Analysis: In the U.S. housing market, recovery or Lost Decade?

(Reuters) - The worst U.S. housing crisis since the Great Depression has been declared over. But is it?

What some of Wall Street's forecasts for a recovery may be underestimating are tectonic shifts in the U.S. economy that make the housing market a different place from a decade ago.

Record levels of student debt, 15 years of flat incomes and the fact that nearly half of homeowners are effectively stranded in their houses look likely to weigh on prices into the indefinite future.

Several housing experts have said the market is in danger of drifting for years. In a bleaker scenario, the fragile U.S. economic recovery could slip back into recession if Europe's crisis deepens or the political impasse in Washington triggers a new budget crisis, putting the housing market at risk again.

"We've gone through half of a lost decade since the crisis started in 2007," said Robert Shiller, co-founder of the Case-Shiller U.S. housing price index and an economics professor at Yale University.

The so-called Lost Decade in Japan occurred after the speculative bubble in the 1980s, when abnormally low interest rates fueled soaring property values. The ensuing crash has continued to afflict the Japanese economy ever since.

"It seems to me that a plausible forecast is, given our inability to do stimulus now, for Japan-like slow growth for the next five years in the economy. Therefore, if there is an increase in home prices, it's modest," said Shiller.

A Reuters poll published on Friday showed most economists think the U.S. housing market has now bottomed and prices should rise nearly 2 percent in 2013 after a flat 2012.

GENERATION STAGNATION

Consider the plight of college graduates, who go on to become the biggest group of first-time U.S. home buyers.

Many graduate into a climate of falling wages and soaring rents, members of the most indebted generation in history who owe an average $25,000 in student loans.

They elbow their way into a labor market so rough that the number of people with jobs is at a 30-year low, health and retirement benefits are shrinking and the young workers face a greater chance of losing their jobs than any generation before.

For Steve Blitz, chief economist at ITG Investment Research in New York, the housing market improvement has gotten as good as it can without more improvement in the labor market.

"I don't see it worsening unless the economy goes back into a recession, but I think it's more a case of stagnating," Blitz said.

It is not just the employment picture that makes the prospect of a housing recovery so precarious.

Housing prices and income usually move in lock step. But real median household income is stuck at the same level as during the Clinton Administration in 1996 -- at about $49,000.

That means the housing market will remain troubled for "an extended period of time," according to Sam Khater, a senior economist at housing data company CoreLogic.

"It's not about job growth. It's about income growth," says Khater.

Back in 1996, the median home price was around $80,000. When house prices soared to $200,000 in 2006 -- the market peak -- it was due to jumbo mortgages, not jumbo pay raises.

Banks lured consumers with low interest rates that later turned much more expensive and blew up monthly payments, eventually helping to cause the housing crash.

On the one hand, the housing implosion has created a bonanza for those buyers who can take advantage of it: U.S. real estate is now 36 percent cheaper than in 2006.

In nearly every city, it now costs less to own than to rent.

But many would-be homeowners cannot buy. Lenders have virtually locked them out of the market by denying them mortgages, according to statistics from the Federal Housing Administration and a recent Morgan Stanley research report.

In May, consumers able to close on a mortgage had, on average, a near-perfect credit score. They could afford a 19 percent down payment on their new home. And they were still on track to spend no more 24 percent of their income on their new house, according to the Ellie Mae Origination Insight Report.

"Most of the population can't meet current mortgage underwriting standards," says trade publication Inside Mortgage Finance founder Guy Cecala. "They're getting eliminated before they even get to the door."

Some believe this credit freeze is only going to worsen. Washington is considering new mortgage regulations that would shift more responsibility for bad loans away from taxpayers and investors and toward banks.

"If all these new rules that Washington is talking about are put into place, it would be even harder to get a mortgage," said Brian Lindy, an analyst at Amherst Securities Group, which released a report in May entitled "The Coming Crisis in Credit Availability."

Even for those who can afford to, buying a house can be a harrowing experience. After watching a nation crash and burn, plenty of people remain in shock. They are loath to take the risk anytime soon.

As research firm S&P Capital IQ's Robert Kaiser said at a recent housing conference: "Consumer confidence simply hasn't recovered enough to support the housing market."

BUSTED CONVEYOR BELT

The housing market, as economists often like to point out, is a conveyor belt. A homeowner sells a house. The new buyer moves in, and the seller buys a better house. In time, that buyer in turn sells, and buys a better house.

Normally these so-called move-up buyers are the housing market's biggest consumer group. They are what keep that conveyor belt moving.

Today the apparatus is broken.

That's because about half of homeowners with mortgages simply can't move.

Twenty-four percent owe more on their houses than they are worth. Another 25 percent are equity poor, meaning they have less than the 20 percent of equity required for a down payment to trade up to a new home, according to housing-data company CoreLogic.

Sean O'Toole, the CEO of foreclosure-data aggregator ForeclosureRadar.com, estimates that it will take at least another decade, at the housing market's current pace of growth, for homeowners who are underwater just to break even on their houses.

"We went from $4.5 trillion of mortgage debt in 2000 to $10.5 trillion of debt in 2008 -- and we are still only down to $9.8 trillion," says O'Toole.

"All those people with negative equity, they can't sell. They are stuck in a prison of debt."

A HIT WITH MULTI-GENERATIONAL HOMES

The U.S. housing market is actually hundreds if not thousands of markets.

Cities such as New York and San Francisco have joined other world cities, like London and Hong Kong, to form a global housing market that aligns its fortunes with the wealthy elite.

