Posts Tagged ‘home prices’
The chart below is of the S&P Case-Shiller Home Price Index, an index that tracks home prices in the U.S. housing market. As the chart shows, from their peak in 2007 to their low in late 2011, U.S. homes prices fell by about 30%. Since then, prices in the housing market have improved, but they are still down about 20% compared to 2007. Basically, home prices have recouped only one-third of their losses from the 2007 real estate crash.
Yes, the U.S. housing market has regained some lost ground, but it’s far from being back to where it was in 2007. And I’m very worried about the pace of the housing market recovery; I feel that the recovery is in jeopardy.
Chart courtesy of www.StockCharts.com
Consider this: the interest rate on the 30-year fixed mortgage tracked by Freddie Mac increased to 4.43% in January of this year from 3.41% in January of 2013. (Source: Freddie Mac web site, last accessed February 26, 2014.) While there hasn’t been much mainstream media coverage on this, mortgage rates have increased by 30% in one year’s time. With the Federal Reserve cutting back on its quantitative easing program, interest rates are expected to continue their path upwards in 2014.
Higher interest rates are pushing would-be homebuyers away from the housing market. The U.S. Mortgage Bankers Association reported last week that its index, which tracks mortgage activity (of both refinanced and new home purchases), fell 8.5% in the week ended February 21. (Source: Reuters, February 26, 2014.)
And new homebuilders are seeing demand from homebuyers decline in the housing market as well. While presenting … Read More
Just as the majority of Americans think the U.S. jobs market is improving, there’s a notion in the air that the U.S. housing market has rebounded and is healthy again. I don’t believe this to be true.
Just like the government’s official unemployment number is manipulated because it excludes people who have given up looking for work, when we took a closer look at the stats we hear about home prices, new home sales, and existing home sales, we didn’t like what we found in them.
Home prices increased to unprecedented levels in 2005. At social events back then, everyone talked about how much their home or vacation property had gone up in value and how they were getting deeper into the housing market. Few talked about the reckless lending activities of the banks that were the cause for the rise in home prices.
We now hear new homes are being sold at a new record pace. Buyers are apparently rushing to buy houses again, and the housing market is hot once more. Sadly, underlining the strong sales of homes, the number of cancelled sales orders compared to overall sales (commonly referred to as the cancellation rate) is going through the roof.
In 2013, D.R. Horton, Inc. (NYSE/DHI) had more cancelled orders than it did in 2012—7,751 cancelled contracts to buy homes compared to 6,657 in 2012. The cancellation rate for this homebuilder in 2013 was 24%. (Source: D.R Horton, Inc. web site, last accessed February 18, 2014.)
Other homebuilders are having the very same problem. KB Home (NYSE/KBH) reports its cancellation rate in 2013 reached 32%—that means one out … Read More
Will the gains that the U.S. housing market made in 2012 and 2013 continue into 2014? As you’ll read below, the biggest threat to the housing market is moving in the opposite direction—against housing.
Sure, the Case-Shiller S&P Home Price Index, which tracks prices in the U.S. housing market, shows an overall increase of 13.6% in home prices in the first 10 months of 2013 (see the chart below).
But for growth in the housing market to continue, you need favorable market conditions for buyers. Unfortunately, the “favorable” conditions of 2011 through to 2013 are now becoming “unfavorable.”
Chart courtesy of www.StockCharts.com
Interest rates on mortgages are rising sharply. In November of 2013, the popular 30-year fixed mortgage rate tracked by Freddie Mac stood at 4.26%. In the same period a year ago, this rate was only 3.35%. (Source; Freddie Mac web site, last accessed January 3, 2013.) The interest rate on the standard 30-year fixed mortgage has gone up 27% in twelve months. And the higher mortgage rates go, the more the affordability for home buyers declines.
But rising interest rates are not the only factor weighing against the housing market in 2014.
Adjustable-rate mortgages (ARMs), which virtually disappeared after 2007, are making a big comeback.
