Looks to me like housing is finally in a very sustainable uptrend, supported by adequate federal deficit spending, modestly improving personal income, relatively high affordability, low consumer debt ratios, very low levels of actual inventory, tightening rental markets, etc. etc.
And looks to me that housing starts could double and still be at relatively low levels, so there’s years of upside with modest growth rates.
It also means GDP could gravitate up to the 3-4% range by year end, and stay above 0% even should we go over the fiscal cliff.
Housing Starts Rise at Fastest Pace in Three Years
July 18 (CNBC) — Groundbreaking on new U.S. homes rose in June to its fastest pace in over three years, lending a helping hand to an economy that has shown worrisome signs of cooling.
“very low levels of actual inventory,”
The shadow inventory of homes – those in foreclosure plus those 90 days late on mortgage payments – is on the rise again, a further indication that the supply side has not yet healed. Accoring to RealtyTrac, foreclosure starts jumped 6 percent on a year ago basis in the second quarter, the first year-over-year increase since 2009. There are roughly 4.16 million homes that could begin to flow to market.
Once one takes the number of homeowners 30- to 90-days late on their mortgage payments and includes the likely default of those that have negative equity on their homes, there is a strong possibility more than 6.5 million additional foreclosures will enter the pipeline. The addition of homes that banks may be holding back suggests a much larger number. Laurie Goodman of Amherst Securities Group has testified before Congress that it could be as high as between 8 and 10 million.
Yves assures me all the foreclosure fraud and MERS issues still haven’t successfully worked out to her satisfaction and that the housing market is still has far too much risk, chain of title issues, places like california talking about eminent domain on mortgages, offshore hedge funds buying up tons of housing inventory that will crash in another secondary minibubble, etc etc
Warren I have a ton of real estate investor friends just waiting for a marginal uptick in prices before they try to unload (they don’t want to collapse thier own local markets) some are doing this solely to advert bankruptcy and I am in shock they have been able to play the shell game this long, there is so much idle inventory from them, the banks, the foolish investor groups that are buying now and in a few years will see those promised returns not materialize and we will have another round of liquidations or zombified markets, etc etc Its like you with your car company, you want to sell it, but who is paying the price you want?
We finally have some official confirmation of our thesis. From AOL’s Real Estate blog, “‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest“:
As many as 90 percent of REOs are withheld from sale, according to estimates recently provided to AOL Real Estate by two analytics firms. It’s a testament to lenders’ fears that flooding the market with foreclosed homes could wreak havoc on their balance sheets and present a danger to the housing market as a whole.
Online foreclosure marketplace RealtyTrac recently found that just 15 percent of REOs in the Washington, D.C., area were for sale, a statistic that is representative of nationwide numbers, the company said.
Analytics firm CoreLogic provided an even lower estimate, suggesting that just 10 percent of all REOs in the country are listed by their owners, which include mortgage giants Fannie Mae and Freddie Mac as well as the Federal Housing Administration. As of April 2012, 390,000 repossessed homes sat in limbo, while about 39,000 were actually listed for sale, said Sam Khater, senior economist at CoreLogic.
Daren Blomquist, vice president of RealtyTrac, said that he was surprised by his company’s finding, especially since a similar analysis in 2009 found that banks were attempting to sell nearly twice as much of their REO inventory back then.
And the article presents the obvious conclusion, that keeping homes off the market is leading to higher prices than you’d see if they were put up for sale:
In fact, if lenders turn their REO release valve to full blast, the deluge of foreclosures cascading onto the market could plunge the country into a recession, said Thomas Martin, president of consumer advocacy group Americas Watchdog.
“If they let the dam essentially break. It could be a catastrophic disaster for the U.S. economy,” he said, predicting that some major banks would fail and home prices would nosedive by 20 percent.
That doomsday scenario has many industry professionals supporting lenders’ tactics of holding onto most of their REOs. Otherwise, they would be “causing the floor to fall out from underneath the entire market,” Faranda said. He added that banks don’t have the manpower to push the paperwork required to put all their foreclosures on the market.
Of course, the discussion focuses on how much price manipulation is justified, as opposed to the real problem: we have had, and continue to have, far too many foreclosures and far too few mortgage modifications. But the solution seems to be to zombify the housing market rather than make servicers change their ways.
it’s always that way as it turns up. been through it 3 times now
So as I see my veteran friends die homeless, and single mother octomoms not have proper housing for thier children, state intervention into the housing market causes many homes to sit idle and rot, while builders continue to misdirect resources to building homes when a small change in policy would give the homeless and octomoms needed new shelter and redirect the resources being expunged on building new housing to other more needed infrastructure (ala summers infrastructure bank) where we don’t have idle inventory sitting around rotting. Pathetic. EPIC FAIL of government to serve 350 million citizens.
Yes, we are having a ‘housing recovery’ driven by mortgage rates about 0.75% below long-term trend.
How much of a boost has the Fed already given, based on 0.75% below trend mortgage rates? The Fed gave a 10% boost since Oct 2011.
Home prices haven’t gone up by 10% since Oct 2011 suggesting there is still a significant fiscal drag.
