What’s Going on in the Housing Market
Wednesday, July 7th, 2010
By George Leong, B.Comm. for Profit Confidential
— “The Leong Side of the Market” Column,
by George Leong, B. Comm.
The housing market is hot where I live. There are very few houses coming up for sale, as it appears homeowners are deciding to renovate and build additions rather than moving and having to pay agents five-percent fees. Yet, while my area is in high demand, this is probably not the norm, as the country’s real estate market continues to be soft and is characterized by declining sales and home values. At the same time, the amount of foreclosures is continuing to rise, with estimates pegging the amount of foreclosed homes at nearly three million.
The sad reality is that millions of homeowners are sitting on homes with less value than their mortgages, and this is not good. This is a key reason for the rising foreclosures and, by all accounts, it will likely get worse. Case in point, in the fourth quarter, the amount of “serious delinquencies” surged, according to the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The report said that the current and performing mortgages represent 86.4% of mortgages in the fourth quarter, the seventh straight quarterly drop. These are terrible metrics for a housing market trying to rebound. In fact, the major threat of increase foreclosures will continue to hamper consumer confidence and consumer spending, which in turn impacts economic growth.
On Friday morning, the Obama administration announced a strategy that would reduce the capital owned on mortgages by those in trouble. The plan essentially will allow homeowners in financial distress to get new loans to help pay for their mortgage, hence avoiding having to foreclose.
The plan will help; but, in reality, I do not feel it will be enough to avert the major foreclosure crunch that will surface. There are currently about 4.5 million homes that could foreclose. Yes, the plan will save some homes, but it will clearly not be enough to save the masses. Foreclosed properties also mean lower sales prices for many homes, and this is not good.
What I see is declining home values that will continue to erode the confidence of homeowners and will impact their desire to spend on non-essential gods and services. We are seeing this in the soft durable goods data.
And there is still the issue with the soft jobs market. So, until there is improvement in jobs and housing, I fear the worst and feel there could be more hurt ahead for homeowners and the economy.
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Tags: housing market, mortgages, real estate market, The Leong Side of the 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.
