The same factors that allowed me to be a successful stock-picker have played true in making me a prescient economic forecaster on occasion. However, at the time of my selections, and my forecasts, I always face turbulent waters driven by the tide of embedded norms. Just as I led in the forecasting of the housing and financial sector downturns, I am once again driving into the tide with my forecasts for housing growth and homebuilder share appreciation. The tide though, is from the herd, not professional economists, who are mostly on board for real estate growth this year.
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.
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Double Dipping Home Prices Not Inconsistent with Our Housing Growth Forecast
While most economic gurus of popular press and television fame, status gained by playing to the crowd, are now announcing the double-dipping of housing, I must focus your attention to the more capital pertinent information for security market investors. That’s because, while falling home prices continue to threaten investors in real estate, though only for a short time longer in my estimation (barring catastrophe), the turn in the housing market from consolidation to growth should offer opportunity for investors in the shares of nimble publicly traded homebuilders.
So yes, no surprise, the double-dip in home prices I’ve been forecasting for over a year now has come to fruition; though I have not been talking about it daily lately, since its arrival has been obvious for months. Rather, I’ve been looking forward to what everyone will be talking about next month, housing market growth. Still I’ll review the facts for those of you who have not seen the data or read any of the fluffy reporting of it yet, or heard any of the loudly spoken sensationalism around it on the TV.
Professors Case and Shiller, in conjunction with Standard & Poor’s, reported on home prices this week. The S&P Case Shiller Home Price Index for March marked a new recession level low, effectively recording a double-dip in housing prices. For the first quarter, housing prices fell 5.1% against the prior year, taking prices back to their mid-2002 levels. 12 of 20 Metropolitan Statistical Areas (MSA) hit new lows in March, and 18 were down from February.
I suppose it gets difficult forecasting real estate growth when just last week the Pending Home Sales Index was reported down dramatically in April. The measure of contract signings fell 11.6%, to a mark of 81.9. Considering that this was a month-to-month decrease, we cannot blame the prior year tax credit deadline, which did in fact drive a burst of activity last year. The First-Time Homebuyer Tax Credit deadline was certainly a factor behind the 26.5% drop-off from last year’s April peak in the Pending Home Sales Index.
That said, I agree with Lawrence Yun, the Chief Economist of the National Association of Realtors (NAR), who reasons that the month-over-month decline may be due to temporary factors. He and I have both spoken of the monkey wrench that unexpected Middle Eastern unrest has thrown into the vulnerable engine of our nascent economic recovery. Libya has played an important role in the run-up of gasoline prices, which in turn has destroyed consumer confidence and appears to have finally impacted consumer spending.
While the commodity price surge also has secular drivers, the wettest April in 20 years was extraordinary. Home shopping is not often done online, so the weather matters. Potential home buyers like to walk through a home before signing a contract, and the rainiest April in memory could go a long way toward keeping people from accomplishing that.
What was most curious though was that mortgage activity has been on the rise, and mortgages tied to home purchases rose to their peak in April, which is inconsistent with the Pending Home Sales report. But the Pending Home Sales Index is based on a small sample size, and so is more likely to produce an error than actual mortgage applications. Yun also talks about rising rents, and their impact on home ownership, but I think he’s reaching at that point.
The fact is that housing market growth from these low levels is no great feat. The bar is set low, and with the last synthetic barrier now behind us in data recording (2010 tax credit), housing should grow with ease. What stands as obstacle to housing growth is not the great shadow inventory or the still flush foreclosure flood, but the real threat to the vulnerable economy in its entirety. What we’ve seen this week in consumer confidence and manufacturing metrics worries me more than the factors that have taken home pricing to their deepest. Should gasoline pricing not revert, and energy, fuel, production and delivery costs weigh heavily for too long, then the long awaited turn in the real estate market might be pushed out; but worse than that, the economy would face recession again. But real estate growth cannot be pushed out too far, barring catastrophic event, given the depths it has fallen to, population growth, economic growth and American ambition.
Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).
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