Archive for the ‘Housing’ Category

No Records This Month

Friday, January 17th, 2014

Markets go up and markets go down, so maybe it’s not surprising that January’s stock market performance has less exuberance to it than the performance to which we’ve become accustomed.

As of yesterday’s market close, the S&P 500 was down 0.13% year to date, which is not a big deal, especially considering that the S&P 500 Index finished 2013 up 32.4%.  Even with the recent downward trend, the S&P 500 is up 25.35% for the past 12-month period.

The Dow Jones Industrial Average has been a bit creakier, down 0.96% year to date, but still up 21.51% for the past year.

It’s doubtful, then, that the markets will break any records this month.  But if you believe the hype, good things are headed our way.  The unemployment rate has slimmed down to 6.7%, gross domestic product (GDP) was revised upward to 3.6% for the third quarter of 2013 and, with Janet Yellen’s appointment to head the Federal Reserve Board, quantitative easing can continue ad nausem.

So why worry?

To begin with, as we explained last week, the falling unemployment rate is an illusion.  The rate dropped only because so many people have stopped looking for work.  The number of non-working Americans exceeds 102 million, which is a record.

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The Unnoticed Recovery

Friday, July 26th, 2013

It seems that every day we hear about a stronger economy with real jobs, a recovered housing market and renewed manufacturing strength being just ahead.

We hear about it.  We just don’t see it.

The economy’s been growing for four years now, yet its growth has been so stunted, most of the country still thinks we’re in a recession.  The McClatchy-Marist Poll this week found that 54% of adult Americans think the U.S. in still in a recession, while only 38% think it’s not.

In an economy with a 7.6% unemployment rate (but really more than 14%), any sign of improvement is good news, so we can be thankful that the number of people who think we’re still in a recession is down from 63% in March and 75% in 2011.

Only 29% of those surveyed think their family finances will improve in the coming year, while 19% think they will worsen.  More than half think they will remain the same.

Lee M. Miringoff, Director of The Marist College Institute for Public Opinion, treats the poll results as good news and notes that “President Obama plans to refocus his second term agenda on the economy.”

Well, that should save the day.  Except that a separate poll finds that Americans have little faith in their political leaders.

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House of Cards

Friday, July 19th, 2013

The current housing recovery is not a house of brick, but a house of cards.

The cards came tumbling down this week, as the U.S. Commerce Department reported that housing starts in June fell to their lowest level in almost a year.  At June’s pace, new housing starts would total 836,000 for the year, down 9.9% from May’s 928,000 pace.  Multi-family projects plunged 26.2%.

The announcement blunted the stock market rise initiated on Wednesday by Federal Reserve Chairman Ben Bernanke, whose warm-and-fuzzy comments (more fuzzy than warm) can be summarized as “we have no idea when quantitative easing will end and, even if we did, we wouldn’t say.”

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The Second Housing Bubble

Thursday, May 30th, 2013

“Demand is artificially high … and supply is artificially low.”
                                                                         Fitch Ratings

We’ve written frequently about the disconnect between the real world and the stock and bond markets. Now the housing market has drifted into its own false reality.

While Gluskin Scheff’s David Rosenberg has referred to the stock market’s recent climb as a “Potemkin rally,” what’s happening in housing is Potemkin in reverse.

Russian minister Grigory Potemkin created a fake village to impress Empress Catherine II during her visit to Crimea, giving us the term “Potemkin” to mean an illusion, reality propped up to look bigger and better than it really is.

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Follow The Fed At Your Own Risk

Friday, March 1st, 2013

If you think Fed Chairman Ben Bernanke has a firm grasp of the economy, you may change your mind after listening to Bain Capital co-founder Coleman Andrews quoting Chairman Bernanke in the accompanying video.

Andrews cites three quotes that show The Fed czar was out of touch with economic reality during the run up to the Great Recession.  And now, he asks, “would you trust your life-savings to an institution with that recent record of completely missing what happened in the housing sector and more broadly in the economy?”

Housing Recovery Continues … Sort Of

Saturday, December 29th, 2012

For the economy to recover, the housing market must recover.  When consumers can barely pay their mortgages, they’re unlikely to spend money on other things – and when consumers don’t spend money, the economy stagnates.