Then there's Stockton, the California city that filed for bankruptcy in June. A recent Rockefeller Institute of Government research report suggested it could turn into a ghost town with its lack of jobs and abundance of abandoned, foreclosed homes.

Still, there's no doubt that in most places the housing market appears to have bottomed out and is now gathering strength.

The places that were hit hardest -- like the warm states where baby boomers go to retire -- are snapping back, and some states with strong income and job growth, like the natural gas haven of North Dakota, are solid.

"I don't think it's a head-fake, because when you look across all your price measures and construction measures on the starts side, you're seeing broad-based indication of improvement," says Beata Caranci, deputy chief economist at TD Bank Group in Toronto.

But even those who say the recovery is on are subdued. "We have to be a little bit cautious," said Caranci. "It's the beginning of a recovery."

The Case-Shiller home price index, considered a bellwether of the U.S. housing markets, rose in May for the third consecutive month.

Those price hikes, however, reversed just a sliver of the wealth lost since the housing peak: $200 billion of the $6.7 trillion that has evaporated since 2006, according to a recent Bank of America report.

Some of the biggest jumps -- such as the 10 percent year-over-year price gains in foreclosure-filled cities like Phoenix and Miami -- were largely due to banks holding back inventory. That's because of lingering legal problems from the so-called robo-signing foreclosure scandal as well as a reluctance to flood the market, according to CoreLogic's Khater.

"Don't let the volatility in prices fool you," he said. "Yes, prices are increasing in some markets, but in the longer term it has to come back to incomes, and unless incomes are increasing, price increases are not sustainable."

At this point in a typical cycle, executives at the homebuilding companies are usually the loudest members of the housing recovery pep squad. Yet the mood has been subdued in the most recent round of earnings conference calls with homebuilder executives.

In late June, Lennar, the third-largest homebuilder in the United States, reported a rise in new orders for the fifth straight quarter, helping to push share price to a year high in July.

Executives had foreseen that, after the housing crash, family members would start to live together as a way to save. Lennar started designing a new home that included a 600-square-foot apartment with its own entrance called the "Multi Gen Home." It has been a hit.

Nonetheless, Lennar's chief executive officer, Stuart A. Miller, told analysts in June that he was nervous about uttering the word recovery.

"I don't think that there's reason for exuberance right now -- except for the fact that the beatings have stopped."

(Additional reporting by Cezary Podkul and Tim Reid; Editing by William Schomberg, Mary Milliken and Prudence Crowther)

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Housing secretary says FHA faces big risks (Reuters)

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US housing starts rise modestly to start new year (AP)

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US housing starts rise modestly to start new year (AP)

WASHINGTON – Construction of single-family homes cooled off slightly in January after surging in the final month last year. But a rebound in volatile apartment construction kept builders working.

The Commerce Department says builders broke ground on a seasonally adjusted annual rate of 699,000 homes in January.

Construction began on 508,000 single-family homes last month, a 1 percent drop from December and the first decline in four months. Still, December single-family homes were revised up strongly to show builders started 513,000 homes. That's up from the initial estimate of 470,000, a difference of 9 percent.

Apartment building, a more volatile category, jumped 14.4 percent. Building permits, a gauge of future construction, rose 0.7 percent.

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Housing regulator acted on "ideology": lawmakers (Reuters)

WASHINGTON (Reuters) – Two Democratic lawmakers on Wednesday accused the regulator of Fannie Mae and Freddie Mac from blocking the firms from reducing principal on the mortgages they back for reasons of "ideology."

Representatives Elijah Cummings and John Tierney claimed that analysis from the regulator itself, the Federal Housing Finance Agency, showed that principal reduction would serve the interest of U.S. taxpayers, who have bailed the firms out to the tune of $169 billion.

They said the analysis directly contradicted testimony from the acting director of the agency, Edward DeMarco, who has said loan forbearance - which grants temporary suspensions of payments to borrowers, but does not reduce their obligations - provides the same benefit for homeowners at a lower cost to taxpayers.

"It appears that your refusal to follow Congress' direction and allow principal reduction programs is based more on ideology and the fear of political backlash than on a straightforward analysis of the interests of American taxpayers," the lawmakers wrote in a letter to DeMarco.

The Obama administration, some Federal Reserve officials and Democrats on Capitol Hill have pressured the FHFA to allow reductions in loan balances for borrowers who are "underwater," meaning their loan balance exceeds the value of their home.

DeMarco has argued that allowing principal writedowns would go against his primary mandate of protecting assets of at the two mortgage finance firms, which were seized by the government in September 2008 as home loan losses spiraled.

Cummings and Tierney also said a former Fannie Mae official had come forward and claimed the company had started to develop a pilot program to slash loan balances for troubled borrowers in 2010. According to the letter, the pilot program was canceled shortly before it was set to launch because of resistance from senior executives, the unnamed former employee said.

The program had preliminary approvals from officials at Fannie Mae, FHFA, and the Office of the Comptroller of the Currency, which regulates national banks, according to the former employee.

Two weeks ahead of its launch, the program was "terminated by senior officials at Fannie Mae who were 'philosophically opposed' to the concept of reducing principal," the former employee told congressional staff.

"FHFA stands by its analysis of principal forgiveness. We will soon respond to the congressmen's' letter," FHFA spokesperson Corinne Russell said.

Fannie Mae declined immediate comment on the letter.

Last year, Cummings, the top Democrat on the House Oversight and Government Reform Committee, had asked DeMarco to explain his thinking in deciding not to offer principal reductions.

DeMarco provided lawmakers with an analysis completed in 2010. In a letter dated January 20 that accompanied the analysis, DeMarco again signaled that principal forbearance might be a cost-effective way for Fannie and Freddie to dampen the foreclosure crisis.

