Marc Hanson: “Everything Has Changed In Housing”
The last time we presented the work of noted housing expert, and skeptic, Mark Hanson, we laid out why a mere 1% increase in mortgage rates “would change everything.”
His December report piggybacked on a prior analysis, which showed that for all talk of housing affordability, the reality is that in the current environment, “houses have never been more expensive to buyers who need a mortgage.”
So, several months later, where are we now? According to Hanson’s latest report released earlier today, instead of taking a narrow analytic approach, the housing expert looks at things from a broader perspective, and finds that “Everything has changed in housing.”
Here are the details:
From Mark Hanson: Everything Has Changed in Housing
I have no way of disproving the obvious, prevailing dream that the following housing market conditions are bullish for high-frequency housing data and sector earnings this year:
- surging rates, historically low affordability;
- historically high house prices with “homeownership” near 50-year lows;
- middle-to-higher end market dislocations in core markets across the nation;
- “mismatched” core markets leading to weak pricing power, and mark-downs into spring/summer when comps are the steepest since 2006;
- massive unorthodox investor and speculator demand — over 35% of all purchases — fully supporting the entire US housing market;
- fundamental, end-user, shelter-buyer demand and affordability historically abysmal and detached from present housing market conditions;
- builder new home sales at early to mid-1990s levels after seven years of ZIRP and trillions aimed directly at housing;
- a glut of multi-family apartments and condos on, and coming to, market over the next two years;
- a few massively outperforming regions, loaded with rehabs and flips, artificially skewing national house price indices higher;
- waning foreign safety-deposit box demand;
- immigration uncertainty, especially in the H1B and EB5, tech and real estate heavy, respectively, segments;
- and the tallest sales and price comp hurdles since 2006 hit this spring and summer;
But, I am confident in my data and models that aim to a sudden inflection point, soon, when high-frequency releases such as existing home sales and prices, builder new home sales and prices, pending sales, et al will hit a year-over-year comp wall, which will lead to a string of headline declines through year-end.
On the other hand, perhaps, in the age of Trump, headline data and earnings don’t matter as much as they have in the past.
Then again, based on the fact that “nirvana” for builder new home sales, for example, was called in 2013 and in 2016 builders only sold about 550k houses — levels of the early to mid-1990s — the market was whistling past the graveyard then, too.
Remember, a “house price recovery” and fundamental, “housing market recovery” are two completely different things.
Even after seven years of ZIRP and trillions of government debt and Fed money printing aimed largely at US housing, there is little evidence that a fundamental, end-user, shelter-buyer instigated, “housing market recovery” has occurred.
And with investor/speculator demand at an historical 37% of all transactions and clearly supporting the entire US housing market (vs 10% to 15% traditionally) it leaves the sector completely vulnerable to a sudden reattachment to the weak fundamental, end-user, shelter-buyer cohort; just like from 2007 to 2009, when all the exotic financing and unorthodox demand went away as quickly as it came.
Bottom Line: House demand & price conditions and sector earnings being reported now from activity in Q4’16 — when rates that ranged from historical lows to cycle highs — are not indicative of conditions post-rate-surge, or the remainder of 2017.
Everything has changed. And the housing market will always and forever be drawn to fundamental, end-user, economics and demand, regardless of how diverged it gets during extraordinary economic, credit, or monetary policy cycles, such as Bubble 1.0 and now.