‘Capital Insights’ with Jack Kern: Will Housing Sink or Sail for Obamania?

“The only function of economic forecasting is to make astrology look respectable”– John Kenneth Galbraith, (1908-2006) Noted historian, economist and commentator. Presidents rise and fall with their public’s perception of economic progress. With the advent of personal computers, spreadsheet software and a few hours of instruction, the motivated executive can now construct

“The only function of economic forecasting is to make astrology look respectable”–
John Kenneth Galbraith, (1908-2006) Noted historian, economist and commentator.

Presidents rise and fall with their public’s perception of economic progress. With the advent of personal computers, spreadsheet software and a few hours of instruction, the motivated executive can now construct a financial model and forecast that will ultimately provide the answer they need, with little regard for pesky things, like rules of logic, facts and an economic history that simultaneously flies in the face of reality while making the author of the worksheet look like a genius.
 
“Wow, nice worksheet,” I’ve heard people explain, “and you made good use of pivot tables and lookups too!”

Probably the only command lacking in Microsoft Excel is the Bozo quotient. If you could take a worksheet and put in the Bozo quotient or BQ as the cognoscenti call it, you’d get a more reasoned result. It might mean a big clown face pops up and a voice says, in Italian, “lei è idiota” you’re an idiot, (because it always sounds better if you insult people in Italian) but at least you’d be saved from yourself.

Such is the nature of housing economics. Between the wide ranging forecasts from the National Association of Realtors, “It’s always a good time to buy a home,” to the National Apartment Association, “Only a moron would buy a home,” (I have a t-shirt that says that) and everything in between, the forecasts don’t always provide a factual basis or interpretation. We of the rental brethren need to understand the housing situation to help figure out how to price our communities and determine what choices today’s renters face. Since a lot of new data just came out, let me lay it out for you:

Existing home sales fell 3% in March to a 4.8 million unit seasonally adjusted annual rate, effectively balancing out the almost 5% gain in home sales in February. (Now, for one thing, I do find it funny to call them existing homes, as opposed to what? Existential homes or psychic cottages?)

At the current slow pace of sales, it would take about 10 months for the entire inventory to be absorbed, and we’re still adding huge numbers of foreclosures and other homes to the mix.

Now to add some order and interest to this, let’s look at an ordinary situation and a typical purchaser across the U.S., meaning we’re going to ignore multimillionaire owners and bottom feeding investors.

The FHFA home price index rose about .7% month-to-month in February, after posting a 1% gain in January. This means that home prices are only down, net about 6.5% on a year-over-year basis. This is a complete, but welcome contradiction over other indices. The FHFA numbers are for conforming mortgages only and because of our old friend seasonality and some reduced unit sales volumes, the trend is positive and more representative of typical buyers than not.

It goes with my assertion to you that the recession, having been stalled in a trough for most of the past year, is now lessened in severity, and these more typical indictors are going to show strength in markets once again.

Until then, put away the worksheets and fancy forecasts and just see if the average Joe and Jane you know are starting to spend money again, because if they are, the end of this recession can’t be too far off.

(Jack Kern is the managing director of Kern Investment Research and can be reached at JKern@KernIRC.com. If you’d like a t-shirt that says, “Only a moron would buy a home” or “Solo un idiota comprerebbe una casa,” please let him know and he’ll see about getting a bulk deal for multifamily owners.)