Nobel Prize-winning Yale Economist Robert Shiller recently appeared on WealthTrack and offered some of his thoughts on where he’s been finding value in the stock market.
Fund manager Tom Forester, who was the only equity fund manager to make money in 2008 when the housing and financial crises rocked markets, says issues still lurk beneath the surface of the rebounding housing market.
While foreclosures and delinquencies have declined quite a bit, Forester tells Investor’s Business Daily that many foreclosed homes have been bought in recent years by hedge funds or wealthy investors, who wanted to rent out the properties to make money. But an oversupply of rental properties is curtailing their efforts. “Many hedge funds paid full price and more, leading to a price spurt,” Forester said. “Many of the early funds are getting out.”
Forester also says many home loans that have been reworked to create lower monthly payments are in trouble. “Most of those loans are likely to default within three years,” he said. And he says that rising interest rates have led to slowing refinancing activity, hurting lenders.
One lender that Forester does own: U.S. Bancorp. “We own (USB) because they have a strong balance sheet and good underwriting,” he said. “Loans in their portfolio don’t have credit problems. But their mortgage component is a (potential) head wind for them.”
Forester appears to have his Forester Value fund portfolio very defensively positioned, with healthcare and consumer staples being his two largest sector holdings at the end of the third quarter and about 25% of his portfolio in cash.
Yale Economist and housing guru Robert Shiller says that he doesn’t think the U.S. housing market is in “boom territory”, but he does compare the current environment to the start of the late 1990s/early 2000s housing boom . Shiller tells FOX Business Network that he thinks home prices will probably keep going up for another six to 12 months. But after that, he says he’s not sure, as he’s worried that an environment of housing shortages and record-low rates, which were driving prices higher, is ending.
The U.S. housing recovery has encouraged many investors in recent months, but Gluskin Sheff & Associates Chief Economist David Rosenberg isn’t sure the rebound has legs. Rosenberg tells CNBC that, while “we’ve certainly had a housing recovery,” the recovery has been in large part a result of housing starts — which plummeted during the Great Recession — catching up to underlying demographic demand. To keep improving, Rosenberg says more first-time buyers need to be involved. Right now, they make up only about 30% of buyers; if that number crosses 40%, Rosenberg says he’d be a believer in the recovery continuing. Rosenberg also says he thinks the stock market is “fully valued”, though he sees opportunities in non-cyclical dividend stocks.
While many believe the housing market has turned a corner, Yale housing guru Robert Shiller isn’t so sure. Shiller tells Bloomberg that while short-term indicators are up, that also happened in 2009, but the trend didn’t turn into a long-term one. Shiller also talks about the broader financial system, which he says has gotten “a little better”. And he says that we’re a long, long ways away from the climate of “irrational exuberance” that can lead to major market crashes.
Charles Schwab Chief Investment Strategist Liz Ann Sonders — whose calls on both housing and the economy have been quite accurate over the long term – says housing should continue to give the economy a boost in 2013.
“In an economy that continues to grow at a pace below trend, the lift from housing will become very important,” Sonders — who warned of a housing downturn in 2006 when few were thinking of it, and then said housing had bottomed a year ago when few believed it — says in commentary on Schwab’s site. She points to an array of indicators showing how much housing has improved over the past year, including homebuilder sentiment, home price gains, and declining inventories. She says the Housing Market Index from the National Association of Home Builders is also giving a good sign for jobs. “Over time, movements in the HMI have correlated very closely with movements in home sales and, most importantly, jobs (with a lag),” she says. “We’re are … now in the sweet spot in the relationship between the HMI, which tends to improve first, and the unemployment rate, which tends to follow with about a 15-month lag. Assuming the two remain closely aligned, we should continue to see a nice downward trajectory in the unemployment rate.”
“Housing has bottomed, and we’re heading into the typically strongest part of the home-buying season (spring),” Sonders concludes. “The multiplier effects are powerful and beginning to gain traction. There remain naysayers, but a lot fewer than there were a year ago.”
Yale Economist and housing guru Robert Shiller says he thinks housing prices will continue to rise for a few months, but he’s not sure the upswing will continue after that — and he doesn’t think another housing boom is coming any time soon. “A lot of people seem to think that if the market turns around, that means more of the same, meaning another big boom,” Shiller tells CNBC. “I don’t think that’s in the cards. We might see home prices go up a little bit, you know, a little bit above inflation, maybe. Not likely that we’ll see a real boom.”
Yale housing guru Robert Shiller says he’s still not convinced the housing recovery is real. Shiller tells CNBC that some 10 million homeowners are still underwater on their mortgages, and many will end up in foreclosure. Those foreclosures will add inventory to the housing market, he says, and economic risks at home and abroad are also a concern. “I still think it’s a risky market,” he says. Shiller also says that the potential elimination or reduction of the mortgage deduction as part of fiscal cliff negotiations could lead to a big shift from buying homes to renting homes.
Charles Schwab’s Liz Ann Sonders says that a rebounding housing market will have more of an impact than many believe it will have on the economy.
“People are still underestimating the impact that this is going to have,” Sonders said at the Schwab Impact 2012 conference, CNBC reports. “What people are underestimating is the ripple effect of confidence.”
Sonders says that “just about every metric in housing is starting to turn here,” pointing to builder confidence, home prices, and household formation, among others. “We’re finally having a surge in household formation. We have the right kind of supply and demand balance.”
With housing improving and the U.S. unable to rely on the developing world to boost growth as much as it has in the past, Sonders said it’s key that the U.S. avoid the “fiscal cliff”. And, while she says she still has some long-term concerns about the economy, she says the U.S. is faring better than other countries. “We are the cleanest shirt in a pile of dirty laundry,” she said. “It’s not stellar growth, but certainly the trajectory has improved relative to the rest of the world.”
Warren Buffett’s firm is continuing to bet on a recovery in the U.S. housing market, with one of its subsidiaries taking the lead in managing a new residential real estate affiliate network.
HomeServices of America Inc., a subsidiary of Berkshire’s MidAmerican Energy Holdings Company, will be the majority owner of the affiliate network, teaming with Brookfield Asset Management to offer a new franchise brand, Berkshire Hathaway Home Services, Bloomberg News reports. The move is the latest in a series of housing-related moves Berkshire has made, according to Bloomberg, which notes that Buffett’s firm has bought a brickmaker, won the loan portfolio of bankrupt mortgage lender Residential Capital at auction, and built up its HomeServices unit by making deals to acquire other brokerages.
“Berkshire Hathaway HomeServices is a new franchise brand built upon the financial strength and leadership of Brookfield and HomeServices,” Buffett, who this summer said the housing market was beginning to recover, said in a press release on HomeServices’ web site. “I am confident that these partners will deliver value to the residential real estate industry, and I am pleased to have Berkshire Hathaway be a part of the new brand.”