Housing’s Still In The Woods

Anyway you slice it or try and put a happy face on it, the news on housing over the past few days has been pretty sobering. I don’t take the decline in housing starts as all that bad a development, the last thing the markets need is more supply, but the decline in mortgage applications is significant.

The industry flacks tried to tie it to the uncertainty over the renewal of the tax credit. If that’s the case then we got a glimpse of where housing is going to be when we take the training wheels away. Maybe more to the point, a survey by the National Association of Realtors no less indicates that only 6% of the buyers cited the tax credit as the primary reason for buying a home.

In my opinion, the recent spurt in buying has been driven by low rates and cheap prices. Two pretty good reasons for people to buy. But here’s the kicker. Most of the activity has been at the low end fueled by investors and first time buyers. Two thin markets and nothing upon which a boom is going to be built.

I’ll throw in one more thing that’s driving this market. Irresponsible lending. Yup, the same thing that fueled the last spurt. At least this time it appears as if some of the buyers might recognize that this road leads to lots of grief. Don’t buy the argument. Check out this and this. At least FHA appears to be running out of wiggle room fast so the bailout shouldn’t be too drastic.

Put that together with the employment figures and it’s really hard to see how this little spurt is anything more than a blip. My guess is that aside from the investors it’s comprised of a group of people that were shut out by higher prices and jumped into the market at an opportune time but their numbers are limited.

I wouldn’t be at all surprised to see a lot of the recent investors throwing their purchases back on the market as rental rates have plummeted and the cash flow assumptions they used to justify their investments probably aren’t panning out. Prices for the low end have come back a bit and taking a little profit right now might look very enticing. Add the growing number of delinquent borrowers and it’s not hard to postulate growing inventories of for sale properties and lengthening sales periods.

There is nothing fundamentally healthy about what happened this summer with housing. It was driven by some one-off government policies, bad lending and some limited pent up demand. I won’t say that the builders are the brightest bulbs on the porch but even they can read signs if they’re printed in big block letters and those signs don’t signal any sort of sustainable rebound.

More Info: A good Wall Street Journal article on a Double Dip in housing.