Fannie Mae and Freddie Mac own or guarantee roughly half of all outstanding mortgages in the United States. Some economists, consumer groups and affordable housing advocates argue that more aggressive actions by the firms to help troubled borrowers would minimize taxpayer losses in the long run by preventing defaults in the near term.

(Reporting by Margaret Chadbourn; editing by Leslie Adler, Gary Crosse)

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Housing plan helps nearly 1 million homeowners (Reuters)

WASHINGTON (Reuters) – Nearly 1 million U.S. homeowners have won permanent reductions on mortgage payments since the Obama administration launched its foreclosure prevention program in 2009, the U.S. Treasury said on Monday, only a fraction of the total it aimed to reach.

Some 11 million homeowners owe more than their houses are worth and the Home Affordable Mortgage Program (HAMP) has had limited impact on a housing market bogged down by foreclosures and tight lending conditions.

The administration initially projected HAMP would help up to 4 million homeowners stay in their homes.

The program, which provides financial incentives to mortgage servicers to rework loans, granted 23,374 permanent modifications in December, bringing the total to date to 933,327, the administration said.

Although the program has been widely criticized by Republican lawmakers for not being effective, the administration extended HAMP by one year through 2013 and expanded it to reach more indebted homeowners.

Treasury said 84 percent of homeowners seeking help through HAMP in the past 18 months received a permanent loan modification.

(Reporting By Rachelle Younglai; Editing by Leslie Adler and Andrew Hay)

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Housing data points to slowdown in sales (Reuters)

WASHINGTON (Reuters) – Signed contracts for the sale of existing U.S. homes retreated from a 1-1/2-year high in December and demand for home loans fell last week, pointing to a moderation in home sales after recent hefty gains.

But the reports on Wednesday did not change perceptions that a nascent recovery is under way in the housing market, which continues to be challenged by an oversupply of properties.

"This is potentially negative for January existing home sales although the two do not always go hand in hand," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "So does this mean the story has changed and housing is back in the dumps? Nope."

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in December, dropped 3.5 percent to 96.6 in December, after hitting a 19-month high in November.

Economists had expected signed contracts for sales, which lead existing home sales by a month or two, to fall by only 1.0 percent. However, sales were up 5.6 percent in the 12 months to December.

A glut of unsold homes is weighing on house prices and frustrating the sector's recovery, even though mortgage rates are near record lows. Home resales have risen for three straight months.

The Federal Reserve has suggested a number of ways other policymakers could step in to help the beaten-up market, including giving government-controlled mortgage finance firms Fannie Mae and Freddie Mac a bigger role in refinancing loans.

Some officials at the Fed say the central bank should consider further purchase of mortgage-backed securities as a way to help spur a stronger recovery, but no action is expected at the end of the Fed's first policy meeting of 2012 later on Wednesday.

"I don't think that lower mortgage interest rates are going to help much right now," said Robert Dye, chief economist at Comerica in Dallas. "That's not where the bottleneck is, and that is in two places: credit availability and the processing of paper work."

Lenders have adopted stringent requirements for potential homeowners, demanding down payments of as much as 20 percent, and contract cancellations have averaged about a third over the past few months.

Applications for home purchase loans declined 5.4 percent last week after two straight weeks of sturdy gains, the Mortgage Bankers Association said in a separate report.

Another report showed house prices measured by the Federal Housing Finance Agency rose 1 percent in November from October.

"We are encouraged by the pop in prices as it may be a signal of further stabilization in the housing market and evidence that the erosion in home prices may be nearing an end," said Millan Mulraine, senior macro strategist at TD Securities in New York.

However, prices were down 1.8 percent in the 12 months to November, indicating the recovery in the housing market would be painfully slow.

(Reporting by Lucia Mutikani; Editing by Leslie Adler)

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Housing starts drop more than expected in December (Reuters)

WASHINGTON (Reuters) – Housing starts fell in December as groundbreaking on rental property posted a big decline, splashing some cold water on hopes the still-weak housing sector could boost economic growth this year.

The Commerce Department said on Thursday housing starts fell 4.1 percent to a seasonally adjusted annual rate of 657,000 units.

Economists polled by Reuters had forecast housing starts edging down to a 680,000-unit rate in December.

Starts of buildings with five or more units dropped 27.8 percent to a 164,000-unit rate, the biggest drop since February.

Tempering the overall decline, groundbreaking on single family buildings rose 4.5 percent to a 470,000-unit rate.

Permits fell 0.1 percent to an annual rate of 679,000 units.

(Reporting by Jason Lange; Editing by Neil Stempleman)

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House Democrats want new housing regulator (Reuters)

WASHINGTON (Reuters) – More than two dozen House Democrats called on Wednesday for President Barack Obama to unseat the acting regulator of housing finance agencies Fannie Mae and Freddie Mac, saying he has failed to take steps that would aggressively address the nation's housing crisis.

The group of 28 Democrats, led by Representative Dennis Cardoza, are all from California, which has been hard hit by the housing market's collapse. In their letter, the lawmakers urged Obama to replace Edward DeMarco as acting director of the Federal Housing Finance Agency and to immediately nominate a new director.

"FHFA has consistently and erroneously interpreted its mandate far too narrowly and as such has failed to take adequate action to help homeowners," the letter said.

Fannie Mae and Freddie Mac, two congressionally chartered companies charged with providing liquidity to the U.S. housing market, were seized by the government in September 2008 as mortgage losses mounted.

DeMarco, a career civil servant who was named acting director of the FHFA in August 2009, has defended the steps he has taken as conservator as being well within the authority Congress has mandated.

