As we progress to the end of 2014, my skepticism towards the U.S. housing market increases. In fact, the fate of home prices in 2015 is in question.
I don’t expect an outright collapse of the housing market like the one we saw in 2007, but I see the momentum in housing prices that began in 2012 and picked up in 2013 dissipating for several reasons.
First, according to Fannie Mae’s August 2014 National Housing Survey, the number of Americans thinking “it’s a good time to buy a house now” has hit an all-time low!
The chief economist at Fannie Mae, Doug Duncan, explained it best when he said, “The deterioration in consumer attitudes about the current home buying environment reflects a shift away from record home purchase affordability without enough momentum in consumer personal financial sentiment to compensate for it. This year’s labor market strength has not translated into sufficient income gains to inspire confidence among consumers to purchase a home, even in the current favorable interest rate environment.” (Source: “Consumer Housing Sentiment Loses Momentum as Income Growth Remains Stagnant,” Fannie Mae, September 8, 2014.)
Secondly, while in 2012 and 2013 we saw a massive influx of financial investors enter the housing market—they bought entire city blocks and bid home prices higher—these investors are no longer as active in the housing market simply because all the “good deals” are gone.
Look at the red arrow I have drawn in the below chart of the S&P Case-Shiller Home Price Index.
Chart courtesy of www.StockCharts.com
In the chart, you see that since April (where the arrow appears), home prices in the U.S. housing market have actually declined. (As far as we know, Profit Confidential is the only place that has been predicting lower housing prices.)
While the mainstream media was adamant that the housing market was improving, the opposi… Read More
The weakness in oil prices was pretty sudden and has changed the financial dynamics for many producers. Typically, weaker oil prices are slow to translate into lower prices at the pumps.
Domestic junior oil stocks have been hot commodities until recently. Many of the market’s best growth stocks in this sector continue to be expensively priced and finding value has been a difficult endeavor.
One company we’ve considered before in these pages is Northern Oil and Gas, Inc. (NOG). (See “My Favorite Bakken Oil Play.”) This outfit is based in Minnesota and operates in North Dakota and Montana. The stock is not expensively priced, and the company is back online with solid sequential growth in production.
Northern has experienced infrastructure problems and weather-related issues that have hampered well completions, but the company’s latest quarter was a big success and full-year 2014 production guidance was upgraded to between 20% and 25% growth over 2013, compared to previous guidance of 15%.
According to Northern, its 2014 second-quarter production grew 17% sequentially and 41% year-over-year to 1.4 million barrels of oil equivalent (boe), averaging 15,369 boe per day.
The company’s total oil and gas sales in the second quarter of 2014 increased dramatically to $121 million, compared to $80.0 million in the second quarter of 2013.
But management incurred a significant loss on the mark-to-market of a derivative instrument and on the settlement of a derivative instrument, which resulted in actual second-quarter revenues being knocked down to $74.6 million, compared to $96.0 million in the second quarter of 2013.
As a result of the derivative loss (perhaps the reason why the stock is still a value), Northern incurred a second-quarter loss of $4.4 million, compared to earnings of $25.0 million in the same quarter last year.
On an adjusted basis, net income in the se… Read More
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