I understand surveys matter. A survey like the Case-Shiller February housing survey that came out today, which shows a 3.6% decline to new lows in housing values, matters for certain.
That's pretty much a freefall indicator especially in markets like Atlanta, Chicago, Cleveland and Detroit.
But here's the issue that matters more than the broad survey: many areas of the country have stabilized including Miami, Phoenix and California and that's more important than the sweeping headline figures of Case-Schiller.
All of those markets, unlike Cleveland or Atlanta or Chicago, had heavy speculation. That's where the banks got hurt. That's what was ruining the balance sheets of American financial institutions. You clear the spec inventory that was built, where people were putting no money down without documentation, you get rid of a lot of the real excess inventory. You put it in stronger hands, hands that are often filled with cash, and you get a recovering market.
What about the non-speculative declining markets. They can continue to go down until employment growth returns. These markets are not as much a function of speculation as they are about not enough jobs and too many houses being foreclosed upon or built during a more halcyon period.
Now the Case-Shiller data has a history of being old by the time we get it. After all we were getting February data and here it is almost May.
I find the data from the regional and national banks that we just got when they reported earnings to be much more valuable. That data shows, without a doubt, that housing is bottoming throughout the country and more and more people are able to refinance using the government's HARP 2 program. That's right, that program is working and I think it will keep working.
What's the essence of the program? People who are underwater on their mortgages but have a job can get better terms. That keeps the foreclosures down which makes real estate throughout a given area worth more.
For example, both Wells Fargo (WFC) and SunTrust (STI) told us that HARP 2 is producing some pretty terrific numbers and has helped their businesses because they have worked with the troubled homeowners to get better terms.
If HARP 2 continues to roll I think that we will look back and say that Case-Schiller's freefall numbers didn't hold water with what is happening now. That's why I think that companies like Lennar (LEN) and Toll (TOL) are buys. That's why even DR Horton (DHI) seems attractive. You get employment to grow, you get more cash buyers in hard-hit markets, then you get the break you need to buy the banks and to bet more construction occurs.
That's what I think is happening now with the cash buyers. We just need the employment numbers to get better to allow the rest of the markets to strengthen.
I know after the last few employment reports that's a tall order. But when it happens I bet it will happen fast. And when it happens people will wish they bought now with rates low, housing start numbers about the lowest since they've been kept despite a doubling in the number of people in this country since they were last this low and a birthrate that has declined by 8% in the last three years.
That's a recipe for a move much higher not lower. I just wish that the survey had an ability to capture that trajectory because that's what really matters in the end.