DAVID ROSENBERG: The Housing Recovery Is Doubtful, And Even If It Is Real It Won't Help The Economy

david rosenberg

People are increasingly willing to say that the U.S. housing market has bottomed.  And many also argue that it is a key driver of strength in the U.S. economy.

However, there are also plenty of economists that remain sceptical.

One such economist is Gluskin Sheff’s David Rosenberg.

Rosenberg acknowledges that the housing data has turned up significantly. But he notes that most of those metrics have cracks.

And even if the bottom is indeed in place, there are “powerful offsets to the ballyhooed real estate revival,” he writes.

What follows are Rosenberg’s comments and criticisms of the recent housing market data.

NOTE: Thanks to Gluskin Sheff for helping us with this feature.

Recent new home sales data was good, but it's also volatile and inconsistent

'And we did get another positive data-point in the housing market as new home sales came in stronger than expected at 372k in July, compared to the 365k estimated by the consensus and up 3.6% from June's 359k (revised up from the initially reported 350k). To put it into perspective, the increase in July just recouped the same size of loss (after revision) in June. Regionally, activity was rather mixed:

  • The Northeast +13k, partly reversing the 21k decline in June
  • The Midwest +4k, up the same amount for two months
  • The South -3k, down three of the past four months
  • The West -1k, down two of the past three months

New homes available for sale edged down by 1k to 142k in July, the lowest level it has been on record. At the current sales pace, it will take a mere 4.6 months to clear the inventory backlog -- the lowest since October 2005, down from 4.8 months in June.'

Source: Gluskin Sheff, August 24, 2012

The low end is driving new home sales, but prices in those markets are down

'Be that as it may, it is the low end of the market that is driving sales as the median price fell 2.1% mum in July, down now in four of the past five months. Year-over-year, the median price is also down 2.5% and has been in negative terrain for two months in a row. In the meantime, the average price slipped 1.4% sequentially, having fallen for three months in a row, and declined 2.6% on a YoY basis.'

Source: Gluskin Sheff, August 24, 2012

Housing starts are up, but in perspective they're extremely low

'I won't quibble with the view that housing is recovering. But as the charts below reveal, when you look at starts and sales from a big picture standpoint, this recovery is very feeble. And the S&P homebuilding stocks are trading where they were in October 2007 when housing starts were 1.3 million units (SAAR) and May 2003 when starts were 1.75 million -- versus the sub-750K they sit at today.'

Source: Gluskin Sheff, September 17, 2012

New home sales are also extremely low

'But manufacturing is being squeezed by the spreading European recession, governments are cutting back, real incomes are contracting in the consumer sector and business inventories are no longer that tight. These are powerful offsets to the ballyhooed real estate revival. The overall economy revived, albeit modestly, without housing over the past three years, and don't think for a second that it cannot shift into reverse even with this sector (2% of GDP) stabilizing.'

Source: Gluskin Sheff, September 17, 2012

Admittedly, all of the figures from the latest NAHB Homebuilder Confidence Index was good...

All three sub-indices made headway this month. The current sales component went up to 42 from 38, the highest level since July 2006. Sales expectations shot up to 51 from 43, also the highest since July 2006. The buyer traffic subindex inched up to 31 from 30, the best showing since May 2006.

Homebuilders became more sanguine about the housing recovery in every part of the country as all four key geographical areas posted nice gains. The Northeast increased to 40 in September from 37. The Midwest climbed to 45 from 41. The South rose to 39 from 35. The West jumped to 45 from 40.'

Source: Gluskin Sheff, September 19, 2012

However, the warning from the NAHB's top economist is very worrisome

'On the surface, it's hard to find a blemish in this report, but if there is any, it is that the index is still creeping its way back to the 50-mark -- a point that indicates no more negative views on housing than positive. Moreover, before you pop the cork and celebrate, beware of some lingering and new concerns as
well over the housing markets, which NAHB Chief Economist David Crowe summed up aptly:

However, against the improving demand for new homes, concerns are now rising about the lack of building lots in certain markets and the rising cost of building materials. Given the fragile nature of the housing and economic recovery, these are significant red flags.

Source: Gluskin Sheff, September 19, 2012

BOTTOM: Even if the housing recovery is real, it won't be good enough to help the economy.

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