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
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
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
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
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
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
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
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
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
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