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Reality Check on 2014:  Consumers Still Cheerful but Analysts Turn Sour

Reality Check on 2014: Consumers Still Cheerful but Analysts Turn Sour


“The pickup in housing has been slower than I would have anticipated,” Warren Buffet said on CNBC las week.  the Berkshire Hathaway chairman and CEO said in the interview that aired Friday. Buffett said that housing is better than it was a couple of years ago, “but if you look at transactions and pending transactions in March, it’s not booming.”

The Sage of Omaha is not alone in his frustration with the housing recovery.  A number of analysts and housing economists are raising alarms over anemic spring sales reports and lower than expected monthly price gains.  Many, including Fannie Mae’s economists, are lowering their estimates for sales and prices.

Consumers apparently have not gotten the news.  They remain rosy about homeownership even though not enough of them are taking the plunge themselves.

Consumers Still Positive in New Fannie Survey

Americans’ outlook toward the housing market continued to improve in April, according to Fannie Mae’s April 2014 National Housing Survey released today.  The share of respondents who believe now is a good time to sell a home increased for the third consecutive month to an all-time high of 42 percent, an encouraging sign since many potential homebuyers will need to sell a home before entering the purchase market. In addition, the share of respondents who say now is a good time to buy a home remained steady at 69 percent following a gradual climb since the beginning of the year. Notably, although consumers remain generally split regarding their ability to get a mortgage, fewer respondents are concerned about losing their job – which may encourage potential homebuyers to enter the market.

“Our April survey results suggest that consumer confidence is moving in a positive direction,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Consumer attitudes about the current home selling environment have improved and now are at the most favorable level we’ve seen in the survey’s four-year history. Consistent with Friday’s upbeat jobs report, concern about job loss among employed consumers also has hit a record survey low. These results are in line with our expectations for increased housing activity and gradual strengthening of the housing market going into the spring and summer selling season.”

However, Fannie’s own economists are not convinced that everything will be OK.  This month they lowered their forecasts for the median 2014 price for existing homes from $219,000 to $209,000 and they dropped their forecast for total existing home sales in 2014from 5,139,000 to 5,039,000.

“Where are the First-time Buyers?”

In recent days, a number of housing analysts and economists have also revisited the forecasts they made at the beginning of the year in light of the poor showing housing markets are making during the spring sales season.

“Where are the first-time buyers,” asked DoubleLine’s Jeffrey Gundlach at the Ira Sohn investment conference. Job prospects are bleak and many young adults are struggling with student loans, he said. Case-Shiller indicates rents will continue to rise, making it tougher for potential buyers to save for down payments.

“Since 2012, almost every economist has predicted that the housing recovery would continue into each coming year and would be a key driver of economic growth. That was again the plan for 2014, but with the housing recovery now on the ropes those same economists are perplexed as to why. Yet, “hope” remains that the recent slowdown is just a “weather related” casualty,” wrote Lance Roberts of STA Wealth Management recently.

“For me, I now get to say “I told you so.” The slowdown in housing is not due to the “weather.” It began prior to the onset of the recent winter blasts. Nor will reduced distressed sales, delinquencies, negative equity or rising inventories salvage the predictions. These are all indicators “OF” the housing market, but not what “DRIVES” the housing market. The real answer to the slowdown in housing is not so difficult to comprehend and is something I have argued heavily in past missives as listed below:

The housing market is driven by what happens at the margins, Robert said. “At any given point, there are a finite number of people wanting to “buy” a home and those that have a “for sale” sign in their yard. As with all markets, changes in the housing market are driven by the “supply/demand” equation.”

Two weeks ago S&P’s David Blitzer summed up the situation.  “Recent reports on housing show weakness despite continued rising prices.  New Home sales in March were down 14.5% from February and 13.3% below March 2013.  Sales in the northeast were up while the other three regions were all down… Despite the year over year gain, housing starts remain under one million units at annual rates, a pace that is too weak to meet demographic growth.  Existing Home Sales aren’t making up for the new home weakness. Existing home sales were 4.59 million at annual rates in March, down 0.2% from February and down 7.5% from a year earlier.  The weakness was in both single family homes and condos and coops.”

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