A Housing Bottom—Are We Seeing One?
Wednesday, June 29th, 2011
By George Leong, B.Comm. for Profit Confidential
There was finally some good news on Tuesday after the latest reading from the S&P/Case-Shiller Home Price Index of 20 major metropolitan areas in the United States showed a bounce from the recent lows. In March, the housing market had fallen to a double-dip recession.
The April reading was a relief, albeit for the moment. Prices in 13 of the 20 markets edged higher in April for the first time in eight months, according to the Standard & Poor’s/Case-Shiller 20-city Index. Prior to this, the situation was a mess.
This key index had declined in eight straight months driven by high foreclosures and short sales of properties.
While the index was encouraging, prices did fall 3.96% in April, which was worse than the negative 3.9% estimate and worse than the negative 3.77% in March.
The NAHB Housing Market Index, an indication of the sentiment of builders, came in at a dismal 13 in June, which is terrible, as a reading below 50 suggests negative sentiment amongst builders. The reading has not been above 50 since April 2006.
On the plus, there was some good news. Housing Starts were better than expected in May with an annualized rate of 560,000, above the estimate of 540,000 and 541,000 in April. Building Permits also improved with an annualized rate of 612,000, above the estimate of 548,000 and a revised 563,000 in April.
In reality, we may be seeing a bottom, but will have to wait for several more months to see if housing prices pick up. We also need to see a positive gain in the index. As long as the overall home prices continue to decline, it cannot be good.
The reality is that the continued weakness in housing impacts wealth and consumer spending, and could drive a double dip in the most extreme circumstances.
The major hurdles remain the continued high foreclosures and short sales in housing along with declining home prices and there are still reasons to be concerned.
The housing market is improving and is better than where it stood a year ago but I feel there will continue to be barriers as we move ahead.
Consider that a key driver of the housing market is jobs. We need jobs and security in order to give buyers confidence to assume mortgages and not worry about losing jobs and missing payments. With the unemployment rate at 9.1%, buying interest in homes may stall.
I remain bearish on the housing market in 2011 and into 2012. Yes, there are some encouraging signs, but the constant price declines and weakness among the homebuilders remain issues that need to be remedied.
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Tags: double-dip recession, home prices, housing bottom, housing market, NAHB Housing Market Index, U.S. housing market, U.S. real estate market
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
