May 27, 2013….
The March, 2013 Case/Shiller Home Price report was just released, showing a nationwide price gain of 10.9%, the largest annual gain in 7 years.
Let’s not beat a dead horse, but the RayMaxTeam is not at all surprised by the data and has been pointing out the likelihood of much higher prices month-after-month for quite some time. Case/Shiller is in many cases understating the strength of the market, and that continues to be the case. It is good to see much of Wall Street and the housing advocacy groups finally getting on board that this turnaround is real; however, what comes next could very well eclipse previous gains.
Many cities with the most devastated pricing during the housing meltdown are the ones rebounding the strongest, according to Case/Shiller. As talk in Northern Virginia about “shadow inventory”, “can you find me good foreclosures” and the like has been reduced to a meek whisper, large chunks of potential short sales and foreclosures are no longer “under water” nationwide. This trend will continue, is a boon to banks and is creating major speculation among investors that a hidden profit giant has awakened which many had left for dead: Fannie Mae.
I would not be surprised to see FNMA privatized and sold off, a la General Motors, within the next two years. They have an infrastructure which cannot be duplicated, a near monopoly position on the market, and are generating record profits as it operates under conservatorship. Logic tells you that Wall Street and its many operators will be looking at the biggest IPO in history, and that the political winds would favor severing Government liability, if possible, while selling an asset which could put a huge dent in deficit reduction with one fell swoop. I realize that the thought of this happening is beyond the realm of many people’s imagination, but so was the collapse of 2008. By the way, FNMA stock, trading on the OTC “pink sheets”, is now at $3.70 on May 27, 2013, up from 25 cents just a few moths ago. Trading volume is massive. Somebody is betting on positive action being taken here.
As for the housing prices, we are currently in a “melt up” in most communities in Northern Virginia. Listings remain low, the number of buyers seeking housing remains high. Rather than a “shadow inventory,” there is what I term “shadow demand” from the many buyers who are having difficulty working through the tight lending credit maze. Should steps be taken to loosen up the credit reins a bit (I believe that is coming), the number of potential buyers will increase, putting further upward pressure on housing prices.
Employment in our area remains strong. Interest rates are still absurdly low, although Fed signals that maybe they have done enough already sent rates up a bit last week. I believe this talk will only exacerbate the upward pressure, as many buyers realize the positive impact low rates are having on affordability, and seek to get in now, before both prices and interest rates rise further.
The above is leading to a price “melt up”, the mirror image of events four to five years ago.
Ray Wedell, CFA