The U.S. housing market is in trouble... again.
As I write this, several housing stocks I recommended my Short Side Fortunes subscribers get in on are down fairly sizably today. One stock is trading right now at $39.85. If it breaks below $38, that's bad news. Another is trading at $23.75. If it breaks below $23, that's bad news. And yet another is trading at $31.05. If it breaks below $30, that's bad news.
That will be good news for the shorts, but bad news for housing.
Why are there still dark clouds over our supposed economic recovery? We're five years on from the mortgage meltdown, after all, and housing prices have bounced back dramatically and interest rates are at near-record lows.
I've been saying it all along. The housing rally is fabricated. It is, as Pete Townshend sang in The Who's last great single, an "Eminence Front"...
An Eminence What?
The so-called resurgence of the U.S. housing market is not about individuals and families buying back into the market, though of course some have. Home prices have bounced back because of institutional buyers paying cash for "affordable" housing.
I'm talking about the homes that were bid up when banks were giving mortgages away. These are houses in the $200,000 to $450,000 range... you know, the ones that banks foreclosed on in the tens of millions.
Institutions with cheap borrowing capabilities have been buying, with cash, foreclosed homes hand over fist in order to rent them out. And now they're securitizing packages of those homes and selling interests in pools of them to other institutional buyers looking for decent-yielding investments.
It's a trade.
Traders bid up those homes. It's not about a real recovery in housing.
Like I said, it's a trade.
As far as more expensive homes go, the buyers there are mostly foreigners taking money out of their respective countries - China, Russia, Ukraine, Latin America, Europe, South Africa, South Korea. These are people with money who want to park it here in real estate.
After all, there's more to gain from homeownership than 2.5%-yielding 10-year U.S. Treasury securities.
And the high, high end? How high is the high, high end, and what does it tell us about the state of the housing recovery?
Here's how high: I'm talking about homes well north of $1 million. When I'm not at home, I'm usually back and forth between Miami and the Hamptons. And the prices of "luxury" homes there are skyrocketing.
The 1% never had it so good.
Anyone out there looking for a $10 million weekend home in the Hamptons? Good luck finding one. Inventory is tight because there are so many buyers.
That would be well and good if there was some trickledown to the rest of America. But there is no real housing "recovery."
The housing recovery is an institutional trade. It's a lot of cash-rich people trading foreign assets for U.S. assets.
Make that "trading up" because their portfolios are spilling over with gains.
The "recovery"... it's an "Eminence Front." The folks in Washington and Wall Street are so insecure that this is the pose - the front - they're taking.
Well, they're not only insecure - they're transparent, and so I can see right through them.
The U.S. Housing Market: I've Got That "Yogi Berra" Feeling
Sure, I could point to the lack of decent full-time jobs. Or that wages haven't budged. Or that low interest rates haven't trickled down to benefit average Americans. There are too many things to point to... but this isn't about that.
This is about what happens next.
Where is housing headed?
Some of you might believe the recovery will pick up steam and middle-class Americans will come back into the market and that the American Dream is still alive.
It isn't. It's a Rental Dream now.
Middle Americans aren't buying homes in droves again, even though last week the national average for a 30-year fixed mortgage was 4.33%. And for a 15-year mortgage, 3.41%. Or that a Federal Housing Administration-backed 30-year fixed loan would cost you only 4.04% annually.
It worries me a lot that middle-class Americans aren't buying houses.
I'm feeling déjà vu - and it worries me.
Non-bank mortgage lenders (because the big banks aren't lending like they used to) are growing their share of mortgage originations and refinancings. And they're selling the loans they make to Fannie and Freddie, as they all did before the crash.
The Federal Housing Finance Agency, which supposedly regulates Fannie and Freddie, just released its Office of Inspector General's latest report on non-bank lenders. And the folks there are worried.
They're worried because in 2012 one of the top 20 sellers of mortgages to Fannie and Freddie, who they knew had previously engaged in "abusive lending practices," was found to have "deficiencies" and insufficient "fraud prevention" practices. Oh, what a surprise. They were cut off from selling their mortgages to F&F by the Federal Housing Finance Agency in 2013.
Probably a lot too late.
The Inspector General is worried that Fannie purchases from non-bank lenders rose to 47% of all purchased mortgages in 2013 from 33% in 2011. For Freddie, the numbers are just as troubling. From 2011 through 2013, the smallest mortgage lenders, those below the top 50 mortgage originators, increased their share in Freddie to 43% of mortgages sold from 24%.
What's the problem with these smaller non-bank lenders making loans and selling them to the government-sponsored enterprises?
They're not banks, they aren't regulated like banks, they don't have capital like banks, and they aren't going to be around when it comes time for them to repurchase the crappy loans they're making.
It's déjà vu all over again.
All this is worrying me. As the U.S. housing market goes, so goes America. Remember that.
More from Shah Gilani: Outstanding U.S. student loan debt exceeds $1.2 trillion, and now those who owe are preyed on by a new parasitic source. Is the Great American Dream turning into a scam?