Another Report from the Housing
Market’s Front Lines
by Mike Larson
I’ve been talking about interest rates an awful lot lately … and for good reason. The next BIG story in the bond market is clearly the sovereign debt crisis.
But I don’t want to ignore the housing market, either.
My best-case forecast is still a recovery — albeit an anemic, lackluster, moribund one. Some of the latest numbers leave a few questions in my mind, though. So let’s recap where we stand …
Price Declines Ebbing as
Inventory Overhang Shrinks
Home prices have been plunging for a lot of reasons:
- They got way too expensive relative to incomes.
- The monthly cost of ownership got way out of whack with monthly rents.
- The supply of homes for sale exploded, while the qualification standards for home mortgages tightened.
LAST 2 DAYS!
Our research is now warning of major, sweeping changes directly ahead. Shifts in ALL FIVE major asset classes that will blindside most investors regarding stocks … precious metals … energy … bonds … and currencies.
We want to give you both the indispensable investment intelligence AND the essential, practical recommendations you need to protect yourself and prosper — both now AND over the next 36 months. But hurry, time is running out!
Click here for more information …
But many of those underlying issues have been corrected by falling home prices.
As I’ve told numerous reporters over the past couple of years, falling home prices were ALWAYS part of the solution to the housing crisis. They would eventually restore price-to-income and own-vs.-rent ratios back to their historical norms … and bring out bargain-hunting buyers.
|Home prices are inching upward as inventory slowly declines.
Now you’re starting to see the results of that in the home price data. December figures from S&P/Case-Shiller show that prices rose 0.3 percent from a month earlier. That was the seventh straight gain.
Prices still fell from the year-ago level. But the 3.1 percent decline was the smallest going all the way back to May 2007. Prices actually rose in six cities, led by San Francisco at 4.8 percent and Dallas at 3 percent.
A key driver of this improvement is the shrinking supply of homes for sale, which I described for you a couple weeks ago. Total new and existing home inventories have shrunk by 1.4 million from their peak more than two years ago.
So that’s the good news.
What’s the bad news?
Sales Hit an Air Pocket;
Will It Last?
New home demand hit a wall in January! Sales plunged 11.2 percent to a seasonally adjusted annual rate of just 309,000 units. That was much worse than forecast. In fact, it’s the lowest level ever recorded since the government began tracking in 1963 — when JFK was president!
|Homebuilders are having a tough time competing with the existing home market.
The supply of homes for sale held around its four-decade low. But the median price of a new home dropped 5.6 percent to just $203,500 — the lowest level in more than six years.
What the heck happened?
For one thing, homebuilders are getting their clock cleaned by the existing home market. Distressed inventory continues to hit the market at cut-rate prices, drawing potential buyers away from new product.
For another, we’re still dealing with a tax credit “hangover” effect. And let’s face it, the job market is nothing to write home about, either. As I said earlier, I still think we’re on the long, slow road to an anemic, lackluster recovery in housing. But numbers like these can sure shake your faith.
|Politicians will do whatever it takes to keep the housing sector afloat.
The Likely Response?
More Washington Subsidies!
The Federal Reserve has been saying it would stop buying Fannie Mae and Freddie Mac debt, as well as mortgage-backed securities, as of March 31. And the home buyer tax credit is currently scheduled to expire as of April 30 (for contract signings … you get until June 30 to close).
But let me ask you a question: Do you really think Washington is going to cut off its support of the housing or mortgage markets if the numbers keep coming in like this? I sure don’t!
I would not be surprised in the least if the government’s unprecedented intrusion and effective nationalization of the U.S. mortgage market continues as far as the eye can see.
That will likely keep sales and pricing from plunging to much lower lows. But it will also continue to pile more direct debt, indirect debt, and contingent liabilities on Uncle Sam’s balance sheet. That, in turn, raises the sovereign debt threat level.
If You Like Gold, You’re Going to Love Silver
At 1/60th the price of gold, silver offers a +50% upside profit potential. Besides being a store of wealth, silver has a host of real-world uses ranging from medicine to the new 3-D movie-theater screens. ETF Authority is bullish on silver — find out why.
And learn the best way to profit from silver now.
Click here to learn more.
Long story short, there are no easy ways out for housing or government policymakers. By failing to pro-actively attack the housing bubble years ago, they laid the groundwork for this epic economic disaster. And nothing but a long period of healing can truly fix things.
Until next time,
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates
but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.
Would you like to unsubscribe from our mailing list?
To make sure you don’t miss our urgent updates, add Weiss Research to your address book. Just follow these simple steps.
© 2010 by Weiss Research, Inc. All rights reserved.
15430 Endeavour Drive, Jupiter, FL 33478