Claims of a housing recovery and price bottoming have been greatly exaggerated, according to Radar Logic’s May 2012 RPX Monthly Housing Market Report.

Michael Feder, Radar Logic’s CEO, observed “Those people looking at current results and calling a bottom are being dangerously short sighted. Not only are the immediate signs inconclusive, but the broad dynamics are still quite scary. We think housing is still a short.”

On a month-over-month and year-over-year basis, the RPX Composite price rose 2.6% and 0.7%, respectively. Home prices have exhibited more strength to date in 2012 than they have over the same period in the preceding three years.

As shown in Exhibit 1 (below), the RPX Composite price increased $14.27 (8.3 percent) from the beginning of 2012 through May 23, much more than the increases during the same period in 2009, 2010 and 2011.

Key observations from the May 2012 RPX Monthly Housing Market Report:

• Evidence that the housing market has bottomed is not conclusive;
• Data from the second half of the year tells more about price trends than data from the first half;
• Reports of diminishing supply are greatly exaggerated;
• Psychology and total inventory – including both “visible” and “shadow” inventory  suggest housing is a short.

This viewpoint remains the minority perspective. (see yesterday’s Deleveraging 30 Million Units).


Change in RPX Composite Price from Beginning of Year, 2009-2012


With respect to house prices, thanks to QE2 and Operation Twist the Fed has driven mortgage rates 150 bps lower. According to Mark Hanson, this “has resulted in a YoY increase in purchasing of more than 15% for the 72% of buyers who use a mortgage to purchase.

Add to this the large drop in the percentage of distressed homes of real estate sales. These typically sell for 20-30% lower than non-distressed properties. As we previously discussed, this decrease is due to the voluntary foreclosure abatements.

Meantime, the healthiest segment of the Housing market remains the high end properties. (Yes, it is true, the 1% are still doing okay). Hence, the mix of homes that are being sold is now skewed away from the cheapest properties.

Thus, what people are mistakenly perceiving as YoY house price “appreciation” are a combination of these factors: Less distressed properties, lower mortgage rates, and increased purchasing power.

Mark Hanson argues that given house prices are established through comparable “sales” (versus the same home) and that on a YoY normalized basis, these have failed to keep up with the increase in purchase power. Hanson notes there is no real difference between the YoY “resetting” of rates lower and introducing increased leverage to keep people paying “more” for houses, despite the same income and monthly payment.

In other words, Hanson writes, real home prices are actually lower.

As we have said previously, our current RRE situation can be best described as massive Fed stimulus + government induced foreclosure abatements = some stabilization.

Category: Data Analysis, Real Estate, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

18 Responses to “Radar Logic: “Housing Still a Short””

  1. VennData says:

    Oh and don’t forget to add in all the houses that will be built for the next fifty year. The Future inventory! You must discount those back to add another hundred million homes above and beyond the shadow inventory! It’s the abode cliff!!!

  2. Al_Czervik says:

    30-year money is less than 4%, yet the market throughout much of the country remains unsteady. For me, that is the most telling aspect of the situation in which we find ourselves.

    As long as the USD is the “cleanest dirty shirt”, rates can remain low and housing can be propped-up this way. If and when the FED loses control of market interest rates, I fear that the for-sale housing market could be in for a lot more pain.

  3. Al_Czervik says:

    I see Barry covered this in some detail in his 04/07 WaPo column.

  4. kek says:

    I don’t see any sentiment indicators that suggests the bear housing scenario is the minority view. In fact most people that I speak to regarding housing recovery are very skeptical of the data. Skeptics also point to a major woosh down or a capitulation type of scenario filled with recency bias.

    However, two very bright guys, Howard Marks & Warren Buffett, are very bullish regarding single family homes at these valuations, which is interesting. Replacement costs are very attractive in many regions at this time. Buying assets at a acceptable discount to replacement, and having them cash flow 10%+, is usually a good recipe to build wealth.

  5. wally says:

    Having seen four new homes go up this summer within a short distance of where I live, I’ll go with my eyes on this one.

  6. Al_Czervik says:


    Some metro areas are holding-up better than others. For example, demand and prices in some of San Francisco’s more desired neighborhoods (e.g. Noe Valley) are currently very strong. And, following several years without any new condos built in the city, there is a *shortage* of new so-called “luxury” units available for sale.

    Developers are clamoring to start building and lenders are once again competing to finance construction of for-sale projects. I am aware of one local condo project in San Francisco in which the developer had negotiated a floating-rate construction loan in the low-3s at the end of last year.

