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Thinking QE3 Will Result in a New Housing Boom? Think Again

Housing bulls have overlooked some very real obstacles

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Lean Banks Can’t (or Won’t) Lend

Another issue is the fact that banks have had to lay off so much of their mortgage departments during the downturn that, even if there was a boom in qualified buyers banging on the table for a loan, there’s isn’t the staff to serve them.

Consider this report from, where banking insiders are quoted about the backlogs and bottlenecks — to say nothing of the banks reluctant to move rates down and give up some margin on the loan:

 “’In the very near term [QE3] has virtually no transfer mechanism whatsoever to the customer,’ said one executive at a leading lender, who requested anonymity. ‘Originators are massively backlogged in terms of origination volumes.’

Steven Abrahams, MBS analyst at Deutsche Bank, noted that the yield on mortgage-backed securities fell more than 30 basis points after the Fed announcement.

‘Very little of that is likely to make it through immediately to consumers,’ he said. ‘There’s nothing that will force mortgage originators themselves to lower the rates that they’re offering to consumers. Right now they have their hands pretty full in terms of the pipeline and managing paperwork and making loans. These folks are busy. There’s not a bunch of people on long cigarette breaks.'”

Builders are Booming, But …

I think the lion’s share of the rally is already behind the homebuilders (read more about how housing stocks risk a crash). Best case scenario is that they have outkicked the coverage, and that the stocks will move sideways as the much-anticipated sales start to come in over the next several months.

But a darker scenario is that they have built out too fast and that the rush to finally tally new home sales has resulted in an overeager industry and investors who jumped the gun.

This is a serious risk for those buying housing stocks — from PulteGroup (NYSE:PHM) to Ryland Group (NYSE:RYL) to Toll Brothers (NYSE:TOL) to D.R. Horton (NYSE:DHI) — but a bigger concern for the general public isn’t the profits of builders. The real concern is that if we are indeed seeing a recovery in housing… well, that doesn’t mean squat for housing jobs. Take a look at this chart.

Click to Enlarge

Fundamentally, QE3 is designed to stimulate lending and spending and thus get the economy moving. And on the most basic metric of jobs created in an industry supposedly in “rebound,” this recovery falls way short.

That means you have to wonder whether there will ever be a dramatic recovery — in housing jobs, in housing prices and in housing sales.

Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

Article printed from InvestorPlace Media,

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