Just How Healthy Is the U.S. Housing Market?

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Aug. 19 (Bloomberg) -- Bank of America Merrill Lynch Senior U.S. Economist Michelle Meyer discusses the U.S. housing market on “Bloomberg Surveillance.” (Source: Bloomberg)

I think we have to remember when we think about the housing recovery, it is a gradual recovery.

We have two focus on the end result.

People living with parents, people doubling up.

What is the trajectory of household formation?

I am in the camp that household formation has been artificially depressed by the week pace of the recovery.

It is not a permanent slowdown.

We will ultimately see some rebound.

When that occurs, we have to build in order to accommodate the increase in households.

I think we will see a high trajectory of homebuilding, it is a function of the slow progress of the recovery.

Exogenous things and then the inside things, is the recovery of the last three years exogenous -- foreclosures, rich guys buying houses?

We are waiting for the normal housing recovery.

There's been a lot of special factors.

When you think about the initial stages of the recovery, it came very much from investors buying distressed properties.

People who purchase properties.

In order to see the real momentum build, you need to see the typical feedback loop, people have access to credit and they look to buy.

It is happening slowly.

This is the conundrum now.

While we wait for it to happen, here is existing home sales, right back to where they were five years ago.

The price of an existing house is near where it was in 2006. problem solved.

For the haves that took advantage.

The case-shiller price index is still off the high.

Never let the facts get in the way of a story.

What we were looking at was median home prices from national association of homebuilders.

There will be sampling skews and the fact that more of the homes are sold to higher end.

The case schiller index is an arms length transaction, probably a better read.

Home prices have seen a pretty nice pop higher since those lows.

How big a presence are institutional investors in housing?

I they out for good, they have been pretty quiet, what would it take for them to get back in?

I think the reason institutional buying has calmed down, the share of distressed transactions has come down.

You do not have the same amount to purchase.

For institutional investors to buy properties to get into the market, it has to be the right type of purchase.

One where you can buy in bulk.

And that there is a rental market for those properties.

The endgame for a lot of these institutional investors is to buy distressed properties, renovate, and rent out for a period of time and get that return.

You are not seeing as many of those purchases.

Could they leave in exodus?

Ex-im -- good question.

Right now, there has been a conversion to ownership to rental from the institutional investors.

But what is the ultimate plan?

Either looking to sell the property once home prices get to a certain level.

We have heard anecdotally that a lot of investors are in it for the long-term and aca longer-term trajectory for rental.

To a fair extent, that makes sense.

Going back to the people now that are graduating college, 48 for a period of time, they will rent before they buy.

People will be in starter rentals before they buy.

Housing starts and building permits, over the past two months, each has declined.

This morning, we are expected to get a rebound.

Is this noise and we should try not to look at monthly data?

We should look at monthly data because it is high frequency.

Housing statistics on a monthly basis are incredibly noisy.

Looking at the three month moving average to get the trend.

Certain components, you can get swinging at 30% a month, it will likely be a payback.

There are a lot of special factors so you have to be careful.

What do you see as a sell side analyst, if you talk to them, is the kind of house we are going to buy in the future differently or are we just going back to 2004, 2005, we argued about the granite countertop.

People are making homes out of container ships.

It's cool.

You would know that.

Is it the same housing economy of 2004 and 2005, do we all want eight veterans and granite countertops -- eight veterans and granite -- eight bedrooms and granite countertops?

People still want nice appliances but there is a shift towards urbanization.

Maybe you can have a smaller property that is closer to the city center.

The big road for toll brothers is building apartments.

We see that right up lexington avenue.

The urbanization, a one-bedroom half-bath.

As we anticipate a federal reserve rate increase in 2015, what is your projection of the rent versus buy cancellation?

The idea of what is affordability look like.

I think that we have to make one assumption, if and when we get rate hikes, it will be in the environment when the economy is stronger.

Income growth is picking up.

The housing market should be able to handle that rise if it is coming with that stronger economy.

It also means greater confidence and will hope to allow for some greater lending.

That combination of events, if it happens in that respect, would be supported for housing.

If you get a rise in and straight -- if you get a rise in interest rates, it would be more troublesome.

In spring we had a huge rise in interest rates without larger growth.

It was problematic for the housing market.

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This text has been automatically generated. It may not be 100% accurate.

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