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Wednesday, March 21, 2012

Housing: "Signs of Life"

by Calculated Risk on 3/21/2012 09:35:00 PM

A couple of excerpts from an article by Neil Shah and Nick Timiraos at the WSJ: Housing Shows Signs of Life

For the first time since 2005, investment in residential real-estate, including home building and renovation, has contributed to U.S. economic output for the past three quarters.
"Housing bottoming is going to surprise a lot of people," said Kenneth Rosen, a housing economist at the University of California, Berkeley. "Housing was pulling us down consistently, quarter after quarter, for years. That was really over in 2011."
Home-purchase contracts in January and February are up about 20% from a year earlier for HomeServices, a subsidiary of Berkshire Hathaway Inc., and Mr. [Ronald Peltier, chief executive of HomeServices of America Inc.] said the firm now expects sales growth of around 10% this year, upgrading its forecast last fall for flat sales levels in 2012.
A few comments:

• There are two bottoms for housing: 1) for residential investment, new home sales and housing starts, and 2) for house prices. (see my post on February on Housing: The Two Bottoms). With residential investment adding to GDP and employment growth over the last several quarters, it appears the first bottom has already happened.

• On prices (the 2nd bottom), I'll be looking closely at year-over-year changes in various price indexes. If we are at the housing price bottom on a national basis, then year-over-year price changes should start to get smaller soon - and eventually turn positive in early 2013.

• Professor Rosen was a "housing bear" back at the peak. See these comments from Rosen in February 2006: Barron's: Is It Crunch Time for Housing?
Rosen calls himself a real-estate bear who endorses the doom-and-gloom scenario of Yale University professor Robert Shiller ... We've already passed stage one, characterized by "a falloff in new sales and orders," says Rosen, and are just entering stage two, in which unsold inventories build up.

That may be where the crunch begins.
The final phase is when we see massive defaults or delinquencies on mortgage loans. That's several years away, he says, and this time the damage could be worse because of the large number of exotic loans giddy lenders extended to desperate home buyers.
Existing Home Sales in February: 4.59 million SAAR, 6.4 months of supply
Existing Home Sales: Inventory and NSA Sales Graph
Existing Home Sales graphs