Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Homebuilders Turn Pessimistic on Housing Market

Thursday, April 18th, 2013
By for Profit Confidential

According to CoreLogic, there were 54,000 foreclosures in the U.S. housing market in February. At the same time, and what is still even more worrisome, is the fact that there were 1.2 million homes in the foreclosure inventory. (Source: CoreLogic, March 28, 2013.)

The top-five states with the highest level of foreclosure inventory to mortgaged homes are Florida with 9.9%, New Jersey with 7.2%, New York with 5.0%, Nevada with 4.6%, and Illinois with 4.5%.

As has been well documented in these pages, there is a significant number of American homeowners living in homes with negative equity—the value of their homes is less than the mortgage they borrowed. And first-time home buyers, those who actually buy a house to live in, are missing from the action in this housing market.

Those who are closest to the U.S. housing market, homebuilders, are worried again. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) fell in April for the fourth consecutive month. It stands at 42. (Source: National Association of Homes Builders, April 15, 2013.) Any number below 50 on the HMI indicates that homebuilders view conditions as being more poor than good.

Remember: homebuilders see the conditions changing in the housing market very quickly, and their continuous pessimism shouldn’t be taken lightly.

Dear reader, this is all contrary to the recovery in the housing market that we keep hearing about in the news. I agree that increasing home prices are a good sign. But when I look at the bigger picture, price changes in the U.S. housing market have not been significant enough. Prices in the U.S. housing market are still far from the highs they made in 2006.

Assisted by the Federal Reserve’s unprecedented quantitative easing program, mortgage rates have plummeted. The Home Affordability Index—a measure of which shows if a typical U.S. family can afford monthly mortgage payments on a home—is hovering near its all-time high, showing that Americans are more than able to buy a house and make their mortgage payments. Regardless, buyers are shying away from the housing market, as their concern about the overall economy continues.

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My feeling is that institutional investors were able to move home prices higher in the U.S. housing market through their aggressive and massive absorption of depressed housing units. Take the action of institutional investors out of the U.S. housing market, and recovery in the housing market is questionable at best.

What He Said:

“A low savings rate was eventually blamed for the length of the Great Depression. Consumers just didn’t have enough money to spend their way of the Depression. With today’s savings rate being so low, a recession could have a profoundly negative effect on over extended consumers.” Michael Lombardi in Profit Confidential, March 26, 2006. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles