The housing analyst community is enthralled again today by good topline news reports. Housing starts increased according to the Census Bureau, though there’s substantial margin for error in that report, plus or minus 10%. The estimate of 750,000 seasonally adjusted annual housing starts was actually below expectations of 768,000, but up year over year. Then we got the existing-home sales report from the National Association of Realtors, showing the highest number of sales since mid-2010. Inventory is down to a level of around 6.1 months of supply.

This paints a picture of an improving housing market. Homebuilder confidence has risen, a metric connected very strongly to this improving narrative on housing. Today’s a brighter day. Things are humming along. Don’t worry, be happy. The increase in prices even brought people out of negative equity, we’re told! Somehow the cancellation of negative equity through attrition, i.e. foreclosures and short sales, doesn’t get discussed in that analysis.

And I keep going back to this key point about the housing recovery story in 2012.

Housing demand has improved this year, largely because investors and other buyers who have been paying in cash have scooped up quantities of foreclosed and other distressed properties. While lending to non-owner-occupants is down sharply from five years ago, it rebounded last year, rising 10% from 2010.

To the extent there is increased demand and increased sales, it comes from the fact that big, big money has gotten off the sidelines and stated to scoop up all the excess properties. They were convinced by the stories of a “bottom” in housing too, and there’s some sense in which this all becomes a self-fulfilling prophecy. People have confidence which leads to purchases and more building and that leads to good statistics which boosts confidence. It becomes a virtuous circle. But the question has to lead to, what does the physical market for housing look like on the ground after all is said and done. What does it look like when out-of-state hedge funds and investors buy up 42% of all the foreclosed housing stock in Oakland? What does that mean for rents? Maintenance and upkeep? What does it mean that those investors are looking all to eventually sell at a higher price, essentially fueling another speculative bubble? What happens when they all try to sell at once? What happens if they manage to pull off this securitization of rental revenue streams? What does it mean that big banks profit from almost all sides of this deal, from lending the investor groups the capital to buy the properties, to aiding in the securitization end? Does that mean that they will stop at nothing to fuel this bubble just like the last time? What does it mean about the changing character of neighborhoods? What if the hedge funds buying up these properties are holding them for eventual sell-offs to developers? There are a ton of unanswered questions.

It’s worth looking beyond the numbers and the happy talk and at what the housing market will look like for human beings over the next few years.

David Dayen

David Dayen