Here’s a contrarian view for you.  Credit Suisse says the fears about housing are well overdone.  In their analysis they cite 6 different bullish factors that should help to bolster house prices in the USA:

  • The government now owns or guarantees about 70% of US mortgage debt ($11.5trn), thus any knock-on impact from a fall in house prices should be much lower than in 2007-2008 and the flow of foreclosure onto the market can be managed well (recall that since April 2009, 3.1 million trial loan modifications have been made);
  • Valuation is extremely cheap on all measures (price to income, price to rent, affordability index, rental yields).
  • Delinquency ratios, charge-off and foreclosure rates seem to have peaked.
  • Housing starts are about 1m below trend demand of housing units – based on household formation and replacement demand. The question is: What is the level of excess inventory? The number of unsold new and existing homes have fallen by 63% and 14% from the peak, respectively; if we then assume half the foreclosed property becomes vacant (i.e. half of the 2.3m homes currently foreclosed), this amounts to 2.7m homes, which should take 2 ½ to 3 years to absorb.
  • Distressed sales (short-sales, foreclosures and REO sales) are less than a third of the total, after peaking at almost half in 2009;
  • Housing as a proportion of GDP is now just 2.2%, compared with a long-run average of 4.5%.

Can’t say I entirely agree, but it’s always nice to keep an eye on both sides of the argument….


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • kayman

    The government now owns or guarantees about 70% of US mortgage debt – now thats healthy.

    nothing on employment, unemployment, that drives housing ????

  • boatman

    most of these emptys are in locations not job-friendly

    many of them are mcmansions–ill suited for entry-level homeowners and far from energy–affordable

    most of the data i’ve seen suggests wayyy more than 2.5 yrs. inventory.

    sure–its strong in NE corridor(they got bailed out–remember?–the banks)
    washington area (gov’t spending not going down)

    and not too bad in middle rural america(they’re too grounded to use their home
    for a piggy bank in the first place)

  • Pod

    this onclusion by CSFB is so inane and stupid it deserves no critique. glad to see the CSFB investment bankers still have total control of investment research and are dictating report conclusions to the “analysts”. csfb research was always tainted in this way when I was on Wall Street. the only sell side research that was always independant of banking influence were Sanford Bernstein (100%) and Goldman Sachs (for the most part). CSFB? not so much.

  • Angry MBA

    The Case Shiller 20 indicates gains of 6.3% since April 2009. It’s not exactly a bold call to say that housing has generally bottomed as of this date.

  • pas

    Housing as a percentage of GDP is only 2.2%? Tell that to all the people who are underwater on their mortgage. Rates are at all time lows but few takers. Can’t buy if you don’t have a job. Still, the bulls will be right one of these far off days. Keep the contrary arguments comng.

  • Roger Ingalls

    In those areas that were extremely overbuilt (AZ, NV, Central CA, and FL), much of the local employment was in the housing sector (construction and sales related). Those areas will not see new construction for a while, since the over capacity is so large, and the jobs so depressed.

    I think we will see new housing demand (including multifam) start to edge up sooner in areas that have modestly good employment (the coasts, the south, a few areas in midwest).

    Not sure when to put money in builders (gutsy move right now), but I’m looking for the ones that can build small and cheap.

  • boatman

    i am on the coast in n. florida… is real slow….my brother is a custom builder been buried(til now) for 35 yrs. at no-bid, cost plus his % residentials……its going to take awhile here, roger.

  • cdosquared5

    Was this report released today>?

  • Axios

    What drivel…amazing what passes as research today.

  • cc

    “Valuation is extreme cheap on all measures (price to income, price to rent, affordability index, rental yields). ”

    this statement is not true in Bay Area

  • Independent

    Thanks for the article. It’s important to look at both sides of an issue. They haven’t changed my mind, though.

    For one thing, their third point, “Delinquency ratios, charge-off and foreclosure rates seem to have peaked,” shows their lack of objectivity. No mention of the wave of mortgage resets that have started? What about the end of the moratorium on foreclosures? Yesterday, Diana Olick wrote an article titled “Bank Repossession of Homes Sets New Record in August” on her Realty Check blog.

    The nation’s banks repossessed a record number of homes in August, according to industry sources. RealtyTrac, an online foreclosure sale site, will release its monthly numbers on Thursday, but sources there confirm the number of repossessions will come in just shy of 100,000 for the month.

    That is the highest since the site began tracking in 2005. July’s repossession number was the second highest on record. The last highest was 93,777 in May of 2010.