May 9, 2012

What’s The Flood Of Monthly Housing Data Actually Telling Us?

May 9, 2012

What’s The Flood Of Monthly Housing Data Actually Telling Us?

I made a quick list of the housing-related economic news that proliferate our monthly lives. I am sure I missed some, but we have:

-Housing Starts
-Building Permits
-FNC’s latest Residential Price Index (RPI)
-S&P/Case-Shiller 20-city price index
-FHFA house price index
-Pending Home Sales
-New Home Sales
-Existing Home Sales
-CoreLogic National Foreclosure Report
-Zillow Real Estate Research

But wait, there’s more:

-Lender Processing Services (LPS)’s Mortgage Monitor Report
-RealtyTrac’s foreclosure numbers
-National Association of Home Builders’ (NAHB) Remodeling Market Index’s U.S. Homeownership
-U.S. Census Bureau’s vacancy rates for owner & rental properties
-RPX Monthly Housing Market Report (put out by Radar Logic)
-Fannie Mae’s National Housing Survey

What is anyone supposed to pay attention to when there are literally dozens of indices? Darned if I know – maybe they should agree to at least come out on the same day of the month…

And what’s it all telling us?

Well, Wells Fargo’s economic team suggest that early reports show that the critical spring home buying season has gotten off to its best start in five years:

Sales of new single-family homes totaled 83,000 units during the first quarter, up 16 percent from a year ago, while sales of existing single-family homes rose 7.2 percent, marking the best combined pace for first quarter home sales since 2007. The rise in existing home sales has generated a little excitement, as news is spreading that homes sold outside the foreclosure process are often receiving multiple bids and selling above the asking price.

…the sudden prevalence of multiple bids around the country appears to be the result of unseasonably mild winter weather, which brought buyers back into the market to a much greater degree than sellers. The first quarter is typically the slowest quarter of the year, with March being the only busy month. Inventories of existing homes have fallen to just a 6.3-months’ supply, and the inventory of unsold vacant homes has fallen by 353,000 units over the past year. Inventories of new homes continue to decline and are now at a paltry 144,000 units nationwide. Only about one-third of those homes are actually completed. With inventories dwindling, home prices have improved a bit.

Of course Realtors can tell you that the better news on sales and prices, along with near record high affordability and near record low mortgage rates, has encouraged builders to move forward with a few more projects. Starts of new single-family homes rose 16.7 percent during the first quarter, for a total of 104,600 units.

But the Jefferies Monthly Housing Monitor took somewhat of the opposite tack:

On the surface it appears that momentum is building towards favoring a near-bottom in U.S. housing. Small positives have emerged, as they have in the past, but the data is “still inconsistent enough to keep us concerned about such a fragile sector. Nonetheless, it is easy to agree that mixed is certainly better than down and the recent stronger-than-expected pending homes sales report adds support. The positive spin is that we haven’t seen material drops in recent months in most housing data, and in some cases we have seen actual improvements. The negative spin is simply that the market remains saturated with inventory (lots in the “shadows”) and that lending activity for home purchases remains exceptionally tight in the face of record low costs of homeownership.

Practically everyone agrees that if affordability is at record levels, the government continues to try and prop up housing markets, so why are we still mired in such a soft housing sector?

On the lending side, LO’s and underwriters can tell you that access to, and the securing of, mortgage capital a challenge for many borrowers.

Origination is economically very lucrative for lenders, but lack of clarity on future regulatory fronts and the costs of compliance weigh heavily on the sector: simply put, lack of clarity results in lack of funding.

Along those lines, Steve Kaye with Catalyst Funding wrote:

A little over 2 years ago I went to see my Congressman, Darrel Issa, to share a plan that stressed a more aggressive approach to the housing crisis was necessary; one that extended beyond simple loan modification. The “problem” with a straight modification-only plan is that it only provides a temporary solution – at best – and only addresses the mortgage payment – which is no longer the only issue or concern. The homeowner who is $150K or more upside down on his mortgage would absolutely benefit from saving $500 a month or more on his mortgage payment. However, when he wakes up the next morning, he is still going to be $150K upside down on his mortgage and looking at a minimum of 8-10 years at normal appreciation to climb out of that hole. No…This is merely a band aide that would only extend our housing woes.

I lobbied for historic reform that would require, in conjunction with the modification, a principal reduction plan that would put home values at 100% of current market value — a ‘clean start”, so to speak. It would not give the gift of equity, but would provide some optimism and hope for the future. And if the owner sold in the following 5 years, 50% of any equity gained would have to be paid to the existing lender who provided the modification/reduction. Other portions of the Plan addressed additional ways to stimulate the market in regard to expanding home ownership and purchasing power without compromising normal loan qualifying. Clearly, we cannot stimulate the housing market by only providing opportunity for 1st time homebuyers. Yes, there would be losses absorbed by lenders and financial institutions However, the revitalization and stabilization of the housing industry would stimulate the economy and provide additional earnings through more home lending, more use of credit, etc. Homeowners who are not upside down will also gain as equity – lost during these past years – will return and provide value. The more I have read over the past year, the more I am convinced that these ‘simplistic’ ideas will, in some manner, be put into play at some point — they have to. Oh…and Congressman Issa’s reply to me (actually his assistant as the Congressman was in DC): “We need to get Obama out of office before we can think about doing anything aggressive”.

It’s a shame that political agendas have to place roadblocks on the economy’s recovery and extend hardships for the American people.