Housing Recovery Dictionary Style
All this talk of a Housing Recovery inspired me to dust off my dictionary. What did I see?
1.The act, process, duration, or an instance of recovering.
2 A return to a normal condition
3.Something gained or restored in recovering 4. The act of obtaining usable substances from unusable sources.
We have seen some clear trends in the housing market this year. So, is this a housing recovery? If you take a closer look, you can see why some people are skeptical.
1. Mortgages rates have dropped well over 1% from last year's highs. However, purchase applications are down year over year. We have healthy demand from cash buyers, investors and foreign buyers. This is why even though sales are up year over year from an extremely low base, homeownership rates are still below last year.
2. Inventory has fallen 20% due to a lack of distressed homes coming on to the market. Along with that, organic (non distressed, non-investor) home sellers have not shown up this year in great numbers. There is even a push by real estate agents to encourage owners to short sale their homes before the debt relief act expires this year. . In any case, low supply even with weak demand will push home prices higher.
3. There is still a hue and cry that the government needs to do more. To this end, we have seen efforts to reduce principal, introduce new refinance programs, better loan modifications and even use eminent domain as a means to seize underwater mortgages so they can be packaged for investors. I believe in a normal healthy recovery this wouldn't be the case. The market is still sick from the excess debt taken on during the housing bubble.
4. A lot of the major players in housing have brought rental themes out in 2012. Freddie & Fannie want to sell distressed homes in bulk as long as they are rentals. Fannie Mae and some commercial banks are piloting the idea of foreclosure to rent. Even the home builders are making a push to build more multi-family homes.
I recently quoted a potential home buyer a rate of 3.375% on a 30 year fixed product and I said to myself, “ Wow, even when the Fed is giving money away the primary resident home buyers are not really materializing .”
All this feeds into my thesis from which I have not strayed:
We simply don't have enough qualified home buyers, (excluding cash buyers) to take on the true inventory this country has. Even with mortgage rates this low, the lack of income, assets, credit, jobs and confidence continues to take a collective toll on the market. (But for cash buyers and investors, this market has been a gold mine.)
The housing market like the general economy needs more time to heal and deleverage. GDP growth in the US per the numbers today is at 1.5%. With that mild GDP growth, against a back drop of Europe's fiscal woes, and our looming fiscal cliff , it is understandable if homebuyers think twice before taking on new debt this year.
Once we have a strong economy, with real job creation, incomes rising and consumer debt dropping, then we can get that primary resident buyer back. Until then, take a look the real numbers, and re-read the definition of “recovery” above. Make your own determination if the housing market is really entering the recovery zone. What do you think?
Logan Mohtashami is a senior loan officer at his family owned mortgage company AMC Lending Group, which has been providing mortgage services for California residents since 1988.