Housing Recovery, What Has Been Forgotten


By Call it Crazy   Follow   Thu, 29 Nov 2012, 8:34am   960 views   17 comments
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http://www.streettalklive.com/daily-x-change/1351-housing-what-has-been-forgotten.html

As of late there has been a flood of commentary written about the housing recovery pointing to the bottom in housing and how the revival in housing will drive economic growth in the years ahead.

It is true that the revival in the housing market is a positive thing and is certainly something that everyone wants. However, the hype surrounding the nascent recovery to date may be a bit premature. The chart below shows the Total Housing Activity Index which is a composite index of new and existing home sales, permits and starts. The blue dashed box represents encompasses the much ballyhooed recovery since the recessionary lows.


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There is no argument that housing has improved from the depths of the housing crash in 2010. However, while the housing market remains at very recessionary levels, recent analysis assumes that this has been a natural, and organic, recovery. Nothing could be further from the truth as analysts have somehow forgotten the trillions of dollars, and regulatory support, infused to generate that recovery.

I recently penned an article showing the $30 trillion, and counting, that has been thrown at the economy, and financial system, to keep it afloat over the last 4 years. Of that, trillions of dollars have been directly focused at the housing markets including HAMP, HARP, mortgage write downs, delayed foreclosures, government backed settlements of "fraud closure" issues, debt forgiveness and direct buying of mortgage bonds by the Fed to drive refinancing and purchase rates lower. Of course, the Fed has also maintained its ZIRP (zero interest rate policy) during this same period with a pledge to keep it there until at least 2015.

The point here is that while the housing market has recovered - the media should be asking "Is that all the recovery there is?" More importantly, why are economists, and analysts, not asking the question of "What happens to the housing market when the various support programs end?" With 30-year mortgage rates below 4% we should be in the middle of the next housing bubble - not crawling along a bottoming process.

Much of the current buying in the housing market has come from speculators and investors turning housing into rentals. This, however, has a finite life and rising home prices will speed up its inevitable end as rental profitability is reduced. Furthermore, the majority of home building has come in multifamily units, versus single family homes, and that segment has been growing faster than underlying demand.

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  1. edvard2


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    1   9:03am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Well, I don't think anyone expects the housing market to recover to the levels it was at during the peak of the boom in say- 2006. That would be totally unnatural. But if you look at what most charts are showing now, real estate is performing at its about average norms, meaning nationally you can expect maybe 2-4% annual gains. This was and has been the case for the past 100+ years. Hence why those that claim real estate is the best investment might want to look at those numbers. So if anything, this is starting to look like a return to a "normalized" market.

  2. Goran_K


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    2   9:25am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    robertoaribas says

    If someone is buying today, I would suggest they be mentally prepared to own the home for a very very long time!

    Yup. I'd say at least 10 years.

  3. Call it Crazy


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    3   9:51am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike (2)  

    edvard2 says

    So if anything, this is starting to look like a return to a "normalized" market.

    I guess you missed this part of the article:

    Call it Crazy says

    Much of the current buying in the housing market has come from speculators and investors turning housing into rentals. This, however, has a finite life and rising home prices will speed up its inevitable end as rental profitability is reduced.

    That's not a "normalized" market like in the past....

  4. iwog


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    4   10:52am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)   Protected  

    The reason speculators and investors are able to turn these properties into rentals is because rents are so high compared to the cost of ownership.

    This is the definition of an organic housing recovery since these same renters could easily afford the house payments themselves if they had the credit worthiness to do so.

  5. pazuzu


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    5   11:09am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    duckhead: "This is the definition of an organic housing recovery"

    You got that from this:

    "Much of the current buying in the housing market has come from speculators and investors turning housing into rentals."

    Troll, liar, dimwit, or comedian? Hard to say.

  6. Call it Crazy


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    6   11:10am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    iwog says

    The reason speculators and investors are able to turn these properties into rentals is because rents are so high compared to the cost of ownership.

    The question is, will the purchases made by these investors sustain the recovery and can it continue, or is it an "artificial" short term boost??

  7. iwog


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    7   11:13am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    pazuzu says

    duckhead: "This is the definition of an organic housing recovery"

    You got that from this:

    "Much of the current buying in the housing market has come from speculators and investors turning housing into rentals."

    Troll, liar, dimwit, or comedian? Hard to say.

    Yes I certainly did. It's called using your brain instead of simply sucking up the conclusions of someone else like it was mother's milk.

    Investors wouldn't be capable of turning these into rentals if the end consumers weren't willing to pay so much. The demand is there however many renters are still in credit jail from the crash so they rent.

    I do find it pretty funny that you're quoting yourself, your alias duckhead, in presenting your point. (utterly without support of course) You should probably pick one or the other so you don't look so silly.