According to DataQuick, in November of 2013, about 11% of all homes in Southern California were bought using ARMs. This has doubled in the area from the same period a year ago. (Source: Los Angeles Times, January 1, 2013.) ARMs have a fixed interest rate for a certain period of time, and then rates on the typical ARM adjust to market rates. … Read More
An old friend walked into my office the other day and told me I was dead wrong about the stock market being overvalued and overbought. “Michael, it looks like key stock indices can go even higher next year.” His reasoning: the Fed won’t stop printing and that means “the market can only go up.”
This is exactly where the trouble begins.
You see, I have read a lot about bubbles…and not just the ones in key stock indices. All bubbles have one thing in common: when bubbles get bigger, optimism goes mainstream.
Looking back, you will see this yourself. During Tulip Mania, the general consensus was that tulip prices would only go higher—they did, but then they came crashing down. The housing market bubble of 2004–2006 is another prime example of this. Back then, I remember everyone talked about how home prices would only go up. People took risks beyond imagination. They talked about getting a third mortgage to buy another investment property and many investors I talked to were juggling several properties. Home prices then collapsed.
I believe the stock market of today is clearly displaying signs of a classic bubble.
Sadly, investors continue to buy into it. According to the Investment Company Institute, between the weeks ended November 6, 2013 and December 4, 2013, long-term stock mutual funds saw an inflow of $24.8 billion. (Source: Investment Company Institute, December 11, 2013.)
Meanwhile, the number of stock advisors bullish on key stock indices continues to rise. Insiders are selling more stock than they are buying. The VIX (Volatility Index) is near a record four-year low. Margin to buy … Read More
The news headlines are saying the U.S. housing market is witnessing robust growth and flipping homes for profit is back.
While many are now saying there is growth in the U.S. housing market and that it will continue, I disagree with them, based on many different factors…all of which I want my readers to know about.
Yes, home prices have gone up, but that’s about it for positive developments. The housing market still suffers, and there are problems that need to be fixed before it sees a full-on recovery.
The delinquency rate on single-family residential mortgages in the U.S. remains staggeringly high. In the second quarter of this year, it was 9.41%. Yes, again; it has declined from its peak of 11.27% in the first quarter of 2010, but it’s still almost 140% higher than its historical average of 3.94%! (Source: Federal Reserve Bank of St. Louis web site, last accessed November 8, 2013.)
As I have been harping on about in these pages; institutional investors jumped into the U.S. housing market buying residential homes in bulk, and as a result, prices increased. But we didn’t see first-time home buyers run towards the housing market—an increase in first-time home buyers is essential for any economic recovery.
According to the National Association of Realtors, in September, first-time home buyers accounted for 28% of all existing home sales in the U.S. Meanwhile, investors were behind one-third of all existing home sales! (Source: National Association of Realtors, October 21, 2013.)
The “U.S. Economic and Housing Market Outlook” report issued in October by the Office of the Chief Economist at Freddie Mac said, “According … Read More
Let’s face it: the U.S. housing market is still under severe stress. No matter how the bulls may spin their argument, it’s far from a real recovery. The historical fundamental factors behind a typical housing market recovery are still missing.
According to real estate information company Zillow, in the second quarter of this year, almost 24% of all homes with a mortgage in the U.S. housing market had negative equity (the homes were worth less than the mortgage issued on them). More than 12 million home owners in the U.S. economy remain “underwater.” And in some geographical pockets, the spread between the mortgages and the values of the homes is very wide; in the Las Vegas area, almost 13% of home owners with a mortgage owe two times the amount of their home’s current value! (Source: Zillow, August 28, 2013.)
Sadly, the misery in the U.S. housing market doesn’t just end there.
The delinquency rate on single-family residential mortgages at all commercial banks stood at 9.41% in the second quarter of 2013. Yes, it has declined a little from 9.7% in the first quarter of this year, but it still remains very high compared to the historical average. (Source: Federal Reserve Bank of St. Louis web site, last accessed October 7, 2013.) The average delinquency rate on single-family residential mortgages from 1991 to 2006 was only 2.2%.
