Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘U.S. home prices’

2012 U.S. Housing Market Price Forecast

By for Profit Confidential

What will happen to the U.S. housing market in 2012?

As we close out 2011, we will have experienced the fifth consecutive year that home prices in the U.S. have declined. According to the popular S&P/Case-Shiller Index,U.S. home prices are down 31% from their mid-2006 peak.

Several reports have been circulated stating that the bottom for home prices is in or will be in sometime in 2012. And there are still those who expect 2012 to be the sixth consecutive year that home prices fall. A recent report from Freddie Mac says that home prices will fall one percent in 2012 and rise in 2013. Other analysts and economists have been more negative saying that home prices will fall up to seven percent in 2012. However, the majority do expect a bottom in 2012 or 2013.

As I have written before, home buyers can get a 30-year fixed mortgage in the U.S.today for 3.91%—the lowest interest rate on a 30-year fixed in 41 years! The problem is that the majority of would-be buyers can’t get qualified, because lending conditions have tightened.

There are several structure issues hindering the U.S. housing market:

A huge inventory of foreclosed homes overhangs the sector. For 2011, foreclosures by lenders of U.S. homes have consistently been in the 200,000 units per month range.

About one in four homes in the U.S. that have a mortgage are worth less than the mortgage.

The attitude toward home-ownership has changed. The rental market is booming in many states. Consumers don’t want to get burned again or, in many cases, they simply don’t have the down payment or creditworthiness … Read More

Two Major Dow Jones Segments Still Flashing Warning Signs Over U.S. Housing Market

By for Profit Confidential

Did you hear this one? Next week, the National Association of Realtors (NAR) will revise down its previously reported sales of U.S. homes from the period of January 2007 through to October 2011. The NAR said yesterday that it had made a mistake in past calculations on home sales and was double counting.

Economy: The Only Path to a
Meaningful, Lasting Recovery

By for Profit Confidential

Throwing taxpayer money at conjured schemes to revive the economy needs to stop, butWashingtondoes the exact opposite. They are spending their time on ideas that take money from peoples’ hard-earned taxes to help other people who made very bad decisions.

Just When We Thought Housing
Couldn’t Get Worse

By for Profit Confidential

The number of nails needed for the housing market’s coffin box has yet to be finalized. Consider just some of these startling numbers and trends:

The median price of a resale home in the U.S. fell 5.2% in February 2011 to $156,100 (the lowest level since April 2002) from $164,600 in February 2010, according to the National Association of Realtors. Some other interesting facts reported from the association…

Dow Jones Gold Ratio: Making Money
from this All-Important Indicator

By for Profit Confidential

If you are a stock market investor or a gold investor, or both, today’s PROFIT CONFIDENTIAL is a must-read. Why? Because, by the time you are finished reading this issue, you could very well be convinced long-term that the stock market is going down and gold is going up. And you can make a lot of money from these moves.

Big Opportunity for Investors in 2011 Will Come From…

By for Profit Confidential

Almost one in four American homes is underwater—their mortgage is more than the value of the home. There have been several reports issued by various investment houses and research companies that predict that U.S. housing prices will fall next year again. Depending on which report you read, the forecasts vary from another five percent to 11% drop in the value of U.S. homes in 2011.

According to an excellent report released yesterday by home price data provider Zillow Inc., the value of U.S. homes will drop by another $1.7 trillion this year. This would bring the total drop in the value of U.S. homes (since the price peak in June of 2006) to $9.0 trillion.

About the most bullish I person I can find on the U.S. housing market is Doug Yearley, CEO of Toll Brothers, Inc. (NYSE/TOL), the biggest luxury homebuilder in the U.S. Toll Brothers has been aggressively buying lots to get ready for the real estate market’s comeback, which Yearley expects in 2012.

When in doubt, I check the charts. As I mentioned yesterday, the Dow Jones U.S. Home Construction Index is down 80% from its peak and shows no sign of life. Toll Brothers’ stock itself is down 68% since its peak in mid-2005 and the stock is down again this year. So, unlike retail stocks, homebuilder stocks show no promise at all right now. And this spells big opportunity for investors.

I’m one of those people who strongly believe that the secret to wealth building is to buy low and sell high. More specifically, buy when no is buying and sell when everyone is buying. … Read More

For All the Gold Bugs and Gold Investors Out There

By for Profit Confidential

Three important points on gold this morning:

This is not the time to trade gold.

As we move from the second phase to the third phase of the gold bull market, the metal is having $20.00 to $30.00 per ounce daily moves. These types of gyrations make trading the metal almost impossible. As I have been saying since 2002, take a position in the metal, buy more on big price dips, and just sit tight.

