home prices
Yet Another Housing Crisis on the Horizon?
By George Leong for Investment Contrarians | May 6, 2013
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
How Central Banks’ Easy Solution Could Devastate the Global Economy
By Sasha Cekerevac for Investment Contrarians | Apr 10, 2013
Central banks around the world have opened the floodgates with massive levels of quantitative easing in an effort to try to stimulate their respective economies. Turning on the quantitative easing tap is easy; putting the genie back in the bottle will be extremely difficult for central banks globally.
I am not alone in sharing this opinion, as the governor of Denmark’s central bank, Lars Rohde, has voiced similar concerns. In a recent interview, Rohde stated, “The risk is we stay in this climate too long and that the carpet bombing of liquidity spurs inflation… How do we exit this without killing whatever nascent recovery there might be at that time?” (Source: Levring, P. and Schwartzkopff, F., “Liquidity Carpet Bombs Fueling Asset Bubbles, Rohde Says,” Bloomberg, April 8, 2013.)
While central banks around the world are using quantitative easing in an effort to revive the global economy, the long-term consequences, as I’ve mentioned before, could prove to be extremely costly. I certainly welcome the honesty that Denmark’s central bank’s governor is displaying in voicing his concerns about how all of this quantitative easing might have serious long-term risks.
With Japan just now unveiling a massive new quantitative easing program in addition to the Federal Reserve’s asset purchase program, the floodgates continue to be wide open. However, central banks around the world have embarked on an aggressive quantitative easing policy since the great recession began, yet little has changed in terms of global unemployment.
Many nations around the world still suffer from extremely high levels of unemployment. It appears that quantitative easing did have an impact in certain asset prices, namely stocks … Read More
Headlines Say America’s Getting Richer—But We Know Otherwise
By George Leong for Investment Contrarians | Mar 28, 2013
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
What You Don’t Know About Home Prices Can Hurt You
By Sasha Cekerevac for Investment Contrarians | Mar 21, 2013
As the rebound in home prices continues, many people are trying to determine what the best investment strategy is at this point in time.
Let’s take a look at what has happened and what is most likely to occur in the future for home prices to help create a long-term investment strategy.
At the end of 2012, due to the increase in home prices across the nation, 1.7 million homeowners, who were underwater (meaning their mortgage was worth more than the value of their homes) a year ago, had positive equity, according to CoreLogic. (Source: Gopal, P., “U.S. ‘Underwater’ Homeowners Regain Equity as Prices Rise,” Bloomberg, March 19, 2013.)
The rise in home prices continues, as January saw a 9.7% increase over year-ago levels. According to CoreLogic, if home prices rise by five percent more, an additional 1.8 million homes will return to positive equity.
Clearly, there is no doubt that the proper investment strategy over the past year has been to gain exposure to the real estate market, as home prices have increased substantially.
Part of the rise in home prices is due to institutional investors who also have foreseen this investment strategy and have set out to purchase thousands of homes to convert into rental units. Because of the low yields on government bonds, many institutional investors are attracted to the high margins from renting units out as an investment strategy.
As I’ve mentioned in these pages several times before and when the stock was trading much lower, The Blackstone Group L.P. (NYSE/BX) is a great company that has aggressively bought in excess of 20,000 single-family homes and … Read More
The True Cost of the Current Federal Reserve Easy Money Stance
By Sasha Cekerevac for Investment Contrarians | Mar 1, 2013
Federal Reserve Chairman Ben Bernanke testified in front of Congress and faced a barrage of questions and criticisms regarding the central bank’s monetary policy initiative.
There are a growing number of critics voicing their concerns over the current monetary policy path set forth by the Federal Reserve. These critics aren’t only independent analysts such as myself, (I have been writing articles on the topic for some time now, including the article “Current Monetary Policy Unsustainable”), but economists who have worked closely with the Federal Reserve in the past.
The Federal Reserve chairman stated in his testimony to Congress, “Keeping long-term interest rates low has helped spark a recovery in the housing market and has led to increased sales and production of automobiles and other durable goods.” (Source: “Bernanke Affirms Bond Buying,” Wall Street Journal, February 26, 2013.)
