Housing Market
The housing market is comprised of buyers and sellers of homes. Information on the housing market encompasses the supply and demand for homes as well as the inventory level of unsold homes. In markets around the country and different nations, you will have a natural progression of demand and supply. In some markets, there are new citizens moving to the city creating demand and, unless there is enough supply to match this demand, prices will rise. Income levels and mortgage rates also play a role in determining how many transactions occur in any given housing market.
Gone Are the Days When Municipal Bonds Were Safe
By Michael Lombardi, MBA for Profit Confidential
Municipal bond investors beware!
On June 14, it was announced that Detroit will not make a $39.7-million payment on unsecured municipal bonds worth $2.0 billion. This makes Detroit the most populated city to default on its debt, after Cleveland, since 1978.
The Emergency Manager, Kevyn Orr, who was sent by Michigan state to look over Detroit’s budget deficit told reporters in a news conference on June 14, “We have to strike a balance between the legacy obligation to our creditors, our employees and our retirees, and the duty we have as a city to 700,000 residents to give them lights, police, fire, emergency management, clean streets.” (Source: “‘We’re Tapped Out’: Detroit Emergency Manager Proposes Plan to Creditors,” CBS Detroit web site, June 14, 2013.)
As horrific as this news may be to the mainstream media and the politicians who say the U.S. economy is getting better, it shouldn’t be a surprise to Profit Confidential readers in any way. I have been harping on about the growing problem of cities and municipalities in financial trouble in the U.S. economy, and their effects on the municipal bond market, for some time now.
The “Motor City” defaulting on its debt obligation is certainly a big issue, but it isn’t the only place where municipal bond holders are facing losses. Cities like Stockton, California have already filed for bankruptcy due to their inability to control their budget deficits.
Jefferson County, Alabama, which previously filed for bankruptcy, recently came to a decision with its municipal bond holders. It has decided that the largest creditors will only receive 60% of what the city owed.
Gone are … Read More
Housing Recovery Already Comes to an End?
By Michael Lombardi, MBA for Profit Confidential
The housing market simply isn’t improving at the rate many in the mainstream media are telling us.
Home prices are still significantly lower than what they were during 2005 and 2006. On its own, there is no housing market recovery. All we are witnessing is the mere reflection of easy money provided by our central bank.
As I often write, to see a real recovery in the housing market, we need to see first-time home buyers active in the market. Unfortunately, they are not involved.
In April, first-time home buyers accounted for only 29% of all existing home purchases in the U.S. housing market. This was three percent lower than the previous month and 17% lower than April 2012, when first-time home buyers accounted for 35% of all home purchases. (Source: National Association of Realtors, May 22, 2013.)
According to a survey by Fannie Mae, last month, 40% of Americans said it’s a good time for them to sell their home. In April, the survey showed only 30% thought the same thing, and in the same period a year ago, this number stood at 16%. (Source: Realtor Magazine, June 11, 2013.) Hence, we are going to see more listings hit the housing market.
The inventory of homes for sale in the U.S. housing market increased four percent in April from the previous month nationally, but what’s troubling is that in a few areas, such as Stockton and Sacramento, California, new listings have surged 75% from a month earlier.
The basic concept of economics: when demand declines and supply increases, prices go down.
And the most common mortgage in the … Read More
Why the Housing Market Is Eyeing the Fed’s Bond-Buying Strategy
By George Leong, B.Comm. for Profit Confidential
The housing market is on full alert as interest rates are edging higher after the Federal Reserve said last week that it may have to reduce its bond buying each month.
Data just came out from the Mortgage Bankers Association that showed the rise in the average contract interest rate for 30-year fixed-rate mortgages has risen 12 basis points to 3.90%, representing the highest level since May 2012. For 20-year mortgages with a balance in excess of $417,500, the rate jumped 14 basis points to 4.07%. (Source: Robinson, M., Mortgage “Applications Down 3rd Week as Rates Jump,” Mortgage Bankers Association web site, last accessed May 30, 2013.)
