11/19/09 Stockholm, Sweden – October housing starts fell almost 11 percent. Mortgage applications have collapsed to a record 12-year low. Foreclosures are increasing the stock of homes to be sold at a pace of 300,000 per month. Unemployment at 10.2 percent is not supporting home purchases, especially when rents are also decreasing. What’s left?
Well, the government is trying to help… which is usually a bad sign. The Federal Housing Administration right now has an insurance reserve ratio of just 0.53 percent. Robert Toll of home builder Toll Brothers recently referred to the FHA as a “definite train wreck.”
The government is also supporting the housing market with the $8,000 first-time homebuyer tax credit. It’s been expanded to include previous homeowners and extended until March. Unfortunately, it’s an even bigger fiasco than Cash for Clunkers. Most homebuyers using the credit would have needed to purchase a home anyway, so each additional house sold through the program may just be costing the government about $43,000.
There are very few bright spots in housing, which Barron’s describes as getting a “disastrous batch of data”. The article also goes on to say…
“Even with housing affordability the highest in years from low mortgage rates and reduced home prices, there’s little reason to expect a revival in homebuilding as long as the inventory of unsold houses and foreclosures remain high, credit is tight and unemployment is in double digits.
“Perhaps that’s why the shares of the big public homebuilders, as represented by the SPDR S&P Homebuilders exchange-traded fund (XHB), topped out two months ago and have been moving sideways to lower since. That says more than economists’ misguided forecasts of rising housing starts.”
For more information on the real estate sector see the full coverage in this Barron’s article on how the housing recovery is built on sand.
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I was under the impression that the FED is buying up 1.8 Trillion worth of mortgages. Now the way I see it that is giving 1.8 Trillion to the housing sector. After all nobody would make these loans if the FED was not doing it. Further more, the banks are the one who are really benefiting from this since they are getting to liquidate their holdings. But ultimately the US Treasury benefits by the banks taking the money and buying bonds and T-Bills.
As a builder I will attest that I’ve never seen such a dearth of potentially profitable construction opportunities. I’ve built in some of the most depressed areas in the country and could always find a niche of profitability. Not now not anywhere.
Burning through my hard earned savings is unsustainable with no end in sight. And I know I’m in some of the best position in my field. Scary stuff. I should be in the cat bird’s seat as construction usually slows as interest rates raise enabling me to weather the storm earning interest. Not this time, thank you Ben Bernanke. We are on a death spiral ending with either default(highly unlikely) or hyperinflation (highly likely). I’m hunkering down for the fallout.