Confused by all the amusing arguments of a housing "recovery" (because if you believe in it, it just may come true.... maybe) in the sad context of a reality in which the economy is once again turning from bad to worse missing expectations left and right (for every report surprising to the upside, two do the opposite), corporate earnings and margins have rolled over, US states and cities and European countries are filing for default or demanding bailouts at an ever faster pace, and only headlines such as "stocks rise on hopes of more central bank easing" appear in the good news columns of mainstream media? Don't be: David Rosenberg explains it all.

From Gluskin-Sheff

HOUSING DATA SKEWED BY "UPSIDE-DOWNERS"

What is really driving whatever recovery we are seeing in terms of home sales and prices are the units that are so ridiculously priced — like at less than $125,000. These are where the multiple offers are coming into the fore — and then to be rented out. The reason is that this is the only part of the market that is truly "tight" because almost 30% of American homeowners either have no equity in their homes or less than 5% skin in the proverbial game (according to CoreLogic). These folks have to write their lenders a cheque to make a sale, so many are holding out until they can get a better price and the all-cash deals being placed by investors are allowing for this (note too that 45% of the nation's homeowners have less than 20% of equity in their homes).

According to data cited by the USA Today, the supply backlog where over half of homeowners are "upside down" on their mortgage is at 4.7 months'; in areas where "upside down" borrowers make up less than 10% of the market, the listed inventory is closer to 8.3 months' supply — it is in this mid-to-high end where prices are still vulnerable to downside potential — this is not the sliver of the market where vulture funds are looking to pick up a cheap unit to then rent out to the "boomerang" crowd.

As the charts below visibly illustrate, it is probably a little early to be celebrating the recovery in the U.S. housing market, despite the exuberance in the homebuilding stocks which only capture a small share of the overall industry. The market is healing to be sure, but is far from healed. Look at these graphs and draw your own conclusions.