  7. cjcpa says:

    Mortgage rates at 6% will push prices down.
    You can figure the impact. If Price @ 4% = $x/month.
    How much does Price have to move to keep $x/month the same at 6%?

    Well, the point is – it will not be moving prices upward.

    Maybe not this year, but that Fed Tailwind is going to turn into a headwind at some point.

    Put another way, if you buy a house based on an attractive payment at a very low rate…. When you go to sell that house and the prevailing rates are not so low, a guy with your same income will not be enthused about the price you paid.

    And put the same story one more way… I don’t see prices going up until wages and incomes go up. (Unless we restart the fantasy financing that enables prices to move without any regard to income.)

    but still.
    I want to buy a rental at a low price with a low rate and keep it for 30 years….
    just have to get that downpayment saved up. It’s taking a lonngg time…..


  8. [...] in inventory for sale in coming months. One source of skepticism is Radar Logic. You can read a summary of their latest report here. Michael Feder, Radar Logic’s CEO, observed “Those people looking at current results and [...]

  9. oblom says:

    How about looking at homes from the monthly cash expenditure standpoint, rather that investment? Ingenious, I know. Do some price/rent comparisons. All of a sudden it doesn’t matter whether this is *the* bottom if you are locking in a generational low mortgage rate for the next 10-20 years, does it?

    Here is another intellectual breakthrough. The whole “I’d rather rent than buy” meme came from the shock of the bubble collapse. It’ll wear off.

  10. larrr1 says:

    Proof that when the facts change, the dogmatic will move to goalposts to ensure reality keeps matching their worldview

  11. Simon says:

    Whatever. Clearly housing has bottomed. For now. Jump aboard if you dare. If you are timid just get one of those 30 year loans at 3% and make sure you buy a house that you could not build for the purchase price. And make sure it is where you want to live. I don’t know, what else is there?

  12. VennData says:

    Kek claims special knowledge of things because, “…most people that I speak to regarding housing recovery are very skeptical of the data…”

    FYI, kek, that is nt a valid argument, whether for housing, markets in general, or anything else.

  13. JasRas says:

    In the end, the numbers may prove it was the bottom, or may not. The money making opportunity has been occurring for over a year now with ITB, the DJ US Home Construction ETF making a very nice move. The underlying are a mix of homebuilders, suppliers, and cons discretion that people put in houses, with a pretty heavy weight to the homebuilders.

    I guess I don’t care about an academic arguement of whether it is “real” or HAMP, etc… The idea is to recognize a change and a net positivity. Some of the homebuilders have actually been buying land again…you don’t buy dirt, unless you are optimistic you can sell the dirt.

    Is it gangbusters? No. Is it directionally up from where we’ve been? Yes. Can the academics explain it well? No, because I think their data is constructed in a flawed fashion. Is it over or too late? Who knows.

  14. Livermore Shimervore says:

    Let’s see.

    1- Wages are not going up. wages are the only thing that can sustain appreciation beyond the costs of owning.

    2- interest rates can not stay at historic lows forever. Bad news for point #1 above.

    3-banks will continu to be skeptical and loan less and in lower amounts.

    4-inventory will remain high as long as points #1-3 apply.

    5-You rwife wants a house because she doesn’t want to be “one of those wives that rents”.
    This is by far the most compelling argument of the real estate types. And perhaps the only one.

  15. Livermore Shimervore says:

    My condo rental in a gated community was put on the market by the owner for 25% below the purchase price paid in the early days of the bubble. Not only did I take a pass on buying it, I downsized significantly on my next rental. Instead of increasing my housing costs by 1/3 for the honor of saying I owe the bank for the next 30 years, I instead cut my costs by nearly 1/3 while staying in the same neighbohrhood.

  16. nickthap says:

    Most reasonable observers can agree that housing must revert to its mean. And in many places it still hasn’t. Here in central Austin, houses are languishing on the market for months, taken off for a month, then put back on the market at the same price they were listed at before. It’s like Groundhog Day around here–and this is supposed to be the hottest market in the country!

  17. Hammer of Thor says:

    When are interest rates going to go up? You think the FED doesn’t know that would crush housing? Low rates are part of the game now.

  18. wally says:

    “Most reasonable observers can agree that housing must revert to its mean.”
    You must remember that the “mean” is a derived value; it is figured after the actual values are known. The notion that is is a predictor is of limited use.