id=BLOGGER_PHOTO_ID_5374342115297674098Wow, the headline had my heart racing. You mean if I hand $8000 to people, give them 5.1% mortgages, allow them into FHA mortgages at 3.5% down (which is supposed to be for first time home buyers only but now accounts for the majority of mortgages) I can create an uptick? Amazing... the subsidized economy is really working wonders now. All it takes is a few trillions borrowed and we can do anything.

I want to thank Robert Marcin over at Realmoney.com for this chart which puts the heart racing numbers in context. These are monthly new home sales from the 1960s forward. With all these government handouts we sold 433K homes, heck we could get to 500K homes sold and still be worse than 95% of the months over the past 50 years... but as long as we can beat expectations we can sing the happy song. [chart does not include today's data obviously]

id=BLOGGER_PHOTO_ID_5374333670314911042

After you look at that chart, consider what state the housing market would be if normal terms (i.e. the real free market) ruled i.e. onerous 6% mortgage rates, 5%+ down payments, or no free handouts for 1st time homebuyers. We will never know but suffice it to say housing transactions would be below the worst levels of the past 50 years. However, with Cash for Housing Clunkers programs spewing in all directions like ears of corn in the Iowa summer- we've bottomed at 50 year lows. And now bounced a tad. This is the payoff for some 18 months of a housing clunker programs that grows by the quarter - and even with all that wasted treasure taken from fellow citizens and future ones, we're at extremely poor rates in historical context.

I will stick to my forecasts - we've been in freefall for years; freefalls cannot continue forever. I said this housing downturn would be unlike any experienced in our history ... we'd have two housing downturns - the first based on bad mortgages, and then the second based on traditional recessionary reasons. That has happened. When everyone said the housing problem in 2007 was just a subprime issue I said it would start at subprime, then go to Alt A, then go to prime. That has happened. I said eventually 1 in 4 Americans will be underwater on their homes - we are very close; within sniffing distance. [Oct 9, 2008: WSJ - Nearly 1 in 6 Homes Underwater] [Mar 9, 2009: One in Five Houses Underwater] I still see housing prices falling more from here in most markets as the traditional recessionary reasons cause people to lose homes. Others who have been saved as government programs mitigated their mortgages will still fail (it has just been delayed) and eventually will be foreclosed on. There is also another wave of Alt A mortgages coming down the pike in the next few years which will add to the inventory. I said this will be a 7 year cycle, and even with all the government's kings (and horses) riding to the rescue we still have a few more years to go.

The good news is our drop from here forward won't be at the rate we've experienced the past 2 years - it cannot be. 30-40% a year down can't go on forever, otherwise homes would be selling for $45K on average in 3 years. One of the main issues in America was lack of affordability in relation to income. [Sep 26, 2008 : 15% of Americans Spend 50%+ of Income for House Payments] That was the whole genesis of my call for a major drop in nationwide prices when every pundit said it could never happen. Well we've addressed that issue now - and we've even dropped below the initial national median price projection I had called for in December 2007. [Dec 6, 2007: Analysis - What Should Median Home Prices Be Today?] Housing affordability thanks to handouts, mortgage rates well below where they would be if the Fed was not wasting our money manipulating rates downward, and funneling almost the entire country into FHA loans - has finally created demand. But the tactics we used to get here, will lead to a rash of new defaults down the road - as we repeat the exact same policies that got us here in the first place: easy money, little to no down mortgages [Jul 6, 2009: WSJ - No Money Down or Negative Equity Top Source of Foreclosures] , to almost anyone. We'll see the impacts of our solutions circa 2012-2013. [Aug 12, 2009: WSJ - The Next Fannie Mae - FHA/Ginnie Mae] [May 6, 2009: FHA - The Next Housing Bust] We are simply repeating the same mistakes, only now instead of the banks doing them, the government has institutionalized it. But in the interim - green shoots!

This is all part of the subsidized economy, if you take enough from the future to give to the economy now you can fix any problem. It's called benefit benefit analysis. Or for you accounting folks its called only looking at the P&L and not looking at the balance sheet. It is clear this is now the national objective so let's adjust to it, but let's realize there is a cost to what is being done. And we might not be finished seeing new innovations to take from the future to give to the current... [Jul 15, 2009: Reuters - Obama Mulls Rental Option for Homeowners, along with Paying Mortgages for Unemployed]

Today's data:

  • Sales of new U.S. homes surged 9.6 percent in July, another sign the housing market is climbing back from the historic bottom it reached early this year. Driven by falling prices, the fourth-straight monthly increase was greater than expected.
  • The Commerce Department said Wednesday that sales rose to a seasonally adjusted annual rate of 433,000 from an upwardly revised June rate of 395,000.
  • Sales are ... still off nearly 70 percent from the frenzied peak four years ago.

I am still looking for the $8000 tax credit for first time home buyers (that expires in November) to be turned into a $15,000 to all, orgy to recreate the Cash for Housing dynamic in year 2010. I assume somewhere around 2014 we might allow the housing markets to actually settle on its own accord but maybe never again.

There was one actual green shoot in this report - new home inventory was down to 7.5 months. That is good, considering the 18M empty existing homes in America.

  • There were 271,000 new homes for sale at the end of July, down more than 3 percent from May. At the current sales pace, that represents 7.5 months of supply -- the lowest since April 2007.

The sad thing is despite all the money wasted by government (that mostly went to banks in the end), we have essentially ended up in the exact same spot we would of reached without all the handouts. In fact we would of reached that point sooner, and then had an actual non subsidized recovery within the next 18-24 months. But that would of been the apolitical solution and it would not of filled our financial elite's pockets with our money.

[Apr 8, 2009: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces. Housing Bubble 2.0? (Not)]

[Mar 5, 2009: WSJ - Mortgage Bailout to Aid 1 in 9 Homeowners]

[Feb 13, 2009: US Home Prices Fall to 2003 Levels]