Jeff Uscher writes: Investors have taken comfort from the recent improvement in housing prices seen across the country.
Shares of homebuilders, including Toll Brothers (NYSE: TOL), Lennar Corporation (NYSE: LEN) and the SPDR S&P Homebuilders ETF (NYSE: XBH), had been bid up late in 2012 and into January.
But now the shares are rolling over. Could the relative underperformance of the homebuilders be telling us something?
David Stockman, former director of the Office of Management and Budget under President Ronald Reagan, thinks so.
In an interview with The Daily Ticker, Stockman said, "I would say we have a housing bubble again. I don't think we have a real, organic, sustainable recovery."
Stockman argues that "fast money" is moving into the local real estate markets that suffered the biggest declines in order to "speculate in buy-to-rent for a quick trade."
Stockman thinks that these speculators will be looking to sell out as soon as prices rise sufficiently to give them a specific rate of return and that "they will be gone as quickly as they came."
Signals of a Housing Bubble
Stockman argues easy money policies by the Federal Reserve are stoking the speculative rise in housing prices.
The Fed is conducting its unlimited quantitative easing policy by purchasing $85 billion worth of assets monthly - $45 billion in U.S. Treasury securities and the remaining $40 billion in mortgage-backed securities.
Those fearful of a new housing bubble, including Stockman, say the Fed's actions are pushing mortgage rates down to record low levels.
But housing bulls say tighter lending standards are allowing only borrowers with the best credit to get loans.
Stockman points out that The Blackstone Group (NYSE: BX) now owns 16,000 housing units.
"These are not apartments," he said. "These are single-family homes in Scottsdale, Arizona." Blackstone is now the largest manager of single-family home rentals in the United States.
This is clearly a logical reaction to the Fed's ultra-easy monetary policy, which has driven down interest rates and has forced investors to scramble for yield.
These Key Elements of a Housing Recovery Missing
Ken Harney, a nationally syndicated columnist writing in Forbes, said, "The latest statistical overview of 146 major metropolitan areas compiled by Realtor.com reveals strikingly different conditions around the U.S., ranging from double-digit percent price increases in communities that suffered some of the deepest hits during the housing and mortgage bust years, to persistent price declines in dozens of cities that are now struggling with their own busts caused by high unemployment and unresolved local economic challenges."
Stockman argues the buyers needed to create a genuine housing recovery are missing from the market. "The problem in housing is that the two forces you need to recover, first-time buyers and trade-up buyers, are both missing," he said.
"The first-time buyers, the young people, don't have jobs or, if they do, they have got so many student loans that they can't raise enough of a down payment to become effective buyers," Stockman continued. "Secondly, the trade-up buyers are now becoming the baby boomers heading for retirement and, basically, they have no savings, and they are going to have to sell their castle into the market and so they are going to be trade-down sellers.
"Having the Fed come in and make interest rates artificially low...is a huge mistake," Stockman argues. "We are just recreating the same speculative bubble that we had before.
"It is always wrong to mislead markets with cheap money and low interest rates because it basically fuels speculation...As soon as the Fed has to normalize interest rates...the fast money will sell as quickly as they can and the bubble will pop almost as rapidly as it has appeared."
Stockman concluded, "The only people who benefit are the top 1%, the hedge funds, the LBO [leveraged buyout] funds, the fast-money people who come in for a trade, make a quick buck and then move along to the next bubble."
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