For the U.S. housing market, it's deja vu all over againTopic: Real Estate news
Let me begin by clarifying that, when it comes to speculating in the housing market, I have no dog in the fight; Having recently completed my third home purchase in 10 years, I have sworn off this costly and largely anticlimactic practice forevermore.
That said, I am of the opinion that everyone and their mother should be extra cautious when dabbling in real estate these days. Look around, and it's clear we've been here before. And the results weren't pretty the first time.
For starters, the market is clearly kicking into a higher gear. Yes, the U.S. housing sector has been hacking up a lung, ala Breaking Bad's Walt White, for the better part of six years, with many communities still reporting rising foreclosures and tumbling prices through the end of the third quarter. But hidden beneath this stubborn and ominous cloud are a handful of silver linings that have steadily brightened over the past 18 months.
One might even go so far as to call this trend the early stages of, dare I say, a modest housing bubble. It's a bubble that is unlikely to inflate to the levels last seen in 2005 and 2006, but one that is still fully capable of sucking the life out of the party, so to speak, once it pops.
For one, rents are strong and continue to climb, giving investors a solid reason to get off the sidelines. Second, home prices are well down from their previous-bubble high, offering first-time buyers a healthy incentive to give it a go. Last, and perhaps most importantly, money is loose; the Federal Reserve has made clear its intention to keep the spigot flowing until the national economy can fend for itself, whatever that means.
The Fed's strategy is fueling the first two factors while also giving a nice goose to home builders. It's a trend that's manifesting in major cities and suburban areas throughout the country.
All of which is combining to inject a small amount of irrationality into the still-fragile housing market. Local neighborhoods such as Brighton, East Cambridge, the Fenway and East Somerville, where college students are a dime a dozen and the housing stock is dominated by multifamily units, all have registered double-digit home value gains in the past year. Similar signs of life abound statewide and especially in Greater Boston, where prices are now at levels last seen before the previous collapse, according to the Case Shiller housing index.
Granted the positive momentum is a welcome sign in light of the market's recent depths. But how sustainable is it, especially in light of the Feds artificial prop and the very real prospect of a double-dip recession?
I say this in light of today's news that the Federal Housing Administration is running out of cash. The agency, which in many ways assumed the role of housing-market backstop in 2009 after Freddie Mac and Fannie Mae went down in flames, is expected to go hat-in-hand to the U.S. Treasury in the next few months for a cash infusion. Why? Because people throughout the U.S. are still struggling to stay current on their mortgages.
According to the FHA, around 10 percent of the $1.1 trillion in home loans it guarantees are delinquent more than 90 days. It's a souring loan pool that increased by 14 percent to 739,000 total delinquent mortgages in the year ended Sept. 30. Ouch.
So to summarize, we have rising home prices being driven by strong demand from investors and first-timers. We have in place a monetary policy that, thanks to the Federal Reserve, is looser than a four-star general's biographer. We have an economy that is one hiccup away from recession. And we have a massive portfolio of government-insured mortgages that is spoiling faster than a box of McDonald's french fries.
Just wondering, but does any of this ring familiar?
Again, my intent is not to offer unsolicited advice on buying or selling a house, or to somehow personally benefit from these musings. My work is done in that department, and I intend to be buried in my current backyard, assuming that's legal. But who in their right mind would argue, as Boston Fed President Eric Rosengren did just a few weeks back at the BBJ's offices, that the current course is a winning formula to get the U.S. economy back on track?
That said, if I may offer some unsolicited advice, it is this: Hunker down. We ain't seen nothing yet.