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The housing sector got a nice boost recently, when the Case-Shiller Index reported a nearly 11% rise in March home-sales prices from the same time one year ago. Once again, talk ensued about how housing has really turned a corner and will be the fuel necessary to drive the economic recovery.
But, all is not as it seems. Sure, housing is booming in the high-end market, where the well-heeled are grabbing up jumbo loans in excess of $417,000 to buy expensive homes. At the other end, moneyed investors are buying up scores of foreclosures at a time -- or anything at all with a price tag of $400,000 or less. The only people being left out, it seems, are the people in the middle.
Luxury market is doing just fine
Jumbo loans are back, and these mortgages -- which start at $625,000 in some affluent areas -- are being given out like candy to those with the wealth to back them up. Once considered risky because they are not backed by Fannie Mae or Freddie Mac, lenders are falling over themselves to make these loans, driven by a securitization market dominated by entities like Redwood Trust (NYSE: RWT ) and JPMorgan Chase (NYSE: JPM ) . Earlier this month, Redwood offered its seventh securitization backed by jumbos, and JPMorgan just recently announced its second offering of the year, as well.
Homebuilders have seen their fortunes rise, too, particularly those playing either end of this particular boom. Luxury builder Toll Brothers (NYSE: TOL ) reported a sweet 46% increase in net income from the first quarter of 2012, aided by an ability to tack on price increases averaging $26,000 per house -- bringing the average price of a Toll house to a cool $577,000. Beazer Homes (NYSE: BZH ) is playing the single-family rental end of things, via its Pre-Owned Homes Division, a two-year old venture it started with Kohlberg Kravis Roberts (NYSE: KKR ) .
Meanwhile, back on Main Street...
Unfortunately, the largest contingent of would-be homeowners has been pretty much left out in the cold. Mortgage applications fell 9% last week, for the third week in a row, and mortgage rates rose, which will likely push some prospective buyers out of the still-sluggish market.
Indeed, according to Zillow (NASDAQ: ZG ) , this corner of the housing market is still hurting, with many stuck in the houses they presently own. Approximately 22 million people don't have enough equity in their current home to make a move, and 44% of those with a mortgage still owe more than their home is currently worth. This fact should surprise no one, since a recent study by the Federal Reserve Bank of St. Louis shows that the average American household has regained a measly 45% of the estimated $16 trillion of household wealth lost since the financial crisis.
All this doesn't bode well for a true recovery. Housing experts David Blitzer, Robert Schiller, and Karl Case note that, despite some gains, many issues remain that will keep the market from regaining its healthy glow -- including a lack of financing.
Unfortunately, this last headwind doesn't show any signs of abating, since banks have been tight with mortgages in the current low-rate environment. Even with mortgage rates rising, stricter regulations regarding mortgage lending are scheduled to go into effect next January, courtesy of Dodd-Frank, and they will likely slow the already snail-like pace of mortgage originations.
Schiller notes that the housing market is trying to crawl out of a very deep hole, and it will take extra time to mend. In the meantime, however, the current housing revival falls far short of the type needed to bring about a lasting recovery.