Monday Housing Crisis at a Glance
The the topline focus for the week will be macroeconomic trends–including producer and consumer price indices, housing starts and building permits, and home builder sentiment from the NAHB home builder market index due Thursday.
Here’s JP Morgan housing sector analyst on the “Street” expectations for the various housing economy benchmarks due this week.
This week features the July NAHB Survey (Street: 16; Prior: 15) on Thursday, June Housing Starts (Street: 530K Prior: 532K), and Building Permits (Street: 523K; Prior: 518K) on Friday.
Here’s the sum-up of last week in the housing sector from Citi housing analyst Josh Levin.
Although there were no housing market data releases, and despite the fact that mortgage rates continued to drop, the homebuilding stocks sold off ~6.5% w-o-w versus the broader market’s ~1.9% decline w-o-w. Our sense is that the underperformance of the homebuilding space was less homebuilding/housing market specific and more a result of overall risk reduction in the market. We also note that trading volumes were on the light side. Our coverage universe now trades at ~1.0x current TBV. According to Bankrate.com, 30-year mortgage rates now stand at 5.29% versus the prior week’s 5.34%.
Speaking of loans, young professionals–doctors, lawyers, dentists opening up new practices–are being shut out of the risk-averse market for mortgages, reports The New York Times this past weekend.
The denials are occurring for a wide array of reasons: the buyers’ incomes are adequate but irregular; they are self-employed and take many deductions, reducing the taxable income on which lenders focus; their credit scores are below the cut-off point, which has been raised drastically; their down payments are less than 20 percent.
Housing usually leads the country into a recession, which certainly happened this time, and also leads it out — which will not happen in 2010, the real estate industry contends, without stronger efforts to thaw the market.
The piece goes on to note that Congress is considering not one, not two, but three separate proposals to extend, expand, and increase the $8,000 tax credit available to first-time home buyers through Dec. 1, 2009. The existence of these proposals is the occasion for Housing Crisis’s sound bite of the week, spoken by one of the housing industry’s beloved analysts Ivy Zelman.
Some economists, noting that tax incentives helped stoke the boom, say these proposals should be shunned. “When do you decide enough is enough?” said the housing consultant Ivy Zelman. “I don’t want to feed the drug addict with more drugs.”
Zelman is not known as one who minces words, and she’s never eaten her own either. Lest she lose sleep over whether Capitol Hill policy should make the addict go Cold Turkey or try a Methadone plan, another observer, Yale economist Robert Shiller, offers a 40k-foot perspective that should calm agitated nerves a bit over what to do.
Housing markets are very inefficient – and that is why it takes several years for prices to fall to a market clearing price. Even if the rate of price declines has slowed, there will probably be a long tail of real price declines in many areas.
“My more probable scenario is languishing of the housing market for years.”
Robert Shiller
Beneath the glare of the macroeconomic and “Animal Spirits” surface–although not too far–the festering Chinese dry wall story is quickly oozing into public scrutiny in a big way. The Wall Street Journal reports this a.m.
Lennar Corp. has identified 400 homes in Florida that have confirmed problems with defective Chinese drywall, and it has set aside $39.8 million to repair the homes, the Miami-based home builder said in a securities filing Friday.
The figures are as of May 31, Lennar said.
Complaints about odors and corrosion linked to defective drywall have been increasing for months.
The U.S. Consumer Product Safety Commission said in a letter to four U.S. Senators last week that it has received more than 600 complaints related to the drywall issue from 21 states and the District of Columbia. Most of the reports are from Florida, Louisiana and Virginia.
Housing, clearly, has become a perilous occupation, not just on the job site, but in the office, the field, the bank, and the planning board.
That’s a mid-July Monday morning for you.
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