Housing's New Hope
I'm not sure if it's that usual New Year's Eve optimism evoked by the generic philosophy that the grass is always greener on the other side of the calendar year, or perhaps the emotional need to dig ourselves out of what has surely been one of the more lugubrious periods in the U.S. economy, but there is some hope in housing.
A few positive readings in home sales and housing starts recently, topped off by today's 7.4 percent monthly jump in contracts to buy existing homes, are fueling what I dare say is a spark, albeit not a fire. They are also managing to trump what was a particularly opposing readingin home prices from the number crunchers at S&P/Case-Shiller this week.
Don't worry, I'm not going to dump a bunch of coal on the numbers and claim they're all spurious in some way; I'm all prepared to be munificent, while chary (did I mention my new year's resolution is to improve my family's vocabulary, as well as banish "like" from my kids' lexicon.) I will note that even the Realtors, while touting affordability and pent-up demand, note that many of these new signed contracts are the result of delayed transactions.
"Contract failures have been running unusually high," notes National Association of Realtors chief economist Lawrence Yun. "Some of the increase in pending home sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage,” he said.
Then there is a big story in the Wall Street Journaltoday of hedge funds putting their money back in housing, suggesting that while the numbers aren't all there for a big win, these funds are usually ahead of big market shifts, so the housing surge must be on its way. I've spoken to some of these hedge fund types as well, and they seem to be playing on the surging rental market for now, getting the bargains but not expecting any big "flipping" returns any time soon.
"Bottom line, whether due to even lower prices, historically low mortgage rates, falling inventory and a better tone to the labor market or a combination of all, the housing market is showing signs of stabilizing," says Peter Boockvar at Miller Tabak. "I say stabilize instead of bottom, as its too early to make that claim just yet with still a huge amount of foreclosures that hasn't worked its way through the judicial system and prices that haven't likely stopped going down as a result."
Some are predicting that foreclosures will push home prices down another five to ten percent before hitting a true bottom. In addition, those rock-bottom mortgage rates that everyone is touting this week may be heading up, as the conservator of Fannie Mae and Freddie Mac today directed the two mortgage behemoths to inform servicers that guarantee fees would rise ten basis points next week. That, if you recall, is to pay for the temporary extension of the payroll tax cut. Yep, that money heads to the U.S. Treasury, not to the troubled balance sheets of Fannie and Freddie. This accused nostrum will likely raise rates a tad, but rates are still close to historical lows. And we should remember that.
It's all relative. Are things getting a bit better? Probably. I heard (or read…can't remember) someone today say that housing has gone from a negative to a nothing for the U.S. economy. So when we tout and rave about today's pending home sales numbers, we mustn't forget where we've been:
"It’s not going to keep 2011 from being the worst on record for new home sales, for single family permits and single family housing starts. Next year is going to be better, but that’s not saying much because this has been the worst year, probably since 1945," said IHS Global Insight's Patrick Newport. In other words, housing ain't exactly fecund, but it's at least inching off life support.