Really real estate

April 28, 2014

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The housing market over the last year has been tough. According to the National Realtors Association’s March report, pending home sales are down 7.9% year-over-year. However there are some signs of improvement. March pending sales were up 3.4% month-over-month for the first time since last summer.

Now that we’re at the end of the refi boom and institutional investors are slowing theirreal estate purchases, the current numbers may actually show the “real real-estate market”, Shari Olefson tells the WSJ. The next wave, she says, will be “boomerang buyers” who lost their homes during the crash and are finally returning to homeownership (after helping keep rents high during the recovery).

But it’s not totally clear yet that those boomerang buyers are coming back as fast as investors are leaving — mortgage demand is at a 14-year low. It’s also not clear that those buyers will be able to get a mortgage if they want one: Stephen Gandel writes that JP Morgan Chase has been losing about $1500 on every loan it makes lately, thanks to rising interest rates.

Despite weak data, Bill McBride likes where things are going. The current situation reminds him of 1994-95, when homes sales growth was flat and mortgage rates had just gone up, but the demographics supported a jump in new home buyers (all three of which he believes are true now). Sure enough, after several years of flat growth, new home sales grew by more than 20% in 1997. After hovering in the 300,000-400,000 range for the last year, he expects sales to double to 750,000-800,000 per month over the next several years.

Sonu Sam Varghese of Convex Capital Management isn’t as bullish. He calculates a 10-city index that “tells us how the average housing indicator is growing, relative to its growth over the previous three years”. The last two months look bad: more than a standard deviation below mean growth rates over the last three years.

The greater question is whether home sales growth, when it comes, will actually help boost the economy. Atif Mian and Amir Sufi write that “the days when housing was the predominant force driving economic activity are gone”. The two ways that housing drives the economy, they write, are greater spending via refinancing — mostly among lower income households — and construction spending. Both are significantly below where they were during the boom in 2005-2006 and don’t look to be recovering. —Shane Ferro

On to today’s links:

Just An FYI
Brooklyn: A national leader in physical therapy-related Medicare fraud – NYT

“We haven’t increased fixed investment”: why the recovery hasn’t felt like one – Conor Sen

BofA messes up some Merrill-related math, has to suspend its capital plans – Federal Reserve

New Normal
“The conditions that these guys work under is like sharecropping”: Trucking as a middle class job is over – Lydia DePillis

If the Rich Man’s Bubble is popping, it almost doesn’t matter – Josh Brown

The death spiral is a myth used to keep pay high – Robert Pickering (former head of Cazenove)

Plausible Theories
5 reasons Americans might be taking fewer economic risks – Noah Smith

“America is a place where luxuries are cheap and necessities costly” – WaPo

How to write your own Piketty review, in 10 easy steps – WaPo

“There are things that you can’t do in charts” – Jim Tankersley

It’s Academic
“Learning from samples of one or fewer: Experiencing more aspects of experience” –James March, Lee Sproull, Michal Tamuz

Drawing policy lessons from most-emailed blog posts – Paul Krugman

New Normal
Pimco conveniently phasing out phrase co-created with you know who – Dealbreaker

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