There have been signs of recovery in the housing market in recent months, as we’ve reported, and now there’s more good news:

  •  The Case-Shiller Index, a composite of statistics from 20 cities, showed that housing prices rose 4.3% from October 2011 through October 2012.
  • It appears that housing prices will see their first gain for the year since 2006.
  • The National Association of Realtors’ Pending Home Sales Index is at its highest level in five years and has risen for 18 consecutive months.  At the end of October, it was at 104.8, up 13.2% from a year earlier.

While these are positive trends, statistics can be misleading.  Many current buyers are investors, who are purchasing homes to rent out, not to resell.  If investors believed that housing prices were going to continue rising, they would buy and resell.

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Housing Showing Signs of Recovery

Friday, October 19th, 2012

We’re in a business where it’s good to worry; if we didn’t worry, we might take on too much risk, to the detriment of our clients.  But we recognize that not all of the economic news is bad these days.

So we note that housing prices are rising.  At the least, this provides symbolic relief, as it was the bursting of the housing bubble that led to the 2008 financial meltdown.  If housing prices just kept appreciating forever, all of those mortgage-backed securities would have deserved their high ratings and the meltdown could have been avoided.

Standard & Poor announced at the end of September that its Case-Shiller Home Prices Indices showed an annual gain of 1.2% in July, based on a 20-city composite.  Optimism about housing prices has continued into October, helping to boost the stock market this week – even as many companies reported sub-par earnings.

In a webinar on Thursday, the National Association of Home Builders (NAHB) noted that the housing market is gaining strength because of:

  • More home building, due to pent-up demand
  • Rising consumer confidence
  • Increasing builder confidence in all three segments of the industry — remodeling, multifamily and single-family construction
  • Growing rental demand

However, NAHB Chief Economist David Crowe also expressed caution.  He noted that home builders are finding it difficult to obtain production credit, many potential buyers are unable to obtain mortgage loans, many appraisals are inaccurate and there are still many homes either in foreclosure or with mortgages that are at least 90 days delinquent.  There is also limited inventory in many markets.

So will the housing market achieve full recovery in time for next spring’s buying season?  I wouldn’t bet the house on it.  Continued improvement is likely, but full recovery is years away.

The “Mortgage Deal From Hell”

Thursday, February 16th, 2012

In a deal with the U.S. Justice Department, the Department of Housing and Urban Development, and 49 out of 50 state attorneys, five of the country’s largest lenders have agreed to a $26 billion settlement – that’s more than $5 billion per lender.

Their crime, as nationalmortgagesettlement.com put it, is that “they routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct.”

Dick Bove, bank analyst for Rochdale Securities, called it “the mortgage deal from hell.”

“Homeowners who made large down payments on their homes or made the terrible mistake to pay down the principal on their mortgages do not qualify,” he said.  “Homeowners who made minimal or no down payments will get the windfall benefit of a lower principal repayment or a cash payment.”

If the deal is from hell, the devil must be in the details … except that there are no details, because, as American Banker reported, “a fully authorized, legally binding deal has not been inked yet.”

Yet, as zerohedge.com points out, the settlement agreement appears to have been “robosigned” as well.  Keep an eye out for the settlement document on nationalmortgagesettlement.com, which says
it is “coming soon.”

It’s yet another example of “do as I say, not as I do.”

As President Obama said, the settlement is just “a start.”  Stay tuned for others.

Sales of Bank-Owned Homes Fall

Monday, June 13th, 2011

According to CNBC.com, which quoted a RealtyTrac report, “Sales of distressed U.S. homes fell in the first quarter as demand remained weak, but they still made up about 28 percent of total sales, the highest amount in a year.”

The report added that, “Distressed sales accounted for 27.5 percent of all residential sales, ticking up from 27 percent in the fourth quarter of last year. … It was the highest percentage of sales since the first quarter of 2010.”

Housing Market Needs Rehab

Friday, May 27th, 2011

It wasn’t long ago that housing seemed like the best possible investment.  Housing prices just kept going up, up, up.

Now 2011 is on track to become the sixth consecutive year of declines in new home sales and, as a consequence, prices are going down, down, down.  Unless the housing market rebounds, which appears unlikely, 2011 will see the fewest homes sold on record (records have been kept since 1963).

The Wall Street Journal notes that “The 323,000 new homes sold in 2010 was less than 60% of the number of new homes sold in 1963, even though the
population today is nearly two-thirds bigger.”

Even with interest rates at historically low rates for the past couple of years, the market has continued to decline.

Even more discouraging, The Journal notes that housing has increasingly been tied to economic cycles.