Is he correct? Over the short term, the answer is yes, since the Federal Reserve has begun its aggressive monetary policy plan, home prices have gone up and car sales are strong once again. The real question is: what are the costs of accumulating $2.8 trillion of Treasury debt and mortgage-backed securities?
The real issue I have is the belief in fixing a burst bubble with yet another inflated stimulus plan. The previous high level of home prices was artificial and not sustainable. The resulting housing crash was inevitable, as all of the factors that went into creating the bubble were not structurally sound.
With the Federal Reserve pumping out monetary policy at full throttle, home prices are sure to move upward over the short term, but the long-term implications can be quite … Read More
Is a Bubble Developing in Housing?
By George Leong for Investment Contrarians | Feb 28, 2013
Recently in these pages, I talked about how the government, the Treasury, and the Federal Reserve were creating an artificial economy that was supported by cheap money and low interest rates.
One of the major benefactors of this cheap money was the housing sector, which is now sizzling hot. The median price of an existing home in the U.S. was $173,600 in January, up 12.3% from an average of $154,600 a year earlier. (Source: United States Census Bureau web site, last accessed February 27, 2013.)
Driving the renewed buying in the housing sector has been the environment of near-zero interest rates. The Federal Reserve has been injecting additional liquidity into the economy and mortgage market via its $85.0 billion in monthly bond purchases. The problem is that the low interest rates and easy money have driven the excess buying of homes and investment properties, as speculators jump into the housing sector, looking for deals and driving up home prices.
My concern is that the buying may be creating another potential bubble in the housing sector. You may not believe it, but I view this as a possibility. Housing starts in January showed some stalling. And now, with the sequestration budgetary cut set to take effect tomorrow, the automatic $85.0 billion in annual budget cuts (the planned sequester will total $1.2 trillion over the next decade) could have a widespread impact on the country and the economy, including program cuts, job losses, and economic chaos. The Congressional Budget Office (CBO) has warned that the U.S. economy could contract by 1.3% in the first half of this year if the sequester is … Read More
An Alternative Way to Profit from Higher Home Prices
By Sasha Cekerevac for Investment Contrarians | Feb 14, 2013
With the recent data over the past few months showing home prices continuing to rise, many investors might believe they’ve missed the boat. The homebuilder stocks have seen a substantial increase in corporate earnings, resulting from higher home prices and elevated production levels; this has led to a massive increase in their share prices.
The market is a forward-looking mechanism. Investors predicted the increase in home prices that we are now witnessing and the resulting rise in corporate earnings in these homebuilder stocks.
Yet another data point just came out, finding that 87.5% of single-family homes in 152 cities had an increase in home prices during fourth quarter 2012 compared to the same quarter in 2011. The number of residences exhibiting higher home prices is increasing, as only 79.0% of metropolitan areas showed an increase in home prices for the third quarter 2012. (Source: “Fourth Quarter Metro Area Home Prices Show Strongest Performance in Seven Years,” National Association of Realtors web site, February 11, 2013.)
While housing inventories are at 12-year lows and the interest rates of mortgages remain low, home prices are set to continue rising for the near future. Firms that are leveraged to higher home prices will see significant increases in corporate earnings.
However, there are still firms that can benefit from higher home prices and that are able to continue growing their corporate earnings over the next several years. But these companies might not be the ones that come to mind for investors when they think of the real estate investment industry.
One company that I have mentioned before when it was trading much lower is … Read More
Why America’s Confidence Is Fragile
By George Leong for Investment Contrarians | Feb 13, 2013
The recession is over, and the U.S. economy is showing some encouraging signs of economic renewal.
Shoppers are hitting the malls and stores, helping to drive up retail sales. I’d stick with the top department stores, like Macys, Inc. (NYSE/M), or discounters, such as Wal-Mart Stores, Inc. (NYSE/WMT), which will continue to rebound.
The housing sector has been sizzling since the recession, with a superlative rise in housing starts, building permits, and home prices. Homebuilder stocks, including the developers of residential real estate, are sizzling on the charts—Toll Brothers, Inc. (NYSE/TOL) and Hovnanian Enterprises, Inc. (NYSE/HOV), especially.
Since the recession, the jobs market is showing some growth, with the unemployment rate holding just below eight percent. As the jobs market recovers, look to some of the staffing companies, such as Robert Half International Inc. (NYSE/RHI), Manpower Inc. (NYSE/MAN), and Kelly Services, Inc. (NASDAQ/KELYA), to deliver.
