suggest that we should create a single cabinet post called Really Smart Guys in a Room and require 2 years of national service from people like Warren Buffet, Bill Gates, Paul Allen, Sharon Stone, James Woods, Robert Reich, Bill Clinton, Marc Andreesen, Vinod Khosla, Joichi Ito, Jonathan Ive, Diego Rodriguez, Michael Arrington, Charlene Li, Marc Benioff, Jack Dorsey, Jim Breyer, Reid Hoffman, Andy Rubin, Sebastien Thrun, Sheryl Sandberg and Rich Rubin, I guess that might be going over the top. I left a bunch of really bright people out, but you get the idea. Let them create the kind of wealth, innovation and prosperity they created in Silicon Valley, but instead of a measly $800 million Venture Fund, they would have access to an $800 Billion Venture Fund. Darn. How cool would it be to get these guys together and tell them they can do anything they want, but just make the world a better place, and don’t forget make us money while your doing it.


25 People to Blame for the Financial Crisis. Introducing #20.

David Lereah

These bottom 5 are the least responsible of the 25. Wait till you see the top 5. Want to guess? Vote? Leave your comments here.

When the chief economist at the National Association of Realtors, an industry trade group, tells you the housing market is going to keep on chugging forever, you listen with a grain of salt. But Lereah, who held the position through early 2007, did more than issue rosy forecasts. He regularly trumpeted the infallibility of housing as an investment in interviews, on TV and in his 2005 book, Are You Missing the Real Estate Boom?. Lereah says he grew concerned about the direction of the market in 2006, but consider his January 2007 statement: “It appears we have established a bottom.” HAHAHAHA.

25 People to Blame for the Financial Crisis. Up Next: #22.

Ian McCarthy

Ian McCarthy


Homebuilders had plenty to do with the collapse of the housing market, not just by building more homes than the country could stomach, but also by pressuring people who couldn’t really afford them to buy in. As CEO of Beazer Homes since 1994, McCarthy has become something of a poster child for the worst builder behaviors. An investigative series that ran in the Charlotte Observer in 2007 highlighted Beazer’s aggressive sales tactics, including lying about borrowers’ qualifications to help them get loans. The FBI, Department of Housing and Urban Development and IRS are all investigating Beazer. The company has admitted that employees of its mortgage unit violated regulations — like down-payment-assistance rules —at least as far back as 2000. It is cooperating with federal investigators.

Consumer Delinquencies Fall in Most Loan Categories in Third Quarter

Consumer credit delinquencies fell in seven of 11 loan categories in the third quarter, according to the ABA Consumer CreditDelinquency Bulletin. This is a good co-indicator pointing forward that suggests P2P and social lending are becoming safer, more widely-accepted platforms for financing.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, dropped to 2.59% of all accounts, 29 basis points lower than the previous quarter and 42 basis points lower than 2010’s third quarter.

The categories showing improvement in the delinquency rate are personal loans, direct auto loansindirect auto loans, RV loans, marine loans, home improvement loans and home equity loans.

Bank card delinquencies were stable, rising just three basis points to 3.25%. That was well below both the 3.64% registered in 2010’s third quarter and the 15-year average of 3.94%.

Household debt levels continue to fall and are getting easier to manage. Subtle improvements in the economy such as lower gas prices and a better job market have reduced some of the stresses facing consumers,” ABA Chief Economist Jim Chessen said.

“Improvement in delinquencies over the next year hinges on the housing market, which still poses an enormous challenge to continued economic growth. Job creation and income growth are also a must if we hope to see delinquencies continue to fall,” he said.