Housing | timiacono.com - Part 30

Existing Home Sales Up, Inventory Down

The National Association of Realtors reported that sales of previously owned homes rose 5.0 percent in December to a seasonally adjusted annual rate of 4.61 million, up from a downwardly revised rate of 4.39 million in November, and the median home price rose nearly $4,000 to $164,500 last month, down 2.5 percent from a year ago.

Total housing inventory fell 9.2 percent to 2.38 million units last month, the lowest level since March of 2005, and the months of supply metric dropped from 7.2 months in November to 6.2 in December, the lowest level since 2006.

Distressed sales accounted for 32 percent of all transactions – 19 percent foreclosures and 13 percent short sales – and all-cash sales accounted for 31 percent of purchases as the share of sales made to investors seeking bargains rises at this time of the year since many traditional buyers wait for better weather in the spring or schools to let out in the summer.

Record low mortgage rates, an improving labor market, and rising consumer confidence in recent months have all combined to spur home sales, however, a backlog of foreclosures now working their way through the system in the wake of the “robo-signing” scandal last year may soon change the current supply/demand balance.

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On Root Cause(s), Four Years Hence

I’ll get to the existing homes sales report in just a bit, but, before doing so, I wanted to point readers to this commentary by Jonathon Weil at Bloomberg today that points out one of the most disturbing aspects related to the nexus of politics and finance today – the ongoing partisan divide over what caused the financial crisis a few years back.

The way the discussion gets framed tends to go like this: Did Fannie and Freddie cause the crisis? Although this is the wrong question, I’ll try to answer it anyway by highlighting the difference between the meaning of the words “a” and “the.”

Here goes. Fannie Mae was a cause of the financial crisis. So was Freddie Mac. U.S. government housing policies, which often encouraged people to take out loans they couldn’t repay to buy homes they couldn’t afford, were also a cause. None of these was “the” cause of the crisis, because there was no single cause.

Two people often cited as proponents of the notion that Fannie and Freddie caused the crisis are Peter Wallison and Edward Pinto. Both are fellows at the American Enterprise Institute, a Washington think tank. Wallison was a Republican member of the Financial Crisis Inquiry Commission who wrote a 98-page dissent to the panel’s final report in 2011.

Last month, in an article responding to a column by Joe Nocera of the New York Times, Wallison and Pinto framed their thesis this way: “Our argument is and has been that the financial crisis would not have occurred but for government housing policy implemented principally through Fannie and Freddie and the Department of Housing and Urban Development.”

It’s a debatable, if not a particularly useful, observation. One reason Wallison and Pinto have drawn so much criticism for their work is that they consistently dismiss every other possible cause of the crisis, so that only Fannie, Freddie and U.S. housing policies survive the scholars’ own “but for” test. Never mind interest rates held too low for too long, worthless regulators or banks with excessive leverage, for instance.

Even New York Mayor Bloomberg came down in the “the cause” camp a month or so ago when referring to the role the government played in the housing bubble. It’s simply amazing to me that so many people seem to insist on viewing this as a black-and-white issue – that either Washington or Wall Street are to blame, but not a combination of the two.

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Canada Home Prices: What, Me Worry?

They still seem pretty sanguine about home prices north of the border, but, if the country I lived in appeared in the far right position of a chart like this one from a recent IMF survey on global home prices, I’d be a little concerned about not overdoing it on credit and maybe selling an investment property rather than buying another one.

Bloomberg filed this report on the subject yesterday that included the following:

“Investor-owned condos have got to be a cause for concern, just because of supply and demand,” Bank of Montreal Chief Executive Officer William Downe said Jan. 10 at a banking conference in Toronto. Royal Bank CEO Gordon Nixon said “there’s no question” that the condo markets in Vancouver and Toronto are the most vulnerable in the country.

Investor owned condos… You don’t hear too much about that in the U.S. these days, but they were a hot topic in places like Miami and Las Vegas in 2005…

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Time and again you hear pundits say that what the U.S. experienced in the last decade was a terrible boom/bust cycle for the housing and credit markets. But then, almost in the same breath, they oftentimes say the nation must do whatever it can to get those eight million jobs back that were “lost” when the housing bubble burst.

But, does that make any sense?

Were those jobs really “lost” or should a good many of them have never existed in the first place?

Anyone with a rudimentary understanding of economics would conclude that, since many of the jobs created early in the decade were related to housing – construction workers, mortgage brokers, etc. – that they won’t be coming back anytime soon, at least not as long as the housing bubble remains “popped” (which is a pretty good bet over the next few years).

Of course, since the early-2000s housing boom was, effectively, the cure for the stock market boom that went bust at the turn of the century, one could argue that what the government and central bank need to do is create a new and different asset bubble.

But, so far, Fed Chief Ben Bernanke and crew seem to be shooting blanks.


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