So, America appears to be headed in the right direction since the recession hit; but underneath all of the economic jargon and positive media headlines about the “Great Recovery” in America’s economic engine, there’s still a sense that many people are still trapped in economic despair, feeling the impact of the recession.
After scanning through “Diminished Lives and Futures: A Portrait of America in the Great-Recession Era,” I can see that uneasiness and worry remains a real issue in the minds of Americans. (Source: Szeltner, S., et al., Worktrends February 2013, Rutgers, The State University of New Jersey web site, last accessed February 12, 2013.)
Some of the key findings of the research were as follows:
• About 90% of the respondents remained worried about … Read More
Potential Economic Threat: American Pessimism Grows as Politicians Bicker
By Sasha Cekerevac for Investment Contrarians | Feb 1, 2013
One of the most difficult concepts for both retail and professional investors and analysts is the incorporation of transitory or one-time events into information regarding economic growth and job creation.
What do I mean? There are many moving parts in the economy. Not all data can be compared on an equivalent basis. Even year-over-year data comparisons should incorporate far more variables.
As an example, recent data on both economic growth and job creation over the past six months have confused many professionals due to the many uncertainties affecting consumers and businesses.
We had the election, the fiscal cliff debate, and heated arguments by politicians on major structural issues, all of which created confusion with the data.
For the last six months, we have constantly heard from businesses that they were worried about the impact of the fiscal cliff. Many stated they were reluctant to expand their business; this sentiment can lead to a lower level of job creation, which would affect economic growth.
Is it reasonable to compare this latest set of data to the previous year’s data? What about the year before that? Clearly, the last six months were far different than the same time period last year. And since we can’t reasonably calculate how an individual or business would have acted without these uncertainties being present, data must be interpreted much more cautiously.
An example of interpreting behind the data is the recent release by The Conference Board of its Consumer Confidence Index for January, which declined to 58.6 from 66.7 in December. This was far lower than the median forecast in a Bloomberg survey of 64.0. January’s … Read More
Is the Housing Market “Home Sweet Home?”
By George Leong for Investment Contrarians | Jan 21, 2013
It was extremely difficult times for homeowners following the subprime mortgage implosion that helped to drag down the global economy in 2008. I recall how easy it was to get a mortgage without even having to provide an income or work history to the lenders. When an entry-level worker at McDonalds Corporation (NYSE/MCD) can get a mortgage with no questions asked, you have to wonder how long it might be before a housing bubble surfaces.
Luckily, after several years of the housing market being dragged through the mud, the current situation has vastly improved to the point where housing stocks are hot.
The declining mortgage rates have helped. The $40.0 billion in mortgage-buying by the Federal Reserve each month has driven down the cost of interest rates to record lows.
More people are working now, and with the jobs picture improving (albeit, at a slow pace), I expect the housing market will continue to strengthen.
Wherever you live, it’s clear the housing market is displaying much-improved industry metrics. We just saw another strong housing starts and building permits reading.
In December, there were an impressive 954,000 annualized starts, which is above the Briefing.com estimate of 880,000 and November’s 851,000.
Also lending support to the housing market recovery was a strong building permits reading of 903,000 in December, beating the Briefing.com estimate of 880,000 and September’s 900,000. The strong reading indicates that builders are expecting a good flow of buying in the housing market, and this could only bode well for homebuilder stocks.
Home prices, representing another key piece of the housing market, are edging higher, with the S&P/Case-Shiller U.S. Home … Read More
Why China’s Real Estate Makes Perfect Sense
By George Leong for Investment Contrarians | Jan 11, 2013
China is beginning to show renewed growth. The country is driving stimulus spending and easy monetary policy to get its economy back on track and drive consumers to spend.
And while there has been talk of an asset bubble in China’s housing market, my view is that the short-term risk is high, but there’s also excellent long-term growth potential in the Chinese housing market.
Investment in the country’s housing market surged 61.7% from January to November, according to the National Bureau of Statistics in China.
The conditions bode well for the country’s housing market. Consider that there are over 300 million middle-class consumers in China, and as a group, they are hungry for a lifestyle like we have in the West. Real estate investments are a key goal for the Chinese.