Opportunity Presenting Itself as Fear Grips the Market Again

By for Profit Confidential

There is a bubble forming in today’s economy and I believe that bubble is in U.S. Treasuries. Yesterday, the yield on 10-year Treasuries fell to 2.5% for the first time since 2009.

Why the big rush to U.S. T-bills?

It Could Soon Be Time for a New Investment Property

By for Profit Confidential

The housing market continues to be in the doldrums and I continue to see this as a major risk for the economy and stocks. The reality is that the steady reduction in home wealth could cause a “poverty effect” to occur that makes homeowners feel they are less secure. This in effect would negatively impact consumer spending going forward. There is still no evidence of a near-term reversal in the housing market. The housing market is already in its own recession.

The percentage of equity held in homes by Americans declined to below 50% for the first time since 1945, when records were first kept, according to the Federal Reserve. This is a concern, as debt in homes on average is now greater than equity. The percentage of debt to equity could rise further as housing prices decline, as has been the case.

The Standard & Poor’s/Case-Shiller U.S. National Home Price Index, a key measure of housing prices, fell 15.4% year-over-year in the second quarter. The index of 20 major U.S. cities plummeted 15.9% year-over-year in June, representing the biggest decline since the data was first gathered in 2000. The index of 10 cities fell 17%, which was the largest drop in 21 years.

What this all means to you is quite simple: you need to be concerned about the negative implications of a weakening housing market that shows little evidence of turning around in the near term. Yes, there are some signs of stabilization in the existing home sales, but we are not at a bottom. And until the housing market reverses, it will continue to be difficult for … Read More

Home Prices to Fall this Year for First Time since Depression

By for Profit Confidential

For the first time since the Great Depression, U.S. home prices are expected to fall this year. While at present, home prices are down about three percent from last year, the decline for the year could come in any where from two percent to four percent.

Here are some interesting facts on the U.S. housing market you should be aware of:

The median price of a single family home fell in July for the 12th month in a row, setting a new record, according to the National Association of Realtors.

The number of existing homes for sale is now at a 9.2 month supply. There is an inventory of close to one year of condos for sale in the marketplace.

The Mortgage Bankers Association reports that a record 0.65% of U.S. mortgages are in the foreclosure process.

The percentage of subprime borrowers late on their payments has now reached a record 14.8% (yes, that’s one in seven people).

A total of 179,599 notices of mortgage default were sent out to U.S. homeowners in July, according to Bloomberg.

Where do we go from here?

All kinds of records are being made in the U.S. housing bust. Real estate agents that were only recently flocking to the profession are now exiting stage left. New home builders are exiting state right… walking away from land they bought for development only two years ago.

I want to keep the negative news surrounding the housing market in the eyes of my readers as I ultimately believe it will be the housing bust that will send the American economy into a recession…. Read More

As the Bell Tolls

By for Profit Confidential

Toll Brothers, Inc. (NYSE/TOL), the largest U.S. builder of new luxury homes, reported yesterday that its third quarter profit had fallen by 85%. The total loss for the biggest U.S. homebuilders in the last quarter surpassed $2.0 billion.

I was very interested to hear what CEO Robert Toll said yesterday about the housing market because it was simple, clear talk… much of which with I agree.

Here’s what Toll said:

– The tightening credit market (thanks to the subprime problems) is reducing the number of potential home buyers.

– A glut of resale home and new home inventory is acting to reduce demand for new home construction.

– Because of all the bad news surrounding the housing market, any potential buyers are taking the “let’s see what happens” attitude, waiting for lower prices ahead.

To Toll’s comments, I like to add: 179,599 homeowners received notices of default in July from the mortgage companies — a huge 93% increase from July 2006.

All indications are that the poor housing market in the United States is snowballing to the bad side.

I personally expect the next couple of years to be terrible for U.S. housing sales, foreclosures and the construction market. These events will dampen the U.S. economic picture significantly in the months ahead, leading to the recession I am predicting for the U.S. economy later this year, early 2008…. Read More

The Tale of One Bleeding Home Builder and What it Means for the Economy

By for Profit Confidential

Business was looking good for D. R. Horton, the second-largest U.S. home builder. After all, 2003, 2004, and 2005 were all banner years for this big builder. But while the company was expecting a slowdown following the U.S. property boom, which ended in 2005, D. R. Horton didn’t expect the market and its business to literally tank.

The company, which builds about 10,000 new homes a quarter, reported yesterday it will post a fiscal third-quarter loss as sales for new homes fell 40% from the same period last year.

With the supply of new homes for sale continuing at a record high, D. R. Horton is just one casualty. All the major U.S. home builders are suffering.

