I have posted a couple of times about the so-called housing recovery, and Mr. Rosenberg performs some excellent analysis showing that the recovery is illusory. He uses a few charts to show what is transpiring in the housing market right now.
- In the first chart, note how the number of homes with negative equity, aka upside-down homes, has been steadily rising over the past year. Since people with negative equity will have to come up with additional money to sell their homes, these homes are not coming on to the market constraining supply.
- The second chart shows us that a decreasing supply is exactly what is happening.
- Chart three shows us that we required almost 7.5mm annual sales of existing home to achieve satisfactory economic growth in 2005. We have been hanging around 4.5mm annual sales since around 2007. This is one of the reasons we cannot start growing again, but how are we going to get these sales up? The market is currently dysfunctioning, because there is a shadow supply of homes in the foreclosure process and of upside-down homeowners constraining supply.
- Foreclosures have dropped precipitously from their highs in 2010. The improving economy is not a reason for such a large decline; rather, borrowers have got savvier at forestalling the process through court. Lenders have also slowed down the pace after embarrassing revelations of robo-signing among other abuses. More foreclosures would actually increase supply, decrease prices and create more activity.
- The last chart shows that prices have been stagnant for several years now.