Inventories are tightest on the low end of the market, where investors came in and bought most of the distressed properties and are now holding them as single-family rentals. There is about a four-month supply of homes priced under $100,000, while there is around a twelve-month supply of homes priced over $500,000. That’s why sales of those low-end homes are down 16 percent from a year ago, and sales of higher-end homes are up 25 percent, according to the Realtors.

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“The housing shortage is going to continue,” claimed Yun, who says the builders need to ramp up housing starts by 50 percent. He admits that is unlikely to happen due to land, labor and supply constraints.

Weak supplies are pushing home prices up far faster than wage growth, which is keeping first-time buyers especially on the sidelines. These buyers made up just 30 percent of the market in March, compared to the historical norm of 40-45 percent. They just can’t compete with all cash investors.

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But if prices get too high, investors could leave the market. Their share was already down in March to 19 percent compared to 22 percent just one month ago. The danger is that they will start to unload the homes they own, which would bring much-needed supply back but which could also turn home prices in the other direction.

Article source: http://www.cnbc.com/id/100660999

Foreclosure activity nationwide has now fallen for 26 straight months on an annual basis, according to RealtyTrac, but the large overhang of distress keeps that drop in perspective.

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“While this metric continues being a mild positive for the builders, we do not see it as a meaningful equity driver, but instead, just as another positive data point in the early stages of the housing recovery,” writes ISI’s Stephen East, who also notes that newly started foreclosures are at a 71-month low.

Much of that drop is due to aggressive, principal reduction loan modifications by the nation’s five largest banks under the Mortgage Servicing Settlement. They are also ramping up short sales, which have now surpassed sales of foreclosed homes. Those foreclosure mitigation strategies are at risk from the fiscal cliff. If Congress does not extend a tax relief law on this debt forgiveness, which is scheduled to expire at the end of this month, borrowers will likely reject these loan modifications and short sale offers, given that they would then involve a huge tax bill.

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Article source: http://www.cnbc.com/id/100311070

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