HOUSING – Which way is up?

As I see it, the news on housing can only get worse from here due to two factors.  First, consumers stop buying new homes and second, the supply of foreclosed homes is so massive that there is an acceleration in the decline of home prices.

 

We learned today that the sales of new homes are showing indications that the housing decline may be near a bottom.  As reported by the Commerce Department new home sales fell 0.6% last month to a seasonally adjusted annual rate of 356,000. Importantly, February was revised up from the originally reported 337,000 to 358,000.  So the last three months were revised higher and the new data point was better than expectations.  Great!

 

More importantly, at the current sales pace, it would take 10.7 months to work through existing inventory versus 11.2 last month and 13 in January.

 

As said yesterday, one nagging concern is the end of the foreclosure moratorium and the implications for the supply of unsold home within the financial system.  Not to be trite, but what you can see is probably not there.  Yes, foreclosures are on the rise, but the supply of foreclosed homes is probably not as bad as the depressionistas want you to believe.  If they can't see it how do they know what the number is?

 

The most important factor in all of this is the consumer and is he/she willing and able to buy a home today?  The data suggest yes!

 

On the issue of affordability we looked at median home prices, mortgage rates, monthly mortgage payment, and median family income.  Given the dramatic decline in both home prices and mortgage rates, affordability is literally at a ~40 year high (most affordable) on this basis. 

 

Obviously, there other variables to incorporate, but the NAR tracks this data back to 1960 using the same methodology, and February, the most recent data point, showed home prices on this basis (price, mortgage rates, and payments as a percentage of median income) to be literally the most affordable since 1971. The reading in February was 173.8, which was based on a median priced home of $164,600, mortgage rate of 5.12%, monthly payment of $717, median family income of $59.7K, and payment as a percent of income of 14.4%. Critically, as the chart below shows, the affordability of homes for first time buyers also reflects this price trend, with more young people positioned to buy as liquidity returns to the system.

 

Market prices don't lie, people do. Mr. Market is telling us that we are right and the US Housing bottom will be in the rear view soon.

 

Howard Penney
Managing Director

 

HOUSING – Which way is up? - housing1


Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more