Posted on 01/27/2014 4:27:29 PM PST by Kaslin
The National Association of Realtors Chief Economist Dr. Lawrence Yun reported 5.09 million home sales in 2013. December was widely reported as up by the media, but only 1% over a November that was revised down. Year over Year December was down 0.6%. The second consecutive monthly decline.
To say the year in housing ended with a whimper would be an understatement.
But wait a minute, isn't the job market improving with only a 6.7% unemployment rate? If more people are working doesn't that translate into more people buying homes? The unemployment rate is as bogus as the inflation rate or we would be selling more homes and ground beef.
As a member of the National Association of Realtors I understand the desire to put a positive face on housing numbers to benefit members, however, to say the reason for the slowdown is due to a lack of inventory and bad weather is a stretch.
The weather argument falls flat because closings typically occur thirty to forty five days following a purchase contract. Bad weather in October and November didn't impact the number of closings in December.
I take the opposite view of the association, sales are down and slowing not due to a lack of inventory but due to a lack of demand.
We are heading towards an inventory shortage eventually because new construction has never recovered. New home construction remains at half the rate of pre-recession levels, and the recession ended four and a half years ago.
It is noteworthy that the number of mortgage applications were down by 66% in 2013. The reasons are twofold, rising interest rates killed the refinance market, and cash sales were at historic levels. Primarily from major investors entering the own to rent market gobbling up foreclosures. That too is slowing to a crawl.
If interest rates continue to rise into the five percent range the inventory of homes for sale will be hurt because anyone who doesn't have to sell won't trade a mortgage at or below 3% for a 5% mortgage.
Regardless the shortage of inventory you must still have demand, and demand comes from family formation and job growth. With 18 to 34 year olds accounting for 46% of all unemployed Americans most of the family formations are those based on love not money. Does love count toward a loan approval?
Obamacare casualties continue to mount, but the toll from employers cutting hours to part time, and laying off employees to avoid the mandates has harmed demand. When tens of millions with employer paid policies start getting cancelled and have their premiums increased, look out housing.
The president and his chief adviser Dan Pfeiffer can claim they have created 8 million jobs all they want, which you will hear in the State of the Union, but they won't tell you most of those jobs were part time and that eight million barely surpasses population growth during that time.
That means a net zero improvement in the labor market or adding demand for housing. Why no mention of the record 92 million working age Americans out of the workforce and the workforce participation rate the lowest since 1978?
The best thing to happen to the real estate market has been the hard winter. There is pent up demand building because people can't or don't want to get out and look at homes. When the weather breaks we will have a huge rush of home sales, but it won't last long without job creation.
The good news is that the president in his State of the Union message will chide the dangers of inequality, call for an increase in the minimum wage, more infrastructure spending, and more pre-school programs.
Yes siree Bob, that should cause an explosion in job growth not seen since the Stimulus and the Summer of Recovery!
Back to Dr. Yun and another statement he made.
"More people working means additional housing demand," said Lawrence Yun, chief economist at the National Association of Realtors. "In last 12 months the private sector has added 2.2 million jobs. That's 2.2 million potential homebuyers."
Really? If 1.54 million of those were part time jobs, please refer me to the lender who will approve a mortgage for these part time employees. Maybe they will loan on love too?
6.7% is a lie through and through. Double that, at least.
How is that calculated and has it be jiggered recently? I think there’s building going on that is multiunit, but I don’t think it’s being driven by new SFR. Low interest rates are allowing people in higher income tiers to buy or even move, but I don’t think we’ll see a boom. A lot of RE investors are sidelined by restrictive lending and/or uncertainty. Nobody wants to not have their units sold when the music stops, i.e. interest rates rise.
A lot of 3rd World Wealthy are parking their money in the US on both coasts. It’s a good bug out strategy.
NY and Florida are having a rehab rebound as well. I don’t think it is a sign of recovery, though. People are stuck, they find it easier to remodel than move.
I wish the government would get out of the housing market. It is a massive distortion and the tax incentives just encourage unnecessary debt. The NAR are a major cause of the problem and they lie, lie, lie.
they got no place else to go
SF starts are up 60+ % since 2011. MF starts traditionally lead from housing troughs. Demographics drive housing and household formations have more than doubled since 2010. It’s not a matter of “if” we get back to 1.5 million but when. Most macro forecasts have that in 2015/16. Most projections have 14-15 new households this decade. Considering we’ve built less than 4 million we will have a sever shortage in a couple of years.
2011 was a record low year for SF starts and the lowest years ever since recording began in 1959. So I’m not surprised to see them rise by a large percentage gain.
Single-family homes fell 7.0% to a annual pace of 667,000 in December and that level was still the second strongest reading in the category since May 2008.
Much of that is driven by historically low interest rates. When the rate rose sharply in the spring it slowed building. The rough rule of thumb is for every 1% rise in interest rates you need to reduce the cost of the unit by 10% to maintain the same monthly payment. The builders I know are nervy. Nobody wants to be caught with too much or too pricey inventory when the music stops. Enough survived that last time and fear a repeat that will kill them just like it did dozens of others. Toss in rising construction costs and it isn’t an ideal market, despite pent up demand. This is an interest rate driven improvement.
Demographics matter, but I think they won’t go to SFR ownership, but apartment rentals and, perhaps, well priced condos in good school districts.
Don’t get me wrong. I’m not betting against America or a doom and gloomer. We’ll get out of this. It’s hard to shut down a 16 trillion dollar economy. Here’s the things I’m watching for: a GOP sweep in 2014 where they take the Senate by 51+ and strengthen in the House. That will mark the start of the real recovery. It means an end to the uncertainty a Dem Senate and an America-hating executive branch are causing. Just returning the regulatory environment to Bush-era status, which is still too little of a reduction, would be rocket fuel for our entrepreneurial economy.
The next POTUS, who I hope is the most conservative we can elect, will preside over an explosive recovery that will benefit owners of capital as well as employees. If the country doesn’t throw the Dems out or if infighting between the GOPe and conservatives costs us easily winnable races as it has in at least 4 Senate races, then the uncertainty caused by standard fare liberalism coupled with Obama’s very aggressive crony capitalism will continue to be a very powerful headwind against a genuine economic recovery (which I define as one not rigged by FED action - we’ve not had one of those in a long time and I suspect it is because crony capitalism is and has been the only game in DC since Clinton, they just don’t trust the free market enough or else they fear it).
I meant to say that I do very much appreciate your level headed and actual numbers based approach to these topics. Too many were purged from FR for not toeing the line and that was foolish. At the same time, sentiment and emotion are what really drive investment and the people I know are hunting opportunity, cautiously.
Thanks for the discussion. I’ll respond when I get back to my office in a few days as I’m stuck in the Atlanta Snowpocalyose :-) Just as an FYI I work in forecasting for a public company that participates in residential construction market so I have some good data and look at it constantly. It’s going to be a long road (heck it already has been) but I’m very bullish on housing over the next few years. I just hope I’m right :-)
Here’s a household formation chart:
http://ycharts.com/indicators/us_household_formation
http://www.clevelandfed.org/CFFileServlet/_cf_image/_cfimg-6383056753397633472.PNG
Do young people see home ownership in a positive or negative light, now?
http://research.stlouisfed.org/fred2/graph/?s[1][id]=COMPHAI
The last one is from NAR and it looks good, but it is assuming a 20% down payment.
Me too. Show me your data as I’m curious to see it. I think my analysis is correct, but I’m in Cook County, Ill-Annoy aka Obamacountry. I’ve seen Dems ruin a lot.
Hopefully I’ll be back in the office tomorrow. Atlanta is a disaster today...
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