Breaking the Surface?

July 12th, 2012 at 3:48 pm

Those who hang around these here parts know that I maintain a solidly realistic view of the current economy, both here and abroad.  So if I post something upbeat, let’s be clear: I don’t think we’re out of the woods, I’m not anywhere near satisfied with the pace of job growth, GDP growth, wage and income growth, etc.

But I have noted some signs that the housing market just might be carving out a bottom.  And that said, I’ve also noted that any improvement in prices will help ameliorate one of our serious outstanding problems: negative equity in your home.  So, it was with great interest that I read this today, from CoreLogic:

Together, negative equity and near-negative equity mortgages accounted for 28.5 percent of all residential properties with a mortgage nationwide in the first quarter, down from 30.1 percent in Q4 2011. More than 700,000 households regained a positive equity position in the Q1 2012. Nationally, negative equity decreased from $742 billion in Q4 2011 to $691 billion in the first quarter, a fall of $51 billion in large part due to an improvement in house price levels. [my bold]

If you mine these data, you know that it takes more than a quarter to establish a positive trend–in fact, the first three quarters of 2010 saw a declining trend in the share of underwater mortgages, before it spiked up again in early 2011.  But FWIW, and I’ll forgive you if your response to that is “not much,” most analysts agree with me that there may be something a bit more lasting to this.  Keep watching the data, but keep your powder dry too.

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10 comments in reply to "Breaking the Surface?"

  1. Logan Mohtashami says:


    Here is a more realistic mid year outlook on housing without the NAR spin. Thesis on housing has been simple

    1. We simply don’t have enough qualified home buyers ( excluding cash buyers) even with mortgages rates this low for 4 years now. Mortgages rates are 1% lower from last year but purchase apps are down.

    2. Market is always hiding the real weakness in excess inventory, because foreclosures just takes too look to… 300-1000 days for foreclosures isn’t a efficent way of unloading the excess inventory created by the massive housing debt bubble.

  2. Logan Mohtashami says:

    Also, to mention that the lack of inventory is a horrible sign.

    Core Logic and Zillow have 2 wide ranges Zillow has almost 16 million home underwater which is 1.2 Trillion worth. So take your pick 11 million or 16 million 800 billion or 1.2 trillion. Both numbers have sellers sitting on the sideline for a long time.

    People were bragging about how the market is back to 2005 because inventory levels and we see bidding wars.

    This is market isn’t anything like it was back in 2005.

    Exisiting Home sales were running at 6.8-7.2 million with rates 2% higher

    We are running at 4.55 million

    New Home Sales were 1.2 -1.4 Million

    We are running 369,000 … take a 49 year average of new home sales and that number would be a 671,000 … so we are 54% below the 49 year average with mortgage rates this low.

  3. Nhon Tran says:

    Thank you.
    I refer to “FWIW” in your penultimate sentence. My response is: “Something’s happening here. What it is ain’t exactly clear.” Regards.

  4. Michael says:

    This is adorable. No, there is no bottom, because people who don’t have jobs can’t buy houses, and every year gets a little worse in terms of people actually getting jobs.

  5. Fred Donaldson says:

    Between 1929 and 1933 about a third of American farms were lost by their owners, but for others, foreclosure meant riches, as they bought properties cheaply, rented, held, often sold later – just as today’s homes are becoming someone else’s riches – because prices dropped after a credit default swap fiasco.

    In the past three years I have heard comments by the rentier class that home ownership was too high in America. “Not everyone can afford a home,” they said. “More people should be renting,” they added. And that’s what’s happening, satisfying the owners and investors.

    Owning a home gives a person some independence, just as running your own business takes you from the yoke of an employer. While the “free market” folks preach such “free enterprise”, their definition of free is often: free for them to do whatever they want to make a buck.

    Government and big business focus on saving and enhancing existing business with special tax rates, favors, what some call corporate welfare. Instead, the case must be made for more competition by reducing the barriers starting a new business and encouraging private ownership by individuals of such things as homes.

    When I see proposals to eliminate the home mortgage tax deduction, I cringe at the impact, and wonder why these same “reformers” would continue to allow the renting class that same exemption, as though the investor’s investment deserved breaks, but not the poor average family with the same property?

    • Nhon Tran says:

      Thank you. I refer to your final para. In my view, there is a material difference here. Rent income (net) from property investment is included in taxable income of the investor, but no imputed rent is calculated and included in taxable income of the owner-occupier. So in that way home ownership is advantaged relative to property investment.
      So if (a very big “if”)a govt wants to pursue income tax neutrality b/w property investment and home ownership, it ought to introduce rent imputation or remove the home mortgage deduction.

      • Fred Donaldson says:

        The landlord also depreciates the value of the property, reducing taxes, as well as expenses repairs, etc.

        The concept of equating rent received from a tenant and suggesting that we should consider residing in our own home an “income” event is odd if you consider that we should by the same logic consider driving our car income at some level, since it replaces taking a taxi without paying a fare.

        Does having your own well on your property mean that you receive income from the well? Is the flower in your own yard floral income?

    • Logan Mohtashami says:

      I am 100% in support of the Simpson Bowles MID reduction.

      As someone is the financial residential business I have no problem with the Mortgage Interest deduction going away in it’s current form and being reduced from $1,000,0000 to $500,0000 and taken away from Home Equity lines and 2nd Homes also.

      This will not affect the poor or average families at all.

      • Fred Donaldson says:

        “The mortgage interest deduction would be repealed and replaced with a 15 percent refundable tax credit,” according to the Tax Policy Center of Brookings Institution explanation of the commission’s two chairmen’s report.

        That means that unless middle class income tax rates do not exceed 15%, there would be no change. However, that is not the case today and unlikely in the future. Anyone in a higher than 15% bracket would pay more under this change.

        The SB proposals are often touted to “broaden the base” which means in elite speak – more taxation for the sub-rich.