  8. iwog


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    8   11:17am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    Call it Crazy says

    The question is, will the purchases made by these investors sustain the recovery and can it continue, or is it an "artificial" short term boost??

    Investors don't really care because all that matters is rents. Artificial or not, rents aren't going to suddenly go down the toilet when new building construction has been dead for so many years.

    This is an environment where you can find positive cash flow properties on a 15 year mortgage. I started my own real estate journey 4 years ago and rents have only increased since then. Another real estate crash simply wouldn't matter to the majority of investors. It would be a non-event and most would simply wait it out.

  9. Call it Crazy


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    9   11:22am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    iwog says

    Investors don't really care because all that matters is rents.

    The original article above was talking about the housing recovery and purchases/sales, NOT rents... your changing the subject!!

    Get back on topic!!

  10. iwog


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    10   11:29am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    .Call it Crazy says

    Much of the current buying in the housing market has come from speculators and investors turning housing into rentals.

    Call it Crazy says

    The original article above was talking about the housing recovery and purchases/sales, NOT rents... your changing the subject!!

    Is this supposed to be a joke?

    We will have a housing recovery as long as most investment homes can be bought on credit and return a positive income flow. Calling it temporary or fake or anything else is total bullshit. The only reason investors are buying right now is that credit jail lasts 5 years and most of the potential buyers can't get loans.

    That 5 years is almost up.

  11. ducsingle5313


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    11   12:03pm Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    robertoaribas says

    Simply put, with a mortgage nearly the same or less than rent, an owner has no financial incentive to sell. They either stay in the home, or rent it if they have to move.

    Most home owners need to sell their current house in order to purchase another house. This is especially true in a tight credit market.

    Your comment might apply to someone who is purchasing homes as rentals, but historically that does not reflect the typical home purchase as a residence for the owner.

  12. pazuzu


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    12   12:05pm Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    I'm quoting You duckhead, bigwog, et al.

    duckhead: "I started my own real estate journey.."

    Pompous stuff there mum. And your convoluted blithering leading you to conclude that an "organic housing recovery" is underway... truly bizarre.

    Maybe there were some slippery stones on your "journey" resulting in some cracks to the bird brain.

  13. iwog


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    13   12:08pm Thu 29 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike (1)   Protected  

    pazuzu says

    I'm quoting You duckhead, bigwog, et al.

    duckhead: "I started my own real estate journey.."

    Pompous stuff there mum. And your convoluted blithering leading you to conclude that an "organic housing recovery" is underway... truly bizarre.

    Maybe there were some slippery stones on your "journey" resulting in some cracks to the bird brain.

    Damn, it's a good thing you didn't actually try to discuss the topic because then someone might have bothered reading this!

  14. Call it Crazy


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    14   12:23pm Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    iwog says

    We will have a housing recovery as long as most investment homes can be bought on credit and return a positive income flow. Calling it temporary or fake or anything else is total bullshit. The only reason investors are buying right now is that credit jail lasts 5 years and most of the potential buyers can't get loans.

    That's what I'm getting at... traditionally, individuals/families buy the bulk of the houses, but since the burst of the bubble, that flow has slowed up. Credit issues and underwater houses are holding back a big chunk of housing recovery.

    Where is the largest pool of potential buyers, these investment groups or the general public? Do the investment groups have enough resources to buy all the available inventory to make up for the lack of the general public??

    I don't think so, so I believe the recovery now is short lived...

  15. iwog


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    15   12:28pm Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    I don't know how many times I need to repeat this before it finally sinks in.

    Regardless of how much money someone makes or how much money that person has saved for a down payment, credit jail for mortgages is 3-5 years depending on the type of default.

    A person in this credit jail is NOT CAPABLE of participating in the real estate market during this time period. However those very same people have bought real estate in the past and will buy real estate in the future.

    If investors are buying the bulk of properties right now, they are doing so in proxy for former owners who are now forced renters. When these forced renters come back into the market, they will be bidding into this market too.

    There is nothing left to indicate this recovery is short lived. At 3%, the monthly cost of ownership is a tiny fraction of 2006 and a larger fraction of 2009.

  16. edvard2


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    16   12:50pm Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Call it Crazy says

    I guess you missed this part of the article:

    As of now the US housing market as a whole is up about 4% YOY. Thus with that said, its performance has ( as I previously mentioned) returned to a normal rate of appreciation. Of course they are going to be appreciating at pre-recession levels: prior to the recession prices were behaving grossly outside of historical norms.

  17. BayArea


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    17   5:27pm Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    iwog says

    This is the definition of an organic housing recovery since these same renters could easily afford the house payments themselves if they had the credit worthiness to do so.

    and DP

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