Standard & Poor’s analysts believe the housing market in China is stabilizing with buyers returning while home prices are stabilizing.
Moreover, in an ironic twist at a time when California’s housing market is struggling, the state’s California Public Employees’ Retirement System (CalPers), a pension fund, announced it would be investing about $530 million in two new China real estate funds managed by ARA Asset Management, which is positive longer-term.
To play China’s housing market, you can take the more conservative approach and buy the Guggenheim China Real Estate (NYSEArca/TAO) exchange-traded fund (ETF) with a year-to-date return of 58.8% as of December 30, 2012. The fund holds mainly large value-oriented Chinese real state stocks.
Chart courtesy of www.StockCharts.com
To take a more speculative and potentially higher return opportunity, an emerging small-cap Chinese real estate company that I like longer-term is … Read More
How Will the Housing Market Affect the U.S. Economy in 2013?
By Sasha Cekerevac for Investment Contrarians | Dec 21, 2012
One of the most important sectors of the economy is the housing market. The housing market is crucial for several reasons. First, the housing market employs a lot of people, both directly and indirectly. This includes the direct employment of people in the housing industry, such as tradesmen and homebuilders, and the indirect employment of people in related industries, such as the automakers that build pickup trucks to be used by tradesmen and homebuilders.
Another crucial factor is the direction of home prices. We’ve now seen continued strength in home prices, which is a positive for the homeowner. Considering a house is the largest property many citizens own, to see its value continually decline is mentally and emotionally difficult. However, with month after month of steady gains, this will help alleviate some concerns about the future.
According to the latest report from research and analytics firm CoreLogic, Inc. (NYSE/CLGX), in October 2012, home prices, including distressed sales, jumped up 6.3% nationwide. This is the largest increase for home prices since June 2006. This was not a one-time jump for the housing market, but the eighth consecutive month of year-over-year nationwide increases in home prices. (Source: “CoreLogic Home Price Index Marks Eighth Consecutive Month of Year-Over-Year Gains,” CoreLogic, Inc., December 4, 2012.)
In regards to homebuilder sentiment for the housing market, which is correlated with home prices, confidence continues to rise. According to the National Association of Home Builders (NAHB), confidence by homebuilders in December rose for the eighth consecutive month. This is the highest level of confidence by homebuilders since April of 2006. (Source: “Builder Confidence Continues Improving in December,” … Read More
Will the Housing Market Recovery Continue?
By Sasha Cekerevac for Investment Contrarians | Dec 7, 2012
We have all heard the recent news that the housing market recovery is well on its way off the bottom. With home prices continuing to move up, many are questioning the long-term strength of the housing market. While there is no question that home prices have hit the lowest point and won’t return to those levels again, many are worried that they missed the housing market recovery, as prices have already risen significantly. I think there’s a few more years left for price appreciation in the housing market.
It’s been another month, and there’s more news that home prices continue to move upward substantially. CoreLogic, Inc. (NYSE/CLGX), a research and analytics firm, reported that. in October 2012, home prices jumped up 6.3% nationwide, including distressed sales. This is the largest increase for home prices since June of 2006. Another sign that shows the strength of the housing market is that this is the eighth consecutive month of year-over-year nationwide increases in home prices. (Source: “CoreLogic Home Price Index Marks Eighth Consecutive Month of Year-Over-Year Gains,” CoreLogic, Inc., December 4, 2012.)
Not only was October a good month for the housing market—the eighth month in a row of strength in home prices—but also CoreLogic is indicating that, for November, home prices including distressed sales will be up by 7.1% year-over-year. Excluding distressed sales, the firm expects November home prices nationwide will jump 7.4%.
The president and CEO of CoreLogic, Anand Nallathambi, stated, “We are seeing an ongoing strengthening of the residential housing market. Reduced inventories and improving buyer demand are contributing to stability and growth in home prices which is essential … Read More
How Investment Firms Might Be Squeezing out Homebuyers
By John Whitefoot for Investment Contrarians | Nov 28, 2012
Investors were pretty excited last week when it was announced that both existing- and new-home builds were up quarter-over-quarter and year-over-year.
