Counterparties: How far can homes run?

May 22, 2013

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America got more great news on housing today. In April, existing home sales — which exclude newly built homes — hit their highest level in more than three years.

We’ve heard the larger story of America’s housing recovery before, on splashy magazine covers, from the Fed minutes, and consistently from the folks at Case-Shiller. Beyond the headline figures, there are other bits of good news for housing:

  • Homes are selling faster: Homes are now sitting on the market for a median of 46 days. That’s down from a median of 83 days last year, the National Association of Realtors said.
  • Fewer struggling homeowners: From March to April, mortgage delinquency rates hit their lowest level since July 2008, according to Lender Processing Services. On top of that, the total share of loans in foreclosure fell to 3.2% in April from 4.2% a year previously. “Just 15 months ago, distressed sales accounted for 35% of all existing home sales,” says Capital Economics’ Paul Dingle. In April, that number, which comprises foreclosures and short sales, had fallen to 18%.
  • People are buying home construction goods: Matt Phillips noticed some good news in Home Depot’s earnings earlier this week. The company’s sales to professional contractors eclipsed sales to consumers in the first quarter for the first time since the crisis. These sales, Phillips says, are even more sensitive to the housing recovery than a typical consumer splurging on, say, a power drill.
  • Homebuilders are sitting pretty: Toll Brothers reported that orders for new homes hit their highest quarterly level in seven years; profit was up 46%. All homebuilders are seeing their margins increase, a UBS analyst told Reuters.
  • People are planning to build things: Last week, we had some worrying signs with housing starts (the industry term for new construction). But the key to housing’s future, Nick Timiraos writes, is new building permits, which hit their highest level in five years in April.
  • Investors aren’t leaving the market anytime soon: This week, Waypoint announced that it would become the fifth landlord of single-family rental homes to file for an IPO in the last year. Investors purchased 20% of existing homes sold in April, roughly flat over the same period last year. All-cash deals are still making up about a third of these sales.

That certainly sounds like a full recovery. Cardiff Garcia explains why all this hasn’t lead to a “tipping-point burst” of economic activity:

There has been a permanent shift lower in the homeownership rate: those who have switched to renting (voluntarily or not) won’t revert back, and new households formed by young people will also be in multi-family (apartment) buildings rather than in single-family homes. Relatedly, much of the housing rebound has been driven by investors who buy the homes to rent out. But the construction and maintenance of rentals and multi-family buildings has a smaller effect on the rest of the local economy.

Nick Timiraos, too, looking at a new report from Pimco, runs down four reasons why the recovery isn’t doing more to boost the economy. One of those factors, Pimco writes, is that lenders simply don’t want to loosen lending standards. “The transmission mechanism between home prices and spending depends on lending growth, which is likely to stay low for some time,” the analysts write. — Ryan McCarthy

On today’s links:

Sony may actually be considering Daniel Loeb’s spin-off plan – Reuters
Broker pitchbooks are exactly as sleazy as you expect them to be – BuzzFeed

Tax Arcana
Apple isn’t the only one using effective tax avoidance strategies – Bloomberg
“It’s as if Apple checked a box to elect out of worldwide taxation…” – Floyd Norris

The Fed
Bernanke: easing will continue “in the medium term and beyond” – Federal Reserve
The full Fed Minutes – Federal Reserve

How Jamie Dimon beat back a shareholder challenge to his power – DealBook
“JPMorgan shareholders fond of this Dimon guy, would like to see more of him” Matt Levine

A 500 word re-write of a competitor’s article “is un-necessary and a total waste of time” – Anthony De Rosa
Everyone secretly hates “Snow Fall” – Choire Sicha

New Normal
While life may feel more fluid, “America appears to be getting stuck in place” – Bloomberg

It’s Academic
Slick presentations make you overestimate how much you’ve learned – Priceonomics

There is a “disturbing cultishness to the Bitcoin community… everyone is as bullish as can be” – The Verge

EU Mess
Italy considers job sharing between older and younger workers – WSJ

Why the structure of electric utilities is broken – Grist

And, of course, there are many more links at Counterparties.



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