The impact of the higher rates on the housing market is clearly seen in the demand for mortgage applications, which declined for the third straight week. For the refinancing segment of the mortgage market, the demand plummeted 12% to the lowest point since December 2012.
Now I’m not saying the housing market is set for a collapse, but you need to be careful and take some profits off the table, which is always a prudent strategy to undertake. (Read: “Why Greed Is Not Your Friend When It Comes to Investing.”)
Based on my technical analysis, the chart of the S&P Homebuilders Index below shows the current hesitancy to move higher at the upper resistance, as indicated by the top blue line. If you look back to December 2012, there’s clearly a chance that prices can falter back to the lower support level, as indicated by the red oval in the chart below.
Chart courtesy of www.StockCharts.com
The reality is that the … Read More
The Four Big Risks Massive Money Has Brought to the U.S. Economy
By Michael Lombardi, MBA for Profit Confidential
The bond market, dear reader, is becoming vulnerable. By keeping interest rates so low and by the Federal Reserve actually buying U.S. Treasuries, bond prices have climbed and climbed…and the low yields on U.S. Treasuries have sent investors to the stock market and junk bonds. Any tightening in monetary policy will send the bond market into a tailspin.
But there’s more…
Next, the stock market rose to atmospheric levels as easy monetary policy remained in effect. Even I’m surprised at just how high this market has gone. But at the very moment the Federal Reserve shifts its monetary policy towards normalization, the market will be in jeopardy. We saw a slight episode of this in a sell-off in the key stock indices last week, when the Federal Open Market Committee’s (FOMC) meeting minutes suggested some members of the committee think the Federal Reserve should start to slow the rate of its quantitative easing. (Source: Federal Reserve, May 22, 2013.)
Moving on, public companies are borrowing money cheaply as a result of the favorable monetary policy environment, but these companies are not putting the borrowed money to good use. Instead of making investments in plant, equipment, and people, companies are buying back their shares to eventually make their corporate earnings look better.
In 2012, American companies spent $400 billion to buy back their shares; a startling 2.6% of the gross domestic product (GDP) of the U.S. economy is going to buy stock? Something’s not right with this. Since the beginning of the year to March 7, American companies have announced share buybacks worth a total of $111.6 billion—an increase of 96% … Read More
What Housing Recovery? Percentage of First-Time Home Buyers Falls Again in April
By Michael Lombardi, MBA for Profit Confidential
It’s almost as if the mainstream media is defining the U.S. housing market as being “hot,” while some economists are calling for robust growth ahead. But the reality is that we are far from a recovery in the housing market and more troubles could follow.
As I have discussed in these pages many times before, institutional investors are running to buy homes for rental income, because the yields elsewhere are getting thinner. As a result, we’ve experienced hikes in home prices in the U.S. housing market.
Institutional investors rushed to buy homes with the philosophy of buy cheap, renovate, and rent. But they might be in for a surprise. According to real estate research firm Trulia Inc., since 2005, there have been almost four million single-family homes added to the rental market. That supply has met the demand created during the crisis in the housing market. (Source: Trulia Inc., April 4, 2013.)
As a result, the rental rates that institutional investors were banking on are actually compressing. Take a look at the table below, which depicts the year-over-year change in rental rates and home prices in some major cities in the U.S. economy.
|
U.S. City |
Year-over-Year % change in rental rates for single-family homes |
Year-over-Year % change in single-family home prices |
|
Las Vegas, NV |
-1.9% |
24.6% |
|
Fort Lauderdale, FL |
-1.2% |
10.7% |
|
Chicago, IL |
-1.2% |
3.6% |
|
Orange County, CA |
-0.7% |
13.7% |
|
Washington, DC |
-0.7% |
6.2% |
As institutional investors are paying more for homes, their rental income is getting softer.
And the fact of the matter is that we are missing the most important piece of the puzzle for a … Read More
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