U.S. builders broke ground on homes in October at a seasonally adjusted annual rate of 894,000, up 3.6% over September and the highest rate since July 2008. New housing starts are also 87.0% above the annual rate of 478,000 in April 2009, the recession low. (Source: “US new home starts jump to fastest pace in 4 years,” Bloomberg Businessweek, November 20, 2012.)
Keep in mind, new-home sales only account for 20% of the housing market sales. So how did existing-home sales do?
In October, sales of existing homes, which investors tend to love, increased 2.1% month-over-month to a seasonally adjusted annual rate of 4.8 million. Existing-home sales are up 10.9% from a year earlier, representing the 16th consecutive month of year-over-year home-sales gains. (Source: “Existing-Home Sales Rise in October with Ongoing Price and Equity Gains,” National Association of Realtors, November 19, 2012.)
All evidence suggests the housing market recovery is in full swing! But not so fast—a recovery of some sort is in the oven; I’m just not sure it will benefit those who want to own a home.
In October, the median existing-home price was up 11.1% year-over-year at $178,000, marking the eighth consecutive monthly year-over-year increase. This is bad news for potential first-time homebuyers who face stricter lending rules from tight-fisted banks. And the cracks are beginning to show. First-time homebuyers accounted for just 31.0% of October purchases, down from 32.0% in September and 34.0% a year earlier.
While the number of existing homes on the market … Read More
What 2013 Will Look Like for the Housing Market
By Sasha Cekerevac for Investment Contrarians | Nov 21, 2012
One of the most often talked about parts of the economy is the real estate market sector. Because real estate is such a large and important part of the economy, naturally, many eyes are focused on whether or not this market sector can and will rebound from its deep decline.
While we have certainly seen a strong bounce off the bottom, there are still many concerns for the future of both the real estate market sector and housing stocks, specifically. Investors in housing stocks are definitely ahead of the curve, as many housing stocks have increased substantially. With gains in excess of 100%, the question on many people’s minds is: will the real estate market sector continue its upward trajectory, or are housing stocks teetering on the edge of a massive decline?
The Department of Commerce just released the number of housing starts for October. As I expected, housing starts exceeded estimates, coming in at an annual rate of 894,000, up 3.6%. This is the fastest annual rate since July 2008. Many estimates taken by Bloomberg in a survey are still far too low, coming in at 780,000–873,000. (Source: “Housing Starts in U.S. Increase to Four-Year High,” Bloomberg, November 20, 2012.)
The reason why publicly traded housing stocks are doing so well and driving housing starts is that they are able to take advantage of extremely cheap financing. Essentially, private homebuilders are not able to borrow funds as cheaply as publicly traded housing stocks. Because investors are looking for places to park their money due to the low-interest-rate environment, this is giving housing stocks so much excess funding that they’re … Read More
Why Housing’s “For Sale” Sign Is Gone
By George Leong for Investment Contrarians | Nov 21, 2012
There were extremely difficult times for homeowners following the subprime mortgage implosion that helped to drag down the global economy in 2008. I recall at that time how easy it was to get a mortgage without even having to provide an income or work history to the lenders. When an entry level worker at McDonalds Corporation (NYSE/MCD) could get a mortgage with no questions asked, you had to wonder how long it would be before a housing bubble would surface.
Luckily, after several years of the housing market being dragged through the mud, the current situation has vastly improved to the point where housing stocks are hot.
The declining mortgage rates have helped. The $40.0 billion in mortgage-buying each month by the Federal Reserve has driven down the cost of interest rates to record lows.
There are more people working, and with the jobs picture improving, albeit at a slow pace, I expect the housing market will continue to strengthen.
Wherever you live, it’s clear that the housing market is displaying much-improved industry metrics. We just saw another strong reading for housing starts and building permits.
In October, there were an impressive 894,000 starts, according to the U.S. Census Bureau, which is above the Briefing.com estimate of 815,000 in October and the 863,000 starts in September.
Also lending support to the housing market recovery was a strong building permits reading of 866,000 in October, albeit short of the Briefing.com estimate of 900,000 and the 890,000 reading in September. The strong reading indicates that builders are expecting a good flow of buying in the housing market, and this could only bode … Read More
What Else Is Holding the Housing Market Back
By Sasha Cekerevac for Investment Contrarians | Nov 5, 2012
The crash in the housing market was a devastating hit to the U.S. economy, as millions of people were affected, wiping out massive amounts of wealth. This is why the recovery in the housing market is extremely important. The Federal Reserve has since stepped in and offered unprecedented monetary policy action to try and stem the decline.
