Monday Morning Cup of Coffee: Will home sales spring up?
5% growth in housing demand but 14% increase in supply
Monday Morning Cup of Coffee takes a look at news across HousingWire's weekend desk, with more coverage to come on bigger issues.
IMN's Mortgage Servicing Rights Conference is getting underway. HousingWire will cover the events through two days of panels. The IMN is hosting the conference as it grows past a $10 trillion market, with an explosion of mortgage-servicing rights puchased by nonbanks.
Home price appreciation saw an unexpected small bump in prices in January, according to CoreLogic’s Case-Shiller home price index, but it looks like it’s going to be slowing through the rest of 2014, according to the latest weekly client report from JPMorgan Chase.
Home price growth in 2013 was the strongest since 2005, up 11.3%. In contrast to weaker housing data in recent months, the CoreLogic index unexpectedly gained 0.9% in January, or up 11.8% from last year.
The 20-City Composite declined 0.1% in December and the FHFA purchase-only index was flat.
Regardless, the analysts expect annual HPA to cool down to 5% in 2014, followed by growth rates of 3.6% in 2015 and 3.5% in 2016.
Increasing pressures on the delicate balance between demand and supply will contribute to a potential slowdown in home price appreciation for 2014. The JPMorgan report to clients says they are expecting a moderate 5% growth in housing demand with rising mortgage rates, but a 14% increase in supply.
Another major supporting factor for home price growth in 2013 was the significant reduction in distressed sales. However, distressed sales should level off this year. Consequently, cash purchases should decline.
Recent housing and economic indicators have been mostly negative. Home sales dropped and may drop further in near term, distressed sales inched up, foreclosure starts thawed, and builders’ confidence plunged, although February’s job numbers picked up.
Most economists agree that without a serious pickup in the rate of job creation, the economic recovery is going to continue to mark time.
To get back to the growth trend from the second half of last year — 200k per month — the next three months have to approach 250,000 consecutively, according to FTN Financial’s weekly report to clients. Monthly growth has only come close to that figure four months since the summer of 2012.
The Fed’s attention, then, is likely to turn from the theory of winter-weather-adjusting the data to watching for the expected rebound to actually occur.
“While common sense suggests good weather will cancel out bad weather this spring, the recovery hasn’t dealt well with “headwinds” from any source. Business investment, hiring, and wage growth can lag even as the economy starts to catch up. An economy knocked back this far by a harsh winter may not be as strong as it appeared last November. Employers could hang back waiting for recovery confirmation until April or early May. When waiting for “tailwinds” to start blowing again, the time can actually be filled by yet another headwind to growth. That has been the distressing pattern for too long,” the report says.
Most notably, the FTN analysts say, optimistic projections based on data from the end of 2013 need to be revised downward.
“Most, if not all, economic data from October and November last year pointed toward a sudden acceleration that could provide momentum toward 3.5% GDP growth in the first half of this year. Subsequent revisions suggest the optimism was premature,” the report states. “But at the time, the outlook was colored by the possibility that momentum could accelerate the Fed’s forecast of a pending return of inflation. If that were the case, then the solution would be higher real interest rates to slow interest-sensitive parts of the economy.”
In lieu of blaming the recent winter deluge for 100% of the weakness reported so far this year, FTN’s analysis lists these other factors as viable and, indeed, likely explanations for a major part of the slowdown:
· The surge in spending and production in October and November threw off a false impression of the growth rate that would carry forward. Automobile sales are the best example of a trend that would be hard to sustain in good winter weather.
· Inventory gains that drove a faster recovery in the second half of last year were too big even relative to the best monthly consumption rate in the fall. A correction shouldn’t have been a surprise and was a key part of FTN’s econ forecast for 1Q ’14 in early December.
· Greater out-of-pocket costs for heating and healthcare deductibles hit household pocketbooks, with both being a surprise development.
· Estimated tax payments likewise caught many upscale wage earners with an unexpected hit in January.
· A better global economic path was supposed to calm international disruptions. Instead, emerging market countries are still smarting from a multi-year slowdown in demand from developing countries. Tensions remain elevated.
· Confidence in China’s growth model under its still new leadership has fallen back in the last three months, partly due to questions about real estate, defaults on private loans, and currency fluctuations.
Seven million. Seven and six zeroes. That’s how many homeowners have experienced foreclosure since the housing market peaked in 2006. Dr. HousingBubble ran the numbers and has some worrisome thoughts on the impact, and what’s happened since with the flood of investors snapping up these distressed and delinquent properties.
"In total, 7 million Americans have been served with the bitter taste of foreclosure. On the flipside, since we know that roughly 30% of all purchases have gone to investors and Wall Street, we can say that probably over this same period 2,000,000 homes are now in the hands of some sort of investors (i.e., big money, small money, foreign money, and second homes). You also have to wonder how many of these people that lost their homes in foreclosure are itching to get back on the horse and buy again. Credit standards are fairly tough for getting a loan today even though rates are low. And those with the credit and income are battling it out in flippervilles where “all cash” is dominating the scene."
The Federal Deposit Insurance Corp. did not close any banks this weekend.