Ivy Zelman of Zelman & Associates was interviewed on CNBC yesterday (and formerly of Credit Suisse, but she left when her “superiors” told her it would be better for business if she stopped the completely correct bearish housing forecasts and engaged in incorrect happy talk about housing).Zelman is still bearish and made some interesting points. Among them:
Foreclosures were under a moratorium since last November that is now being lifted so expect them to rise in the coming months.
The uptick in home sales is due to increased foreclosure sales. This is happening because “Real Estate Owned” (REO) prices are being cut to move inventory. This means that homes prices are continuing to fall so home equity is being further eroded. This is not a good situation for homeowners and banks that will be forced into further writedowns.
The majority of homes are built by “two guys and a pick-up” and not the Centex, Pulte or Toll’s of the world. These small-time home builders continue to get killed, which is why starts are collapsing.
Homes were over-built during the boom. Zelman estimates the supply of homes is 4 million greater than demand. This is why homebuilders are getting killed. Home prices cannot advance until this inventory is worked off. This will take more time. There is no reason for starts to recover with excess inventory homes on the market. This commentary is from Bianco Research.