The International Monetary Fund has some interesting analysis (pdf) on US housing prices, with emphasis on comparison between rental rates and pricing, including some detailed data on the potential for regional corrections. Skip the writeup (for now) and head straight to the graphs at the end. (h/t Paul Kedrosky)

And in the vacancies column…

As of the second quarter - vacant home rates dipped about a quarter point to 2.8% while rental unit vacancies continued to hover in the 10% range, according to this analysis compliments of Calculated Risk.

CalculatedRisk also noted that the homeownership rate has now retreated to mid-2001 levels, meaning the ownership rate is closing in on a 50% retracement to 1995’s jump-off point.

Newton’s Law prevails?

Homeownership rates jumped in 1995, and didn’t look back for a decade. According to Case-Shiller data points for its 10-City Composite, it took prices several more years to realize what was going on (click for larger view):

I looked at the 10-City because it had the most consistent data for all years, but I believe similar price action would, with few exceptions, be similar to most places in the US.

Bernanke Says `Saving Glut’ Still Helps Lower Rates

Riddled with conflict. The savings glut is not domestic, the dollar is weak, there’s pressure to lower rates, and inflation lingers in staples. Mortgage rates have de-coupled from Treasuries - rates are dropping, but for lack of mortgage demand.

Meanwhile…

Former Fed Chairman Alan Greenspan adds insult to injury by taking a shot at US housing prices (and notably in a foriegn paper).

Mr Greenspan said he would expect “as a minimum, large single-digit” percentage declines in US house prices from peak to trough and added that he would not be surprised if the fall was “in double digits”.

Greenspan no longer has his hands on the rate button, but it seems the button is now broken (and he knows it). He’s no stranger to conflicting commentary as of late either.

UPDATE: Ok, maybe the button is just a little sticky.

Forbes just posted a graph showing the expanding gap between median home prices and median wages, based on data garnered from the National Association of Realtors and the Social Security Administration.

Now, a whizbang economist could probably enhance this analysis by commenting on the relative interest rates during the period (taken from Ibbotson), the rising mortgage and consumer credit levels (from the Federal Reserve), and even the balance of trade between the US and foreign countries (from the US Department of Commerce). He or she could go on and on about how the difference between the two elements means housing prices are primed for a severe downturn or we are headed for depression-era styled times. Others might expound upon the information as a sign that hard assets are the place to be, and the numbers reflect good times, particularly increasing wealth versus working hours.

I am no economist. I walk my dog around my neighborhood each morning and each evening. I see cars parked on the street in front of houses with large two car garages.

Based on my data I still thought the graph needed a little work:

The savings rate has been negative for an entire year only twice before — in 1932 and 1933 — two years when Americans were having to deplete savings to cope with the massive job layoffs and business failures caused by the Great Depression.

This time the reasons for the negative savings rate are vastly different. Americans are spending all their incomes and then some because they feel wealthier because of the soaring value of their homes, which for many Americans is the largest investment they own.

But analysts cautioned that this behavior was risky at a time when 78 million Americans are on the verge of retirement. The baby boomers start turning 60 this year, which means they can begin retiring with Social Security in just two more years.

So says the Associated Press, via Taipei Times (just in case some US media outlet screwed with the story).

After setting records for five straight years, sales of both existing and new homes are expected to decline this year under the impact of rising mortgage rates. The weaker sales will translate into slower price appreciation which in turn will slow consumer spending, analysts are forecasting.

And what if housing price “appreciation” goes negative as well? It’s not the first time I have heard the “D” word.

Michael Milken once said “It isn’t okay to leverage to buy overvalued assets,” and I have been sticking to that adage for a while. Maybe the buying window is about to open, and maybe it is not, but Alan Greenspan has certainly become very chatty about asset price euphoria. I recollect a trader friend of mine saying that houses are trading like bonds, and if you read the article above closely, you’ll see that Greenspan might just think so too.

What’s the catch?

Many surmise that our consumer economy has been driven the last few years by housing wealth. I agree, mostly because all my friends keep refinancing their homes and buying new cars with the cash-outs. Then, in the midst of some new records for housing sales, we get hit with some unexpected twists. A couple of hurricanes, and record energy prices, and now it seems consumers are getting scared. Are these surprises the root cause of the sudden turn, or just the “tipping point” of exhaustion for a horse that has been running way to long?

My first inclination is the latter, but that opinion there really doesn’t matter. It seems regular interest rate hikes will be necessary to keep a gallon of gas below six bucks, and a two-by-four under $10 - the ten-year treasury yield won’t stay tame much longer because some of these rising prices are beyond natural control. And all those interest-only loans and HELOCs start maturing right around the corner. If you didn’t catch the omission above, Milken also said that leveraging assets was worse when the cost of capital reached double digits. If you take a look at the amortization schedule of a 5-year IO mortgage after maturity, you’ll now get the point.

If there is indeed a tumble in asset prices, those that are liquid will likely see some great buying opportunities, even if it is at someone else’s expense.

“Chance favors the prepared mind.” - Louis Pasteur

“What goes up must come down” applies faultlessly to physical matters. But I have heard every excuse as to why it can’t happen to housing prices. Location, short supplies, and “no chance interest rates will ever rise above 6%” have all been used as reasons.

The Brits used the same reasoning, and already some are paying for that straw logic, with pain. Read No feelgood factor as house prices suffer worst fall in 10 years from the Guardian Unlimited, then tell yourself it will never happen to you.