DeMarco, who has never been selected as the FHFA'S permanent director, has argued that the roughly $169 billion in taxpayer-funded support paid out to Fannie Mae and Freddie Mac since they were seized was meant to get them back on their feet, not to provide relief to the housing market.

The Democratic call for a new leader at FHFA comes just days after Obama made a critical recess appointment of Richard Cordray as the director of the newly created Consumer Financial Protection Bureau over Republican opposition.

"We urge that you take the same action to put in place a permanent director to the FHFA," the Democrats wrote.

The lawmakers said DeMarco has limited Fannie and Freddie from helping the troubled housing market by taking too narrow a view of his mission to protect the financial health of the two firms.

"There are steps that the FHFA can take to help prevent future foreclosures while also protecting taxpayers," the letter read. "Installing a permanent director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy."

The Obama administration had nominated North Carolina's banks commissioner, Joseph Smith, to be the FHFA's permanent director in November 2010, but Smith withdrew his name a few months later due to staunch Republican opposition. No new nominee has since been named.

(Reporting By Margaret Chadbourn; Editing by Leslie Adler)

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Housing starts hit 1.5 year high in November (Reuters)

WASHINGTON (Reuters) – Housing starts and permits for future construction jumped to a 1-1/2 year high in November as demand for rental apartments rose, suggesting the housing market was starting to recover.

The Commerce Department said on Tuesday housing starts surged 9.3 percent to a seasonally adjusted annual rate of 685,000 units, the highest since April last year.

Economists polled by Reuters had forecast housing starts rising to a 635,000-unit rate. Compared to November last year, residential construction was up 24.3 percent.

"It is positive for the housing market, which is picking up from rather subdued levels. Demand is coming off the lows, so that is healthy," said Sean Incremona, an economist at 4CAST in New York.

U.S. Treasury debt prices briefly extended losses on the data, while the dollar fell against the euro. U.S. stock index futures held their gains.

Although the overall housing market remains weak, rising demand for rental apartments is boosting the construction of multifamily homes.

Falling house values and stringent lending practices by banks are pushing Americans away from homeownership.

Housing is becoming less of a drag on the economy and residential construction has now grown for two straight quarters.

Even home builders are adopting a more optimistic view of the sector, with confidence rising to a 1-1/2 year high in December.

But a full recovery for the sector, which was one of the main triggers of the 2007-09 recession, remains far off in the future given a glut of unsold homes, weak prices, high unemployment and tight credit.

Housing starts are still less than a third of their 2.273 million rate peak in January 2006.

Last month, housing starts for the volatile multi-family homes segment surged 25.3 percent to a 238,000-unit rate, and groundbreaking for projects with five or more units hit the highest level since September 2008.

Single-family home construction -- which accounts for a large portion of the market -- rose 2.3 percent to a 447,000-unit pace.

New building permits unexpectedly increased 5.7 percent to a 681,000-unit pace in November. Economists had expected overall building permits to fall to a 635,000-unit pace last month.

Permits were pushed up by a 13.9 percent jump in the multi-family segment. Permits for buildings with five or more units were the highest since October 2008. Permits to build single-family homes rose 1.6 percent.

New home completions dropped 5.6 percent to 542,000 units last month.

(Reporting By Lucia Mutikani; Additional reporting by Chris Reese in New York; Editing by Andrea Ricci)

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Housing starts and permits surge; levels still low (AP)

WASHINGTON – A surge in apartment construction gave home builders more work in November. And permits, a gauge of future construction rose, spurred by a jump in apartment permits.

The rise in permits provides hope for the housing market, though 2011 is still shaping up as one of the worst years in history for homebuilders.

The Commerce Department says builders broke ground on a seasonally adjusted annual rate of 685,000 homes last month, a 9.3 percent jump from October. It's the highest level since April 2010. Still, the rate is far below the 1.2 million homes that economists say would be built each year in a healthy housing market.

Analysts say the homebuilding industry is improving, albeit modestly, after two of the worst years in history.

"While beginning to improve, a strong, sustained recovery in the housing market, especially the important single-family sector, is still a ways off," said Steven Wood, chief economist at Insight Economics.

Last year, builders began work on roughly 587,000 homes, the worst year on record. This year, construction may top 600,000.

Though new homes represent just 20 percent of the overall home market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Renting has become a preferred option for many Americans who lost their jobs during the recession and were forced to leave their houses. The surge in apartments has provided a lift to the beleaguered housing market but has not been enough to completely offset the loss of single-family homes.

Permits rose 5.7 percent last month, boosted by a 16 percent jump in permits for apartment buildings.

Over the past year, permits for apartment buildings with five or more units have surged more than 80 percent. Permits for single-family homes, which account for about 70 percent of all homebuilding, have increased just 3.6 percent.

Demand for new homes is weak. Record-low mortgage rates and plunging home prices have done little to help.

The chief problem: Builders are struggling to compete with deeply discounted foreclosures and short sales. Short sales occur when lenders allow homes to be sold for less than what's owed on the mortgage. Few homes are selling.

After previous recessions, housing accounted for at least 15 percent of U.S. economic growth. Since the recession officially ended in June 2009, it has contributed just 4 percent.

In October, sales of new homes rose slightly, largely because builders cut their prices in the face of weak demand. Sales hit a six-month low in August. And this year is shaping up to be the worst since the government began keeping records a half-century ago.

Another reason sales have fallen is that previously occupied homes have become a better deal than new homes. The median price of a new home is about 30 percent higher than the median price for a re-sale. That's nearly twice the markup typical in a healthy housing market.

