Archive for the ‘Housing Market’ Category

“Worst of the housing recession is now behind us” declares one economist.  New home sales rose last month at the fastest clip in more than 8 years.  There is a good reason why home sales are increasing but there is another reason not to get too giddy over this economic data. 

First, prices are falling to the levels where people are motivated to buy and sellers are motivated to dump properties.  Second, the Government has made a sweet deal with the federal tax credits good until the end of this year.  There is a huge fly in the ointment.  Prices are continuing to fall. In addition, there is a tremendous number of homes for sale or supply on the market.  This supply will keep prices low.  People are only looking for bargains. Plus, banks have thousands of homes on their books that they have yet to send to auction. 

In order to say we have bottomed, there is one area that has to get better.  The foreclosure crisis has to start to bottom out.  Here was the latest from Realtytrac who keeps up with the foreclosure crisis.

“RealtyTrac® (realtytrac.com), the leading online marketplace for foreclosure properties, today released its Q2 2008 U.S. Foreclosure Market Report™, which shows foreclosure filings were reported on 739,714 U.S. properties during the second quarter, a nearly 14 percent increase from the previous quarter and a 121 percent increase from the second quarter of 2007. The report also shows that one in every 171 U.S. households received a foreclosure filing during the quarter.”

Let’s backtrack for a second and look at what created these foreclosures.  It all comes down to the adjustable rate mortgage.  Starting in 2007, adjustable rate mortgages starting coming due for 100,000’s of subprime homeowners, causing the beginning of the foreclosure crisis.  Those peaked in the first quarter of 2008.  Through 2008 and into 2009, those adjustable rate mortgages subsided. 

However, now all of the other types of adjustable rate mortgages will start coming due and this cycle will not peak until 2012.  It is a much bigger cycle.  To assume that the housing market has bottomed would be to assume that there will not be a problem with all of these ARM’s that will reset over the next 2 to 3 years.  It is a big assumption. 

This is pretty typical.  The minute the data starts to be positive, economists declare the worst is behind us.  I would describe right now as a period that is in between 2 crises.  Unfortunately, I think that the second wave of crisis might be worse than the first.  Round two involves more housing foreclosure and the upcoming crisis in commercial properties.

Follow up from Last Week

I wrote about the similarity between the first major stock market rebound in 1929 and today.  If you have not read last week’s post, go back and read it so this makes sense.  We are now tracking almost identically in time (146 days) and gain (46% rise).  It will be interesting to see what happens from here.

Read Full Post »