Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Housing Market Good News Keeps Rolling In

Housing-Market / US Housing Aug 03, 2012 - 06:06 AM GMT

By: Fred_Sheehan

Housing-Market

Best Financial Markets Analysis Article"Positive Housing News Keeps Rolling In," exclaimed the headline of a July 24, 2012, Wall Street Journal story by Steven Russolillo. The author found much to praise. One gloomy Gus could not help but conclude otherwise. Old Gus holds the house market at bay, one reason being the great unknown of what will happen to house prices when Fannie and Freddie are no more. The GSEs (Government Sponsored Enterprises) are still a massive presence in the home mortgage market. Their full faith is due to the implicit U.S. government guarantee.


It is not so controversial anymore to contend that someday the U.S. government will run into a wall. (Whether it is a lack of will or presence of mind that leads to this conclusion is not material here.) What is difficult to imagine (in gloomy Gus's imagination) is the price of houses when the FNM, FRE, GNM support for home mortgages withers. As long as we are imagining, what will happen to college enrollments when Sallie Mae decays?

Russolillo's summary notes: "Most of the housing news lately has been positive, so [the July 19] news of a 5.4% drop in June's existing home sales was a bit of a surprise." Maybe Russolillo should have left it at that. He goes on: "One reason for the drop: Sales are sluggish in the lower end of the market due to a scant supply of homes for sale in many parts of the country. That's because fewer new foreclosures have been listed for sale over the past year and investors have snapped up the bulk of the current stock."

Taken as is, this is good news for house prices. It does not require much general observation though, to look askance at such evidence. The evidence walks down the street, is spoken by cashiers, and shuttles through the food banks. Observation is not trusted, even by those who observe, in a world that only trusts quantification, of which there is oodles. Only a smidgen will invade your time here.

For instance, on July 13, 2012, reporting for AOL Real Estate, Teke Wiggin wrote about the REO market. That is, "Real Estate Owned" by the lender. Wiggin discovered, "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." (And to Fannie Mae, "which owned 114,000 foreclosed homes as of March 31, [2012].... "[I]n the first quarter of 2012, it was unable to market 48% of its REO inventory...")

Releasing house inventory would not only wreak havoc on bank balance sheets but also damage the impregnability of beloved homebuilders. One of Russolillo's Positive Housing News capsules notes: "The improvement in the housing market has been reflected in homebuilder stocks. PulteGroup is up 67% this year and is the second-best performer in the S&P 500. Lennar is up 54%, D.R. Horton has risen 48%, Hovnanian is up 74% and Ryland Group has gained 67%."

Having paid no attention to homebuilder stocks (around 2005, they seemed to be drawing the fanaticism accorded technology stocks, so remain off limits to this gloomy Gus), no comment on this rather spectacular rise will be offered.

Not to leave the reader empty-handed, Russolillo's Good News includes a high-five recommendation to buy house stocks: "Goldman Sachs turned bullish on home builders. In a client note, the investment bank raised its ratings on several of the nation's largest home builders, a signal for investors to give them a second look even after their sharp rallies this year." Caveat emptor or carpe diem, depending on your disposition.

The title of Wiggin's story: "'Shadow REO': As Many as 90% of Foreclosed Properties Held Off the Market," is confirmed by Realty Trac, which "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."

Wiggin's story rings truer than Russolillo's. That is, just where would the money come from to boost house sales and prices? One source is foreigners who are buying up houses. Another is investors buying vast tracts of forlorn houses which they plan to rent. Another is insiders at homebuilding companies cashing out their stock options who might want to splurge. For the most part though, Americans do not have the money to resurrect houses.

Americans need some money, maybe not much, but some, to buy a house now. They can still borrow more than they need on credit cards and student loans (a scandal that will be compared to subprime and home equity cash outs), but their "real" income is falling. It has been for years. The Great Depression did offer a sunny side often overlooked: prices fell. That could be a good thing if they fell more than incomes. Today, salaries fall short of rising prices. (The front-month corn, wheat, and soy price index (in the U.S.) is now 5% above the previous all-time high of 2008).

Confirmation of the Dreary Depression spills out: A good number of second-quarter, corporate financial statements have shown steady or rising earnings with slowing or falling revenue growth. Many of these efficiencies (the ability to register acceptable earnings with lower sales) have come from cost cutting, with job layoffs leading the cuts.

According to the July 18, 2012, King Report, more Americans signed up for disability in the second quarter of 2012 (246,000) than found jobs (225,000). The Congressional Budget Office reports that household income fell 12% from 2007 through 2009, with income among the top one percent falling by one-third. (As usual, the most heated political discussion should be in the past tense. When liabilities are subtracted from assets of the top one-percent, the insolvency rate will leave the IRS bereft of whatever higher tax rates are supposed to produce.)

Russolillo's Bad News about existing house sales does not quote the economist from the National Association of Realtors. This is Good News for the consuming public; Bad News for the aficionado of media-made authorities who mislead the public. The NAR economist is the traditional house organ for house sales inventory acceleration. It would be impossible to fill the void left when David Lereah resigned in 2007. He was as quotable as usual in 2005 when he chided dowdy Americans: "If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years. It's as if you had 500,000 dollar bills stuffed into your mattress."

Lereah was honored by Time magazine in its list of "25 People to Blame for the Financial Crisis." He now heads Reecon Advisors, Inc. a real estate and advisory firm that publishes Real Estate Economy Watch. Caveat emptor, carpe diem....

Still, inquiring minds want to know how the post-Lereah NAR economist positioned the Bad News. One Lawrence Yun holds the post, and from the looks of things, he is not nearly as interesting, though still thoroughly preposterous. From the NAR press release on the Bad News reported by Russolillo: "Despite the frictions related to obtaining mortgages, buyer interest remains solid. But inventory continues to shrink and that is limiting buying opportunities. This, in turn, is pushing up home prices in many markets." Caveat emptor, carpe diem....

Frederick Sheehan will speak at the Committee for Monetary Research and Education (CMRE) dinner on Thursday, May 17, 2012. It will be held at The Union League Club in New York. He will discuss "How We Got Here." Sign up here

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in