The homebuilders' trade group said this week that its survey of industry sentiment rose in December to 21, the highest level since May 2010. Still, any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.

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Instant view: Housing starts hit 1-1/2 year high in November (Reuters)

NEW YORK (Reuters) – U.S. housing starts surged to a 1-1/2 year high in November and permits for future construction were the highest since March 2010 as demand for rental apartments rose, offering hope for the weak housing market.

COMMENTS:

PETER CARDILLO, CHIEF MARKET ECONOMIST AT ROCKWELL GLOBAL CAPITAL, NEW YORK

"This is good news. It should add to this morning's strength in equities, and also add to the good news out of Europe. The economy continues to show strength moving into the new year and we could look forward to growth exceeding market expectations. But of course, everything is subject to what is going on in Europe."

SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK

"There was some pretty impressive upside here, both in the starts and in the permits. In the breakdown it does look like there was a pretty substantial boost from multiples, which tend to be more volatile but they have sustained improvement in their trend while singles are also pointing at underlying improvement in home building. It is positive for the housing market, which is picking up from rather subdued levels. Demand is coming off the lows, so that is healthy."

NATHAN SNYDER, PORTFOLIO MANAGER AT SNOW CAPITAL MANAGEMENT IN SEWICKLEY, PENNSYLVANIA

"The housing stuff seems like it's bottoming which is obviously the first step to recovery. How long it bottoms will be anybody's guess, but we needed it to bottom. If you look at inventories as they reported, they look low but they are they are extraordinarily low if we ever get back to a household formation level that resembles anything like the past.

"So this is something that is a chicken and the egg issue, obviously construction drives employment, employment drives housing. And there is a virtuous cycle there if we can ever reach a bottom and start building off of that. The main hope is that we are at least near that bottom, but the bottom could last a while. So it could start to turn up in the next six months or eighteen months but the next leg is up, not down, from here."

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

"New housing construction activity ascended to an annualized rate of 685k homes started in November, a jump of 9.3% from October. This is starts' third straight reading that reports better than expected performance (a trend in most economic indicators lately). Starts not only surpassed market consensus of 635k, but building permits, also forecasted to come in at 635k, also rose above expectations to an annualized rate of 681k permits. Unlike starts, permits had been expected to fall from October's issuance of 644k permits (originally 653k). Since November 2010, starts increased by 24.3% and permits by 20.7%--,both posting their highest annual change since April 2010, at the tail end of the tax credit program. Multi-unit starts dominated December's performance, as these types of residences rose by 25.3% to 238k. This comes after having fallen by 15.2% in October. Annually, 5+ units have risen by 180.5%, a record on series dated back to 1959. Single-family home construction rose for the second month, this time by 2.3% to 447k. Permits, which have been up for two months (last month by 9.3%), rose by 5.7% in November. Both single-family and multi-units supported the advance with gains of 1.6% and 13.9% respectively. Both types of residences have also been up for two consecutive months, with multi-units leading the charge."

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US housing starts down slightly in October (AP)

By DEREK KRAVITZ, AP Real Estate Writer Derek Kravitz, Ap Real Estate Writer – Thu Nov 17, 9:24 am ET

WASHINGTON – U.S. builders started slightly fewer homes in October but submitted plans for a wave of apartments, a mixed sign for the struggling housing market.

Builders broke ground on a seasonally adjusted annual rate of 628,000 homes last month, the Commerce Department said Thursday. That's roughly half the 1.2 million that economists equate with a healthy housing market.

But building permits, a gauge of future construction, rose nearly 11 percent. The increase was spurred by a 30 percent increase in apartment permits, which reached its highest level in three years.

Over the past year, apartment permits have surged roughly 63 percent. Single-family permits have increased just 6.6 percent in that span.

Renting has become a preferred option for many Americans who lost their jobs during the recession and were forced to leave their homes. The surge in apartments may help boost economic growth, but it has not been enough to offset the steep declines in single-family homebuilding.

"Given continued constraints on homeownership and rising rents across the country, the trend towards multi-unit construction is one that we expect to continue going forward," said James Marple, senior economist at TD Economics.

New-home construction and sales are in the midst of one of its worst years in history. Demand for new homes is weak and historically-low mortgage rates and plunging home prices have done little to help.

Jennifer Lee, senior economist at BMO Capital Markets, said the housing industry continues to be the U.S. economy's "weak link." But the October report wasn't as bad as many analysts had expected.

Single-family homes, which make up about 70 percent of residential home construction, rose nearly 4 percent last month. Apartments, a more volatile category, fell more than 13 percent.

Overall, homebuilding dipped in 2009 to just 554,000 homes, the lowest levels in 50 years in 2009. Last year the figure rose to roughly 587,000 homes and this year may not be much better.

Cash-strapped builders are struggling to compete with deeply discounted foreclosures and short sales, when lenders allow borrowers to sell homes for less than what is owed on their mortgages. And few homes are selling.

Though new homes represent just 20 percent of the overall home market, they have an outsized impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

After previous recessions, housing accounted for at least 15 percent of economic growth in the United States. Since the recession officially ended in June 2009, it has contributed just 4 percent.

Sales of new homes rose in September after four straight monthly declines, largely because builders cut their prices in the face of weak demand. Sales hit a six-month low in August and this year is shaping up to be the worst since the government began keeping records a half-century ago.

Another reason sales have fallen is that previously occupied homes are a better deal than new homes. The median price of a new home is about 30 percent higher than the median price for a re-sale. That's almost twice the markup in a healthy housing market.

The homebuilders' trade group said Wednesday that its survey of industry sentiment rose this month to 20, the highest level since May 2010. Still, any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.

