Investment Contrarians

Real Estate

Real estate is comprised of land and any holdings within a particular property. Real estate can include homes, which would be residential real estate, building and offices, which would be considered commercial real estate, and any natural resources contained on the property. Real estate is a large and integral part of any economy. There are many jobs both directly and indirectly associated with the real estate market. The price of real estate is essentially determined through two measures: income and interest rates.


How to Profit from a Potential Housing Market Downdraft

By for Investment Contrarians | Nov 1, 2013

Potential Housing Market DowndraftThe housing market has had a nice run up over the past several years, but the party is beginning to fade.

Home prices continue to edge higher with a 12.8% jump in August, according to the S&P/Case-Shiller 20-City Home Price Index. While this seems positive, you also have to wonder if the housing market is headed for a bubble down the road as mortgage rates rise—and they will.

The chart of the S&P/Case-Shiller 20-City Home Price Index below shows the current recovery in home prices. The index is still far below the peak in 2006 and 2007, prior to the subprime blow-up. These were unrealistic levels. We saw downward moves in 2009 and 2012, but it has been clear sailing. Yet the problem is that much of the buying in the housing market was driven by institutional buying. Once this begins to fade as home prices rise, we could see a relapse in the housing market.

S&P Case-Shiller Home Price Chart

Chart courtesy of www.StockCharts.com

We saw a 5.6% decline in pending home sales in September. This metric is not considered as critical as the housing starts and building permits readings, but in my view, it’s a good indicator. In August, pending home sales slid 1.6%. We may be seeing a trend of lower demand for homes, which suggests there could be some issues on the horizon if pending home sales continue to be negative.

Existing home sales were also flat at 5.29 million units in September, down from 5.39 million units in August. Less people are buying homes, and this cannot be good for the homebuilder stocks.

What makes the situation in the housing … Read More


Why I Feel the Housing Market Is Topping Out

By for Investment Contrarians | Sep 26, 2013

Housing MarketThe housing market continues to produce some healthy gains for investors. Home builders edged higher on Tuesday after the S&P/Case-Shiller 20-City Home Price Index surged another 12.4% in July, above the Briefing.com estimate of 10% and the 12.1% advance in June.

As shown on the chart below, the index has been on a steady upward climb since February 2012, and there appears to be nothing stopping the move in the housing market.

Of course, the accommodative monetary policy adopted by the Federal Reserve has been the primary reason for the advance in home builds, sales, and selling prices—the “evidence” behind the so-called housing market “recovery.”

But be careful.

It’s true that the financing costs for homes could likely stay historically low for a few more years, which would help add support to the housing market. However, I feel there could be a sort of bubble on the horizon.

Case-Shiller Home Price Chart

Chart courtesy of www.StockCharts.com

Let me explain.

The upward move in the housing market has largely been driven by foreclosures, short sales, and very affordable mortgage rates.

The problem now is that financing rates are not going to stay at these low levels indefinitely. Interest rates are heading up, folks, and it’s not a matter of if, but when.

If you believe the Federal Reserve, interest rates will likely begin to turn higher sometime in late 2014, depending on if the unemployment rate can improve to 6.5%. There is no guarantee the jobs market will improve by next year and drive the jobless rate down. In fact, the jobs market may not improve, and we may have to wait until early 2015 … Read More


Why It May Be Time to Walk Away from the Housing Sector

By for Investment Contrarians | Aug 30, 2013

Housing SectorI’m sure you are not surprised to see the housing market continuing to move lower. After several strong years of recovery in the housing market, during which home prices rose and home starts and building permits moved higher, we are now facing some hesitancy in the housing market.

As many of you know, the housing market has been propped up and driven by the Federal Reserve’s quantitative easing policies. But with the easy money eventually drawing to a close, we are seeing some heightened fragility on the charts.

The reality is that mortgage rates are continuing to rise, which we know is counterproductive to any recovery in the housing market. The rate on a 30-year mortgage now sits at 4.8%, according to the Mortgage Bankers Association (MBA). Moreover, with the Fed looking at paring down its bond purchases, more upward pressure will be placed on bond yields and mortgage rates.

And you know what happens when mortgage rates rise: they kill the recovery in the housing market.

The MBA also said that the higher rates have resulted in a decline in mortgage applications for the third straight week.

The steady rise in housing starts and building permits appears to be flattening as rates rise, and developers see demand potentially declining on the horizon.

Take a look at the chart below of the S&P 500 Homebuilders Index. Notice the bearish descending triangle on the chart since the index’s peak in May. We have seen lower highs and lower lows capped by the recent breakdown at the support level, as shown by the horizontal blue line in the chart below.

SPDR S&P Homebuilder Chart

Chart courtesy … Read More


What Are the Declining Homebuilder Stocks Trying to Tell Us?

By for Investment Contrarians | Jul 2, 2013

Homebuilder StocksOne of the few positive sectors within our economy over the past year has been the housing market. Even though economic growth overall has been less than optimal, the housing market rebound has certainly helped improve the overall situation.

With comments by the Federal Reserve that they’re preparing to reduce their monthly asset purchase program, investors reacted abruptly and sent interest rates shooting up over a very short period.

Over the past few weeks, rates from 15-year to 30-year mortgages have gone up approximately 0.5%. Can the housing market sustain its growth trajectory in the face of higher mortgage rates?

Historically speaking, we are still at very low levels when it comes to mortgage rates. However, the psychological affect of the rapid rise might begin to become a slight drag on economic growth.

The housing market comprises many variables, and interest rates are just one of them. Incomes, we know, are not rising rapidly, but the housing market inventory is extremely tight. That dichotomy has been bullish for home prices so far, but at some point, higher interest rates will begin to become a larger factor.

Because the overall economic growth of America is still relatively weak, if rates continue rising, this would have an impact on the housing market.

Markets react far quicker than policymakers. When market participants think an event will occur, they will quickly rush to adjust their positions. Since shifts in policy will occur only when the data improves, this too is a double-edged sword.

If economic growth really does begin to improve, along with it will come higher levels of income. That will partially offset … Read More


This Popular Set of Stocks Could Be Headed for a Crash

By for Investment Contrarians | Jun 27, 2013

Stock Headed for a CrashIs the housing market moving up too fast? As strange as that sounds, considering the crash in the housing market a few years ago, there is a very real possibility that people are beginning to aggressively speculate once again in the housing market.

That flurry of speculators out for quick cash is partially what led to the boom in the housing market last decade. Many people considered the housing market as a means to get rich, and it was fuelled by very low interest rates. That escalation of buying and selling resulted in prices for the housing market far higher than it could sustain. And to the inevitable crash.

Recent data shows that the housing market, instead of stabilizing, is actually seeing an acceleration of price increases.

According to the S&P/Case-Shiller report, April 2013 set a record for the greatest monthly increase in home prices nationwide, with a 12.1% year-over-year increase in the 20-city composite index. (Source: “Home prices set record monthly rise in April 2013 according to S&P/Case-Shiller home price indices,” S&P Dow Jones Indices, June 25, 2013.)

The recent rise in interest rates over the past couple of weeks is now sparking debate over whether the housing market rebound will slow down.

But it will be the refinancing business that will suffer; far more than the housing market. That’s because new single-family home construction is still running below one million units per year.

While that might seem like a large number, new family formation requires approximately 1.3 million to 1.5 million new homes per year. Even with the recent increase in construction for the housing market, there is … Read More