A few thoughts on the Great Housing recovery. By Lance Roberts.
“The Most Bullish Development On The Entire Globe” – this was the always bullish Joe Weisenthal’s headline this morning following the release of the New Home Starts and Building Permits data this morning. “It’s hard to think of a bigger bullish trend right now, at least in the short term,” he stated.
That is indeed a very bullish statement about a sector of the economy that is still running at very recessionary levels of activity. However, the reports for September showed that on a seasonally adjusted basis new home starts surged to 872,000, a 15% gain for the month, and a rise of 34.8% from a year-ago. While it was once again the multifamily component which jumped 25.1%, the single-family component also improved, gaining 11.0%. Housing permits also jumped 11.6% in September to an annualized pace of 894,000 which was up 45.1% from a year-ago. This is good news, however, it is not quite worth the euphoria that Mr. Weisenthal attributes to the report. However, I have never known Mr. Weisenthal to be anything BUT exceptionally bullish. An in the famous words of Jerry Seinfeld: “There is nothing wrong with that.”
However, let’s analyze the data beyond the headline to determine what is really occurring.
As we have discussed so many times in the past, it is not the monthly data point that matters but rather the trend of the data that is much more important. The chart below shows new housing starts and permits. Clearly, while the data has ticked up in recent months, we are still a very long way from calling it a recovery.
Guest post by Peter Tchir.
Buy and hold is dead. We “rent” stocks. We “rent” bonds. We “rent” commodities, and now we “rent” homes.
There are the obvious, negative reasons that homeownership is not increasing. Not enough jobs, loan availability is still difficult, a separation between where you can afford to live and where you are willing to live, etc.
Some of the other reasons, while possibly rooted in negativity are just different.
People have realized that buying and selling homes costs money. Not just the brokerage fees (how they get 6% is beyond me) but all the little work that has to be done to mold the home into what you want. This isn’t new it is just something we seemed to forget during the heyday of the housing bubble.
Latest research by Ice Cap Asset Management.
Imagine a World where all bank tellers, bank voicemail messages, bank emails and even bank faxes all end with – “Dude, I owe you big time.”
“Thank you, have a nice day, sincerely yours, and do not hesitate to contact us” will all become niceties from the past.
As far as we are concerned, there have only been two dudes in the history of the World. The 1982 Hollywood hit Fast Times at Ridgemont High produced Jeff Spicoli as the World’s very first dude. It wasn’t until 16 years later we were gifted the dude of all dudes – Jeff Lebowski from The Big Lebowski.
Yet, today, for some strange reason the big banks feel the need to expand their World domination strategy and position themselves right next to the dude. And with that, the righteous title of dude will be tarnished forever more.
Of course, to understand the big banks sudden interest in becoming dudes, we have to step deep into the cryptic World of the London Interbank Offered Rate, or LIBOR for short, or soon to become LieBOR for everyone else.
Could the implosion of the Sun Belt give valuable information how to adress the Club Med economic mess? Some interesting observations and comparisons via Voxeu.
The experiences of a few US states in weathering the ongoing economic turmoil could provide some insight into the Eurozone’s struggles. In particular, Florida, Arizona, and Nevada along the US Sun Belt saw a big housing bubble and subsequent bust, much like Greece, Ireland, and Spain along Europe’s periphery, a group we call ‘Club Med’. Both groups, each part of a monetary union, continue to suffer severely from the after effects of the crisis, but the Sun Belt states have recovered earlier and have not faced the trauma of a sovereign debt crisis. Some initial comparisons can be made about the experience of the two groups that could ultimately help shape the Eurozone’s long-term adjustments.
Guest post by Azizonomics.
Something very interesting is happening.
There’s been so much corruption on Wall Street in recent years, and the federal government has appeared to be so deeply complicit in many of the problems, that many people have experienced something very like despair over the question of what to do about it all.
But there’s something brewing that looks like it might be a blueprint to effectively take on the financial services industry: a plan to allow local governments to take on the problem of neighborhoods blighted by toxic home loans and foreclosures through the use of eminent domain. I can’t speak for how well the program will work, but it’s certaily been effective in scaring the hell out of Wall Street.
