“Effective negative equity” is central to my “structurally broken housing market in need of years of de-leveraging before a “durable” bottom can occur”, theme. I have been pounding the table over “Effective” negative equity for years and finally it’s mainstream. Chances are this one report will be blown over. But like with ”shadow inventory” — when this thesis grabs hold — ultimately everybody will be talking about it, it will raise uncertainty, and economists will have no choice to respect the “math”. And the math requires housing sector estimates have to be ratcheted down. This literally changes everything with respect to housing ‘demand and ‘supply’ fundamentals.
Housing is going through a demand spurt no doubt. The smart money was the institutions who began to buy two and three years ago. On Twist — and a plethora of media coverage on Wall St buying bulk housing pools and participating in County courthouse foreclosure actions at year-end 2011 – everybody become a distressed house flipper or rental professional.
I think there is a good chance the housing market is about to experience mid-year volatility never seen before mostly propagated by malinvestment from P/E funds using cheap money to buy up all the distressed housing and turn them into rentals. There is no ”housing shortage” problem in the country with respect to “places to live”. When including SF construction, MF construction, lack of demolition, the past 5 years of foreclosures of vacant house, rentals and 2nd houses, and lackluster household formation I argue there is plenty of houses out there in which to live. There is simply a transitory dislocation with respect to houses in the “for sale” bucket. Builders are being opportunistic and capitalizing on this right now. But if I am right and the ”housing shortage” problem is only a allocation mirage then forward estimates are wildly aggressive. And obviously, if this is still a free market and demand is strong enough this supply will find a way to market.