Well, I thought I’d never see this in my lifetime.
Yesterday, the bellwether U.S. 30-year fixed mortgage rate fell to 3.94% for the first time in Freddie Mac’s history of tracking mortgage rates. The 15-year mortgage rate hit a low of 3.26%.
But in spite of rates on mortgages continuing to fall, demand is going the other way. Home loan applications were down 4.3% last week. For previously owned homes, the number of contracts to purchase homes fell 1.3% in July and another 1.3% in August, according to the National Association of Realtors.
For new homes, the situation is the worst. According to the U.S. Commerce Department, purchases of new homes fell to a six-month low in August, with the median price of new homes down 7.7% in August 2011 from August 2010.
Let’s face the facts…
New homes are not the problem. Only 162,000 new homes in the U.S. were on the market in August—we have to go back to 1963 to find a lower number of new homes on the market at any given time.
The problem is the huge inventory of previously owned homes on the market and the lack of financing.
The Federal Reserve can do whatever it wants in terms of buying short- or long-term Treasuries to bring interest rates down. The fact is that banks are very tight on their lending requirements. Twenty-nine percent of all resale homes bought in August were paid for with cash. How can you have a healthy real estate market if almost one-third of your transactions are in cash?
According to data company Lender Processing Services, at the end of August, there were 6.4 million delinquent home mortgages in the U.S. Combine this with a huge inventory of already foreclosed homes and we simply have a classic oversupply situation in the previously owned home market.
Sure, we hear a lot on the news about problems in Europe and how they can affect us here in North America. We hear about other economic problems like high unemployment and rising government debt in America.
But the facts are the facts. We’ve never had a meaningful economic rebound in this country without a recovery in the housing and construction market. It will be no different this time.
What I’m saying is that it will take years for the housing market to recover and, hence, it will take years for us to see a meaningful economic recovery in America.
Michael’s Personal Notes:
“Stocks in U.S. Rise Amid Optimism Europe is Making Progress on Debt Crisis,” ran the story headline of a very popular financial web site. Rubbish, I say.
Stocks are rising simply because they became too oversold. When you get quality, big-chip American stocks hitting a four-percent dividend yield, competing with a 10-year U.S. Treasury yield of 1.9%, stocks have become oversold. Furthermore, the stock market has already discounted Greece defaulting on its debt.
On the morning of Tuesday, October 4, 2011, the Dow Jones Industrial Average hit 10,404.49. I believe that will remain the index’s low for 2011, from which stock prices are bouncing higher.
Where the Market Stands; Where it’s Headed:
The stock market continues to bounce higher from its severely oversold condition. The Dow Jones Industrial Average has risen more than 100 points in each of the past three trading days.
Something you will not read elsewhere: stocks are exiting a correction in a bear market rally that started in March of 2009. Stocks will move higher from here, as the bear market rally proceeds to its final blowout on the upside.
What He Said:
“I’ve been writing to my readers for the past two years claiming the decline in the U.S. property market would not be the soft landing most analysts were expecting, rather a hard landing. My view remains unchanged. The U.S. housing bust will cut deeper and harder than most can realize today.” Michael Lombardi in PROFIT CONFIDENTIAL, June 13, 2007. While the popular media was predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for worse times ahead.