HOUSING IS BOUNCING ALONG THE BOTTOM OF AN ABYSS / BARRON´S MAGAZINE ( A MUST READ )

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Up and Down Wall Street
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WEDNESDAY, APRIL 18, 2012
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Housing Is Bouncing Along the Bottom of an Abyss
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By RANDALL W. FORSYTH
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The Beatles were prescient about today's U.S. housing market: It's getting better because it can't get no worse.

"I have to admit it's getting better, getting better all the time," the Beatles sang on "Sergeant Pepper's Lonely Hearts Club Band" back in the Summer of Love in 1967. "Can't get no worse" was the late John Lennon's under-the-breath rejoinder.



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All of which comes to mind all these many years later when looking at the latest news on the housing sector. Things are getting better in residential real estate, chirps the fact-free business report on drive-time radio. Yet any clear-eyed view of the data shows housing activity bouncing along the bottom of an abyss after the housing bubble burst in 2006 and the market spiraled downward through early 2009. Since then, it couldn't get any worse.





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Housing starts fell 5.8% in March, to a seasonally adjusted annual rate of 654,000 units, the Commerce Department reported Tuesday. It's obvious the unseasonably warm weather in some parts of the nation distorted the data. In the Northeast, seasonally adjusted housing starts were reported to have jumped 33%. The reality is the unseasonably warm weather last month -- in the high 70s in New England, shuttering ski resorts early -- let builders start houses before the equinox.


.The thin reed grabbed by housing bulls was that building permits rose 4.5% in March, which should portend more construction activity in coming months. After all, neither rain nor snow nor sleet nor global warming should deter builders from filing their paperwork, a process as expensive and arduous as what provoked the American colonists to revolt some two-plus centuries ago.



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Permits actually were filed primarily for "multifamily" homes, which translated from the bureaucrat patois means townhouses and apartment buildings. Demand for rental housing is up, whether because folks can't qualify for mortgages or have decided owning a single-family home isn't their American Dream even if they can get financing. Many older baby boomers, who listened to Sergeant Pepper's on vinyl 45 years ago, no doubt are eager to trade their house for an apartment to get rid of the yard work, utility bills and the unemployed slacker kid in the basement.


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Beyond that, Joan McCullough, the astringent analyst at East Shore Partners, posits up another excuse, er, reason for the 21% jump in multifamily building permits in March. It may be that money ladled out under the American Recovery and Reinvestment Act of 2009 -- aka ARRA, the $787 billion stimulus bill -- figures into the story.


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Ringing up the Feds, McCullough finds a lot of "mixed-use" (read apartments upstairs and commercial downstairs) permits, which would fit with the public-private nature of ARRA spending. A local agency puts together senior-citizen or low-income projects and the private builder files the permits.



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March is a popular month for deadlines for public housing authorities and reallocation of ARRA money to various housing agencies. Money for projects that don't make the cut gets transferred to another agency, which quickly gets its project going. It's mostly circumstantial but intriguing nonetheless.


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That may explain the month-to-month squiggles but not the big picture. As John Williams writes on his Shadow Government Statistics (www.shadowstats.com), housing starts saw their 40th straight month of stagnation at historically low levels. Starts remain mired at a 600,000 annual rate on average, less than half the pre-bubble median and a far cry from the two-plus million starts of houses with rotting Chinese drywall slapped together at the height of the bubble in 2006.



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Anybody who cares to chance their money on such abodes can buy them on the cheap with the assistance of free money provided by Ben Bernanke's Federal Reserve. And there are plenty available -- the shadow inventory is estimated at four million units -- especially as big banks clear their backlogs of defaulted homes.



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Seen in this light, it's not surprising that optimism among home builders -- who have to put down money when they start a house -- dipped last month. The National Association of Home Builders' index slipped last month, which suggests things aren't getting better as fast as they thought in February, but a darned sight better than the nadir of last fall.


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Certainly, builders will break ground on some new homes and (more likely) townhouses. After all, you can't move the glut of Las Vegas houses to the pockets of strength. And prospective buyers may prefer new construction to foreclosed houses that were trashed by the former owners on their way out the door.




But the recent action of home-builders' stocks underscored the NAHB index's message that things may not be getting all that much better. Toll Brothers (ticker: TOL), Lennar (LEN), D.R. Horton (DHI) and Beazer Homes (BZH) have all rolled over in the past month after the run-ups since late last year, while KB Home (KBH) is down more than one-third from its peak as is Hovnanian Enterprises (HOV.) Just can't get no worse.