FHFA Monthly Home Prices: July 2012

Today, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that in July, nationally, home prices increased 0.2% since June rising 3.90% above the level seen in July 2011.

The FHFA monthly HPI are formulated from home purchase information collected from mortgages that have been sold to or guaranteed by Fannie Mae and Freddie Mac.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings April 2012

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing a decline of all measures in April with the composite HMI index falling to 25 while the "buyer traffic" index declined to 18.

While all indicators have made notable increases as of late, it's important to note that conditions still remain distressed by historic standards though, the last few months results appears to indicate a major change in the builder sentiment.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Radar Watching: November 2011

As I have noted in the past, since the home price index data provided by Radar Logic is more timely, unadjusted and un-smoothed it is particularly useful for gaining deeper visibility over our housing markets.

As for the latest trends, it’s important to note that the 25-MSA Composite is continuing to show significant year-over-year declines and has now dropped well below all recent lows reaching a level not seen since early 2003.

The latest data shows that as of late November, prices have declined 7.11% below the level seen in
November 2010 while continuing to turn down from a seasonal peak reached in mid-June.

With the spring/summer selling season now complete and declining prices now registering with regularity, there is nowhere for prices to go but down. Look for a declining trend to continue to materialize and likely run into March or April of 2012.

Tackling Distress with More Flimflam Policy

While the housing market is continues to weigh on the broader economy, the Obama administration is contemplating its next move in its ongoing attempt to mitigate the economic pain and suffering so duly deserved by the generation of speculative “homeowners” who got caught holding the bag at the top of the market.

Given the sheer enormity of the financial abyss dug by the federal government over the many decades of policy blunders and big government flimflam and in light of the escalating battle between the parties over spending cuts, revenue increases and the debt ceiling, it would seem now would be the most unlikely of times to spin up a new policy designed for saving bankrupt homedebtors from themselves.

But in typical fashion the policy junkies in Washington can’t pass up a “problem” that they think can be “solved” with another helping of federal largess despite the fact that they are simply proposing solutions the problems big-government policy created to begin with.

In the latest round of sham government dealings, the administration is pondering how the federal government can help to clear the nation’s overhang of distressed properties held primarily in the portfolios of the two government sponsored rejects Fannie Mae and Freddie Mac.

There’s speculation that the feds may implement measures designed to encourage investment in distressed properties bringing everyone from “mom and pop” to institutional investors into the fray in hopes that they will be able to mop up the distress.

Others suggest that Fannie and Freddie should convert their massive holdings of foreclosed properties into the largest rental portfolio the country has ever seen.

Imagine it now… the housing market being righted by investors picking up distressed properties using government assistance and then renting them to the very same communities that lost the homes in the first place… what could go wrong?

Who knows but considering the utter failure of past policy such as Fannie-Freddie, the homebuyer tax credit, HAMP, etc. it would seem that another blunder is in the making.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings April 2011

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing a slight decline for most measures with the "buyer traffic" index remaining near record lows as home builders continue to plod through the weakest activity seen in generations.

It's important to recognize that currently all measures are showing either notable year-over-year declines or, for the buyer traffic index, zero change in the level of activity seen since last year.

Clearly the new home market has seen another no-show start to the buying season with the typically strongest selling months (remember Bob Toll's analysis of the seasons) fully behind it.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Hong Kong Bubble?: Hong Kong Residential Property Prices May 2010

There has been much speculation recently about an ongoing price bubble occurring in the Hong Kong residential property market.

The University of Hong Kong’s Residential Real Estate Series (HKU-REIS) indicated that, in May, the price of residential properties continued to rise increasing 1.23% since April and 26.72% since May 2009.

The “Hong Kong Island” index, “Kowloon” and “New Territories” sub-components also showed notable year-over-year increases.

The HKU-REIS is a set of property price indices constructed monthly using a “modified” repeat-sale methodology similar to that of the S&P/Case-Shiller indices yet suited to the Hong Kong property market.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings July 2010

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing a continued pullback for all measures as home builders downwardly adjusted their outlook in the wake of the home "buyer" tax credit expiration.

It's important to recognize that currently each sentiment index shows notable year-over-year declines with each still sitting near the lowest levels seen in over 20 years, a testament to the significance of the latest pullback.

Further, the "buyer traffic" index is showing the weakest results pulling back some 23% since July of 2009 and sitting just 3 points above the lowest level ever recorded.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Inventory Surge and Organic Trends

One of the most important housing trends to follow over the next few months is the developing rise of single family home inventory.

With four consecutive monthly increases, the latest being best described as a surge, sellers appear to be bringing their homes to market at a pace that not only exceeds that of last year but also to a level that is very reminiscent of the housing turning point year of 2007.

This is clearly “shadow inventory” (i.e. postponed home sales of homes held by individuals, investors and banks) now coming to market either out of stimulation from the government tax gimmick or simply as a result of the sense of a stabilization of the home markets.

Make no mistake, increasing inventory will put downward pressure on prices and result in a more strained circumstance for home sellers.

