home prices
Best Days for Gains in Housing Stocks Behind Us?
By George Leong for Daily Gains Letter | Dec 16, 2013
Mortgage rates are on the rise. In November, the 30-year fixed rate mortgage stood at 4.26% compared to 3.35% a year earlier in November 2012. The average rate for the 30-year fixed rate mortgage in 2007 prior to the subprime meltdown was 6.34%, according to data from Freddie Mac. (Source: “30-Year Fixed Mortgage Rates Since 1971,” Freddie Mac web site, last accessed December 13, 2013.)
Much of the decline in mortgage rates was driven by the Federal Reserve’s massive quantitative easing policies that saw the central bank buy $85.0 billion in bonds per month in an effort to drive down lending rates and drive up consumer demand in the housing market.
Yet after adding trillions to the balance sheet of the Fed, the housing market has recovered and is currently on pretty solid ground, with higher demand and prices.
But all of this bond buying will eventually stop and the impact will push mortgage rates higher. Of course, the amount by which bond buying is reduced will be dependent on the economic renewal and jobs market. I do not know how high mortgage rates will rise in one, two, or even five years, but they will move higher as long as the economy and jobs market continue to improve.
The housing market could easily absorb a small rise in mortgage rates, but with the lowest mortgage rates behind us for the time being, I suspect the housing market will inevitably slow down as far as home price increases and sales. This could take a few more years.
With the Fed expected to begin its bond tapering early in the New … Read More
My Favorite Picks to Ride the Recovering U.S. Housing Market
By John Whitefoot for Daily Gains Letter | Oct 29, 2013
Numbers don’t lie: the rich are getting richer, and they’re using their money to increase their U.S. housing real estate portfolios. The rest of the country, on the other hand, is getting poorer, and has been priced out of the U.S. housing market, being forced to rent the American dream.
While U.S. housing prices are still down roughly 23% from their 2006 pre-recession highs, they’ve increased 16% since the beginning of 2012. This is more than enough to price those who have the income to pay a mortgage and desire to own a home out of the market—not so much as to deter investors (institutional and individual) from aggressively adding to their burgeoning real estate portfolio, though.
In fact, many first-time home buyers are being bid out of the market because of demand from investors. First-time home buyers accounted for just 28% of purchases in September; that’s a substantial decrease over the 30-year average of 40%, and a number that real estate professionals and economists consider to be ideal. These depressed numbers are the new reality; first-time buyers made up just 28% of all purchases in August, a bit worse than the 29% recorded in July. (Source: Mutikani, L., “U.S. existing home sales fall, price appreciation slows,” Reuters web site, October 21, 2013.)
For the not-so-average American, it’s a U.S. housing boon. Investors (those who purchased 10 or more properties in the last 12 months) accounted for 14% of all residential sales in November; that’s up three percentage points both year-over-year and from the previous month. Incredibly, all-cash sales climbed to 49% from 40% in August and 30% one year … Read More
Poverty Rate Reveals Just How Little the Fed’s Helping Main Street
By John Whitefoot for Daily Gains Letter | Sep 19, 2013
After five years of pumping trillions into the U.S. economy, the average American really is no better off than before the Federal Reserve initiated its unprecedented economic stimulus efforts. This is in spite of Federal Reserve chairman Ben Bernanke’s claims that the Fed’s efforts at encouraging U.S. economic growth are helping Main Street more than Wall Street.
Bernanke may claim to be focused on helping the average American, but the U.S. economic numbers suggest his steely gaze is trained elsewhere. For example, even though unemployment numbers improved from 7.4% in July to 7.3% in August, the vast majority of those jobs were created in low-wage-paying industries. On top of that, more and more have given up looking for work and are no longer considered unemployed, so they’re removed from the equation. Voila, better numbers.
What about housing prices? While a slightly improving U.S. economy has lifted housing prices 13% over the last year and a half, they’re still down 25% from their 2007 pre-Great Recession highs. It’s also important to remember that any increase on the back of an improving U.S. economy, while a welcome sign, is only on paper.
At the same time, 7.1 million homes, or 14.5% of all residential properties with a mortgage, still have negative equity. Of the 41.5 million residential properties with positive equity, one quarter (10.3 million) have less than 20% equity. Borrowers with less than 20% equity could have a difficult time getting new financing. Interestingly, 1.7 million residential properties have less than five percent equity, meaning they are at risk of negative equity if the markets turn and home prices slide. (Source: … Read More
Recent Data Screams Trouble Ahead for Housing “Recovery”
By Moe Zulfiqar for Daily Gains Letter | Aug 30, 2013
The U.S. housing market is starting to show signs of stress, something I have been expecting for some time. Will the housing market see negative growth? Time will tell, but as we are marching ahead, one thing is becoming very clear: if it grows, the rate won’t be as robust as we saw during 2012.
