More About Housing On The Way Down

Implications: The lending picture in the home loan industry is not great.  Defaults are rising and the next sub-prime pools will include tougher underwriting and higher rates.  Volume is down in the purchase market and refinances are more difficult to accomplish.

Analysis:

New home construction and the resale market are way off with affordability the key issue.  There is some evidence that wages are starting to rise – at least in the past twelve months.  I don’t see another relief here unless there is some sea change in building standards reducing costs substantially.  I don’t see evidence.

A few contrarians are rising.  We wrote about EMAAR, the Dubai company, buying John Laing Homes in California with the intent of being the largest private homebuilder in the U.S.  Now the article tells us that Bill Gates has invested in seven publicly traded U.S. homebuilders.  I believe there is considerable interest among investors seeking an opportunity to invest here alongside these two, but timing is the issue and I think we're yet not at the bottom.

The Republicans are in trouble which may mean that the country will undergo changes which will elevate wages for the declining middle class and restore previous activity to the housing markets at today’s prices.  I’m not ready to make that change in outlook yet.  We’ve got some income equality work to do to redistribute wealth down to the lower 95 – percent of the population, that is.  If that sounds like a Democrat in the 1920’s, so be it.

I think the homebuilding business is starting to look more and more like the auto business.  Way too much capacity is in place in the public capital markets and there will be a further retreat among the 100 largest.  I’m supported by the expectation that the housing industries will lose 25,000 jobs monthly in the coming calendar year.