ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

The Next US Housing Crisis

Updated on September 11, 2012

A Confusing Picture From Fannie Mae

Home Price Optimism
Home Price Optimism
Individual Financial Position Optimism
Individual Financial Position Optimism
Economic Background Pessimism
Economic Background Pessimism
Sellers' Market But Sellers Are Creeping Back
Sellers' Market But Sellers Are Creeping Back

Signs of Optimism

The Fannie Mae National Housing Survey for August 2012, showed optimism on the part of those consumers surveyed. Although slightly off their peaks, expectations for elevated and rising prices were higher than those for falling prices.Consumer expectations about their economic situation continued to hold up.

The optimism on housing was not reflected in optimism about the economy however. In fact,opinions that the economy was on the "wrong track" were higher than those for the "right track". Optimism over economic improvement seemed to be increasing in the first half of the year, but this evaporated over the summer.

In August, consumers started to get a little more negative; and started to increase the "better time to sell" attitude. This may be a signal that the bubble is deflating again.

It is hard to generalize from this survey, however it seems that even though some consumers are turning sellers of housing and are pessimistic about the economic future, they still believe that house prices will rise.

Given that the housing sector is such an important barometer of the US economy, how can there be such a divergence in opinion and expectations?

There are some technical factors in the housing market that are creating a rising price environment. Rising prices therefore beget rising price expectations, even though the consumer is fundamentally negative on the economy.

Falling Delinquencies and Flat Forelcosures Support Home Prices
Falling Delinquencies and Flat Forelcosures Support Home Prices | Source

Technical Factors Supporting Home Prices

The first technical factor supporting house prices is the decline in mortgage delinquencies. As delinquencies fall, the necessity to liquidate and sell falls. This observation also supports Fannie Mae's findings that consumers were currently confident about their financial health. In the future however, if Fannie Mae's consumers' expectations of the economy are correct, then things will get worse.

The second technical factor supporting house prices is the foreclosure rate. Banks have stopped foreclosing and some have even begun to modify loans. The tsunami of foreclosed properties has thus been arrested.

These technical factors have given banks the confidence to hold out for higher prices; and to keep homes on their asset books at higher mark to market values than they were in 2008. In addition, the whole pyramid of mortgage backed securities, is supported by the higher values of the underlying homes.There are powerful financial incentives to hold inventory off the market.

Going forward, these technical factors may not hold.

Liquid Financial Investors Become Illiquid Property Developers
Liquid Financial Investors Become Illiquid Property Developers | Source
Boston Fed Sees Benefits of Faster Foreclosures
Boston Fed Sees Benefits of Faster Foreclosures | Source

Fundamental Catalysts For The Next Leg Down In Housing

Vulture investors, who were hoping to exploit foreclosures and distressed sellers; have been frustrated by the lack of housing inventory available for purchase. Rather than chase the offer side of the market higher, they have decided to become developers. There is considerable private capital on the sidelines, that was earmarked for property investment. Warren Buffett remarked that it was the best investment opportunity currently available in America. This wall of money will now find its way into property development; and will start to show up as supply in the next eighteen months to two years. No doubt before then, banks sitting on foreclosed properties will elect to head for the exit; causing the fall in the prices which were the profit signals for the developers to initiate construction in the first place.

There is also tangible evidence that the Federal Reserve itself will trigger the next leg down. The Boston Fed released a paper which opined the economic benefits of expunging all the housing debt and attendant oversupply. The vast amounts of liquidity that the Fed has put into the banking system, were intended as a cushion to the impact of this liquidation phase on the banks. The Fed also anticipated the playing out of this phase in its communications to extend the Extended Period of low interest rates out to 2015. This scenario also seems to play well with the Fed's objective of breaking the banks up into smaller entities that are no longer too big to fail.

When the banks see the developers coming to market and join the dots with what the Fed has communicated, they will then liquidate; and the next leg downwards in home prices will begin.

Comments

    0 of 8192 characters used
    Post Comment

    • KeySignals profile imageAUTHOR

      Crowdsourcerer 

      5 years ago from Dubai

      I am trying to stick to fundamentals these days; after the Fed started to extend the cycle in unconventional ways.

    • Doodlehead profile image

      Doodlehead 

      5 years ago from Northern California

      Yeah; and I just completed a survey elsewhere in which they asked why investors were not out there buying more.

      Are you in the Elliott Wave camp?

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)