In 2012, the S&P Case-Shiller 20-City Home Price Index—an indicator of the U.S. housing market that tracks home prices in 20 major cities—increased 7.08%. The index stood at 136.88 in January, and in December, it settled at 146.88. (Source: “S&P Case-Shiller 20-City Home Price Index,” Federal Reserve Bank of St. Louis web site, August 27, 2013.)
The issues at hand are the problems facing the housing market—namely, home buyers’ willingness to buy and the increasing inventory.
Home buyers had a good incentive to get into the housing market in 2012 because of low mortgage rates. Consider the standard 30-year fixed mortgage reported by Freddie Mac: in July of 2012, it was 3.55%, and in December, the rate went as low as 3.35%. (Source: “30-Year Fixed-Rate Mortgages Since 1971,” Freddie Mac web site, last accessed August 28, 2013.)
Fast-forward to July of this year: rates have increased more than 23%, standing at 4.37%. Those who are looking for a home are driven away from the housing market by rising mortgage rates, making homes less affordable.
That said, I agree the rates are nowhere close to what they were back in the 1980s, but they have shot up really quickly in a very short period of time. You also have to consider that home buyers in the … Read More
How to Profit from First-Time Home Buyers Turned Renters
By John Whitefoot for Daily Gains Letter | Aug 1, 2013
The road to home ownership in America may have been paved with good intentions, but the current housing market recovery shows it’s not leading to Oz. Even though home values are on the rise, U.S. home ownership, at 65%, is at its lowest level in 18 years—and for some, that’s still too high.
Since the real estate market bubble burst in 2007, a number of riskier borrowers have been squeezed out. At the same time, there are a lot of potential first-time home buyers unable to take advantage of near-record-low borrowing costs and get into the housing market because banks are wary of lending. And for a sustained housing market to take hold, first-time home buyers need to be able to actually access the housing market.
In fact, the so-called “housing market recovery” isn’t really benefiting those Washington has been pushing for. Thanks to tax credits that were made available when the Great Recession began, first-time buyers accounted for more than 50% of U.S. housing market sales as of 2009. That’s a substantial increase over the 30-year average of 40%.
The U.S. housing market has experienced some major changes since then. Today, first-time home buyers account for just 29% of sales. One could argue that first-time home buyers, typically in their 20s and 30s, don’t have enough credit history to get a mortgage. And because of stagnant wages and mile-high unemployment, they haven’t had time to build up a nest egg. After being bailed out by tax payers, banks are no longer willing to lend to those they believe are untrustworthy.
So while affordability in the U.S. housing market is … Read More
Why Homebuilders Face a Precarious Future
By Moe Zulfiqar for Daily Gains Letter | Jul 16, 2013
Signs of change in the U.S. housing market are already beginning to show. And homebuilders and development stocks like Brookfield Residential Properties Inc. (NYSE/BRP) and D.R. Horton, Inc. (NYSE/DHI) are becoming vulnerable. They have already shown some signs of weakness since the beginning of May, and more could follow.
There’s no doubt the housing market has seen a significant run. Home prices in the U.S. economy are increasing at a pace not seen since the housing market was booming. It’s hot; some institutional investors are even betting large sums of money on it and appear to think it will continue to grow at this pace.
But looking ahead, I can’t help but point out that there are some issues that can become troublesome for the already damaged housing market. You need to keep in mind that home prices are still down a great amount since their peak in 2006–2007.
Investors need to know about the most troublesome phenomenon occurring in the housing sector: rising mortgage rates.
If you look at Freddie Mac’s monthly average commitment rate on 30-year fixed-rate mortgages, it climbed to 4.07% in June, an almost 10.6% increase from a year earlier. The same mortgage rates in October 2012 stood at 3.35%—their lowest since 1971. (Source: “30-Year Fixed-Rate Mortgages Since 1971,” Freddie Mac web site, last accessed June 12, 2013.)
As the mortgage rates continue to go higher, many of those who are looking to buy homes now might get discouraged, and a decline in buyers creates a liquidity problem in the housing market. Remember, the housing market isn’t liquid like the stock market or foreign exchange markets, … Read More
Four Ways to Profit from the U.S. Housing Recovery
By John Whitefoot for Daily Gains Letter | Jul 1, 2013
The American Dream has taken a beating over the past few years, after the housing bubble burst and the subsequent market crash. But that’s all in the past now—or so it seems. The idea of home ownership is back on the table for a growing number of Americans.
