Ouch. This Housing Market Is Starting to Hurt
Wednesday, February 1st, 2006
By Michael Lombardi, MBA for Profit Confidential
Sales of existing U.S. homes dropped in December for the third consecutive month in a row. Sales of homes fell 5.7 percent in December from November, bringing the seasonally adjusted rate of sales to the lowest level since March, 2004.
The effects of higher interest rates on would-be buyers are obviously taking their predicted toll. However, to those watching the housing market, the market is cooling off faster than expected. The National Association of Realtors may have to lower their 2006 housing sales and price forecasts.
While the average rate on a U.S. 30-year fixed mortgage was 6.27 percent in December, The Mortgage Bankers Association now predicts that rate to hit 6.4% in mid-2006 and to stay there until the end of 2007. (Please see Monday’s issue of Profit Confidential.) If the U.S. dollar comes under too much pressure, U.S. domestic interest rates could go much higher and, the proverbial nail on the coffin will then hit the housing market.)
In my opinion, it’s more than just interest rates that are putting home buyers on the sidelines. Prices have gone up too far too fast, thus pricing out many would-be buyers. And, it’s the states that saw their house prices rise the fastest that are seeing them drop faster. In California, sales in December were down about 11%.
A word of caution to those analysts following the housing market: It’s not all about interest rates. Confidence plays a huge part in the demand for any investment. And, once that confidence is gone, prices can fall faster than most expect. Just look at the tech bubble in 2000 as an example. Once investor confidence was lost in tech stocks, demand for tech stocks fell dramatically, affecting prices more than analysts would have ever expected. We would have been hard-pressed to find one analyst in 2000 that would have predicted the NASDAQ 100 would have fallen from 5,000 to 2,500 today. But, that’s exactly what’s happened throughout history to investments that get overheated-once confidence deteriorates, so do prices. Buyer beware.
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Michael 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. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, 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
