Home Price Data Reinforces Main Street Confidence
This morning's Case-Shiller HPI reading for October showed further acceleration. On a year-over-year basis, home prices rose by 4.3% in October, up from a 3.0% YoY increase in September. This should come as no surprise as Case-Shiller reflects Corelogic data on a lag, as it is a 3-month rolling average. Nevertheless, the market, media and Main Street continue to ascribe greater significance to this series, which makes it important.
Once of the central tenets of our bullish housing call is that good news in housing feeds on itself. As Main Street hears more and more good news about housing's recovery, that begets greater demand as demand is positively correlated with price. That rising demand, in turn, fuels ongoing price increases in a virtuous loop.
In our recent Black Book "Housing Heading Higher in 2013" we laid out the bull case for housing's recovery being stronger than expected in 2013. This morning's print is another data point in support of our thesis.
Looking at the data on a city-by-city basis, Phoenix and Las Vegas showed the strongest month-over-month improvement, rising 1.4% and 2.8%, respectively. Meanwhile, Boston and Chicago were the laggards. On a year-over-year basis, Phoenix is blowing the rest of the country away, up +21.7% YoY, followed by Detroit +10.0% YoY. Clearly the distressed market has turned from headwind to tailwind. The weakest two markets nationally on a YoY basis are New York and Chicago, both down just over 1%.
It's also worth noting that New York has an enormous weighting in Case-Shiller. New York accounts for 19.4% of the index. Considering NYC is the worst performing market in the country, and accounts for one-fifth of the index, it's a testament to how strong the real estate market throughout the rest of the country is.
Further Government Involvement Is a Positive for Housing
Normally, weekly mortgage application volume data is released on Wednesday morning, but in light of the holiday it seems to be on a delay. We will provide an update once the data hits. That said, we wanted to flag an article in the Wall Street Journal as an interesting read.
The article describes new initiatives by the Obama administration to expand the refinancing programs backed by the government. The idea is to allow non-GSE loans that are underwater to be refinanced, though it's unclear how this would be achieved. One proposal has these loans being transferred to Fannie and Freddie, but there doesn't appear to be any consensus around whether this would also entail putback immunity for the banks underwriting the refi. This would be a major undertaking, however, as it would require a change to Fannie and Freddie's charters, which can only be done by Congress. Another proposal would allow non-GSE borrowers to refinance underwater loans through HAMP. This would be the path of least resistance as it would require no involvement by Congress. Currently, HAMP only allows underwater refis for borrowers at imminent risk of default. The proposal would modify those guidelines to include underwater borrowers not at risk of default.
While it remains to be seen what, if anything will come of this, it seems clear that the two scenarios here are either status quo or further stimulus for housing. As such, the expected outcome is another positive for housing. Our Black Book had flagged further government initiatives as an ongoing catalyst to the strengthening recovery in housing and this article appears to support that conclusion. Here is the link to the article WSJ.
Joshua Steiner, CFA