Housing Smoke and Mirrors (28) – “Making Bricks Without Clay”

Written by , KeySignals.com

Data!Data!Data! I can’t make bricks without clay.”

The pattern of data emerging from the US housing market suggests a weakening in activity and price momentum.

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The FNC Residential Price Index was up 5.3% annually in August; however the 0.6% monthly increase was smaller than in the two previous months[i].

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Advancing into October, the National Association of Home Builders (NAHB) Housing Market Index (HMI) reported a month on month decline[ii].

The hoped for increase of the private sector footprint, to cover the alleged shrinking Federal footprint, also seems to be challenged. The footprints of Kyle Bass, Carlyle Group and BlueMountain Capital were seen rushing to the IPO exit door; with a highly speculative prospectus to sell their NMI private mortgage insurance venture. The “venture” is loss-making and is assumed to be operating in the red for more than a year to come[iii]. The “venture” investors have held their investment for just one year. One may be forgiven for thinking that such behaviour does not resemble investing; and look more like “flipping”. Clearly, after the easy money has been made, the smart money is now looking to transfer risk and take profit.

The mounting evidence is now causing respected commentators to call for a consolidation and even correction in prices.

The most notable commentary came from the Dallas Fed’s Richard Fisher; who actually called the housing market a “bubble[iv]. The Fed is allegedly complicit (again) in the creation of this housing bubble; because it has been forced to remain accommodative whilst the “feckless” policy makers have been restrictive.

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Fannie Mae’s commentary was right on the money in relation to the duration of the “Government Shutdown”. Fannie Mae’s October Economic Forecast[v] called the duration of the Shutdown right; and therefore expects its impact on housing to be small. The bigger headwind comes from the “Taper”, which is due to occur in 2014, followed by tightening in 2015. Fannie Mae sees this interest rate picture causing a fall in refinancing and also reduced stimulus for new purchases. Fannie Mae is also contributing to this restrictive interest rate environment itself. It will be raising lending standards in November; which effectively adds on an additional risk premium to the rising interest rate pattern[vi].

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The Leading Indicator of Remodeling Activity, a forward looking index created by Harvard, also suggests a slowdown in the housing market running from Q1/2014 into Q2[vii].

Housing Smoke and Mirrors (26) “The Plot Thickens” depicted the crime scene; in which the Federal “Acronyms” were moving with alacrity, to occupy the receding GSE housing footprint, before the “Government Shutdown” and/or the “Taper” intervened. Housing Smoke and Mirrors (27) “The Dog that Didn’t Bite!” observed the movements of the “Acronyms” known as HARP and HAMP. The “Acronym” known as HOPE NOW recently informed that its home retention actions now exceed foreclosures by twenty five per cent.

The data shows that policy makers are swiftly making bricks, to keep the momentum building as it starts to slow down.


  1. FNC: House prices increased 5.3% year-over-year in August
  2. NAHB: Builder Confidence declines in October to 55
  3. Bass-Backed NMI IPO Seen Riskier Than Goldman-Soros Rival
  5. Rising Rates and End of QE in 2014
  6. Higher Down-Payment Requirements Coming in November
  7. Home Improvement Spending to Level in mid-2014
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