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Regulator rebuts critics on housing help (Reuters)

WASHINGTON (Reuters) – Fannie Mae's and Freddie Mac's regulator on Saturday rejected criticism he was obstructing a housing recovery by taking too narrow a view of his mission to protect the financial health of the two massive, taxpayer-supported mortgage firms.

Edward DeMarco, acting director of the Federal Housing Finance Agency, argued the $141 billion in taxpayer funds Fannie Mae and Freddie Mac had received since they were seized by the government in 2008 were meant to get the companies back on their feet, not to provide "broad relief" to the housing market.

"FHFA has been aggressively trying to assist the housing market to ensure that the country continues to have a liquid and stable and functioning secondary mortgage market," DeMarco said in an interview with C-SPAN public affairs television that was set to air on Sunday.

"Some of those things that are being advocated for us to do really go beyond what Congress has given us the authority to do and the funds that have been provided," he said.

Fannie Mae and Freddie Mac, the two largest sources of U.S. mortgage finance, were placed in government conservatorship in September 2008 as mortgage losses skyrocketed. Along with the Federal Housing Administration, they provide the funds for 90 percent of all new mortgages.

Some Democratic lawmakers and former Obama administration officials have taken aim at DeMarco's position on the mandate of the two government-sponsored enterprises, or GSEs. They argue FHFA needs to do more to halt the record pace of foreclosures and cut loan balances for the estimated 11 million U.S. borrowers who owe more than their homes are worth.

Lawrence Summers, a former top economic adviser to President Barack Obama, said in a Reuters column last Sunday that DeMarco had "taken a narrow view of the public interest" in his efforts to protect Fannie Mae and Freddie Mac's health.

"FHFA has not acted on its conservatorship mandate to insure that the GSEs act to stabilize the nation's housing market, and taken no account of the reality that the narrow financial interest of the GSEs depends on a national housing recovery," Summers wrote.

NEW INITIATIVE

In the interview, DeMarco touted a new initiative by his agency to widen a federal program that offers mortgage aid to so-called underwater borrowers.

The effort -- a retooling of the Home Affordable Refinance Program, or HARP -- aims to make it easier for borrowers who hold loans backed by Fannie Mae and Freddie Mac to refinance.

"Mortgage rates came down, but there was a set of borrowers who were not able to refinance," DeMarco said. "Given the changes we've made, we estimate that maybe at least we're roughly doubling what we've already seen come through the program."

When HARP was unveiled in March 2009, the Obama administration predicted it would help 5 million borrowers. But so far, fewer than 895,000 have refinanced through the program.

DeMarco defended the steps he had taken as being well within his "statutory authority" to oversee the two firms.

The regulator said he was now focusing on a way to sell foreclosed properties held by Fannie Mae and Freddie Mac to investors willing to convert them into rental properties. "We're turning to this as the next priority," DeMarco said.

But he stood firm against suggestions the regulator open the door to principal reductions on loans backed by Fannie Mae and Freddie Mac.

"On a stand-alone basis, principal forgiveness doesn't accomplish our conservator mandate relative to the loan modifications tools and techniques that we have in place right now," DeMarco said.

He said it was up to Congress and the administration to decide how to restore the housing market.

"That policy debate needs to take place and we need to await an act of Congress to give us clear direction on where we're going forward and what the timeline for that is," he said. "The longer this goes on, the harder it is for FHFA to know what to do."

(Editing by Tim Ahmann and Peter Cooney)

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September housing starts up 15 percent (Reuters)

WASHINGTON (Reuters) – U.S. housing starts surged in September at their fastest annual pace in 17 months on a big increase in groundbreaking for multi-family units, while permits for future construction fell.

The Commerce Department said on Wednesday housing starts increased 15.0 percent to a seasonally adjusted annual rate of 658,000 units. That blew away analysts' forecasts of an increase to a 590,000-unit rate.

Housing starts for buildings with two or more units rose 51.3 percent to a 233,000-unit rate. Single-family home construction -- which accounts for a larger share of the market -- increased 1.7 percent to a 425,000-unit pace.

Total starts in August were revised slightly higher to a 572,000 unit pace, which was previously reported as 571,000.

Housing starts are still well below their peak seen during the housing boom, although compared to September of last year, starts were up 10.2 percent.

An overhang of previously owned homes on the market has left builders with little appetite to break ground on new projects and is frustrating the economy's recovery from the 2008-09 recession.

New building permits fell 5.0 percent to a 594,000-unit pace last month. Economists had expected overall building permits in September to fall to a 610,000-unit pace.

Permits were held back by a 14.5 percent fall for buildings with two units and more. Permits to build single-family homes dropped 0.2 percent.

New home completions rose 2.1 percent to a 647,000-unit pace in September.

(Reporting by Jason Lange, Editing by Chizu Nomiyama)

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New housing plan expected soon: Congress aide (Reuters)

By Thomas Ferraro and Rachelle Younglai Thomas Ferraro And Rachelle Younglai – Thu Oct 20, 7:45 pm ET

WASHINGTON (Reuters) – The Obama administration and the regulator for Fannie Mae and Freddie Mac are expected to unveil new steps to help distressed homeowners in the next week or two, a senior congressional aide said on Thursday.

The aide commented on the plan after Democratic Senator Dianne Feinstein said the Federal Reserve planned to send Congress "legislative recommendations" on housing.

The aide said Feinstein "misspoke for a second" and meant the administration and the Federal Housing Finance Agency.

After Senate Democrats met with Fed Chairman Ben Bernanke, Feinstein told reporters the central bank chief had stressed that more needed to be done to help the housing sector.

