Monday, January 28, 2013

Housing Boom or Crawl?

The latest news from the entire media source is touting a boom in the housing industry. The truth is the numbers are so small I tend to call it more of a long, hard crawl out of the deep hole we’re in. I especially say this since I believe the misrepresentation causes rippling effects over the economy in a false manner.

To be truthful, this alleged turning point in the housing market can very quickly fizzle to a new low. Any business venturing into such sticky waters may find itself short on its expectations. The expected revenues, the costs of doing business, the cost of acquiring customers could be a gamble that might not pay off.


However, some indicators are up, including data for housing starts and permits as well as the NAHB/Wells Fargo Index of traffic of prospective home buyers, which has made a spectacular rebound since last spring.

Unfortunately, it is difficult to pin down because nothing drastically different has occurred in the economy from March until September. I for one, have a serious time believing the unemployment rate, for example, dropped to 7.8 percent from 8.2 percent. Yet, 24 million workers are still out of work?

I believe we have a short run of optimism playing out here. Something that could fizzle, if one economic element shows its dirty face and spoils the party. I would not bet the farm on any significant recovery lasting a long period of time.

Take a look at the facts. The mortgage market is being dominated by the government. This can’t be good because they really have no reason to be in the mortgage market. Between Fannie Mae, Freddie Mac and the FHA, they are holding 90% of the market in loans. That just doesn’t make me sleep better at night.

The FHA is also in a bind facing a $16.3 billion shortfall, and the only way out is to look to us the taxpayer. Unfortunately, the FHA can’t foreclose on a property and turn around a doomed note, maybe even leasing it back to the defaulted owner. They have rules they have to follow.

The truth is, they are holding approximately 734,290 seriously delinquent loans in the FHA portfolio alone. Next year, they expect to dump up 50,000 of these bad loans to private lenders. The question is, and then what, we bail them out with taxpayer funds also? It seems like a cat chasing its tail.

I wouldn’t be so naive as to think that the worst is behind us. It appears that Americans are more likely to rent rather than to own. According to the Census Bureau, the home ownership rate has been falling from 69.0 percent in the third quarter of 2006 to 65.6 percent in the third quarter of 2012. This is validated by the strong numbers in mufti-family units’ construction and the availability of single-family homes at discounted prices scooped up by investors for renter units.

The other storm cloud hovering over the entire economic growth is what remains to happen in the other aspects of our economy. The ridiculous spending in Washington, the lack of job creation, tax increases, the Middle East and of course, the problems in Europe, all playing a possible spot as a spoiler for the economy.

With all this uncertainty floating in the air, I would be cautious with making any speculative moves. Play it close to the vest until we can see a brighter future on the horizon. Meanwhile, keep your expenses down, pay off old debt, and be careful what work at what price you take on.

Sorry, I can’t offer a clearer picture full of rosy news. I don’t see it, and I think misleading anyone is the wrong thing to do. Until things get better, this will be a long, slow crawl out of a very deep hole.