Housing Market: We’re Looking
at a Double-dip
Thursday, June 2nd, 2011
By George Leong, B.Comm. for Profit Confidential
As I have been saying, housing continues to be a cesspool for capital. The latest reading from the S&P/Case-Shiller Home Price Index of 20 major metropolitan areas in the United States continues to show declines, which, in my economic analysis, is not good.
What makes the situation that much worse is the fact that housing is now officially in a double-dip recession, with prices in 12 of the 20 markets selling below their 2006 low prices, according to the Case-Shiller 20-city Index. This key index has declined in eight straight months and clearly continues to point to the fragile housing market driven by high foreclosures and short sales of properties. This is a real problem that will hamper growth.
The NAHB Housing Market Index, an indication of the sentiment of builders, came in at a dismal 16 in May, which is terrible, as a reading below 50 suggests negative sentiment amongst builders. The reading has not been above 50 since April 2006.
Housing Starts were weaker than expected in April, with an annualized rate of 523,000, which was below the estimate of 563,000, and the result of 585,000 in March. Building Permits were also soft at an annualized rate of 551,000, below the estimate of 590,000, and a revised 574,000 in March.
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.
The reality is that the continued weakness in housing impacts wealth and consumer spending, and could drive a double-dip in the most extreme circumstance.
The major hurdles remain the continued high foreclosures and short sales in housing, along with declining home prices. Obviously, 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 a mortgage and not to worry about jobs and missing payments.
There is major concern in the critical jobs area following a weak ADP Employment Change that showed a mere 38,000 jobs generated in May. This was well below the estimate of 170,000 and the revised 177,000 in April. The result was not just a bit off, but was well off the target and is a significant concern. The ADP reading is generally a precursor to the key non-farms payrolls on Friday, so this is not encouraging.
The key will be the non-farm payrolls on June 3, in which 185,000 new jobs are expected to be added in May, below the 244,000 generated in April. And to make matters worse, the unemployment rate is predicted to rise to 9.1% from 9.0%.
This is not exactly a vote of confidence for the suffering housing market.
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Tags: ADP Employment, double-dip recession, economic analysis, housing market, investing in real estate, jobs, NAHB Housing Market Index
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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.
