Own to Rent

Said a real estate vulture from Texas,
Buying properties out of his Lexus:
"Though it hardly may seem
The American Dream,
It's a help in reducing the excess."

Over at The Wall Street Journal, Dawn Wotapka and her colleagues on the real estate beat had a busy Wednesday, as they dug into the implications of strong increases in both new- and existing-home sales in the USA. New homes are now selling at an annualized rate of 343,000, 9.9% higher than a year ago. It's "another sign that the long-beleaguered housing market is in recovery mode," and suggests that "the industry's improvements are widespread." Existing home sales increased 3.4% in April, to an annual rate of 4.62 million, and the median home price has risen 10.1% in the last year, to $177,000. It almost goes without saying that sales volumes and prices are far lower than in the pre-crisis times.

Meanwhile, the Journal's Real Time Economics blog shows the cloud behind the silver lining: "Investors have accounted for about 20% of existing-home sales over the past few years. Speculators are taking advantage of falling home prices and low borrowing rates, as well as the shift from owning to renting. With demand for rental properties rising, landlord incomes increased 15% in the year ended in the first quarter." If losing your home and renting a new one is The New American Dream (as Dr. Goose put it), then investors have been quick to turn the dream into a reality.

Which Recovery Matters Most?

When the market was all of a-tatter,
To revive was a serious matter
In housing and jobs,
With the preference, obvs,
For the former ahead of the latter.

Q: If initial jobless claims fall less than expected, and the EU's economic sentiment indicator falls more than expected, how does the Dow react?
A: It jumps up by 100 points, provided that existing home sales rise more than expected.
The National Association of Realtors said on Thursday that its seasonally adjusted index for pending sales of existing homes jumped 4.1% from the previous month, vs. the 1.3% increase expected by economists. On the strength of this news, and against the headwinds from the US hiring slowdown and the European malaise, the Dow Jones Industrial index rose 114 points, or 0.9%, to reach 13,205. Investors evidently believe that the first sign of a US recovery will be in the housing market, whence all of our financial crisis troubles have come.

Washington Doesn't Get the Housing Bust

The index of US home prices
Shows no end to the real estate crisis
Ev'rywhere but DC;
Counter-cyclically,
There the job market more than suffices.  

The S&P Case-Shiller Index of existing home prices showed continuing weakness in the residential market in January. Year over year, prices fell by an average of 3.1%, in every metropolitan area except Washington DC. There, a combination of a crowded housing market and a resilient job picture for politicians, bureaucrats, military and lobbyists contributed to a 3.6% annual increase.  San Diego was essentially unchanged at +0.1%, no doubt demonstrating the calming effects of warm Pacific breezes.

Time to Buy a Home?

A house on the market, priced rightly,
Will sell at a pace that is sprightly,
So a backlog that grows
Leads one to suppose
That homes are expensive, if slightly.  

The Commerce Department announced that new home sales fell to 250,000 in February, the lowest number on record.  Moreover, the supply of homes on the market has increased from 7.4 to 8.9 months of sales.  These among other factors prompted investment strategist Barry Ritholtz to ask: "Should You Buy a Home?"  Based on a comparison of home prices and home-owning costs to 1) personal income, 2) renting and 3) US GDP, Mr. Ritholtz concludes that the residential real estate market, though fallen from great heights, is still a bit pricey.

Existing Home Sales Report

Though recov'ry was said to depend on
The sales of old homes that banks lend on,
They collapsed in a rout
When the tax break ran out,
And revealed an Achilleus tendon.