On January 30 RealtyTrac realesed their annual report on U.S. home foreclosures. One of the highlights of the report is the number of homes there were “flipped” in 2013 rose to 157k. This was up 16% from 2012 and accounted for 4.6% of all home sales in America.
This was by far the most home flips since the data has been gathered (2011) and likely the most homes flipped ever, even more than 2006.
I draw this conclusion because in a similar report, also from RealtyTrac, the number of homes bought for all cash in 2013 blew away all the previous records, accounting for around 30% of all homes purchased in 2013 and over 40% of all December home purchases.
Prior to the financial crisis this number never reached above 10% as the traditional homebuyer was the primary buyer and seller of homes. Today the traditional homebuyer is nowhere to be found as the all cash home flippers, institutions, and builders are the ones purchasing the majority of homes.
The chart below from RealtyTrac sums up the real housing situation in America, showing that all cash purchases are at all time highs as well as institutional ownership.
Rainbows and Unicorns
The mainstream media and self interested housing “experts” of course focus on just the headline housing price data. They do as they always do and paint the prettiest of pictures for the public to buy.
Here is one self interested appraiser’s take on one particular market in California, “single-family home market will likely see price increases in the 12 percent to 15 percent range in 2014 as previously foreclosed homeowners look to buy houses again.”
There are so many things wrong with that statement I don’t know where to begin, but mainly, who is going to offer mortgages to previously foreclosed homeowners and in what world are back to back 15% yearly housing gains normal?
Perhaps this appraiser is thinking homebuyers won’t need mortgages, as has been the trend in 2013 as mortgage applications have fallen back to 1997 levels.
The number of mortgage applications has fallen over 60% from 2012 levels, resulting in a first time homebuyer that is now only 27% of home purchases. Throughout history first time homebuyers have made up around 40% of the market.
However tricked the media and pundits might be, the stock market sure isn’t.
Back in May something happened with the housing industry stocks; they were topping, and we took notice.
In an article written on 5/15 entitled, “Timber”, I spoke of the significantly declining lumber prices and how they were a big warning sign for homebuilder stocks. The S&P Homebuilders Index ETF (XHB) topped that same week above $32 and fell to below $29 within a month. Since then it has yet to recover that $32 price as lumber prices also remain below their peak in prices last March. Lumber’s chart looks like it also may resume its decline in price which will be another bad sign for homebuilders.
Many of the housing stocks still remain well below their May price highs as DR Horton (DHI) peaked near $28 (now trading around $24), KB Home (KBH) peaked at $25 (now trading below $20), and Lennar (LEN) now trades below $40 (having peaked at $44 back in the spring of 2013). (Watch the follow up video on lumber and housing stocks here)
Housing has been hit by another problem, though. After lumber prices tanked in March, in May interest rates started rising.
In numerous May issues of our subscriber provided Technical Forecast as discussed in my article on rising yields from November, we started shifting to shorter duration Treasuries. That move saved investors up to 10% in losses as yields rose (TLT), and shorter durations (SHY) lost much less than longer durations.
Housing has been hit by a double whammy over the last year and as a result has yet to recover its price highs. Is this a longer term housing top?