"They are going to submit a list of recommendations next week," Feinstein told reporters. She said the pending proposals are "legislative recommendations we can look at."

Senator Mark Warner, who also attended the meeting, said Bernanke spoke about what can be done to get mortgage refinance moved "down the field."

"There might be some ideas we are going to have shortly on that," he told reporters after the meeting.

It is unclear what Congress might do given deep political divisions in the House of Representatives and the Senate.

A handful of Senators are trying to advance a proposal that would make it easier for middle-class Americans to buy homes in expensive real estate markets.

Separately, the administration is pushing the regulator for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), the two biggest U.S. housing finance providers, to allow more homeowners who owe more than their homes are worth to refinance their loans at lower rates.

Treasury Secretary Timothy Geithner said on Tuesday he hoped a proposal could be laid out "in the coming days." A source familiar with the plans told Reuters they could be unveiled as early as Monday.

The Fed has been exploring what steps it might be able to take to spur a more vigorous economic recovery and pull down an unemployment rate that has been stuck above 9 percent for five straight months.

On Thursday, Fed Governor Daniel Tarullo said the central bank should consider purchasing more mortgage-backed securities.

He said an MBS purchase program could be made more effective if further steps were taken to help so-called underwater borrowers refinance. He said such an effort need not focus only on loans backed by Fannie Mae and Freddie Mac, but that legislation might be needed if policymakers wanted to reach other homeowners.

The U.S. central bank has kept overnight interest rates near zero since December 2009 and has already bought $2.3 trillion in government and mortgage-related bonds.

In September, it decided to shift its holding of bonds to try to put more downward pressure on longer-term rates. It also said it would begin reinvesting principal payments from its holdings of mortgage-related debt to help housing.

(Additional reporting by Pedro Nicolaci da Costa and Tim Ahmann; Editing by Sandra Maler, Vicki Allen, Leslie Adler and Andrew Hay)

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Instant view: CPI rises; housing starts up 15 percent (Reuters)

NEW YORK (Reuters) – Consumer prices outside food and energy rose less than expected in September to post their smallest gain in six months, a government report showed on Wednesday, suggesting inflation pressures remained contained.

U.S. housing starts surged in September at their fastest annual pace in 17 months on a big increase in groundbreaking for multi-family units, while permits for future construction fell, a government report showed on Wednesday.

COMMENTS:

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

"Overall CPI rose by 0.3036% before rounding, with yr/yr growth continuing to accelerate, to 3.9% from 3.8%. The main source of strength was energy, up by 2.0%, led by a 2.9% rise in gasoline that fell by 0.7% before seasonal adjustment. Gasoline prices rose in early September but fell late in the month, suggesting a softer contribution from gasoline can be expected in October. Gains in energy were not confined to gasoline, with fuels and utilities up by 0.7%, while food with a 0.4% increase continues to outperform the core, with recent weather conditions probably a factor here.

"With overall CPI continuing to accelerate it is too early to sound the all clear on inflation but energy should be softer in October and doves can take comfort in a subdued core rate. One month does not make a trend and the soft September core rate follows a rise of 0.2444% in August before rounding. However the 3 month annualized core rate of 2.1% in September is down from 2.9% in June, which is consistent with a recent acceleration in core CPI having passed its peak."

FRED DICKSON, CHIEF MARKET STRATEGIST, D.A. DAVIDSON & CO. LAKE OSWEGO, OREGON

"The headline data, it appeared to be pretty much on target. Our response is that we are seeing inflation pressure slowly build up in the economy. While the core rate was only up 0.1 percent, it still has pushed the core level up to 2 percent which is at the top end of the Fed's targeted zone for no action. So the economy has basically strengthened to the point where we are seeing companies pass along inflation increases and at some point the Fed has to take notice of what is happening in terms of inflation."

"The housing data is a tough indicator because there was a pleasant surprise. It appeared the number may have jumped up, most likely as a result of weather that could have dampened the housing data in the prior month. The way I'd put it, the housing data combined with CPI data shows that the economy, while it still is muddling along, is showing a little forward momentum that has not generally been anticipated by most analysts."

BORIS SCHLOSSBERG, HEAD OF RESEARCH, GFT FOREX, NEW YORK

"The housing starts were strong, which is the first sign of life in housing we've seen in a while. That's welcome. And the CPI is positive for risk, which is helping the euro. But generally, I think this will have very little impact on trade because the focus is still squarely on Europe. The market is coming to the conclusion that they are working on something big and dramatic and the euro is trading accordingly."

RICH ILCZYSZYN, SENIOR MARKET STRATEGIST WITH MF GLOBAL IN CHICAGO

"We're still in shock from Apple missing yesterday, but the market recovered somewhat overnight. The CPI numbers are a bit flat, but the market is responding OK. Right now, these numbers are important but are overshadowed by the magnitude of the euro zone issue and the size of the Greek protest.

"The housing market remains relatively slow, so bad news, since it isn't worse news, can almost seem like good news."

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Creative Destruction in the Housing Market (The Motley Fool)

At a conference in Vancouver, Canada, last summer, a moderator asked apocalyptic analyst Doug Casey what the solution to our economic mess was. "Explosives," he replied. It echoed a theme put forth by former Treasury Secretary Andrew Mellon during the Great Depression. "Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate. ... It will purge the rottenness out of the system," Mellon famously said in 1931.

Casey wasn't alone. In 2008, then-Treasury Secretary Hank Paulson phoned former Federal Reserve Chairman Alan Greenspan, seeking his input on ways to stabilize the economy. Greenspan "suggested that there was too much housing supply and that the only real way to really fix the problem would be for the government to buy up vacant homes and burn them," according to the book Too Big to Fail.