While we will have to wait to see how this season’s peak inventory shapes up, it’s safe to say that there is a substantial backlog of homes that need to come to market and with no tax gimmick artificially simulating sales, we will finally be getting back to the “organic” trends.

Hong Kong Bubble?: Hong Kong Residential Property Prices January 2009

There has been much speculation recently about an ongoing price bubble occurring in the Hong Kong residential property market.

In fact, the concern has been so great that Hong Kong Financial Secretary John Tsang recently announced significant measures that will be taken in order to mute the real estate trading activity including a higher levy on luxury properties, adjustments to the rate of land auctions and tighter scrutiny on bank lending.

Looking at the latest residential property price indices for Hong Kong, you can see that Tsang’s concern is warranted.

The University of Hong Kong’s Residential Real Estate Series (HKU-REIS) indicated that, in January, the price of residential properties continued to rise increasing 1.53% since December and 29.57% since January 2009.

The “Hong Kong Island” index, “Kowloon” and “New Territories” sub-components also showed notable year-over-year increases.

The HKU-REIS is a set of property price indices constructed monthly using a “modified” repeat-sale methodology similar to that of the S&P/Case-Shiller indices yet suited to the Hong Kong property market.

Prime Bomb: An Epic Race for the Exits!

Today, I’d like to present part of my “Prime-Bomb” thesis in more detailed terms but first I should mention that this is easily my most bearish post yet… not for the faint of heart… If you are feeling really down already, best just to skip it.

Don’t say I didn’t warn you…

First off, an essential precursor of the worst case scenario of this thesis is for the S&P 500 to eventually bottom out down roughly 80% from the peak set in October 2007.

This may seem extreme at first but there are many historic precedents (historic PE and Q ratios, similarities to past epic disasters NASDAQ, NIKKIE, DJI 1929, the fundamental level of financial decline seen to date, etc.) that suggest that this is a real possibility and many excellent sources on the web that make a compelling case.

Further, now that the S&P 500 has firmly broken below its Nov 20 2008 low it appears altogether too obvious that we are going down for another serious plunge that will inevitably beget another weak rally and so on.

This level of stock market collapse is truly fundamental partly because it represents such a large loss of wealth but also because it will force many Americans (a huge percentage of households) into a preservation mode of sorts… hard decisions will HAVE to be made in order to move forward with any level of financial security.

When stock wealth all but disappears, many, especially formerly secure Boomer households, will turn to the one asset that still appears, to them, to have value… their home(s).

A strange confluence indeed (given the circumstances) but consider that numerous recent surveys that indicate that even after three years of obvious housing decline and its serious ramifications on the economy, most households generally believe that their “own” home’s value has been insulated.

In fact, sadly, time and time again, these surveys also find that most households don’t stop there… they even believe that throughout this epic decline their own home has even increased in value… these are delusional days indeed!

So you see… we are at a turning point of real … forced… revelation.

The stock market is now quickly discounting, moving lower to a destination that is closer to reality valuation while households are still attempting to avoid the painful realizations.

Unfortunately, for unprepared households though, the real pain is about to be thrust upon them.

While housing wealth loss can, at times, appear to be superficial or amorphous loss on future potential, stock wealth loss is largely in the “here and now”.

Millions of households who have been shaken by the recent 30% - 40% declines in their stock and retirement portfolios will be absolutely wrecked by an 80% loss.

This will force them to seriously and almost immediately reevaluate all assets and seek the best path to long term financial security.

This reevaluation among an immense cohort of unsophisticated households, I believe, will yield one disproportionately represented outcome namely the selling of residential real estate.

This massive “race for the exits” panic liquidation will likely force inventories skyward (beyond the recent peak) while simultaneously forcing housing market values down to depths far below even today’s most pessimistic outlook.

Of course, by this point, markets of actual homes will be as broken as today’s securitization markets.

What comes next should feel pretty familiar… except far more potent… corporate and personal bankruptcies, job loss, foreclosure, falling consumption, negative GDP and more decline... an amplification of the existing vicious cycle.

This is a worst-case scenario but I believe that if you consider the state and mindset of American “homeowners”, particularly Boomers, and the path down which that the markets and macro-economy are trending, you will agree that darker days may be looming.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings November 2008

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing dramatic new lows and continued evidence that the new home market is experiencing a prolonged bout of depression.

Each component of the NAHB housing market index remain WELL BELOW the worst levels ever seen in the over 20 years the data has been being compiled strongly suggesting that the current severe contraction has surpassed all other events seen in the last 22 years and is now firmly in uncharted territory.

Making His Case: The Slide Show!

Professor Karl Case was nice enough to send me a copy of the slide show from Monday’s lecture and I thought you all would find it interesting to peruse (good lunchtime reading!).

I wish I could also supply the quality elaboration on each slide that Professor Case provided during his lecture but possibly an alternative is to re-read his original post from August while paging through the slides.

Here’s the link to the PowerPoint slideshow entitled "The Central Role of Housing Prices in The Current Financial Crisis - How Will The Market Clear?".