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Housing Smoke and Mirrors, Part 2

Written by Adam Whitehead, KeySignals.com

In Part 1 [i], it was concluded that the US Housing Market has a pattern of improving short term delinquency fundamentals; but also that there is a latent slower deteriorating trend that will converge upon the short term trend between now and 2016. This was summarised in the statement that:

“The housing market is therefore the hostage of economic growth and not the signal of economic growth.”

The latest data from the February Fannie Mae National Housing Survey[ii], is an opportunity to look at the latest dynamics of these two trends.

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The Consumer is now a firm believer in the rally in Home Prices. The short term improving trend is strong.

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The Consumer however remains pessimistic about the overall economy and also their personal finances.

A disconnect is opening up between the housing market price dynamics and underlying economic fundamentals.

Further distressing news also came from the January LPS Mortgage Monitor[i].

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There has been a switch and a rise in Judicial Foreclosure Starts across States. This rise in Foreclosure Starts has not yet translated into Foreclosure Sales, so an overhang is building. This overhang implies a significant rise in exiting home inventory; that will challenge the increases in home prices. So far the banks have held this inventory back, but it is there on paper and also in bricks and mortar.

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The survey also confirms the thesis in Part 1, which states that there is a dangerous legacy of delinquent home loan vintages from the Bubble Years that remains alongside the improving delinquency pattern of home loans originated during the recovery. It also confirms that home loans originated earlier than the Bubble Years i.e. pre-2004, are running at elevated risk levels.

The information confirms the statement that:

“The housing market is therefore the hostage of economic growth and not the signal of economic growth.”

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[1] http://econintersect.com/wordpress/?p=33745
[2] http://www.mortgagenewsdaily.com/03072013_national_housing_survey.asp
[3] http://www.lpsvcs.com/LPSCorporateInformation/CommunicationCenter/DataReports/Pages/Mortgage-Monitor.aspx

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