US Housing not so fast

Delinquency Rate On Single-Family Residential Mortgages, DRSFRMACBS, quarterly, measured in percent

As usual, the US media is pushing lots of happy news about the housing market, specifically that the Case-Shiller Home Price index has surged over the past year. But lets look deeper.

The chart above shows the Delinquency Rate On Single-Family Residential Mortgages (DRSFRMACBS, in percent, measured quarterly, data from all commercial banks) with the vertical gray bars indicating recessions. Delinquencies are of interest since not only do they indicate consumer financial stress but we know that a large percentage of mortgage holders who are late in their monthly payments progress to actual defaults.

A few observations: looking at the period since The Great Recession ended in June, 2009 we see that while the delinquency rate is clearly falling it is much, much higher than before economic contraction, 10.42% to be specific. For the same period of time preceding the Great Recession the delinquency rate ran at 1.86%, substantially lower and inactive of a large number of homes that will eventually enter the market as the owes eventually default.

Is the happy news warranted? I’m not convinced, as mentioned previously, most activity in the housing market is being driven by institutional investment, NOT the traditional purchasers of homes. In other words, this is neither a sustainable trend, nor one that will drive significant job creation. For completeness I’ve presented the actual Case-Shiller data below. Nice bounce but off a substantial low.

Case-Shiller 20 City Home Price Index, SPCS20RNSA, 2003 to 2013

Case-Shiller 20 City Home Price Index, SPCS20RNSA, 2003 to 2013

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