PulteGroup, Inc. (PHM), Toll Brothers Inc (TOL): The New Housing Bubble Illusion

Meanwhile, supply is low in the existing-home market because a large swath of homeowners remain underwater on their mortgages and are thus unable to list their homes. Depending on the data source, anywhere between 19.8% and 25.4% of mortgages have negative equity.

“These homeowners owe more on their mortgage than what their house is currently worth, which means in order to sell it, they would have to come up with additional money at the time of closing to pay off their loan,” Zillow’s senior economist Svenja Gudell explained to me last month. “Since many homeowners are not in a position to do that, they cannot list their homes, greatly restricting the supply on the market.”

The residual impact of this shadow supply, if you will, is that it should act as a natural governor on prices. As prices increase, more homeowners will achieve positive equity and be freed up to list their homes. As they do so, supply will increase, which, in turn, will decrease the pressure on prices.

In fact, we’re already seeing this. The chart below, which I included in an article yesterday, shows the National Association of Realtors’ pending home sales index. As you can see, while the index value was slightly lower in June compared to May, both months were markedly higher on a year-over-year basis. In addition, recent data from CoreLogic showed that a total of 850,000 properties returned to positive equity over the first three months of the year.

The bottom line
At the end of the day, while it’s admittedly tempting to be attracted by the siren song of alarmism, there’s simply no reason to be concerned about a new housing bubble right now, or for that matter, any time over the foreseeable future.

The article The New Housing Bubble Illusion originally appeared on Fool.com and is written by John Maxfield.

John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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