Housing Market

The housing market is comprised of buyers and sellers of homes. Information on the housing market encompasses the supply and demand for homes as well as the inventory level of unsold homes. In markets around the country and different nations, you will have a natural progression of demand and supply. In some markets, there are new citizens moving to the city creating demand and, unless there is enough supply to match this demand, prices will rise. Income levels and mortgage rates also play a role in determining how many transactions occur in any given housing market.

Yet Another Housing Crisis on the Horizon?

By George Leong for Investment Contrarians | May 6, 2013

Housing Crisis on the Horizon Home prices are heating up, as the flow of new homes and permits continue to steadily increase and the attraction of historically low mortgage rates motivates buyers.

The buyers that are driving up the housing market are not only the buyers of principal homes, but also the investors who are attracted to the relatively lower home prices and cheap financing.

What is interesting is that we are seeing major buying from not only the smaller investor who may dabble in an investment property, but also the large institutions and hedge funds that are getting into the swing of things, gobbling up hundreds and thousands of properties at lower prices.

The S&P/Case-Shiller index, comprising the 20 largest U.S. metropolitan cites, increased a better-than-expected 9.3% in February, representing the 13th straight up month for prices.

While the housing market is far better than it was a few years ago, when the sub-prime mortgage crisis crushed the housing market and left a trail of destruction, my view is that there may be a bubble building as much of the current surge in prices is due to the cheap money.

Just consider the S&P/Case-Shiller index and notice the major jump in home prices in the housing market. For example, home buyers in the Phoenix housing market saw home prices surge 23% year-over-year, while those living in San Francisco reported an 18.9% surge in home prices.

My problem is that much of the buying in the housing market is being triggered by low-financing costs that can inevitably get homeowners in trouble once interest rates begin to ratchet higher—and they will go higher. For instance, carrying … Read More

Headlines Say America’s Getting Richer—But We Know Otherwise

By George Leong for Investment Contrarians | Mar 28, 2013

America’s Getting Richer Stocks are at their record highs, driven by a soaring stock market rally. The housing market is well off its lows, with sales and home prices edging higher.

The end result is that the overall wealth and optimism in America is higher.

According to the “CNBC All-America Economic Survey,” 33% of Americans felt the price of their homes will ratchet higher, up nine points since the previous survey in November 2012 and the high point since December 2007. The survey in March also suggested 48% of Americans believed it was a good time to invest, given the stock market rally; this number is up from 31% in November and it’s the highest since December 2009. (Source: Liesman, S.,“CNBC, American Dream Is Back; CNBC All-America Economic Survey,”CNBC, March 26, 2013.) So all is good, right?

As I previously commented, the stock market rally has made more people rich. A total of 300,000 newly minted millionaires werecreated from the current multiyear stock market rally, according to Spectrem Group. (Source: Frank, R., “CNBC, US (and Booming Market) Adds 300,000 New Millionaires,” CNBC, March 14, 2013.)

But hold on. The reality is that there continues to be a mass of Americans collecting food stamps, around 48 million, according to USDebtClock.org, and they don’t care about the stock market rally.

While the media’s headlines are commenting on how America is becoming richer, it’s a myth, of course—unless you don’t care about the other 95% of Americans who are just getting by and the bottom rung of this group who are considered America’s poor, making minimum wage.

In my view, the growing disparity between the rich … Read More

The Real Force Behind Cheap Housing

By George Leong for Investment Contrarians | Mar 27, 2013

Force Behind Cheap Housing The housing market has clearly reached a bottom and is turning higher. After years of dismal sales, increasing foreclosures and short sales, and declining home prices, there’s strong optimism, which has resulted in sizzling demand for homebuilder stocks.

Yet the recovery in the housing market has been helped in a great part by heavy buying by both retail real estate investors and major institutions. According to the National Association of Realtors, cash buyers and large investors account for about 32% of home purchases across the country. (Source: Timiraos, N., “Investors Pile Into Housing, This Time as Landlords,” Wall Street Journal March 25, 2013.)

