Long article (hat-tip Eric), winding through many of the issues familiar to HPers. But then the crescendo:
Rent.On the supply side for housing, sheer panic is beginning
Speculative buyers have stopped buying and many potential buyers are canceling orders and leaving deposits on the table.
Housing prices in active real estate markets have gone up so much that the costs associated with owning vs. renting make renting a far more attractive choice now.
Our estimate is it will take about six months for sellers – particularly speculators who never intended to live in their properties but whose sole intention was to “flip” them for a profit – to realize they are toast.
Based on the logic of history, those who rent for a few years, rather than buy, will be rewarded the most (even though rents should increase with general inflation). Yes, the day will come again when it will, indeed, cost less to buy than it does to rent. When that day comes, it will signify the return, once again, of Housing Heaven.
10 comments:
A lot of people will be burning in housing hell for a while, which will suck for the general economy.
Why did the HGX go up nearly 3% and FNM up 5% today (4/5/06)? I haven't seen any news. Bonds were about flat. That's a huge runup. The HGX even gapped up.
BTW, great site and my first post. I agree w/ the views on this site, but I dunno... similar to the stock market runup since late '02... it's like the energizer bunny.
Despite all the unsustainable and bearish fundamentals, corporate profits have been at double digits for 44 months now and long bond yields remain stubbornly low.
A few days ago, there was a pattern of technical indicators that I follow (my own -- been trading over 10 years and am used to them) that signalled a critical point and likely major trend turning point. YET... once again (and I've come to almost expect this now) the market jumped up and out nullifying the signal.
And re: housing, I wouldn't be surprised if we don't have another active Spring/Early Summer with prices remaining high -- no matter how confounding.
It seems to me we need a catalyst to change both the housing and market bull trends. But if the Fed STOPS raising rates, it may be off to the races again. When the fed stops it's rate raising, the market and economy are supposed to bottom and then take off again when the Fed lowers. Yet we're making new highs on the NYA and small caps -- hardly bottoming.
I don't get it.
columbusoh: just noticed your post. Yes I agree. That matches the pop in the HGX and FNM. SOMEBODY is buying the housing sector... big time today.
I follow technicals and fundamentals -- both tell me the market and housing should be sliding seriously. Yet they're not -- not yet. We've gotten past the typical March turning point and now earnings season is arriving (with all the typical surpassed expectations announcements).
I feel like I'm missing something important. I wonder... interest rates really aren't high... they've stayed very reasonable... and then there's the prospect of 12 million plus illegal immigrants becoming legal (citizenship isn't the issue, legal residency is, and the senate bill would grant that automatically). That'd be a large number of people who would feel free to come out into the open and buy. Low interest rates + bump up in legal population = housing holds up. That's all I can figure.
Otherwise, all I can see is that housing will drop if rates do go up dramatically -- 7% plus... and we're nowhere near that and no evidence we're headed there.
Scratching my head...
m.a.n.i.p.u.l.a.t.i.o.n.
stay away from homebuilder etc stocks. too much funny stuff going on
Imbalance or abnormality is never so dangerous as when it is widely perceived or accepted as being normal.
The prices of houses are out of whack with what people earn. Just saw a 1929 crash program on PBS and all today's housing bubble seemed to fit into the same box. 41cadillac.
The houses prices, ubnormal profits and failing "technical indicators" are just an indication that there is too much worthless money injected into the "system". Look for another asset bubble in the development - gold, metals,etc.
At the end we will be living in the million dollar houses while staying in line for a free cup of soup :-)
Alot of large funds are buying housing stocks. Bill Miller is putting the weight of Legg Mason into it. You don't want to be taking on that kind of money.
I am bearish on housing too, but something smells fishy with the HB stocks. Bad news is taken as good news because they claim the Fed will stop raising rates. Good news is taken as good news and the stocks still run up.
Housing stocks and housing lender stocks appear to trade day-to-day based almost exclusively on the latest interest rate noise.
So, some they thought they overheard some Fed governor whispering to his mistress "no more rate hikes", when really he said "no more late nights"
bond futures gyrate and the cross-market statistical arbitrage programs kick in and up go HB's and lenders.
the fundamental problem of course, is house valuation and business cycle risk.
Just like junk bonds. For a while they trade like Treasuries, i.e. on interest rates. Then the light goes on, and everybody piles out regardless of rates.
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RickJ
Great blog.
Regards,
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