These negative factors working against the housing recovery are just a few of many.
Since 2012, the majority of activity in the housing market has been the result of investors buying up homes, renovating them, and renting them out. We didn’t really see … Read More
Consumer confidence is anemic in the U.S. economy as Americans are being financially “squeezed.” Consumer confidence, which is missing in this so-called economic recovery, leads to higher consumer spending, which makes up two-thirds of gross domestic product (GDP) in the U.S. economy.
Two days ago, we got news the Conference Board Consumer Confidence Index declined to 80.3 in July, down about 2.2% from June. (Source: The Conference Board, July 30, 2013.) This is nowhere close to the consumer confidence levels we saw prior to the financial crisis in the U.S. economy.
The survey of consumer confidence in July showed 35.5% of respondents are claiming jobs are difficult to get.
But that isn’t all…
We are told the housing market is improving, but few mention that millions of Americans are living in homes they purchased with positive equity that now have negative equity—their home prices are lower than the mortgage they borrowed on them. The number stood at 9.7 million homes with negative equity at the end of the first quarter. (Source: CoreLogic, June 12, 2013.) This phenomenon breeds consumer discouragement, not consumer confidence.
All of this is not a surprise to me; I have been saying it all along. Consumer confidence cannot improve because the Federal Reserve is buying $85.0 billion a month of U.S. Treasuries and mortgage-back securities—none of which helps the “little guy.”
Look at Japan, a country that has become famously known for its monetary policy and quantitative easing. One would … Read More
I completely disagree with the notion that the housing market in the U.S. economy is improving.
No doubt, we have seen home prices increase, but the price increases have been minor and restricted to certain geographical areas—but by no means do the price increases suggest there are actual improvements in the real estate market. In fact, the housing market may face even more trouble ahead.
For the housing market to see real recovery, we need to witness increased participation from home buyers. While an increase in home prices may suggest to some that there are actual home buyers coming into the market and pushing prices higher, the truth is the opposite.
When I say “home buyers,” I don’t mean institutional investors who have been buying homes in the U.S. housing market to rent. I mean those individuals who actually buy a house to live in it—they are not there to speculate.
In June, first-time home buyers accounted for 29% of all the existing-home sales in the U.S. housing market—down more than nine percent from the same period a year ago. According to the National Association of Realtors, in a healthy housing market, first-time home buyers should account for 40% of all existing-home sales. (Source: National Association of Realtors, July 22, 2013.)
I can see the number of real home buyers decline even further.
The national average commitment rate for 30-year mortgages, reported by Freddie Mac, was 4.07% in June. In the same period last year, it was 3.68%. As mortgage rates continue to rise—and they will as the Federal Reserve prepares to “taper” quantitative easing—it will become more difficult for … Read More
I’m not saying the end is near. In fact, I feel there are more gains to come, but the ride will likely be bumpy and riddled with risk.
When I objectively evaluate the market, I see many stocks, even those that have horrible fundamentals, rising to levels that just don’t make any sense to me.
I’m actually perplexed. The higher market trading has proven to be much more sustainable than I thought it would be at the end of the first quarter. You can thank the Federal Reserve for a boost in your 401(k).
The new records set last Wednesday by the S&P 500 and the Dow Jones Industrial Average were really not warranted. Or at least not yet, unless the economic recovery picks up and corporate America delivers strong revenue and earnings growth and not the diluted results that have kept Wall Street happy.
Because of the Street’s reduced expectations, I would expect companies to report some blow-away quarters. We will see for sure when the earnings parade picks up starting this week. Don’t just settle for an inline or slightly better-than-expected quarter. If there’s any real growth, you’ll see much more.