Under the proposal, towns would essentially be seizing and condemning the man-made mess resulting from the housing bubble.
Almost 24% of homes with a mortgage in the United States are underwater, meaning that more is owed on the loan than the property is currently worth. A new company known as Mortgage Resolution Partners is proposing to work with municipal governments to use eminent domain to seize underwater mortgage loans and restructure them at a discount to the borrower. Eminent domain has never been used to obtain mortgage loans. Richard Leland and Robert Hockett talk with Bloomberg Law’s Lee Pacchia about the legalities surrounding this plan.
Must see video below.
Guest post by Lance Roberts.
“Chance has put in our way a most singular and whimsical problem, and its solution is its own reward.” – Sherlock Holmes
Very much like Sherlock Holmes, analysts everywhere are analyzing each and every data point relating to housing hoping that it is “the” conclusive bit of evidence that proves the long awaited housing recovery has arrived. The recent spate of housing numbers, while improved over recent months, have bolstered those calls that the bottom is “in” and a“recovery” has begun. The mystery of the “elusive recovery” continues.
We have been very vocal that while we may have indeed seen the “bottom” the ensuing “recovery”may be a far more elusive. (See here, here and here) However, there are three major clues that housing will continue to elude recovery for quite some time – global drag, employment and the velocity of money.
Clue 1: Global Drag
It is entirely understandable why everyone wants housing to recover. From a homeowners standpoint, particularly the 1/3 of Americans who are underwater in their mortgage, a recovery in housing gives them not only a psychological boost but also the options of selling, which offers mobility, or simply refinancing to lower monthly payments. Economists and other financial analysts believe that a recovery in housing is needed to boost economic growth from the large multiplier effect of each dollar invested in the overall economy. However, residential investment today, as a percentage of GDP, is far less impactful than it has been in the past. Currently residential investment is near the lowest levels on record as a percentage of economic growth.
With Spain dominating the news these days, let us dig deeper into the political elite running the show. Many have heard of the new president, Mr Rajoy, Bankia and Mr Rato, but what have these gentlemen produced prior to leading the country and forming Bankia? Simply must read by Golem on Spanish conquistadores in modern times.
Let me make it clear straight away – the lies, corruption, cowardice and greed of Spanish bankers and government officials is nothing special. What is happening in Spain now, reminds me of Northern Rock in the UK, Hypo in Germany and CountryWide in the US. So please do not think that I dislike Spain or of the ordinary people of Spain. The people I detest in Spain are the same people I detest in Britain and every country: The Cabal of corrupt Bankers and Political parasites.
Every country will have its moment in the spotlight. Italy is preparing in the wings as we speak. But today, on the Eurofiscal Corruption Contest, Spain is on stage.
It is the mantra of the main political parties and media across Europe, that the present crisis is the result of too many people taking on loans they could not afford. Neither the bankers nor the politicians, according to the accepted story, saw the crisis coming or could have seen it coming but have been engaged in heroic attempts to rescue us from a crisis of our own making. THIS IS NOT TRUE.
Neel Kashkari on the very few housing winners.
Since the housing downturn that began in 2007, policymakers in both parties have implemented numerous programs to modify loans and help homeowners avoid foreclosures. Sadly, none of these programs has lived up to its goals. With each missed expectation, advocates identified the next impediment and offered the next silver bullet. But there is a reason all these programs have fallen short — and why in-kind successors will, too.
When I worked in the Treasury Department, my colleagues and I evaluated hundreds of mortgage modification proposals and started several. At the same time, Congress and several states put in place their own plans. Hope Now. The rate-freeze plan. Hope for Homeowners. The basic thesis behind such programs is that foreclosures are very costly to everyone involved: Tens of thousands of dollars are needlessly poured down the drain when a house goes through foreclosure. A bank’s recovery on its loan is severely impaired. Homeowners are out on the street. Neighborhoods are blighted. If, however, a compromise is reached, everyone wins: Banks recover more, families stay in their homes and neighborhoods are strengthened. With so many different modification programs, why haven’t more struggling homeowners been helped?
Full article here.