Housing Market Showing Another Sign Of Recovery, But Can We Believe This Time?

New building permits were up considerably last month - typically a sign of good things for the housing market. However, it feels like we have been down this path before at various points the last couple years. Can we truly believe that the recovery is in full swing? James Picerno from The Capital Spectator tackles this topic in the following post.

The housing market has shown signs of recovery before, but to date it’s come to naught. Is there any reason to think that the latest rise in new building permits issued offers real hope this time? Unlikely, but the trend bears watching just the same.

New building permits ticked up sharply last month, the Census Bureau reports. The 16.7% rise in December is the highest monthly percentage increase in more than two years. Permits are considered a leading indicator that offers clues about the future. Permits, howver, aren’t a perfect measure of things to come. We’ve been here before, only to find disappointment. In June 2008, housing starts surged by nearly 19%. It turned out to be a statistical glitch, and the housing market resumed its descent in the months ahead.

But that was then. What’s changed since 2008? For one thing, the Great Recession isn’t raging as an all-out force of darkness. The blowback from the contraction still hobbles the housing market and other corners of the economy, but growth has a stronger footing, at least compared with 2008. Will that be enough to overcome the real estate’s markets various headwinds? Maybe, although it’s going to take a lot more digging to climb out of this hole. And even if permits have started to climb, that's only one statistic in an otherwise gloomy marketplace

As the chart above reminds, new housing starts continued to slump in December. In fact, starts continue to bounce around near all-time lows. This forward-looking measure of the housing market isn’t dead, but it’s still deep in slumber.

Some analysts say that housing is in the throes of an outright depression that will last for years. That’s probably going too far, but not by much. Nonetheless, the breadth of the headwinds in housing inspires the expectation that last month’s surge in newly issued permits is simply statistical noise rather than a sign of an impending turnaround.

“With sales still near record lows and a lot of unsold properties in the market, there’s very little reason for builders to add more homes to the supply,” Sal Guatieri, a senior economist at BMO Capital Markets, tells Bloomberg. “Housing remains a key downside risk to the economy.”

The challenge of housing is compounded by the still-weak growth in the labor market. Then again, compared with housing, it’s easier to be optimistic on the outlook for job creation. The Fed certainly is. According to the central bank’s Beige Book report released last week, “Labor markets appeared to be firming somewhat in most Districts, as some modest hiring beyond replacement was said to have occurred and/or was planned in a variety of sectors.”

Finding similarly optimistic observations for housing is quite a bit tougher these days, even after a five-year bear market in real estate. The best you can say with any confidence is that the housing correction appears to have stabilized, albeit at sharply lower levels compared with the pre-2006 era.

As for the upturn in permits, that’s encouraging, as far as it goes, but it’s going to take a lot more to convince the crowd that the housing market’s ready to grow again on a sustainable basis. Don’t hold your breath. With foreclosures still running high, job creation sluggish, and excess inventory keeping a lid on prices, this industry is still looking at a long, slow recovery—and that’s the optimistic view.

"We wouldn't be shocked to see home prices drop another 5% this year before starting to rebound," says Rick Sharga, a senior vice president at RealtyTrac via TheStreet.com. "Really, until you start to see the inventory levels start to become more manageable, it's going to be difficult to see the housing market come back appreciably."

This article was republished with permission from The Capital Spectator.

Housing Metrics Improved In May But Could Be Temporary

There are some positive numbers coming out of the housing market from May. Sales of existing home prices rose, inventory decreased, and median sales price rose. But will this improvement last in the face of rising mortgage rates? Tim Iacono elaborates on the latest numbers.

The National Association of Realtors reported slightly higher sales of existing homes last month, up 2.4 percent to a seasonally adjusted, annualized rate of 4.77 units in May after a downwardly revised total of 4.66 million units in April.



Inventory declined modestly as the months of supply metric fell from 10.1 months to 9.6 months, still about double the historical average.

The median sales price rose 3.8 percent in May to $173,000, but the year-over-year change worsened to a decline of 16.8 percent. The realtors' trade group also reported a sharp decline in the number of distressed sales, falling to about one-third of all sales versus the 40 to 50+ percent in recent months.

The increase in sales was less than expected due to "poor" appraisals (i.e., ones that come in too low for the bank to confidently make a loan), NAR Chief Economist Lawrence Yun noting:

Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.

It sounds as though not being familiar with the neighborhood might be a good thing if the aim is to get an objective appraisal and that using distressed sales is exactly the right thing to do since these dominate overall sales activity in many areas.

You just can't win as a real estate appraiser in the 21st century...

Importantly, the now two-month long move up in home sales has occurred during a time that mortgage rates were "freakishly" low. In May, the national average for a 30-year fixed-rate home loan was just 4.86 percent, up slightly from the 4.81 percent average in April, but significantly below the current rate of closer to 5.5 percent.

Next month's report should be full of intrigue regarding if and how higher mortgage rates are affecting the sales of existing homes.

This article can also be viewed at Tim Iacono's blog, The Mess That Greenspan Made.

Increase In Sales Outpaced By Growing Housing Inventory

Tim Iacono, from The Mess That Greenspan Made, points out that although we have had good news recently with sales starting to increase and depreciation slowing, this could actually add fuel to the fire if more sellers enter the market on news of improving conditions. A recent report from The National Association of Realtors showed that supply increased to a 5 month high, which could continue to drive prices lower. See the following post to learn why growing inventory could continue for years into the future.

The National Association of Realtors reported a slight increase in home sales last month, but the growing (if misplaced) optimism about the nation's housing market drew even more sellers, pushing the inventory of unsold homes to a five month high.



Sales of existing single family homes, townhomes, condominiums, and co-ops rose 2.9 percent in April to an annual rate of 4.68 million units, following a downwardly revised rate of 4.55 million units in March. On a year-over-year basis, sales were 3.5 percent lower.

The median home price for all housing types, still heavily influenced by the predominance of sales at the low end, fell from $175,200 in March to $170,200 in April, representing a decline of 15.4 percent from a year ago.

Foreclosures and short-sales accounted for some 45 percent of all sales, down from more than half of all sales in March.

In an early sign that stabilization in the housing market will be much easier to accomplish than an actual rebound, housing inventory rose almost nine percent during April to 3.97 million, representing 10.2 months of supply, an indication that more sellers are listing their homes for sale as they see anticipate a rebound.

This is likely to continue for perhaps several years as waves of sellers enter the market after having held their properties back, awaiting better market conditions and, importantly, this includes bank owned properties where the new owners have been in no particular hurry to list repossessed homes for sale.

Lawrence Yun, NAR chief economist, commented on the rise:

The gain in inventory is largely seasonal from sellers entering the spring market. Even with the rise, inventory over the past few months has remained consistently lower in comparison with a year earlier.

You can never go wrong when making comparisons to conditions when the housing market was at its steepest rate of deterioration, just prior to precipitating the late-2008 implosion of global financial markets and life as we knew it.

Mr. Yun also made another plea for the government to start buying jumbo loans:

Most of the sales are taking place in lower price ranges and activity is beginning to pick up in the midprice ranges, but high-end home sales remain sluggish. The Federal Reserve needs to help restore liquidity for the jumbo mortgage market by buying these loans under the TALF program.

Why not? The Fed seems to be buying just about everything else these days.

This post can also be viewed on themessthatgreenspanmade.blogspot.com.