In the case of D. R. Horton, the company’s stock price peaked at the height of the property boom of 2005 at $40.00. Today, the stock can be bought for less than $20.00.

I’m a big believer in the stock market as a leading indicator. So what it is telling us about the property market is that it will get much worse before it gets better. The widely followed Dow Jones U.S. Home Builder Index, made up of the largest U.S. home builders, is now trading at the same level it did in 2003!

Does this mean U.S. housing prices are headed back to the same level of 2003? My opinion is, yes.

I write frequently about the events unfolding in the U.S. housing market, because I sincerely believe the U.S. economy as a whole will soon start to fall apart due to problems with the housing market. Wall Street continues in its … Read More

Mortgages That Haunt

By for Profit Confidential

About 16% of subprime adjustable mortgages are now 30 days or past due, according to the U.S. Mortgage Bankers Association. Consumers who took out adjustable mortgages (simply known as ARMs) are having difficulty dealing with the higher interest rates that go into affect when the ARMs reset.

The foreclosure rate for subprime loans hit a record high of 3.23% in the first quarter of 2007.  Even Fed chairman Ben Bernanke is predicting there will be increases in foreclosures for subprime ARMs loans this year and even next year.

During the real estate boom that ended in the U.S. in 2005, lenders made it too easy for consumers to qualify for big mortgages on homes they wanted to buy.  ARMs were the perfect gimmick for the time: A consumer that might have experienced difficulty with a regular mortgage was often able to qualify for an ARMs subprime loan that came with guaranteed low payments for the first two to three years before they resent to market interest rates.

All is fine with these types of mortgages when the market for real estate is rising because when the ARMs reset to higher interest rates, consumer could have “flipped” out of their properties or even refinanced.  Unfortunately, the U.S. property home market has gone the opposite way (prices are declining) since 2005.  In essence, what was a great sales tool to sell a home — the ARMs — has become the mortgage that haunts.

I continue to predict big problems for the U.S. housing market — we haven’t seen the bottom yet.  The price charts of the largest U.S. home builders all look … Read More

The Unintentionally Lying Realtors

By for Profit Confidential

Back in late 2006, I wrote a couple of articles critiquing the U.S. National Association of Realtors. At the time, the NAR had run a series of full-page ads in national newspapers proclaiming “right now may actually be one of the best times to buy a home.”

The ads all had the same theme: Interest rates near record lows, large inventory of homes for sale won’t last long, home prices overall have stabilized, real estate is a great investment, and don’t delay… buy a home.

I argued against all these points, saying it was likely one of the worst times in history to buy a home in the U.S. In my opinion, the NAR, knowingly or unknowingly, was misleading consumers. However, because of the mounting number of realtors with dwindling commission checks, I believe there was pressure on the NAR to reassure consumers for the benefit of their realtor members.

Yesterday, the National Association pulled an about face. It came out and said the subprime loan problem will make it more difficult for consumers to get loans on homes, thus causing U.S. existing home prices to fall this year for the first time since the NAR starting keeping track in 1968.

I’m sure the NAR is a great association. And I’m sure it does a great job in keeping its members and consumers informed. One could argue there was no signal that the subprime market was falling apart. And realtors don’t lie on purpose. Like other people that sell big asset items, maybe even like stock brokers, these people are not economists. They are trained to know the laws and … Read More

Why Worry? Everything is Fine… So They Tell Us

By for Profit Confidential

New Century Financial Corp., the largest U.S. based lender to subprime borrowers, filed for Chapter 11 bankruptcy on Monday. The company, which last year earned $60 billion in home loans to poor-credit borrowers, will lay off 3,200 employees. No longer will people with not-so-great credit find it easy to finance a new home purchase. The stocks of the biggest home builders in the U.S. have been in a nose dive for months — an advance indicator of more trouble ahead for U.S. housing.

The yield curve has now been inverted for seven months in a row. Historically, when the yield curve is inverted (short-term bonds pay higher than long-term bonds), we subsequently experience a recession.

Jeff Rubin, an economist with a unit of CIBC, said yesterday the U.S. subprime crisis will deepen and eventually cost $100 billion. I’ve always believed the subprime meltdown would affect other lenders and the U.S. economy. $100 billion is a big number, but it’s too conservative in my opinion. How do we measure the effects on the economy of poor-credit home buyers who can’t buy homes anymore? What happens when demand for any item declines? Prices decline.

According to the S&P/Case-Shiller home price index, U.S. home prices fell in January 2007 from January 2006 — the first time prices have dropped year-over-year since the index was created back in January 2001. If home prices fall too rapidly in the U.S., home equity will be eroded. In the case where home owners put no money down in 2005 or 2006 for their home purchases, they could be tempted to simply hand their keys to their lenders … Read More

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