Don’t Let This News Fool You

By Michael Lombardi, MBA — Today’s Profit Confidential column

I’m sure you heard the good news on Friday:Sales of newly constructed homes in the U.S. surged 27% last month, according to the U.S. Commerce Department, the strongest monthly gain since July 2009 and the biggest monthly increase in almost 50 years.
When you add in the four-percent increase to the median price of a new home posted in March 2010 from March 2009, you have some pretty impressive numbers.Don’t be fooled. The housing market in the U.S. is far from stabilizing. I don’t care what the Commerce Department numbers say; I think the U.S. housing market will get worse before it gets better.Consider the following:March 2010 was a huge month for new homes sales, up 27% from February, but let’s not forget that February was a record low month for new home sales in the U.S. Hence, the percentage gain can be misleading.The government is offering an $8,000 credit for first-time homebuyers and a $6,500 credit for current homeowners who buy and move into a new home. Almost 1.8 million households have used this credit. (I really have a problem with this. The U.S. government, through Freddie Mac and Fannie Mae, owns 50% of all outstanding home mortgages in the U.S. Now it is giving tax credits to people who buy homes. Since when did the government get into the business of mortgages and home-selling?)

According to RealtyTrac, foreclosures of U.S. homes reached a new high of 367,056 units in March 2010, up eight percent from March 2009. Seven million Americans are now behind on their payments for their mortgages. Increasingly, those falling behind have conventional mortgages, not subprime mortgages.

Finally, U.S. regulators closed seven Illinois banks on Friday, bringing the total number to 207 failed U.S. banks since the beginning of 2009.

With higher interest rates around the corner, with banks still not finished cleaning up their bad mortgages, with the overhang of home inventory outstanding, and with unemployment still high, the U.S. housing market has a long way to go before it bottoms out.

Michael’s Personal Notes:

There is a Starbucks close to my office that I frequent every second day. This particular Starbucks is in a large plaza anchored by a major book store. When I arrive at the Starbucks at 6:00 a.m., when it opens, there are plenty of parking spaces available. My style is that I
usually park as far as possible from the store to get in as much walking exercise as possible.

It is a huge pet peeve for me to see people, despite all the free, empty parking spaces, pull up in their cars right in front of the Starbucks, park in the front of the store, next to the curb, and leave their cars there, inconveniencing other cars passing by and pedestrians. The
other day I saw a fellow not only leave his car parked next to the curb in front of the Starbucks, but also leave the car on while he waited for his latte in the store.

Why do people park where they shouldn’t? Are they in a bigger rush than the rest of us? Do they not know about the pollution their car creates while the motor is still on when they are in the store? (I have to confess that I have been very tempted to take the car of this kind of person, when the motor is left running, and park it for them in a proper parking space.) I see so much of this lazy, unauthorized parking, I have to wonder what people are thinking.

But I have an answer to this one. All we need is for plazas to have unmarked security officers who have the authority to tag cars that park where they shouldn’t and that have their motors left on when no one is in the vehicle. The money derived from the tickets these private security companies issue will then be used to pay the security officers. I’m sure that would teach those who believe they are better than us a lesson.

Where the Market Stands:

The Dow Jones Industrial Average opens this morning up 6.9% for the year. In my opinion, the bear market rally that started in March 2009 remains alive and well. This market wants to go higher in the immediate term.

What He Said:

“The conversation at parties is no longer about the stock market, it’s about real estate. ‘Our home has gone up this much’ or ‘Our country home has doubled in price.’ Looking around today, it would be very difficult to find people who believe that one day it could be out of
vogue to own real estate because properties would be such a bad investment. Those investors who believe a dark day will never come for the property market are just fooling themselves.” Michael Lombardi in PROFIT CONFIDENTIAL, June 6, 2005. Michael
started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.