While we can argue about whether or not this is an appropriate action, we can’t argue against the fact that the housing market has definitely begun its slow climb back up. A recent report by the S&P/Case-Shiller Home Prices index for 20 cities showed that home prices increased in August by two percent year-over-year, which represents the largest increase in two years. (Source: “Home Prices in 20 U.S. Cities Rise by Most in Two Years: Economy,” Businessweek, October 30, 2012.)
However, while the effort by the Federal Reserve has indeed created some upward momentum in the housing market, there are still many impediments to overcome before we see even more price appreciation.
In a recent report by a Federal Reserve survey, while mortgage applications are rising, 90% of banks stated that for prime or low-risk mortgages, they were maintaining their tight lending standards. (Source: “Banks See Mortgage Requests Rising,” The Wall Street Journal, October 31, 2012.)
According to the data, there is a significant rise in demand for home mortgages over the last several months. However, banks are maintaining extremely tight lending standards, which could be preventing even higher price levels for the housing market.
The banks that are very active in the housing market are leery of overexposing themselves. While I can … Read More
Why You Need to Seriously Look at Housing Stocks
By George Leong for Investment Contrarians | Oct 19, 2012
You can still buy cheap homes in America if you don’t mind living in cities like Detroit, Pittsburg, Rochester, Memphis, or Cleveland. Unbelievably, in Detroit, you can even buy a home for under $100.00 if you don’t mind living in an area that is extremely depressed.
On the other end of the housing spectrum, there’s New York City, but to live there, you would need to dip deep into your pocketbook, as the median home price was $1.1 million for the period between July and September 2012, according to Trulia.com (source: www.Trulia.com, October 18, 2012).
Wherever you live, it’s clear the housing market is displaying much-improved industry metrics. We just saw a blow-out in housing starts and building permits on Wednesday.
In September, there were an impressive 872,000 starts, 13.5% above the 768,000 estimate and the upwardly revised 758,000 in August. Also lending support to the housing market recovery was an equally strong building permits reading of 894,000 in September, well above the 815,000 estimate and the revised 801,000 in August. (Source: Yahoo! Finance with data supplied by Briefing.com.) In my view, the strong readings indicate that builders are expecting a good flow of buying in the housing market.
Moreover, representing another key piece of the housing market, home prices are edging higher, with the S&P/Case-Shiller index, comprising of the 20 largest U.S. metropolitan cities, increasing a better-than-expected 1.2% in July; this represented the sixth straight month of increases.
The improvement in the housing market is also showing in the results of numerous homebuilder stocks.
Homebuilders are continuing to deliver better results. Toll Brothers, Inc. (NYSE/TOLL) blew away the consensus … Read More
The Truth Behind the Housing Market
By Sasha Cekerevac for Investment Contrarians | Oct 5, 2012
With yet another month of data, we’re seeing the continued recovery in the housing market. Research firm CoreLogic, Inc. (NYSE/CLGX) just reported that August home prices were up 4.6% from a year ago. This big increase in year-over-year home prices is the largest in six years.
Don’t get me wrong; the housing market will not reach the highs of the past decade anytime soon. But we are clearly off the bottom and that is a crucial development. To buy such a large asset, buyers need to feel somewhat secure that home prices won’t keep dropping. While no one is looking for massive returns, having a stable housing market is extremely important in this economic recovery.
While many believe the housing market is flooded with properties, the opposite is true; we’re seeing shortages of properties driving up home prices, not only in this report, but from the homebuilders themselves. That’s why homebuilder stocks have had massive moves this year, being one of the strongest equities to own.
According to the National Association of Realtors, the number of listed homes for sale was down 18.0%. I think this is partially due to the fact that the homeowners are seeing home prices increase; so they hold off until home prices get high enough for them to sell their properties. At that point, the housing market will reach some sort of equilibrium between supply and demand. For now, demand is clearly outpacing supply in many parts of the country.
