Future of the Housing Market-Squawk on the Street

This morning "Squawk on the Street" on CNBC had a segment with Stephen Kim, a homebuilder analyst at Alpine Woods Capital Investors. While there a many "lingering problems" with the broader economy, Kim believes we are nearing a "true bottom".

Here is the segment featuring Mark Haines and David Faber from CNBC.



Here is David Faber’s "Faber Report" on mortgage delinquencies referenced in the previous video clip.

Hope for Housing? Nope...not yet.

Today's housing starts number was met with the proper amount of cynicism on Wall Street. Sales are the most meaningful metric. Housing starts, particularly starts related to builder spec activity, are counter-productive to stability in pricing.

CNBC had a discussion about the housing numbers and "hope for housing". I think the assessment that the "usual suspects" are likely to continue dragging down the market is spot on. It gets tiring to repeat the "every market is different" mantra but it is true. Certain areas have not gone into recession, others are on their way back, and others have dark days ahead.

The health of the overall economy, the employment numbers, and sales of existing inventory are the "holy trinity" of housing recovery. Robert Shiller (of Case-Shiller index fame) and Nouriel Roubini (aka Dr. Doom) continue to be the "piss in the punchbowl" for all who are hoping for a return to the party days of 2005.

Here is what CNBC had to say earlier today...

Green Shoots or Green around the Gills?

The stock markets were down over 2% today mostly due to increased pessimism about the near term economic prospects. Many are skeptical about the recent wave of "green shoots" sighted on the economic landscape. Today we had two interesting posts that show just how "murky" this bottom may be.

The first video and posting from "Tech Ticker" at Yahoo finance talks about positive news regarding housing...

Housing Is Recovering, Fast, Jeff Matthews Says
Posted Jun 15, 2009 03:27pm EDT by Aaron Task
Related: DHI, HOV, LEN, PHM, MAS, XHB, CTX

Home prices continue to tumble, and have further to go to get back to pre-bubble levels, according to the bears. Another wave of foreclosure is coming down the pike, especially as another big slug of Alt-A mortgages start resetting to higher rates in 2010 and 2011. Plus, inventories remain elevated and now rising mortgage are putting a crimp in refinancing activity.

But Jeff Matthews, founder of Ram Partners takes a variant view: "What's happening in the real world is this: the housing market is recovering, fast," the fund manager recently wrote on his blog.

Matthews' optimism on housing is based on the following factors, as discussed in the accompanying video:

• The inventory of unsold homes is coming down rapidly from the peak levels of last year. Hovnanian has even sited shortages in some previously saturated markets, Matthews notes.

• Housing affordability has improved dramatically from its all-time low levels in recent years.

• Buyers are emerging and markets are "clearing" in some of the hardest-hit areas, like Phoenix, Sacramento and Las Vegas. Don't dismiss these buyers as mere speculators looking to get back what they lost in 2008, Matthews says.

The current bottoming process may, indeed, prove to be the proverbial eye of the housing hurricane when all is said and done, Matthews says. Still, he believes it's a mistake to dismiss the improvements and says too many observers are busy looking in the rearview mirror vs. focusing on the reality in front of them.

Please note...the first comment on this posting as seen on Tech Ticker's blog was "BULLSHIT"...I guess every green shoot needs a little fertilizer.

The next indicator was the homebuilder sentiment index as posted by AP...I guess the only appropriate comment would be..."No rain, no rainbows"? I think we are still looking at a very unstable bottom.

Homebuilder sentiment index slips 1 pointHomebuilder sentiment index drops by 1 point in June

• Alex Veiga, AP Real Estate Writer
• On Monday June 15, 2009, 1:10 pm EDT

LOS ANGELES (AP) -- The National Association of Home Builders says its housing market index slipped by one point in June, reflecting many builders' uncertainty about when their business prospects might improve.

The Washington-based trade association said Monday the index fell to 15 -- the first decline since January, when the index dropped to an all-time low of 8.
Index readings lower than 50 indicate negative sentiment about the market.
The report reflects a survey of 548 residential developers nationwide, tracking builders' perceptions of market conditions.

The index readings for current sales conditions and traffic by prospective buyers remained unchanged from May. The reading on expectations for sales over the next six months dropped by a point.

It's Murky on the Bottom

With interest rates climbing over the past month, many analysts are concerned that a housing recovery will be delayed. Today we saw a strong sale of 30 year treasury bonds that seemed to offer a hint that perhaps we were seeing a leveling off on mortgage rates. The jobless rate remains the single largest obstacle to recovery in housing and the economy overall.

Here is a discussion from earlier today on CNBC that discusses the foreclosure activity and how interest rates may impact future activity.

What do you expect?

The growing sense of optimism in a housing market "bottom" needs to be balanced with a realization that more challenges are ahead of us. There is a growing fear that the market will see a "glut" of new inventory as we appear to stabilize. Sellers who have been waiting for a "glimmer of hope" will rush to unload...after holding out during the past eighteen months. We have already seen a new wave of foreclosure inventory released into the market. We seem to be stuck at 10 to 12 months of inventory. It will be a necessary but not sufficient condition for "recovery" when we see inventory under six months supply. Inventory levels can drop through sales or through an increased demand.

Jobs will drive a housing recovery. Until we see the unemployment rate start to decline, we are likely going to see additional erosion in home value and housing demand.

Diana Olick at RealtyCheck and CNBC had an interesting perspective on seller expectations. The fact that the buying market seems to be "bottom feeding" on distressed inventory and driving pricing down for "organic" sales...all point to more discomfort for home sales.

Here is Diana Olick talking about falling prices on CNBC Friday...