Forecasting firm IHS Global Insight called the housing starts number a "blowout." The National Association of Home Builders said its monthly builder sentiment survey was 41 in October, the highest level since June 2006. A reading below 50 represents negative sentiment about the market but the index has risen steadily over the past year.
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Rising home prices and year-over-year increases in new and existing home sales have contributed to the turnaround in the housing market.
The latest positive numbers in the housing market have not persuaded economist Gary Shilling, a longtime housing bear, to change his downbeat forecasts. Shilling holds fast to his prediction that home prices will fall another 20% and dismisses talk that the market has bottomed. He cites the high number of shadow inventory that he says will continue to plague the market for years to come.
"Excess inventory is the mortal enemy of home prices," Shilling says in an interview with The Daily Ticker.
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Shadow inventory refers to the number of distressed homes that have not yet been listed by a realtor but are expected to hit the market soon; a number of the properties are in the process of foreclosure or are seriously delinquent or behind with loan payments.
Shilling contends that the uptick in housing data could very well be a head fake for the market. He says the "huge" overhang of excess inventory — he pegs the number at 1.5 million — will continue to hamper the recovery.
A new report by CoreLogic found that shadow inventory in July actually fell 10.2% from a year ago, the lowest point in three years. CoreLogic counted 2.3 million properties as shadow inventory in July, about a 6-month supply.
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Shilling says he has also become concerned with the lack of new homebuyers entering the market. The rate for a 30-year fixed mortgage was 3.39% last week, near all-time record lows. He says speculators and investors are snapping up homes and hoping to flip them as a profit but new home owners "are the foundation of the market" he notes.
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