When we add what the Federal Reserve just announced—keeping rates low for some time—they’ve certainly helped the housing market. Now that potential buyers are seeing … Read More
Housing Market: What the Latest Reports Reveal
By Sasha Cekerevac for Investment Contrarians | Sep 26, 2012
The latest release of the S&P/Case-Shiller Home Prices Index is out, measuring data through July 2012. For the third consecutive month, all 20 cities recorded monthly gains in home prices. The 20-city average year-over-year gain was 1.2%. The numbers also show that single-family homes are in demand, which isn’t new, as I’ve discussed the strength in homebuilders such as Toll Brothers, Inc. (NYSE/TOL) before.
In fact, the reports I’ve seen show that, in many markets there’s a shortage of new homes, as the homebuilders are seeing multiple bidders and price improvements. These are all great signs that the housing market is starting to regain a solid footing. Note: this does not mean we will retake the peak in home prices anytime soon. In fact, I have argued in the past that home prices were artificially pumped up during the last decade, and it will take many years before the housing market overtakes those high levels.
What is important is that buyers feel secure that home prices won’t collapse. In fact, we’re seeing many markets experience strong gains in home prices. The Case-Shiller reports that San Francisco is up 20.4%, Detroit is up 19.7%, and Phoenix is up 17.0% from their respective lows.
As they say, the housing market is all about location. In areas of the country where the jobs market is growing, such as the high-tech or even the automotive sector, we’re seeing a resurgence in home prices. The housing market in San Francisco is up almost five percent since last July, with Detroit up 6.2%.
These are not aberrations, but they are a sign that the housing market … Read More
Housing Market Reality: Average Home Price in Detroit a Shocking $21,000
By George Leong for Investment Contrarians | Aug 6, 2012
I was just reading a Wall Street Journal article on real estate and was shocked to discover that the average list price of a house in Detroit is a mere $21,000 at this time. After seeing this, you may think of hauling your belongings to the auto epicenter of the U.S.; however, given that you may have a tough time finding adequate paying work, it may not be a good idea. Although, yes, you can probably work at minimum wage and buy a house in Detroit.
What I’m getting at is there are numerous places (maybe not as bad as the situation in Detroit) in America where the housing market is dirt cheap.
The media will tell you how the housing market is ramping up. That’s true as far as housing starts and building permits go, which have improved significantly since the subprime crisis in 2008, but the reality is home prices continue to be dogged by high home foreclosures and short sales. In my view, this factor will continue to cast a cloud over the housing market.
While the housing market has clearly improved from last year and the start of the subprime housing crisis in 2008 that led to the worst recession since the Great Depression, I still feel that the optimism is somewhat high and that there will continue to be hurdles ahead.
We have seen an uptick in homebuilder stocks as the optimism picks up.
The chart of the S&P Homebuilders Select Industry Index (NYSE/XHB) shows the upward trend from the October 2011 bottom to the May peak. We are currently witnessing some stalling on the … Read More
Is the Housing Market Coming Back? Yes and No
By Sasha Cekerevac for Investment Contrarians | Jun 29, 2012
The latest data coming from the S&P/Case-Shiller index showed several surprises in the housing market. Home prices in some markets are clearly rebounding, while in other parts of the country, home prices continue to languish. The truth is that the housing market is not one monolithic entity, but rather consists of pockets of strength and weakness for home prices across the nation.
A notable housing market area is San Francisco, where home prices are up 16.0% on an annual basis over the three-month span ending in April. Other notable moves in home prices during the same time span include Phoenix up 26.0% on an annual basis, Seattle up 12.0%, Tampa up 11.0%, San Diego up 8.3%, and Miami up 8.2%.
There are also reports from the homebuilders of extremely strong demand in the housing market for certain parts of the country. Home prices are clearly rebounding, as long as one is very particular about the cities and neighborhoods. In many of the housing market areas of high demand, inventory is extremely low and is driving home prices up significantly.
The takeaway message from this resurgence in home prices is to focus on homebuilders in a specific housing market. The new home sales are clearly rebounded as the homebuilders are only constructing in the housing market that has the highest demand. Take a look at the stocks of Toll Brothers, Inc. (NYSE/TOL) and Lennar Corporation (NYSE/LEN); they’ve had a tremendous run from the lows of last year. Lennar itself has almost tripled in price.
While many worry that home prices will remain stagnant due to the overhang of foreclosures, there is … Read More
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