What to Make of Housing Data :: The Construction Management Pro

What to Make of Housing Data

What should the layman and real estate investors in particular think is going on in the housing sector and what does it mean to us, given the conflicting economic news? Is there any consistency in these reports, any shred of truth to be gleaned?

CNN reports that “Permits for housing construction soared in December, while initial construction of homes declined, the government reported Wednesday.  “Last month didn’t look so hot for construction, but the future looks a lot better,” said Mike Larson, a housing industry analyst for Weiss Research.   The number of permits for future housing construction surged to a seasonally adjusted annual rate of 635,000 last month, up 16.7% from the revised rate of 544,000 in November, the Commerce Department said. That was the biggest monthly rise since June 2008 and leaves the total number of permits at the highest level since last March, said Larson.”

Reuters reports “Applications for U.S. home mortgages increased last week as interest rates dipped to their lowest in a month, an industry group said on Wednesday.  The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity rose 5 percent in the week ended January 14.  Fixed 30-year mortgage rates averaged 4.77 percent in the week, down 1 basis point from 4.78 percent the prior week. The rate is down from 4.93 percent at the end of December.”

Reuters also reports “Payrolls will grow in almost all U.S. metropolitan areas this year, but the gains will be slight, according to a forecast from IHS Global Insight, Inc. released by the U.S. Conference of Mayors on Wednesday. The report found that 88 percent of the country’s metropolitan areas, 319 in total, will see employment growth this year, and in 2012 all metro areas will see some job gains. But in 150 metro areas, employment will increase by less than 1 percent. By the end of 2011, 156 metropolitan areas will have unemployment rates of 9 percent or higher, while 30 areas will have unemployment rates of 6 percent or below”

The National Association of Home Builders report that “Housing will see gradual improvements in activity this year as the nation’s economy and job market continue to move to higher ground, establishing momentum that will produce more considerable gains in 2012, according to economists who appeared at the NAHB International Builders’ Show in Orlando on Jan. 12.”

And finally CNBC.com reports “In an encouraging round of earnings reports, major banks say fewer mortgages are going bad, credit card defaults are down and more people are paying the bills on time. One of the nation’s largest consumer lenders, Wells Fargo, said Wednesday that 29 percent fewer loans went bad in the last three months of 2010 than the year before. And late payments on loans considered likely to default declined for the first time since 2008. Late payments on credit cards issued by Bank of America, JPMorgan Chase and Citigroup also improved at a record pace at the end of last year, according to an analysis by Barclays Capital.”

Yet the Times headline is “The bleakest year in the foreclosure crisis has only just begun.” They continue withLenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and industry experts say more people will miss payments because of job losses and also loans that exceed the value of the homes they are living in. “

So what are we to think? If I had the answers, I would be living in Tahiti, drinking mojitos now. But here is my take.

You have to separate new construction data from existing home data. New homes sales and starts are driven by homebuilders. Their bench mark is the ability of the market to buy new homes, usually in the move up and high end market. This has a direct impact on the health and recovery of the housing construction industry. Very important yes, but that is more job related than housing related. Can our economy recover without a recovery in construction jobs is a valid question, one for another blog post.

Existing home sales in my opinion is a better gauge of the quality of the housing sector. It incorporates the entire spectrum of housing prices, from first time home buyer homes to the move ups, to McMansions. It reflects what willing and able buyers are prepared to pay for products that are on the market today. It also reflects anticipation of home values in the near term and their ability to pay. By this I mean, do households looking to purchase a home believe they can get a better deal if they wait a month or two. Now this is a function of employment expectations, home prices and mortgage interest rates.

Generally, employment data is telling us the worst is over. Companies are no longer shedding jobs. An uptick in mortgage rates means that it is better to buy now rather than wait. The only open question for those looking to buy a home is the anticipation of housing value. This is where the media does the housing sector and the economic recovery a disservice. Bad news is always more interesting to report than good news. We all know the adage, “If it bleeds, it leads.” Constantly reporting the take of the doom and gloomers reinforces any uncertainty consumers have. The purchase incentive must out way the resistance created by the naysayers. As an investor, this tells us that our products must be the best available at that price point in the market place, bar none. Oh – yes, at TCAI, that is our mission statement.

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