US Housing Recovery: What Has Been Forgotten-11/29

[Miguel]

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. Just recently USA Today wrote:

Six years since the start of the greatest housing collapse since the Great Depression, one doesn't have to look very far to see signs of a recovery. Nationally, home prices are rising after more than a 30% drop since mid-2006. More good news arrived Tuesday, as the Standard & Poor's/Case-Shiller home price index reported third quarter prices were up 3.6% from a year ago and September's 20-city index reached its highest level in two years. Foreclosures have slowed in most of the country after having decimated hundreds of U.S. cities. Rather than being a drag on the U.S. economy, housing is now seen as a contributor to growth.

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.

Click for a larger image

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 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, 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.

But it is in this nascent recovery that we should be recognizing the true state of the average American family. Without such massive intervention it is unlikely the housing market would be showing much of a recovery considering the decline in real wages, and household incomes, over the last four years. Furthermore, while there has been much written about the deleveraging of the household balance sheet - the latest quarterly report shows that the only real decline in debt occurred in the mortgage segment. What wasn't discussed by the Fed is HOW the deleveraging was accomplished which was done though serial refinancing (I am a prime example of 4 times in the last 3 years), foreclosures, short sells, and write downs. Not exactly a bullish commentary of the strength of the average American household.

Lastly, while residential construction only makes up slightly more than 2% of GDP, there is a limit to how much further the current recovery will go. The decline in housing reached extreme levels during the crisis and was due for a bounce back to normal activity levels. We are rapidly approaching an equilibrium of current supply and demand in the market. According to David Rosenberg:

We estimate that the builders have caught up about 90% of the way with the recent improvement we have seen in the underlying demographic demand. There may be more upside in terms of pricing ahead. But it is going to be limited and we are not far off seeing some plateau until we start to see the demand indicators improve more forcefully, especially from the first-time buyer, who has been quite dormant during this nascent turnaround in the housing sector.

That may also explain where there has been no increase in the number of residential construction workers during this entire recovery. While home builders sentiment may be ebullient - their actions tell a different story.

Click for a larger image

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.

It is important to understand that housing will recover - eventually. However, the reality of that recovery could be far different than what the current media and analysts predict. In an economy that is expected, according to the Federal Reserve, to have a long term economic growth trend of 2.6% - a recovery to historic norms, much less the pre-crises peak, is highly unlikely. However, for now, the housing market is recovering and that is a good thing - just remember what is really driving it.

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Originally posted at Lance's blog: streettalklive

(c) Streettalk Live
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[forrest]

미국 주택경기 바닥 쳤다는 얘긴가요?

[숲속벤치]

미국 자체가 경제의 건전성이 약해서 지금 상태로 온 겁니다. 근본적인 문제가 해결이 안 되었는데 이러다가 악재 한번 터지면 뒷감당이 될까 싶네요.

[tissue71]

3차양적완화이후에 주택쪽 경기가 지표가 계속 좋게 나오고 있는데 여기에대한 의구심들을 적어놓은 것입니다. 리먼이후 전세계 GDP의 50%나 찍어내었는데도 불구 이정도의 반등이고, 3차양적완화인 모기지에 직접지원이후에 반등이 나타났으며 이런 지원이 언제까지 될수는 없을거며 그이후에는? 그리고 하우징섹터의 실제거래는 대부분 임대를 위한것이며 실제 고용률이 올라야는데 그것이 아니고 모든 경제지표 주택시장활성화눈 임금상승이 동반되어야는데 상승없는 소비만 늘었으며 이에 전체 경제상장율과 빚의 관계도 논해놓았

[숲속벤치]

너무 인위적이어서 상당히 불안해 보이네요

[loosian]

바닥치고 부동산 경기가 회복되는것처럼 보이는데 실은 주의해야 한다는 말입니다. 현재 주택시장이 호전되는건 임대 하려는 사람들 때문이랍니다. 그리고 새로 지은 집들도 전통적인 개인주택이 아니고 다세대나 타운하우스 같은걸로... 핵심은 반등한 것처럼 보이지만 크게 나아진 것이 없고 또 나아지지 않을 수도 있다 정도 아닐까 싶네요.

[loosian]

아래 글 19071의 반박 또는 주의기사로 보면 될 것 같네요.

[재채기]

19071글이 미국 주택 경기가 좋아졌다는 글이 아닌데요. 미국 주택 대출이 크게 증가했다는 글이죠. 주택 대출이 크게 증가했다는 건, 삶이 어렵다는 뜻이지, 주택 경기가 좋아져서 주택가격이 상승했다는 글은 아니었습니다. 19071글의 보완글로 보시는게 타당해보입니다만...

[loosian]

반박으로 봐야 합니다. 미국에서 주택대출이 증가했다는건 소비가 확대된다는 뜻입니다. 때문에 경제가 회복될지도 모른다는 것이구요. 위의 글은 경기회복이 실상 허구일 수 있다고 보는 겁니다. 19071에 보면 이런 말이 있습니다. "가계 소비지출 확대는 제품 수요 증가→기업 증산→신규 고용 창출→가처분소득 확대→소비지출 확대라는 선순환 구조를 강화해 미국 경제 회생 모멘텀으로 작용할 수 있다. 가계 소비지출은 미국 국내총생산(GDP)의 70%를 차지할 정도로 미국 경제 성장에 큰 영향을 미치는 변수다."