Residential Write Downs, Starts, Remodels

There have been some interesting buzz regarding the residential real estate market. I want to put some of it into a broader context. Yes, the usual bottom callers are out yet again, unrepentant and shameless after getting it wrong for 5 consecutive years.

Residential Write Downs: This is resurfacing for the umpteenth time. Today’s version came from HUD secretary Shaun Donovan (via Reuters). A rumored settlement involving $20-25 billion dollars in relief to distressed homeowners from banks involved with robosigning (BAC, WFC, C, JPM, ALLY etc.). The settlement might kick a $20,000 reduction for one million borrowers who are underwater. Those of you who bought a house you could afford and stayed current in your payments do not qualify. And, this settlement does nothing about the rampant fraud and destruction of property rights the banks engaged in.

New Home Starts: Total housing starts fell 4.1% in December to an annual rate of 657,000, reflecting a 20.4% decline in construction of multi-family units and a 4.4% increase in single-family starts. Multi-family units has been the one bright spot for builders in a strong rental market. Despite this, 2011 had a record low number of total completions for both single family and total housing units.

Perhaps the warmer than usual weather helped Single-family starts post a 10.2% increase year-to-year. The chart below puts that number into context: The blue line is single family homes, still 75% below the 2005-06 peak and well below prior 40 year lows.


click for larger chart

Courtesy of Calculated Risk


Remodeling Moves Higher: “People are remodeling instead of moving” said David Crowe, chief economist of the painfully obvious at the National Association of Home Builders. The key to this are the huge number of current homeowners who either are unable to sell their currents homes, or if they do, no longer will qualify for a new mortgage, or lack a 15-25% down payment for another purchase in order to move.

During Q3 2011, homeowners took out $5.3 billion in home equity/refinancing. That has been driving some of these renovations. Note that this is more than 90% below the credit bubble peak of $83.7 billion (Q2 2006).

click for larger chart



The bottom line remains: Housing is a dark spot in the economy, and the regular bottom calling we hear is best ignored. One day, housing will once again begin contributing to US economy, but until we see higher Employment and greater household formation, that time is off in the future.

We get Existing Home Sales at 10:00 am.


One million homeowners may get mortgage writedowns: U.S.
Margaret Chadbourn and Aruna Viswanatha
Reuters, Jan 18, 2012

Homeowners Stop Waiting to Spruce Up
WSJ, JANUARY 20, 2012

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