Three Housing Market Indicators Yell “Trouble Ahead”

Next Shoe May Be Dropping the U.S. Housing MarketThe U.S. housing market is in trouble again, and as crazy as it sounds, it won’t surprise me to see home prices decline soon.

Here are three reasons why:

Existing-home sales have been declining since July of last year. The annual rate of existing-home sales in July of 2013 was 5.38 million. In April of this year, this rate fell to 4.65 million. (Source: Federal Reserve Bank of St. Louis web site, last accessed May 22, 2014.)

Mortgage originations in the U.S. housing market have been falling consistently, as illustrated by this chart:

Mortgage Originations, U.S. Housing Market

Quarter Mortgage Originations
Q3 2013 $549 Billion
Q4 2013 $452 Billion
Q1 2014 $332 Billion

Data source: Federal Reserve Bank of New York web site,
last accessed May 22, 2014

Between the third quarter of 2013 and the first quarter of 2014, mortgage originations in the U.S. economy declined by 40%. Mortgage originations at U.S. banks in the first quarter of 2014 were the lowest since the third quarter of 2011!

Then there is the National Association of Home Builders/Wells Fargo Housing Index (HMI). This index tracks the confidence of homebuilders in the U.S. housing market. It’s telling us that the recovery talk is based on nothing but false hope. The HMI dropped to its lowest level in 12 months in May of this year. (Source: National Association of Home Builders, May 15, 2014.)

Dear reader, I know I have had a bearish stance on the U.S. housing market for some time now. Those concerns are starting to materialize in the marketplace. Don’t buy into what the mainstream says, that all is well with the housing market.

Bloomberg ran an excellent story this week on the housing market titled “Yellen Concerned by Housing Slowdown She Has Scant Power to Cure.” The story went on to say that “While the Fed can influence mortgage rates through its conduct of monetary policy, it can’t do much, if anything, to counteract the other causes of faltering demand: lagging household formation, stingy lenders and wary borrowers.” (Source: Bloomberg, May 28, 2014.)

This is exactly what I have been writing about for months. The Fed can keep rates low for as long as it wants, but it will not be able to induce banks to make lending requirements easier unless it guarantees mortgages (which is outside the Fed’s mandate), nor can it give money to financially stressed consumers to buy homes they can’t afford.

The Dow Jones U.S. Home Construction Index has gone down eight percent since just March of this year. This should give investors cause for concern. A weak U.S. housing market will put added pressure on an already fragile economy. You can see why I’m so bearish on the U.S. economy for 2014.