To further temper enthusiasm, what happened to Japan’s housing recovery after their 10 year rates hit bottom in 1997?
How much further can the Fed boost the U.S. housing market?
I’d say 25%
(Based on 2% 30 year mortgage rate vs. current rate of 3.75%. To calculate, increase size of mortgage while lowering rate and keeping the same size payment)
After the Fed hits bottom, any increase in the housing market will have to come from further fiscal policy. I’d venture to say we can really only tell if fiscal policy is ‘sufficient’ once mortgage rates stabilize along with stable home prices.
doesn’t seem to me rates are all that much of a factor.
we’ve had much stronger housing with way higher rates, as have other nations.
remember, higher mtg rates means more income for savers
“remember, higher mtg rates means more income for savers”
right, savers buy cheaper houses and borrowers buy more expensive houses with no impact on house prices 🙂
or that wealth consolidation has no macro consequences :))
or that government spending on bankers works just as well as spending on infrastructure :)))
shadow inventory redction plan …
Investor Demand High in U.S. Foreclosure-to-Rental Pilot
Reuters (07/03/12) Chadbourn, Margaret
The Federal Housing Finance Agency’s pilot program for converting government-owned foreclosures into rental housing has attracted “robust” demand, the agency said. Bidders that qualified to buy the REO assets in bulk have been notified, although their identities will not be made public until after the transactions close in the third quarter. The goal of the initiative is to whittle down the huge inventory of seized homes and to curtail losses at Fannie Mae and Freddie Mac, which are regulated by FHFA.
This really chaffs me!
First, most residential markets are showing signs of improvement and lower available inventories. Second, the “qualified bidders” that have not been revealed reeks of cronyism. Third, the current bidding process at foreclosure sales is extremely efficient, competitve and transparent – advertised notice of sale, cry the bid, highest bidder wins… it was not a broken system. Fourth, since the terms of sale are “all cash”, most of the foreclosure homes purchased are converted to rental housing already. The remainder are fixed-up and sold to homeowners. What was the problem?
My take — Because of the MERs fiasco, Freddie/Fannie own too many loans with defective titles. Their foreclosure rights are unenforceable in State courts. The “qualified bidders” will accept the dirty titles(priced accordingly), rent out the houses for the agreed upon time period at an acceptable yield. Meanwhile, they will bring forth quiet title actions to cleanse the deeds, and ultimately sell at big gains. Housing Crony Fascism. I’d love to see the paperwork supporting these sales….
@jimi, Jimi, don’t forget the cherry on top, UBS now says through fiscal policy the US will hyperinflate, if true, the groups buying up all the real property are going to get it for much more of a song than they are now! Don Trump is probably telling everyone else to reduce debt, because he is doubling down his loans faster than ivanka trumps lawyers tried to shred his prenup! LOL!
First by deflation and then by inflation, the banksters and thier cronys will rob you of the nation your forefathers died to give you.
The consumer deleveraging process stil has a ways to go, the stats about the massive shadow inventory are true, and rates are at new lows which can only help on the margin. The housing industry is desperate to build whatever they can, so they used the usual seasonal upswing and low rates to push through a small surge. The economy has clearly slowed which will crimp housing demand and put an end to this quickly. Permits and existing sales are already ticking down.
I still see way too much uncertainty and risk out there, now BOA and other banks are saying the government is changing the rules willy nilly, this is not a good environment for investment, we still need far more certainty and stability before I want to take on much more risk.
RPT-U.S. banks haunted by mortgage demons that won’t go away
* Banks under increasing pressure to buy back bad loans
* Banks say Freddie Mac and Fannie Mae getting more aggressive
* Bank of America faces biggest possible losses
About half of the bank’s claims are from Fannie Mae and Freddie Mac, which were placed in government conservatorship in 2008 as their loan losses ballooned.
Tensions are so high between Bank of America and Fannie Mae that the bank stopped selling some loans to the agency in February. According to a securities filing, Bank of America had the most outstanding repurchase requests with Fannie as of March 31 – $7.1 billion, or 58 percent of outstanding claims.
The bank, in its earnings presentation, said Fannie Mae’s repurchase standards have been changing and differ from the bank’s interpretation of its contracts. The bank, for example, has noted an increase in claims on loans in which the borrowers have made payments for at least two years.
(snip)Under our contracts, lenders are required to repurchase loans that are delivered to Fannie Mae but do not meet our standards,” Fannie spokesman Andrew Wilson said. “We pursue repurchases in order to minimize losses and protect the interest of taxpayers.”
Freddie Mac doesn’t think taxpayers should have to pay for ineligible loans sold to the agency, said spokesman Michael Cosgrove. The top three reasons for Freddie claims against banks are problems with borrowers’ income, loans that don’t meet the bank’s automated underwriting standards and problems with collateral or appraisals, he said. Freddie does not disclose claims by each bank.
still all up pretty good year over year. and what do we have, half as many starts as Japan with twice as many people? And things are slow there? lots of upside from here
What does “modest growth rates” mean? Growing price or growing supply of buildings?