And then there’s the housing sector, which will be in the limelight tomorrow when the housing starts and building permits readings for June are released. We saw some stalling in the housing sector in May, so it will be interesting to see if the … Read More
Quantitative easing was supposed to bring economic growth to the U.S. economy, but it is failing at its job. Just look at the chart below to see how badly things have turned out.
The chart shows the velocity of money in the U.S. economy. For the uninitiated, velocity is a measure of how many times each dollar must be used to buy specific goods and services. It’s a strong indicator of economic growth. When velocity increases, it suggests there’s heightened activity in the economy.
Clearly, the velocity of money shows the U.S. is going through severe tumult, and at the very best, economic growth has been questionable. It is continuously plunging and currently stands at historically low levels.
The primary goal of quantitative easing was to print money to buy bad assets from the banks so they could start lending again, which should lead to increased consumer spending and, eventually, economic growth. But if quantitative easing was actually working, the velocity chart wouldn’t look like it’s taking a nosedive.
Don’t get me wrong; I don’t disagree that the first round of quantitative easing was needed. If not for QE1, the financial system would still be in great jeopardy. However, continuing it is not leading to any real economic growth.
But the quantitative easing goes on anyway. The Federal Reserve continues to print $85.0 billion a month. Even now that there’s speculation that it will start to taper off, you need to realize that it will still be printing more money—“taper” doesn’t mean stop; it means to slow the rate.
If there was any real economic growth in this nation, then … Read More
The mainstream media continues to report that the housing market in the U.S. economy is hot again, but I don’t share their optimism for a second. The fact of the matter is that the U.S. housing market may be headed toward a period of decline after just a few months of glory.
As I have mentioned before in these pages, the housing market will only improve when real home buyers buy homes. That hasn’t been happening in the U.S. economy. Real home buyers—those who plan to live in their homes—are shying away from the housing market.
For the week ended June 28, the number of completed mortgage applications in the U.S. economy plummeted 12% from a week earlier—the biggest drop in two years. The applications filed for refinancing a home decreased 64%—the lowest since May of 2011. (Source: Wall Street Journal, July 3, 2013.) Regular Americans just can’t afford to buy a house.
So who is actually buying homes in the U.S. economy and driving the housing market higher?
It’s the institutional investors who are buying homes, because this real estate provides them with a greater return than many other investments. It shouldn’t be too surprising—yields on stocks are low and the bond market is in a dangerous territory, edging toward a collapse.
Institutional investors have spent $17.0 billion on more than 100,000 homes in the housing market over the last two years, and they’ve become the biggest buyers in some parts of the U.S. economy. (Source: Bloomberg, July 8, 2013.)
Here’s how institutional investors work the housing market: Say they have $10.0 million. To keep things simple, if … Read More
My colleague and resident gold bug, Robert Appel, BA, BBL, LLB, is the smartest guy I know when it comes to understanding and explaining what’s happening with precious metals. Robert recently penned this commentary/forecast on the yellow metal and he was kind enough to give me permission to share it with my readers. Listen carefully:
“With additional damage seen in gold and the mines, the gold wars continue.
For the record, and this is easily verified on any one of a number of sites, gold prices held Tuesday overnight in Asia, but suddenly Wednesday morning they entertained massive selling the moment London opened.
London is the ‘home’ of the original ‘Gold Fix.’ We are not making that name up. They actually use that term. In prior reports we have shared with readers ‘leaked’ minutes of discussions among the London traders (usually from the late 90s, there is always a time lag) when they discuss among themselves the importance of using their bourse to keep the price down.
That was then. This is now.
This phase of the Gold Wars is like nothing we have seen. It is more astonishing than 1975. More astonishing than 1980. And more astonishing than 1999 (the last time an all-out assault on gold was launched, and a time when, like now, the mining sector seemed dead).
It is record-breaking. We are seeing long-term gold bulls simply give up. This is astonishing.
We’ve attached an updated chart on Comex gold inventories. We realize that some reporters will tell you that such charts are meaningless, … Read More
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