Evidence mounts that US home prices hit bottom last winter

[Beet]

The S&P/Case Shiller composite index gained 0.9 percent in May from April on a seasonally adjusted basis. Meanwhile, 18 of the 20 cities measured by the index recorded gains in May, heaping still more evidence onto the case that U.S. housing prices have bottomed and that a recovery seems to be budding. The year-over-year gap in housing prices continued to shrink: compared to May 2011, prices were just 0.7 percent lower in May 2012.

Nationally, home prices in the 20 cities followed by Case-Shiller peaked in April 2006, and it appears that, on average, they bottomed in January 2012.

In February, the U.S. government announced a $25 billion settlement with five of the nation's largest banks over charges of widespread mortgage fraud. It was billed as the largest-ever deal on such charges. That settlement was expected to potentially help more than 1 million struggling homeowners, and it marked the largest multistate agreement since the nationwide tobacco settlements in 1998. Forty-nine states signed on to the deal with Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and Ally Financial.

Newport also notes four more data points that point to a firm move up and off of the bottom: Housing starts hit a low in the fourth quarter of 2011; residential investment has added to gross domestic product growth for five straight quarters; and the FHFA monthly House Price Index in May was up 3.7 percent from a year earlier, higher than inflation, "which means that real housing wealth, a consumer spending driver, was also up."

http://economywatch.nbcnews.com/_news/2012/07/31/13050420-evidence-mounts-that-home-prices-hit-bottom-last-winter?lite

[Beet]

The housing inventory glut has been eliminated.



The supply of new homes:



'The housing sector fell into decline sooner than the broader economy ahead of the 2007-2009 recession, and it took longer to regain traction. However, our analysis indicates that the excesses of the “housing boom” have been largely eliminated, whereby a lasting recovery can proceed so long as overall economic momentum and income growth are not disrupted in any meaningful way.'

[Beet]

That is very good news -just one problem: we have a higher education bubble that is set to burst.  Who knows what damage it could wreak on our still-weak economy. 

Look, generals are always fighting the last war. After the housing bubble alerted the public to the dangers of bubbles, everyone sees the next bubble just around the corner. That is not necessarily a bad thing, however, the fact is that most bubbles don't develop in the current mentality, where the public is hyper-afraid of bubbles and perceives the economy as struggling. Most bubbles develop during times of great public optimism and enthusiasm, when publics believe they live in a "different" era or a "different" country that has somehow transcended the laws of economics. Hence, the very public awareness of the student loan issue is evidence that it is not a bubble.

The student loan issue, as well as debt held by universities themselves, are a serious problem. I don't want to dismiss it. However, it is not a bubble because it is not defined by irrational exuberance. You don't see people speculating on student loans as if they're the ticket to riches; at best, there is a reluctant calculation that having a college degree is better than not having one.

Also, let us put the problem in perspective:



The dark and light blue is debt tied to housing; that red little sliver is student loans. Even if it is just as bad as housing (which is unlikely) there's really no comparison. More importantly (and I can't beat this horse enough, knowing that it will never reach a broader audience anyway) total debt in the economy is on the decline.

[Beet]

There is more good news on the housing front today. Fannie Mae swung to a $5.1 billion profit in the second quarter and will pay a $2.9 billion dividend to taxpayers, compared to a $2.9 billion loss last year.

Freddie Mac also swung to a $3 billion profit from $2 billion loss last year. It will pay a $1.8 billion dividend to taxpayers.

http://www.nytimes.com/2012/08/09/business/economy/fannie-and-freddie-reports-offer-positive-sign-for-housing.html

My feeling is that these swings to profitability will be durable. Deliquency rates and REO continue to decline. CoreLogic also reported that home prices rose 2.5 percent in June.

[Beet]

There is more good news on the housing front today. Fannie Mae swung to a $5.1 billion profit in the second quarter and will pay a $2.9 billion dividend to taxpayers, compared to a $2.9 billion loss last year.

Freddie Mac also swung to a $3 billion profit from $2 billion loss last year. It will pay a $1.8 billion dividend to taxpayers.

http://www.nytimes.com/2012/08/09/business/economy/fannie-and-freddie-reports-offer-positive-sign-for-housing.html

My feeling is that these swings to profitability will be durable. Deliquency rates and REO continue to decline. CoreLogic also reported that home prices rose 2.5 percent in June.

Apparently the Treasury Department agrees with me.

"The Treasury Department on Friday announced it would rework the terms of its bailout of mortgage giants Fannie Mae and Freddie Mac to make sure taxpayers benefit from any profits.

The renegotiated terms of the four-year-old federal conservatorship require the firms to downsize the number of mortgages they hold on their books by 15 percent annually, up from 10 percent. The accelerated timetable would put such investment portfolios on track to reach the government’s target of $250 billion four years earlier than originally scheduled."

http://www.washingtonpost.com/business/economy/us-to-revamp-fannie-freddie-bailout-terms/2012/08/17/4a2c6a62-e86e-11e1-936a-b801f1abab19_story.html

On NPR they called the Treasury's moves a "new definition of slow." Then what was it before? At the end of 2008/early 2009, Fannie's withdrawals from the Treasury were running at tens of billions per quarter, on losses of about $25 billion per quarter (http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2012/q12012_release.pdf). So this is a significant turnaround in 4 years. After turning around GM, Chrysler, the banks, AIG, the mortgage giants were the last of the failed TBTF institutions that were still making losses as of last year. That is now over.

[Beet]

CoreLogic is now reporting that about 1.3 million homeowners escaped from negative equity in their home in the first half of 2012.

"As of Q2 2012, there were 1.8 million borrowers who were only 5 percent underwater. If home prices continue increasing over the next year, these borrowers could move out of a negative equity position."

Link

[Beet]

New home sales continue to surge. That spike in late 09/early 10 was the home-buyer tax credit.