Institutional buying in the housing market has been significant. One of the major buyers has been the The Blackstone Group L.P. (NYSE/BX), which has $57.0 billion in real estate holdings and another $11.0 billion available to invest. (Source: The Blackstone Group L.P. web site, last accessed March 26, 2013.) The company started a unit called “Invitation Homes” to acquire distressed single-family homes and eventually lease them.

What is happening is that, with the major contraction in home prices being driven by foreclosures, short sales, and cheap financing rates, we are seeing a heavy flow of investors headed into the housing market, taking advantage of the homeowners who were squeezed out by the subprime credit crisis, losing their homes.

While the overall housing market has strengthened, if not for the inflow of investment money, I wonder if the housing market would have recovered at the same pace.

The housing market, especially in warm climate regions such as Florida and Arizona, has also been triggered by the inflow of … Read More

Fed’s Easy Money to Cause Next Financial Meltdown

By George Leong for Investment Contrarians | Mar 14, 2013

Easy Money to Cause Next Financial Meltdown The Federal Reserve may be responsible for the biggest financial meltdown yet to come. In fact, this meltdown could be even bigger than the subprime mortgage crisis in 2008.

Let me explain. We all know the Federal Reserve has created an artificial economy that has been built on the availability of easy access to cheap money due to near-zero interest rates. There is no argument here. Via its aggressive quantitative easing programs, the Federal Reserve has produced an economy that is dependent on cheap capital.

Some would argue the Federal Reserve didn’t have a choice; if they didn’t introduce monetary policy, the housing market and banking system may have collapsed. I agree to that extent, but with the economy now in recovery, you kind of wonder why the Federal Reserve continues to allow the flow of easy money.

Recently at its January Federal Open Market Committee (FOMC) meeting, the Federal Reserve suggested that it would have to review the possible stoppage or slowing of its $85.0 billion in monthly bond purchases. The market reacted by selling stocks. Federal Reserve Chairman Ben Bernanke then came out and said that the central bank was committed to its monthly bond buying as long as the economy and employment remain fragile. So which is it? The Federal Reserve needs to really think about reining in its easy monetary policy and reducing the amount of the M2 (all money in circulation, plus savings deposits, time-related deposits, and market-money funds) money supply in the system.

Here’s the dilemma:

The climate of historically low interest rates has driven a false sense of comfort. Consumers are buying more … Read More

Dow at Record Highs, but U.S. Economy Continues to Worsen

By George Leong for Investment Contrarians | Mar 12, 2013

U.S. Economy Continues to Worsen The Dow Jones Industrial Average is firing on all cylinders, trading at a record high. The S&P 500 is also close to its all-time record. Technology and small-cap stocks are blazing along. The amount of new stock market wealth created in the first week of March and in 2013 has been great. Add in the better-than-expected jobs numbers and a decline in the unemployment rate to 7.7%, and you would think that the U.S. economy is back, loaded and ready to go. But we may be closer to a financial crisis than most think.

Here’s the problem: the creation of stock market wealth is heavily weighted with the institutional money and the top one to five percent of the wealthiest Americans. (I use the wider range of the top earners, since you have to be doing fairly well to be in this group.)

There’s an old saying—“Money makes money.” But let me put it another way: making money on $1.0 million is a lot easier than making money on $1,000. Earn two percent on $1.0 million, and you’d have an extra $20,000. Make two percent on $1,000, and you only have $20.00, just enough for a dinner for two at McDonald’s Corporation (NYSE/MCD). All I’m saying is don’t be fooled by the new headlines talking about how well America is doing, as a financial crisis is still possible.

The housing market is booming, but we all know that the rally in prices is partially due to rich investors and institutions buying cheap properties from those who had to sell or be foreclosed on due to a lack of funds to … Read More