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Housing Data and Builders' Earnings Stink so There's No Real Recovery Yet

NEW YORK (TheStreet) -- The housing data today are terrible and the market seems to think Thursday's earnings reports from home builders are bad, too.

Builders sold new homes at an annual pace of only 406,000 in June, way below the 504,000 first reported for May and down 8.1% from even the revised May pace of 442,000. The numbers are 12% below last year, well below consensus estimates of about 475,000. The key to the mess was an 18% drop in the South, the largest new-home market among the four regions Census reports separately.

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The reason for the housing market's sustained woes is tough housing credit. Other factors like job worries and student loan debt have been discounted in recent months, as better studies have shown the payment burden from student loans actually declining for most people and today's report on jobless claims showing the lowest rate of layoffs since 2006.

If New Yorkers got laughs from the crank gubernatorial candidate four years back who became a YouTube sensation for complaining that "the rent is too damn high," we can all have a much grimmer riff now on the idea that the credit crunch is too damn tight.

Housing's issue is not interest rates, which are at their lowest since last July, according to Ellie Mae (ELLI). With rates falling again, even tepid wage growth isn't keeping people from affording homes.

It's becoming increasingly clear that the problem is credit, period. Federal Reserve Chair Janet Yellen and other officials have said banks are wary of making loans because they still fear that Fannie Mae (FNMA) and Freddie Mac (FMCC) will make them take back loans the government-backed finance companies buy from lenders if borrowers miss payments. The problem is Dodd-Frank rules that are still being interpreted and revised, and everyone from Yellen to Federal Housing Finance Agency chief Mel Watt agrees a fix is needed.

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Even people with decent credit can't get homes. According to Ellie Mae, the average denied mortgage now is for a borrower with a credit score of 686, well above the subprime (620 or lower) level. Denied loan applicants proposed an average down payment of 18%, ample by historical standards. Their other debts -- cars, student loans, credit cards -- were generally higher than conservative guidelines allow, but on average they were shopping for house payments that fit their incomes, Ellie Mae said.

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