Can Housing Be Fixed Without Jobs?

An end to the first time home-buyer tax credit could result in a decline in the housing market, experts warn. However, can we expect a sustainable recovery in housing by using temporary measures rather than creating more jobs? See the following post from Expected Returns.

From Bloomberg, U.S. Economy: New home sales drop as end of tax credit looms:

Sales of new U.S. homes unexpectedly fell in September as the end of a tax credit for first-time homebuyers approached, highlighting the importance of government aid to the emerging economic recovery.

Purchases dropped 3.6 percent to a 402,000 annual pace that was lower than the most pessimistic economist’s, according to Commerce Department figures issued today in Washington. Other data showed orders fo climbed 1 percent in September, the fourth gain in the last six months.

The drop in sales “does raise some questions about where the housing market is going to be in six months, arguably without any more support,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “Whatever you think about the economy, it’s not going to be a straight line” toward recovery.

Are people still calling a bottom to this market? This is a sneak peek of what is going to happen once the government removes props from housing. Housing sales are still down year over year, and we're supposed to be in recovery mode. The ultimate driver of housing will be jobs, which we're still shedding, and lower housing prices, which the government won't allow to happen.

Tax Credits + MBS Purchases

“Much of the strength in the economy is due to temporary factors such as fiscal stimulus initiatives like the home- buyers credit,” said Dana Saporta, an economist at Stone & McCarthy Research in Skillman, New Jersey.

Fed policy makers meeting next week are likely to repeat their commitment to keeping interest rates low for an “extended period.” The Fed last month decided to slow purchases of $1.25 trillion in mortgage-backed securities while extending the end-date of the program by three months, to March 31.

Fed policy makers are obviously pushing on a string here when it comes to housing. Low interest rates are immaterial when banks refuse to refinance and people are unemployed. It won't be pretty for housing when there are no more buyers of mortgage-related debt, and foreclosures and distressed sales really start to hit the market.

This post has been republished from Moses Kim's blog, Expected Returns.

Why Fundamentals Of The Housing Market Are Ridiculously Strong

Dr. Steve Sjuggerud from Daily Wealth points out some keen insights about the fundamentals of the current housing market. He suggests that supply hasn't been this low is a long time, and yet housing is very affordable. These are some of the reasons that real estate could be one of the best places to put your money right now. Continue reading to learn more.

$800,000.

That's about what the median home in San Francisco sold for at the height of the boom three years ago. Then the bust came, and prices fell 45%, according to the Case-Shiller home price index.

But a funny thing has been happening lately... something people haven't really noticed...

Home prices in San Francisco actually bottomed in March. According to the Case-Shiller Index, they've been up every month since... up nearly 4% in the latest month.

On my side of the country in Florida, the same thing is happening. Again, people are almost refusing to notice... But for 11 consecutive months, home sales in Florida have INCREASED over the same period last year.

Meanwhile, homes in Florida are now ridiculously affordable.

The median home price in Florida is now $147,600. That's a mortgage payment of about $650 a month (at current mortgage rates with 20% down). The median household income in Florida is about $50,000, roughly $4,000 a month before tax. That's about 16% of your household income – way below any rules of thumb about how much to put toward a house.

From coast to coast, housing affordability is better than it's ever been, getting a big boost from two things: the housing bust and super-low mortgage interest rates. The pile of government incentives has helped, too.

As an investor, I'm seeing what I love... It's an ideal situation that's rare, but incredibly important if you can recognize it. It's when people's emotional opinions are clearly at odds with the reality of the numbers.

The numbers for housing are really great right now. But after three years of losses, people are sour on housing. Perfect!

Three years ago, we had the opposite situation... The numbers for housing were terrible. Housing was completely unaffordable, and builders were building at a frantic rate. But people were incredibly enthusiastic.

Today, the value is there. What will cause prices to climb again? When the supply of homes available for sale shrinks. It's Economics 101. And guess what? We're there...

Right now, fewer homes are available for sale than at any time in the last 40 years (adjusting the supply for the growth in the U.S. population). If I hadn't crunched the numbers myself, I wouldn't believe it. Take a look:

Economics 101: When the Supply Is Low, Prices Go Up



Even better, when you do the simplest, dumbest comparison – the price of homes versus the supply of homes – you get exactly what you'd expect: When the supply of homes gets low, home prices rise.

David Dreman agrees... In 1980, he literally wrote the book. It's called Contrarian Investment Strategies. In it, he recommended going heavily into stocks. In the current issue of Forbes magazine, Dreman recommends U.S. residential real estate:

If inflation hits hard, the chief culprit of the bear market – real estate – is likely to be one of the best investments in the years ahead. Buy a home if you don't already have one or a second home if you can afford one.

Time to buy a house. (Or two!)

This post has been republished from Daily Wealth, a contrarian investment analysis and advice site.