The Department of Commerce reported that new-home sales climbed 2.1% in May compared to April—the highest level since July 2008. While the sales of new homes (476,000) remain below the 700,000 annual rate that’s considered healthy, they’re still up 29% year-over-year. The median price of a new home sold in May was up 3.3% year-over-year, at $263,900. (Source: “New Residential Construction in May 2013,” U.S. Census Bureau web site, June 18, 2013, last accessed June 28, 2013.)
Keeping the optimism alive, the National Association of Realtors (NAR) said that more Americans signed contracts in May to buy previously owned homes than at any other time in more than six years.
Total existing-home sales in May were up 4.2% to a seasonally adjusted annual rate of 5.18 million versus 4.97 million in April. Total existing-home sales are also up 12.9% over the 4.59 million recorded in May 2012. The NAR noted that the strong growth is unsustainable unless new home construction starts increase by 50%. (Source: “Existing-Home Sales Rise in May with Strong Price Increases,” National Association of Realtors web site, June 20, 2013.)
The Standard & Poor’s Case-Shiller Index showed that existing-home prices in 20 U.S. metropolitan areas were, on average, 12.1% higher in April than a year earlier. San Francisco led the way at 23.9%, with Las Vegas a close second … Read More
How to Make the Most from the Changes in the Housing Market
By Moe Zulfiqar for Daily Gains Letter | Jun 27, 2013
The housing market in the U.S. economy has gained a significant amount of attention. Even my old friend, Mr. Speculator, who likes to make big bets for bigger gains, told me it’s a good time to buy a house, saying “the prices are cheap, and they are only going higher from here.”
What’s certain is that the U.S. housing market has seen an uptick since the home prices hit bottom in early 2012; but is it on the path to real recovery, or is what we are seeing just a minor bounce?
Consider the chart below of the S&P/Case-Shiller Home Price Index:
Chart courtesy of www.StockCharts.com
Looking at home prices alone, they are nowhere close to being at the same level they were in 2006 and 2007. The S&P/Case-Shiller Home Price Index suggests the U.S. housing market is still down roughly 26% from its peak.
Going forward, the very factors that can drive the housing market higher are under stress, and may just divert its path to the undesired direction.
The number of first-time home buyers in the housing market has been decreasing. This shouldn’t be taken lightly, because they essentially provide liquidity to the housing market. In May 2012, they accounted for 34% of all existing home sales in the U.S. housing market; by May 2013, they had declined almost 28%. (Source: “Existing-Home Sales Rise in May with Strong Price Increases,” National Association of Realtors web site, June 20, 2013.)
Unemployment in the country is staggering. Almost 12 million Americans are out of work, and a significant portion—37.3% of them to be exact—have been unemployed for more than six … Read More
Home Prices Up, Housing Market Hot Again: Can It Last?
By Moe Zulfiqar for Daily Gains Letter | May 31, 2013
The headlines are flashing: the housing market is in recovery mode. It isn’t very uncommon to hear that the real estate market in the U.S. economy is hot once again. No doubt, the reasons for all this optimism towards the housing market are pretty strong, as well.
The S&P/Case-Shiller index of home prices in the U.S. economy increased 10.9% from March of 2012 to March of 2013. This was the biggest increase in U.S. home prices since April of 2006. (Source: Woellert, L., “Home Prices in U.S. Rise by Most Since 2006 in March,” Bloomberg, May 28, 2013.) The chart below shows the change in the S&P/Case-Shiller index over the last eight years:
Chart courtesy of www.StockCharts.com
Similarly, the new-home sales data in the U.S. housing market showed better-than-expected results. According to the U.S. Commerce Department, new-home sales in April increased 2.3% to an adjusted annual rate of 454,000, compared to 444,000 in March. From the same period a year ago, new-home sales edged higher by 29% and new-home prices increased 15% in April of that year. Economists surveyed by MarketWatch expected the new-home sales number to be 430,000. (Source: Goldstein, S., “April new home sales up 2% to 454,000,” MarketWatch, May 23, 2013.)
Moreover, existing-home sales in the U.S. economy edged higher by 0.6% in April and registered an adjusted annual rate of 4.97 million, compared to 4.94 million in March. Compared to a year ago, existing-home sales were up 9.7% from April of 2012, when they totaled 4.53 million. (Source: “April Existing-Home Sales Up but Constrained,” National Association of Realtors web site, May 22, 2013.)
On top of … Read More
