We have been hearing how the housing market is improving and how it is time to jump in and buy housing stocks. Sounds optimistic, but do not be fooled by the cheerleading. In my view, housing continues to be a cesspool for capital. Yes the housing market is better than it was a year ago, but not to the degree where I would advise jumping in and buying—of course, unless you are looking to buy real estate, which remains at distressed prices.
Want a condominium in the beautiful Tampa-Clearwater area of Florida? I just did a search and over 3,000 available units popped up for sale. Many are below $100,000. A friend of mine recently bought a nice oceanfront condo in Boca Raton for $130,000. A few years back, this same condo would have cost you over three times this amount.
What I’m getting at is that you should avoid housing stocks, but there are clearly some bargains in buying physical real estate in many of the popular destinations in the country.
If you are a buyer, the current housing market continue to afford good opportunities, whether as a principal residence or as an investment property. If you are looking for beachfront housing in Florida, there may not be a better time to buy than now. Then again, the housing market remains in a flux driven by high unemployment and record foreclosures.
The S&P/Case-Shiller Home Price Index of 20 major metropolitan areas in the United States continues to show declines. In December, the index fell one percent from November, with prices declining in 19 of the 20 cities in the index, with the exception of Washington, DC. In fact, 11 of the cities in the index are at the lowest levels since 2006 and 2007. These include Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Seattle and Tampa. Remember what I said about Tampa?
The NAHB Housing Market Index, an indication of the sentiment of builders, was a muted 16 in February. To tell you how bad this is, any reading below 50 suggests negative sentiment amongst builders. It has not been since April 2006 that the NAHB index has been above 50.
I remain somewhat bearish on the housing market in 2011 and into 2012. If you are a buyer—great; however, sellers may continue to face lower prices.
Add in the record foreclosures and weak home prices and there are still reasons to be concerned. There are estimated to be about five million homeowners behind on at least two payments, according to data from foreclosure tracker RealtyTrac Inc. What is more worrying is that an estimated 1.2 million homes will be foreclosed this year, above the one million in 2010.
Besides the loss of jobs, homeowners are also just walking away from their homes in many cases when the value of the home is below the outstanding mortgage.
The reality is that no one wants negative home equity and, sometimes, instead of waiting for home prices to rally, it may be just as easy to walk away. This has been what is happening.
So don’t be fooled by the media “rah rah” efforts for housing, as it remains a cesspool for capital.