Warren Buffett offered a similar approach in his 2009 letter to shareholders. There are only three ways to fix the housing crisis, Buffett wrote. The first, and most effective: "Blow up a lot of houses." Last year, Detroit Mayor Dave Bing took him up on it, proposing plans to bulldoze 10,000 vacant homes and empty buildings over three years.

What are these people thinking? Nothing crazy, actually. They've grasped the heart of what's crushing the housing market: There are simply too many homes.

Some numbers to chew on: From 2001 to 2006, 11.0 million homes were built in the United States. During that period, a net 7.8 million new households were formed. That 3.2 million-home gap represents the overbuilding that pushed housing into bubble territory. During the boom years, those extra homes were easily absorbed into the market because so many speculative buyers were purchasing two homes, five homes, 10 homes, just to flip them for profit. Now that that casino mentality has been deflated, demand for housing has returned to its roots -- buying just to have a place to live. That means those 3.2 million homes built in excess of people's living needs are now sitting idle. The nationwide home vacancy rate is currently 2.5%, up from about 1.5% before the bubble.

Which raises the question: What do you do with these vacant homes? Some have been following the advice of Casey, Greenspan, Buffett, and Bing. They're blowing them up.

Bank of America (NYSE: BAC - News) just announced plans to demolish 100 Cleveland homes, with similar plans already under way in Chicago and Detroit. Wells Fargo (NYSE: WFC - News) and JPMorgan Chase (NYSE: JPM - News) have donated thousands of homes to local governments and nonprofits, many of which will likely be razed.

The incentive for banks to destroy homes is straightforward: Banks owe property taxes on homes repossessed during foreclosure, and some homes are so derelict that repairing them to a sellable condition is often costlier and a bigger hassle than just blowing the damn things up.

The trend will never get big. Even if tens of thousands of homes are destroyed, the effect would be trivial. But the fact that banks are merely considering demolishing homes underlines that the single most important factor holding the housing market back is excess inventory.

The good news is that inventory is being cleared out naturally, and quickly. New home construction has slowed to a pace not seen in recorded history, now at just one-third of 1959 levels, when recordkeeping began. Far more households are being formed today than new homes are being built. That has the same effect as blowing up homes -- in either case, excess inventory is being cleared out. Extrapolating from current levels, it's not hard to make the argument that we could actually face a housing shortage in another few years.

How crazy does that sound? About as crazy as someone telling you four years ago that banks would be destroying homes today. And yet, that's where we are.

Fool contributor TMFHousel. The Motley Fool owns shares of Bank of America and JPMorgan Chase. The Fool owns shares of and has created a ratio put spread position on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Summary Box: Housing starts down 5 pct. in August (AP)

CONSTRUCTION DIPS: Builders began work on a seasonally adjusted 571,000 homes in August, the Commerce Department said Tuesday. That's a 5 percent decline from July and a three-month low.

SINGLE-FAMILY, APARTMENTS: Single-family homes, which represent roughly two-thirds of home construction, fell 1.4 percent. Apartment building plunged 12.4 percent. Building permits, a gauge of future construction, rose 3.2 percent.

BUILDERS WAITING: Home construction is down nearly 6 percent over the past year. But permits are up nearly 8 percent. That suggests builders aren't working on new homes, but may be preparing to start dormant projects when the economy improves.

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Instant View: Housing starts fall more than expected in August (Reuters)

NEW YORK (Reuters) – Housing starts fell more than expected in August as groundbreaking for both single-family and multi-family units declined, while permits for future construction rose, a government report showed on Tuesday.

KEY POINTS: * The Commerce Department said housing starts decreased the most since April, down 5.0 percent to a seasonally adjusted annual rate of 571,000 units. * July's starts were revised down to a 601,000 unit pace, which was previously reported as a 604,000 unit rate. * Economists polled by Reuters had forecast housing starts to fall to a 590,000-unit rate in August. * An overhang of previously owned homes on the market has left builders with little appetite to break ground on new projects and is frustrating the economy's recovery from the 2007-09 recession. * Housing starts are at less than a third of their peak during the housing boom.

COMMENTS:

SEAN INCREMONA, ECONOMIST, 4CAST, NEW YORK:

"The data really isn't very surprising. Housing starts were much weaker than anticipated, that looks more to do with the volatile multiples sector, but still there was the underlying deterioration of singles as well, which continues to suggest that housing isn't going anywhere fast. The permits side is a little bit more positive looking, but it doesn't look like things are really finding their way off the ground much at this point.

"It's an ongoing impediment on the economy and it's not helping but at this point it's really at the bottom so it can't really hurt that much more either."

SCOTT BROWN, CHIEF ECONOMIST, RAYMOND JAMES, ST. PETERSBURG,

FLORIDA:

"It's kind of a mixed bag. The sense is that housing is still pretty weak. It won't improve until the labor market improves substantially and that doesn't look like that would happen this year. Housing is still bouncing around the bottom here even though mortgage rates are so low."

SAL CATRINI, MANAGING DIRECTOR, EQUITIES, CANTOR FITZGERALD &

CO, NEW YORK:

"They missed and revised down. It's bad that the housing market is not only bad, but still missing low expectations. Obviously the market has been ignoring bad news and has been rallying. We were oversold and this is a continuation of what we've seen over the past week."

MARKET REACTION: STOCKS: U.S. stock index futures hold gains BONDS: U.S. bond prices hold losses FOREX: The dollar holds slight losses versus euro

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