When you live in Florida you learn things.
Much like understanding that when Congressmen get to Washington they can no longer do simple math, in Florida we know that when tourists get to our sunny state they can no longer function well in society.
They seem genuinely surprised when a cashier at the grocery store presents them with a bill… they have to dig for their wallets as if they thought the goods were going to be free. Then they go on to explain they are from another state, where I guess grocery stores don’t charge for things.
When it comes to driving, tourists seem to go at about half the posted rate of speed, particularly over bridges. I have no idea why this is the case, I just know that it is.
In addition, I know that many tourists also lose their ability to make rational clothing choices. How else can you explain beer hats – hard hats that hold cans of beer and have two-foot straws for drinking – and t-shirts that read, “I’m with stupid”? I’m pretty sure that anyone wearing such a shirt is not only proclaiming their friend’s lack of intelligence, but also their own.
I might hate most of this kitschy-wear, but it was one of these shirts that came to mind when I read about the much vaunted recovery in housing…
The classic tourist shirt reads, “My grandparents went to (fill in the blank) and all I got was this lousy t-shirt.” The wearer of the shirt wanted – and expected – so much more! Maybe a light up pencil, or a flamingo yard ornament… now that would have been cool. Instead, he or she simply got a shirt.
If only we were so lucky.
The Fed has spent trillions of dollars to create a recovery inhousing, hoping to goose the economy through spending and employment along the way. Recently we’ve been inundated with the news that housing is indeed bouncing back, solidly moving higher and clearly on its way to the moon!
The report that seems to have so many people excited is the new home sales report, which showed sales in January to be at an annualized rate of 437,000 units, which is far above the recent low of about 300,000 units, but still over 60% off the peak.
However it’s not the distance from here to the old top that catches my attention. It’s the “at an annualized rate” part of the description. In reality, only 31,000 new homes were sold in January. If this number is multiplied by 12 we would produce an estimate of 372,000 homes, which would be the “annualized rate” from January. However the U.S. government seasonally adjusts this number to account for the typical trend this time of year.
We know how seasonal adjustments typically pan out…
They are the same things that led the government to tell us gasoline was 0.3% cheaper in January when in reality prices were 3% higher!
So to see if the government’s estimate of a blistering housing recovery is correct, I looked at other things that should be rising at the same time.
In terms of employment, our economy lost over two million jobs in construction from the top of the market to the bottom. So far, we have only recovered about 200,000 of those jobs, or 10%.
As for GDP, private residential construction adjusted for inflation fell by more than $580 billion, or about 55%, from the top of the market in 2006 to the bottom in 2011. Since that time we have added back roughly $66 billion, or about 11%, of what we lost. That’s not much of a recovery.
Even on the private side, where there is much fanfare about the housing recovery, some of the numbers need closer inspection. Pulte Homes reported a $206 million profit in 2012, which is good, considering the company lost $2.3 billion in 2007. This pales in comparison to the company’s gain of $1.4 billion in 2005.
All of this brings me back to the notion that the discussion about a resurging housing industry in the U.S. seems a bit premature. I know the Fed has spent $2 trillion in order to push housing higher. I know the Fed has held interest rates to historic lows to keep mortgages cheap. I know the federal government keeps handing out cash through government-guaranteed loan programs to give people an even easier path to borrowing.
But so far, the numbers that matter – employment and GDP contribution – just don’t add up to much.
And it gets worse…
The Fed’s efforts have been fueled through the printing of money, which lowers our standard of living. It’s also been fueled by their ability to keep interest rates artificially low, which removes our ability to earn any return after inflation without risking the equity markets.
To top it all off, 90% of all new home loans originated today are backed by taxpayers through FNMA, FHLMC, FHA, or the VA, with the FHA and VA programs requiring small down payments. So any new round of foreclosures or write offs from another down draft in housing will fall squarely on us as taxpayers.
It’s like the Fed went on a binge (holiday) to push this industry higher, and we didn’t even get a lousy t-shirt. In fact we got no gift at all.
It’s not very satisfying.
P.S. We think the reality facing the real estate market is roughly another 30% drop. Once that happens, then we’ll believe any signs of a recovery because, at that point, the housing bubble has erased itself completely. We’re covering this issue in the April issue of Boom & Bust, which is due out soon. In it, we not only break open the ugly reality of this market, we find real opportunities for you. To make sure you don’t miss this issue, click here now.
Ahead of the Curve with Adam O’Dell
Get ready to pay more at the pump.
Gas prices look to be turning higher after a brief pullback in the uptrend that began last summer.
We’re heading into the summer driving season and that means higher gas prices. Multiple historical studies, including my own, show that gasoline has a seasonal tendency to rise between February and May.