Salient to Investors:

Mark Hanson at Hanson Advisers, who predicted the 2007 housing crash, said:

  • Housing prices will decline 20 percent in housing prices in the next 12 months due to rising interest rates and less speculative private-equity buyers.
  • Half of the gains since the bottom in 2011 could be erased in the hot areas of Florida, California, Nevada, Arizona and Georgia.
  • A reporting lag makes existing-home sales numbers deeply misleading as they are calculated 30 to 60 days after sales contracts are signed.
  • 58 percent of existing-home sales in 2013 have been made by all-cash investors purchasing large swaths of distressed properties to lease to renters. Private-equity firms caused 50 percent of the price appreciation in cities like Phoenix and Las Vegas, and generally overpaid by 10 percent to 20 percent. With gains of over 35 percent since the crash for properties in Las Vegas, Phoenix and other of the hardest-hit regions, these vultures will begin to lose interest and look for better opportunities in Treasury and high-yield bonds because as house prices rise the yield from renting declines.
  • New-home sales are a better indicator of the health of the housing market than existing-home sales because they are reported as soon as sales contracts are signed, and 85 percent of sales are to traditional buyers with mortgages. New-home sales fell 27.4 percent in July and the only other drop of that size was when the home-buyer tax credit expired in May of 2010.” The number of new homes being sold is at recession levels.
  • Apples-to-apples comparisons of affordability for pre- and post-crisis periods are problematic. While home prices were higher and 30-yr mortgage rates were typically above 6 percent prior to the 2008 crash, when houses were more affordable because of zero-interest teaser loan rates and ARMs with lower rates than today’s fixed ones.
  • He incorrectly turned bearish in 2012 due to not realizing the extent of the private-equity and all-cash buying that is propping up the market.

Stan Humphries at Zillow also see signs of froth but says the mild drop in August existing home sales despite a surge in 30-yr mortgage rates showed there was still buying in the face of rising rates. Humphries said in markets such as Phoenix it costs only 13 percent of the average family’s household income to cover its 30-yr monthly mortgage payments despite the rate increase, versus 20 percent of income before the housing bubble.

John Burns at John Burns Real Estate Consulting said Hanson has zero credibility, and says a 20 percent decline would require a massive US recession.

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